CK Asset Holdings Limited - Proxy Solicitation & Information Statement 2018

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in CK Asset Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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CK ASSET HOLDINGS LIMITED 長江實業集團有限公司

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 1113)

CONNECTED TRANSACTION AND MAJOR TRANSACTION

PROPOSED ACQUISITION BY BIDCO BY WAY OF THE TRUST SCHEMES OF ALL OF THE STAPLED SECURITIES IN ISSUE OF APA WHICH ARE LISTED ON THE AUSTRALIAN SECURITIES EXCHANGE AND FORMATION OF JOINT VENTURE

Independent Financial Adviser to the Independent Board Committee and Independent Shareholders

A letter from the Board is set out on pages 11 to 44 of this circular. A letter from the Independent Board Committee containing its advice and recommendation to the Independent Shareholders in respect of the Joint Venture Transaction is set out on pages 45 to 46 of this circular. A letter from the Independent Financial Adviser containing its advice and recommendation to the Independent Board Committee and Independent Shareholders in respect of the Joint Venture Transaction is set out on pages 47 to 78 of this circular.

A notice convening the EGM to be held at the Grand Ballroom, 1st Floor, Harbour Grand Hong Kong, 23 Oil Street, North Point, Hong Kong on Tuesday, 30 October 2018 at 10:15 a.m. (or, in the event that a black rainstorm warning signal or tropical cyclone warning signal no. 8 or above is in force in Hong Kong at 8:00 a.m. on that day, at the same time and place on Wednesday, 31 October 2018) is set out on pages N-1 to N-3 of this circular. A form of proxy for use at the EGM is also enclosed. Whether or not you are able to attend the EGM or any adjournment thereof in person, you are requested to complete, sign and return the accompanying form of proxy in accordance with the instructions printed thereon and deposit it to the Company’s principal place of business in Hong Kong at 7th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong as soon as practicable and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or at any adjournment thereof if you so wish.

In the case of inconsistency between the Chinese version and the English version of this circular, the English version will prevail.

10 October 2018

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
1. Introduction	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
2. Acquisition	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
3. Joint Venture Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		26
4. Information	on the Target Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
5. Information	on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
6. Information	on the CKI Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
7. Information	on the PAH Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
8. Reasons for,	and benefits of, the Acquisition and Joint Venture Transaction . . . .	34
9. Financial effects of the Acquisition on the Group . . . . . . . . . . . . . . . . . . . . . . . .		36
10. Implications	under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
11. Waiver from	strict compliance with the Listing Rules . . . . . . . . . . . . . . . . . . . . .	38
12. EGM and voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		41
13. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		42
14. Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		44
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . .	45
LETTER FROM	THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . .	47
APPENDIX I	– FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . .	I-1
APPENDIX II	– FINANCIAL INFORMATION OF THE TARGET GROUP . .	II-1
APPENDIX III	– UNAUDITED PRO FORMA FINANCIAL INFORMATION
	OF THE ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV	– GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
NOTICE OF EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . .		N-1

– i –

DEFINITIONS

In this circular, the following expressions have the following meanings unless the context otherwise requires:

“30 June 2018 Distribution” has the meaning given to it in the section headed “ 2. Acquisition – 2.2 Implementation of the Trust Schemes ” in the Letter from the Board
“ACCC” the Australian Competition and Consumer Commission “Acquisition” the proposed acquisition by Bidco of all of the Target Securities in issue from the Target Securityholders by way of the Trust Schemes to be carried out concurrently with one another
“Announcement” the joint announcement of the Company, CKI, PAH and CKHH dated 13 August 2018 in relation to the Acquisition and the Joint Venture Transaction
“Approval Determination Date” the date on which the relevant meetings of shareholders are held to consider the JV Transaction Shareholders’ Approvals
“APT” Australian Pipeline Trust, a unit trust formed under the laws of Australia and a registered managed investment scheme
“APTIT” APT Investment Trust, a unit trust formed under the laws of Australia and a registered managed investment scheme
“ASIC” the Australian Securities and Investments Commission

“Asset/Business” has the meaning given to it in paragraph 2.3.10(vii) in the section headed “ 2. Acquisition – 2.3 Conditions to the Trust Schemes ” in the Letter from the Board “associate” has the meaning ascribed to such term in the Listing Rules “ASX” ASX Limited or the market operated by it, as the context requires “AUD” Australian dollars, the official currency of Australia “Bidco” CKM Australia Bidco Pty Ltd, an indirect wholly-owned subsidiary of JV Co and a company incorporated under the laws of Australia with limited liability

– 1 –

DEFINITIONS

“Board” the board of Directors “business day(s)” a day other than a Saturday, Sunday, public holiday or bank holiday in Hong Kong, Sydney, Australia and London, United Kingdom and on which the Stock Exchange and the ASX are open for business of dealing in securities

“CKHH” CK Hutchison Holdings Limited, a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 1)
“CKI” CK Infrastructure Holdings Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 1038)
“CKI Group” CKI and its subsidiaries
“CKI Holdco” CKI Gas Infrastructure Limited, an indirect wholly-owned subsidiary of CKI which is incorporated under the laws of England and Wales
“Company” CK Asset Holdings Limited, a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 1113)
“Company Holdco”
CKA Holdings UK Limited, an indirect wholly-owned subsidiary of the Company which is incorporated under the laws of England and Wales
“Company Transaction Shareholders’ Approval”
if the Joint Venture Transaction does not proceed, the approval by the Shareholders as required under the Listing Rules for approving the Acquisition as a major transaction for the Company. For the avoidance of doubt, the resolution for the Company Transaction Shareholders’ Approval is resolution 1 of the Notice of EGM
“connected person” has the meaning ascribed to such term in the Listing Rules
“Consortium”
the Company, CKI and PAH (until such time as any of them becomes a Non-Continuing Member), and “ Consortium Member(s)” shall be construed accordingly

– 2 –

DEFINITIONS

“Consortium Formation the consortium formation agreement dated Agreement” 12 August 2018 which was entered into between, among others, the Consortium Members, the Consortium Holdcos, the Consortium Midcos, JV Co and Bidco with respect to the direct or indirect subscription for equity interest in JV Co and funding for the Acquisition
“Consortium Holdcos”
the Company Holdco, CKI Holdco and PAH Holdco and “ Consortium Holdco ” shall be construed accordingly
“Consortium Midcos” a number of private limited liability companies incorporated under the laws of England and Wales each holding a certain percentage of the equity interest in JV Co and which, together, hold 100% of the equity interest in JV Co and “ Consortium Midco ” shall be construed accordingly
“Corporations Act”
the Australian Corporations Act 2001 (Cth), as modified by any applicable ASIC relief
“Court”
the Supreme Court of the New South Wales or such other court of competent jurisdiction under the Corporations Act as Bidco and Target RE may agree
“Deloitte Australia”
has the meaning given to it in the section headed “ 11. Waiver from strict compliance with the Listing Rules ” in the Letter from the Board
“Deloitte Hong Kong”
has the meaning given to it in the section headed “ 11. Waiver from strict compliance with the Listing Rules ” of the Letter from the Board
“Director(s)” the director(s) of the Company
“DT1”
The Li Ka-Shing Unity Discretionary Trust, of which Mr. Li Ka-shing is the settlor and, among others, Mr. Li Tzar Kuoi, Victor is a discretionary beneficiary, and the trustee of which is TDT1
“DT2”

a discretionary trust of which Mr. Li Ka-shing is the settlor and, among others, Mr. Li Tzar Kuoi, Victor is a discretionary beneficiary, and the trustee of which is TDT2

– 3 –

DEFINITIONS

“DT3” a discretionary trust of which Mr. Li Ka-shing is the settlor and, among others, Mr. Li Tzar Kuoi, Victor is a discretionary beneficiary, and the trustee of which is TDT3
“DT4” a discretionary trust of which Mr. Li Ka-shing is the settlor and, among others, Mr. Li Tzar Kuoi, Victor is a discretionary beneficiary, and the trustee of which is TDT4
“DUET Assets” the energy utility assets in Australia, the United States, the United Kingdom and Europe, consisting of four separate legal entities, being DUET Company Limited, DUET Finance Limited, DUET Investment Holdings Limited and DUET Finance Trust, which together were acquired by the Consortium in a transaction announced by the Company, CKI, PAH and CKHH in an announcement dated 16 January 2017
“EC Approval” the European Commission taking a decision (or deemed to have taken a decision) under Article 6(1)(b) of the EU Merger Regulation declaring the Joint Venture Transaction and the Acquisition (or part thereof) compatible with the common market
“EGM” the extraordinary general meeting of the Company to be held on Tuesday, 30 October 2018 at 10:15 a.m. at the Grand Ballroom, 1st Floor, Harbour Grand Hong Kong, 23 Oil Street, North Point, Hong Kong for the purposes of considering and, if thought fit, passing ordinary resolutions to approve the Acquisition and the Joint Venture Transaction, being the resolutions for the Company Transaction Shareholders’ Approval and the JV Transaction Shareholders’ Approvals in respect of the Company respectively

“End Date”

31 March 2019, or such other date as is agreed by Bidco and Target RE
“Enlarged Group” the Group as enlarged by the Acquisition
“Explanatory Memorandum”
the information booklet to be despatched to Target Securityholders which must include a notice of meeting and proxy form for the proposed resolutions to be put to the Target Securityholders as detailed in paragraph 2.3.5 of the section headed “ 2. Acquisition – 2.3 Conditions to the Trust Schemes ” in the Letter from the Board

– 4 –

DEFINITIONS

“FIRB”

the Australian Foreign Investment Review Board

“FIRB Act” the Foreign Acquisitions and Takeovers Act 1975 (Cth) “Funding Date” three business days prior to the implementation date of the Trust Schemes or such other date agreed by the parties to the Consortium Formation Agreement provided that such date is at least two business days before the implementation date of the Trust Schemes

“Group” the Company and its subsidiaries

“HK$” Hong Kong dollars, the lawful currency of Hong Kong “Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China

“IFRS” the International Financial Reporting Standards
“Implementation Agreement” the implementation agreement dated 12 August 2018 and entered into by the Company, Bidco, the Target, CKI and PAH in respect of the Trust Schemes
“Independent Board the independent board committee of the Board Committee” established to advise the Independent Shareholders on the Joint Venture Transaction, comprising Mr. Chow Nin Mow, Albert, Ms. Hung Siu-lin, Katherine and Mr. Donald Jeffrey Roberts, being independent non-executive Directors
“Independent Expert”
the independent expert appointed by Target RE pursuant to the Implementation Agreement
“Independent Financial Adviser” or “Anglo Chinese”
Anglo Chinese Corporate Finance, Limited, a corporation licensed to carry on type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance), and type 9 (asset management) regulated activities under the SFO, and which is the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Joint Venture Transaction

“Independent Shareholders”

Shareholders other than those who have a material interest in the Joint Venture Transaction

“Joint Venture Transaction”
the arrangements contemplated under the Consortium Formation Agreement and the Shareholders’ Agreement to form the Consortium and to effect the Acquisition

– 5 –

DEFINITIONS

“JV Co”

CKM UK Holdings Limited, a private limited liability company, which is incorporated under the laws of England and Wales, and an indirect holding company of Bidco

“JV Transaction Shareholders’ Approvals”
(a) the approval by the shareholders (excluding any shareholders with a material interest in the Joint Venture Transaction) of each of the Company, CKI and PAH as required under the Listing Rules for approving the Joint Venture Transaction as a connected transaction for each of them, and (b) the approval by the Independent Shareholders of the Company as required under the Listing Rules for approving the Joint Venture Transaction and the Acquisition by Bidco (as an entity which shares are held as to 60% or 80% by the Company) as major transactions for the Company, in each case by the Approval Determination Date, and each a “ JV Transaction Shareholders’ Approval ”. For the avoidance of doubt, the resolution for the JV Transaction Shareholders’ Approvals in respect of the Company is resolution 2 of the Notice of EGM
“Latest Practicable Date”
3 October 2018, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular
“Letter from the Board”

the letter from the Board contained in this circular

“Letter from the Independent the letter from the Independent Board Committee Board Committee” contained in this circular
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange (as amended, supplemented or otherwise modified from time to time)
“Longstop Date”
12 February 2020, being the date falling 18 months after the date of the Consortium Formation Agreement
“Main Board” the Main Board of the Stock Exchange
“Maximum Financial in relation to a Consortium Member and its Commitment” subsidiaries, the maximum financial commitment of such Consortium Member and its subsidiaries under the Joint Venture Transaction, based on the Scheme Consideration and the transaction costs

– 6 –

DEFINITIONS

“Non-Continuing Member(s)” means: (a) CKI, if one or both of the JV Transaction Shareholders’ Approvals in respect of the Company and CKI is/are not obtained on the Approval Determination Date; and/or
(b) PAH, if one or both of the JV Transaction Shareholders’ Approvals in respect of the Company and PAH is/are not obtained on the Approval Determination Date
“Notice of EGM” the notice convening the EGM, as set out on pages N-1 to N-3 of this circular
“PAH” Power Assets Holdings Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 6)
“PAH Group” PAH and its subsidiaries “PAH Holdco” PAH Gas Infrastructure Limited, an indirect wholly-owned subsidiary of PAH which is incorporated under the laws of England and Wales
“percentage ratios” have the meaning ascribed to such term in Chapter 14 of the Listing Rules
“Respective Proportion(s)” means: (a) in relation to the Company, 60%; (b) in relation to CKI, 20%; and (c) in relation to PAH, 20%
“Respective Proportions a letter agreement dated 5 October 2018 between the Determination Side Letter” Company, CKI and PAH, together with the other parties of the Consortium Formation Agreement, pursuant to which the Respective Proportions and the Revised Respective Proportions have, among other things, been determined and agreed

– 7 –

DEFINITIONS

“Revised Respective Proportion(s)”

means:

(a) in the event that PAH becomes a Non-Continuing Member:
(i) in relation to the Company, 80%; and
(ii) in relation to CKI, 20%; and
(b) in the event that CKI becomes a Non-Continuing Member:
(i) in relation to the Company, 80%; and
(ii) in relation to PAH, 20%

“Sale Shares”

have the meaning given to it in paragraph 3.2.6 in the section headed “ 3. Joint Venture Transaction – 3.2 The Shareholders’ Agreement ” in the Letter from the Board

“Scheme Consideration”

the consideration payable by Bidco for the transfer to Bidco of the Target Securities held by a Target Securityholder in accordance with the Implementation Agreement, which is AUD11.00 (equivalent to approximately HK$63.80) per Target Security
“Second Judicial Advice”
has the meaning given to it in paragraph 2.3.6 in the section headed “ 2. Acquisition – 2.3 Conditions to the Trust Schemes ” in the Letter from the Board
“SFO”
the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong (as amended, supplemented or otherwise modified from time to time)
“Shareholder(s)” the holders of Shares
“Shareholders’ Agreement”
the shareholders’ agreement to be entered into between the Company, the other Consortium Members, the Consortium Midcos and JV Co to govern the shareholder relationship in JV Co as well as the downstream businesses of the Target
“Shares”

ordinary shares in the capital of the Company with a nominal value of HK$1.00 each

“Special Distribution”

has the meaning given to it in the section headed “ 2. Acquisition – 2.2 Implementation of the Trust Schemes ” in the Letter from the Board

– 8 –

DEFINITIONS

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Supplemental Financial has the meaning given to it in the section headed Information” “ 11. Waiver from Strict Compliance with the Listing Rules ” in the Letter from the Board
“Target” the ASX-listed stapled entity known as APA which comprises APT and APTIT, and a reference to “ Target ” is to any one or more of APT or APTIT (as the context requires)
“Target FY 2018 report” has the meaning given to it in the section headed “ 11. Waiver from Strict Compliance with the Listing Rules ” in the Letter from the Board
“Target Group”
the Target and its subsidiaries and controlled entities
“Target Joint Venture Entity” any entity in which a member (or members, in aggregate) of the Target Group has an ownership interest of less than 100%
“Target RE” Australian Pipeline Limited, a public company incorporated under the laws of Australia, whose registered office is at Level 25, 580 George Street, Sydney NSW 2000, Australia, in its capacity as the responsible entity of APT and APTIT
“Target Scheme Meeting(s)” the meeting or meetings of the unitholders of APT and APTIT to consider the Trust Schemes
“Target Securities” the stapled securities of the Target, each comprising one unit in APT and one unit in APTIT, which are quoted on the ASX (ASX Code: APA)
“Target Securityholders”
each person registered as the holder of Target Securities
“TDT1”
Li Ka-Shing Unity Trustee Corporation Limited, a company incorporated in the Cayman Islands, which is the trustee of DT1
“TDT2” Li Ka-Shing Unity Trustcorp Limited, a company incorporated in the Cayman Islands, which is the trustee of DT2
“TDT3”
Li Ka-Shing Castle Trustee Corporation Limited, a company incorporated in the Cayman Islands, which is the trustee of DT3

– 9 –

DEFINITIONS

“TDT4” Li Ka-Shing Castle Trustcorp Limited, a company incorporated in the Cayman Islands, which is the trustee of DT4

“Trust” DT1, DT2, DT3, DT4, UT1 and UT3, and where the context requires, any of them
“Trustee Shares”

“Trust Schemes”

1,028,753,254 Shares in the Company held by the trustees of the Trust and/or their relevant subsidiaries as at the date of the Implementation Agreement, representing approximately 27.82% of the issued share capital and voting rights in the Company as at that date the arrangement, to be implemented in accordance with Australian Takeovers Panel Guidance Note 15 (Trust Scheme Mergers), ASIC Regulatory Guide 74 and facilitated by amendments to the constitutions of APT and APTIT, under which Bidco will acquire all of the Target Securities from Target Securityholders

“UK Gas Group”

a body with members comprising companies involved in gas investments globally (currently in Australia and the United Kingdom) to provide a discussion forum among its members

“UK Gas ExCo”

the executive committee of the UK Gas Group
“UT1” The Li Ka-Shing Unity Trust
“UT3” The Li Ka-Shing Castle Trust
“Voting Undertaking” has the meaning given to it in paragraph 2.7(ii) in the section headed “ 2. Acquisition” in the Letter from the Board

“%”

per cent

Note: The figures in “AUD” are converted into HK$ at a rate of AUD1.00 : HK$5.80 (being the exchange rate used in the Announcement) throughout this circular for indicative purposes only, and should not be construed as a representation that any amount has been, could have been or may be, exchanged at this or any other rate.

– 10 –

LETTER FROM THE BOARD

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CK ASSET HOLDINGS LIMITED 長江實業集團有限公司

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 1113)

Registered Office: PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands Principal Place of Business: 7th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong

Board of Directors

Executive Directors LI Tzar Kuoi, Victor Chairman and Managing Director KAM Hing Lam Deputy Managing Director IP Tak Chuen, Edmond Deputy Managing Director CHUNG Sun Keung, Davy CHIU Kwok Hung, Justin CHOW Wai Kam PAU Yee Wan, Ezra WOO Chia Ching, Grace

Independent Non-executive Directors CHEONG Ying Chew, Henry CHOW Nin Mow, Albert HUNG Siu-lin, Katherine Colin Stevens RUSSEL Donald Jeffrey ROBERTS

Company Secretary

Eirene YEUNG

10 October 2018

Dear Shareholder(s),

CONNECTED TRANSACTION AND MAJOR TRANSACTION

PROPOSED ACQUISITION BY BIDCO BY WAY OF THE TRUST SCHEMES OF ALL OF THE STAPLED SECURITIES IN ISSUE OF APA WHICH ARE LISTED ON THE AUSTRALIAN SECURITIES EXCHANGE AND FORMATION OF JOINT VENTURE

1. INTRODUCTION

Reference is made to the Announcement of the Company, CKI, PAH and CKHH on 13 August 2018 in relation to the Acquisition and the Joint Venture Transaction.

As stated in the Announcement:

(i) on 12 August 2018, a consortium comprising the Company, CKI and PAH entered into the Implementation Agreement with Bidco and the Target to implement the Acquisition; and

– 11 –

LETTER FROM THE BOARD

(ii) in connection with the Acquisition, the Company, CKI and PAH (being the Consortium Members) have also entered into the Consortium Formation Agreement on 12 August 2018 pursuant to which, subject to the fulfilment of certain conditions, the relevant Consortium Members will enter into the Joint Venture Transaction to, among other things, form the Consortium, enter into the Shareholders’ Agreement and indirectly fund the Acquisition by Bidco according to the Respective Proportions or the Revised Respective Proportions (as the case may be).

On 5 October 2018, the Company, CKI and PAH entered into the Respective Proportions Determination Side Letter and determined and agreed the final percentages making up the Respective Proportions and the Revised Respective Proportions as follows:

(i) if all three of the Company, CKI and PAH will participate in the Joint Venture Transaction, the Respective Proportions of the Company, CKI and PAH should be respectively 60%, 20% and 20%; and
(ii) if the Company and only one of CKI or PAH will participate in the Joint Venture Transaction, the Revised Respective Proportions of the Company and CKI or PAH should be respectively 80% and 20%.

The purpose of this circular is to:

(i) provide you with further information regarding details of the Acquisition and the Joint Venture Transaction;
(ii) set out the recommendation of the Independent Board Committee to the Independent Shareholders in relation to the Joint Venture Transaction;
(iii) set out the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Joint Venture Transaction;
(iv) give Shareholders the Notice of the EGM at which the Company Transaction Shareholders’ Approval and the JV Transaction Shareholders’ Approvals in respect of the Company will be sought; and

– 12 –

LETTER FROM THE BOARD

(v) provide Shareholders with other information required under the Listing Rules in connection with the Acquisition and the Joint Venture Transaction, including but not limited to audited financial information on the Target Group for the financial years ended 30 June 2016, 2017 and 2018 and certain pro forma financial information of the Enlarged Group.

2. ACQUISITION

On 12 August 2018, the Company, the other Consortium Members, Bidco and the Target entered into the Implementation Agreement in connection with the Acquisition. The Acquisition and the Implementation Agreement are not conditional on the completion of the Joint Venture Transaction but are conditional upon obtaining the Company Transaction Shareholders’ Approval and the fulfilment of certain other conditions as set out in the Implementation Agreement.

If the conditions to the Joint Venture Transaction are not fulfilled and the Joint Venture Transaction does not proceed:

(i) the Consortium will not be formed and Bidco will remain wholly-owned by the Company;
(ii) CKI’s and PAH’s participation in the Acquisition, including to provide guarantees in respect of the relevant obligations of Bidco under the Implementation Agreement as set out in section 2.4 below, will lapse;
(iii) subject to the Company obtaining the Company Transaction Shareholders’ Approval and the Trust Schemes becoming effective, the Company will proceed with the Acquisition on the terms and conditions of the Implementation Agreement alone;
(iv) the guarantee in respect of the relevant obligations of Bidco under the Implementation Agreement as set out in section 2.4 below will be provided solely by the Company (namely, as to 100%);
(v) the Scheme Consideration and transaction costs and estimated stamp duty payable by the Company under the Implementation Agreement will be up to AUD13,166 million (equivalent to approximately HK$76,363 million); and
(vi) the Company intends to finance the Scheme Consideration and transaction costs under the Implementation Agreement from its internal resources and/or external borrowings.

The principal terms of the Implementation Agreement are as follows:

– 13 –

LETTER FROM THE BOARD

2.1 The outline of the Trust Schemes

Subject to the Trust Schemes becoming effective in accordance with their respective terms, the general effect of the Trust Schemes will be as follows:

(i) all of the Target Securities will be transferred to Bidco in accordance with the terms of the Trust Schemes; and
(ii) in consideration for the transfer to Bidco of all of the Target Securities, the Target Securityholders will receive the Scheme Consideration in accordance with the terms of the Trust Schemes.

2.2 Implementation of the Trust Schemes

Target RE agrees to take all reasonable steps to implement the Trust Schemes. Bidco and the Consortium Members agree to take all reasonable steps to assist Target RE in the implementation of the Trust Schemes and, if the Trust Schemes become effective, to pay the Scheme Consideration. The implementation of the Trust Schemes is subject to certain conditions as described in section 2.3 below.

Based on the Scheme Consideration of AUD11.00 (equivalent to approximately HK$63.80) per Target Security held by a Target Securityholder and the total number of Target Securities in issue as at the Latest Practicable Date, being 1,179,893,848 Target Securities, the Scheme Consideration for all the Target Securities would be approximately AUD12,979 million (equivalent to approximately HK$75,278 million). The Scheme Consideration was determined based on the Consortium’s valuation of the Target’s businesses.

Pursuant to an announcement by the Target on 22 August 2018, Target RE shall pay to the Target Securityholders a cash distribution equal to AUD0.24 (equivalent to approximately HK$1.39) per Target Security for the six months ended 30 June 2018 (the “ 30 June 2018 Distribution ”), and no adjustment will be made to the Scheme Consideration payable by Bidco as a result of the 30 June 2018 Distribution.

If the Trust Schemes are implemented after 31 December 2018, Target RE may pay to the Target Securityholders a cash distribution of up to AUD0.04 (equivalent to approximately HK$0.23) per Target Security for each full calendar month between 31 December 2018 up to, and including, the date the Trust Schemes are implemented (except that in respect of March 2019, if the Trust Schemes are implemented on or after 29 March 2019, AUD0.04 (equivalent to approximately HK$0.23) per Target Security shall be payable for March 2019) (the “ Special Distribution ”). No adjustment will be made to the Scheme Consideration payable by Bidco as a result of the Special Distribution.

The implementation of the Trust Schemes will be subject to the terms of the Implementation Agreement and other customary conditions contained therein.

– 14 –

LETTER FROM THE BOARD

2.3 Conditions to the Trust Schemes

Each of the Trust Schemes are inter-conditional and shall be implemented at the same time. In order for the Trust Schemes to become effective, the following conditions precedent must be satisfied:

2.3.1 either:

(i) the Treasurer of the Commonwealth of Australia (or his delegate) provides a written no objection notification under the FIRB Act to the Acquisition either without conditions or subject only to (a) tax-related conditions which are in the form, or substantially in the form, of those set out in Part A of Attachment A of FIRB Guidance Note 47 on ’Tax Conditions’ (in the form released on 24 November 2016) and (b) any conditions that Bidco reasonably considers to be acceptable; or
(ii) following notice of the Acquisition having been given by Bidco to the Treasurer of the Commonwealth of Australia under the FIRB Act, the Treasurer has ceased to become empowered to make any order under Part 3 of the FIRB Act because the applicable time limited on making orders and decisions under the FIRB Act has expired;
2.3.2 ASIC and ASX issue or provide any consents or approvals, or do any other acts, which Target RE and Bidco agree are reasonably necessary or desirable to implement the Trust Schemes, and those consents, approvals or other acts have not been withdrawn or revoked at that time, including:
(i) ASIC granting a modification of item 7 of section 611 of the Corporations Act allowing the Target Securityholders (other than those excluded from voting because they are associates of Bidco) to vote in favour of the implementation of the Trust Schemes at the Target Scheme Meeting;
(ii) Target RE obtaining relief from the requirement to provide a financial services guide in connection with the Explanatory Memorandum;
(iii) ASIC granting relief from prohibitions on making unsolicited offers to acquire Target Securities under the Acquisition under the Corporations Act; and
(iv) ASX confirming that it does not object to the proposed amendments to the constitutions of APT and APTIT to be made in connection with the implementation of the Trust Schemes;

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2.3.3 ACCC advises Bidco in writing that it does not intend to oppose the Acquisition or does not intend to oppose the Acquisition subject to undertakings, commitments or conditions that Bidco reasonably considers to be acceptable, and that advice has not been withdrawn or revoked;

2.3.4 the EC Approval is obtained;

2.3.5 the Target Securityholders approve the following resolutions by the requisite majorities at the Target Scheme Meeting in accordance with the Corporations Act:
(i) in respect of each of APT and APTIT, an ordinary resolution to approve the Acquisition for the purposes of item 7 of section 611 of the Corporations Act including the acquisition of a relevant interest in all the Target Securities by Bidco; and
(ii) conditional on the ordinary resolution referred to in sub-paragraph (i) above being duly approved, in respect of each of APT and APTIT, a special resolution for the purposes of section 601GC(1) of the Corporations Act to approve certain amendments to the constitutions of each of APT and APTIT which are required for the implementation of the Trust Schemes;
2.3.6 Target RE obtains confirmations from the Court under section 63 of the Trustee Act 1925 (NSW) confirming, among other things, that:
(i) Target RE would be justified in convening the Target Scheme Meeting; and
(ii) Target RE would be justified in proceeding to implement the Trust Schemes (the “ Second Judicial Advice ”);
2.3.7 the Company Transaction Shareholders’ Approval is obtained by the date that is seven days before the date of the Target Scheme Meeting;
2.3.8 no Court or regulatory authority has issued or taken steps to issue an order, temporary restraining order, preliminary or permanent injunction, decree or ruling or taken any action enjoining, restraining or otherwise prohibiting, materially restricting, making illegal or restraining the implementation of the Trust Schemes, or taken any material enforcement action or announced or commenced any investigation against or involving a member of the Target Group, Bidco or the Consortium Members or any of their subsidiaries, and no such order, decree, ruling, other action or refusal is in effect as at 8:00 a.m. (Sydney time) on the date on which the Second Judicial Advice is obtained;

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2.3.9 the Independent Expert provides the independent expert’s report to the Target, stating that in its opinion the Trust Schemes are fair and reasonable and in the best interests of Target Securityholders before the date on which the Explanatory Memorandum is provided to ASIC, and the Independent Expert does not change that opinion or withdraw its independent expert’s report prior to the Target Scheme Meeting;
2.3.10 none of the “Target Prescribed Events”, which are events (including those set out below) specifically set out in the Implementation Agreement, occurs between the date of the Implementation Agreement and 8:00 a.m. (Sydney time) on the date on which the Second Judicial Advice is obtained:
(i) Target RE converts all or any of the Target Securities into a larger or smaller number of securities, or a resolution is passed to do so;
(ii) any member of the Target Group reduces, or resolves to reduce, its capital in any way, or reclassifies, combines, splits or redeems or repurchases directly or indirectly any of its securities, other than to effect a distribution of cash from: (a) a wholly-owned subsidiary of Target to its immediate holding entity or entities within the Target Group; or (b) a Target Joint Venture Entity to its securityholders on a pro rata basis;
(iii) any member of the Target Group buys back or agrees to buy back any of its securities, other than for cash consideration payable by: (a) a wholly-owned subsidiary of Target to its immediate holding entity or entities within the Target Group; or (b) a Target Joint Venture Entity to its securityholders on a pro rata basis;
(iv) Target RE makes or declares, or announces an intention to make or declare, any distribution in respect of Target Securities (whether by way of dividend, capital reduction or otherwise, and whether in cash or in specie), other than the 30 June 2018 Distribution and any Special Distribution;
(v) any member of the Target Group issues or agrees to issue units, equity securities, options over its units or equity securities, or instruments convertible into its units or equity securities, or issues or agrees to issue any other form of equity instrument, other than: (a) to an entity, all the issued shares or units of which are owned by one or more members of the Target Group, or (b) where the issuing entity is a Target Joint Venture Entity, an issuance by the entity to its securityholders on a pro-rata basis (including where the members of the Target Group who directly own an interest in a Target Joint Venture Entity subscribes, on a pro rata basis, for any additional securities as a result of other members in the Target Joint Venture Entity not taking up their full entitlement), to fund the operation of the Target Joint Venture Entity in the ordinary course of its business;

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(vi) Target RE or the Target adopts a new constitution, makes any material change or repeals its respective constitution or a provision of it (other than pursuant to the amendments required for the implementation of the Trust Schemes);
(vii) any member of the Target Group acquires or disposes of, agrees to acquire or dispose of, or offers, proposes, announces a bid or tenders for, any asset, security, entity, business or undertaking (or similar business arrangement) (each an “ Asset/Business ”):
A. of any consideration or value, where the Asset/Business is, or involves assets or securities that are, located or issued outside of Australia; or
B. if sub-paragraph A above does not apply, the total consideration or value of which exceeds AUD50 million (equivalent to approximately HK$290 million) (either individually or, in the case of related businesses or classes of assets or a series of related transactions, collectively),

other than:

C. a lease, licence or acquisition of an Asset/Business (other than a security, entity, business or undertaking (or similar business arrangement)) in, or which is used in, the ordinary and usual course of business;
D. for a development or capital project which is one of the capital projects disclosed, or which is of a type consistent with the types or categories of capital projects disclosed, to Bidco prior to the date of the Implementation Agreement;
E. the acquisition or disposal of any financial Asset/Business (other than an entity, business or undertaking (or similar business arrangement)) or financial instrument located outside Australia or issued by an entity that is located outside Australia, in each case as part of the Target Group’s treasury management activities in the ordinary course and consistent with past practice;
F. the transfer of an Asset/Business (other than a security in a member of the Target Group) to or from a member of the Target Group (where no party to the transaction is a Target Joint Venture Entity); or

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G. the transfer of a security in a member of the Target Group to or from a member of the Target Group (where no party to the transaction is a Target Joint Venture Entity) that Bidco has given its prior written consent to (such consent not to be unreasonably withheld);
(viii) any member of the Target Group enters into, or materially varies or terminates, any contract that:
A. is not consistent with the Target Group’s past practice or would reasonably be expected to result in a credit rating downgrade by Moody’s Investor Services Limited or S&P Global Ratings of the Target Group;
B. generates, or is expected to generate, annual revenue for the Target Group in excess of AUD50 million (equivalent to approximately HK$290 million) individually, or in excess of AUD150 million (equivalent to approximately HK$870 million) when aggregated with all related contracts; or
C. generates, or is expected to generate, gross annual expenditure for the Target Group in excess of AUD20 million (equivalent to approximately HK$116 million) individually, or in excess of AUD100 million (equivalent to approximately HK$580 million) when aggregated with all related contracts,

other than in relation to capital projects which have been disclosed, or which are of a type consistent with the types or categories of capital projects which have been disclosed, to Bidco prior to the date of the Implementation Agreement;

(ix) any member of the Target Group enters into any commitments for capital expenditure on capital projects, other than commitments for capital expenditure on capital projects:
A. under a legally binding contract entered into by a member of the Target Group which has been disclosed to Bidco prior to the date of the Implementation Agreement; or
B. which have been disclosed, or which are of a type consistent with the types or categories of capital projects which have been disclosed, to Bidco prior to the date of the Implementation Agreement;

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(x) any member of the Target Group takes any action that is intended to result in any asset becoming subject to economic regulation by the Australian Energy Regulator, Economic Regulation Authority Western Australia or a similar body that is material to the Acquisition (taking into account the entirety of the operations of the Target Group);
(xi) a claim is brought against any member of the Target Group (other than a frivolous or vexatious claim) which will or is likely to have an adverse effect on the Target in excess of AUD50 million (equivalent to approximately HK$290 million) (excluding any amount recoverable, or reasonably considered to be recoverable, under a contract of insurance to which a member of the Target Group is a party) or if any member of the Target Group becomes the subject of regulatory prosecution that will or is likely to have an adverse effect on the Target in excess of AUD50 million (equivalent to approximately HK$290 million) (excluding any amount recoverable, or reasonably considered to be recoverable, under a contract of insurance to which a member of the Target Group is a party) (either individually or in the case of related claims or a series of related claims, collectively); or
(xii) the Target is delisted from ASX or the quotation on ASX of Target Securities is subject to suspension or cessation for five or more business days other than due to, or as a result of, an action taken by Bidco or a Consortium Member or at the request of the Target or Target RE arising from the need to provide information to ASX in connection with acquisition proposals relating to the Target or its material assets,

provided that a “Target Prescribed Event” will not occur (among other exceptions) where (a) the event is required or permitted by the Implementation Agreement, the Supplemental Deeds Poll or Deed Poll (as defined in the Implementation Agreement), the Acquisition or the transactions contemplated by any of them, (b) the event has been disclosed to Bidco prior to the date of the Implementation Agreement, (c) Target RE has first consulted with Bidco in relation to the event and Bidco or a Consortium Member has approved the proposed event or not objected to it within 5 business days of being so consulted, (d) the event is undertaken or implemented by, or occurs in relation to, a Target Joint Venture Entity, without being authorised or permitted by a member of the Target Group, or (e) a Target Joint Venture Entity enters into any financing arrangement, agreement or instrument in relation to the financing of a capital project which has been disclosed to the Bidco prior to the date of the Implementation Agreement; and

2.3.11 no “Target Material Adverse Change” occurs between the date of the Implementation Agreement and 8:00 a.m. (Sydney time) on the date on which the Second Judicial Advice is obtained, and “Target Material Adverse Change”, being an event, occurrence or matter that:

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(i) occurs after the date of Implementation Agreement;
(ii) occurs before the date of the Implementation Agreement but is only announced or publicly disclosed after the date of the Implementation Agreement; or
(iii) will or is likely to occur after the date of the Implementation Agreement and which has not been publicly announced prior to the date of the Implementation Agreement,

which has, has had or is reasonably likely to have, either individually or when aggregated with any event, occurrence or matters of a similar kind or category, the effect of (a) the consolidated net assets (but not including any diminution in intangible assets) of the Target Group, taken as a whole, being reduced by at least AUD500 million (equivalent to approximately HK$2,900 million) against what it would reasonably be expected to have been but for that event, occurrence or matter; or (b) the consolidated earnings before interest, tax, depreciation and amortisation (excluding the value of any asset value adjustments) of the Target Group being reduced by at least AUD150 million (equivalent to approximately HK$870 million) per financial year in any two or more financial years, but does not include:

A. any matter required or permitted by the Implementation Agreement, the Supplemental Deeds Poll or Deed Poll (as defined in the Implementation Agreement), the Acquisition or the transactions contemplated by any of them;
B. any matter disclosed to Bidco prior to the date of the Implementation Agreement (or which ought reasonably have been expected to arise from a matter, event or circumstance which was so disclosed);
C. any matter, event or circumstance which arises from:
(a) changes in commodity prices, exchange rates or interest rates;
(b) general economic, political or business conditions, including material adverse changes or major disruptions to, or fluctuations in, domestic or international financial markets, and acts of terrorism, war (whether or not declared), natural disaster or the like;
(c) changes to accounting standards, laws or policies of a government agency in Australia; or

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(d) any law not in force as at the date of the Implementation Agreement or the application, or any change in the application or interpretation, by any regulatory authority of any law, requirement, obligation, principle, standard, policy, rule, regulation or administrative practice in respect of which any member of the Target Group is required to comply or which otherwise has any direct or indirect impact on a member of the Target Group,

but excludes any matter, event or circumstances which has a disproportionate effect on the Target Group, taken as a whole, as compared to other participants in the industries in which the Target Group operates; or

D. any change occurring with the written consent of Bidco or any Consortium Member, or as a result of any action taken within the control of Bidco or any Consortium Member.

Pursuant to the Implementation Agreement, Bidco is required to use its reasonable endeavours to satisfy or procure satisfaction of the conditions set out in paragraphs 2.3.1, 2.3.3, 2.3.4 and 2.3.7 above, Target RE is required to use its reasonable endeavours to satisfy or procure satisfaction of the conditions set out in paragraphs 2.3.5, 2.3.6, 2.3.9, 2.3.10 and 2.3.11 above, and Bidco and Target RE are required to each use its respective reasonable endeavours to satisfy or procure the satisfaction of the conditions set out in paragraphs 2.3.2 and 2.3.8 above.

Bidco and Target RE may jointly waive any condition set out in paragraphs 2.3.2, 2.3.3, 2.3.6 and 2.3.8 above, Bidco may alone waive any condition set out in paragraphs 2.3.4, 2.3.7, 2.3.10 and 2.3.11 above, and Target RE may alone waive the condition set out in paragraph 2.3.9. The conditions set out in paragraphs 2.3.1 and 2.3.5 above may not be waived by either Bidco or Target RE.

The condition set out in paragraph 2.3.4 above will cease to apply and be automatically waived if the JV Transaction Shareholders’ Approvals in respect of the Joint Venture Transaction are not obtained or if such condition is not satisfied or waived on or before the date that is seven days before the date of the Target Scheme Meeting.

The condition set out in paragraph 2.3.7 above will cease to apply and be automatically waived if the JV Transaction Shareholders’ Approvals in respect of the Joint Venture Transaction and EC Approval are obtained.

As at the Latest Practicable Date, the condition set out in paragraph 2.3.3 above has been satisfied, and the other conditions are yet to be satisfied.

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In connection with the condition set out in paragraph 2.3.3 above, ACCC announced on 12 September 2018 that it will not oppose the Acquisition subject to binding undertakings given by Bidco and the Consortium Members to dispose of certain assets of the Target Group following completion of the Trust Schemes, namely the Parmelia Gas Pipeline, the Goldfields Gas Pipeline, the Kalgoorlie to Kambalda Pipeline and the Mondarra gas storage facility (the “ Disposals ”).

The Company and the other Consortium Members were aware of potential concerns which may be raised by the ACCC, particularly over the potential overlapping gas transmission and storage services in Western Australia. It was therefore anticipated that the Disposals may be required, and the Company and the other Consortium Members took into account the potential Disposals when determining their valuation of the Target Group’s businesses and agreeing the Scheme Consideration at the time of execution of the Implementation Agreement. As the Disposals would be carried out with independent third parties on arms’ length terms, thereby achieving market value for the Disposal assets, the Company and the Consortium Members had expected that the Disposals would have a neutral effect on the Scheme Consideration. As at the Latest Practicable Date, the Company and the other Consortium Members are not in any negotiations, nor have they reached any agreement, with any third parties regarding the Disposals.

The Disposal assets comprise gas transmission and storage services assets located within Western Australia. The Company and the Consortium Members understand from the Target Group that these assets have their own separate on-the-ground operations teams, and therefore the Disposals would not have any impact on the overall operations of the Target Group.

The Company will comply with the applicable requirements of the Listing Rules as and when the Disposals materialise.

Upon the Trust Schemes becoming effective, the Trust Schemes will be binding on all Target Securityholders, irrespective of whether they attended or voted at the Target Scheme Meeting (and if they attended and voted, whether or not they voted in favour).

2.4 Guarantee

Under the Implementation Agreement, each of the Consortium Members agrees to guarantee, on a several basis and in its Respective Proportion or Revised Respective Proportion (as applicable), the performance and observance by Bidco of all of the obligations of Bidco under the Implementation Agreement (including the payment of the Scheme Consideration and the reverse break fee as set out below). However, the obligations of CKI and PAH to provide the guarantees under the Implementation Agreement are conditional on the necessary JV Transaction Shareholders’ Approvals being obtained. If the necessary JV

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Transaction Shareholders’ Approvals are not obtained, Bidco shall remain an indirect wholly-owned subsidiary of the Company in which case the Company alone will provide the guarantee.

2.5 Exclusivity

Under the Implementation Agreement, Target RE has represented and warranted that, as at the date of that agreement, it is not in any negotiations or discussions in respect of any competing transaction. During the period from the date of the Implementation Agreement until the earlier of termination of the Implementation Agreement and the End Date, Target RE shall not (and shall procure its representatives shall not) directly or indirectly solicit, invite, encourage or initiate any competing transaction, or (subject to fiduciary duties or statutory obligations of the directors of Target RE) negotiate or enter into, or participate in, negotiations or discussions with any other person regarding a competing transaction.

2.6 Target break fee

Pursuant to the Implementation Agreement, Target RE has agreed to pay to Bidco a break fee of AUD130 million (equivalent to approximately HK$754 million) if:

(i) at least a majority of the directors of Target RE fail to recommend to the Target Securityholders that they vote in favour of the Trust Schemes or, having made such recommendation, withdraw their recommendation or adversely change their recommendation, provided that in each case Bidco has terminated the Implementation Agreement (except where (A) that failure is because the Independent Expert does not give an opinion that the Acquisition is fair and reasonable and in the best interests of the Target Securityholders (other than where the reason for that opinion is a competing transaction); (B) Target RE has validly terminated, or has the right to terminate, the Implementation Agreement due to Bidco being in material and unremedied breach of the Implementation Agreement; or (C) the conditions in section 2.3 above are not satisfied other than as a result of a breach by Target RE of its obligation to use reasonable endeavours to procure satisfaction of such conditions); or
(ii) a competing transaction is announced or made prior to the date on which the Second Judicial Advice is obtained and is completed within nine months of the Implementation Agreement being entered into.

In addition, Target RE has agreed to pay to Bidco a break fee of AUD50 million (equivalent to approximately HK$290 million) if Bidco validly terminates the Implementation Agreement due to Target RE being in material and unremedied breach of the Implementation Agreement.

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Upon payment by Target RE of the break fees, Target RE shall not have any further liabilities under the Implementation Agreement. The maximum aggregate liability of Target RE under or in connection with the Implementation Agreement is AUD50 million (equivalent to approximately HK$290 million) or, if an AUD130 million (equivalent to approximately HK$754 million) break fee is payable as described above, AUD130 million (equivalent to approximately HK$754 million).

2.7 Recommendations and undertaking with respect to the Company Transaction Shareholders’ Approval

Pursuant to the Implementation Agreement, the Company has agreed to procure that:

(i) the Board states in this circular that the Board unanimously recommends that Shareholders approve the resolution for the Company Transaction Shareholders’ Approval, and must not change that recommendation unless the Board determines that it must change the recommendation because of any fiduciary or statutory duties to Shareholders; and
(ii) within five business days after this circular has been despatched to Shareholders, the trustees of the Trust and/or their relevant subsidiaries who are registered holders of the Trustee Shares, provide to the Target an irrevocable and unconditional undertaking to vote the Trustee Shares in favour of the resolution for the Company Transaction Shareholders’ Approval (the “ Voting Undertaking ”).

Please refer to section 13.1 below for the Board’s recommendation.

2.8 Reverse break fee

Pursuant to the Implementation Agreement, Bidco has agreed to pay to the Target a reverse break fee of AUD50 million (equivalent to approximately HK$290 million) if:

(i) both of the following occur: (A) the Company has not procured the Voting Undertaking or the trustees of the Trust and/or their relevant subsidiaries who are registered holders of the Trustee Shares fail to vote the Trustee Shares in favour of the resolution for the Company Transaction Shareholders’ Approval in accordance with the Voting Undertaking; and (B) the EGM is held and the Company Transaction Shareholders’ Approval is not obtained; or
(ii) Target RE validly terminates the Implementation Agreement due to Bidco being in material and unremedied breach of the Implementation Agreement.

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Upon payment by Bidco of the reverse break fee, Bidco and the relevant Consortium Members shall not have any further liabilities under the Implementation Agreement. The maximum aggregate liability of Bidco and the Consortium Members under or in connection with the Implementation Agreement (other than the obligation to pay the Scheme Consideration if the Trust Schemes become effective) is AUD50 million (equivalent to approximately HK$290 million).

2.9 End Date

If the Trust Schemes do not become effective on or before the End Date and the parties do not agree an extension of the End Date, then either Target RE or Bidco has the right to terminate the Implementation Agreement.

2.10 Recommendation by and voting intentions of directors of Target RE

Pursuant to the Implementation Agreement, Target RE has agreed to procure that:

(i) the Target announcement that was released on the date of the Announcement, as well as the Explanatory Memorandum, states that the directors of Target RE unanimously consider the Trust Schemes to be in the best interests of Target Securityholders and recommend that Target Securityholders approve the Trust Schemes, subject to the Independent Expert concluding, and continuing to conclude, that the Trust Schemes are fair and reasonable and in the best interests of Target Securityholders and subject also to there being no superior proposal for the Target; and
(ii) Target RE shall use its best endeavours to ensure that no Target RE director changes such a recommendation, unless the provisos in paragraph (i) above applies or if the Target RE directors determine that they must change the recommendation because of any fiduciary or statutory duties to Target Securityholders.

3. JOINT VENTURE TRANSACTION

3.1 The Consortium Formation Agreement

In connection with the Acquisition, on 12 August 2018, the Company entered into the Consortium Formation Agreement with, among others, the other Consortium Members, JV Co, Consortium Midcos and Bidco in order to govern the formation of the Consortium, including the funding and operation of JV Co and Bidco for the purposes of the Acquisition. Formation of the Consortium is subject to obtaining the necessary JV Transaction Shareholders’ Approvals and the fulfilment of certain conditions.

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Subject to other conditions, including EC Approval, being fulfilled:

(i) the Company’s participation in the Joint Venture Transaction with CKI is subject to obtaining the JV Transaction Shareholders’ Approvals in respect of the Company and CKI;
(ii) the Company’s participation in the Joint Venture Transaction with PAH is subject to obtaining the JV Transaction Shareholders’ Approvals in respect of the Company and PAH; and
(iii) the Company’s participation in the Joint Venture Transaction with both CKI and PAH is subject to obtaining the JV Transaction Shareholders’ Approvals in respect of the Company, CKI and PAH.

Assuming satisfaction of the other conditions, including EC Approval:

(i) if the JV Transaction Shareholders’ Approvals in respect of the Company, CKI and PAH are all obtained, the Joint Venture Transaction will proceed between the Company, CKI and PAH as to 60%, 20% and 20% respectively;
(ii) if the JV Transaction Shareholders’ Approvals in respect of the Company and CKI are both obtained, but the JV Transaction Shareholders’ Approval in respect of PAH is not obtained, the Joint Venture Transaction will proceed between the Company and CKI as to 80% and 20% respectively; and
(iii) if the JV Transaction Shareholders’ Approvals in respect of the Company and PAH are both obtained, but the JV Transaction Shareholders’ Approval in respect of CKI is not obtained, the Joint Venture Transaction will proceed between the Company and PAH as to 80% and 20% respectively.

The principal terms of the Consortium Formation Agreement are as follows:

3.1.1 Participation of the Consortium Members – JV Transaction Shareholders’ Approvals and EC Approval

The EGM of the Company for obtaining the necessary JV Transaction Shareholders’ Approvals in respect of the Company will be held in advance of the Funding Date. The Company has been informed that the special general meeting of CKI and the general meeting of PAH for the purposes of obtaining the JV Transaction Shareholders’ Approvals in respect of CKI and PAH will also be held in advance of the Funding Date.

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If:

(i) the JV Transaction Shareholders’ Approvals in respect of the Company and CKI and the EC Approval are obtained, subject to the fulfilment of certain conditions, CKI, through its wholly-owned subsidiary CKI Holdco, will acquire the entire issued share capital in the relevant Consortium Midcos (so as to allow CKI to hold its final Respective Proportion of interests in JV Co) from the Company Holdco. Following such acquisition, such relevant Consortium Midcos will become wholly-owned subsidiaries of CKI Holdco; and
(ii) the JV Transaction Shareholders’ Approvals in respect of the Company and PAH and the EC Approval are obtained, subject to the fulfilment of certain conditions, PAH, through its wholly-owned subsidiary PAH Holdco, will acquire the entire issued share capital in the relevant Consortium Midcos (so as to allow PAH to hold its final Respective Proportion of interests in JV Co) from the Company Holdco. Following such acquisition, such relevant Consortium Midcos will become wholly-owned subsidiaries of PAH Holdco.

If the relevant Consortium Midcos become wholly-owned subsidiaries of CKI Holdco and PAH Holdco respectively, JV Co will be owned by the Company, CKI and PAH in the Respective Proportions or Revised Respective Proportions (as the case may be). In such case, the relevant Consortium Members, the Consortium Midcos and JV Co will enter into the Shareholders’ Agreement, the principal terms of which are summarised under the section headed “ 3. Joint Venture Transaction – 3.2 The Shareholders’ Agreement ” below.

Thereafter, if the conditions precedent to the Trust Schemes becoming effective (as set out in the section headed “ 2. Acquisition – 2.3 Conditions to the Trust Schemes ” above) are satisfied or waived, each relevant Consortium Holdco (directly or indirectly, including through its wholly-owned Consortium Midco(s)) will contribute its Respective Proportion (or Revised Respective Proportion, as appropriate) of funding to JV Co by subscribing for additional shares in JV Co and/or providing loans to JV Co and/or its wholly-owned subsidiary, which will in turn provide funding down to Bidco to satisfy the Scheme Consideration and the transaction costs.

Please refer to the section headed “ 2. Acquisition ” above for further details regarding the terms of the Acquisition.

Subject to the relevant JV Transaction Shareholders’ Approvals and the EC Approval being obtained, each of the relevant Consortium Members and Bidco agrees to use its best endeavours to procure that the Trust Schemes are implemented in accordance with the Implementation Agreement.

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3.1.2 Maximum Financial Commitment

If all JV Transaction Shareholders’ Approvals and EC Approval are obtained and the Consortium shall comprise the Company, CKI and PAH, the Maximum Financial Commitment of the Company will be up to approximately AUD7,900 million (equivalent to approximately HK$45,818 million), representing its Respective Proportion of the Scheme Consideration and the transaction costs under the Implementation Agreement. If, however, any necessary JV Transaction Shareholders’ Approval is not obtained such that the Consortium shall comprise the Company and only one of CKI or PAH, the Company is expected to assume the Respective Proportion of the Non-Continuing Member. As a result, the Maximum Financial Commitment of the Company will be increased by the Respective Proportion of the Non-Continuing Member.

The Company intends to finance its Respective Proportion (or Revised Respective Proportion, as applicable) of the Scheme Consideration and the transactions costs under the Implementation Agreement from its internal resources and/or external borrowings.

If the Consortium is formed pursuant to the Joint Venture Transaction:

(i) JV Co will be indirectly held by the relevant Consortium Members through the Consortium Midcos in the Respective Proportions (or Revised Respective Proportions, as applicable); and
(ii) (if either or both CKI and PAH are Consortium Members) the Target will be accounted for as a joint venture by the Company in its consolidated financial statements.

3.1.3 Termination

Among other things, the Consortium Formation Agreement will automatically terminate:

(i) on the Longstop Date;
(ii) if the JV Transaction Shareholders’ Approvals in respect of the Company, on the one hand, or the JV Transaction Shareholders’ Approvals in respect of both CKI and PAH, on the other hand, are not obtained on the Approval Determination Date;
(iii) if EC Approval with respect to the Joint Venture Transaction and/or the Acquisition is not obtained on or before the date that is seven days before the date of the Target Scheme Meetings; or
(iv) if the Implementation Agreement is terminated in accordance with its terms.

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If the necessary JV Transaction Shareholders’ Approvals and EC Approval are obtained, the Consortium Formation Agreement will also be terminated on the first business day following the indirect contribution of the relevant funding by each Consortium Midco to JV Co as described in paragraph 3.1.1 in this section above.

3.2 The Shareholders’ Agreement

Pursuant to the Consortium Formation Agreement, following the acquisition of the relevant Consortium Midcos by CKI Holdco and/or PAH Holdco (as applicable) in accordance with the terms and conditions set out therein, the relevant Consortium Members, the Consortium Midcos and JV Co will enter into the Shareholders’ Agreement. Under the terms of the Shareholders’ Agreement, the relevant Consortium Members will agree on certain ongoing rights and obligations governing their relationship as ultimate shareholders of JV Co and the management and operation of JV Co and the Target Group upon implementation of the Trust Schemes.

The principal terms of the Shareholders’ Agreement (as agreed under the Consortium Formation Agreement and the Respective Proportions Determination Side Letter) are as follows:

3.2.1 Board role and composition

The business of JV Co shall be managed by its board of directors, who may exercise all the powers of JV Co subject to the terms and provisions of the Shareholders’ Agreement, the articles of association or applicable laws. Each Consortium Holdco, through its relevant Consortium Midcos, shall have the right to procure the nomination of one director for appointment on the board of directors of JV Co in respect of each 10% of the shares in JV Co it indirectly owns.

3.2.2 Quorum

The quorum for the transaction of business at any board meeting of JV Co shall be at least one director indirectly nominated by each relevant Consortium Member (through its Consortium Midco, as shareholder of JV Co) (unless a relevant Consortium Member procures its Consortium Midco to waive the quorum requirement to the extent that it relates to its nominated director(s) or if that Consortium Member, through its Consortium Midco, has a conflict of interest), provided that if a quorum is not present (or ceases to be present) at a board meeting, the board meeting shall be adjourned.

3.2.3 Voting on board resolutions

Except for reserved matters, all board resolutions of JV Co are made by simple majority of directors present and entitled to vote on the resolution.

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A small number of board matters of JV Co require a special majority, being a resolution which is approved by directors who together hold greater than 85% of the total number of votes held by directors present and entitled to vote on the resolution. The matters subject to such special majority include, among other customary reserved matters:

(i) any change to the dividend and distribution policy;
(ii) the declaration, determination or payment of any dividend or distribution by JV Co and its wholly-owned subsidiaries other than in accordance with the dividend and distribution policy;
(iii) the acquisition of any assets or business which are not related to the operation of the business of JV Co and its wholly-owned subsidiaries where the assets or business to be acquired have a value in excess of 2% of the enterprise value of JV Co and its subsidiaries as determined by the board of directors of JV Co from time to time;
(iv) the adoption and/or amendment of an annual business plan;
(v) the appointment or removal of the chief executive officer or chief financial officer of the Target Group; and
(vi) JV Co and its wholly-owned subsidiaries borrowing money in excess of 3% (per annum in aggregate) of the enterprise value of JV Co and its subsidiaries as determined by the board of directors of JV Co from time to time.

3.2.4 Shareholder Reserved Matters

In addition, a number of fundamental corporate actions are expressly reserved as shareholder matters. These include, among other things, amendments to JV Co’s constitution and (save for certain exceptions) the allotment and issue of share or loan capital by JV Co. JV Co and its wholly-owned subsidiaries cannot take any of these actions unless the resolution is approved by shareholders of JV Co who together hold greater than a 85% of the total number of votes held by shareholders of JV Co present and entitled to vote on the resolution.

3.2.5 Dividend and distribution policy

Unless otherwise agreed as a shareholder reserved matter of JV Co, the dividend and distribution policy of JV Co and its wholly-owned subsidiaries shall be to maximize distributions subject to normal commercial considerations deemed appropriate by the relevant board of directors, including requirements for capital and operating expenditure, taxation and

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other liabilities and obligations and future potential acquisitions, and maintenance of the then existing rating of JV Co and its wholly-owned subsidiaries.

3.2.6 Pre-emption rights

Unless a Consortium Midco, as shareholder of JV Co, is transferring some or all of its equity interest in JV Co held by it or its direct or indirect subsidiaries to a member of its group as permitted under the Shareholders’ Agreement (the “ Sale Shares ”), such Consortium Midco must first offer these Sale Shares to the other shareholders of JV Co on a pro rata basis. If the Sale Shares are not fully taken up by the aforesaid shareholders of JV Co, the selling Consortium Midco will be entitled to sell all of (and not some of) the unsold Sale Shares within three months of completion of the pre-emption process.

4. INFORMATION ON THE TARGET GROUP

The Target is an owner and operator of energy infrastructure assets in Australia, including: energy infrastructure (comprising gas transmission, gas storage and processing, gas-fired and renewable energy power generation businesses located across Australia), asset management services for the majority of the Target’s energy investments and for third parties, and energy investments in unlisted entities. It consists of two separate entities, being APT and APTIT. The interests in these two entities (being the ordinary units in each of APT and APTIT) are traded together as stapled securities which are listed on the ASX (ASX Code: APA).

The principal assets currently owned and operated by the Target include:

(a) Wallumbilla Gladstone Pipeline, a gas transmission pipeline in Queensland, Australia;
(b) South West Queensland Pipeline, a gas transmission pipeline in Queensland, Australia;
(c) Moomba Sydney Pipeline, a gas transmission pipeline in New South Wales, Australia;
(d) Central West Pipeline, a gas transmission pipeline in New South Wales, Australia;
(e) Central Ranges Pipeline, a gas transmission pipeline in New South Wales, Australia
(f) Victorian Transmission System, a transmission system in Victoria, Australia;
(g) Dandenong LNG Storage Facility, a gas storage facility in Victoria, Australia;

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(h) Goldfields Gas Pipeline, a gas transmission pipeline in Western Australia, Australia; and
(i) Diamantina and Leichardt Power Stations, power stations in Queensland, Australia.

According to the audited consolidated financial statements of the Target Group for the financial years ended 30 June 2016, 30 June 2017 and 30 June 2018 prepared in accordance with Australian Accounting Standards, the Corporations Act and other authoritative pronouncements of the Australian Accounting Standards Board and which comply with the IFRS as issued by the International Accounting Standards Board, the audited consolidated profit before and after income tax of the Target Group for the financial years ended 30 June 2016, 30 June 2017 and 30 June 2018 are set out below:

			Year ended 30 June
		2016	2017	2018
Profit	before taxation	AUD302 million	AUD386 million	AUD430 million
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$1,752 million)	HK$2,239 million)	HK$2,494 million)
Profit	after taxation	AUD179 million	AUD237 million	AUD265 million
		(equivalent to	(equivalent to	(equivalent to
		approximately	approximately	approximately
		HK$1,038 million)	HK$1,375 million)	HK$1,537 million)

According to the audited consolidated financial statements of the Target Group for the financial year ended 30 June 2018 prepared in accordance with the Australian Accounting Standards, the Corporations Act and other authoritative pronouncements of the Australian Accounting Standards Board, the audited consolidated net asset value of the Target Group as at 30 June 2018 was approximately AUD4,127 million (equivalent to approximately HK$23,937 million).

The implied multiple of the Acquisition is 14.8x of FY2018 EV/EBITDA.

(Note: Enterprise Value (“EV”) is based on 1,179,893,848 APA stapled securities in issue and APA net debt as at 30 June 2018 of AUD9,550 million (equivalent to approximately HK$55,390 million) and APA FY2018 EBITDA of AUD1,518 million (equivalent to approximately HK$8,804 million).)

To the best of the knowledge, information and belief of the Directors, having made all reasonable enquiries, the Target and its ultimate beneficial owners are third parties independent of the Group and connected persons of the Group under the Listing Rules.

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5. INFORMATION ON THE GROUP

The Group is a leading multinational corporation and has diverse capabilities with activities encompassing property development and investment, hotel and serviced suite operation, property and project management, joint ventures in infrastructure and utility asset operation and aircraft leasing.

6. INFORMATION ON THE CKI GROUP

The principal activities of the CKI Group are development, investment and operation of infrastructure businesses in Hong Kong, Mainland China, the United Kingdom, Continental Europe, Australia, New Zealand and North America.

7. INFORMATION ON THE PAH GROUP

The principal activities of the PAH Group are investment in energy and utility-related businesses in the United Kingdom, Hong Kong, Australia, New Zealand, Mainland China, Thailand, the Netherlands, Portugal, Canada and the United States.

8. REASONS FOR, AND BENEFITS OF, THE ACQUISITION AND JOINT VENTURE TRANSACTION

The Consortium Members believe that the Target’s energy infrastructure assets in Australia represent an attractive opportunity for investors with the potential for growth opportunities. Among the Consortium Members, the Company is the only bidding party with the size and immediate resources to make an offer conditional only upon the conditions detailed in the section headed “ 2. Acquisition – 2.3 Conditions to the Trust Schemes ” above.

The Acquisition is consistent with Company’s global diversification strategy, is in accordance with the Group’s investment criteria to extend its reach to other business areas to increase stable recurrent income, and will further develop the Company’s intent to consolidate its holdings in and through the United Kingdom via the Company Holdco. In circumstances where the Company is extending its reach into other business areas globally, it would, where appropriate, collaborate with parties with a proven track record and expertise in the relevant area, in particular, as reputable managers who are able to grow the value of the business over time. The Company can collaborate most effectively with parties with which its management has a history of working together successfully in the past. The formation of the Consortium under the Joint Venture Transaction would allow the Company, CKI and PAH to continue to share the management and strategic expertise of the UK Gas ExCo in the management and operation of the Target Group. Therefore, the Joint Venture Transaction with CKI and PAH would be beneficial to the Company’s business and consistent with its strategy since CKI and PAH both have a strong track record in infrastructure investments of the kind that meet the Company’s investment criteria and also have historical ties with the Company.

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If the JV Transaction Shareholders’ Approvals are not obtained or certain other conditions are not fulfilled and the Joint Venture Transaction does not proceed, the Company will, through Bidco which will remain as its indirect wholly-owned subsidiary, proceed with the Acquisition to acquire 100% of the Target. In such case, the Target still represents a quality investment for the Group for the following reasons:

(a) the Target Group is a sizeable business, and will provide the Company with the opportunity to make a further investment in infrastructure and utility asset operation in Australia, which is consistent with the Company’s global diversification strategy;
(b) the Target Group provides stable revenue and cash flows which will help to compensate for the reduced contribution from property development, and is expected to generate long-term stable liquidity, provide income in the short to medium term, and strengthen further the Group’s dividend distribution capability;
(c) the Target Group’s energy infrastructure assets across Australia will represent a quality investment for the Group with potential for appropriate growth opportunities;
(d) the Company can leverage on the expertise of the Target’s existing management as well as through service agreements with the joint ventures with, and associates of, CKI and/or PAH and/or other professionals to support the management of the Target’s business; and
(e) the Company, through the Company Holdco and its interests in the DUET Assets in Australia, is already a participant in the UK Gas Group and a member of the UK Gas ExCo to facilitate its exposure to, and development of, industry expertise. The Company will continue to benefit from its participation in the UK Gas Group and membership of the UK Gas ExCo through the significant advantage of having access to the operational and management expertise in the gas sector to be found in other existing members of the UK Gas ExCo.

The Directors (including the independent non-executive Directors) are of the opinion that, whether or not the Joint Venture Transaction proceeds, the Acquisition is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Having considered the above reasons, the Directors (other than Mr. Chow Nin Mow, Albert, Ms. Hung Siu-lin, Katherine and Mr. Donald Jeffrey Roberts, being independent non-executive directors of the Company who are members of the Independent Board Committee established to make recommendations to the Independent Shareholders on the Joint Venture Transaction, and whose views are set out in the Letter from the Independent Board Committee, but including Mr. Cheong Ying Chew, Henry and Mr. Colin Stevens Russel, being the other independent non-executive Directors, each of whom has not been appointed as a member of the Independent Board Committee due to each of them also being an independent non-executive director of CKI) consider that the terms of the Joint Venture Transaction are on normal commercial terms and the terms of the Joint Venture Transaction are fair and reasonable and in the interest of the Company and its shareholders as a whole.

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As Mr. Li Tzar Kuoi, Victor has or may be regarded as having a material interest in the Joint Venture Transaction, he has voluntarily abstained from voting on the board resolutions of the Company for approving the Joint Venture Transaction.

9. FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

As set out in the Target Group’s audited financial statements for the financial year ended 30 June 2018, the profit for the year of the Target Group was AUD265 million (equivalent to approximately HK$1,537 million). On this basis, the Directors expect that the Acquisition would have a positive impact on the Group’s earnings following completion of the Acquisition.

Appendix III to this circular sets out certain unaudited pro forma financial information of the Enlarged Group, which illustrates the financial effects of the Acquisition on the assets and liabilities of the Group assuming completion of the Acquisition had taken place on 30 June 2018.

As set out in Appendix III to this circular:

(i) in the event that the Consortium had not been formed and the Company had proceeded with the Acquisition alone:
(A) the total assets of the Group as at 30 June 2018 would have increased from approximately HK$458,639 million to approximately HK$543,321 million for the Enlarged Group; and
(B) the total liabilities of the Group as at 30 June 2018 would have increased from approximately HK$128,851 million to approximately HK$214,619 million for the Enlarged Group.
(ii) in the event that the Consortium had been formed and the Company had proceeded with the Acquisition together with CKI and PAH as Consortium Members:
(A) the total assets of the Enlarged Group as at 30 June 2018 would have remained the same as the total assets of the Group as at 30 June 2018 of approximately HK$458,639 million; and
(B) the total liabilities of the Enlarged Group as at 30 June 2018 would have remained the same as the total liabilities of the Group as at 30 June 2018 of approximately HK$128,851 million.

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(iii) in the event that the Consortium had been formed and the Company had proceeded with the Acquisition together with only one of CKI or PAH as a Consortium Member:
(A) the total assets of the Group as at 30 June 2018 would have increased from approximately HK$458,639 million to approximately HK$464,613 million for the Enlarged Group; and
(B) the total liabilities of the Group as at 30 June 2018 would have increased from approximately HK$128,851 million to approximately HK$134,825 million for the Enlarged Group.

The Directors are of the view that the Acquisition is not expected to have any material adverse impact on the financial position of the Group.

In addition, as set out in the section headed “ 3.Working Capital ” in Appendix I to this circular, the Directors are of the opinion that the Enlarged Group will have sufficient working capital for its present requirements for at least the next 12 months from the date of this circular.

Shareholders should note that the earnings contribution from the Target Group after completion of the Acquisition will depend on the future performance of the Target Group, and the actual effect of the Acquisition (including the debt financing for the Acquisition) on the assets and liabilities of the Group will depend on the financial position of the Target Group as of the date of completion of the Acquisition, which cannot be quantified as of the Latest Practicable Date. The unaudited pro forma financial information of the Enlarged Group set out in Appendix III to this circular has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Group and the Enlarged Group at any future date.

10. IMPLICATIONS UNDER THE LISTING RULES

If the Company proceeds with the Acquisition alone (because none of the necessary JV Transaction Shareholders’ Approvals are obtained or certain other conditions are not fulfilled and the Joint Venture Transaction does not proceed), as one or more of the applicable percentage ratios of the Company based on Scheme Consideration and the transaction costs under the Acquisition exceeds 25% but all are less than 100%, the Acquisition by the Company alone constitutes a major transaction for the Company and is subject to the Company’s compliance with the announcement, notification and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

If the Acquisition proceeds under the Joint Venture Transaction, as one or more of the applicable percentage ratios of the Company based on the Maximum Financial Commitment of the Group under the Joint Venture Transaction or the Scheme Consideration and the transaction costs under the Acquisition, as applicable, exceeds 25% but all are less than 100%, the Joint Venture Transaction also constitutes a major transaction for the Company and is subject to the Company’s compliance with the

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announcement, notification and shareholders’ approval requirements under Chapter 14 of the Listing Rules. In this circumstance, however, as Mr. Li Ka-shing, Mr. Li Tzar Kuoi, Victor and the Trust together hold more than 30% of the issued share capital of CKHH as at the Latest Practicable Date, CKHH and its subsidiary CKI may be regarded as associates (as used in the Listing Rules) of them. As a result, they together have or may be regarded as having a material interest in the Joint Venture Transaction and shall abstain from voting on the relevant shareholders’ resolution regarding the Joint Venture Transaction under Chapter 14 of the Listing Rules, being the JV Transaction Shareholders’ Approval in respect of the Company.

CKHH has been deemed by the Stock Exchange to be a connected person of the Company under the Listing Rules. As at the Latest Practicable Date, CKHH holds approximately 71.93% of the issued share capital of CKI through its wholly-owned subsidiaries and as a result CKI may also be regarded as a connected person of the Company by virtue of it being a subsidiary of CKHH. Therefore, the Joint Venture Transaction as between the Company and CKI also constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. As one or more of the applicable percentage ratios of the Company based on the Maximum Financial Commitment of the Group under the Joint Venture Transaction exceeds 5%, the Joint Venture Transaction as between the Company and CKI is subject to the Company’s compliance with the announcement, reporting and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

For the avoidance of doubt, the Maximum Financial Commitment referred to in this regard represents the Maximum Financial Commitment of the Group if the Group holds up to 80% of JV Co, which is the highest shareholding in JV Co that the Group can hold under the Consortium Formation Agreement if the Joint Venture Transaction proceeds.

The Independent Board Committee is required under the Listing Rules to advise the Independent Shareholders in relation to the Joint Venture Transaction after taking into account the advice from the Independent Financial Adviser. Since Mr. Cheong Ying Chew, Henry and Mr. Colin Stevens Russel, being independent non-executive Directors, are also independent non-executive directors of CKI, they were not appointed as members of the Independent Board Committee. As a result, Mr. Chow Nin Mow, Albert, Ms. Hung Siu-Lin, Katherine and Mr. Donald Jeffrey Roberts, being the remaining independent non-executive Directors, have been appointed to and constitute the Independent Board Committee to advise the Independent Shareholders in relation to the Joint Venture Transaction.

11. WAIVER FROM STRICT COMPLIANCE WITH THE LISTING RULES

Pursuant to Rule 14.67(6)(a)(i) of the Listing Rules, the Company is required to include in this circular an accountants’ report on the Target Group prepared in accordance with Chapter 4 of the Listing Rules. The accountants’ report must include the financial information of the Target Group for each of the three financial years ended 30 June 2018 prepared using accounting policies which should be materially consistent with those adopted by the Company.

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The Target Group’s audited annual financial statements are prepared in accordance with the requirements of the Corporations Act, the Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board and also comply with IFRS. The Target Group’s annual financial statements have been audited by its auditors in accordance with the Australian Auditing Standards and its half year financial information are also reviewed by its auditors prior to their publication.

The Target Group’s auditors are Deloitte Touche Tohmatsu Australia (“ Deloitte Australia ”). Deloitte Australia is a firm with international name and reputation and is registered under the applicable laws of Australia and is a member of the Chartered Accountants Australia and New Zealand, which is a member of the International Federation of Accountants, a global organisation for the accountancy profession. Deloitte Australia is also regulated by ASIC. The Target Group has a 30 June financial year end and published its financial results for the financial year ended 30 June 2018 on 22 August 2018.

The Company’s financial statements are prepared in accordance with IFRS and the Company’s auditors are Deloitte Touche Tohmatsu Hong Kong (“ Deloitte Hong Kong ”). The Company has a 31 December financial year end.

Complying with the strict requirements of Rule 14.67(6)(a)(i) of the Listing Rules in having to produce an accountants’ report on the Target Group in this circular would be unduly burdensome and have timing and cost implications for both the Target Group and the Company. Since the Target Group already publishes audited financial reports in accordance with ASX requirements and which comply with IFRS, the same set of audited financial reports on the Target Group which have been provided to the Target Securityholders should be provided to the Shareholders of the Company.

In replacement of an accountants’ report on the Target Group, the following disclosure has been included in this circular:

(i) the audited financial information on the Target Group for the financial years ended 30 June 2016, 2017 and 2018 prepared in accordance with the Australian Accounting Standards and which comply with IFRS, including the management discussion and analysis, extracted from the annual reports of the Target Group for each of such years, as set out in Appendix II to this circular;
(ii) a line-by-line reconciliation of the consolidated statements of financial position of the Target Group for the financial years ended 30 June 2016, 2017 and 2018 to address the differences in the Target Group’s financial information had it been prepared in accordance with the Company’s accounting policies (the “ Reconciliation ”). The Reconciliation is reported on by Deloitte Hong Kong in accordance with Hong Kong Standard of Assurance Engagements 3000, as set out in the section headed “ Reconciliation ” in Appendix II to this circular. A line-by-line reconciliation of the consolidated statements of profit or loss of the Target Group for the financial years ended 30 June 2016, 2017 and 2018 has not

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been included in this circular as Deloitte Hong Kong has confirmed that there are no differences between the accounting policies of the Target Group and the Company in respect of those statements; and

(iii) supplemental financial information of the Target Group for the financial years ended 30 June 2016, 2017 and 2018 (the “ Supplemental Financial Information ”) which is required for an accountants’ report under the Listing Rules but not disclosed in the published financial information of the Target Group, excluding the information required under Listing Rule 4.08(3) (which requires the accountants’ report to state that it has been prepared in accordance with the Auditing Guideline – Prospectuses and the reporting accountant (Statement 3.340) issued by the Hong Kong Institute of Certified Public Accountants), as set out in section D of Appendix II to this circular.

The Company has early adopted IFRS 9 “Financial Instruments” while the Target Group will adopt AASB 9 (which is the IFRS 9 equivalent in Australia) for accounting periods commencing on or after 1 July 2018. Deloitte Hong Kong has confirmed that, save for the foregoing, there are no material differences between the accounting policies adopted by the Company and the Target Group.

In addition, as disclosed in the consolidated financial statements of the Target for the year ended 30 June 2018 (published on 22 August 2018) (the “ Target FY2018 report ”), the Target has completed an assessment of the potential impact of the adoption of AASB 9 (the IFRS 9 equivalent in Australia) on the Target Group’s consolidated financial statements and does not expect the new standard to affect the classification and measurement of the Target Group’s financial assets or financial liabilities. The Target confirmed in the Target FY2018 report that the Target Group’s current hedge relationships will qualify as continuing hedges upon the adoption of AASB 9. Based upon this assessment, the Target confirmed in the Target FY2018 report that it is not expected that AASB 9 will have any material impact on the Target Group’s consolidated financial statements, except for the additional disclosure requirements under AASB 9 (the IFRS 9 equivalent in Australia).

The Directors consider that the published financial information in relation to the Target Group reproduced in this circular, when taken together with the related management discussion and analysis, the Supplemental Financial Information and the Reconciliation, will afford Shareholders with all material information necessary to assess the financial performance of the Target Group throughout the periods presented, such information being broadly commensurate in all material respects to the disclosure that would otherwise have been provided if an accountants’ report on the Target Group had been produced under Rule 14.67(6)(a)(i) of the Listing Rules.

Accordingly, the Company has applied to the Stock Exchange for, and the Stock Exchange has granted, a waiver from strict compliance with Rule 14.67(6)(a)(i) of the Listing Rules such that the Company is not required to include an accountants’ report on Target Group in this circular.

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12. EGM AND VOTING

The Company will convene the EGM:

(a) for the Shareholders to consider and, if thought fit, pass an ordinary resolution to approve the Acquisition (being the resolution for the Company Transaction Shareholders’ Approval); and
(b) for the Independent Shareholders to consider and, if thought fit, pass an ordinary resolution to approve the Joint Venture Transaction (being the resolution for the JV Transaction Shareholders’ Approvals in respect of the Company).

A notice convening the EGM to be held at the Grand Ballroom, 1st Floor, Harbour Grand Hong Kong, 23 Oil Street, North Point, Hong Kong on Tuesday, 30 October 2018 at 10:15 a.m. is set out on pages N-1 to N-3 of this circular. Pursuant to the Listing Rules, any vote of shareholders at a general meeting must be taken by poll. The chairman of the forthcoming EGM will therefore put the ordinary resolutions to be proposed at the EGM to be voted by way of a poll pursuant to Article 81 of the Amended and Restated Articles of Association of the Company. After the conclusion of the EGM, the results of the poll will be released on the website of the Stock Exchange at www.hkexnews.hk and the Company’s website at www.ckah.com .

All Shareholders who have a material interest in the Acquisition and the Joint Venture Transaction will be required to abstain from voting on the ordinary resolutions to approve the Acquisition and the Joint Venture Transaction at the EGM. Each of Mr. Li Ka-shing, Mr. Li Tzar Kuoi, Victor and the relevant entities under the Trust will, and will procure their respective associates to, abstain from voting on the ordinary resolution to approve the Joint Venture Transaction at the EGM (being the resolution for the JV Transaction Shareholders’ Approvals in respect of the Company).

A proxy form for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM or any adjourned meeting in person, you are requested to complete, sign and return the enclosed proxy form in accordance with the instructions printed thereon to the Company’s principal place of business in Hong Kong at 7th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong as soon as practicable and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof (as the case may be). Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish and, in such event, the proxy form shall be deemed to be revoked.

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13. RECOMMENDATIONS

13.1. Recommendation from the Directors (including those on the Independent Board Committee)

Having taken into account the reasons for and the benefits of the Acquisition as set out in the section headed “ 8. Reasons for, and Benefits of, the Acquisition and Joint Venture Transaction ” above, the Directors (including the independent non-executive Directors) unanimously recommend the Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Acquisition (being the resolution for the Company Transaction Shareholders’ Approval) and will not change that recommendation unless the Board determines it must do so because of any fiduciary or statutory duties to the Shareholders.

Each Director (including the independent non-executive Directors) who has a personal interest in any Shares in the Company has indicated that he or she will vote such Shares in favour of the ordinary resolution for the Company Transaction Shareholders’ Approval and will not change that voting intention unless a majority of the Directors (including the independent non-executive Directors) cease to recommend the Shareholders to vote in favour of the resolution for the Company Transaction Shareholders’ Approval.

13.2 Recommendation from the Directors (other than those on the Independent Board Committee)

Having taken into account the reasons for and benefits of the Joint Venture Transaction as set out in the section headed “ 8. Reasons for, and Benefits of the Acquisition and Joint Venture Transaction ” above, the Directors (other than those on the Independent Board Committee, whose views are set out in the Letter from the Independent Board Committee) consider that the Joint Venture Transaction is on normal commercial terms, the terms of the Joint Venture Transaction are fair and reasonable and the entry into the Joint Venture Transaction is in the interests of the Company and the Shareholders as a whole.

Accordingly, the Directors (other than those on the Independent Board Committee, whose views are set out in the Letter from the Independent Board Committee) recommend the Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Joint Venture Transaction (being the resolution for the JV Transaction Shareholders’ Approvals in respect of the Company).

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13.3 Recommendation from the Independent Board Committee

The Independent Board Committee (Mr. Chow Nin Mow, Albert, Ms. Hung Siu-Lin, Katherine and Mr. Donald Jeffrey Roberts, each being independent non-executive Directors) has been formed to advise and provide recommendation to the Independent Shareholders in respect of the Joint Venture Transaction after taking into account the advice from the Independent Financial Adviser. Since Mr. Cheong Ying Chew, Henry and Mr. Colin Stevens Russel, being independent non-executive Directors, are also independent non-executive directors of CKI, they were not appointed as members of the Independent Board Committee.

Your attention is drawn to (i) the Letter from the Independent Board Committee set out on pages 45 and 46 of this circular which contains its recommendation to the Independent Shareholders on the Joint Venture Transaction; and (ii) the letter from the Independent Financial Adviser set out on pages 47 to 78 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the Joint Venture Transaction and the principal factors and reasons considered by the Independent Financial Adviser in arriving at its advice.

The Independent Board Committee, having considered the reasons for and benefits of the Joint Venture Transaction as set out above and the terms of the Joint Venture Transaction and having taken into account the advice of the Independent Financial Adviser, and in particular, the factors, reasons and recommendations set out in letter from the Independent Financial Adviser in this circular, considers that the Joint Venture Transaction is on normal commercial terms and in the ordinary and usual course of business of the Group, and the terms of the Joint Venture Transaction are fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Shareholders as a whole.

Accordingly, the Independent Board Committee recommends that the Independent Shareholders vote in favour of the ordinary resolution to be proposed at the EGM to approve the Joint Venture Transaction (being the resolution for the JV Transaction Shareholders’ Approvals in respect of the Company).

13.4 Recommendation from the Independent Financial Adviser

Anglo Chinese has been engaged as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the Joint Venture Transaction, and whether it is in the ordinary and usual course of business of the Group, on normal commercial terms and is in the interests of the Company and the Shareholders as a whole and to advise the Independent Shareholders on how to vote.

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Your attention is drawn to the letter from the Independent Financial Adviser set out on pages 47 to 78 of this circular which contains its advice and recommendation to the Independent Board Committee and the Independent Shareholders in relation to the Joint Venture Transaction and the principal factors and reasons considered by the Independent Financial Adviser in arriving at its advice.

Having taken into account the principal factors and reasons therein, the Independent Financial Adviser considers that the terms of the Joint Venture Transaction are fair and reasonable so far as the Independent Shareholders are concerned. In addition, the Independent Financial Adviser considers that the Joint Venture Transaction is on normal commercial terms and in the ordinary and usual course of business of the Group, and in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Financial Adviser advises the Independent Board Committee to recommend, and it recommends, the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Joint Venture Transaction (being the resolution for the JV Transaction Shareholders’ Approvals in respect of the Company).

14. FURTHER INFORMATION

Your attention is drawn to the Letter from the Independent Board Committee as set out on pages 45 to 46 of this circular, the letter from the Independent Financial Adviser as set out on pages 47 to 78 of this circular, the additional information as set out in Appendices I to IV of this circular, and the Notice of EGM as set out on pages N-1 to N-3 of this circular.

As completion of the Acquisition and/or the Joint Venture Transaction is conditional on the satisfaction or waiver of certain conditions, including the obtaining of the Company Transaction Shareholders’ Approval or the JV Transaction Shareholders’ Approvals (as applicable), there remains the possibility that the Acquisition and/or the Joint Venture Transaction may not proceed. Shareholders and potential investors should exercise caution when dealing in the Shares and other securities of the Company.

Yours faithfully,

For and on behalf of the Board of

CK ASSET HOLDINGS LIMITED

LI Tzar Kuoi, Victor Chairman and Managing Director

– 44 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the full text of the letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in respect of the Joint Venture Transaction

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CK ASSET HOLDINGS LIMITED 長江實業集團有限公司

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 1113)

10 October 2018

To the Independent Shareholders

CONNECTED TRANSACTION AND MAJOR TRANSACTION

PROPOSED ACQUISITION BY BIDCO BY WAY OF THE TRUST SCHEMES OF ALL OF THE STAPLED SECURITIES IN ISSUE OF APA WHICH ARE LISTED ON THE AUSTRALIAN SECURITIES EXCHANGE AND FORMATION OF JOINT VENTURE

We refer to the circular of CK Asset Holdings Limited dated 10 October 2018 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter have the same meanings as defined in the Circular, unless the context otherwise requires.

We have been appointed by the Board as members of the Independent Board Committee to advise you in connection with the Joint Venture Transaction, details of which are set out in the “ Letter from the Board ” of the Circular.

Anglo Chinese has been engaged to act as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the Joint Venture Transaction, and whether it is in the ordinary and usual course of business of the Group, on normal commercial terms and in the interests of the Company and the Shareholders as a whole and to advise the Independent Shareholders on how to vote.

We wish to draw your attention to the letter from the Independent Financial Adviser as set out on pages 47 to 78 of the Circular, which contains its advice and recommendation to us and the Independent Shareholders and its recommendation to Independent Shareholders as to how to vote in respect of the ordinary resolution to be proposed at the EGM to approve the Joint Venture Transaction (being the resolution for the JV Transaction Shareholders’ Approvals in respect of the Company).

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the reasons for and benefits of the Joint Venture Transaction as set out in the Circular, the terms of the Joint Venture Transaction, the reasons considered by, and the opinion of, the Independent Financial Adviser as stated in its letter of advice, and the relevant information contained in the Letter from the Board, we are of the opinion that the Joint Venture Transaction is on normal commercial terms and in the ordinary and usual course of business of the Group, is on terms which are fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend that you vote in favour of the ordinary resolution to be proposed at the EGM to approve the Joint Venture Transaction (being the resolution for the JV Transaction Shareholders’ Approvals in respect of the Company).

Yours faithfully,

CHOW Nin Mow, Albert HUNG Siu-lin, Katherine

Donald Jeffrey ROBERTS

Independent Board Committee

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the letter of advice from Anglo Chinese, the Independent Financial Adviser, setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the Joint Venture Transaction, which has been prepared for the purpose of inclusion in this circular.

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www.anglochinesegroup.com

40th Floor, Two Exchange Square, 8 Connaught Place, Central, Hong Kong

Independent Board Committee and the Independent Shareholders of CK Asset Holdings Limited

10th October, 2018

Dear Sirs,

CONNECTED TRANSACTION AND MAJOR TRANSACTION – PROPOSED ACQUISITION BY BIDCO BY WAY OF THE TRUST SCHEMES OF ALL OF THE STAPLED SECURITIES IN ISSUE OF APA WHICH ARE LISTED ON THE AUSTRALIAN SECURITIES EXCHANGE AND FORMATION OF JOINT VENTURE

I. INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders, being those shareholders in the Company other than Mr. Li Ka-shing, Mr. Li Tzar Kuoi, Victor, the Trust and their respective associates as defined by the Listing Rules, who in aggregate hold approximately 32.40% of the issued share capital of the Company as at the Latest Practicable Date, with respect to the formation of a joint venture between the Company, CKI and PAH to acquire all the stapled securities in issue of the Target by way of the Trust Schemes, details of which are set out in the Letter from the Board, set out in the circular dated 10th October, 2018 issued by the Company, and in our letter. The Target is the ASX-listed stapled entity known as APA which comprises APT and APTIT, being an owner and operator of energy infrastructure assets in Australia. As the Independent Financial Adviser to the Independent Board Committee we are required by the Listing Rules to state whether the terms of the Joint Venture Transaction are fair and reasonable and in the interests of the Company and its Shareholders as a whole, as well as the Joint Venture Transaction is on normal commercial terms and in the ordinary and usual course of the business of the Company, and advise whether the Independent Shareholders should vote in favour of the Joint Venture Transaction (being the resolution for the JV Transaction Shareholders’ Approvals in respect of the Company) at the EGM convened to approve it. The terms used in this letter shall have the same meaning as defined in the circular, of which this letter forms part, unless the context requires otherwise.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The participation of the Company, CKI and PAH in the Joint Venture Transaction is subject to, among other conditions, obtaining the necessary JV Transaction Shareholders’ Approvals. If such conditions are not fulfilled, the Joint Venture Transaction will not proceed and the Company will, subject to obtaining the Company Transaction Shareholders’ Approval and the fulfilment of certain conditions, proceed with the Acquisition alone. If the necessary JV Transaction Shareholders’ Approvals in respect of only one of CKI’s or PAH’s participation in the Joint Venture Transaction are obtained, the composition of the Consortium shall be varied accordingly. Based on the Maximum Financial Commitment of the Group under the Joint Venture Transaction of up to approximately AUD7,900 million (equivalent to approximately HK$45,818 million), representing its Respective Proportion of the Scheme Consideration and the transaction costs under the Acquisition, one or more of the applicable percentage ratios for notifiable transaction under the Listing Rules exceeds 25% but all are less than 100%. As a result, the Joint Venture Transaction constitutes a major transaction for the Company and is subject to the Company’s compliance with the announcement, notification and shareholders’ approval requirements under Chapter 14 of the Listing Rules. If the Company proceeds with the Acquisition alone (because none of the necessary JV Transaction Shareholders’ Approvals are obtained or certain other conditions are not fulfilled and the Joint Venture Transaction does not proceed), as one or more of the applicable percentage ratios of the Company based on Scheme Consideration and the transaction costs under the Acquisition exceeds 25% but all are less than 100%, the Acquisition by the Company alone constitutes a major transaction for the Company and is subject to the Company’s compliance with the announcement, notification and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

As at the Latest Practicable Date, Mr. Li Ka-shing, Mr. Li Tzar Kuoi, Victor (who is a Director) and the Trust currently directly and, or indirectly hold an aggregate of approximately 32.40% of the issued share capital of the Company and an aggregate of approximately 30.17% of the issued share capital of CKHH. CKHH has been deemed by the Stock Exchange to be a connected person of the Company under the Listing Rules. As CKHH holds approximately 71.93% of the issued share capital of CKI through its wholly-owned subsidiaries as at the Latest Practicable Date, CKI may also be regarded as a connected person of the Company by virtue of it being a subsidiary of CKHH. Therefore, the Joint Venture Transaction as between the Company and CKI also constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. As one or more of the applicable percentage ratios of the Company based on the Maximum Financial Commitment of the Group under the Joint Venture Transaction exceeds 5%, the Joint Venture Transaction as between the Company and CKI is subject to the Company’s compliance with the announcement, reporting and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee, comprising all the independent non-executive Directors, other than Mr. Cheong Ying Chew, Henry and Mr. Colin Stevens Russel as they are the independent non-executive directors of both the Company and CKI, has been formed to advise the Independent Shareholders on whether the terms of the Joint Venture Transaction are on normal commercial terms, are fair and reasonable and in the interests of the Company and its Shareholders as a whole, and how they are recommended to vote on the relevant resolution to be proposed at the forthcoming

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

EGM convened to approve the Joint Venture Transaction. We have been appointed to advise the Independent Board Committee and the Independent Shareholders accordingly.

In formulating our recommendation, we have relied on the information and facts supplied, and the opinions expressed, by the Company. We have also assumed that the information and representations contained or referred to in this letter were true and accurate at the time they were made and continued to be so at the date of this letter. We have reviewed (i) the audited financial information on the Target Group for the financial years ended 30th June, 2016, 2017 and 2018; (ii) the pro forma information of the Group upon the Trust Schemes become effective; (iii) the Consortium Formation Agreement; (iv) the agreed form of the Shareholders’ Agreement; (v) the Implementation Agreement; and (vi) the published information in relation to the Target Group and the Acquisition. We have also discussed with the management of the Company, among other things, the Company’s prospect and the background to and reasons for the Acquisition and the Joint Venture Transaction. We have sought and obtained confirmation from the Company that no material facts have been omitted from the information provided to us. We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in this circular and to provide a reasonable basis for our opinion and advice. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company. We have not, however, conducted an independent investigation into the business and affairs of the Group and the Target Group, and, or the associates of either of them, nor have we carried out any independent verification of the information supplied.

Apart from professional fees for our services to the Company in connection with the engagement described above, no arrangement exists whereby we will receive any fees or benefits from the Company, its subsidiaries, directors, chief executive, substantial shareholders or any associate of any of them. Within the past three years from the Latest Practicable Date, we were previously engaged as an independent financial adviser by CKI, and details of which was set out in the circular of CKI dated 20th October, 2015. We were also engaged as an independent financial adviser by the Company in relation to three connected and discloseable transactions, and details of which were set out in the circulars of the Company dated 22nd February, 2017, 8th August, 2017 and 20th September, 2017, respectively. Given our independent role and normal professional fees received from CKI and the Company under these past engagements, we do not consider that they will affect our independence in relation to our present engagement to advise the Independent Board Committee and Independent Shareholders.

II. BACKGROUND

The Acquisition and the Joint Venture Transaction

On 13th June, 2018, the Company, CKHH, CKI and PAH made an announcement noting an announcement by the Target on the same date regarding a non-binding indicative proposal from a consortium comprising the Company, CKI and PAH to

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

acquire the Target (the “ Proposal Announcement ”). The Consortium had submitted an indicative, non-binding conditional proposal for the Consortium or the Company to acquire all of the issued stapled securities in the Target.

On 12th August, 2018, the Consortium Members, Bidco and the Target entered into the Implementation Agreement in connection with the Acquisition. On the same date, the Consortium Members have entered into the Consortium Formation Agreement, pursuant to which, subject to the fulfilment of certain conditions, the relevant Consortium Members will enter into the Joint Venture Transaction to, among other things, form the Consortium, enter into the Shareholders’ Agreement and indirectly fund the Acquisition by Bidco according to the Respective Proportions or the Revised Respective Proportions (as the case may be).

To support the ACCC’s review of the Acquisition, the Bidco has proposed to divest of certain assets of the Target Group following completion of the Trust Schemes, namely the Goldfields Gas Pipeline, a gas transmission pipeline in Western Australia, the Mondarra gas storage facility located in southern Western Australia, and the Parmelia Gas Pipeline, a gas transmission pipeline in Western Australia. On 12th September, 2018, the ACCC has made the media release and stated that the ACCC will not oppose the Acquisition subject to the binding undertakings given by the Bidco and the Consortium Members to dispose of certain assets of the Target Group following completion of the Trust Schemes, namely the Parmelia Gas Pipeline, the Goldfields Gas Pipeline, the Kalgoorlie to Kambalda Pipeline and the Mondarra gas storage facility (the “ Disposals ”). Such undertaking addressed the concerns by the ACCC in relation to (i) the removal of the Consortium as a competitor in relation to the new pipeline development; and (ii) the Consortium would own most gas transmission and storage facilities in west Australia as stated in the media release.

On 5th October 2018, the Company, CKI and PAH entered into the Respective Proportions Determination Side Letter and determined and agreed the final percentages making up the Respective Proportions and the Revised Respective Proportions as follows:

(i) if all three of the Company, CKI and PAH will participate in the Joint Venture Transaction, the Respective Proportions of the Company, CKI and PAH should be respectively 60%, 20% and 20%; and
(ii) if the Company and only one of CKI or PAH will participate in the Joint Venture Transaction, the Revised Respective Proportions of the Company and, CKI or PAH, should be respectively 80% and 20%.

The Acquisition and the Implementation Agreement are not conditional on the completion of the Joint Venture Transaction but are conditional upon obtaining the Company Transaction Shareholders’ Approval and the fulfilment of certain other conditions as set out in the Implementation Agreement. Please refer to the following section for the detailed discussion on the Implementation Agreement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Acquisition and the Joint Venture Transaction follow similar structures that were adopted in respect of the acquisition of the DUET Assets, which owns and operates energy utility assets in Australia, the United States, the United Kingdom and Europe, and ista Luxemburg GmbH, one of the world’s leading fully integrated energy management service providers in Europe. References are made to the Company’s circulars relating to these two acquisitions and formation of joint ventures dated 22nd February, 2017 and 20th September, 2017, respectively.

The participation of the Consortium Members in the Joint Venture Transaction is subject to, among other conditions, obtaining the necessary JV Transaction Shareholders’ Approvals. If such conditions are not fulfilled, the Joint Venture Transaction will not proceed and the Company will, subject to obtaining the Company Transaction Shareholders’ Approval and the fulfilment of certain conditions, proceed with the Acquisition alone. Please refer to the section headed “2. ACQUISITION” of the Letter from the Board for the details of conditions.

If the necessary JV Transaction Shareholders’ Approvals in respect of only one of CKI’s or PAH’s participation in the Joint Venture Transaction is obtained, the composition of the Consortium shall be varied accordingly. Nevertheless, the Acquisition and Joint Venture Transaction have the objective of the Company acquiring a 60% interests in the Target with the balance being held by CKI and PAH in equal proportions. Among the Consortium Members, the Company is the only bidding party with the size and immediate resources to make an offer conditional only upon the conditions referred to in the section headed “2. ACQUISITION – 2.3 Conditions to the Trust Schemes” in the Letter from the Board and our discussion in the section headed “III. THE IMPLEMENTATION AGREEMENT” below. Subject to the Shareholders approving the Acquisition as a major transaction it will proceed without the approval of the Joint Venture Transaction.

From the point of view of the Target Securityholders, such arrangements have reduced the number of conditions for completion of the Acquisition thereby increasing the certainty of the outcome for them. The Acquisition will be implemented by the Trust Schemes to be proposed to the Target Securityholders at the Target Scheme Meeting. The directors of the Target RE have stated that they unanimously consider the Trust Schemes to be in the best interests of the Target Securityholders and recommend Target Securityholders vote in favour of the Trust Schemes in the absence of a superior proposal and subject to the Independent Expert concluding (and continuing to conclude) that the Trust Schemes are fair and reasonable and in the best interests of Target Securityholders.

The negotiation of the terms of the Acquisition with the Target were conducted with the intention that if successful the Consortium would be formed. Accordingly, the consideration for the Acquisition was arrived at through the consensus of the Consortium Members and the contribution to the consideration by the Company, CKI and PAH under the Consortium Formation Agreement reflects directly without any adjustment in proportion to their interests in the Target following completion of the Acquisition and the Joint Venture Transaction.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Reference is made to the Announcement and the Letter from the Board in this circular which set out in further detailed information relating to the Acquisition and the Joint Venture Transaction.

III. THE IMPLEMENTATION AGREEMENT

The principal terms of the Implementation Agreement in respect of the Trust Schemes under which Bidco will acquire all of the Target Securities are set out in sections 2.2 to 2.10 of the Letter from the Board. Subject to the Trust Schemes becoming effective in accordance with their respective terms, the general effect of the Trust Schemes will be as follows:

(i) all of the Target Securities will be transferred to Bidco in accordance with the terms of the Trust Schemes; and
(ii) in consideration for the transfer to Bidco of all of the Target Securities, the Target Securityholders will receive the Scheme Consideration in accordance with the terms of the Trust Schemes.

Scheme Consideration

The Scheme Consideration was arrived at by the Consortium Members and proposed to the directors of the Target RE. Further analysis of the Scheme Consideration is set out in under the section headed “X. FURTHER FACTORS AND CONSIDERATIONS IN THE ASSESSMENT OF THE SCHEME CONSIDERATION” below. According to the management of the Company, the Consortium has performed the due diligence and developed a valuation of the Target’s businesses internally for facilitating the negotiations with the Target, which was referenced to in determining the Scheme Consideration of AUD11.00 (equivalent to approximately HK$63.80) per Target Security held by a Target Securityholder. Based on this Scheme Consideration and the total number of Target Securities in issue as at the Latest Practicable Date, being 1,179,893,848 Target Securities, the Scheme Consideration for all the Target Securities will be approximately AUD12,979 million (equivalent to approximately HK$75,278 million).

As discussed in the section headed “II. BACKGROUND – The Acquisition and the Joint Venture Transaction”, the ACCC will not oppose the Acquisition subject to the binding undertakings given by Bidco and Consortium Members regarding the Disposals. The Company and the other Consortium Members were aware of potential concerns which may be raised by the ACCC, particularly over the potential overlapping gas transmission and storage services in Western Australia. It was therefore anticipated that the Disposals may be required, and the Company and the other Consortium Members took into account the potential Disposals when determining their valuation of the Target Group’s businesses and agreeing the Scheme Consideration at the time of execution of the Implementation Agreement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As the Disposals would be carried out with independent third parties on arms’ length terms, thereby achieving market value for the Disposal assets, the Company and the Consortium Members had expected that the Disposals would have a neutral effect on the Scheme Consideration. As at the Latest Practicable Date, the Company and the other Consortium Members are not in any negotiations, nor have they reached any agreement, with any third parties regarding the Disposals.

Arrangement of the cash distribution

As announced by the Target on 22nd August, 2018, the directors of the Target RE have declared the cash distribution for the six months ended 30th June, 2018, of AUD0.24 (equivalent to approximately HK$1.39) per Target Security and payable on 12th September, 2018. According to the terms of the Implementation Agreement, the Target RE must pay to the Target Securityholders such 30th June 2018 Distribution and no adjustment will be made to the Scheme Consideration payable by Bidco as a result of such distribution.

If the Trust Schemes are implemented after 31st December, 2018, the Target RE may pay to the Target Securityholders a cash distribution of up to AUD0.04 (equivalent to HK$0.23 per Target Security) for each full calendar month between 31st December, 2018 up to, and including, the date the Trust Schemes are implemented by way of Special Distribution. No adjustment will be made to the Scheme Consideration payable by Bidco as a result of such Special Distribution.

Conditions to the Trust Schemes

Each of the Trust Schemes are inter-conditional and shall be implemented at the same time, and the following is, in simplified terms, certain key conditions precedent of the Trust Schemes:

(a) approval of Australian Competition and Consumer Commission (the ACCC) and the Australian Foreign Investment Review Board (the FIRB);
(b) no “material adverse change” or “prescribed events” occurring in relation to the Target prior completion of the Implementation Agreement;
(c) approval of the Acquisition by the Shareholders;
(d) the approval of Target Securityholders of the Trust Schemes; and
(e) approvals by the Court.

In connection with the condition regarding approval by the ACCC, as discussed above, the ACCC announced on 12th September, 2018 that it will not oppose the Acquisition subject to binding undertakings given by Bidco and the Consortium Members to dispose of certain assets of the Target Group following completion of the Trust Schemes, namely the Parmelia Gas Pipeline, the Goldfields Gas Pipeline, the Kalgoorlie to Kambalda Pipeline and the Mondarra gas storage facility.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For details on the conditions to the Trust Schemes reference should be made to section headed “2.3 Conditions to the Trust Schemes” of the Letter from the Board.

Further terms

Set out below is a summary of the further terms of the Implementation Agreement.

Guarantee

However, the obligations of CKI and PAH to provide the guarantees under the Implementation Agreement are conditional on the necessary JV Transaction Shareholders’ Approvals being obtained. If the necessary JV Transaction Shareholders’ Approvals are not obtained, Bidco shall remain an indirect wholly-owned subsidiary of the Company in which case the Company alone will provide the guarantee.

Exclusivity

Under the Implementation Agreement, the Target RE has represented and warranted that, as at the date of that agreement, it is not in any negotiations or discussions in respect of any competing transaction. During the period from the date of the Implementation Agreement until the earlier of termination of the Implementation Agreement and the End Date, Target RE shall not (and shall procure its representatives shall not) directly or indirectly solicit, invite, encourage or initiate any competing transaction, or (subject to fiduciary duties or statutory obligations of the directors of Target RE) negotiate or enter into, or participate in, negotiations or discussions with any other person regarding a competing transaction.

Target break fee (Target RE pay to Bidco)

Pursuant to the Implementation Agreement, Target RE has agreed to pay to Bidco a break fee of AUD130 million (equivalent to approximately HK$754 million) if:

(i) at least a majority of the directors of Target RE fail to recommend to the Target Securityholders that they vote in favour of the Trust Schemes or, having made such recommendation, withdraw their recommendation or adversely change their recommendation, provided that in each case Bidco has terminated the Implementation Agreement (except where (a) that failure is because the Independent Expert does not give an opinion that the Acquisition is fair and reasonable and in the best interests of the Target Securityholders (other than where the reason for that opinion is a competing transaction); (b) Target RE has validly terminated, or has the right to terminate, the Implementation Agreement due to Bidco being in material and unremedied breach of the Implementation

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Agreement; or (c) the conditions set out in the section headed “2.3 Conditions to the Trust Schemes” of the Letter from the Board are not satisfied other than as a result of a breach by Target RE of its obligation to use reasonable endeavours to procure satisfaction of such conditions); or

(ii) a competing transaction is announced or made prior to the date on which the Second Judicial Advice is obtained and is completed within nine months of the Implementation Agreement being entered into.

Recommendations and undertaking with respect to the Company Transaction Shareholders’ Approval

Pursuant to the Implementation Agreement, the Company has agreed to procure that:

(i) the Board states in the Letter from the Board that it unanimously recommends that Shareholders approve the resolution for the Company Transaction Shareholders’ Approval and must not change that recommendation unless the Board determines that it must change the recommendation because of any fiduciary or statutory duties to Shareholders; and
(ii) within five business days after the circular has been despatched to Shareholders, the trustees of the Trust and, or their relevant subsidiaries who are registered holders of the Trustee Shares, provide to the Target the Voting Undertaking (i.e. an irrevocable and unconditional undertaking to vote the Trustee Shares in favour of the resolution for the Company Transaction Shareholders’ Approval).

Reverse break fee (Bidco pay to Target)

Pursuant to the Implementation Agreement, Bidco has agreed to pay to the Target a reverse break fee of AUD50 million (equivalent to approximately HK$290 million) if:

(i) both of the following occur: (a) the Company has not procured the Voting Undertaking or the trustees of the Trust and, or their relevant subsidiaries who are registered holders of the Trustee Shares fail to vote the Trustee Shares in favour

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

of the resolution for the Company Transaction Shareholders’ Approval in accordance with the Voting Undertaking; and (b) the EGM is held and the Company Transaction Shareholders’ Approval is not obtained; or

(ii) Target RE validly terminates the Implementation Agreement due to Bidco being in material and unremedied breach of the Implementation Agreement.

End Date

IV. JOINT VENTURE TRANSACTION

The Consortium Formation Agreement

As mentioned above, in connection with the Acquisition, on 12th August, 2018, the Company entered into the Consortium Formation Agreement with, among others, the other Consortium Members, JV Co, Consortium Midcos and Bidco in order to govern the formation of the Consortium, including the funding and operation of JV Co and Bidco for the purposes of the Acquisition. Formation of the Consortium is subject to obtaining the necessary JV Transaction Shareholders’ Approvals and the fulfilment of certain conditions.

JV Transaction Shareholders’ Approvals

The Company’s participation in the Joint Venture Transaction with CKI is subject to obtaining the JV Transaction Shareholders’ Approvals in respect of the Company and CKI. The Company’s participation in the Joint Venture Transaction with PAH is subject to obtaining the JV Transaction Shareholders’ Approvals in respect of the Company and PAH. The Company’s participation in the Joint Venture Transaction with both CKI and PAH is subject to obtaining the JV Transaction Shareholders’ Approvals in respect of the Company, CKI and PAH. The following is the three possible scenarios as a result of the JV Transaction Shareholders’ Approvals, assuming satisfaction of the other conditions, including EC Approval:

(i) Respective Proportion(s) – If the JV Transaction Shareholders’ Approvals in respect of the Company, CKI and PAH are all obtained, the Joint Venture Transaction will proceed between the Company, CKI and PAH as to 60%, 20% and 20%, respectively; or

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Revised Respective Proportion(s) – If the JV Transaction Shareholders’ Approvals in respect of the Company and CKI are both obtained, but the JV Transaction Shareholders’ Approval in respect of PAH is not obtained, the Joint Venture Transaction will proceed between the Company and CKI as to 80% and 20%, respectively; or
(iii) Revised Respective Proportion(s) – If the JV Transaction Shareholders’ Approvals in respect of the Company and PAH are both obtained, but the JV Transaction Shareholders’ Approval in respect of CKI is not obtained, the Joint Venture Transaction will proceed between the Company and PAH as to 80% and 20%, respectively.

As at the Latest Practicable Date, Bidco is an indirect wholly-owned subsidiary of JV Co, which is in turn owned by the Consortium Midcos. The Consortium Midcos are then wholly-owned by the Company Holdco, a wholly-owned subsidiary of the Company. Please refer to the section headed “The proposed ownership structures of JV Co and Bidco” below for the proposed ownership structure.

Maximum Financial Commitment

If, however, any necessary JV Transaction Shareholders’ Approval is not obtained such that the Consortium shall comprise the Company and only one of CKI or PAH, the Company is expected to assume the Respective Proportion of the Non-Continuing Member. As a result, the Maximum Financial Commitment of the Company will be increased by the Respective Proportion of the Non-Continuing Member.

If the Consortium is formed pursuant to the Joint Venture Transaction:

(i) JV Co will be indirectly held by the relevant Consortium Members through the Consortium Midcos in the Respective Proportions (or Revised Respective Proportions, as applicable); and
(ii) (if either or both CKI and PAH are Consortium Members) the Target will be accounted for as a joint venture by the Company in its consolidated financial statements.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Further principal terms of the Consortium Formation Agreement are set out in sections headed “3.1.1 Participation of the Consortium Members – JV Transactions Shareholders’ Approvals and EC Approval” and “3.1.3 Termination” of the Letter from the Board, to which the Independent Board Committee and the Independent Shareholders are referred.

As at the Latest Practicable Date, the management of the Company has yet to finalise the funding method. However, the Group maintains investment grade rating, with strong relationships with a number of leading financial institutions. The management of the Company believes the Group could obtain favourable financing terms for funding the Acquisition while maintaining sufficient cash resources. As stated in the 2018 interim report of the Company, the Group has available banking facilities to satisfy working capital requirements.

The proposed ownership structures of JV Co and Bidco

As at the Latest Practicable Date, the Bidco is an indirect wholly-owned subsidiary of the Company. It is intended that CKI will, through its wholly-owned subsidiary, CKI Holdco, subscribe for, or otherwise acquire, shares in the relevant Consortium Midcos from the Company Holdco if the relevant approvals with respect to CKI are obtained. It is intended that PAH will, through its wholly-owned subsidiary, PAH Holdco, subscribe for, or otherwise acquire, shares in the relevant Consortium Midcos from the Company Holdco if the relevant approvals with respect to PAH are obtained.

The chart below gives in summary form the ownership structure of Bidco and JV Co, which is in turn owned by the Consortium Midcos as at Latest Practicable Date. The Consortium Midcos are then wholly-owned by Company Holdco, a wholly-owned subsidiary of the Company as at the Latest Practicable Date.

==> picture [424 x 220] intentionally omitted <==

----- Start of picture text -----

Upon completion of the Acquisition and
As at the Latest Practicable Date the Consortium Formation Agreement
Company PAH Company CKI Consortium
100% 100% 100% 100% Member(s)
Company Holdco
(England & PAH Company CKI
Wales) (England & Holdco (England & Holdco (England & Holdco Consortium Holdco
100% Wales) Wales) Wales)
Consortium Consortium Consortium Consortium Consortium 100%
Midco 1 Midco 2 Midco 3 Midco 4 Midco 5
(England & (England & (England & (England & (England & Consortium Consortium Consortium Consortium Consortium
Wales) Wales) Wales) Wales) Wales) Midco 1 Midco 2 Midco 3 Midco 4 Midco 5
60% 20% 10% 5% 5% (England & (England & (England & (England & (England &
Wales) Wales) Wales) Wales) Wales)
Consortium Midcos 60% 20% 10% 5% 5%
JV Co
(England & Wales) Consortium Midcos
JV Co
100% (England & Wales)
Bid Co 100%
(Australia)
Bidco
(Australia)
100%
Target
----- End of picture text -----

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Subject to the approval of the Joint Venture Transaction by the respective independent shareholders of CKI and PAH, CKI and PAH will acquire their interests in JV Co through the acquisition of Consortium Midco 2, Consortium Midco 3, Consortium Midco 4 and Consortium Midco 5.

In the event that the Consortium is not formed, Bidco will continue to be indirectly wholly-owned by the Company.

V. THE SHAREHOLDERS’ AGREEMENT

Pursuant to the Consortium Formation Agreement, following the acquisition of the relevant Consortium Midcos by CKI Holdco and, or PAH Holdco (as applicable) in accordance with the terms and conditions set out therein, the relevant Consortium Members, the Consortium Midcos and JV Co will enter into the Shareholders’ Agreement. Under the terms of the Shareholders’ Agreement, the relevant Consortium Members will agree on certain ongoing rights and obligations governing their relationship as ultimate shareholders of JV Co and the management and operation of JV Co and the Target Group upon implementation of the Trust Schemes.

The principal terms of the Shareholders’ Agreement are set out in section headed “3.2 The Shareholders’ Agreement” of the Letter from the Board, to which the Independent Board Committee and the Independent Shareholders are referred.

VI. THE TARGET GROUP

Background

The following is the summary of the principal energy infrastructure assets currently owned and operated by the Target Group as stated in the Letter from the Board:

	Assets	Type of asset	Location(s)
(a)	Wallumbilla Gladstone Pipeline	Gas transmission	Queensland, Australia
	(WGP)	pipeline
(b)	South West Queensland Pipeline	Gas transmission	Queensland, Australia
	(SWQP)	pipeline
(c)	Moomba Sydney Pipeline (MSP)	Gas transmission	New South Wales,
		pipeline	Australia

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Assets Type of asset Location(s)
(d) Central West Pipeline (CWP) Gas transmission New South Wales, pipeline Australia
(e) Central Ranges Pipeline (CRP) Gas transmission New South Wales, pipeline Australia
(f) Goldfields Gas Pipeline (GGP) Gas transmission Western Australia, pipeline Australia
(g) Victorian Transmission System Transmission system Victoria, Australia (VTS)
(h) Dandenong LNG Storage Gas storage facility Victoria, Australia Facility (DSF)
(i) Diamantina and Leichardt Power Power stations Queensland, Australia Stations (DPS and LPS)

According to “Gas Price Trends Review 2017[1] ” commissioned by the Gas Major Projects Implementation Team (an officials-level group from each state and territory and the Commonwealth of Australia that prepares advice for the Council of Australian Governments Energy Council), there are five companies, or groups of companies, which own multiple pipelines or gas storage in Australia, and the Target Group is one of them. The Target Group is the largest investor in pipelines in Australia in terms of the number of pipelines owned. The Target Group also ranked first in Australia in terms of total length of pipelines owned and capacity by kilometre length of pipelines, which spans into every state and territory on mainland Australia.

The Target Group has a large diversified portfolio of infrastructure assets and is engaged in various business across the gas value chain beyond pipelines, including distribution, storage, processing and power generation, and renewable generation. Please refer to the 2018 annual report of the Target Group for the further details of the Target Group’s other energy infrastructure assets, businesses and their performance.

Financial analysis

The following table sets out a summary of the audited consolidated financial results of the Target Group for each of the three financial years ended 30th June, 2016, 2017 and 2018 prepared in accordance with Australian Accounting Standards, the Corporations Act and other authoritative pronouncements of the Australian Accounting Standards Board and which comply with the IFRS as issued by the International Accounting Standards Board and as extracted from the Target Group’s 2016, 2017 and 2018 annual reports as set out in Appendix II to the circular:

1 Gas Price Trends Review 2017, Commonwealth of Australia 2017, pages 115 – 117, March 2018

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(AUD’000)
Revenue
– Energy Infrastructure
– Asset Management
– Energy Investments
– Others
Total
Pass-through revenue (note 1)
Total revenue excluding pass-through
EBITDA
– Energy Infrastructure
– Asset Management
– Energy Investments
– Corporate costs
Total
Profit before income tax expense
Profit after income tax expense
Profit/(loss) attributable to
– Stapled securityholders
– Other non-controlling interests
Basic earnings per stapled security (AUD
cents)
Distribution per stapled security (AUD cents)

For the year ended 30th June,
2016
2017
2018
(Audited)
(Audited)
(Audited)
1,558,161
1,821,638
1,848,224
504,174
475,918
509,579
28,272
24,382
23,068
3,697
4,482
5,851
2,094,304
2,326,420
2,386,722
438,330
438,140
445,307
1,655,974
1,888,280
1,941,415
1,335,599
1,453,672
1,497,096
53,858
58,719
66,204
27,796
24,382
23,068
(86,710)
(66,651)
(67,894)
1,330,543
1,470,122
1,518,474
301,995
386,334
429,894
179,471
236,846
264,839
179,622
236,846
264,839
(151)
0
0
16.1
21.3
23.3
41.5
43.5
45.0

Sources: Target Group’s published annual reports Note:

As stated in the published financial reports of the Target Group, pass-through revenue is the revenue on which no margin is earned. Pass-through revenue arises in the asset management operations in respect of costs incurred in, and passed on to Australian Gas Networks Limited (“ AGN ”) and GDI (EII) Pty Ltd (“ GDI ”) in respect of the operation of the AGN and GDI assets, respectively.

For the year ended 30th June, 2018, the Target Group recorded revenue of approximately AUD2,386.7 million and earnings before interests, taxes, depreciation and amortisation (“EBITDA”) of AUD1,518.5 million, representing a slight increase of 2.6% and 3.3% compared to the previous year. The energy infrastructure segment contributed 94.4% of the Target Group’s EBITDA before corporate costs. The increases in revenue and EBITDA were mainly attributable to the part-year contributions from

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

organic growth assets including the Reedy Creek Wallumbilla Pipeline, Mt Morgans Gas Pipeline and the Emu Downs Solar Farm, and the new contracts across the East and West Coast Grids, as well as the benefit from the United States Consumer Price Index escalation and favourable currency exchange rates in relation to the Wallumbilla Gladstone Pipeline contract. Net profit attributable to Target Securityholders for the year ended 30th June, 2018 increased by 11.8% to AUD264.8 million, with depreciation and amortisation expenses reflecting an expanded asset base and higher income tax expense reflecting the Target’s increased profit.

For the year ended 30th June, 2017, the Target Group recorded revenue of approximately AUD2,326.4 million and EBITDA of AUD1,470.1 million, representing an increase of 11.1% and 10.5% compared to the previous year. The increase in revenues and EBITDA was mainly due to the full year contribution from the Eastern Goldfields Pipeline in Western Australia, the Diamantina and Leichhardt Power Stations in Queensland and the Ethane Pipeline in New South Wales to the energy infrastructure segment. The energy infrastructure segment in turn contributed 94.6% of the Target Group’s total EBITDA before corporate costs. Net profit attributable to Target Securityholders for the year ended 30th June, 2017 increased by 31.9% to AUD236.8 million.

For each of the financial years ended 30th June, 2016, 2017 and 2018, the distributions per Target Securityholders was approximately AUD41.5 cents, AUD43.5 cents and AUD45.0 cents, respectively, which represented a compound annual growth rate of approximately 4.1%.

The following table sets out a summary of the audited consolidated financial positions of the Target Group as at 30th June, 2016, 2017 and 2018 prepared in accordance with Australian Accounting Standards, the Corporations Act and other authoritative pronouncements of the Australian Accounting Standards Board and which comply with the IFRS as issued by the International Accounting Standards Board and as extracted from the Target Group’s 2016, 2017 and 2018 annual reports as set out in Appendix II to the circular:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(AUD’000) Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Sources: Target Group’s published annual reports	As at 30th June, 2016 2017 (Audited) (Audited) 420,792 772,331 14,421,883 14,273,617 14,842,675 15,045,948 883,932 698,235 9,929,632 10,369,530 10,813,564 11,067,765 4,029,111 3,978,183	2018 (Audited) 448,909 14,778,317
		15,227,226 954,847 10,145,552
		11,100,399 4,126,827

The asset base of the Target Group showed an increasing trend from 30th June, 2016 to 30th June, 2018 of which a significant portion of the assets comprised property, plant and equipment, as well as goodwill and intangible assets, which contributed to about 91.1% of total assets.

Based on the Scheme Consideration per stapled security of the Target of AUD11.00 (equivalent to approximately HK$63.80) and the total number of the stapled securities in issue, being 1,179,893,848 stapled securities as at the Latest Practicable Date, the market capitalisation of Target Group is estimated to be approximately AUD12,979 million (equivalent to approximately HK$75,278 million).

We noted that a line-by-line reconciliation of the consolidated statements of financial position of the Target Group for the financial years ended 30th June, 2016, 2017 and 2018 were prepared to address any difference in the Target Group’s financial information had it been prepared in accordance with the Company’s accounting policies and has been reported on Deloitte Hong Kong in accordance with Hong Kong Standard of Assurance Engagements 3000 as set out in Appendix II to the circular. We have reviewed the reclassification adjustments as set out in the Reconciliation in Appendix II to the circular. A line-by-line reconciliation of the consolidated statements of profit or loss of the Target Group for the financial years ended 30th June, 2016, 2017 and 2018 has not been included in this circular as Deloitte Hong Kong has confirmed that there are no differences between the accounting policies of the Target Group and the Company in respect of those statements.

Having considered the above, we consider it appropriate for our purposes to base our financial analysis together with the related management discussion and analysis on the Target Group based on its published financial information which were prepared in accordance with the Australian Accounting Standards and which comply with IFRS.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Industry and prospects

In the year ended 30th June 2017, the Target Group embarked upon a three-year growth program which would see it invest in excess of AUD1.4 billion in a variety of energy infrastructure growth projects. As stated in the chairman’s report of the Target’s 2018 annual report, the Target has been working on its AUD1.4 billion plus of committed growth projects, including the commissioning of the Emu Downs Solar Farm, Reedy Creek Wallumbilla Pipeline, Mt. Morgans Gas Pipeline and Yamarna Gas Pipeline, and as at 30th June, 2018, the Target has already spent AUD1 billion in capital expenditure with the balance to be realised in the coming financial year (i.e. 2019). These assets are expected to contribute to the earnings starting from the next financial year and beyond. According to the “Gas inquiry 2017-2020 – interim report” published by ACCC in July, 2018, there have been numerous developments in the gas market of Australia since 2018, which would result in the additional supply of gas to the Australian domestic market in the future, such as the discovery of new gas field in Otway Basin, South Australia, the gas exploration in south-west Queensland, and the Gas Acceleration Program supported by the Australian Government for boosting domestic supply in the New East Coast. These new projects may bring development opportunities for the gas market players in Australia.

As discussed in the sections headed “II. BACKGROUND – The Acquisition and the Joint Venture Transaction” and “III. THE IMPLEMENTATION AGREEMENT – Scheme Consideration” regarding the Disposals, the Disposal assets comprise gas transmission and storage services assets located within Western Australia. The Company and the Consortium Members understand from the Target Group that these assets have their own separate on-the-ground operations teams, and therefore management of the Company believes that the Disposals would not have any impact on the overall operations of the Target Group.

Share price

Set out below are the two graphs showing the historical price performance of Target Security from 12th June, 2015, being three years prior to the date of the announcement of the Company dated 13th June, 2018 in relation to the Proposal Announcement until the Latest Practicable Date, (the “ Review Period ”). The first graph compares the closing price of the Target Security with the Scheme Consideration of AUD11.00 per the Target Security. The second graph shows the relative price performance of the Target Security compared to the S&P/ASX Infrastructure Index.

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==> picture [372 x 488] intentionally omitted <==

----- Start of picture text -----

12
12 [th] August, 2018
Issue of the Announcement
Scheme Consideration
at AUD11.00 per stapled security
11
13 [th] June, 2018
Issue of the Proposal Announcement
10
9
8
7
12
10
8
6
4
2
0
140
12 [th] August, 2018
Issue of the Announcement
13 [th] June, 2018
130 Issue of the Proposal Announcement
120
110
100
90
80
Target Group S&P/ASX Infrastructure Index
Stapled security price (AUD)
Volume (millions of stapled secirity)
----- End of picture text -----

Source: Bloomberg

During the three-year period prior to 13th June, 2018, the date of the Proposal Announcement, the Target Security price in general fluctuated between the lowest point of AUD7.24 on 15th November, 2016 and the highest point of AUD9.86 on 2nd June, 2017, representing a discount to the Scheme Consideration of 34.16% and 10.34%, respectively. Overall, during the three-year period prior to 13th June, 2018, the Target Security traded in line with the S&P/ASX Infrastructure Index. The Target Security price jumped from AUD8.27 on 12th June 2018 to AUD10.00 on 13th June 2018, or 20.92%, following the issue of the Proposal Announcement including the cash consideration of AUD11.00 per Target Security. Subsequently and up to the Latest

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Practicable Date, the Target Security price fluctuated between the lowest point of AUD9.33 on 23rd August, 2018 and the highest point of AUD10.15 on 5th July, 2018, representing a discount to the Scheme Consideration of 15.18% and 7.73%, respectively. The Target Security price moved up only 0.30% from AUD9.84 to AUD9.87 following the publication of the Announcement, indicating the market have already factored the Acquisition into the Target Security price after the Proposal Announcement.

The performance of the Target Security set out above represents that of a portfolio investment and does not include the control premia that minority investors might expect from an offeror seeking to acquire 100% control of the Target Company, with access to all its free cash flow. As set out below in the section headed “Premia implied by the control premium” below we analysed the control premia offered.

VII. REASONS FOR, AND BENEFITS OF, THE ACQUISITION AND THE JOINT VENTURE TRANSACTION

The Consortium Members, the Company being one of the members, believe that the Target’s energy infrastructure assets in Australia represent an attractive opportunity for investors with the potential for growth opportunities. Among the Consortium Members, the Company is the only bidding party with the size and immediate resources to make an offer conditional only upon the conditions detailed in section “2.3 Conditions to the Trust Schemes” of the Letter from the Board.

The Acquisition is consistent with the Company’s global diversification strategy, is in accordance with the Group’s investment criteria to extend its reach to other business areas to increase stable recurrent income, and will further develop the Company’s intent to consolidate its holdings in and through the United Kingdom via the Company Holdco. In circumstances where the Company is extending its reach into other business areas globally, it would, where appropriate, collaborate with parties with a proven track record and expertise in the relevant area, in particular, as reputable managers who are able to grow the value of the business over time. The Company can collaborate most effectively with parties with which its management has a history of working together successfully in the past. The formation of the Consortium under the Joint Venture Transaction would allow the Company, CKI and PAH to continue to share the management and strategic expertise of the UK Gas ExCo [note][2] in the management and operation of the Target Group. Therefore, the Joint Venture Transaction with CKI and PAH will be beneficial to the Company’s business and consistent with its strategy since CKI and PAH both have a strong track record in infrastructure investments of the kind that meet the Company’s investment criteria and also have historical ties with the Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(a) the Target Group is a sizeable business, and will provide the Company with the opportunity to make a further investment in infrastructure and utility asset operations in Australia, which is consistent with the Company’s global diversification strategy;
(b) the Target Group provides stable revenue and cash flows which will help to compensate for the reduced contribution from property development, and is expected to generate long-term stable liquidity, provide income in the short to medium term, and strengthen further the Group’s dividend distribution capability;
(c) the Target Group’s energy infrastructure assets across Australia will represent a quality investment for the Group with potential for appropriate growth opportunities;
(d) the Company can leverage on the expertise of the Target’s existing management as well as through service agreements with the joint ventures with, and associates of, CKI and, or PAH and, or other professionals to support the management of the Target’s business; and
(e) the Company, through the Company Holdco and its interests in the DUET Assets in Australia, is already a participant in the UK Gas Group [note][1] and a member of the UK Gas ExCo [note][2] to facilitate its exposure to, and development of, industry expertise. The Company will continue to benefit from its participation in the UK Gas Group note 1 and membership of the UK Gas ExCo note 2 through the significant advantage of having access to the operational and management expertise in the gas sector to be found in other existing members of the UK Gas ExCo [note][2] .

Having considered that (i) the Acquisition is consistent with the Company’s global diversification strategy and represents a quality investment in accordance with the Group’s investment criteria; and (ii) collaboration with parties with proven track record and expertise as details above, we are of the view that the Acquisition as well as the Joint Venture Transaction are in the interests of the Company and the Shareholders as a whole.

Notes:

The UK Gas Group is a body with members comprising companies involved in gas investments globally (currently in Australia and the United Kingdom) to provide a discussion forum among its members.
CKI and PAH have, since the beginning of 2015, formed the UK Gas Executive Committee (UK Gas ExCo), a body with members comprising companies involved in gas investments in the United Kingdom and Australia, to provide a discussion forum among its members. The purpose for establishing the UK Gas ExCo is to develop a centre of excellence in the gas sector, facilitate the flow of information between operating entities and make recommendations for the centralisation of group functions (such as treasury and management) to drive group efficiencies.

The Company, through the Company Holdco and its interests in the DUET Assets in Australia, is already a participant in the UK Gas Group and a member of the UK Gas ExCo to facilitate its exposure to, and development of, industry expertise. The Company will continue to benefit from its

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

participation in the UK Gas Group and membership of the UK Gas ExCo through the significant advantage of having access to the operational and management expertise in the gas sector to be found in other existing members of the UK Gas Group and UK Gas ExCo.

VIII.FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Effect on earnings

As set out in the Target Group’s audited financial statements for the financial year ended 30th June, 2018, the profit for the year of the Target Group were approximately AUD265 million (equivalent to approximately HK$1,537 million). On this basis, the Directors expect that the Acquisition will have a positive impact on the Group’s earnings following completion of the Acquisition. Upon completion of the Acquisition, the results of the Target Group will be consolidated or equity accounted for, depending on whether the Joint Venture Transaction proceeds or not, in the consolidated financial statements of the Group. As such, we consider that the Acquisition alone, or with the implementation of the Joint Venture Transaction will have a positive impact on the net profit of the Group.

Effect on net assets value

As further stated in the Letter from the Board and based on the unaudited pro forma financial information of the Enlarged Group as set out in the Appendix III to this circular, the financial effects of the Acquisition on the assets and liabilities of the Group would have been as follows assuming the completion of the Acquisition had taken place on 30th June, 2018,

(i) in the event that the Consortium had not been formed and the Company had proceeded with the Acquisition alone:
(a) the total assets of the Group as at 30th June, 2018 would have increased from approximately HK$458,639 million to approximately HK$543,321 million for the Enlarged Group;
(b) the total liabilities of the Group as at 30th June, 2018 would have increased from approximately HK$128,851 million to approximately HK$214,619 million for the Enlarged Group; and
(c) accordingly, the Group’s net assets as at 30th June, 2018 would have decreased from approximately HK$329,788 million to approximately HK$328,702 million upon completion of the Acquisition, representing a decrease of approximately 0.33%.
(ii) in the event that the Consortium has been formed and the Company had proceeded with the Acquisition together with CKI and PAH as Consortium Members:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(a) the total assets of the Enlarged Group as at 30th June, 2018 would have remained the same as the total assets of the Group as at 30th June, 2018 of approximately HK$458,639 million;
(b) the total liabilities of the Enlarged Group as at 30th June, 2018 would have remained the same as the total liabilities of the Group as at 30th June, 2018 of approximately HK$128,851 million; and
(c) accordingly, with the implementation of the Joint Venture Transaction, there would have been no impact on the Group’s net assets as at 30th June, 2018.
(iii) in the event that the Consortium had been formed and the Company had proceeded with the Acquisition together with only one of CKI or PAH as a Consortium Member:
(a) the total assets of the Group as at 30th June, 2018 would have increased from approximately HK$458,639 million to approximately HK$464,613 million for the Enlarged Group;
(b) the total liabilities of the Group as at 30th June, 2018 would have increased from approximately HK$128,851 million to approximately HK$134,825 million for the Enlarged Group; and
(c) accordingly, with the implementation of the Joint Venture Transaction, there would have been no impact on the Group’s net assets as at 30th June, 2018.

Effect on working capital

As stated in the Letter from the Board, the Directors are of the view that the Acquisition is not expected to have any material adverse impact on the financial position of the Group.

In addition, as set out in the section headed “3. Working Capital” in Appendix I to this circular, the Directors are of the opinion that the Enlarged Group will have sufficient working capital for its present requirements for at least the next 12 months from the date of the circular.

As stated in the 2018 interim report of the Company, the Group has current assets of approximately HK$208,373 million including bank balances and deposits of approximately HK$55,222 million and current liabilities of approximately HK$58,270 million as at 30th June, 2018. On the basis that the settlement of the Scheme Consideration and the transaction costs for the Acquisition under the Implementation Agreement will be funded from the Company’s its internal resources and, or external borrowing, the effect on the working capital will be limited. As discussed above, the management of the Company has yet to finalise the funding method as at the Latest Practicable Date. However, the Group maintains investment grade rating, with strong

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relationships with leading financial institutions. The management of the Company believes the Group could obtain favourable financing terms for funding the Acquisition while maintaining sufficient cash resources.

Our view

As the consideration will be funded from internal resources and, or external borrowings, the Acquisition will have positive impact on the performance of the Group without causing any significant cash flow burden to the Group given that it has sufficient working capital for the next 12 months from the date of the circular, we are of the view that the Acquisition is beneficial to the Group from the financial point of the view. However, the Shareholders should note that the earnings contribution from the Target Group after completion of the Acquisition will depend on the future performance of the Target Group, and the actual effect of the Acquisition, including the debt financing for the Acquisition, on the assets and liabilities of the Group will depend on the financial position of the Target Group as of the date of completion of the Acquisition, which cannot be quantified as of the Latest Practicable Date.

IX. OUR ASSESSMENT OF THE JOINT VENTURE TRANSACTION

The Acquisition

The Company alone

The Acquisition without taking into account any participation by the other Consortium Members constitutes a major transaction for the Company under the Listing Rules and will be subject to the approval of Shareholders. As the Acquisition itself is from an independent third party unrelated to the Company, its controlling shareholder and their respective associates as defined in the Listing Rules, there is no requirement under the Listing Rules for the Acquisition to be subject to the approval of the Independent Shareholders. Accordingly, the consideration of the terms of the Acquisition falls beyond the scope of our engagement, as summarised above, which is to give advice on those aspects of the Joint Venture Transaction which relate to Company and the other Consortium Members. We have nevertheless provided in this letter some analysis of the Scheme Consideration, which is set out below.

The Joint Venture Transaction

As described earlier, the negotiation of the Acquisition involved all three Consortium Members and the commercial basis of the transaction was for each to take an agreed percentage interest in the Target through Bidco at a price which each Consortium Member had agreed and was manifestly determined by negotiation at arm’s length with the directors of the Target RE who are independent of the Consortium Members, their controlling shareholders and their respective associates. The Scheme Consideration will only be paid if the Trust Schemes are approved by the Target Securityholders together with the fulfillment of the other conditions of the Trust Schemes as stated above. For these reasons we do not consider that the Scheme Consideration forms part of the connected transactions between the Company and the other Consortium Members on

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which we have been engaged to give our advice. The Scheme Consideration was not determined by negotiation between parties who are deemed to be connected but by negotiation by the Consortium Members on the one hand, and the directors of the Target RE on the other. Further, the mechanism and formation of the Joint Venture Transaction will not result in any sale by the Company, however indirectly, of interests in the Target provided the approval of their independent shareholders is obtained by the Funding Date. Since the general meetings of the shareholders of CKI and PAH to approve the Joint Venture Transaction take place contemporaneously with the EGM of the Company, which is in advance of the despatch of the documents containing the Trust Schemes to the Target Securityholders, the Funding Date and the date on which the consideration payable under the Trust Schemes will be made will therefore follow CKI and PAH subscribing for shares in the JV Co. Accordingly, CKI and PAH will acquire their interests in the Target at the time the Trust Schemes are implemented and not from the Company.

The participation of CKI and PAH in the Joint Venture Transaction

It is intended that the Company will on completion of the Acquisition be interested indirectly in 60% of the stapled securities of the Target, with CKI and PAH having interest of 20% each. CKI is the listed company which has concentrated its business activity on infrastructure and utility investments on a world-wide basis both directly through subsidiary operations and jointly with PAH or through its controlling interest in PAH. In particular, CKI and PAH have a proven record of managing successfully infrastructural and utility operations on an international basis and, as a consequence, are the logical entities within the wider CKHH and CKA group to participate in the Acquisition.

CKI and PAH’s position in electricity and gas distribution in Australia makes them logical investors in the Target which operates in similar market in every state in Australia. The Target is the largest gas transmission pipeline owner in Australia; and further information on the Target has been set out above. CKI and PAH, through their respective subsidiaries and, or associates, have well-regarded management teams in Australia which have established a reputation for the efficient management of its operations and assets. For example, CKI and PAH have a combined interest of 51% in each of (i) SA Power Networks, the primary electricity supplier in the state of South Australia; and (ii) Victoria Power Networks Pty Ltd., which is engaged in the electricity distribution business in the state of Victoria. Both SA Power Networks and Victoria Power Networks Pty Ltd. had received numerous awards in past few years which included project management with significant reputation and recognition by the industry, such as the Project Management Achievement Awards established by the Australian Institute of Project Management. Please refer to the annual reports of CKI and PAH for further details of SA Power Networks and Victoria Power Networks Pty Ltd. The Company already has a record of collaborating successfully with CKI and PAH and with this favourable experience, CKI and PAH are obvious choices for further collaboration for expansion in such infrastructure projects. The formation of the Consortium under the Joint Venture Transaction will allow the Company, CKI and PAH to continue to share the management and strategic expertise of the UK Gas ExCo in the management and operation of the Target Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the reasons given above, the Directors consider that the inclusion of CKI and PAH as Consortium Members confers significant benefits to its proposed investment in the Target Group and, for these reasons, CKI and PAH’s participation should be welcomed. In addition, the Target Group will become a member of the UK Gas ExCo established by CKI and PAH since the beginning of 2015, and can benefit from the considerable expertise of CKI’s and PAH’s investments in the gas sector. It is accepted that under certain circumstances, however unlikely they may be, the Company could acquire all of the Target Group or a majority shareholding without the benefit of the participation of either CKI or PAH. In this event, the Company believes it has the resources both financial and managerial to manage the Target Group successfully. It is, however, not the preferred outcome. The Company’s preferred position is for it to be a member of the co-investors in the Target.

The Consortium Formation Agreement

The Consortium Formation Agreement establishes the structure and mechanism for both CKI and PAH to participate in the Joint Venture Transaction. On receipt of the requisite approvals from independent shareholders, CKI and, or, PAH will acquire the entire issued share capital in the relevant Consortium Midcos from the Company Holdco, thereby constituting the relevant Consortium Midcos as wholly-owned subsidiaries of either CKI or PAH. The present timetable of the Joint Venture Transaction anticipates that the EGM of the Shareholders of the Company, the general meetings of the shareholders of CKI and the shareholders of PAH to obtain JV Transaction Shareholders’ Approvals for the Joint Venture Transaction will have taken place before the despatch of the document containing the Trust Schemes to the Target Securityholders; that is well before the Funding Date, the day on which the Target Scheme Meetings are held and the date by which the consideration for the Acquisition is required to be paid. Accordingly, for all practical purposes, the participation of CKI and PAH will be known well before the Consortium Midcos are required to be fully capitalised. The arrangements under the Consortium Formation Agreement should not result in the Company having effectively to fund the relevant Consortium Midcos to be acquired by CKI and PAH respectively, in advance of the subscription and advances by CKI and PAH. We consider that the Consortium Formation Agreement fairly and reasonably reflects the respective contributions, rights and obligations of the parties for implementing the Joint Venture Transaction.

The Shareholders’ Agreement

The Shareholders’ Agreement sets out how the board of directors of JV Co will be composed and the reserved matters which require the approval of either the directors or the shareholders of JV Co by special majorities of 85%. The reserved matters, themselves, are ones that we would expect to find in an agreement by this kind and, given the level of the special majorities required to approve reserved matters and the proposed shareholding of Consortium Members in JV Co, even if either CKI or PAH do not become shareholders due to the failure to obtain the JV Transaction Shareholders’ Approval for the Joint Venture Transaction, the approval of reserved matters requires for all practical purposes unanimity among shareholders and near unanimity among directors. Accordingly, we consider that these arrangements

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

adequately protect the interests of the Company by giving it an effective veto over all material decisions and decisions outside the normal and usual course of the operation of JV Co and its group following the Acquisition.

The Implementation Agreement

The Implementation Agreement makes clear the several obligations of the Consortium Members in funding the Bidco and the obligations of the parties in working towards the implementation of the Trust Schemes to effect the Acquisition. For the Consortium Members it also sets out the circumstances when they would be entitled to receive a break fee in the event the Trust Schemes are not implemented and when Consortium Members are obligated to reimburse the costs of the Target RE in connection with proposing and implementing the Trust Schemes, the amount of which has been fixed, which have been stated in the section headed “III. THE IMPLEMENTATION AGREEMENT – Further terms” above.

In our view none of the provisions of the Implementation Agreement are unusual or controversial. Indeed, these are the provisions we would expect in an agreement of this kind and such an agreement is an essential element to a public transaction involving an unsolicited offer for a company to be implemented by way of a scheme of arrangement.

X. FURTHER FACTORS AND CONSIDERATIONS IN THE ASSESSMENT OF THE SCHEME CONSIDERATION

In addition to the background to, and the reasons and benefits for, the Acquisition and the Joint Venture Transaction as discussed above, we have further taken into account the following factors and considerations in arriving at our recommendations to the Independent Board Committee and the Independent Shareholders.

As we have stated above, the Scheme Consideration was negotiated on an arm’s length basis and, if the Joint Venture Transaction proceeds as contemplated and on the basis of the present timetable, the Consortium Members will become shareholders of the JV Co and, in such capacity, fund the subsequent acquisition of the stapled securities of the Target by Bidco. We would also expect that in a joint venture arrangement of the kind contemplated by the Joint Venture Transaction, each joint venture party would pay the same consideration for the stapled securities being acquired, as in the case with the Joint Venture Transaction. However, for completeness sake, we have included an assessment of the Scheme Consideration of AUD11.00 per Target Security, which based on the 1,179,893,848 Target Securities in issue at the Latest Practicable Date gives rise to a total consideration of approximately AUD12,979 million (equivalent to approximately HK$75,278 million).

We have done so on two bases: (i) by comparing the present market valuation of the stapled securities of the Target with comparable companies or trusts listed in Australia and are engaged principally in the distribution and, or, transmission of gas and, or, electricity; and (ii) by comparing the consideration to be paid for the Target Group by the Consortium Members with publicly disclosed transactions involving the acquisition of companies or operations which are primarily engaged in the distribution and, or,

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

transmission of gas and, or, electricity in Australia. We have also examined the premia offered of such acquisition over the market value of the respective offeree companies or operations prior to the announcement of the acquisition terms.

Trading statistics of comparable listed companies in Australia

We have therefore identified two Australian listed companies, which are primarily engaged in the distribution and, or, transmission of gas and, or, electricity in Australia. We consider these companies are comparable with the Target Group and should give an indication of whether the Scheme Consideration is fair and reasonable.

As 100% of the Target Group will be controlled jointly by the Company, CKI and PAH who together will be able to determine the capital structure and deployment of the cashflow of the Target Group, we believe that the most relevant comparable measure is the enterprise value (the “ EV ”) to the EBITDA ratio. We have therefore assessed these companies and the Target Group using an EV/EBITDA multiple, which we believe is the more appropriate measure when assessing the acquisition of a company or business. For the comparable listed Australian companies and the Target Group the ratio has been calculated using figures extracted from the respective latest published full year audited financial statements.

		Market
		capitalisation	EV	EBITDA	EV/
Ticker	Company	(note 1)	(note 2)	(note 3)	EBITDA
		(AUD	(AUD	(AUD
		million)	million)	million)	(times)
ASX: AST	AusNet Services	5,927.5	12,834.4	1,142.9	11.2
	Limited
ASX: SKI	Spark Infrastructure	3,801.3	9,173.6	891.4	10.3
	Group
				Maximum	11.2
				Minimum	10.3
				Average	10.8
	Target *(note 4)*	12,978.8	22,528.8	1,518.0	14.8

Sources: Bloomberg, and published financial statements of relevant comparable companies

Notes:

The market capitalisation is taken at the Latest Practicable Date.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

EV is the enterprise value of a company or business. In the tabulation above, it has been calculated by taking the sum of the market capitalisation of the relevant company at the Latest Practicable Date, and net debt, less cash and bank deposits, extracted from the respective company’s latest published full year audited financial statements. If EV is not available, the total equity value on the basis of consideration will be adopted.
EBITDA represents the earnings before interest paid, taxation, depreciation and amortisation, and adjusted for any one-off extraordinary expenses and incomes (if any). It is a measure of gross funds generated by a normal business. Such figure was extracted from the respective company’s latest published full year audited financial statements.
For the Target, its market capitalisation has been calculated by multiplying the Scheme Consideration by the number of stabled securities of the Target in issue as at the date of the Announcement. The Scheme Consideration and the latest available financial information of the Target as at the Latest Practicable Date are used to determine the implied EV and EBITDA of the Target.

As can be seen, the valuation of the Target Group falls outside the range of the two comparable companies. However, the above multiplies of the comparable companies do not take into account of the any premium being paid for the control of the Target Group, and please refer to the section headed “Premia implied by the control premium” below for our analysis on the control premium.

Recent precedent transactions in Australia

We have attempted to identify acquisitions of comparable companies or assets (the “ Comparable Transactions ”) in which the principal nature is the distribution and, or, transmission of gas and, or, electricity in Australia in the past three years, and four Comparable Transactions have been selected, to the best of our endeavours, in our research through public information. As mentioned above we have assessed them on the basis of their respective EV/EBITDA multiples, which we regard is the more appropriate measure. The figures used for these comparisons have been extracted from press releases, public announcements and regulatory filings and have been converted into AUD, if necessary. However, no public information was available for the calculation of the EV and EBITDA values for one of these four Comparable Transactions, and we have discussed this one in footnote no. 1 below.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

					EV/
Date of	Target company or	Size of			EBITDA
announcement	assets	consideration	EV	EBITDA	multiple
		(AUD million)
		(percentage of
		interest	(AUD	(AUD
		acquired)	million)	million)	(times)
May 2017	Endeavour Energy	7,624	N/A (note 1)	697	N/A (note 1)
		(50.4%)
May 2017	Darling Downs	392	392	N/A	13.0
	Pipeline Network	(100%)			(note 2)
January 2017	DUET Group	7,412	13,470	972	13.9
		(100%)
November	TransGrid	10,258	10,258	705	14.6
2015		(100%)
				Maximum	14.6
				Minimum	13.0
				Median	13.9
				Average	13.8
	Target *(note 3)*	12,979 (100%)	22,529	1,518	14.8

Sources: Bloomberg, press releases, public announcements, or regulatory filings of relevant comparable companies

Notes:

On 11th May, 2017, the NSW Government of Australia announced the long-term lease of 50.4% of Endeavour Energy to an Australian-led consortium, which comprised of Macquarie Infrastructure & Real Assets, AMP Capital on behalf of Retail Employees Superannuation Trust, Canada’s British Columbia Investment Management Corporation and the Qatar Investment Authority. However, no public information regarding the EV and EV/EBITDA ratio of such Endeavour Energy transaction were available.
According to the press releases by the seller (Origin Energy Limited) and the buyer (Jemena Gas Pipelines Holdings Pty Ltd.), the seller and buyer of Darling Downs Pipeline disclosed transaction EV/EBITDA multiples of 16.9x and 13.0x, respectively. For conservative approach, we have adopted the lower figure for calculation purpose.
The Scheme Consideration and the latest available financial information of the Target as at the Latest Practicable Date are used to determine the implied EV and EBITDA of the Target

As can be seen, the implied multiple of the Acquisition of 14.8x of the FY2018 EV/ EBITDA is slightly higher than the average and median of the Comparable Transactions in terms of their respective EV/EBITDA multiples.

Premia implied by the control premium

The valuation of the Target Group under the Scheme Consideration falls outside the range of the two comparable companies as shown above. As the EV used at arriving at the EV/EBITDA multiple of the comparable companies are based on their respective market capitalisation of the issued share capital, and therefore a takeover premium for control should not be generally included. In the precedent transactions we have

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

identified in the section headed “Recent precedent transactions in Australia”, only the acquisition of DUET group by the Company, CKI and PAH joint venture on 16th January, 2017 involved an acquisition of a listed company. The consideration represented a premium of approximately 27.7% to the closing share price of the DUET group prior to the date of the announcement by DUET group regarding the non-binding proposal on the acquisition. The Scheme Consideration represented an approximately 33.0% premium over the unaffected closing share price of the Target of AUD8.27 per stapled security on 12th June, 2018 (the date of the Proposal Announcement), We have further made reference to the Control Premium Study (1st quarter, 2018) which was published by Factset Mergerstat, LLC. (the “ Mergerstat ”), an independent information provider for merger and acquisition transaction data, in relation to the examination of control premia of the transactions whereby 50.01% or more of a company was acquired. As indicated by such market data and for illustrative purposes, the overall average and median premiums for the 89 transactions (excluding negative premium transactions) in this study report were approximately 41.6% and 26.0%, respectively, while the overall average and median premiums for the 107 transactions (including negative premium transactions) were approximately 30.0% and 22.0%, respectively [note][1] . As such, the higher EV/EBITDA multiple of the Target, with reference to the abovementioned premium control data as proxy only, should reflect the takeover premium for control for the Acquisition, which we are of the opinion is fair and reasonable.

Implied operating cash flow yield and distribution yield of the Target

The Target Group generated operating cash flow (defined as net cash from operations after interest and tax payments) of approximately AUD90.7 cents per stapled security, and distributed to the Target Securityholders AUD45.0 cents per stapled security for the year ended 30th June, 2018. Based on the Scheme Consideration of AUD11.0 per stapled security, the implied operating cash flow yield and distribution yield are approximately 8.2% and 4.1% respectively. According to the management of the Company, given that the Group maintains investment grade rating and strong relationships with a number of leading financial institutions as mentioned before, it is expected that the Group could obtain favourable financing terms and lower borrowing costs as compared to the implied cash distribution yield calculated above for funding the Acquisition while maintaining sufficient cash resources.

Assessment of the Scheme Consideration

On the basis of our analyses of the traded prices of securities in comparable companies listed in Australia and the comparable acquisitions of businesses operating in comparable sector to the Target Group (i.e. the Comparable Transactions), and taking into account of the premium being paid for the control of the Target Group, we

Note:

The control premium calculated in the Control Premium Study (1st quarter, 2018) report was the percentage difference between the total consideration price per share of the target company’s common stock and the market trading price per share prior to the acquisition announcement as analysed and determined by Mergerstat.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

consider that the Scheme Consideration is fair and reasonable, and a fair and reasonable basis for all the Consortium Members to participate in the Joint Venture Transaction.

XI. RECOMMENDATIONS

Taking into account the considerations and factors set out above, we are of the opinion that the terms of the Joint Venture Transaction in so far as they affect the Company, CKI and PAH are fair and reasonable, the Acquisition is on normal commercial terms and in the ordinary and usual course of the business of the Company. The Joint Venture Transaction follows a pattern of similarly structured infrastructure projects in which the Consortium Members have participated in Australia and elsewhere. For the Company it represents a further realisation of its diversification strategy and is consistent with the Group’s investment criteria to extend its reach to other business areas to increase stable recurrent earnings. We consider the Joint Venture Transaction is in the ordinary and usual course of business, on normal commercial terms, and is in the interests of the Company and its Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend to the Independent Shareholders to vote in favour of, and we also advise the Independent Shareholders to vote in favour of, the ordinary resolutions to be proposed at the EGM of the Company to approve the Joint Venture Transaction and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of

	Anglo	Chinese	Corporate Finance, Limited
Stephen	Clark		Dennis Cassidy
_Managing _	Director		Director – Head of Corporate Finance

Mr. Stephen Clark is a licensed person registered with the Securities and Futures Commission and as a responsible officer of Anglo Chinese to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO. He has over 35 years of experience in corporate finance.
Mr. Dennis Cassidy is a licensed person registered with the Securities and Futures Commission and as a responsible officer of Anglo Chinese to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO. He has over 35 years of experience in corporate finance.

– 78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2015, 2016 AND 2017 AND THE SIX MONTHS ENDED 30 JUNE 2018

Financial information of the Group for each of the three years ended 31 December 2015, 2016 and 2017, and the six months ended 30 June 2018, are disclosed in the following documents which have been published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (http://www.ckah.com) and can be accessed at the website addresses below:

(i) annual report of the Company for the year ended 31 December 2015 (http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0408/LTN20160408361.pdf)
(ii) annual report of the Company for the year ended 31 December 2016 (http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0405/LTN201704051352.pdf)
(iii) annual report of the Company for the year ended 31 December 2017 (http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0406/LTN20180406599.pdf)
(iv) interim report of the Company for the six months ended 30 June 2018 (http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0816/LTN20180816700.pdf)

2. INDEBTEDNESS

As at 31 August 2018, being the latest practicable date for the purpose of this statement of indebtedness, the Group and the Target Group had the following outstanding indebtedness:

(a) Borrowings

As at 31 August 2018:

(i) the Group had total bank and other borrowings of HK$64,436 million, of which HK$5,365 million were secured and HK$59,071 million were unsecured; and
(ii) the Target Group had total bank and other borrowings of approximately HK$55,458 million, all of which were unsecured.

(b) Charge on Assets

As at 31 August 2018, except for properties held by the Group amounting to HK$14,995 million, which were charged to secure bank loans arranged for property projects on Mainland China, no material asset of the Group or the Target Group was under any charge.

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Contingent Liabilities

As at 31 August 2018:

(i) the Group provided guarantees amounting to HK$3,309 million; and
(ii) the Target Group provided guarantees amounting to approximately HK$303 million.

Save as disclosed above and apart from intra-group liabilities and guarantees, as of the close of business on 31 August 2018, the Group and the Target Group did not have any outstanding debt securities, loan capital, bank overdrafts, loans, mortgages, charges or other similar indebtedness, hire purchase or finance lease commitments, liabilities under acceptances or acceptance credits, guarantees or other material contingent liabilities.

3. WORKING CAPITAL

The Directors are of the opinion that, following completion of the Acquisition and in the absence of unforeseeable circumstances, after taking into account the Enlarged Group’s business prospects, internal resources and available credit facilities, the Enlarged Group will have sufficient working capital for its present requirements for at least the next 12 months from the date of this circular.

4. FINANCIAL AND TRADING PROSPECTS

The Group recorded satisfactory results for the first half of 2018 as various businesses continued to perform solidly. Good progress was made in executing the Group’s two-pronged strategy. The Group continued to enhance the property business fundamentals while strengthening the recurring earnings base through portfolio and geographic diversification to generate stable shareholder returns.

The Group has made various investments since late 2016 which include investment properties and hotel projects in Hong Kong and overseas markets; infrastructure and utility assets in continental Europe, Australia, Canada and the United Kingdom; and the aircraft leasing business. As recurring income and profit contribution of these investments grow, the Group is expected to record an increase of over 50% in recurrent profit contribution for 2018 as compared to 2016. In furtherance of the Group’s fundamental principle “to advance while maintaining stability”, the Group will focus on potential investments with stable recurring income to propel earnings growth and enhance strategic flexibility, while ensuring its financial strength is not compromised. A strong recurring income base is strategically critical to stable and sustainable dividend distributions in a changing and unpredictable property market. Barring any unforeseen adverse circumstances, the Group expects to achieve its scheduled investment target of expanding stable income in the near term.

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notwithstanding all the recent acquisitions, the Group has ample cash on hand with a debt ratio below 2% as at 30 June 2018. The established strong operating and financial platform of the Group that is anchored in stability is the cornerstone for sustainable growth of its diversified businesses and generating solid and stable returns for Shareholders in a challenging market environment. The Group will continue to pursue selective investments in global quality assets that would create synergistic benefits and contribute to long-term sustainable earnings. The Group is confident that it is well-placed for the next phase of growth.

The Target Group’s energy infrastructure assets in Australia represent an attractive opportunity with the potential for growth opportunities and is in accordance with the Group’s investment criteria to extend its reach to other business areas to increase stable recurrent income. In the year ended 30 June 2017, the Target Group embarked upon a three year growth program which will see it invest in excess of AUD1.4 billion in a variety of energy infrastructure growth projects. As at 30 June 2018, the Target Group had spent AUD1 billion in capital expenditure with the balance to be realised in the coming financial year. These assets are expected to contribute to additional revenue to the Target Group in the coming financial year and beyond. The Target Group also sees more growth with in excess of AUD4 billion of growth opportunities currently identified over the next four to five years. These opportunities range across gas pipeline developments, gas and renewables power generation and other opportunities that are currently at various stages of development.

5. NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirm that there was no material adverse change in the financial or trading position of the Group since 31 December 2017, being the date to which the latest published audited consolidated financial statements of the Group have been made up.

– I-3 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

A. PUBLISHED FINANCIAL INFORMATION OF THE TARGET GROUP OF EACH OF THE THREE YEARS ENDED 30 JUNE 2016, 2017 AND 2018

For the purpose of this section only, unless the context requires otherwise, references to the “ Company ”, “ we ”, “ us ” and “ our ” refer to the Target and references to “$” refer to AUD.

The following is an extract of the audited financial statements of the Target Group for the year ended 30 June 2016, which were prepared in accordance with the Australian Accounting Standards and which comply with IFRS, from the 2016 annual report of the Target issued on 24 August 2016.

– II-1 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIvE INCOME

For the financial year ended 30 June 2016

Note Continuing operations Revenue 5 Share of net profits of associates and joint ventures using the equity method 5 Net profit on sale of equity accounted investment 3 Asset operation and management expenses Depreciation and amortisation expense 6 Other operating costs – pass-through 6 Finance costs 6 Employee benefit expense 6 Other expenses Profit before tax Income tax expense 7 Profit for the year Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss: Actuarial (loss)/gain on defined benefit plan Income tax relating to items that will not be reclassified subsequently Items that may be reclassified subsequently to profit or loss: Gain on available-for-sale investments taken to equity Transfer of loss on cash flow hedges to profit or loss Loss on cash flow hedges taken to equity Loss on associate hedges taken to equity Recycling of reserves on disposal of available-for-sale-investments/associate Income tax relating to items that may be reclassified subsequently Other comprehensive income for the year (net of tax) Total comprehensive income for the year	2016 $000 2,077,327 16,977 2,094,304 – (129,534) (520,890) (438,330) (511,355) (180,103) (12,097) 301,995 (122,524) 179,471 (8,148) 2,444 (5,704) 1,027 121,922 (249,150) (9,429) 11,356 37,136 (87,138) (92,842) 86,629	2015 $000 1,539,694 13,921 1,553,615 430,039 (55,053) (208,200) (434,382) (348,484) (176,174) (24,233) 737,128 (177,198) 559,930 18,354 (5,506) 12,848 2,591 68,960 (316,555) (9,660) (19,416) 82,520 (191,560) (178,712) 381,218

– II-2 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Note Profit attributable to: Unitholders of the parent Non-controlling interest – APT Investment Trust unitholders APA stapled securityholders Non-controlling interest – other Total comprehensive income attributable to: Unitholders of the parent Non-controlling interest – APT Investment Trust unitholders APA stapled securityholders Non-controlling interest – other Earnings per security Basic and diluted (cents per security) 8	2016 $000 94,520 85,102 179,622 (151) 179,471 2,273 84,507 86,780 (151) 86,629 2016 16.1	2015 $000 513,581 46,348
		559,929 1
		559,930

		333,880 47,337
		381,217 1
		381,218

		2015 56.3

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

– II-3 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2016

Note Current assets Cash and cash equivalents 19 Trade and other receivables 10 Other financial assets 22 Inventories Other Current assets Non-current assets Cash on deposit 19 Trade and other receivables 10 Other financial assets 22 Investments accounted for using the equity method 25 Property, plant and equipment 12 Goodwill 13 Other intangible assets 13 Other 16 Non-current assets Total assets Current liabilities Trade and other payables 11 Borrowings 20 Other financial liabilities 22 Provisions 15 Unearned revenue Current liabilities	2016 $000 84,506 263,232 35,140 24,891 13,023 420,792 2,149 17,283 447,070 197,185 9,189,087 1,184,588 3,355,707 28,814 14,421,883 14,842,675 252,661 409,829 114,674 93,033 13,735 883,932	2015 $000 411,921 254,940 24,789 21,290 8,314
		721,254
		– 92,470 496,537 257,425 8,355,193 1,140,500 3,556,246 33,261
		13,931,632
		14,652,886
		405,685 164,353 145,815 85,452 7,477
		808,782

– II-4 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Note Non-current liabilities Trade and other payables 11 Borrowings 20 Other financial liabilities 22 Deferred tax liabilities 7 Provisions 15 Unearned revenue Non-current liabilities Total liabilities Net assets Equity Australian Pipeline Trust equity: Issued capital 23 Reserves Retained earnings Equity attributable to unitholders of the parent Non-controlling interests: APT Investment Trust: Issued capital Reserves Retained earnings Equity attributable to unitholders of APT Investment Trust 24 Other non-controlling interest Total non-controlling interests Total equity	2016 $000 3,007 9,314,373 194,591 304,849 70,917 41,895 9,929,632 10,813,564 4,029,111 3,195,445 (395,335) 182,062 2,982,172 1,005,074 – 41,812 1,046,886 53 1,046,939 4,029,111	2015 $000 3,261 9,141,497 44,793 194,692 60,410 16,801 9,461,454 10,270,236 4,382,650 3,195,449 (308,792) 463,772 3,350,429 1,005,086 595 26,488 1,032,169 52 1,032,221 4,382,650

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

– II-5 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

					Total	$000	2,496,489	559,930	(255,726)		77,014	381,218	(302,960)	1,838,473	(39,627)	9,057	4,382,650
			Other non-	controlling	interests	$000	51	1	–		–	1	–	–	–	–	52
Other non-controlling interest				Retained	Other earnings	$000 $000	1 46	– 1	– –		– –	– 1	– –	– –	– –	– –	1 47
				Issued	Capital	$000	4	–	–		–	–	–	–	–	–	4
			APT	Investment	Trust	$000	595,243	46,348	989		–	47,337	(39,325)	438,351	(9,437)	–	1,032,169
APT Investment Trust	Available-	for-sale	Investment	Revaluation Retained	Reserve earnings	$000 $000	(394) 19,465	– 46,348	989 –		– –	989 46,348	– (39,325)	– –	– –	– –	595 26,488
				Issued	Capital	$000	576,172	–	–		–	–	–	438,351	(9,437)	–	1,005,086
			Attributable	to owner of	the parent	$000	1,901,195	513,581	(256,715)		77,014	333,880	(263,635)	1,400,122	(30,190)	9,057	3,350,429
				Retained	earnings	$000	200,978	513,581	18,354		(5,506)	526,429	(263,635)	–	–	–	463,772
Australian Pipeline Trust	Available-	for-sale	Investment	Revaluation Hedging Other	Reserve Reserve Reserve	$000 $000 $000	363 (125,275) –	– – –	1,602 (276,671) –		(481) 83,001 –	1,121 (193,670) –	– – –	– – –	– – –	– – –	1,484 (318,945) –
			Asset	Revaluation	Reserve	$000	8,669	–	–		–	–	–	–	–	–	8,669
				Issued	Capital	$000	1,816,460	–	–		–	–	–	1,400,122	(30,190)	9,057	3,195,449
							Balance at 1 July 2014	Profit for the year	Other comprehensive income	Income tax relating to components	of other comprehensive income	Total comprehensive income for the year	Payment of distributions	Securities issued under entitlement offer	Issue cost of securities	Tax relating to security issue costs	Balance at 30 June 2015

– II-6 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

					Total	$000	4,382,650	179,471	(132,422)		39,580	86,629	–	–	(440,152)	(18)	2	4,029,111
Australian Pipeline Trust APT Investment Trust Other non-controlling interest	Available- Available-	for-sale for-sale	Asset Investment Attributable Investment APT Other non-	Issued Revaluation Revaluation Hedging Other Retained to owner of Issued Revaluation Retained Investment Issued Retained controlling	Capital Reserve Reserve Reserve Reserve earnings the parent Capital Reserve earnings Trust Capital Other earnings interests	$000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000	Balance at 1 July 2015 3,195,449 8,669 1,484 (318,945) – 463,772 3,350,429 1,005,086 595 26,488 1,032,169 4 1 47 52	Profit for the year – – – – – 94,520 94,520 – – 85,102 85,102 – – (151) (151)	Other comprehensive income – – (2,121) (121,558) – (8,148) (131,827) – (595) – (595) – – – –	Income tax relating to components	of other comprehensive income – – 637 36,499 – 2,444 39,580 – – – – – – – –	Total comprehensive income for the year – – (1,484) (85,059) – 88,816 2,273 – (595) 85,102 84,507 – – (151) (151)	Acquisition of non-controlling interest – – – – (152) – (152) – – – – – – 152 152	Transfer to retained earnings – – – – 152 (152) – – – – – – – – –	Payment of distributions_(note 8)_ – – – – – (370,374) (370,374) – – (69,778) (69,778) – – – –	Issue cost of securities (6) – – – – – (6) (12) – – (12) – – – –	Tax relating to security issue costs 2 – – – – – 2 – – – – – – – –	Balance at 30 June 2016 3,195,445 8,669 – (404,004) – 182,062 2,982,172 1,005,074 – 41,812 1,046,886 4 1 48 53			The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

– II-7 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOwS

For the financial year ended 30 June 2016

Note Cash flows from operating activities Receipts from customers Payments to suppliers and employees Receipts of Hastings Funds Management fees 3 Dividends received from associates and joint ventures Proceeds from repayment of finance leases Interest received Interest and other costs of finance paid Income tax paid Net cash provided by operating activities Cash flows from investing activities Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Payments for equity accounted investments Payments for controlled entities net of cash acquired 26 Payments for other assets Payments for intangible assets Loans advanced to related parties Proceeds from sale of finance lease asset Proceeds from sale of equity accounted investment Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Proceeds from issue of securities Payment of debt issue costs Payments of security issue costs Proceeds from early settlement of derivatives Release of restricted cash Distributions paid to: Unitholders of APT Unitholders of non-controlling interests – APTIT Net cash (used)/provided by financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Unrealised exchange gains/(losses) on cash held Cash and cash equivalents at end of financial year 19	2016 $000 2,286,248 (964,879) – 22,186 3,399 9,660 (493,586) (593) 862,435 (455,975) 386 – (217,340) – (705) – – – (673,634) 1,110,153 (1,176,899) – (9,623) (77) – 20 (370,374) (69,778) (516,578) (327,777) 411,921 362 84,506	2015 $000 1,584,738 (827,797) 17,201 46,526 4,621 30,296 (293,395) – 562,190 (2,814,559) 876 (17,383) – (18,612) (3,429,281) (3,490) 8,683 783,758 (5,490,008) 5,279,188 (1,429,500) 1,838,473 (32,398) (39,567) 19,515 – (263,636) (39,324) 5,332,751 404,933 7,009 (21) 411,921

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

– II-8 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Reconciliation of profit for the year to the net cash provided by operating activities

Note Profit for the year Loss on previously held interest on obtaining control Acquisition costs from business combinations Loss on disposal of property, plant and equipment Loss on write-off of inventories Profit on sale of finance lease asset Share of net profits of joint ventures and associates using the equity method Dividends/distributions received from equity accounted investments Net profit on sale of equity accounted investment 3 Depreciation and amortisation expense Finance costs Unrealised foreign exchange (gain)/loss Realised hedging loss/(gain) Changes in assets and liabilities: Trade and other receivables Inventories Other assets Trade and other payables Provisions Other liabilities Income tax balances Net cash provided by operating activities	2016 $000 179,471 476 3,387 447 127 – (16,977) 21,537 – 520,890 12,225 (938) 7,540 (15,742) (3,605) 3,195 (8,456) 4,524 32,403 121,931 862,435	2015 $000 559,930 – – 3,337 – (1,764) (13,921) 45,989 (430,039) 208,200 21,221 35 (19,258) (49,880) (3,936) (24,725) 65,083 14,725 9,995 177,198 562,190

Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified within operating cash flows.

– II-9 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended 30 June 2016

BASIS OF PREPARATION

1. ABOUT THIS REPORT

The content and format of the financial statements is streamlined to present the financial information in a meaningful manner to securityholders. Note disclosures are grouped into six sections being Basis of Preparation, Financial Performance, Operating Assets and Liabilities, Capital Management, Group Structure and Other. Each note sets out the accounting policies applied in producing the results along with any key judgements and estimates used. The purpose of the format is to provide readers with a clear understanding of what are the key drivers of financial performance for APA Group.

Basis of Preparation

Financial Performance

Operating Assets and Liabilities

About this report
Segment information
Receivables
General information
Revenue
Payables
Significant items and events 6. Expenses
Property, plant and equipment
Income tax
Goodwill and intangibles
Earnings per security
Impairment of non-financial assets
Distributions
Provisions
Other non-current assets
Employee superannuation plans
Leases

Capital Management

Group Structure

Other

Cash balances 24. Non-controlling interests
Commitments and contingencies
Borrowings
Joint arrangements and 29. Director and senior executive associates remuneration
Financial risk management
Business combinations
Remuneration of external auditor
Other financial instruments
Subsidiaries
Related party transactions
Issued capital
Parent entity information
Adoption of new and revised Accounting Standards
Events occurring after reporting date

– II-10 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

2. GENERAL INFORMATION

APA Group comprises of two trusts, Australian Pipeline Trust (“APT”) and APT Investment Trust (“APTIT”), which are registered managed investment schemes regulated by the Corporations Act 2001. APT units are “stapled” to APTIT units on a one-to-one basis so that one APT unit and one APTIT unit form a single stapled security which trades on the Australian Securities Exchange under the code “APA”.

Australian Accounting Standards require one of the stapled entities of a stapled structure to be identified as the parent entity for the purposes of preparing a consolidated financial report. In accordance with this requirement, APT is deemed to be the parent entity. The results and equity attributable to APTIT, being the other stapled entity which is not directly or indirectly held by APT, are shown separately in the financial statements as non-controlling interests.

The financial report represents the consolidated financial statements of APT and APTIT (together the “Trusts”), their respective subsidiaries and the share of joint arrangements and associates (together “APA Group”). For the purposes of preparing the consolidated financial report, APA Group is a forprofit entity.

Total comprehensive income attributable to non-controlling interests is reported as disclosed in the separate financial statements of APTIT. Comprehensive income arising from transactions between the parent (APT) group entities and the non-controlling interest (APTIT) have not been eliminated in the reporting of total comprehensive income attributable to non-controlling interests.

All intragroup transactions and balances have been eliminated on consolidation. Where necessary, adjustments are made to the assets, liabilities, and results of subsidiaries, joint arrangements, associates, and joint ventures to bring their accounting policies into line with those used by APA Group.

APT’s registered office and principal place of business is as follows:

Level 19 HSBC Building 580 George Street SYDNEY NSW 2000 Tel: (02) 9693 0000

The consolidated general purpose financial report for the year ended 30 June 2016 was authorised for issue in accordance with a resolution of the directors on 24 August 2016.

This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AIFRS) and also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

The financial report has been prepared on the basis of historical cost, except for the revaluation of financial instruments. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($000) in accordance with ASIC Corporations Instrument 2016/191, unless otherwise stated.

– II-11 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

working capital position

The working capital position as at 30 June 2016 for APA Group is that current liabilities exceed current assets by $463.1 million (2015: $87.5 million) primarily as a result of $114.7 million (AUD equivalent) of cash flow hedge liabilities and current borrowings of $409.8 million.

APA Group has access to sufficient available committed, un-drawn bank facilities of $672.5 million as at 30 June 2016 (2015: $1,175.0 million) to meet the repayment of current borrowings on due date.

The Directors continually monitor APA Group’s working capital position, including forecast working capital requirements and have ensured that there are appropriate refinancing strategies and adequate committed funding facilities in place to accommodate debt repayments as and when they fall due.

Foreign currency transactions

Both the functional and presentation currency of APA Group and APT is Australian dollars (A$). All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at that date and resulting exchange differences are recognised in profit or loss in the period in which they arise, unless they qualify for hedge accounting.

3. SIGNIFICANT ITEMS AND EvENTS

Individually significant items included in profit after income tax expense are as follows:

Significant items impacting EBITDA Net profit on sale of equity accounted investment(a) Recovery of fees paid by HDF to Hastings Funds Management Limited(b) Total significant items impacting EBITDA Income tax related to significant items above Profit from significant items after income tax	2016 $000 – – – – –	2015 $000 430,039 17,201 447,240 (91,222) 356,018

(a) During August 2014, APA Group sold its investment in Envestra Limited to Cheung Kong Group consortium for $1.32 per share amounting to $783.8 million in gross proceeds which realised a net pre-tax profit of $430.0 million.

(b) In November 2014, APA Group successfully appealed the NSW Supreme Court decision in a matter regarding performance fees previously paid by Hastings Diversified Utilites Fund (HDF) to Hastings Funds Management Limited (HFML).

– II-12 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

FINANCIAL PERFORMANCE

4. SEGMENT INFORMATION

APA Group operates in one geographical segment, being Australia and the revenue from major products and services is shown by the reportable segments.

APA Group comprises the following reportable segments:

Energy Infrastructure , which includes all wholly or majority owned pipelines, gas storage assets, the Emu Downs Wind Farm, and the Diamantina Power Station;
Asset Management , which provides commercial, operating services and/or asset maintenance services to APA Group’s energy investments and Australian Gas Networks Limited for appropriate fees; and
Energy Investments , which includes APA Group’s strategic stakes in a number of investment entities that house energy infrastructure assets, generally characterised by long term secure cashflows, with low capital expenditure requirements.

Reportable segments

Energy Infrastructure 2016 $000 Segment revenue (a) External sales revenue 1,526,658 Equity accounted net profits – Pass-through revenue 29,586 Finance lease and investment interest income 1,917 Distribution – other entities – Total segment revenue 1,558,161 Other interest income Consolidated revenue Segment result Earnings before interest, tax, depreciation and amortisation (“EBITDA”) 1,333,682 Share of net profits of joint ventures and associates using the equity method – Finance lease and investment interest income 1,917 Corporate costs – Total EBITDA 1,335,599 Depreciation and amortisation (508,710) Earnings before interest and tax (“EBIT”) 826,889 Net finance costs(b) Profit before tax Income tax expense Profit for the year	Asset Management $000 95,430 – 408,744 – – 504,174 53,858 – – – 53,858 (12,180) 41,678	Energy Investments Other $000 $000 – – 16,977 – – – 10,783 – 512 – 28,272 – 36 – 16,977 – 10,783 – – (86,710) 27,796 (86,710) – – 27,796 (86,710)	Consolidated $000 1,622,088 16,977 438,330 12,700 512
			2,090,607 3,697
			2,094,304

			1,387,576 16,977 12,700 (86,710)
			1,330,543 (520,890)
			809,653 (507,658)
			301,995 (122,524)
			179,471

– II-13 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(a) The revenue reported above represents revenue generated from external customers. Any intersegment sales were immaterial.
(b) Excluding finance lease and investment interest income, and any gains or losses on revaluation of derivatives included as part of EBIT for segment reporting purposes, but including other interest income.

Energy Infrastructure Asset Management Energy Investments 2016 $000 $000 $000 Segment assets and liabilities Segment assets 13,873,683 213,973 17,499 Carrying value of investments using the equity method – – 197,185 Unallocated assets(a) Total assets Segment liabilities 319,995 63,574 – Unallocated liabilities(b) Total liabilities	Consolidated $000 14,105,155 197,185 540,335
	14,842,675

	383,569 10,429,995
	10,813,564

(a) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards.
(b) Unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts.

2015 Segment revenue(b) External sales revenue Equity accounted net profits Pass-through revenue Finance lease and investment interest income Distribution – other entities Total segment revenue Other interest income Consolidated revenue	Energy Infrastructure $000 984,184 – 13,514 2,896 – 1,000,594	Asset Management(a) $000 85,056 – 420,868 – – 505,924	Energy Investments(a) $000 – 13,921 – 8,308 546 22,775	Other $000 – – – – – –	Consolidated $000 1,069,240 13,921 434,382 11,204 546
					1,529,293 24,322
					1,553,615

(a) During August 2014, APA Group sold its investment in Envestra Limited to a Cheung Kong Group consortium for $1.32 per share. This resulted in a $440.0 million gain in Energy Investments being the gross proceeds less the carrying value of the equity accounted investment affected by a reassessment of the carrying value of the asset management business to reflect future growth opportunities, resulting in a reduction of goodwill ($10.0 million).
(b) The revenue reported above represents revenue generated from external customers. Any intersegment sales were immaterial.

– II-14 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

2015 Segment result Earnings before interest, tax, depreciation and amortisation (“EBITDA”) Share of net profits of joint ventures and associates using the equity method Finance lease and investment interest income Corporate costs Total EBITDA Depreciation and amortisation Earnings before interest and tax (“EBIT”) Net finance costs(b) Profit before tax Income tax expense Profit for the year 2015 Segment assets and liabilities Segment assets Carrying value of investments using the equity method Unallocated assets(c) Total assets Segment liabilities Unallocated liabilities(d) Total liabilities	Energy Infrastructure Asset Management(a) Energy Investments(a) Other $000 $000 $000 $000 838,462 39,448 440,584 – – – 13,921 – 2,896 – 8,308 – – – – (74,129) 841,358 39,448 462,813 (74,129) (195,635) (12,565) – – 645,723 26,883 462,813 (74,129) Energy Infrastructure Asset Management(a) Energy Investments(a) $000 $000 $000 13,146,538 239,798 110,874 – – 257,425 507,565 71,521 –		Consolidated $000 1,318,494 13,921 11,204 (74,129)
			1,269,490 (208,200)
			1,061,290 (324,162)
			737,128 (177,198)
			559,930

			Consolidated $000 13,497,210 257,425 898,251
			14,652,886

			579,086 9,691,150
			10,270,236

(a) During August 2014, APA Group sold its investment in Envestra Limited to a Cheung Kong Group consortium for $1.32 per share. This resulted in a $440.0 million gain in Energy Investments being the gross proceeds less the carrying value of the equity accounted investment affected by a reassessment of the carrying value of the asset management business to reflect future growth opportunities, resulting in a reduction of goodwill ($10.0 million).
(b) Excluding finance lease and investment interest income, and any gains or losses on revaluation of derivatives included as part of EBIT for segment reporting purposes, but including other interest income.

– II-15 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(c) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards.
(d) Unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts.

Information about major customers

Included in revenues arising from energy infrastructure of $1,526.7 million (2015: $984.2 million) are revenues of approximately $652.0 million (2015: $437.4 million) which arose from sales to APA Group’s top three customers.

5. REvENUE

An analysis of APA Group’s revenue for the year is as follows:

Energy infrastructure revenue Pass-through revenue Energy infrastructure revenue Asset management revenue Pass-through revenue Asset management revenue Operating revenue Interest Interest income on redeemable ordinary shares (EII), redeemable preference shares (GDI) and loans to related parties (DPS) Finance lease income Finance income Dividends Rental income Total revenue Share of net profits of joint ventures and associates using the equity method	2016 $000 1,526,050 29,586 1,555,636 95,430 408,744 504,174 2,059,810 3,697 10,783 1,917 16,397 512 608 2,077,327 16,977 2,094,304	2015 $000 983,587 13,514
		997,101
		85,056 420,868
		505,924
		1,503,025
		24,322 8,308 2,896
		35,526
		546 597
		1,539,694 13,921
		1,553,615

– II-16 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Revenue is recognised to the extent that it is probable that the economic benefits will flow to APA Group and can be reliably measured. Amounts disclosed as revenue are net of duties and taxes paid. Revenue is recognised for the major business activities as follows:

Operating revenue , which is earned from the transportation of gas, generation of electricity and other related services and is recognised when the services are provided net of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the taxation authority;
Pass-through revenue , for which no margin is earned, is recognised when the services are provided and offset by corresponding pass-through costs;
Interest revenue , which is recognised as it accrues and is determined using the effective interest method;
Dividend revenue , which is recognised when the right to receive the payment has been established; and
Finance lease income , which is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

6. EXPENSES

Depreciation of non-current assets Amortisation of non-current assets Depreciation and amortisation expense Gas pipeline costs Management, operating and maintenance costs Other operating costs – pass-through Interest on bank overdrafts and borrowings(a) Amortisation of deferred borrowing costs Other finance costs Less: amounts included in the cost of qualifying assets Gain on derivatives Unwinding of discount on non-current liabilities Finance costs Defined contribution plans Defined benefit plans_(Note 17)_ Post-employment benefits Termination benefits Cash settled security-based payments(b) Other employee benefits Employee benefit expense	2016 $000 337,426 183,464 520,890 29,586 408,744 438,330 500,588 9,227 5,084 514,899 (6,157) 508,742 (698) 3,311 511,355 11,406 2,741 14,147 2,995 27,585 135,376 180,103	2015 $000 182,084 26,116 208,200 13,514 420,868 434,382 357,255 14,978 14,641 386,874 (20,002) 366,872 (19,643) 1,255 348,484 10,116 4,146 14,262 2,172 23,629 136,111 176,174

– II-17 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(a) The average interest rate on funds borrowed is 5.80% p.a. (2015: 7.12% p.a.) including amortisation of borrowing costs and other finance costs.
(b) APA Group provides benefits to certain employees in the form of cash settled security-based payments. For cash settled security-based payments, a liability equal to the portion of services received is recognised at the current fair value determined at each reporting date.

7. INCOME TAX

The major components of tax expense are:

Income statement (continuing operations) Current tax expense in respect of the current year Adjustments recognised in the current year in relation to current tax of prior years Deferred tax expense relating to the origination and reversal of temporary differences Total tax expense Tax reconciliation (continuing operations) Profit before tax Income tax expense calculated at 30% Non-assessable trust distribution Non deductible expenses Non assessable income Excess of equity accounted book value over tax base of Envestra shares Unfranked dividends from associates Previously unbooked losses now recognised Adjustment recognised in the current year in relation to the current tax of prior years	2016 $000 (9,076) 2,216 (115,664) (122,524) 301,995 (90,599) 25,530 (62,884) 2,984 – – (124,969) 229 2,216 (122,524)	2015 $000 (8,734) 1,516 (169,980) (177,198) 737,128 (221,138) 13,904 (13,567) 4,278 12,149 (4,530) (208,904) 30,190 1,516 (177,198)

Income tax expense comprises of current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in equity. Current tax represents the expected taxable income at the applicable tax rate for the financial year, and any adjustment to tax payable in respect of previous financial years.

Income tax expense for the 2016 year is $122.5 million (2015: $177.2 million). An income tax provision of $13.8 million (2015: $7.2 million) has been recognised after utilisation of all available group tax losses and partial utilisation of available transferred tax losses (refer to Note 11).

– II-18 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Deferred tax balances

Deferred tax (liabilities)/assets arise from the following:

2016 Gross deferred tax liabilities Intangible assets Property, plant and equipment Deferred expenses Other Available for sale investments Gross deferred tax assets Provisions Cash flow hedges Security issue costs Deferred revenue Investments equity accounted Defined benefit obligation Tax losses Net deferred tax liability 2015 Gross deferred tax liabilities Intangible assets Property, plant and equipment Deferred expenses Defined benefit obligation Available for sale investments Gross deferred tax assets Provisions Cash flow hedges Security issue costs Deferred revenue Investments equity accounted Other Tax losses Net deferred tax liability	Opening balance $000 (2,668) (586,107) (51,669) 1,421 (639) (639,662) 45,051 127,474 7,261 6,729 10,192 (1,007) 249,270 444,970 (194,692) (3,437) (486,629) (49,683) 4,328 (157) (535,578) 37,448 52,516 186 2,465 (990) 32 333,138 424,795 (110,783)	Charged to income $000 2,668 (102,407) (3,022) (2,151) – (104,912) (1,136) (713) (1,820) (918) (1,978) (54) (4,133) (10,752) (115,664) 769 (99,478) (1,986) 171 – (100,524) 7,603 193 (1,982) 4,264 2,945 1,389 (83,868) (69,456) (169,980)	Charged to equity $000 – – – – 639 639 – 38,266 2 – (1,769) 2,444 – 38,943 39,582 – – – (5,506) (482) (5,988) – 74,765 9,057 – 8,237 – – 92,059 86,071	Acquired/ disposed $000 – (36,011) 128 – – (35,883) 1,808 – – – – – – 1,808 (34,075) – – – – – – – – – – – – – – –	Closing balance $000 – (724,525) (54,563) (730) –
					(779,818)
					45,723 165,027 5,443 5,811 6,445 1,383 245,137
					474,969
					(304,849)

					(2,668) (586,107) (51,669) (1,007) (639)
					(642,090)
					45,051 127,474 7,261 6,729 10,192 1,421 249,270
					447,398
					(194,692)

– II-19 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Unrecognised deferred tax assets

	2016	2015
	$000	$000
The following deferred tax assets have not been brought to
account as assets:
Tax losses – capital	1,641	2,012

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for:

i) initial recognition of goodwill;
ii) initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and
iii) differences relating to investments in wholly-owned entities to the extent that they will probably not reverse in the foreseeable future.

Deferred tax is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using the appropriate tax rates at the end of the reporting period.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Tax consolidation

APT and its wholly-owned Australian resident entities formed a tax-consolidated group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the taxconsolidated group is APT. The members of the tax-consolidated group are identified at Note 27.

Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial reports of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach, by reference to the carrying amounts in the separate financial reports of each entity and the tax values applying under tax consolidation.

Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the wholly-owned entities are assumed by the head entity in the tax-consolidated group and are recognised as amounts payable (receivable) to (from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts.

The head entity recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the assets can be utilised.

– II-20 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Nature of tax funding arrangement and tax sharing agreement

Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, each of the entities in the tax-consolidated group have agreed to pay a tax equivalent payment to or from the head entity based on the current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable from or payable to other entities in the tax-consolidated group.

The tax sharing agreement entered into between members of the tax-consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax-consolidated group. The effect of the tax sharing agreement is that each member’s liability for the tax payable by the tax-consolidated group is limited to the amount payable to the head entity under the tax funding arrangement.

8. EARNINGS PER SECURITY

	2016	2015
	cents	cents
Basic and diluted earnings per security	16.1	56.3

The earnings and weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security are as follows:

Net profit attributable to securityholders for calculating basic and diluted earnings per security Adjusted weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security	2016 $000 179,622 2016 No. of securities 000 1,114,307	2015 $000 559,929

		2015 No. of securities 000 995,245

– II-21 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

9. DISTRIBUTIONS

Recognised amounts Final distribution paid on 16 September 2015 (2015: 10 September 2014) Profit distribution – APT(a) Profit distribution – APTIT(a) (Note 24) Interim distribution paid on 16 March 2016 (2015: 18 March 2015)(b) Profit distribution – APT(a) Profit distribution – APTIT(a)(Note 24) Total distributions recognised Profit distributions(a) Unrecognised amounts Final distribution payable on 16 September 2016(c) (2015: 16 September 2015) Profit distribution – APT(a) Capital distribution – APT Profit distribution – APTIT(a) Capital distribution – APTIT	2016 cents per security 18.12 2.38 20.50 15.12 3.88 19.00 39.50 16.34 1.78 3.75 0.63 22.50	2016 Total $000 201,945 26,488 228,433 168,429 43,290 211,719 440,152 182,063 19,869 41,811 6,976 250,719	2015 cents per security 16.42 2.33 18.75 15.12 2.38 17.50 36.25 18.12 – 2.38 – 20.50	2015 Total $000 137,239 19,465 156,704 126,396 19,860 146,256 302,960 201,945 – 26,488 – 228,433

(a) Profit distributions were unfranked (2015: unfranked).
(b) New securities issued under the entitlement offer were not eligible for the FY2015 interim distribution.
(c) Record date 30 June 2016.

The final distribution in respect of the financial year has not been recognised in this financial report because the final distribution was not declared, determined or publicly confirmed prior to the end of the financial year.

	2016	2015
	$000	$000
Adjusted franking account balance (tax paid basis)	8,210	6,811

– II-22 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

OPERATING ASSETS AND LIABILITIES

10. RECEIvABLES

Trade receivables Allowance for doubtful debts Trade receivables Receivables from associates and related parties Finance lease receivables_(Note 18) Interest receivable Other debtors Current Finance lease receivables(Note 18)_ Loan receivable – related party Non-current	2016 $000 250,875 (2,658) 248,217 12,447 2,290 91 187 263,232 17,283 – 17,283	2015 $000 223,806 (4,411)
		219,395 15,630 4,005 688 15,222
		254,940

		18,968 73,502
		92,470

Trade receivables are non-interest bearing and are generally on 30 day terms.

There are no material trade receivables past due and not provided for.

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Trade and other receivables are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are stated at amortised cost less impairment.

11. PAYABLES

Trade payables(a) Income tax payable Other payables(b) Payables to associates Current Other payables Non-current	27,310 13,848 211,503 – 252,661 3,007 3,007	29,615 7,216 368,715 139
		405,685

		3,261
		3,261

(a) Trade payables are non-interest bearing and are normally settled on 15 – 30 day terms.

(b) Other payables at 30 June 2015 include $137.2m of stamp duty on the acquisition of the Wallumbilla Gladstone Pipeline (formerly QCLNG Pipeline), other expenditure accruals and external interest payable accruals.

– II-23 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Trade and other payables are recognised when APA Group becomes obliged to make future payments resulting from the purchase of goods and services. Trade and other payables are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are stated at amortised cost.

Payables are recognised inclusive of GST, except for accrued revenue and accrued expense at balance dates which exclude GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. GST receivable or GST payable is only recognised once a tax invoice has been issued or received.

12. PROPERTY, PLANT AND EqUIPMENT

Freehold land Leasehold and buildings – improvements – at cost at cost $000 $000 Gross carrying amount Balance at 1 July 2014 139,434 5,015 Additions 78,679 – Disposals (165) (571) Transfers 11,103 – Balance at 30 June 2015 229,051 4,444 Additions – – Acquisitions through business combinations_(note 26)_ 3,234 – Disposals (651) (285) Transfers 3,204 913 Balance at 30 June 2016 234,838 5,072 Accumulated depreciation Balance at 1 July 2014 (21,854) (2,288) Disposals 75 571 Depreciation expense (3,257) (486) Balance at 30 June 2015 (25,036) (2,203) Disposals 434 285 Depreciation expense (7,324) (357) Transfers (89) (4) Balance at 30 June 2016 (32,015) (2,279) Net book value As at 30 June 2015 204,015 2,241 As at 30 June 2016 202,823 2,793	Plant and equipment – at cost $000 5,766,626 2,501,924 (17,367) 686,038 8,937,221 21,735 852,485 (15,323) 263,524 10,059,642 (791,313) 13,296 (178,341) (956,358) 14,707 (329,745) 93 (1,271,303) 7,980,863 8,788,339	work in progress – at cost $000 478,861 386,406 (52) (697,141) 168,074 283,242 11,457 – (267,641) 195,132 – – – – – – – – 168,074 195,132	Total $000 6,389,936 2,967,009 (18,155) –
			9,338,790 304,977 867,176 (16,259) –
			10,494,684

			(815,455) 13,942 (182,084)
			(983,597) 15,426 (337,426) –
			(1,305,597)

			8,355,193

			9,189,087

Property, plant and equipment is stated at cost, less accumulated depreciation and impairment losses. Work in progress is stated at cost. Cost includes expenditure that is directly attributable to the acquisition or construction of the item.

– II-24 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Depreciation is provided on property, plant and equipment excluding land. Depreciation is calculated on either a straight-line or throughput basis depending on the nature of the asset so as to write off the net cost of each asset over its estimated useful life.

Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight-line method. The estimated useful lives and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes recognised on a prospective basis.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets (i.e. assets that take a substantial period of time to get ready for their intended use or sale) are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Critical accounting judgements and key sources of estimation uncertainty – useful lives of noncurrent assets

APA Group reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. Any reassessment of useful lives in a particular year will affect the depreciation expense.

The following estimated useful lives are used in the calculation of depreciation:

•	buildings	30 – 50 years;
•	compressors	10 – 50 years;
•	gas transportation systems	10 – 80 years;
•	meters	20 – 30 years; and
•	other plant and equipment	3 – 20 years.

13. GOODwILL AND INTANGIBLES

Goodwill Balance at beginning of financial year Acquisitions_(note 26)_ Goodwill impairment Balance at end of financial year	2016 $000 1,140,500 44,088 – 1,184,588	2015 $000 1,150,500 – (10,000) 1,140,500

Allocation of goodwill to cash-generating units

Goodwill has been allocated for impairment testing purposes to individual cash-generating units.

The East Coast Grid is an interconnected pipeline network that includes, inter alia, the Wallumbilla Gladstone, Moomba Sydney, Roma Brisbane, Carpentaria Gas and South West Queensland pipelines and the Victorian Transmission System. Since the acquisition of the South West Queensland Pipeline to complete the formation of APA’s East Coast Grid in December 2012, APA has installed facilities to enable bi-directional transportation of gas to meet the demand of our major customers who now typically operate portfolios of gas supply and demand. Through the provision of multi-asset services, bi-directional transportation, capacity trading and gas storage and parking facilities, APA’s East Coast Grid delivers options for customers to choose from, and move gas between, more than 40 receipt points and over 100 delivery points on the east coast of Australia. During the year, to reflect this change in business, APA Group reassessed its cash-generating units and determined that the East Coast Grid is henceforth an individual cash-generating unit.

– II-25 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The carrying amount of goodwill allocated to cash-generating units that are significant individually or in aggregate is as follows:

Asset Management business Energy Infrastructure East Cost Grid Diamantina Power Station Other energy infrastructure(a)	2016 $000 21,456 1,060,681 44,088 58,363 1,184,588	2015 $000 21,456 1,060,681 – 58,363
		1,140,500

(a) Primarily represents goodwill relating to the Pilbara Pipeline System ($32.6m) and the Goldfields Gas Pipeline ($18.5m).

Goodwill acquired in a business combination is initially measured at cost and subsequently at cost less accumulated impairment.

Contract and other intangibles Gross carrying amount Balance at beginning of financial year Acquisitions/additions Disposals/write-offs Balance at end of financial year Accumulated amortisation and impairment Balance at beginning of financial year Amortisation expense Impairment Write-offs Balance at end of financial year	2016 $000 3,623,011 705 (19,573) 3,604,143 (66,765) (183,464) (8,897) 10,690 (248,436) 3,355,707	2015 $000 209,286 3,414,122 (397)
		3,623,011
		(38,482) (26,116) (2,564) 397
		(66,765)
		3,556,246

APA Group holds various third party operating and maintenance contracts. The combined gross carrying amount of $3,604.1 million amortises over terms ranging from one to 20 years. Useful life is determined based on the underlying contractual terms plus estimations of renewal of up to two terms where considered probable by management. Amortisation expense is not a cash item, and is included in the line item of depreciation and amortisation expense in the statement of profit or loss and other comprehensive income.

Intangible assets acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets acquired in a business combination are identified and recognised separately from goodwill and are initially recognised at their fair value at the acquisition date and subsequently at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effects of any changes in estimate being accounted for on a prospective basis.

– II-26 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

14. IMPAIRMENT OF NON-FINANCIAL ASSETS

APA Group tests property, plant and equipment, intangibles and goodwill for impairment at least annually or whenever there is an indication that the asset may be impaired. Assets other than goodwill that have previously reported an impairment are reviewed for possible reversal of the impairment at each reporting period.

If the asset does not generate independent cash inflows and its value in use cannot be estimated to be close to its fair value, the asset is tested for impairment as part of the cash-generating unit (CGU) to which it belongs.

Assets are impaired if their carrying value exceeds their recoverable amount. The recoverable amount of an asset or CGU is determined as the higher of its fair value less costs of disposal or value-in-use.

Determining whether identifiable intangible assets and goodwill are impaired requires an estimation of the value-in-use or fair value of the cash-generating units. The calculations require APA Group to estimate the future cash flows expected to arise from cash-generating units and suitable discount rates in order to calculate the present value of cash-generating units. These estimates and assumptions are reviewed on an ongoing basis.

The recoverable amounts of cash-generating units are determined based on value-in-use calculations. These calculations use cash flow projections based on a five year financial business plan and thereafter a further 15 year financial model. This is the basis of APA Group’s forecasting and planning processes which represents the underlying long term nature of associated customer contracts on these assets.

In accordance with the requirements of AASB 136 Impairment of Assets, APA Group reviewed its CGUs for indicators of impairment at the end of the reporting period. No such indicators were identified and no impairment recognised.

Critical accounting judgements and key sources of estimation uncertainty – impairment of assets

For fully regulated assets, cash flows have been extrapolated on the basis of existing transportation contracts and government policy settings, and expected contract renewals with a resulting average annual growth rate of 1.7% p.a. These expected cash flows are factored into the regulated asset base and do not exceed management’s expectations of the long-term average growth rate for the market in which the cash generating unit operates.

For non-regulated assets, APA has assumed no capacity expansion beyond installed and committed levels; utilisation of capacity is based on existing contracts, government policy settings and expected market outcomes.

As contracts mature, given ongoing demand for capacity, it is assumed that the majority of the capacity is resold at similar pricing levels.

Asset Management cash flow projections reflect long term agreements with assumptions of renewal on similar terms and conditions based on management’s expectations.

Cash flow projections are estimated for a period of up to 20 years, with a terminal value, recognising the long term nature of the assets. The pre-tax discount rates used are 8.25% p.a. (2015: 8.25% p.a.) for Energy Infrastructure assets and 8.25% p.a. (2015: 8.25% p.a.) for Asset Management.

These assumptions have been determined with reference to historic information, current performance and expected changes taking into account external information.

– II-27 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

15. PROvISIONS

Employee benefits Other Current Employee benefits Other Non-current Employee benefits Incentives Cash settled security-based payments Leave balances Termination benefits Current Cash settled security-based payments Defined benefit liability_(Note 17)_ Leave balances Non-current	2016 $000 83,240 9,793 93,033 36,903 34,014 70,917 28,401 9,477 39,587 5,775 83,240 19,467 7,017 10,419 36,903	2015 $000 76,953 8,499
		85,452

		30,484 29,926
		60,410

		25,556 10,009 39,608 1,780
		76,953

		17,215 4,425 8,844
		30,484

A provision is recognised when there is a legal or constructive obligation as a result of a past event, it is probable that future economic benefits will be required to settle the obligation and the amount of the provision can be measured reliably.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the financial year, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is probable that recovery will be received and the amount of the receivable can be measured reliably.

Provision is made for benefits accruing to employees in respect of wages and salaries, incentives, annual leave and long service leave when it is probable that settlement will be required. Provisions made in respect of employee benefits expected to be settled within 12 months, are recognised for employee services up to reporting date at the amounts expected to be paid when the liability is settled. Provisions made in respect of employee benefits which are not expected to be wholly settled within 12 months are measured as the present value of the estimated future cash outflows using a discount rate based on the corporate bond yields in respect of services provided by employees up to reporting date.

– II-28 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

16. OTHER NON-CURRENT ASSETS

Line pack gas Gas held in storage Defined benefit asset_(Note 17)_ Other assets	2016 $000 20,208 6,010 2,404 192 28,814	2015 $000 20,200 5,085 7,784 192
		33,261

17. EMPLOYEE SUPERANNUATION PLANS

All employees of APA Group are entitled to benefits on retirement, disability or death from an industry sponsored fund, or an alternative fund of their choice. APA Group has three plans with defined benefit sections (due to the acquisition of businesses) and a number of other plans with defined contribution sections. The defined benefit sections provide lump sum benefits upon retirement based on years of service. The defined contribution sections receive fixed contributions from APA Group and APA Group’s legal and constructive obligations are limited to these amounts.

The most recent actuarial valuations of plan assets and the present value of the defined benefit obligations were determined at 30 June 2016. The present value of the defined benefit obligations, and the related current service cost and past service cost, were measured using the projected unit credit method.

The following sets out details in respect of the defined benefit plans only:

Amounts recognised in the statement of profit or loss and other comprehensive income Current service cost Net interest expense Components of defined benefit costs recognised in profit or loss(Note 6) Amounts recognised in the statement of financial position Fair value of plan assets Present value of benefit obligation Defined benefit asset – non-current(Note 16) Defined benefit liability – non-current(Note 15) Opening defined benefit obligation Current service cost Interest cost Contributions from plan participants Actuarial gains and losses arising from changes in financial assumptions Actuarial gains and losses arising from experience adjustments Benefits paid Closing defined benefit obligation	2016 $000 2,783 (42) 2,741 138,488 (143,101) 2,404 (7,017) 137,141 2,783 5,807 1,332 625 3,268 (7,855) 143,101	2015 $000 3,730 416
		4,146

		140,500 (137,141)
		7,784 (4,425)

		144,621 3,730 4,909 1,388 (9,747) (1,181) (6,579)
		137,141

– II-29 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Movements in the present value of the plan assets in the current period were as follows:

Opening fair value of plan assets Interest income Actual return on plan assets excluding interest income Contributions from employer Contributions from plan participants Benefits paid Taxes and premiums paid Closing fair value of plan assets	2016 $000 140,500 5,849 (4,255) 2,917 1,332 (7,855) – 138,488	2015 $000 130,195 4,493 7,426 3,577 1,388 (6,579) – 140,500

Defined contribution plans

Contributions to defined contribution plans are expensed when incurred.

Defined benefit plans

Actuarial gains and losses and the return on plan assets (excluding interest) are recognised immediately in the statement of financial position with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement, comprising of actuarial gains and losses and the return on plan assets (excluding interest), is recognised in other comprehensive income and immediately reflected in retained earnings and will not be reclassified to profit or loss.

Past service cost is recognised in profit or loss in the period of a plan amendment.

The defined benefit obligation recognised in the consolidated statement of financial position represents the actual deficit or surplus in APA Group’s defined benefit plans. Any asset resulting from this calculation is limited to the present value of economic benefits available in the form of refunds and reductions in future contributions to the plan.

Key actuarial assumptions used in the determination of the defined obligation is a discount rate of 3.3%, based on the corporate bond yield curve published by Milliman, and an expected salary increase rate of 3.0%. The sensitivity analysis below has been determined based on reasonable possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant:

If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by $5,680,000 (increase by $6,373,000); and
If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by $6,136,000 (decrease by $5,525,000).

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the statement of financial position.

APA Group expects $3.0 million in contributions to be paid to the defined benefit plans during the year ending 30 June 2017.

– II-30 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

18. LEASES

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards incidental to the ownership of the leased asset to the lessee. All other leases are classified as operating leases.

Finance lease receivables relate to the lease of a metering station, natural gas vehicle refuelling facilities and two pipeline laterals.

Finance lease receivables Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years Minimum future lease payments receivable(a) (b) Gross finance lease receivables Less: unearned finance lease receivables Present value of lease receivables Included in the financial statements as part of: Current trade and other receivables_(Note 10) Non-current receivables(Note 10)_	2016 $000 3,933 10,646 16,951 31,530 31,530 (11,957) 19,573 2,290 17,283 19,573	2015 $000 5,317 12,347 19,183 36,847 36,847 (13,874) 22,973 4,005 18,968 22,973

(a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual.

(b) X41 power station expansion was disposed of during the 2015 financial year.

APA Group as a lessor

Amounts due from a lessee under finance leases are recorded as receivables. Finance lease receivables are initially recognised at amounts equal to the present value of the minimum lease payments receivable plus the present value of any unguaranteed residual value expected to accrue at the end of the lease term. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the net investment outstanding in respect of the leases.

APA Group as a lessee

Assets held under finance leases are initially recognised at their fair value or, if lower, at amounts equal to the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are allocated between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

Finance lease assets are amortised on a straight-line basis over the estimated useful life of the asset.

– II-31 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Non-cancellable operating leases

Operating lease obligations are primarily related to commercial office leases and motor vehicles.

Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years	2016 $000 12,138 35,282 25,189 72,609	2015 $000 11,270 29,418 21,115
		61,803

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time patterns in which economic benefits from the leased asset are consumed. Operating lease incentives are recognised as a liability when received and released to the statement of profit or loss on a straight line basis over the lease term.

CAPITAL MANAGEMENT

APA Group’s objectives when managing capital are to safeguard its ability to continue as a going concern while maximising the return to securityholders through the optimisation of the debt to equity structure.

APA Group’s overall capital management strategy is to continue to target strong BBB/Baa2 investment grade ratings through maintaining sufficient flexibility to fund organic growth and investment from internally generated and retained cash flows, equity and, where appropriate, additional debt funding.

The capital structure of APA Group consists of cash and cash equivalents, borrowings and equity attributable to securityholders of APA. APA Group’s policy is to maintain balanced and diverse funding sources through borrowing locally and from overseas, using a variety of capital markets and bank loan facilities, to meet anticipated funding requirements.

Operating cash flows are used to maintain and expand APA Group’s assets, make distributions to securityholders and to repay maturing debt.

Controlled entities are subject to externally imposed capital requirements. These relate to the Australian Financial Services Licence held by Australian Pipeline Limited, the Responsible Entity of the APA Group and were adhered to for the entirety of the 2016 and 2015 periods.

APA Group’s capital risk management strategy remains unchanged from the previous period.

APA Group’s Board of Directors reviews the capital structure on a regular basis. As part of the review, the Board considers the cost of capital and the state of the markets. APA Group targets gearing in a range of 65% to 68%. Gearing is determined as the proportion of net debt to net debt plus equity. Based on recommendations of the Board, APA Group balances its overall capital structure through equity issuances, new debt or the redemption of existing debt and through a disciplined distribution payment policy.

– II-32 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

19. CASH BALANCES

Cash and cash equivalents comprise of cash on hand, at call bank deposits and investments in money market instruments that are readily convertible to known amounts for cash. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows:

Cash and cash equivalents Cash at bank and on hand Short-term deposits Non-current cash on deposit Cash on deposit(a)	2016 $000 83,389 1,117 84,506 2,149	2015 $000 190,834 221,087
		411,921

		–

(a) As at 30 June 2016 Gorodok Pty Limited held $2.1 million cash on deposit to support bank guarantees in relation to various contractual arrangements. APA Group had no restricted cash as at 30 June 2015.

– II-33 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

20. BORROwINGS

Borrowings are recorded initially at fair value less attributable transaction costs and subsequently stated at amortised cost. Any difference between the initial recognised cost and the redemption value is recognised in the statement of profit or loss and other comprehensive income over the period of the borrowing using the effective interest method.

Unsecured – at amortised cost Guaranteed senior notes(a) Other financial liabilities Current Guaranteed senior notes(a) Bank borrowings(b) Subordinated notes(c) Other financial liabilities Less: unamortised borrowing costs Non-current Financing facilities available Total facilities Guaranteed senior notes(a) Bank borrowings(b) Subordinated notes(c) Facilities used at balance date Guaranteed senior notes(a) Bank borrowings(b) Subordinated notes(c) Facilities unused at balance date Guaranteed senior notes(a) Bank borrowings(b) Subordinated notes(c)	2016 $000 398,058 11,771 409,829 8,043,377 707,501 515,000 95,155 (46,660) 9,314,373 9,724,202 8,441,435 1,380,000 515,000 10,336,435 8,441,435 707,501 515,000 9,663,936 – 672,499 – 672,499	2015 $000 158,134 6,219 164,353 8,481,768 125,000 515,000 70,630 (50,901) 9,141,497 9,305,850 8,639,902 1,300,000 515,000 10,454,902 8,639,902 125,000 515,000 9,279,902 – 1,175,000 – 1,175,000

– II-34 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(a) Represents USD denominated private placement notes of US$725 million, CAD MTN of C$300 million, JPY MTN of ¥10,000 million, GBP MTN of £950 million, EUR MTN of €1,350 million and USD denominated 144A notes of US$2,150 million measured at the exchange rate at reporting date, and A$315 million of AUD denominated Private Placement Notes and AUD Medium Term Notes (MTN) of A$300 million. Refer to Note 21 for details of interest rates and maturity profiles.
(b) Relates to the non-current portion of long-term borrowings. Refer to Note 21 for details of interest rates and maturity profiles.
(c) Represents AUD denominated subordinated notes. Refer to Note 21 for details of interest rates and maturity profiles.

21. FINANCIAL RISk MANAGEMENT

The Treasury department within Finance is responsible for the overall management of APA Group’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee approves written principles for overall risk management, as well as policies covering specific areas such as such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. APA Group’s Board of Directors ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting from the Treasury department.

APA Group’s activities generate financial instruments comprising of cash, receivables, payables and interest bearing liabilities which expose it to various risks as summarised below:

(a) Market risk including currency risk, interest rate risk and price risk;
(b) Credit risk; and
(c) Liquidity risk.

Treasury as a centralised function provides APA Group with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost and manages risks through the use of natural hedges and derivative instruments. APA Group does not engage in speculative trading. All derivatives have been traded to hedge underlying or existing exposures and have adhered to the Board approved Treasury Risk Management Policy.

(a) Market risk

APA Group’s market risk exposure is primarily due to changes in market prices such as interest and foreign exchange rates. APA Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including:

forward exchange contracts to hedge the exchange rate risk arising from foreign currency cash flows, mainly US dollars, derived from revenues, interest payments and capital equipment purchases;
cross currency interest rate swaps to manage the currency risk associated with foreign currency denominated borrowings;
foreign currency denominated borrowings to manage the currency risk associated with foreign currency denominated revenue and receivables; and
interest rate swaps to mitigate the risk of rising interest rates.

APA Group is also exposed to price risk arising from its forward purchase contracts over listed equities.

– II-35 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Foreign currency risk

APA Group’s foreign exchange risk arises from future commercial transactions (including revenue, interest payments and principal debt repayments on long-term borrowings and the purchases of capital equipment), and the recognition of assets and liabilities (including foreign receivables and borrowings). Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts, cross currency swap contracts and foreign currency denominated borrowings. All foreign currency exposure was managed in accordance with the Treasury Risk Management Policy in both 2016 and 2015.

The carrying amount of APA Group’s foreign currency denominated monetary assets, monetary liabilities and derivative notional amounts at the reporting date is as follows:

2016 US Dollar(a) Japanese yen Canadian dollar British pound Euro Swedish Krona 2015 US Dollar(a) Japanese yen Canadian dollar British pound Euro	Cash & cash equivalents $000 1,068 – – – – – 1,068 1,723 – – – – 1,723	Receivables $000 30,691 – – – – – 30,691 38,639 – – – – 38,639	Total borrowings $000 (3,694,558) (129,964) (310,555) (1,688,747) (2,008,378) – (7,832,202) (3,726,507) (106,005) (311,394) (1,937,372) (1,950,107) (8,031,385)	Cross currency swaps $000 (1,277,253) 129,964 310,555 1,688,747 2,008,378 – 2,860,391 (1,075,496) 106,005 311,394 1,937,372 1,950,107 3,229,382	Foreign exchange contract $000 703,317 – – – (1,392) (29,606) 672,319 2,216 – – – – 2,216	Net foreign currency position $000 (4,236,735) – – – (1,392) (29,606)
						(4,267,733)

						(4,759,425) – – – –
						(4,759,425)

(a) Net US$ foreign currency position of $4,236.1 million is predominantly hedging part of the committed US$ revenue arising from the Wallumbilla Gladstone Pipeline (2015: $4,759.4 million).

Forward foreign exchange contracts

To manage foreign exchange risk arising from future commercial transactions such as forecast capital purchases, revenue and interest payments, APA Group uses forward foreign exchange contracts. Gains and losses recognised in the cash flow hedge reserve (statement of comprehensive income) on these derivatives will be released to profit or loss when the underlying anticipated transaction affects the statement of profit or loss or will be included in the carrying value of the asset or liability acquired.

It is the policy of APA Group to hedge 100% of all foreign exchange capital purchases in excess of US$1 million that are certain. Forecast foreign currency denominated revenues and interest payments will be hedged by forward exchange contracts on a rolling basis for a minimum of one year with the objective being to lock in the AUD gross cash flows and manage liquidity.

– II-36 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The following table details the forward foreign exchange currency contracts outstanding at reporting date:

Cash flow hedges Average exchange rates 2016 $ Pay USD/receive AUD Forecast revenue and associated receivable 0.7200 Pay AUD/receive USD Forecast capital purchases 0.7666 Cash flow hedges Average exchange rates 2016 $ Pay AUD/receive EUR Forecast capital purchases 0.6703 Cash flow hedges Average exchange rates 2016 $ Pay AUD/receive SEk Forecast capital purchases 6.0727 Cash flow hedges Average exchange rates 2015 $ Pay USD/receive AUD Forecast revenue and associated receivable 0.7574 Pay AUD/receive USD Forecast capital purchases 0.9011	Foreign currency US$000 (507,689) 1,353 (506,336) Foreign currency EUR$000 933 933 Foreign currency SEK$000 179,795 179,795 Foreign currency US$000 (193,837) 1,969 (191,868)	< 1 year Contract value 1 – 2 years $000 $000 292,569 265,907 (995) (313) 291,574 265,594 < 1 year Contract value 1 – 2 years $000 $000 (334) (910) (334) (910) < 1 year Contract value 1 – 2 years $000 $000 (16,309) (8,009) (16,309) (8,009) < 1 year Contract value 1 – 2 years $000 $000 255,913 – (2,185) – 253,728 –	2 – 5 years $000 146,605 (457) 146,148 2 – 5 years $000 (148) (148) 2 – 5 years $000 (5,289) (5,289) 2 – 5 years $000 – – –	Fair value $000 12,849 71
				12,920

				Fair value $000 48
				48

				Fair value $000 (164)
				(164)

				Fair value $000 1,845 371
				2,216

– II-37 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

As at reporting date, APA Group has entered into forward contracts to hedge net US exchange rate risk arising from anticipated future transactions with an aggregate notional principal amount of $705.1 million (2015: $253.7 million) which are designated in cash flow hedge relationships. The hedged anticipated transactions denominated in US dollars are expected to occur at various dates between one month to three years from reporting date.

Cross currency swap contracts

APA Group enters into cross currency swap contracts to mitigate the risk of adverse movements in foreign exchange rates in relation to principal and interest payments arising from foreign currency borrowings. APA Group receives fixed amounts in the various foreign currencies and pays both variable interest rates (based on Australian BBSW) and fixed interest rates based on agreed swap rates for the full term of the underlying borrowings. In certain circumstances borrowings are left in the foreign currency, or hedged from one foreign currency to another to match payments of interest and principal against expected future business cash flows in that foreign currency.

The following table details the cross currency swap contract principal payments due as at the reporting date:

Cash flow hedges Foreign currency Exchange rate 2016 $ Pay AUD/receive foreign currency 2003 USPP Notes AUD/USD 0.6573 2007 USPP Notes AUD/USD 0.8068 2009 USPP Notes AUD/USD 0.7576 2012 JPY Medium Term Notes AUD/JPY 79.4502 2012 CAD Medium Term Notes AUD/CAD 1.0363 2012 US144A AUD/USD 1.0198 2012 GBP Medium Term Notes AUD/GBP 0.6530 Pay USD/receive foreign currency 2015 EUR Medium Term Notes USD/EUR 0.9514 2015 GBP Medium Term Notes USD/GBP 0.6773 Cash flow hedges Foreign currency Exchange rate 2015 $ Pay AUD/receive foreign currency 2003 USPP Notes AUD/USD 0.6573 2007 USPP Notes AUD/USD 0.8068 2009 USPP Notes AUD/USD 0.7576 2012 JPY Medium Term Notes AUD/JPY 79.4502 2012 CAD Medium Term Notes AUD/CAD 1.0363 2012 US144A AUD/USD 1.0198 2012 GBP Medium Term Notes AUD/GBP 0.6530 Pay USD/receive foreign currency 2015 EUR Medium Term Notes USD/EUR 0.9514 2015 GBP Medium Term Notes USD/GBP 0.6773	Less than 1 year $000 – (190,878) (85,787) – – – – – – (276,665) Less than 1 year $000 (185,608) – – – – – – – – (185,608)	1 – 2 years $000 – – – (125,865) – – – – – (125,865) 1 – 2 years $000 – (190,878) (85,787) – – – – – – (276,665)	2 – 5 years $000 (95,847) (151,215) (98,997) – (289,494) – – – – (635,553) 2 – 5 years $000 (95,847) (151,215) (98,997) (125,865) (289,494) – – – – (761,418)	More than 5 years $000 – (153,694) – – – (735,438) (535,988) (1,904,107) (1,188,888)
				(4,518,115)

				More than 5 years $000 – (153,694) – – – (735,438) (535,988) (1,839,073) (1,148,283)
				(4,412,476)

– II-38 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Foreign currency denominated borrowings

APA Group maintains a level of borrowings in foreign currency, or swapped from one foreign currency to another to match payments of interest and principal against expected future business cash flows in that foreign currency. This mitigates the risk of adverse movements in foreign exchange rates in relation to principal and interest payments arising from these foreign currency borrowings as well as future revenues.

Foreign currency sensitivity analysis

The analysis below shows the effect on profit and total equity of retranslating cash, receivables, payables and interest-bearing liabilities denominated in USD, JPY, CAD, GBP and EUR into AUD, had the rates been 20 percent higher or lower than the relevant year end rate, with all other variables held constant, and taking into account all underlying exposures and related hedges. A sensitivity of 20 percent has been selected and represents management’s assessment of the possible change in rates taking into account the current level of exchange rates and the volatility observed both on a historical basis and on market expectations for future movements.

There would be no impact on net profit as all foreign currency exposures are fully hedged (2015: nil); and
Equity reserves would decrease by $1,410.2 million with a 20 percent depreciation of the A$ or increase by $940.5 million with a 20 percent increase in foreign exchange rates (2015: decrease by $1,268.4 million or increase by $845.1 million respectively). The increase in sensitivity is due to the increase in the notional value of forward exchange contracts that are in a hedging relationship with highly probable forecast transactions.

Interest rate risk

APA Group’s interest rate risk is derived predominately from borrowings subject to fixed and floating interest rates. This risk is managed by APA Group by maintaining an appropriate mix between fixed and floating rate borrowings, through the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate views and defined policy, ensuring appropriate hedging strategies are applied.

APA Group’s exposures to interest rate risk on financial liabilities are detailed in the liquidity risk management section of this note. Exposure to financial assets is limited to cash and cash equivalents amounting to $84.5 million as at 30 June 2016 (2015: $411.9 million).

Cross currency swap and interest rate swap contracts

Cross currency swap and interest rate swap contracts have the economic effect of converting borrowings from floating to fixed rates on agreed notional principal amounts enabling APA Group to mitigate the risk of cash flow exposures on variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the yield curves at reporting date. The average interest rate is based on the outstanding balances at the end of the financial year.

– II-39 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The following table details the notional principal amounts and remaining terms of the cross currency and interest rate swap contracts outstanding as at the end of the financial year:

	weighted average	weighted average	Notional principal	Notional principal
	interest rate		amount		Fair value
	2016	2015	2016	2015	2016	2015
	% p.a.	% p.a.	$000	$000	$000	$000
Cash flow hedges – Pay fixed AUD interest – receive floating AUD or fixed				foreign currency
Less than 1 year	8.58	7.10	276,665	185,608	17,700	(32,637)
1 year to 2 years	6.80	8.58	125,865	276,665	(2,403)	7,520
2 years to 5 years	7.76	7.60	635,553	761,418	10,284	(31,028)
5 years and more(a)	5.08	5.10	4,518,115	4,412,476	116,089	352,208
			5,556,198	5,636,167	141,670	296,063

(a) This amount includes a notional of USD 3 billion which is subject to USD interest rate risk.

The cross currency swap and interest rate swaps settle on a quarterly or semi-annual basis. The floating rate benchmark on the interest rate swaps is Australian BBSW. APA Group will settle the difference between the fixed and floating interest rate on a net basis.

All cross currency swap and interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce APA Group’s cash flow exposure on borrowings.

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non-derivative instruments held. A 100 basis point increase or decrease is used and represents management’s assessment of the greatest possible change in interest rates. At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were held constant, APA Group’s:

net profit would decrease by $12,225,000 or increase by $12,225,000 (2015: decrease by $5,150,000 or increase by $5,150,000). This is mainly attributable to APA Group’s exposure to interest rates on its variable rate borrowings, including its Australian Dollar subordinated notes; and
equity reserves would decrease by $143,644,000 with a 100 basis point decrease in interest rates or increase by $129,922,000 with a 100 basis point increase in interest rates (2015: increase by $14,483,000 or increase by $38,594,000 respectively). This is due to the changes in the fair value of derivative interest instruments.

APA Group’s profit sensitivity to interest rates has increased during the current period due to the overall increase in the level of APA Group’s unhedged floating rate borrowings. The valuation of the increase/decrease in equity reserves is based on 1.00% p.a. increase/decrease in the yield curve at the reporting date. The increase in sensitivity in equity is due to the increase in the notional value of interest rate and cross currency swaps.

– II-40 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Price risk

APA Group is exposed to price risk arising from its forward purchase contracts over listed equities. The forward purchase contracts are held to meet hedging objectives rather than for trading purposes. APA Group does not actively trade these holdings.

Price risk sensitivity

The sensitivity analysis below has been determined based on the exposure to price risks at the reporting date. At the reporting date, if the prices of APA Group’s forward purchase contracts over listed equities had been 5 percent p.a. higher or lower:

net profit would have been unaffected as there is no effect from the forwards as the corresponding exposure will offset in full (2015: $nil); and
there is no effect on equity reserves as APA Group holds no available-for-sale investments (2015: $4,000).

APA Group’s analysis of its exposure to price risk has declined during the current period compared to the prior period. During the financial year, APA Group acquired Ethane Pipeline Income Fund. As a result, the previously held interest is no longer classified as an available-forsale investment.

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to APA Group. APA Group has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or bank guarantees where appropriate as a means of mitigating any risk of loss. For financial investments or market risk hedging, APA Group’s policy is to only transact with counterparties that have a credit rating of A- (Standard & Poor’s)/A3 (Moody’s) or higher unless specifically approved by the board. Where a counterparty’s rating falls below this threshold following a transaction, no other transactions can be executed with that counterparty until the exposure is sufficiently reduced or their credit rating is upgraded above APA Group’s minimum threshold. APA Group’s exposure to financial instrument and deposit credit risk is closely monitored against counterparty credit limits imposed by the Treasury Risk Management Policy approved by the Audit and Risk Management Committee. These limits are regularly reviewed by the Board.

Trade receivables consist of mainly corporate customers which are diverse and geographically spread. Most significant customers have an investment grade rating from either Standard & Poor’s or Moody’s. Ongoing credit monitoring of the financial position of customers is maintained.

The carrying amount of financial assets recorded in the financial statements, net of any allowances, represents APA Group’s maximum exposure to credit risk in relation to those assets.

Cross guarantee

In accordance with a deed of cross guarantee, APT Pipelines Limited, a subsidiary of APA Group, has agreed to provide financial support, when and as required, to all wholly-owned controlled entities with either a deficit in shareholders’ funds or an excess of current liabilities over current assets. The fair value of the financial guarantee as at 30 June 2016 has been determined to be immaterial and no liability has been recorded (2015: $nil).

– II-41 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(c) Liquidity risk

APA Group has a policy of dealing with liquidity risk which requires an appropriate liquidity risk management framework for the management of APA Group’s short, medium and longterm funding and liquidity management requirements. Liquidity risk is managed by maintaining adequate cash reserves and banking facilities, by monitoring and forecasting cash flow and where possible arranging liabilities with longer maturities to more closely match the underlying assets of APA Group.

Detailed in the table following are APA Group’s remaining contractual maturities for its nonderivative financial liabilities. The table is presented based on the undiscounted cash flows of financial liabilities taking account of the earliest date on which APA Group can be required to pay. The table includes both interest and principal cash flows.

The table below shows the undiscounted Australian dollar cash flows associated with the foreign currency notes, cross currency interest rate swaps and fixed interest rate swaps in aggregate.

Maturity Average interest rate % p.a. 2016 Unsecured financial liabilities Trade and other payables – Unsecured bank borrowings(a) 2.82 2012 Subordinated Notes 1-Oct-72 6.78 Denominated in A$ Other financial liabilities(b) Guaranteed Senior Notes(c) Denominated in A$ 2007 Series A 15-May-17 7.33 2007 Series C 15-May-17 7.38 2007 Series E 15-May-19 7.40 2007 Series G 15-May-22 7.45 2007 Series H 15-May-22 7.45 2010 AUD Medium Term Notes 22-Jul-20 7.75 Denominated in US$ 2003 Series D 9-Sep-18 6.02 2007 Series B 15-May-17 5.89 2007 Series D 15-May-19 5.99 2007 Series F 15-May-22 6.14 2009 Series A 1-Jul-16 8.35 2009 Series B 1-Jul-19 8.86 2012 US 144A 11-Oct-22 3.88 2015 US 144A(b) 23-Mar-25 4.20 2015 US 144A(b) 23-Mar-35 5.00 Denominated in stated foreign currency 2012 JPY Medium Term Notes 22-Jun-18 1.23 2012 CAD Medium Term Notes 24-Jul-19 4.25 2012 GBP Medium Term Notes 26-Nov-24 4.25 2015 GBP Medium Term Notes(b) 22-Mar-30 3.50 2015 EUR Medium Term Notes(b) 22-Mar-22 1.38 2015 EUR Medium Term Notes(b) 22-Mar-27 2.00	Less than 1 year $000 252,661 19,610 33,267 7,841 5,367 106,475 5,045 6,002 4,617 23,250 6,930 204,864 11,111 11,354 90,569 11,761 49,123 62,001 20,130 8,559 19,529 39,459 53,312 36,060 40,301 1,129,198	1 – 5 years $000 – 726,228 130,200 31,367 – – 78,259 24,008 18,468 381,375 106,290 – 173,435 45,416 – 128,286 196,762 248,004 80,521 134,424 338,237 157,943 213,349 144,240 161,205 3,518,017	More than 5 years $000 – – 2,381,395 42,806 – – – 86,584 66,603 – – – – 165,079 – – 809,056 1,724,389 684,650 – – 674,364 1,668,898 1,023,284 1,158,689 10,485,797

– II-42 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(a) Facilities mature on 19 September 2017 ($311.25 million limit), 18 May 2018 ($100 million limit), 19 September 2018 ($311.25 million limit), 18 May 2019 ($50 million limit), 19 December 2019 ($100 million limit), 18 May 2020 ($50 million limit), 19 September 2020 ($207.5 million limit), 19 December 2020 ($100 million limit) and 18 May 2021 ($150 million limit).
(b) Facilities are denominated in or fully swapped by way of CCIRS into US$. Cashflows represent the US$ cashflow translated at the USD/AUD spot rate as at 30 June 2016. These amounts are fully hedged by forward exchange contracts or future US$ revenues.
(c) Rates shown are the coupon rate.

Maturity Average interest rate % p.a. 2015 Unsecured financial liabilities Trade and other payables – Unsecured bank borrowings(a) 3.09 2012 Subordinated Notes 1-Oct-72 7.20 Interest rate swaps (net settled) 6.28 Denominated in A$ Other financial liabilities(b) Guaranteed Senior Notes(c) Denominated in A$ 2007 Series A 15-May-17 7.33 2007 Series C 15-May-17 7.38 2007 Series E 15-May-19 7.40 2007 Series G 15-May-22 7.45 2007 Series H 15-May-22 7.45 2010 AUD Medium Term Notes 22-Jul-20 7.75 Denominated in US$ 2003 Series C 9-Sep-15 5.77 2003 Series D 9-Sep-18 6.02 2007 Series B 15-May-17 5.89 2007 Series D 15-May-19 5.99 2007 Series F 15-May-22 6.14 2009 Series A 1-Jul-16 8.35 2009 Series B 1-Jul-19 8.86 2012 US 144A 11-Oct-22 3.88 2015 US 144A(b) 23-Mar-25 4.20 2015 US 144A(b) 23-Mar-35 5.00 Denominated in stated foreign currency 2012 JPY Medium Term Notes 22-Jun-18 1.23 2012 CAD Medium Term Notes 24-Jul-19 4.25 2012 GBP Medium Term Notes 26-Nov-24 4.25 2015 GBP Medium Term Notes(b) 22-Mar-30 3.50 2015 EUR Medium Term Notes(b) 22-Mar-22 1.38 2015 EUR Medium Term Notes(b) 22-Mar-27 2.00	Less than 1 year $000 405,685 2,935 34,203 3,844 7,574 367 7,318 5,045 6,002 4,617 23,250 192,773 6,949 13,986 11,111 11,354 9,805 11,825 48,989 59,883 19,443 4,291 19,422 39,567 51,894 35,023 39,142 1,076,297	1 – 5 years $000 – 125,975 148,917 1,302 30,296 5,367 106,475 83,304 24,008 18,468 93,000 – 113,220 204,864 184,546 45,416 90,569 140,047 197,031 239,533 77,771 147,274 357,766 157,943 206,081 139,314 155,699 3,094,186	More than 5 years $000 – – 2,795,775 – 48,918 – – – 92,586 71,220 311,625 – – – – 176,433 – – 857,910 1,725,377 680,709 – – 713,823 1,663,426 1,023,163 1,158,040 11,319,005

– II-43 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(a) Facilities mature on 19 September 2016 ($400 million limit), 19 September 2017 ($425 million limit), 19 December 2018 ($200 million limit), and 19 September 2019 ($275 million limit).
(b) Facilities are denominated in or fully swapped by way of CCIRS into US$. Cashflows represent the US$ cashflow translated at the USD/AUD spot rate as at 30 June 2015. These amounts are fully hedged by forward exchange contracts or future US$ revenues.
(c) Rates shown are the coupon rate.

Critical accounting judgements and key sources of estimation uncertainty – fair value of financial instruments

APA Group has financial instruments that are carried at fair value in the statement of financial position. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, APA Group determines fair value by using various valuation models. The objective of using a valuation technique is to establish the price that would be received to sell an asset or paid to transfer a liability between market participants. The chosen valuation models make maximum use of market inputs and rely as little as possible on entity specific inputs. The fair values of all positions include assumptions made as to recoverability based on the counterparty’s and APA Group’s credit risk.

Fair value measurements recognised in the statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There have been no transfers between the levels during 2016 (2015: none). Transfers between levels of the fair value hierarchy occur at the end of the reporting period. Transfers between level 1 and level 2 are triggered when there are changes to the availiability of quoted prices in active markets. Transfers into level 3 are triggered when the observable inputs become no longer observable, or vice versa for transfer out of level 3.

– II-44 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Fair value of the Group’s financial assets and liabilities that are measured at fair value on a recurring basis

The fair values of financial assets and financial liabilities are measured at the end of each reporting period and determined as follows:

the fair values of available-for-sale financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices. These instruments are classified in the fair value hierarchy at level 1;
the fair values of forward foreign exchange contracts included in hedging assets and liabilities are calculated using discounted cash flow analysis based on observable forward exchange rates at the end of the reporting period and contract forward rates discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;
the fair values of interest rates swaps, cross currency swaps, equity forwards and other derivative instruments included in hedging assets and liabilities are calculated using discounted cash flow analysis using observable yield curves at the end of the reporting period and contract rates discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;
the fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current markets discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;
the fair value of financial guarantee contracts is determined based upon the probability of default by the specified counterparty extrapolated from market-based credit information and the amount of loss, given the default. These instruments are classified in the fair value hierarchy at level 2; and
the carrying value of financial assets and liabilities recorded at amortised cost in the financial statements approximate their fair value having regard to the specific terms of the agreements underlying those assets and liabilities.

– II-45 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Fair value hierarchy

2016 Financial assets measured at fair value Equity forwards designated as fair value through profit or loss Cross currency interest rate swaps used for hedging Forward foreign exchange contracts used for hedging Financial liabilities measured at fair value Interest rate swaps used for hedging Cross currency interest rate swaps used for hedging Forward foreign exchange contracts used for hedging 2015 Financial assets measured at fair value Available-for-sale listed equity securities Ethane Pipeline Income Fund Equity forwards designated as fair value through profit or loss Cross currency interest rate swaps used for hedging Forward foreign exchange contracts used for hedging Financial liabilities measured at fair value Interest rate swaps used for hedging Cross currency interest rate swaps used for hedging Forward foreign exchange contracts used for hedging	Level 1 $000 – – – – – – – – 7,162 – – – 7,162 – – – –	Level 2 $000 2,566 417,949 22,941 443,456 8,993 267,287 10,137 286,417 – 5,199 461,484 4,016 470,699 17,885 147,537 1,800 167,222	Level 3 $000 – – – – – – – – – – – – – – – – –	Total $000 2,566 417,949 22,941
				443,456

				8,993 267,287 10,137
				286,417

				7,162 5,199 461,484 4,016
				477,861

				17,885 147,537 1,800
				167,222

– II-46 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Fair value measurements of financial instruments measured at amortised cost

The financial liabilities included in the following table are fixed rate borrowings. Other debts held by APA Group are floating rate borrowings and amortised cost as recorded in the financial statements approximate their fair values.

Financial liabilities Unsecured long term Private Placement Notes Unsecured Australian Dollar Medium Term Notes Unsecured Japanese Yen Medium Term Notes Unsecured Canadian Dollar Medium Term Notes Unsecured Australian Dollar Subordinated Notes Unsecured US Dollar 144A Medium Term Notes Unsecured British Pound Medium Term Notes Unsecured Euro Medium Term Notes	Carrying 2016 $000 1,124,099 300,000 129,964 310,555 515,000 2,885,325 1,688,747 2,008,378 8,962,068	amount 2015 $000 1,254,594 300,000 106,005 311,394 515,000 2,786,779 1,937,372 1,950,107 9,161,251	Fair value (level 2)(a) 2016 2015 $000 $000 1,246,720 1,388,789 346,153 351,024 132,575 108,594 317,912 323,954 656,141 646,661 3,015,771 3,000,016 1,822,352 1,864,624 1,958,596 1,872,050 9,496,220 9,555,712	Fair value (level 2)(a) 2016 2015 $000 $000 1,246,720 1,388,789 346,153 351,024 132,575 108,594 317,912 323,954 656,141 646,661 3,015,771 3,000,016 1,822,352 1,864,624 1,958,596 1,872,050 9,496,220 9,555,712
				9,555,712

(a) The fair values have been determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current markets, discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2.

22. OTHER FINANCIAL INSTRUMENTS

Derivatives at fair value: Equity forward contracts Derivatives at fair value designated as hedging instruments: Foreign exchange contracts – cash flow hedges Interest rate swaps – cash flow hedges Cross currency interest rate swaps – cash flow hedges Financial item carried at amortised cost: Redeemable preference share interest Current	Assets 2016 2015 $000 $000 1,864 3,527 1,389 4,016 - - 31,602 16,961 285 285 35,140 24,789	Liabilities 2016 2015 $000 $000 – – 1,421 1,800 3,925 13,003 109,328 131,012 – – 114,674 145,815	Liabilities 2016 2015 $000 $000 – – 1,421 1,800 3,925 13,003 109,328 131,012 – – 114,674 145,815
			145,815

– II-47 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Available-for-sale investments carried at fair value: Ethane Pipeline Income Fund Financial items carried at amortised cost: Redeemable ordinary shares Redeemable preference shares Derivatives – at fair value: Equity forward contracts Derivatives at fair value designated as hedging instruments: Foreign currency contracts – cash flow hedges Interest rate swaps – cash flow hedges Cross currency interest rate swaps – cash flow hedges Non-current	Assets 2016 2015 $000 $000 – 7,162 15,699 17,152 10,400 10,400 702 1,672 21,552 – – – 398,717 460,151 447,070 496,537	Liabilities 2016 2015 $000 $000 – – – – – – – – 8,716 – 6,246 8,728 179,629 36,065 194,591 44,793	Liabilities 2016 2015 $000 $000 – – – – – – – – 8,716 – 6,246 8,728 179,629 36,065 194,591 44,793
			44,793

Available-for-sale investments consist of investments in ordinary securities, and therefore have no fixed maturity date or coupon rate. The fair value of listed available-for-sale investments has been determined directly by reference to published price quotations in an active market.

Redeemable ordinary shares relate to APA Group’s 19.9% investment in Energy Infrastructure Investments Pty Ltd where APL, as responsible entity for APTIT, acquired the redeemable ordinary shares, which include a debt component.

Redeemable preference shares relate to APA Group’s 20% interest in GDI (EII) Pty Ltd. In December 2011, APA sold 80% of its gas distribution network in South East Queensland (Allgas) into an unlisted investment entity, GDI (EII) Pty Ltd. At that date GDI issued 52 million Redeemable Preference Shares (RPS) to its owners. The shares attract periodic interest payments and have a redemption date 10 years from issue.

Recognition and measurement

Hedge accounting

APA Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges or cash flow hedges. There are no fair value hedges in the current or prior year, hedges of foreign exchange and interest rate risk are accounted for as cash flow hedges.

At the inception of the hedge relationship, APA Group formally designates and documents the hedge relationship, including the risk management strategy for undertaking the hedge. This includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness. Hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and their effectiveness is regularly assessed to ensure they continue to be so.

– II-48 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Note 21 contains details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in equity are detailed in the Consolidated Statement of Changes in Equity.

Derivatives are initially recognised at fair value at the date a derivatives contract is entered into and subsequently remeasured to fair value at each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. A derivative with a positive fair value is recognised as a financial asset, a derivative with a negative fair value is recognised as a financial liability.

The fair value of hedging derivatives is classified as either current or non-current based on the timing of the underlying discounted cash flows of the instrument. Cash flows due within 12 months of the reporting date are classified as current and cash flows due after 12 months of the reporting date are classified as non-current.

Cash flow hedges

For cash flow hedges, the portion of the gain or loss on the hedging instrument that is effective is recognised directly in equity, while the ineffective portion is recognised in profit or loss.

Amounts recognised in equity are transferred to the profit or loss when the hedged transaction affects profit or loss, such as when the hedged income or expenses are recognised or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non- financial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to the profit or loss. If the hedging instrument expires or is sold, terminated or exercised, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs.

Available-for-sale financial assets

APA Group previously held certain shares which were classified as being available-for-sale. These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, which are recognised in other comprehensive income and accumulated in the available-forsale investment revaluation reserve. When these assets are derecognised, the gain or loss in equity is reclassified to profit or loss.

Dividends on available-for-sale equity instruments are recognised in profit or loss when the APA Group’s right to receive the dividends is established.

Determining whether available-for-sale investments are impaired requires an assessment as to whether declines in value are significant or prolonged. Management has taken into account a number of qualitative and quantitative factors in making this assessment. Any assessment of whether a decline in value represents an impairment would result in the transfer of the decrement from reserves to the statement of profit or loss and other comprehensive income.

– II-49 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where, as a result of one or more events that occurred after the initial recognition of the financial asset, there is objective evidence that the estimated future cash flows of the investments have been unfavourably impacted.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in the statement of profit or loss.

With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed, does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised in other comprehensive income.

23. ISSUED CAPITAL

Securities 1,114,307,369 securities, fully paid (2015: 1,114,307,369 securities, fully paid)(a) 2016 No. of securities 000 Movements Balance at beginning of financial year 1,114,307 Issue of securities under entitlement offer – Issue costs of securities – Deferred tax on issue costs of securities – Balance at end of financial year 1,114,307	2016 $000 3,195,449 – (6) 2 3,195,445		2016 $000 3,195,445 2015 No. of securities 000 835,751 278,556 – –		2015 $000 3,195,449 2015 $000 1,816,460 1,400,122 (30,190) 9,057 3,195,449


			1,114,307

(a) Fully paid securities carry one vote per security and carry the right to distributions.

Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to issued capital from 1 July 1998. Therefore, the Trust does not have a limited amount of authorised capital and issued securities do not have a par value.

– II-50 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

GROUP STRUCTURE

24. NON-CONTROLLING INTERESTS

APT is deemed the parent entity of APA Group comprising of the stapled structure of APT and APTIT. Equity attributable to other trusts stapled to the parent is a form of non-controlling interest and represents 100% of the equity of APTIT.

Summarised financial information for APTIT is set out below, the amounts disclosed are before intercompany eliminations.

Financial position Current assets Non-current assets Total assets Current liabilities Total liabilities Net assets Equity attributable to non-controlling interests Financial performance Revenue Expenses Profit for the year Other comprehensive income Total comprehensive income allocated to non-controlling interests for the year Cash flows Net cash provided by operating activities Net cash used in investing activities Distributions paid to non-controlling interests Net cash (used in)/provided by financing activities	2016 $000 704 1,046,193 1,046,897 11 11 1,046,886 1,046,886 85,483 (381) 85,102 (595) 84,507 86,451 (16,647) (69,778) (69,804)	2015 $000 701 1,031,517 1,032,218 49 49 1,032,169 1,032,169 46,359 (11) 46,348 989 47,337 46,672 (436,276) (39,324) 389,604

The accounting policies of APTIT are the same as those applied to APA Group.

There are no material guarantees, contingent liabilities or restrictions imposed on APA Group from APTIT’s non-controlling interests.

– II-51 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT Investment Trust Other non-controlling interest APT Investment Trust Issued capital: Balance at beginning of financial year Issue of securities under entitlement offer Distribution – capital return_(Note 9) Issue costs of units Reserves: Available-for-sale investment revaluation reserve: Balance at beginning of financial year Valuation loss recognised Retained earnings: Balance at beginning of financial year Net profit attributable to APTIT unitholders Distributions paid(Note 9)_ Other non-controlling interest Issued capital Reserves Retained earnings	2016 $000 1,046,886 53 1,046,939 1,005,086 – – (12) 1,005,074 595 (595) – 26,488 85,102 (69,778) 41,812 4 1 48 53	2015 $000 1,032,169 52 1,032,221 576,172 438,351 – (9,437) 1,005,086 (394) 989 595 19,465 46,348 (39,325) 26,488 4 1 47 52

– II-52 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

25. JOINT ARRANGEMENTS AND ASSOCIATES

The table below lists APA Group’s interest in joint ventures and associates that are reported as part of the Energy Investments segment. APA Group provides asset management, operation and maintenance services and corporate services, in varying combinations to the majority of energy infrastructure assets housed within these entities.

Country of incorporation Name of entity Principal activity Joint ventures: SEA Gas Gas transmission Australia Diamantina Power Station Power generation (gas) Australia Energy Infrastructure Investments Unlisted energy vehicle Australia EII 2 Power generation (wind) Australia Associates: GDI (EII) Gas distribution Australia Investment in joint ventures and associates using the equity method Joint ventures Aggregate carrying amount of investment APA Group’s aggregated share of: Profit from continuing operations Other comprehensive income Total comprehensive income Associates Aggregate carrying amount of investment APA Group’s aggregated share of: Profit from continuing operations Other comprehensive income Total comprehensive income	Ownership interest % 2016 2015 50.00 50.00 – 50.00 19.90 19.90 20.20 20.20 20.00 20.00 2016 2015 $000 $000 197,185 257,425 170,408 228,556 13,640 10,288 (8,103) (9,786) 5,537 502 26,777 28,869 3,337 3,633 (1,327) (19,290) 2,010 (15,657)	Ownership interest % 2016 2015 50.00 50.00 – 50.00 19.90 19.90 20.20 20.20 20.00 20.00 2016 2015 $000 $000 197,185 257,425 170,408 228,556 13,640 10,288 (8,103) (9,786) 5,537 502 26,777 28,869 3,337 3,633 (1,327) (19,290) 2,010 (15,657)

		228,556 10,288 (9,786)
		502

		28,869 3,633 (19,290)
		(15,657)

Investment in associates

An associate is an entity over which APA Group has significant influence and that is neither a subsidiary nor a joint arrangement. Investments in associates are accounted for using the equity accounting method.

Under the equity accounting method the investment is recorded initially at cost to APA Group, including any goodwill on acquisition. In subsequent periods the carrying amount of the investment is adjusted to reflect APA Group’s share of the retained post-acquisition profit or loss and other comprehensive income, less any impairment.

– II-53 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Losses of an associate or joint venture in excess of APA Group’s interests (which includes any longterm interests, that in substance, form part of the net investment) are recognised only to the extent that there is a legal or constructive obligation or APA Group has made payments on behalf of the associate or joint venture.

Contingent liabilities and capital commitments

APA Group’s share of the contingent liabilities, capital commitments and other expenditure commitments of joint operations is disclosed in Note 28.

APA Group is a venturer in the following joint operations:

		Output interest
		2016	2015
Name of venture	Principal activity	%	%
Goldfields Gas Transmission	Gas pipeline operation – Western Australia	88.2(a)	88.2(a)
Mid West Pipeline	Gas pipeline operation – Western Australia	50.0(b)	50.0(b)

(a) On 17 August 2004, APA acquired a direct interest in the Goldfields Gas Transmission joint operations as part of the SCP Gas Business acquisition.
(b) Pursuant to the joint venture agreement, APA Group receives a 70.8% share of operating income and expenses.

Interest in joint arrangements

A joint arrangement is an arrangement whereby two or more parties have joint control. Joint control is the contractually agreed sharing of control such that decisions about the relevant activities of the arrangement (those that significantly affect the returns) require the unanimous consent of the parties sharing control. APA Group has two types of joint arrangements:

Joint ventures: A joint arrangement in which the parties that share joint control have rights to the net assets of the arrangement. Joint Ventures are accounted for using the equity accounting method; and

Joint operations: A joint arrangement in which the parties that share joint control have rights to the assets, and obligations for the liabilities, relating to the arrangement. In relation to its interest in a joint operation, APA Group recognises its share of assets and liabilities, revenue from the sale of its share of the output and its share of any revenue generated from the sale of the output by the joint operation and its share of expenses. These are incorporated into APA Group’s financial statements under the appropriate headings.

26. BUSINESS COMBINATIONS

Acquisitions of businesses are accounted for using the acquisition method. Under the acquisition method of accounting, the purchase consideration is allocated to the identifiable assets acquired and liabilities and contingent liabilities assumed (the identifiable net assets) on the basis of their fair value at the date of acquisition which is the date on which control is obtained.

Provisional fair values allocated at a reporting date are finalised within 12 months of the acquisition date. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. Any shortfall is immediately recognised in the statement of profit or loss.

Costs related to the acquisition of a subsidiary are expensed as incurred.

– II-54 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

On an acquisition-by-acquisition basis, APA Group recognises any non-controlling interest in the acquiree either at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets or at fair value. Goodwill and amounts attributable to non-controlling interests will differ depending on the basis used.

Where APA Group has a previously held non-controlling interest in the acquiree, this is remeasured to fair value at the date control is gained with any gain or loss recognised in the statement of profit or loss. Amounts recognised in other comprehensive income prior to the acquisition are reclassified to profit or loss.

Subsidiaries acquired

		Date of	Proportion of	Cost of
Name of entity	Principal activity	Acquisition	shares acquired	acquisition
			%	$000
2016
Diamantina Power Station	Power generation (gas)	31 March 2016	50.00	151,000
Ethane Pipeline Income Fund	Gas transmission	18 April 2016	93.92	122,368
APA Ethane Limited	Trustee	15 June 2016	50.50	–

Diamantina Power Station

On 31 March 2016, APA Group acquired the remaining 50 per cent of the Diamantina Power Station (DPS) that it did not already own from AGL Energy Limited for a cash payment of $151.0 million.

The acquisition includes two power stations with shared infrastructure, the 242MW Diamantina Power Station with combined cycle gas turbines and the 60MW Leichhardt Power Station with an open cycle gas turbine. These energy assets are connected to our East Coast Grid and underwritten by two highly credit worthy counterparties.

Included in the consolidated net profit for the year is revenue of $56.3 million and earnings before interest, tax, depreciation and amortisation of $23.3 million attributable to DPS.

Had the business combination been effected at 1 July 2015, DPS would have contributed revenue of $245.5 million and earnings before interest, tax, depreciation and amortisation of $89.3 million.

Ethane Pipeline Income Fund

On 7 March 2016, APA Group announced an unconditional off-market takeover offer for all remaining securities of Ethane Pipeline Income Fund (EPX) that APA did not already own at a cash only offer price of $1.88 per security. By 18 April 2016, APA Group had obtained a controlling interest of 51.01% of EPX resulting in a non-controlling interest of 48.99%. The non-controlling interest was acquired over the period 19 April to 15 June 2016 when compulsory acquisition was completed.

The non-controlling interest in EPX recognised at acquisition date was measured by reference to the fair value of the non-controlling interest and amounted to $63.8 million. The fair value was derived from a quoted price in an active market for the equity securities.

The acquisition of EPX extends and further diversifies APA Group’s investment in related energy infrastructure including expanding its footprint into transporting alternate fuels. The ethane pipeline asset has a long term customer contract in place. APA Group currently has an operating agreement over the ethane pipeline and expects to reduce costs from removal of EPX from the official list of ASX, and through economies of scale.

On 15 June 2016, APA Group acquired the remaining 50 shares in APA Ethane Limited, the Responsible Entity of Ethane Pipeline Income Fund.

– II-55 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Included in the consolidated net profit for the year is revenue of $4.1 million and earnings before interest, tax, depreciation and amortisation of $2.8 million attributable to EPX.

Had the business combination been effected at 1 July 2015, EPX would have contributed revenue of $20.1 million and earnings before interest, tax, depreciation and amortisation of $16.2 million.

Assets acquired and liabilities assumed at the date of acquisition

Net assets acquired Current assets Cash and cash equivalents Trade and other receivables Other financial assets Inventories Other Non-current assets Cash on deposit Other financial assets Property, plant & equipment Goodwill Current liabilities Trade and other payables Income tax payable Current borrowings Other financial liabilities Provisions Other Non-current liabilities Deferred tax liabilities Other financial liabilities Provisions Fair value of net assets acquired Previously held interest Cost of acquisition Cash balances acquired Dividend on securities acquired (Cum Dividend) during the takeover offer Transaction costs paid Net cash outflow on acquisitions	EPX $000 5,594 1,126 – – 417 2,169 – 142,085 – (1,654) (365) – – (866) (18) (16,317) – (1,882) 130,289 (7,921) 122,368 (5,593) 102 2,172 119,049	DPS $000 53,062 5,508 347 5,937 6,066 – 597 725,091 44,088 (26,292) – (447,051) (16,134) (549) – (17,758) (28,208) (2,728) 301,976 (150,976) 151,000 (53,062) – 353 98,291	Total $000 58,656 6,634 347 5,937 6,483 2,169 597 867,176 44,088 (27,946) (365) (447,051) (16,134) (1,415) (18) (34,075) (28,208) (4,610) 432,265 (158,897) 273,368 (58,655) 102 2,525 217,340

The accounting for the acquisition of EPX and DPS has been provisionally determined at the reporting date.

– II-56 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

27. SUBSIDIARIES

Subsidiaries are entities controlled by APT. Control exists where APT has power over the entities, i.e. existing rights that give it the current ability to direct the relevant activities of the entities (those that significantly affect the returns); exposure, or rights, to variable returns from its involvement with the entities; and the ability to use its power to affect those returns.

	Country of
	registration/	Ownership interest
Name of entity	incorporation	2016	2015
		%	%
Parent entity
Australian Pipeline Trust(a)
Subsidiaries
APT Pipelines Limited(b),(c)	Australia	100	100
Australian Pipeline Limited(b)	Australia	100	100
Agex Pty Ltd(b),(c)	Australia	100	100
Amadeus Gas Trust	Australia	96	96
APT Goldfields Pty Ltd(b),(c)	Australia	100	100
APT Management Services Pty Limited(b),(c)	Australia	100	100
APT Parmelia Holdings Pty Ltd(b),(c)	Australia	100	100
APT Holdings Pty Ltd(b),(c)	Australia	100	100
APT Parmelia Trust(b)	Cayman Islands	100	100
APT Petroleum Pipelines Holdings Pty Limited(b),(c)	Australia	100	100
APT Petroleum Pipelines Pty Limited(b),(c)	Australia	100	100
APT Pipelines (NSW) Pty Limited(b),(c)	Australia	100	100
APT Pipelines (NT) Pty Limited(b),(c)	Australia	100	100
APT Pipelines (QLD) Pty Limited(b),(c)	Australia	100	100
APT Pipelines (WA) Pty Limited(b),(c)	Australia	100	100
APT Pipelines Investments (NSW) Pty Limited(b),(c)	Australia	100	100
APT Pipelines Investments (WA) Pty Limited(b),(c)	Australia	100	100
East Australian Pipeline Pty Limited(b),(c)	Australia	100	100
Gasinvest Australia Pty Ltd(b),(c)	Australia	100	100
Goldfields Gas Transmission Pty Ltd(b)	Australia	100	100
N.T. Gas Distribution Pty Limited(b),(c)	Australia	100	100
N.T. Gas Easements Pty Limited(b),(c)	Australia	100	100
N.T. Gas Pty Limited	Australia	96	96
Roverton Pty Ltd(b),(c)	Australia	100	100
SCP Investments (No. 1) Pty Limited(b),(c)	Australia	100	100
SCP Investments (No. 2) Pty Limited(b),(c)	Australia	100	100
SCP Investments (No. 3) Pty Limited(b),(c)	Australia	100	100
Sopic Pty Ltd(b),(c)	Australia	100	100
Southern Cross Pipelines (NPL) Australia Pty Ltd(b),(c)	Australia	100	100
Southern Cross Pipelines Australia Pty Limited(b),(c)	Australia	100	100
Trans Australia Pipeline Pty Ltd(b),(c)	Australia	100	100
Western Australian Gas Transmission Company 1 Pty Ltd(b),(c)	Australia	100	100
GasNet Australia Trust(b)	Australia	100	100
APA VTS Australia (Holdings) Pty Limited(b),(c)	Australia	100	100
APA VTS Australia (Operations) Pty Limited(b),(c)	Australia	100	100
APA VTS A Pty Limited(b),(c)	Australia	100	100
GasNet A Trust	Australia	100	100
APA VTS Australia (NSW) Pty Limited(b),(c)	Australia	100	100
APA VTS B Pty Limited(b),(c)	Australia	100	100
APA VTS Australia Pty Limited(b),(c)	Australia	100	100
GasNet B Trust(b)	Australia	100	100

– II-57 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

	Country of
	registration/	Ownership interest
Name of entity	incorporation	2016	2015
		%	%
GasNet Australia Investments Trust	Australia	100	100
APA Operations Pty Limited(b),(c)	Australia	100	100
APT AM Holdings Pty Limited(b),(c)	Australia	100	100
APT O&M Holdings Pty Ltd(b),(c)	Australia	100	100
APT O&M Services Pty Ltd(b),(c)	Australia	100	100
APT O&M Services (QLD) Pty Ltd(b),(c)	Australia	100	100
APT AM (Stratus) Pty Limited(b),(c)	Australia	100	100
APT Facility Management Pty Limited(b),(c)	Australia	100	100
APT AM Employment Pty Limited(b),(c)	Australia	100	100
APT Sea Gas Holdings Pty Limited(b),(c)	Australia	100	100
APT SPV2 Pty Ltd(b)	Australia	100	100
APT SPV3 Pty Ltd(b)	Australia	100	100
APT Pipelines (SA) Pty Limited(b),(c)	Australia	100	100
APT (MIT) Services Pty Limited(b),(c)	Australia	100	100
APA Operations (EII) Pty Limited(b),(c)	Australia	100	100
Central Ranges Pipeline Pty Ltd(b),(c)	Australia	100	100
APA Country Pipelines Pty Limited(b),(c)	Australia	100	100
APA Facilities Management Pty Limited(b),(c)	Australia	100	100
APA (NBH) Pty Limited(b),(c)	Australia	100	100
APA Pipelines Investments (BWP) Pty Limited(b),(c)	Australia	100	100
APA Power Holdings Pty Limited(b),(c)	Australia	100	100
APA (EDWF Holdco) Pty Ltd(b),(c)	Australia	100	100
APA (BWF Holdco) Pty Ltd(b),(c)	Australia	100	100
EDWF Holdings 1 Pty Ltd(b),(c)	Australia	100	100
EDWF Holdings 2 Pty Ltd(b),(c)	Australia	100	100
EDWF Manager Pty Ltd(b),(c)	Australia	100	100
Wind Portfolio Pty Ltd(b),(c)	Australia	100	100
Griffin Windfarm 2 Pty Ltd(b)	Australia	100	100
APA AM (Allgas) Pty Limited(b),(c)	Australia	100	100
APA DPS Holdings Pty Limited(b),(c)	Australia	100	100
APA Power PF Pty Limited(b),(c)	Australia	100	100
APA Sub Trust No 1(b)	Australia	100	100
APA Sub Trust No 2(b)	Australia	100	100
APA Sub Trust No 3(b)	Australia	100	100
APA (Pilbara Pipeline) Pty Ltd(b),(c)	Australia	100	100
APA (Sub No 3) International Holdings 1 Pty Ltd(b),(e),(f)	Australia	–	100
APA (Sub No 3) International Holdings 2 Pty Ltd(b),(e),(f)	Australia	–	100
APA (Sub No 3) International Holdings 3 Pty Ltd(b),(e),(f)	Australia	–	100
APA (SWQP) Pty Limited(b),(c)	Australia	100	100
APA (WA) One Pty Limited(b),(c)	Australia	100	100
APA AIS 1 Pty Limited(b),(c)	Australia	100	100
APA AIS 2 Pty Ltd(b),(c)	Australia	100	100
APA AIS Pty Limited(b),(c)	Australia	100	100
APA Biobond Pty Limited(b),(c)	Australia	100	100
APA East One Pty Limited(b),(e),(f)	Australia	–	100
APA East Pipelines Pty Limited(b),(c)	Australia	100	100
APA EE Pty Limited(b),(c)	Australia	100	100
APA EE Australia Pty Limited(b),(c)	Australia	100	100
APA EE Corporate Shared Services Pty Limited(b),(c)	Australia	100	100
APA EE Holdings Pty Limited(b),(c)	Australia	100	100
Epic Energy East Pipelines Trust(b)	Australia	100	100
APA (NT) Pty Limited(b),(e),(f)	Australia	–	100

– II-58 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

	Country of
	registration/	Ownership interest
Name of entity	incorporation	2016	2015
		%	%
APA Bid Co Pty Limited(b),(c)	Australia	100	100
APA Transmission Pty Limited(b),(c),(g)	Australia	100	100
APA WGP Pty Limited(b),(c)	Australia	100	100
APA Newco Pty Limited(b),(d)	Australia	100	–
APA SEA Gas (Mortlake) Holdings Pty Ltd(b),(d)	Australia	100	–
APA SEA Gas (Mortlake) Pty Ltd(b),(d)	Australia	100	–
APA DPS2 Pty Limited(b),(d)	Australia	100	–
Diamantina Holding Company Pty Limited(b),(h)	Australia	100	–
Diamantina Power Station Pty Limited(b),(h)	Australia	100	–
Ethane Pipeline Income Trust(b),(h)	Australia	100	–
Ethane Pipeline Income Financing Trust(b),(h)	Australia	100	–
Moomba to Sydney Ethane Pipeline Trust(b),(h)	Australia	100	–
Gorodok Pty Ltd(b),(h)	Australia	100	–
APA Ethane Limited(b),(h)	Australia	100	–
Votraint No 1606 Pty Ltd(b),(h)	Australia	100	–
Votraint No 1613 Pty Ltd(b),(h)	Australia	100	–
EPX HoldCo Pty Ltd(b)(d)	Australia	100	–
APA (EPX) Pty Limited(b),(d)	Australia	100	–
EPX Trust(b),(d)	Australia	100	–
EPX Member Pty Ltd(b),(d)	Australia	100	–

(a) Australian Pipeline Trust is the head entity within the APA tax-consolidated group.
(b) These entities are members of the APA tax-consolidated group.
(c) These wholly-owned subsidiaries have entered into a deed of cross guarantee with APT Pipelines Limited pursuant to ASIC Class Order 98/1418 and are relieved from the requirement to prepare and lodge an audited financial report.
(d) Entity was acquired or registered during the 2016 year.
(e) Entity was deregistered during the 2016 year.
(f) Entity party to a revocation deed, in relation to the APT Pipelines Limited deed of cross guarantee, lodged with ASIC on 1 August 2014 which has taken affect in the 2015 year and is therefore no longer a party to the deed.
(g) Entity previously known as “APA Holdco Pty Limited” during the 2015 year.
(h) Remaining shares/units acquired during the 2016 year, entity now classified as a subsidiary (refer to Note 26).

– II-59 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

OTHER ITEMS

28. COMMITMENTS AND CONTINGENCIES

Capital expenditure commitments APA Group – plant and equipment APA Group’s share of jointly controlled operations – plant and equipment Contingent liabilities Bank guarantees	2016 $000 151,710 4,402 156,112 42,027	2015 $000 94,169 5,987
		100,156

		49,049

APA Group had no contingent assets as at 30 June 2016 and 30 June 2015.

29. DIRECTOR AND SENIOR EXECUTIvE REMUNERATION

Remuneration of Directors

The aggregate remuneration of Directors of APA Group is set out below:

Short-term employment benefits Post-employment benefits Total remuneration: Non-Executive Directors Short-term employment benefits Post-employment benefits Cash settled security-based payments Total remuneration: Executive Director(a) Total remuneration: Directors Remuneration of senior executives(a) The aggregate remuneration of senior executives of APA Group is set out below: Short-term employment benefits Post-employment benefits Cash settled security-based payments Retention award Total remuneration: senior executives	2016 $ 1,548,424 217,041 1,765,465 3,544,861 35,000 1,579,531 5,159,392 6,924,857 10,992,475 856,636 4,429,999 – 16,279,110	2015 $ 1,268,500 132,105
		1,400,605
		3,109,447 35,000 1,564,212
		4,708,659
		6,109,264

		9,977,891 258,778 4,242,640 430,666
		14,909,975

(a) The remuneration for the Chief Executive Officer and Managing Director, Michael McCormack, is also included in the remuneration disclosure for senior executives.

– II-60 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

30. REMUNERATION OF EXTERNAL AUDITOR

Amounts received or due and receivable by Deloitte Touche Tohmatsu for: Auditing the financial report Compliance plan audit Other assurance services(a)	2016 $ 643,000 18,500 75,000 736,500	2015 $ 659,500 18,000 436,500
		1,114,000

(a) Services provided were in accordance with the external auditor independence policy. Other assurance services mainly comprise assurance services in relation to Diamantina Holding Company Pty Limited and Diamantina Power Station Pty Limited.

31. RELATED PARTY TRANSACTIONS

(a) Equity interest in related parties

Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 27 and the details of the percentage held in joint operations, joint ventures and associates are disclosed in Note 25.

(b) Responsible Entity – Australian Pipeline Limited

The Responsible Entity is wholly owned by APT Pipelines Limited.

(c) Transactions with related parties within APA Group

Transactions between the entities that comprise APA Group during the financial year consisted of:

dividends;
asset lease rentals;
loans advanced and payments received on long-term inter-entity loans;
management fees;
operational services provided between entities;
payments of distributions; and
equity issues.

The above transactions were made on normal commercial terms and conditions. The Group charges interest on inter-entity loans from time to time.

All transactions between the entities that comprise APA Group have been eliminated on consolidation.

Refer to Note 27 for details of the entities that comprise APA Group.

– II-61 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Australian Pipeline Limited

Management fees of $3,999,694 (2015: $3,451,167) were paid to the Responsible Entity as reimbursement of costs incurred on behalf of APA Group. No amounts were paid directly by APA Group to the Directors of the Responsible Entity, except as disclosed at Note 29.

Australian Pipeline Limited, in its capacity as trustee and Responsible Entity of the Trust, has guaranteed the payment of principal, interest and other amounts as provided in the senior debt facilities of APT Pipelines Limited, the principal borrowing entity of APA Group.

(d) Transactions with other associates and joint ventures

The following transactions occurred with APA Group’s associates and joint ventures on normal market terms and conditions:

2016 SEA Gas Energy Infrastructure Investments EII 2 APA Ethane Ltd Diamantina Power Station(a) GDI (EII) 2015 SEA Gas Energy Infrastructure Investments EII 2 APA Ethane Ltd Diamantina Power Station(a) GDI (EII)	Dividends from related parties $000 10,523 3,810 3,102 – – 4,102 21,537 14,164 3,460 3,105 – – 4,479 25,208	Sales to related parties $000 3,371 35,114 725 192 950 55,775 96,127 3,733 27,021 661 200 1,608 51,190 84,413	Purchases from related parties $000 – 157 – – – 54 211 – 139 – – – – 139	Amount owed by related parties $000 10 4,344 45 – – 7,830 12,229 181 3,074 – – – 5,749 9,004	Amount owed to related parties $000 – – – – – –
					–

					– 139 – – – –
					139

(a) At year end, APA Group had no shareholder loan receivable from Diamantina Power Station (2015: $75.7 million). Following APA Group’s acquisition of the remaining 50% of Diamantina Power Station on 31 March 2016, the shareholder loan receivable from Diamantina Power Station now forms part of the inter entity balances and is eliminated on consolidation.

– II-62 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

32. PARENT ENTITY INFORMATION

The accounting policies of the parent entity, which have been applied in determining the financial information below, are the same as those applied in the consolidated financial statements.

Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Total liabilities Net assets Equity Issued capital Retained earnings Available-for-sale investment revaluation reserve Total equity Financial performance Profit for the year Other comprehensive income Total comprehensive income	2016 $000 2,573,646 752,939 3,326,585 112,169 112,169 3,214,416 3,195,445 18,971 – 3,214,416 186,014 2,258 188,272	2015 $000 2,869,731 632,553
		3,502,284
		105,763
		105,763
		3,396,521

		3,195,449 199,587 1,485
		3,396,521

		449,311 1,122
		450,433

Guarantees entered into by the parent entity in relation to the debts of its subsidiaries

No guarantees have been entered into by the parent entity in relation to the debts of its subsidiaries.

Contingent liabilities of the parent entity

No contingent liabilities have been identified in relation to the parent entity.

– II-63 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

33. ADOPTION OF NEw AND REvISED ACCOUNTING STANDARDS

Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)

There has not been any new or revised Standards and Interpretations issued by the AASB that are relevant to the consolidated entity’s operations that would be effective for the current reporting period.

Standards and Interpretations issued not yet adopted

At the date of authorisation of the financial statements, the Standards and Interpretations listed below were on issue but not yet effective.

Standard/Interpretation

Effective for Expected to be annual reporting initially applied periods beginning in the financial on or after year ending

• AASB 9 ‘Financial Instruments’, and the relevant amending standards 1 January 2018 30 June 2019 • AASB 15 ‘Revenue from Contracts with Customers’, and AASB 2015-8 ‘Amendments to Australian Accounting Standards – Effective date of AASB 15’ 1 January 2018 30 June 2019 • AASB 16 ‘Leases’ 1 January 2019 30 June 2020

The potential impacts of the initial application of the Standards above are yet to be determined.

34. EvENTS OCCURRING AFTER REPORTING DATE

On 24 August 2016, the Directors declared a final distribution of 22.50 cents per security ($250.7 million) for APA Group (comprising a distribution of 18.12 cents per security from APT and a distribution of 4.38 cents per security from APTIT), comprising 20.09 cents per security profit distribution (unfranked) and 2.41 cents per security capital distribution. The distribution will be paid on 16 September 2016.

Other than the events disclosed above, there have not been any events or transactions that have occurred subsequent to year end that would require adjustment to or disclosure in the accounts.

– II-64 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES DECLARATION BY THE DIRECTORS OF AUSTRALIAN PIPELINE LIMITED For the financial year ended 30 June 2016

The Directors declare that:

(a) in the Directors’ opinion, there are reasonable grounds to believe that Australian Pipeline Trust will be able to pay its debts as and when they become due and payable;
(b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with Accounting Standards and giving a true and fair view of the financial position and performance of APA Group;
(c) in the Directors’ opinion, the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standard Boards;
(d) the Directors have been given the declarations by the Managing Director and Chief Financial Officer required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of the Directors of the Responsible Entity made pursuant to section 295(5) of the Corporations Act 2001.

On behalf of the Directors

==> picture [136 x 36] intentionally omitted <==

Leonard Bleasel AM Chairman

==> picture [133 x 36] intentionally omitted <==

Steven Crane

Director

SYDNEY, 24 August 2016

– II-65 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIvE INCOME

For the financial year ended 30 June 2016

Note Continuing operations Revenue 3 Expenses 3 Profit before tax Income tax expense 4 Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: (Loss)/gain on movement and disposal of available-for-sale investments Other comprehensive income for the year Total comprehensive income for the year Profit Attributable to: Unitholders of the parent Total comprehensive income attributable to: Unitholders of the parent Earnings per unit Basic and diluted (cents per unit) 5	2016 $000 85,483 (381) 85,102 – 85,102 (595) (595) 84,507 85,102 85,102 84,507 2016 7.6	2015 $000 46,359 (11) 46,348 – 46,348 989 989 47,337 46,348 46,348 47,337 2015 4.7

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

– II-66 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2016

Note Current assets Receivables 7 Non-current assets Receivables 7 Other financial assets 9 Non-current assets Total assets Current liabilities Trade and other payables 8 Total liabilities Net assets Equity Issued capital 11 Reserves Retained earnings Total equity	2016 $000 704 9,249 1,036,944 1,046,193 1,046,897 11 11 1,046,886 1,005,074 – 41,812 1,046,886	2015 $000 701
		9,951 1,021,566
		1,031,517
		1,032,218
		49
		49
		1,032,169

		1,005,086 595 26,488
		1,032,169

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

– II-67 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CHANGES IN EqUITY

For the financial year ended 30 June 2016

Note Balance at 1 July 2014 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Issue of capital (net of issue costs) 11 Distributions to unitholders 6 Balance at 30 June 2015 Balance at 1 July 2015 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Issue of capital (net of issue costs) 11 Distributions to unitholders 6 Balance at 30 June 2016	Issued capital $000 576,172 – – – 428,914 – 1,005,086 1,005,086 – – – (12) – 1,005,074	Reserves $000 (394) – 989 989 – – 595 595 – (595) (595) – – –	Retained earnings $000 19,465 46,348 – 46,348 – (39,325) 26,488 26,488 85,102 – 85,102 – (69,778) 41,812	Total $000 595,243 46,348 989 47,337 428,914 (39,325) 1,032,169 1,032,169 85,102 (595) 84,507 (12) (69,778) 1,046,886

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

– II-68 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOwS

For the financial year ended 30 June 2016

Cash flows from operating activities Trust distribution – related party Dividends received Interest received – related parties Proceeds from repayment of finance leases Receipts from customers Payments to suppliers Net cash provided by operating activities Cash flows from investing activities Advances to related parties Proceeds from disposal of availiable-for-sale investment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of units Payment of unit issue costs Distributions to unitholders Net cash (used in)/provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year	2016 $000 31,747 126 53,229 1,167 193 (11) 86,451 (18,192) 1,545 (16,647) – (26) (69,778) (69,804) – – –	2015 $000 23,184 125 21,889 1,167 318 (11) 46,672 (436,276) – (436,276) 438,351 (9,422) (39,325) 389,604 – – –

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

– II-69 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended 30 June 2016

BASIS OF PREPARATION

1. ABOUT THIS REPORT

The content and format of the financial statements is streamlined to present the financial information in a meaningful manner to unitholders. Note disclosures are grouped into six sections being Basis of Preparation, Financial Performance, Operating Assets and Liabilities, Capital Management, Group Structure and Other. Each note sets out the accounting policies applied in producing the results along with any key judgements and estimates used. The purpose of the format is to provide readers with a clearer understanding of what are the key drivers of financial performance for the Consolidated Entity.

Basis of Preparation

Financial Performance

Operating Assets and Liabilities

About this report
Profit from operations
Receivables
General information
Income tax
Payables
Earnings per unit
Distributions

Capital Management

Group Structure

Other

Other financial instruments 12. Subsidiaries
Commitments and contingencies
Financial risk management
Director and senior executive remuneration
Issued capital
Remuneration of external auditor
Related party transactions
Parent entity information
Leases
Adoption of new and revised Accounting Standards
Events occurring after reporting date

– II-70 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

2. GENERAL INFORMATION

APT Investment Trust (“APTIT” or “Trust”) is one of the two stapled trusts of APA Group, the other stapled trust being Australian Pipeline Trust (“APT”). Each of APT and APTIT are registered managed investment schemes regulated by the Corporations Act 2001. APTIT units are “stapled” to APT units on a one-to-one basis so that one APTIT unit and one APT unit form a single stapled security which trades on the Australian Securities Exchange under the code “APA”.

This financial report represents the consolidated financial statements of APTIT and its controlled entities (together the “Consolidated Entity”). For the purposes of preparing the consolidated financial report, the Consolidated Entity is a for-profit entity.

All intragroup transactions and balances have been eliminated on consolidation. Where necessary, adjustments are made to the assets, liabilities, and results of subsidiaries, joint arrangements and associates to bring their accounting policies into line with those used by the Consolidated Entity.

APTIT’s registered office and principal place of business is as follows:

Level 19 HSBC Building 580 George Street SYDNEY NSW 2000 Tel: (02) 9693 0000

APTIT operates as an investment entity within APA Group.

The financial report for the year ended 30 June 2016 was authorised for issue in accordance with a resolution of the directors on 24 August 2016.

This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AIFRS), and also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standard Board.

Subsidiaries

Subsidiaries are entities controlled by APTIT. Control exists where APTIT has power over an entity, i.e. existing rights that give APTIT the current ability to direct the relevant activities of the entity (those that significantly affect the returns); exposure, or rights, to variable returns from its involvement with the entity; and the ability to use its power to affect those returns.

Segment information

The Consolidated Entity has one reportable segment being energy infrastructure investment.

The Consolidated Entity is an investing entity within the Australian Pipeline Trust stapled group. As the Trust only operates in one segment, it has not disclosed segment information separately.

– II-71 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

FINANCIAL PERFORMANCE

3. PROFIT FROM OPERATIONS

Profit before income tax includes the following items of income and expense:

Revenue Distributions Trust distribution – related party Other entities Finance income Interest – related parties (Loss)/gain on financial asset held at fair value through profit or loss Finance lease income – related party Other revenue Other Total revenue Expenses Audit fees Loss on disposal of available-for-sale investment Total expenses	2016 $000 31,747 95 31,842 53,684 (756) 497 53,425 216 85,483 (11) (370) (381)	2015 $000 23,184 125 23,309 22,157 70 529 22,756 294 46,359 (11) – (11)

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Consolidated Entity and can be reliably measured. Amounts disclosed as revenue are net of duties and taxes paid. Revenue is recognised for the major business activities as follows:

Interest revenue , which is recognised as it accrues and is determined using the effective interest method;
Distribution revenue , which is recognised when the right to receive a distribution has been established;
Dividend revenue , which is recognised when the right to receive a dividend has been established; and
Finance lease income , which is recognised when receivable.

– II-72 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

4. INCOME TAX

Income tax expense is not brought to account in respect of APTIT as, pursuant to Australian taxation laws, APTIT is not liable for income tax provided that its realised taxable income (including any assessable realised capital gains) is fully distributed to its unitholders each year.

5. EARNINGS PER UNIT

2016 cents Basic and diluted earnings per unit 7.6 The earnings and weighted average number of units used in the calculation of basic and per unit are as follows: 2016 $000 Net profit attributable to unitholders for calculating basic and diluted earnings per unit 85,102 2016 No. of units 000 Adjusted weighted average number of ordinary units used in the calculation of basic and diluted earnings per unit 1,114,307	2015 cents 4.7

	diluted earnings 2015 $000 46,348

	2015 No. of units 000 995,245

The earnings and weighted average number of units used in the calculation of basic and diluted earnings per unit are as follows:

– II-73 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

6. DISTRIBUTIONS

Recognised amounts Final distribution paid on 16 September 2015 (2015: 10 September 2014) Profit distribution(a) Capital distribution Interim distribution paid on 16 March 2016 (2015: 18 March 2015)(b) Profit distribution(a) Capital distribution Total distributions recognised Profit distributions(a) Capital distributions Unrecognised amounts Final distribution payable on 16 September 2016(c) (2015: 16 September 2015) Profit distribution(a) Capital distribution	2016 cents per unit 2.38 – 2.38 3.88 – 3.88 6.26 – 3.75 0.63 4.38	2016 Total $000 26,488 – 26,488 43,290 – 43,290 69,778 – 41,811 6,976 48,787	2015 cents per unit 2.33 – 2.33 2.38 – 2.38 4.71 – 2.38 – 2.38	2015 Total $000 19,465 –
				19,465

				19,860 –
				19,860

				39,325 –

				26,488 –
				26,488

(a) Profit distributions unfranked (2015: unfranked).

(b) New securities issued under the December 2014 entitlement offer were not eligible for the FY2015 interim distribution.

– II-74 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

OPERATING ASSETS AND LIABILITIES

7. RECEIvABLES

Other debtors Finance lease receivable – related party_(Note 18) Current Finance lease receivable – related party(Note 18)_ Non-current	2016 $000 – 704 704 9,249 9,249	2015 $000 31 670
		701

		9,951
		9,951

In determining the recoverability of a receivable, the Consolidated Entity considers any change in the credit quality of the receivable from the date the credit was initially granted up to the reporting date. The directors believe that there is no credit provision required.

None of the above receivables is past due.

8. PAYABLES

Other payables 11 49

Trade and other payables are recognised when the Consolidated Entity becomes obliged to make future payments resulting from the purchase of goods and services. Trade and other payables are stated at amortised cost.

– II-75 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

CAPITAL MANAGEMENT

9. OTHER FINANCIAL INSTRUMENTS

Non-current Advance to related party Investments carried at cost: Investment in related party(a) Financial assets carried at fair value: Redeemable ordinary shares(b) Available-for-sale investments carried at fair value(c)	2016 $000 895,102 107,379 1,002,481 34,463 – 1,036,944	2015 $000 876,911 107,379
		984,290 34,765 2,511
		1,021,566

(a) The investment in related party reflects GasNet Australia Investments Trust’s (“GAIT”) investment in 100% of the B Class units in GasNet A Trust. The B Class units give GAIT preferred rights to the income and capital of GasNet A Trust, but hold no voting rights. The A Class unitholder may however suspend for a period or terminate all of the B Class unitholder rights to income and capital. As such, GAIT neither controls nor has a significant influence over GasNet A Trust. GasNet Australia Trust, a related party wholly owned by APA Group, owns 100% of the A Class units in GasNet A Trust and, accordingly, GasNet A Trust is included in the consolidation of the APA Group. The investment has not been measured at fair value as the units of GasNet A Trust are not available for trade on an active market and as such, the fair value of the units cannot be reliably determined. The Consolidated Entity does not intend to dispose of its interest in GasNet A Trust.
(b) Financial assets carried at fair value relate to APA Group’s 19.9% investment in Energy Infrastructure Investments Pty Ltd where Australian Pipeline Limited (APL), as Responsible Entity for APTIT, acquired the redeemable ordinary shares (“Ros”). This investment is classified at fair value through profit or loss.
(c) Available-for-sale investments at 30 June 2015 reflect a 6% unitholding in Ethane Pipeline Income Financing Trust. During the current financial year, the Consolidated Entity disposed of these units to APT as part of APT’s takeover of Ethane Pipeline Income Fund.

Financial assets are classified into the following specified categories: ‘available-for-sale’ financial assets, ‘loans and receivables’ and ‘fair value through profit or loss’.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or where appropriate, a shorter period.

– II-76 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Fair value through profit or loss

Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset.

Available-for-sale financial assets

Financial assets classified as being available-for-sale are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in the available-for-sale investment revaluation reserve.

The available-for-sale investment revaluation reserve arises on the revaluation of available-for-sale financial assets. When a revalued financial asset is sold, the portion of the reserve which relates to that financial asset is effectively realised, and is recognised in profit or loss. When a revalued financial asset is impaired, the portion of the reserve which relates to that financial asset is recognised in profit or loss.

Receivables and loans

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Trade and other receivables are stated at their amortised cost less impairment.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting date. Financial assets are impaired where, as a result of one or more events that occurred after initial recognition of the financial asset, there is objective evidence that the estimated future cash flows of the investment have been adversely impacted.

10. FINANCIAL RISk MANAGEMENT

The Treasury department within Finance is responsible for the overall management of the Consolidated Entity’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee approves written principles for overall risk management, as well as policies covering specific areas such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. The Consolidated Entity’s Board of Directors ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting from the Treasury department.

The Consolidated Entity’s activities generate financial instruments comprising of cash, receivables, payables and interest bearing liabilities which expose it to various risks as summarised below:

(a) Market risk including currency risk, interest rate risk and price risk;

(b) Credit risk; and
(c) Liquidity risk.

Treasury as a centralised function provides the Consolidated Entity with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost, and minimises risks through the use of natural hedges and derivative instruments. The Consolidated Entity does not engage in speculative trading. All derivatives have been traded to hedge underlying or existing exposures and have adhered to the Board approved Treasury Risk Management Policy.

– II-77 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(a) Market risk

The Consolidated Entity’s activities exposure is primarily to the financial risk of changes in interest rates. There has been no change to the Consolidated Entity’s exposure to market risk or the manner in which it manages and measures the risk from the previous period.

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates on loans with related parties. A 100 basis points increase or decrease is used and represents management’s assessment of the greatest possible change in interest rates. At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were constant, the Consolidated Entity’s net profit would increase by $5,963,000 or decrease by $5,883,000 (2015: increase by $3,335,000 or decrease by $1,090,000 respectively). This is mainly attributable to the Consolidated Entity’s exposure to interest rates on its variable rate inter-entity balances and the fair value movement on the ROS. The sensitivity has increased due to higher inter-entity balances resulting in interest income sensitivity which is greater than the Ros sensitivity.

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Consolidated Entity. The Consolidated Entity has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or bank guarantees where appropriate as a means of mitigating any risk of loss. For financial investments or market risk hedging, the Consolidated Entity’s policy is to only transact with counter parties that have a credit rating of A- (Standard & Poors)/A3 (Moody’s) or higher unless specifically approved by the Board. Where a counterparty’s rating falls below this threshold following a transaction, no other transactions can be executed with that counterparty until the exposure is sufficiently reduced or their credit rating is upgraded above the Consolidated Entity’s minimum threshold. The Consolidated Entity’s exposure to financial instrument and deposit credit risk is closely monitored against counterparty credit limits imposed by the Treasury Risk Management Policy approved by the Board. These limits are regularly reviewed by the Board.

The carrying amount of financial assets recorded in the financial statements, net of any allowances, represents the Consolidated Entity’s maximum exposure to credit risk in relation to those assets.

(c) Liquidity risk

The Consolidated Entity’s exposure to liquidity risk is limited to trade payables of $11,000 (2015: $49,000), all of which are due in less than 1 year (2015: less than 1 year).

(d) Fair value of financial instruments

The Consolidated Entity has financial instruments that are carried at fair value in the statement of financial position. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, the Consolidated Entity determines fair value by using various valuation models. The objective of using a valuation technique is to establish the price that would be received to sell an asset or paid to transfer a liability between market participants. The chosen valuation models make maximum use of market inputs and rely as little as possible on entity specific inputs. The fair values of all positions include assumptions made as to recoverability based on the counterparty’s and the Consolidated Entity’s credit risk.

– II-78 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Fair value measurements recognised in the statement of financial position

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There have been no transfers between the levels during 2016 (2015: none). Transfers between levels of the fair value hierarchy occur at the end of the reporting period. Transfers between level 1 and level 2 are triggered when there are changes to the availability of quoted prices in active markets. Transfers into level 3 are triggered when the observable inputs become no longer observable, or vice versa for transfer out of level 3.

Fair value of the Group’s financial assets and liabilities that are measured at fair value on a recurring basis

The fair values of financial assets and financial liabilities are measured at the end of each reporting period and determined as follows:

Available-for-sale listed equity securities

the fair values of available-for-sale financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and
these instruments are classified in the fair value hierarchy at level 1.

Unlisted redeemable ordinary shares

The financial statements include redeemable ordinary shares (“ROS”) held in an unlisted entity which are measured at fair value (Note 9). The fair market value of the ROS is derived from a binomial tree model, which includes some assumptions that are not able to be supported by observable market prices or rates. The model maps the different possible valuation paths of three distinct components:

value of the debt component;
value of the ROS discretionary dividends; and
value of the option to convert to ordinary shares.

– II-79 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

In determining the fair value, the following assumptions were used:

the risk adjusted rate for the ROS is estimated as the required rate of return based on projected cash flows to equity at issuance assuming the ROS price at issuance ($0.99) and the ordinary price at issuance ($0.01) are at their fair value;
the risk free rate of return is 1.57% (2015: 2.13%) per annum and is based upon an interpolation of the three and five year Government bond rates at the valuation date;
the ROS discretionary dividends are estimated based on an internal forecasted cash flow model;
the value of the option to convert is deemed to be zero (2015: zero). For conversion to occur, a number of conditions must be met. At the reporting date, it was deemed highly unlikely these conditions would occur based on an internal forecasting model; and
these instruments are classified in the fair value hierarchy at level 3.

The fair value is impacted by the following unobservable inputs:

an increase in the discount rate will result in a decrease in the fair value;
an increase in discretionary dividends will result in a increase in the fair value; and
meeting conditions to trigger the conversion of the option would result in an increase in the fair value.

Fair value hierarchy

2016 Financial assets measured at fair value Available-for-sale listed equity securities Ethane Pipeline Income Fund Unlisted redeemable ordinary shares Energy Infrastructure Investments 2015 Financial assets measured at fair value Available-for-sale listed equity securities Ethane Pipeline Income Fund Unlisted redeemable ordinary shares Energy Infrastructure Investments	Level 1 $000 – – – 2,511 – 2,511	Level 2 $000 – – – – – –	Level 3 $000 – 34,463 34,463 – 34,765 34,765	Total $000 – 34,463
				34,463

				2,511 34,765
				37,276

– II-80 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Reconciliation of Level 3 fair value measurements of financial assets Opening balance Total gains or losses: – in profit or loss: Interest – related parties – in profit or loss: (Loss)/gain on financial asset held at fair value through profit or loss Distributions Closing balance 11. ISSUED CAPITAL Units 1,114,307,369 units, fully paid (2015: 1,114,307,369 units, fully paid)(a) 2016 No. of units 000 Movements Balance at beginning of financial year 1,114,307 Issue of units under entitlement offer – Capital distributions paid_(Note 6)_ – Issue cost of units – Balance at end of financial year 1,114,307	2016 $000 1,005,086 – – (12) 1,005,074		Fair value Profit o 2016 $000 34,765 4,264 (756) (3,810) 34,463 2016 $000 1,005,074 2015 No. of units 000 835,751 278,556 – –	through r Loss 2015 $000 34,427 3,522 70 (3,254) 34,765 2015 $000 1,005,086 2015 $000 576,172 438,351 – (9,437) 1,005,086





			1,114,307

(a) Fully paid units carry one vote per unit and carry the right to distributions.

– II-81 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

GROUP STRUCTURE

12. SUBSIDIARIES

		Ownership interest
	Country of	2016	2015
Name of entity	registration	%	%
Parent entity
APT Investment Trust
Controlled entity
GasNet Australia Investments Trust	Australia	100	100

OTHER

13. COMMITMENTS AND CONTINGENCIES

The Consolidated Entity had no material contingent assets, liabilities and commitments as at 30 June 2016 and 30 June 2015.

14. DIRECTOR AND SENIOR EXECUTIvE REMUNERATION

Remuneration of Directors

The aggregate remuneration of Directors of the Consolidated Entity is set out below:

	2016	2015
	$	$
Short-term employment benefits	1,548,424	1,268,500
Post-employment benefits	217,041	132,105
Total remuneration: Non-Executive Directors	1,765,465	1,400,605
Short-term employment benefits	3,544,861	3,109,447
Post-employment benefits	35,000	35,000
Cash settled security-based payments	1,579,531	1,564,212
Total remuneration: Executive Director(a)	5,159,392	4,708,659
Total Remuneration: Directors	6,924,857	6,109,264

Remuneration of senior executives(a)
The aggregate remuneration of senior executives of the Consolidated Entity is set out below:
Short-term employment benefits	10,992,475	9,977,891
Post-employment benefits	856,636	258,778
Cash settled security-based payments	4,429,999	4,242,640
Retention award	–	430,666
Total remuneration: senior executives	16,279,110	14,909,975

(a) The remuneration of the Chief Executive Officer and Managing Director, Michael McCormack, is also included in the remuneration disclosure for senior executives.

– II-82 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

15. REMUNERATION OF EXTERNAL AUDITOR

Amounts received or due and receivable by Deloitte Touche Tohmatsu for:

Auditing the financial report Compliance plan audit	2016 $ 5,800 5,500 11,300	2015 $ 5,700 5,400
		11,100

16. RELATED PARTY TRANSACTIONS

(a) Equity interest in related parties

Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 12.

(b) Responsible Entity – Australian Pipeline Limited

The Responsible Entity is wholly owned by APT Pipelines Limited (2015: 100% owned by APT Pipelines Limited).

(c) Transactions with related parties within the Consolidated Entity

During the financial year, the following transactions occurred between the Trust and its other related parties:

loans advanced and payments received on long-term inter-entity loans; and
disposal of available-for-sale investment; and
payments of distributions.

All transactions between the entities that comprise the Consolidated Entity have been eliminated on consolidation.

Refer to Note 12 for details of the entities that comprise the Consolidated Entity.

(d) Transactions with other related parties

APTIT and its controlled entities have a loan receivable balance with another entity in APA. This loan is repayable on agreement between the parties. Interest is recognised by applying the effective interest method, agreed between the parties at the end of each month and is determined by reference to market rates.

The following balances arising from transactions between APTIT and its other related parties are outstanding at reporting date:

current receivables totalling $704,000 are owing from a subsidiary of APT for amounts due under a finance lease arrangement (2015: $701,000);
non-current receivables totalling $9,249,000 are owing from a subsidiary of APT for amounts due under a finance lease arrangement (2015: $9,951,000); and
non-current receivables totalling $895,102,000 (2015: $876,911,000) are owing from a subsidiary of APT for amounts due under inter-entity loans.

– II-83 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Australian Pipeline Limited

Management fees of $957,000 (2015: $820,000) were paid to the Responsible Entity as reimbursement of costs incurred on behalf of APTIT. No amounts were paid directly by APTIT to the Directors of the Responsible Entity.

Australian Pipeline Trust

Management fees of $957,000 (2015: $820,000) were reimbursed by APT.

17. PARENT ENTITY INFORMATION

The accounting policies of the parent entity, which have been applied in determining the financial information below, are the same as those applied in the consolidated financial statements.

Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Total liabilities Net assets Equity Issued capital Retained earnings Reserves Total equity Financial performance Profit for the year Other comprehensive income Total comprehensive income	2016 $000 704 1,046,193 1,046,897 11 11 1,046,886 1,005,074 41,812 – 1,046,886 85,102 (595) 84,507	2015 $000 701 1,031,517
		1,032,218
		49
		49
		1,032,169

		1,005,086 26,488 595
		1,032,169

		46,348 989
		47,337

Guarantees entered into by the parent entity in relation to the debts of its subsidiaries

No guarantees have been entered into by the parent entity in relation to the debts of its subsidiaries.

Contingent liabilities of the parent entity

No contingent liabilities have been identified in relation to the parent entity.

– II-84 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

18. LEASES

Finance leases Leasing arrangements – receivables Finance lease receivables relate to the lease of a pipeline lateral. There are no contingent rental payments due. Finance lease receivables Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years Minimum future lease payments receivable(a) Gross finance lease receivables Less: unearned finance lease receivables Present value of lease receivables Included in the financial statements as part of: Current receivables_(Note 7) Non-current receivables(Note 7)_	2016 $000 1,167 4,669 7,004 12,840 12,840 (2,887) 9,953 704 9,249 9,953	2015 $000 1,167 4,669 8,171 14,007 14,007 (3,386) 10,621 670 9,951 10,621

(a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual.

Leases are classified as finance leases when the terms of the lease transfer substantially all of the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating leases.

Consolidated Entity as lessor

Amounts due from a lessee under a finance lease are recorded as receivables. Finance lease receivables are initially recognised at the amount equal to the present value of the minimum lease payments receivable plus the present value of any unguaranteed residual value expected to accrue at the end of the lease term. Finance lease receipts are allocated between interest revenue and reduction of the lease receivable over the term of the lease in order to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease.

– II-85 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

OTHER ITEMS

19. ADOPTION OF NEw AND REvISED ACCOUNTING STANDARDS

Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)

There have not been any new or revised Standards and Interpretations issued by the AASB that are relevant to the consolidated entity’s operations that would be effective for the current reporting period.

Standards and Interpretations issued not yet adopted

At the date of authorisation of the financial statements, the Standards and Interpretations listed below were on issue but not yet effective.

		Effective for	Expected to be
		annual reporting	initially applied
		periods beginning	in the financial
Standard/Interpretation		on or after	year ending
•	AASB 9 ‘Financial Instruments’, and the relevant
	amending standards	1 January 2018	30 June 2019
•	AASB 15 ‘Revenue from Contracts with Customers’,
	and AASB 2015-8 ‘Amendments to Australian
	Accounting Standards – Effective date of AASB 15’	1 January 2018	30 June 2019
•	AASB 16 ‘Leases’	1 January 2019	30 June 2020

The potential impacts of the initial application of the Standards above are yet to be determined.

20. EvENTS OCCURRING AFTER REPORTING DATE

On 24 August 2016, the Directors declared a final distribution for the 2016 financial year of 4.38 cents per unit ($48.8 million). The distribution represents a 3.75 cents per security unfranked profit distribution and 0.63 cents per security capital distribution. The distribution will be paid on 16 September 2016.

Other than the events disclosed above, there have not been any events or transactions that have occurred subsequent to year end that would require adjustment to or disclosure in the accounts.

– II-86 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES

DECLARATION BY THE DIRECTORS OF AUSTRALIAN PIPELINE LIMITED For the financial year ended 30 June 2016

The Directors declare that:

(a) in the Directors’ opinion, there are reasonable grounds to believe that APT Investment Trust will be able to pay its debts as and when they become due and payable;
(b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with Accounting Standards and giving a true and fair view of the financial position and performance of the Consolidated Entity;
(c) in the Directors‘ opinion, the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board; and
(d) the Directors have been given the declarations by the Managing Director and Chief Financial Officer required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of the Directors of the Responsible Entity made pursuant to section 295(5) of the Corporations Act 2001.

On behalf of the Directors

==> picture [136 x 36] intentionally omitted <==

Leonard Bleasel AM Chairman

==> picture [133 x 36] intentionally omitted <==

Steven Crane Director

SYDNEY, 24 August 2016

– II-87 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The following is an extract of the audited financial statements of the Target Group for the year ended 30 June 2017, which were prepared in accordance with the Australian Accounting Standards and which comply with IFRS, from the 2017 annual report of the Target issued on 23 August 2017.

– II-88 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIvE INCOME

For the financial year ended 30 June 2017

Note Continuing operations Revenue 4 Share of net profits of associates and joint ventures using the equity method 4 Asset operation and management expenses Depreciation and amortisation expense 5 Other operating costs – pass-through 5 Finance costs 5 Employee benefit expense 5 Other expenses Profit before tax Income tax expense 6 Profit for the year Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss: Actuarial gain/(loss) on defined benefit plan Income tax relating to items that will not be reclassified subsequently Items that may be reclassified subsequently to profit or loss: Gain on available-for-sale investments taken to equity Transfer of gain on cash flow hedges to profit or loss Gain/(loss) on cash flow hedges taken to equity Gain/(loss) on associate hedges taken to equity Recycling of reserves on disposal of available-for-sale-investments/associate Income tax relating to items that may be reclassified subsequently Other comprehensive income for the year (net of tax) Total comprehensive income for the year	2017 $000 2,304,627 21,793 2,326,420 (207,329) (570,021) (438,140) (518,249) (197,747) (8,600) 386,334 (149,488) 236,846 5,452 (1,636) 3,816 – 92,459 164,536 10,921 – (80,354) 187,562 191,378 428,224	2016 $000 2,077,327 16,977 2,094,304 (129,534) (520,890) (438,330) (511,355) (180,103) (12,097) 301,995 (122,524) 179,471 (8,148) 2,444 (5,704) 1,027 121,922 (249,150) (9,429) 11,356 37,136 (87,138) (92,842) 86,629

– II-89 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Note Profit attributable to: Unitholders of the parent Non-controlling interest – APT Investment Trust unitholders APA stapled securityholders Non-controlling interest – other Total comprehensive income attributable to: Unitholders of the parent Non-controlling interest – APT Investment Trust unitholders APA stapled securityholders Non-controlling interest – other Earnings per security Basic and diluted (cents per security) 7	2017 $000 163,879 72,967 236,846 – 236,846 355,257 72,967 428,224 – 428,224 2017 21.3	2016 $000 94,520 85,102 179,622 (151) 179,471 2,273 84,507 86,780 (151) 86,629 2016 16.1

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

– II-90 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2017

Note Current assets Cash and cash equivalents 18 Trade and other receivables 9 Other financial assets 21 Inventories Other Current assets Non-current assets Cash on deposit 18 Trade and other receivables 9 Other financial assets 21 Investments accounted for using the equity method 24 Property, plant and equipment 11 Goodwill 12 Other intangible assets 12 Other 15 Non-current assets Total assets Current liabilities Trade and other payables 10 Borrowings 19 Other financial liabilities 21 Provisions 14 Unearned revenue Current liabilities	2017 $000 394,501 289,709 52,334 25,260 10,527 772,331 – 15,496 458,773 259,882 9,150,165 1,183,604 3,174,282 31,415 14,273,617 15,045,948 312,611 126,858 145,768 93,773 19,225 698,235	2016 $000 84,506 263,232 35,140 24,891 13,023
		420,792
		2,149 17,283 447,070 197,185 9,189,087 1,184,588 3,355,707 28,814
		14,421,883
		14,842,675
		252,661 409,829 114,674 93,033 13,735
		883,932

– II-91 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Note Non-current liabilities Trade and other payables 10 Borrowings 19 Other financial liabilities 21 Deferred tax liabilities 6 Provisions 14 Unearned revenue Non-current liabilities Total liabilities Net assets Equity Australian Pipeline Trust equity: Issued capital 22 Reserves Retained earnings Equity attributable to unitholders of the parent Non-controlling interests: APT Investment Trust: Issued capital Retained earnings Equity attributable to unitholders of APT Investment Trust 23 Other non-controlling interest Total non-controlling interests Total equity	2017 $000 4,984 9,573,907 182,087 502,265 69,051 37,236 10,369,530 11,067,765 3,978,183 3,114,617 (207,773) 60,804 2,967,648 976,284 34,198 1,010,482 53 1,010,535 3,978,183	2016 $000 3,007 9,314,373 194,591 304,849 70,917 41,895 9,929,632 10,813,564 4,029,111 3,195,445 (395,335) 182,062 2,982,172 1,005,074 41,812 1,046,886 53 1,046,939 4,029,111

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

– II-92 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

					Total	$000	4,382,650	179,471	(132,422)		39,580	86,629	–	–	(440,152)	(18)	2	4,029,111			4,029,111	236,846	273,368		(81,990)	428,224	–	–	(479,152)	3,978,183
Australian Pipeline Trust APT Investment Trust Other non-controlling interest	Available- Available-	for-sale Attributable for-sale Other	Asset Investment to owners Investment APT non-	Issued Revaluation Revaluation Hedging Other Retained of the Issued Revaluation Retained Investment Issued Retained controlling	Capital Reserve Reserve Reserve Reserve earnings parent Capital Reserve earnings Trust Capital Other earnings interest	$000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000	Balance at 1 July 2015 3,195,449 8,669 1,484 (318,945) – 463,772 3,350,429 1,005,086 595 26,488 1,032,169 4 1 47 52	Profit for the year – – – – – 94,520 94,520 – – 85,102 85,102 – – (151) (151)	Other comprehensive income – – (2,121) (121,558) – (8,148) (131,827) – (595) – (595) – – – –	Income tax relating to components	of other comprehensive income – – 637 36,499 – 2,444 39,580 – – – – – – – –	Total comprehensive income for the year – – (1,484) (85,059) – 88,816 2,273 – (595) 85,102 84,507 – – (151) (151)	Acquisition of non-controlling interest – – – – (152) – (152) – – – – – – 152 152	Transfer to retained earnings – – – – 152 (152) – – – – – – – – –	Payment of distributions_(Note 8)_ – – – – – (370,374) (370,374) – – (69,778) (69,778) – – – –	Issue cost of securities (6) – – – – – (6) (12) – – (12) – – – –	Tax relating to security issue costs 2 – – – – – 2 – – – – – – – –	Balance at 30 June 2016 3,195,445 8,669 – (404,004) – 182,062 2,982,172 1,005,074 – 41,812 1,046,886 4 1 48 53			Balance at 1 July 2016 3,195,445 8,669 – (404,004) – 182,062 2,982,172 1,005,074 – 41,812 1,046,886 4 1 48 53	Profit for the year – – – – – 163,879 163,879 – – 72,967 72,967 – – – –	Other comprehensive income – – – 267,916 – 5,452 273,368 – – – – – – – –	Income tax relating to components	of other comprehensive income – – – (80,354) – (1,636) (81,990) – – – – – – – –	Total comprehensive income for the year – – – 187,562 – 167,695 355,257 – – 72,967 72,967 – – – –	Acquisition of non-controlling interest – – – – – – – – – – – – – – –	Transfer to retained earnings – – – – – – – – – – – – – – –	Payment of distributions_(Note 8)_ (80,828) – – – – (288,953) (369,781) (28,790) – (80,581) (109,371) – – – –	Balance at 30 June 2017 3,114,617 8,669 – (216,442) – 60,804 2,967,648 976,284 – 34,198 1,010,482 4 1 48 53			The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

– II-93 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOwS

For the financial year ended 30 June 2017

Note Cash flows from operating activities Receipts from customers Payments to suppliers and employees Dividends received from associates and joint ventures Proceeds from repayment of finance leases Interest received Interest and other costs of finance paid Income tax paid Net cash provided by operating activities Cash flows from investing activities Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Payments for equity accounted investments Payments for controlled entities net of cash acquired Payments for intangible assets Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Payment of debt issue costs Payments of security issue costs Release of restricted cash Distributions paid to: Unitholders of APT Unitholders of non-controlling interests – APTIT Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of financial year Unrealised exchange (losses)/gains on cash held Cash and cash equivalents at end of financial year 18	2017 $000 2,508,269 (1,065,473) 22,411 2,290 5,755 (481,427) (17,889) 973,936 (340,753) 693 (35,250) (760) (1,456) (377,526) 2,144,576 (1,944,932) (8,446) – 2,149 (369,781) (109,371) (285,805) 310,605 84,506 (610) 394,501	2016 $000 2,286,248 (964,879) 22,186 3,399 9,660 (493,586) (593) 862,435 (455,975) 386 – (217,340) (705) (673,634) 1,110,153 (1,176,899) (9,623) (77) 20 (370,374) (69,778) (516,578) (327,777) 411,921 362 84,506

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

– II-94 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Reconciliation of profit for the year to the net cash provided by operating activities

Note Profit for the year Loss on previously held interest on obtaining control Acquisition costs from business combinations (Profit)/loss on disposal of property, plant and equipment Loss on write-off of inventories Share of net profits of joint ventures and associates using the equity method Dividends/distributions received from equity accounted investments Depreciation and amortisation expense Finance costs Unrealised foreign exchange loss/(gain) Realised hedging loss Changes in assets and liabilities: Trade and other receivables Inventories Other assets Trade and other payables Provisions Other liabilities Income tax balances Net cash provided by operating activities	2017 $000 236,846 – (101) (311) – (21,793) 22,411 570,021 13,926 28 7,514 (16,766) (371) 266 27,286 (562) 3,943 131,599 973,936	2016 $000 179,471 476 3,387 447 127 (16,977) 21,537 520,890 12,225 (938) 7,540 (15,742) (3,605) 3,195 (8,456) 4,524 32,403 121,931 862,435

– II-95 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the financial year ended 30 June 2017

BASIS OF PREPARATION

1. ABOUT THIS REPORT

In the following financial statements, note disclosures are grouped into six sections being: Basis of Preparation; Financial Performance; Operating Assets and Liabilities; Capital Management; Group Structure; and Other. Each note sets out the accounting policies applied in producing the results along with any key judgements and estimates used.

Basis of Preparation

Financial Performance

Operating Assets and Liabilities

About this report
Segment information
Receivables
General information
Revenue
Payables
Expenses
Property, plant and equipment
Income tax
Goodwill and intangibles
Earnings per security
Impairment of non-financial assets
Distributions
Provisions
Other non-current assets
Employee superannuation plans
Leases

Capital Management

Group Structure

Other

Cash balances
Non-controlling interests
Commitments and contingencies
Borrowings
Joint arrangements and associates
Director and senior executive remuneration
Financial risk management
Subsidiaries
Remuneration of external auditor
Other financial instruments
Related party transactions
Issued capital
Parent entity information
Adoption of new and revised Accounting Standards
Events occurring after reporting date

– II-96 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

2. GENERAL INFORMATION

The financial report represents the consolidated financial statements of APT and APTIT (together the “Trusts”), their respective subsidiaries and their share of joint arrangements and associates (together “APA Group”). For the purposes of preparing the consolidated financial report, APA Group is a forprofit entity.

APT’s registered office and principal place of business is as follows:

Level 19 HSBC Building 580 George Street SYDNEY NSW 2000 Tel: (02) 9693 0000

The consolidated general purpose financial report for the year ended 30 June 2017 was authorised for issue in accordance with a resolution of the directors on 23 August 2017.

This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

Foreign currency transactions

– II-97 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

FINANCIAL PERFORMANCE

3. SEGMENT INFORMATION

APA Group operates in one geographical segment, being Australia and the revenue from major products and services is shown by the reportable segments.

APA Group comprises the following reportable segments:

Energy Infrastructure , which includes all wholly or majority owned pipelines, gas storage and processing assets, and power generation assets;
Asset Management , which provides commercial services, operating services and/or asset maintenance services to APA Group’s energy investments and Australian Gas Networks Limited for appropriate fees; and
Energy Investments , which includes APA Group’s strategic stakes in a number of investment entities that house energy infrastructure assets, generally characterised by long term secure cashflows, with low capital expenditure requirements.

Reportable segments

2017 Segment revenue(a) External sales revenue Equity accounted net profits Pass-through revenue Finance lease and investment interest income Total segment revenue Other interest income Consolidated revenue Segment result Earnings before interest, tax, depreciation and amortisation (“EBITDA”) Share of net profits of joint ventures and associates using the equity method Finance lease and investment interest income Corporate costs Total EBITDA Depreciation and amortisation Earnings before interest and tax (“EBIT”) Net finance costs(b) Profit before tax Income tax expense Profit for the year	Energy Infrastructure $000 1,771,349 – 48,646 1,643 1,821,638 1,452,029 – 1,643 – 1,453,672 (559,033) 894,639	Asset Management $000 86,424 – 389,494 – 475,918 58,719 – – – 58,719 (10,988) 47,731	Energy Investments $000 – 21,793 – 2,589 24,382 – 21,793 2,589 – 24,382 – 24,382	Other $000 – – – – – – – – (66,651) (66,651) – (66,651)	Consolidated $000 1,857,773 21,793 438,140 4,232
					2,321,938 4,482
					2,326,420

					1,510,748 21,793 4,232 (66,651)
					1,470,122 (570,021)
					900,101 (513,767)
					386,334 (149,488)
					236,846

– II-98 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(a) The revenue reported above represents revenue generated from external customers. Any intersegment sales were immaterial.
(b) Excluding finance lease and investment interest income, and any gains or losses on revaluation of derivatives included as part of EBIT for segment reporting purposes, but including other interest income.

Energy Infrastructure Asset Management Energy Investments 2017 $000 $000 $000 Segment assets and liabilities Segment assets 13,670,034 210,449 10,662 Carrying value of investments using the equity method – – 259,882 Unallocated assets(a) Total assets Segment liabilities 376,220 55,626 – Unallocated liabilities(b) Total liabilities	Consolidated $000 13,891,145 259,882 894,921
	15,045,948

	431,846 10,635,919
	11,067,765

(a) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards.
(b) Unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts.

2016 Segment revenue(a) External sales revenue Equity accounted net profits Pass-through revenue Finance lease and investment interest income Dividends – other entities Total segment revenue Other interest income Consolidated revenue	Energy Infrastructure $000 1,526,658 – 29,586 1,917 – 1,558,161	Asset Management $000 95,430 – 408,744 – – 504,174	Energy Investments $000 – 16,977 – 10,783 512 28,272	Other $000 – – – – – –	Consolidated $000 1,622,088 16,977 438,330 12,700 512
					2,090,607 3,697
					2,094,304

(a) The revenue reported above represents revenue generated from external customers. Any intersegment sales were immaterial.

– II-99 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

2016 Segment result Earnings before interest, tax, depreciation and amortisation (“EBITDA”) Share of net profits of joint ventures and associates using the equity method Finance lease and investment interest income Corporate costs Total EBITDA Depreciation and amortisation Earnings before interest and tax (“EBIT”) Net finance costs(a) Profit before tax Income tax expense Profit for the year 2016 Segment assets and liabilities Segment assets Carrying value of investments using the equity method Unallocated assets(b) Total assets Segment liabilities Unallocated liabilities(c) Total liabilities	Energy Infrastructure Asset Management Energy Investments Other Consolidated $000 $000 $000 $000 $000 1,333,682 53,858 36 – 1,387,576 – – 16,977 – 16,977 1,917 – 10,783 – 12,700 – – – (86,710) (86,710) 1,335,599 53,858 27,796 (86,710) 1,330,543 (508,710) (12,180) – – (520,890) 826,889 41,678 27,796 (86,710) 809,653 (507,658) 301,995 (122,524) 179,471 Energy Infrastructure Asset Management Energy Investments Consolidated $000 $000 $000 $000 13,873,683 213,973 17,499 14,105,155 – – 197,185 197,185 540,335 14,842,675 319,995 63,574 – 383,569 10,429,995 10,813,564	Energy Infrastructure Asset Management Energy Investments Other Consolidated $000 $000 $000 $000 $000 1,333,682 53,858 36 – 1,387,576 – – 16,977 – 16,977 1,917 – 10,783 – 12,700 – – – (86,710) (86,710) 1,335,599 53,858 27,796 (86,710) 1,330,543 (508,710) (12,180) – – (520,890) 826,889 41,678 27,796 (86,710) 809,653 (507,658) 301,995 (122,524) 179,471 Energy Infrastructure Asset Management Energy Investments Consolidated $000 $000 $000 $000 13,873,683 213,973 17,499 14,105,155 – – 197,185 197,185 540,335 14,842,675 319,995 63,574 – 383,569 10,429,995 10,813,564	Consolidated $000 1,387,576 16,977 12,700 (86,710)
			1,330,543 (520,890)
			809,653 (507,658)
			301,995 (122,524)
			179,471

		14,842,675

		383,569 10,429,995
		10,813,564

(a) Excluding finance lease and investment interest income, and any gains or losses on revaluation of derivatives included as part of EBIT for segment reporting purposes, but including other interest income.
(b) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards.
(c) Unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts.

– II-100 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Information about major customers

Included in revenues arising from energy infrastructure of $1,771.3 million (2016: $1,526.7 million) are revenues of approximately $704.8 million (2016: $652.0 million) which arose from sales to APA Group’s top three customers.

4. REvENUE

An analysis of APA Group’s revenue for the year is as follows:

Energy infrastructure revenue Pass-through revenue Energy infrastructure revenue Asset management revenue Pass-through revenue Asset management revenue Operating revenue Interest Interest income on redeemable ordinary shares (EII) and redeemable preference shares (GDI)(a) Finance lease income Finance income Dividends Rental income Total revenue Share of net profits of joint ventures and associates using the equity method	2017 $000 1,770,794 48,646 1,819,440 86,424 389,494 475,918 2,295,358 4,482 2,589 1,643 8,714 – 555 2,304,627 21,793 2,326,420	2016 $000 1,526,050 29,586
		1,555,636
		95,430 408,744
		504,174
		2,059,810
		3,697 10,783 1,917
		16,397
		512 608
		2,077,327 16,977
		2,094,304

(a) 2016 includes interest on loans to related parties (DPS).

Operating revenue , which is earned from the transportation, processing and storage of gas, generation of electricity and other related services and is recognised when the services are provided net of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the taxation authority;

– II-101 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Pass-through revenue , for which no margin is earned, is recognised when the services are provided and offset by corresponding pass-through costs;
Interest revenue , which is recognised as it accrues and is determined using the effective interest method;
Dividend revenue , which is recognised when the right to receive the payment has been established; and
Finance lease income , which is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

5. EXPENSES

Depreciation of non-current assets Amortisation of non-current assets Depreciation and amortisation expense Energy infrastructure costs – pass-through Asset management costs – pass-through Other operating costs – pass-through Interest on bank overdrafts and borrowings(a) Amortisation of deferred borrowing costs Other finance costs Less: amounts included in the cost of qualifying assets Gain on derivatives Unwinding of discount on non-current liabilities Finance costs Defined contribution plans Defined benefit plans_(Note 16)_ Post-employment benefits Termination benefits Cash settled security-based payments(b) Other employee benefits Employee benefit expense	2017 $000 387,140 182,881 570,021 48,646 389,494 438,140 506,124 9,578 5,742 521,444 (7,099) 514,345 (152) 4,056 518,249 11,308 3,033 14,341 2,295 25,993 155,118 197,747	2016 $000 337,426 183,464 520,890 29,586 408,744 438,330 500,588 9,227 5,084 514,899 (6,157) 508,742 (698) 3,311 511,355 11,406 2,741 14,147 2,995 27,585 135,376 180,103

(a) The average interest rate applying to drawn debt is 5.56% p.a. (2016: 5.78% p.a.) excluding amortisation of borrowing costs and other finance costs.
(b) APA Group provides benefits to certain employees in the form of cash settled security-based payments. For cash settled security-based payments, a liability equal to the portion of services received is recognised at the current fair value determined at each reporting date.

– II-102 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

6. INCOME TAX

The major components of tax expense are:

Income statement (continuing operations) Current tax expense in respect of the current year Adjustments recognised in the current year in relation to current tax of prior years Deferred tax expense relating to the origination and reversal of temporary differences Total tax expense Tax reconciliation (continuing operations) Profit before tax Income tax expense calculated at 30% Non-assessable trust distribution Non deductible expenses Non assessable income Franking credits received Previously unbooked losses now recognised Adjustment recognised in the current year in relation to the current tax of prior years R&D tax incentive(a)	2017 $000 (34,518) 456 (115,426) (149,488) 386,334 (115,900) 21,891 (59,263) 319 (152,953) 708 533 456 1,768 (149,488)	2016 $000 (9,076) 2,216 (115,664) (122,524) 301,995 (90,599) 25,530 (65,048) 2,984 (127,133) 2,164 229 1,037 1,179 (122,524)

(a) 2016 includes $1.2 million in relation to adjustments recognised in relation to current tax of the prior year.

Income tax expense for the year is $149.5 million (2016: $122.5 million). An income tax provision of $28.9 million (2016: $13.8 million) has been recognised after utilisation of all available group tax losses and partial utilisation of available transferred tax losses (refer to Note 10).

– II-103 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Deferred tax balances

Deferred tax (liabilities)/assets arise from the following:

2017 Gross deferred tax liabilities Property, plant and equipment Deferred expenses Defined benefit obligation Other Gross deferred tax assets Provisions Cash flow hedges Security issue costs Deferred revenue Investments equity accounted Tax losses Net deferred tax liability 2016 Gross deferred tax liabilities Intangible assets Property, plant and equipment Deferred expenses Other Available for sale investments Gross deferred tax assets Provisions Cash flow hedges Security issue costs Deferred revenue Investments equity accounted Defined benefit obligation Tax losses Net deferred tax liability	Opening balance $000 (724,525) (54,563) 1,383 (730) (778,435) 45,723 165,027 5,443 5,811 6,445 245,137 473,586 (304,849) (2,668) (586,107) (51,669) 1,421 (639) (639,662) 45,051 127,474 7,261 6,729 10,192 (1,007) 249,270 444,970 (194,692)	Charged to income $000 (85,596) (1,917) 185 (324) (87,652) 168 (305) (1,819) (1,405) (553) (23,860) (27,774) (115,426) 2,668 (102,407) (3,022) (2,151) – (104,912) (1,136) (713) (1,820) (918) (1,978) (54) (4,133) (10,752) (115,664)	Charged to equity $000 – – (1,636) – (1,636) – (76,903) – – (3,451) – (80,354) (81,990) – – – – 639 639 – 38,266 2 – (1,769) 2,444 – 38,943 39,582	Acquired/ disposed $000 – – – – – – – – – – – – – – (36,011) 128 – – (35,883) 1,808 – – – – – – 1,808 (34,075)	Closing balance $000 (810,121) (56,480) (68) (1,054)
					(867,723)
					45,891 87,819 3,624 4,406 2,441 221,277
					365,458
					(502,265)

					– (724,525) (54,563) (730) –
					(779,818)
					45,723 165,027 5,443 5,811 6,445 1,383 245,137
					474,969
					(304,849)

– II-104 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Unrecognised deferred tax assets

	2017	2016
	$000	$000
The following deferred tax assets have not been
brought to account as assets:
Tax losses – capital	1,641	1,641

i) initial recognition of goodwill;
ii) initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and
iii) differences relating to investments in wholly-owned entities to the extent that they will probably not reverse in the foreseeable future.

Deferred tax is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using the appropriate tax rates at the end of the reporting period.

Tax consolidation

– II-105 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Nature of tax funding arrangement and tax sharing agreement

7. EARNINGS PER SECURITY

	2017	2016
	cents	cents
Basic and diluted earnings per security	21.3	16.1

The earnings and weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security are as follows:

Net profit attributable to securityholders for calculating basic and diluted earnings per security Adjusted weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security	2017 $000 236,846 2017 No. of securities 000 1,114,307	2016 $000 179,622

		2016 No. of securities 000 1,114,307

– II-106 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

8. DISTRIBUTIONS

Recognised amounts Final distribution paid on 16 September 2016 (2016: 16 September 2015) Profit distribution – APT(a) Capital distribution – APT Profit distribution – APTIT(a) Capital distribution – APTIT Interim distribution paid on 15 March 2017 (2016: 16 March 2016) Profit distribution – APT(b) Capital distribution – APT Profit distribution – APTIT(a) Capital distribution – APTIT Total distributions recognised Profit distributions Capital distributions Unrecognised amounts Final distribution payable on 13 September 2017(c) (2016: 16 September 2016) Profit distribution – APT(d) Capital distribution – APT Profit distribution – APTIT(a) Capital distribution – APTIT	2017 cents per security 16.34 1.78 3.75 0.63 22.50 9.59 5.47 3.48 1.96 20.50 33.16 9.84 43.00 5.46 10.78 3.07 3.69 23.00	2017 Total $000 182,063 19,869 41,811 6,976 250,719 106,890 60,959 38,770 21,814 228,433 369,534 109,618 479,152 60,803 120,183 34,198 41,107 256,291	2016 cents per security 18.12 – 2.38 – 20.50 15.12 – 3.88 – 19.00 39.50 – 39.50 16.34 1.78 3.75 0.63 22.50	2016 Total $000 201,945 – 26,488 –
				228,433

				168,429 – 43,290 –
				211,719

				440,152 –
				440,152

				182,063 19,869 41,811 6,976
				250,719

(a) Profit distributions were unfranked (2016: unfranked).

(b) Interim profit distributions are 4.67 cents per security franked and 4.92 cents per security unfranked (2016: unfranked).
(c) Record date 30 June 2017.
(d) Final profit distributions are 4.67 cents per security franked and 0.79 cents per security unfranked (2016: unfranked).

– II-107 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Adjusted franking account balance (tax paid basis) OPERATING ASSETS AND LIABILITIES 9. RECEIvABLES Trade receivables Allowance for doubtful debts Trade receivables Receivables from associates and related parties Finance lease receivables_(Note 17) Interest receivable Other debtors Current Finance lease receivables(Note 17)_ Non-current	2017 $000 4,413 2017 $000 275,331 (2,120) 273,211 13,028 1,787 1,605 78 289,709 15,496 15,496	2016 $000 8,210

		2016 $000 250,875 (2,658)
		248,217 12,447 2,290 91 187
		263,232

		17,283
		17,283

Trade receivables are non-interest bearing and are generally on 30 day terms. There are no material trade receivables past due and not provided for.

10. PAYABLES

Trade payables(a) Income tax payable Other payables Current Other payables Non-current	40,827 28,914 242,870 312,611 4,984 4,984	27,310 13,848 211,503
		252,661

		3,007
		3,007

(a) Trade payables are non-interest bearing and are normally settled on 15 – 30 day terms.

– II-108 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Payables are recognised inclusive of GST, except for accrued revenue and accrued expense at balance dates which exclude GST.

11. PROPERTY, PLANT AND EqUIPMENT

Gross carrying amount Balance at 1 July 2015 Additions Acquisitions through business combinations Disposals Transfers Balance at 30 June 2016 Additions Disposals Transfers Balance at 30 June 2017 Accumulated depreciation Balance at 1 July 2015 Disposals Depreciation expense_(Note 5) Transfers Balance at 30 June 2016 Disposals Depreciation expense(Note 5)_ Transfers Reclassification to inventories Balance at 30 June 2017 Net book value As at 30 June 2016 As at 30 June 2017	Freehold land and buildings – at cost $000 229,051 – 3,234 (651) 3,204 234,838 2,280 (24) 5,639 242,733 (25,036) 434 (7,324) (89) (32,015) 24 (7,430) 260 – (39,161) 202,823 203,572	Leasehold improvements – at cost $000 4,444 – – (285) 913 5,072 – – 5,095 10,167 (2,203) 285 (357) (4) (2,279) – (750) – – (3,029) 2,793 7,138	Plant and equipment – at cost $000 8,937,221 21,735 852,485 (15,323) 263,524 10,059,642 5,150 (9,089) 295,300 10,351,003 (956,358) 14,707 (329,745) 93 (1,271,303) 8,707 (378,960) (260) 861 (1,640,955) 8,788,339 8,710,048	work in progress – at cost $000 168,074 283,242 11,457 – (267,641) 195,132 340,309 – (306,034) 229,407 – – – – – – – – – – 195,132 229,407	Total $000 9,338,790 304,977 867,176 (16,259) –
					10,494,684 347,739 (9,113) –
					10,833,310

					(983,597) 15,426 (337,426) –
					(1,305,597) 8,731 (387,140) – 861
					(1,683,145)

					9,189,087

					9,150,165

– II-109 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Critical accounting judgements and key sources of estimation uncertainty – useful lives of noncurrent assets

The following estimated useful lives are used in the calculation of depreciation:

•	buildings	30 – 50 years;
•	compressors	10 – 50 years;
•	gas transportation systems	10 – 80 years;
•	meters	20 – 30 years;
•	power generation facilities	3 – 25 years; and
•	other plant and equipment	3 – 20 years.

12. GOODwILL AND INTANGIBLES

Goodwill Balance at beginning of financial year Acquisitions Finalisation of provisional purchase price accounting Balance at end of financial year	2017 $000 1,184,588 – (984) 1,183,604	2016 $000 1,140,500 44,088 –
		1,184,588

Allocation of goodwill to cash-generating units

Goodwill has been allocated for impairment testing purposes to individual cash-generating units.

– II-110 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The East Coast Grid is an interconnected pipeline network that includes, inter alia, the Wallumbilla Gladstone, Moomba Sydney, Roma Brisbane, Carpentaria Gas and South West Queensland pipelines and the Victorian Transmission System. Since the acquisition of the South West Queensland Pipeline to complete the formation of APA’s East Coast Grid in December 2012, APA has installed facilities to enable bi-directional transportation of gas to meet the demand of our major customers who now typically operate portfolios of gas supply and demand. Through the provision of multi-asset services, bi-directional transportation, capacity trading and gas storage and parking facilities, APA’s East Coast Grid delivers options for customers to choose from, and move gas between, more than 40 receipt points and over 100 delivery points on the east coast of Australia. The East Coast Grid is categorised as an individual cash-generating unit.

The carrying amount of goodwill allocated to cash-generating units that are significant individually or in aggregate is as follows:

Asset Management business Energy Infrastructure East Cost Grid Diamantina Power Station Other energy infrastructure(a)	21,456 1,060,681 43,104 58,363 1,183,604	21,456 1,060,681 44,088 58,363
		1,184,588

(a) Primarily represents goodwill relating to the Pilbara Pipeline System ($32.6m) and the Goldfields Gas Pipeline ($18.5m).

Goodwill acquired in a business combination is initially measured at cost and subsequently at cost less accumulated impairment.

Contract and other intangibles Gross carrying amount Balance at beginning of financial year Acquisitions/additions Write-offs Balance at end of financial year Accumulated amortisation and impairment Balance at beginning of financial year Amortisation expense_(Note 5)_ Impairment Write-offs Balance at end of financial year	2017 $000 3,604,143 1,456 (15,800) 3,589,799 (248,436) (182,881) – 15,800 (415,517) 3,174,282	2016 $000 3,623,011 705 (19,573)
		3,604,143
		(66,765) (183,464) (8,897) 10,690
		(248,436)
		3,355,707

– II-111 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APA Group holds various third party operating and maintenance contracts. The combined gross carrying amount of $3,589.8 million amortises over terms ranging from one to 20 years. Useful life is determined based on the underlying contractual terms plus estimations of renewal of up to two terms where considered probable by management. Amortisation expense is not a cash item, and is included in the line item of depreciation and amortisation expense in the statement of profit or loss and other comprehensive income.

Amortisation is recognised on a straight-line basis over the estimated useful life of each asset. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effects of any changes in estimate being accounted for on a prospective basis.

13. IMPAIRMENT OF NON-FINANCIAL ASSETS

Critical accounting judgements and key sources of estimation uncertainty – impairment of assets

For fully regulated assets, cash flows have been extrapolated on the basis of existing transportation contracts and government policy settings, and expected contract renewals with a resulting average annual growth rate of 1.1% p.a. (2016: 1.7% p.a.). These expected cash flows are factored into the regulated asset base and do not exceed management’s expectations of the long-term average growth rate for the market in which the cash generating unit operates.

– II-112 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

As contracts mature, given ongoing demand for capacity, it is assumed that the majority of the capacity is resold at similar pricing levels.

Asset Management cash flow projections reflect long term agreements with assumptions of renewal on similar terms and conditions based on management’s expectations.

Cash flow projections are estimated for a period of up to 20 years, with a terminal value, recognising the long term nature of the assets. The pre-tax discount rates used are 8.25% p.a. (2016: 8.25% p.a.) for Energy Infrastructure assets and 8.25% p.a. (2016: 8.25% p.a.) for Asset Management.

These assumptions have been determined with reference to historic information, current performance and expected changes taking into account external information.

14. PROvISIONS

Employee benefits Other Current Employee benefits Other Non-current Employee benefits Incentives Cash settled security-based payments Leave balances Termination benefits Current Cash settled security-based payments Defined benefit liability_(Note 16)_ Leave balances Non-current	2017 $000 83,787 9,986 93,773 33,598 35,453 69,051 29,357 8,857 39,976 5,597 83,787 18,939 4,645 10,014 33,598	2016 $000 83,240 9,793
		93,033

		36,903 34,014
		70,917

		28,401 9,477 39,587 5,775
		83,240

		19,467 7,017 10,419
		36,903

– II-113 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

15. OTHER NON-CURRENT ASSETS

Line pack gas Gas held in storage Defined benefit asset_(Note 16)_ Other assets	2017 $000 20,343 6,010 4,870 192 31,415	2016 $000 20,208 6,010 2,404 192
		28,814

16. EMPLOYEE SUPERANNUATION PLANS

The most recent actuarial valuations of plan assets and the present value of the defined benefit obligations were determined at 30 June 2017. The present value of the defined benefit obligations, and the related current service cost and past service cost, were measured using the projected unit credit method.

– II-114 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The following sets out details in respect of the defined benefit plans only:

Amounts recognised in the statement of profit or loss and other comprehensive income Current service cost Net interest expense Components of defined benefit costs recognised in profit or loss(Note 5) Amounts recognised in the statement of financial position Fair value of plan assets Present value of benefit obligation Defined benefit asset – non-current(Note 15) Defined benefit liability – non-current(Note 14) Opening defined benefit obligation Current service cost Interest cost Contributions from plan participants Actuarial gains Benefits paid Administrative expenses, taxes and premiums paid Closing defined benefit obligation	2017 $000 2,842 191 3,033 135,029 (134,804) 4,870 (4,645) 143,101 2,842 4,599 1,001 1,550 (17,665) (624) 134,804	2016 $000 2,783 (42) 2,741 138,488 (143,101) 2,404 (7,017) 137,141 2,783 5,807 1,332 3,893 (7,855) – 143,101

Movements in the present value of the plan assets in the current period were as follows:

Opening fair value of plan assets Interest income Actual return on plan assets excluding interest income Contributions from employer Contributions from plan participants Benefits paid Administrative expenses, taxes and premiums paid Closing fair value of plan assets Defined contribution plans	2017 $000 138,488 4,408 7,002 2,419 1,001 (17,665) (624) 135,029	2016 $000 140,500 5,849 (4,255) 2,917 1,332 (7,855) – 138,488

Contributions to defined contribution plans are expensed when incurred.

– II-115 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Defined benefit plans

Past service cost is recognised in profit or loss in the period of a plan amendment.

Key actuarial assumptions used in the determination of the defined obligation is a discount rate of 4.1%, based on the corporate bond yield curve published by Milliman, and an expected salary increase rate of 3.0%. The sensitivity analysis below has been determined based on reasonable possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant:

If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by $5,466,000 (increase by $6,043,000); and
If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by $2,133,000 (decrease by $1,999,000).

APA Group expects $2.3 million in contributions to be paid to the defined benefit plans during the year ending 30 June 2018.

– II-116 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

17. LEASES

Finance lease receivables relate to the lease of a metering station, natural gas vehicle refuelling facilities and two pipeline laterals.

Finance lease receivables Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years Minimum future lease payments receivable(a) Gross finance lease receivables Less: unearned finance lease receivables Present value of lease receivables Included in the financial statements as part of: Current trade and other receivables_(Note 9) Non-current receivables(Note 9)_	2017 $000 3,227 9,655 14,715 27,597 27,597 (10,314) 17,283 1,787 15,496 17,283	2016 $000 3,933 10,646 16,951 31,530 31,530 (11,957) 19,573 2,290 17,283 19,573

(a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual.

APA Group as a lessor

APA Group as a lessee

Finance lease assets are amortised on a straight-line basis over the estimated useful life of the asset.

– II-117 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Non-cancellable operating leases

Operating lease obligations are primarily related to commercial office leases and motor vehicles.

Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years	2017 $000 12,970 41,660 26,462 81,092	2016 $000 12,138 35,282 25,189
		72,609

CAPITAL MANAGEMENT

APA Group’s overall capital management strategy is to continue to target BBB/Baa2 investment grade ratings through maintaining sufficient flexibility to fund organic growth and investment from internally generated and retained cash flows, equity and, where appropriate, additional debt funding.

Operating cash flows are used to maintain and expand APA Group’s assets, make distributions to securityholders and to repay maturing debt.

Controlled entities are subject to externally imposed capital requirements. These relate to the Australian Financial Services Licence held by Australian Pipeline Limited, the Responsible Entity of APA Group, and were adhered to for the entirety of the 2017 and 2016 periods.

APA Group’s capital management strategy remains unchanged from the previous year.

APA Group’s Board of Directors reviews the capital structure on a regular basis. As part of the review, the Board considers the cost of capital and the state of the markets. APA Group targets gearing in a range of 65% to 68%. Gearing is determined as the proportion of net debt to net debt plus equity. APA Group balances its overall capital structure through equity issuances, new debt or the redemption of existing debt and through a disciplined distribution payment policy.

– II-118 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

18. CASH BALANCES

Cash and cash equivalents comprise of cash on hand, at call bank deposits and investments in money market instruments that are readily convertible to known amounts for cash. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows are reconciled to the related items in the statement of financial position as follows:

Cash and cash equivalents Cash at bank and on hand Short-term deposits Non-current cash on deposit Cash on deposit(a)	2017 $000 43,087 351,414 394,501 –	2016 $000 83,389 1,117
		84,506

		2,149

(a) As at 30 June 2016 Gorodok Pty Limited held $2.1 million cash on deposit to support bank guarantees in relation to various contractual arrangements. APA Group had no restricted cash as at 30 June 2017.

– II-119 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

19. BORROwINGS

Unsecured – at amortised cost Guaranteed senior notes(a) Other financial liabilities Current Guaranteed senior notes(a) Bank borrowings(b) Subordinated notes(c) Other financial liabilities Less: unamortised borrowing costs Non-current Financing facilities available Total facilities Guaranteed senior notes(a) Bank borrowings(b) Subordinated notes(c) Facilities used at balance date Guaranteed senior notes(a) Bank borrowings(b) Subordinated notes(c) Facilities unused at balance date Guaranteed senior notes(a) Bank borrowings(b) Subordinated notes(c)	2017 $000 115,738 11,120 126,858 9,022,710 – 515,000 82,059 (45,862) 9,573,907 9,700,765 9,138,448 1,068,750 515,000 10,722,198 9,138,448 – 515,000 9,653,448 – 1,068,750 – 1,068,750	2016 $000 398,058 11,771 409,829 8,043,377 707,501 515,000 95,155 (46,660) 9,314,373 9,724,202 8,441,435 1,380,000 515,000 10,336,435 8,441,435 707,501 515,000 9,663,936 – 672,499 – 672,499

– II-120 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(a) Represents USD denominated private placement notes of US$384 million, CAD medium term notes (MTN) of C$300 million, JPY MTN of ¥10,000 million, GBP MTNs of £950 million, EUR MTN of € 1,350 million and USD denominated 144a notes of US$3,000 million measured at the exchange rate at reporting date, and A$211 million of AUD denominated private placement notes and AUD MTN of A$500 million. Refer to Note 20 for details of interest rates and maturity profiles.
(b) Refer to Note 20 for details of interest rates and maturity profiles.
(c) Represents AUD denominated subordinated notes. Refer to Note 20 for details of interest rates and maturity profiles.

20. FINANCIAL RISk MANAGEMENT

APA Group’s corporate Treasury department is responsible for the overall management of APA Group’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee (“ARMC”) approves written principles for overall risk management, as well as policies covering specific areas such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. APA Group’s ARMC ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting to the Board from the Treasury department.

APA Group’s activities generate financial instruments comprising of cash, receivables, payables and interest bearing liabilities which expose it to various risks as summarised below:

(a) Market risk including currency risk, interest rate risk and price risk;
(b) Credit risk; and
(c) Liquidity risk.

Treasury as a centralised function provides APA Group with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost and manages risks through the use of natural hedges and derivative instruments. APA Group does not engage in speculative trading. All derivatives have been transacted to hedge underlying or existing exposures and have adhered to the ARMC approved Treasury Risk Management Policy.

(a) Market risk

forward exchange contracts to hedge the exchange rate risk arising from foreign currency cash flows, mainly US dollars, derived from revenues, interest payments and capital equipment purchases;
cross currency interest rate swaps to manage the currency risk associated with foreign currency denominated borrowings;
foreign currency denominated borrowings to manage the currency risk associated with foreign currency denominated revenue and receivables; and
interest rate swaps to mitigate interest rate risk.

– II-121 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APA Group is also exposed to price risk arising from its forward purchase contracts over listed equities.

Foreign currency risk

The carrying amount of APA Group’s foreign currency denominated monetary assets, monetary liabilities and derivative notional amounts at the reporting date is as follows:

2017 US Dollar Japanese Yen Canadian Dollar British Pound Euro Swedish Krona Danish Krona 2016 US Dollar Japanese Yen Canadian Dollar British Pound Euro Swedish Krona	Cash & cash equivalents $000 3,393 – – – – – – 3,393 1,068 – – – – – 1,068	Receivables $000 40,002 – – – – – – 40,002 30,691 – – – – – 30,691	Total borrowings $000 (4,406,537) (115,738) (301,230) (1,610,280) (2,007,377) – – (8,441,162) (3,694,558) (129,964) (310,555) (1,688,747) (2,008,378) – (7,832,202)	Cross currency swaps $000 (417,663) 115,738 301,230 1,610,280 2,007,377 – – 3,616,962 (1,277,253) 129,964 310,555 1,688,747 2,008,378 – 2,860,391	Foreign exchange contract $000 (347,362) – – – 45,024 61,196 104,038 (137,104) (703,317) – – – 1,392 29,606 (672,319)	Net foreign currency position $000 (5,128,167) – – – 45,024 61,196 104,038
						(4,917,909)

						(5,643,369) – – – 1,392 29,606
						(5,612,371)

Forward foreign exchange contracts

It is the policy of APA Group to hedge 100% of all foreign exchange capital purchases in excess of US$1 million equivalent that are certain. Forecast foreign currency denominated revenues and interest payments will be hedged by forward exchange contracts on a rolling basis with the objective being to lock in the AUD gross cash flows and manage liquidity.

– II-122 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The following table details the forward foreign exchange currency contracts outstanding at reporting date:

Cash flow hedges Average exchange rate 2017 $ Pay USD/receive AUD Forecast revenue and associated receivable 0.7082 Pay AUD/receive USD Forecast capital purchases 0.7507 Cash flow hedges Average exchange rate $ Pay AUD/receive EUR Forecast capital purchases 0.6884 Cash flow hedges Average exchange rate $ Pay AUD/receive SEk Forecast capital purchases 5.8684 Cash flow hedges Average exchange rate $ Pay AUD/receive Dkk Forecast capital purchases 5.2308	Foreign currency US$000 (320,885) 79,359 (241,526) Foreign currency EUR$000 30,994 30,994 Foreign currency SEK$000 359,124 359,124 Foreign currency DKK$000 544,203 544,203	< 1 year Contract value 1 – 2 years $000 $000 306,474 146,605 (92,269) (13,308) 214,205 133,297 < 1 year Contract value 1 – 2 years $000 $000 (26,461) (16,691) (26,461) (16,691) < 1 year Contract value 1 – 2 years $000 $000 (18,108) (1,831) (18,108) (1,831) < 1 year Contract value 1 – 2 years $000 $000 (99,936) (4,102) (99,936) (4,102)	2 – 5 years $000 – (140) (140) 2 – 5 years $000 (1,872) (1,872) 2 – 5 years $000 (41,257) (41,257) 2 – 5 years $000 – –	Fair value $000 33,119 (2,113)
				31,006

				Fair value $000 2,153
				2,153

				Fair value $000 (2,129)
				(2,129)

				Fair value $000 6,543
				6,543

– II-123 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Cash flow hedges Average exchange rate 2016 $ Pay USD/receive AUD Forecast revenue and associated receivable 0.7200 Pay AUD/receive USD Forecast capital purchases 0.7666 Cash flow hedges Average exchange rate $ Pay AUD/receive EUR Forecast capital purchases 0.6703 Cash flow hedges Average exchange rate $ Pay AUD/receive SEk Forecast capital purchases 6.0727	Foreign currency US$000 (507,689) 1,353 (506,336) Foreign currency EUR$000 933 933 Foreign currency SEK$000 179,795 179,795	< 1 year Contract value 1 – 2 years $000 $000 292,570 265,907 (995) (313) 291,575 265,594 < 1 year Contract value 1 – 2 years $000 $000 (334) (910) (334) (910) < 1 year Contract value 1 – 2 years $000 $000 (16,308) (8,009) (16,308) (8,009)	2 – 5 years $000 146,605 (457) 146,148 2 – 5 years $000 (148) (148) 2 – 5 years $000 (5,289) (5,289)	Fair value $000 12,849 71
				12,920

				Fair value $000 48
				48

				Fair value $000 (164)
				(164)

As at reporting date, APA Group has entered into forward contracts to hedge net US exchange rate risk arising from anticipated future transactions with an aggregate notional principal amount of $453.1 million (2016: $705.1 million) which are designated in cash flow hedge relationships. The hedged anticipated transactions denominated in US dollars are expected to occur at various dates between one month to three years from reporting date.

Cross currency swap contracts

APA Group enters into cross currency swap contracts to mitigate the risk of adverse movements in foreign exchange rates in relation to principal and interest payments arising from foreign currency borrowings. APA Group receives fixed amounts in the various foreign currencies and pays both variable interest rates (based on Australian BBSW) and fixed interest rates based on agreed swap rates for the full term of the underlying borrowings. In certain circumstances borrowings are retained in the foreign currency, or hedged from one foreign currency to another to match payments of interest and principal against expected future business cash flows in that foreign currency.

– II-124 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The following table details the cross currency swap contract principal payments due as at the reporting date:

Cash flow hedges Foreign Exchange rate 2017 currency $ Pay AUD/receive foreign currency 2003 USPP Notes AUD/USD 0.6573 2007 USPP Notes AUD/USD 0.8068 2009 USPP Notes AUD/USD 0.7576 2012 JPY Medium Term Notes AUD/JPY 79.4502 2012 CAD Medium Term Notes AUD/CAD 1.0363 2012 US144A AUD/USD 1.0198 2012 GBP Medium Term Notes AUD/GBP 0.6530 2017 US144A AUD/USD 0.7668 Pay USD/receive foreign currency 2015 EUR Medium Term Notes USD/EUR 0.9514 2015 GBP Medium Term Notes USD/GBP 0.6773 2016 Pay AUD/receive foreign currency 2003 USPP Notes AUD/USD 0.6573 2007 USPP Notes AUD/USD 0.8068 2009 USPP Notes AUD/USD 0.7576 2012 JPY Medium Term Notes AUD/JPY 79.4502 2012 CAD Medium Term Notes AUD/CAD 1.0363 2012 US144A AUD/USD 1.0198 2012 GBP Medium Term Notes AUD/GBP 0.6530 Pay USD/receive foreign currency 2015 EUR Medium Term Notes USD/EUR 0.9514 2015 GBP Medium Term Notes USD/GBP 0.6773	Less than 1 year $000 – – – (125,865) – – – – – – (125,865) – (190,878) (85,787) – – – – – – (276,665)	1 – 2 years 2 – 5 years More than 5 years $000 $000 $000 (95,847) – – (151,215) (153,694) – – (98,997) – – – – – (289,494) – – – (735,438) – – (535,988) – – (1,108,503) – (957,914) (889,661) – – (1,153,591) (247,062) (1,500,099) (4,423,181) – (95,847) – – (151,215) (153,694) – (98,997) – (125,865) – – – (289,494) – – – (735,438) – – (535,988) – – (1,904,107) – – (1,188,888) (125,865) (635,553) (4,518,115)

– II-125 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Foreign currency denominated borrowings

Foreign currency sensitivity analysis

The analysis below shows the effect on profit and total equity of retranslating cash, receivables, payables and interest- bearing liabilities denominated in USD, JPY, CAD, GBP and EUR into AUD, had the rates been 20 percent higher or lower than the relevant year end rate, with all other variables held constant, and taking into account all underlying exposures and related hedges. A sensitivity of 20 percent has been selected and represents management’s assessment of the possible change in rates taking into account the current level of exchange rates and the volatility observed both on an historical basis and on market expectations for possible future movements.

There would be no impact on net profit as all foreign currency exposures are fully hedged (2016: nil); and
Equity reserves would decrease by $1,255.0 million with a 20 percent depreciation of the A$ or increase by $839.8 million with a 20 percent increase in foreign exchange rates (2016: decrease by $1,410.2 million or increase by $940.5 million respectively). The decrease in sensitivity is due to the decrease in the notional value of forward exchange contracts that are in a hedging relationship with highly probable forecast transactions.

Interest rate risk

APA Group’s exposures to interest rate risk on financial liabilities are detailed in the liquidity risk management section of this note. Exposure to financial assets is limited to cash and cash equivalents amounting to $394.5 million as at 30 June 2017 (2016: $84.5 million).

Cross currency swap and interest rate swap contracts

Cross currency swap and interest rate swap contracts have the economic effect of converting borrowings from floating to fixed rates and/or fixed rate foreign currency to fixed or floating AUD rates on agreed notional principal amounts enabling APA Group to mitigate the risk of cash flow exposures on variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the yield curves at reporting date. The average interest rate is based on the outstanding balances at the end of the financial year.

– II-126 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The following table details the notional principal amounts and remaining terms of the cross currency and interest rate swap contracts outstanding as at the end of the financial year:

	weighted	average	Notional	Notional
	interest rate		principal amount		Fair	value
	2017	2016	2017	2016	2017	2016
	% p.a.	% p.a.	$000	$000	$000	$000
Cash flow hedges – Pay fixed AUD interest – receive floating AUD or fixed foreign					currency
Less than 1 year	6.80	8.58	125,865	276,665	(14,249)	17,700
1 year to 2 years	7.30	6.80	247,062	125,865	(9,706)	(2,403)
2 years to 5 years(a)	5.18	7.76	1,500,099	635,553	85,006	10,284
5 years and more(a)	5.38	5.08	4,423,181	4,518,115	81,206	116,089
			6,296,207	5,556,198	142,257	141,670

(a) This amount includes a notional amount of USD2.3 billion (2016: USD2.3 billion) which is subject to USD interest rate risk.

The cross currency swap and interest rate swap contracts settle on a quarterly or semi-annual basis. The floating rate benchmark on the interest rate swaps is Australian BBSW. APA Group will settle the difference between the fixed and floating interest rate on a net basis.

Interest rate sensitivity analysis

net profit would decrease by $5,150,000 or increase by $5,150,000 (2016: decrease by $12,225,000 or increase by $12,225,000). This is mainly attributable to APA Group’s exposure to interest rates on its variable rate borrowings, including its Australian Dollar subordinated notes; and
equity reserves would increase by $31,379,000 with a 100 basis point decrease in interest rates or decrease by $27,772,000 with a 100 basis point increase in interest rates (2016: increase by $25,722,000 or decrease by $28,287,000 respectively). This is due to the changes in the fair value of derivative interest instruments.

APA Group’s profit sensitivity to interest rates has decreased during the current year due to the overall decrease in the level of APA Group’s unhedged floating rate borrowings. The valuation of the increase/decrease in equity reserves is based on 1.00% p.a. increase/decrease in the yield curve at the reporting date. The increase in sensitivity in equity is due to the increase in the notional value of interest rate and cross currency swaps.

– II-127 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Price risk

Price risk sensitivity

net profit would have been unaffected as there is no effect from the forwards as the corresponding exposure will offset in full (2016: $nil); and
there is no effect on equity reserves as APA Group holds no available-for-sale investments (2016: $nil).

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to APA Group. APA Group has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or bank guarantees where appropriate as a means of mitigating any risk of loss. For financial investments or market risk hedging, APA Group’s policy is to only transact with counterparties that have a credit rating of A- (Standard & Poor’s)/A3 (Moody’s) or higher unless specifically approved by the Board. Where a counterparty’s rating falls below this threshold following a transaction, no other transactions can be executed with that counterparty until the exposure is sufficiently reduced or their credit rating is upgraded above APA Group’s minimum threshold. APA Group’s exposure to financial instrument and deposit credit risk is closely monitored against counterparty credit limits imposed by the Treasury Risk Management Policy approved by the ARMC. These limits are regularly reviewed by the Board.

The carrying amount of financial assets recorded in the financial statements, net of any allowances, represents APA Group’s maximum exposure to credit risk in relation to those assets.

Cross guarantee

In accordance with a deed of cross guarantee, APT Pipelines Limited, a subsidiary of APA Group, has agreed to provide financial support, when and as required, to all wholly-owned controlled entities with either a deficit in shareholders’ funds or an excess of current liabilities over current assets. The fair value of the financial guarantee as at 30 June 2017 has been determined to be immaterial and no liability has been recorded (2016: $nil).

– II-128 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(c) Liquidity risk

The table below shows the undiscounted Australian dollar cash flows associated with the AUD and foreign currency denominated notes, cross currency interest rate swaps and fixed interest rate swaps in aggregate.

Maturity Average interest rate % p.a. 2017 Unsecured financial liabilities Trade and other payables – Unsecured bank borrowings(a) – 2012 Subordinated Notes(b) 1-Oct-72 6.30 Denominated in A$ Other financial liabilities(c) Guaranteed Senior Notes(d) Denominated in A$ 2007 Series E 15-May-19 7.40 2007 Series G 15-May-22 7.45 2007 Series H 15-May-22 7.45 2010 AUD Medium Term Notes 22-Jul-20 7.75 2016 AUD Medium Term Notes 20-Oct-23 3.75 Denominated in US$ 2003 Series D 9-Sep-18 6.02 2007 Series D 15-May-19 5.99 2007 Series F 15-May-22 6.14 2009 Series B 1-Jul-19 8.86 2012 US 144A 11-Oct-22 3.88 2015 US 144A(c) 23-Mar-25 4.20 2015 US 144A(c) 23-Mar-35 5.00 2017 US 144A 15-Jul-27 4.25 Denominated in stated foreign currency 2012 JPY Medium Term Notes 22-Jun-18 1.23 2012 CAD Medium Term Notes 24-Jul-19 4.25 2012 GBP Medium Term Notes 26-Nov-24 4.25 2015 GBP Medium Term Notes(c) 22-Mar-30 3.50 2015 EUR Medium Term Notes(c) 22-Mar-22 1.38 2015 EUR Medium Term Notes(c) 22-Mar-27 2.00	Less than 1 year $000 312,611 – 32,221 7,609 5,045 6,002 4,617 23,250 7,500 6,930 11,111 11,354 5,897 49,123 60,160 19,533 48,046 134,424 19,529 39,783 51,729 34,990 39,105 930,569	1 – 5 years $000 – – 142,361 30,436 73,214 104,590 80,454 358,125 30,000 99,360 162,324 199,141 116,558 196,627 240,641 78,130 235,087 – 318,708 157,619 207,013 1,097,872 156,419 4,084,679	More than 5 years $000 – – 2,567,692 33,927 – – – – 211,250 – – – – 760,068 1,613,033 644,790 1,430,522 – – 634,905 1,567,617 – 1,085,184
			10,548,988

– II-129 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(a) Undrawn bank facilities mature on 18 May 2018 ($100 million limit), 19 September 2018 ($311.25 million limit), 18 May 2019 ($50 million limit), 19 December 2019 ($100 million limit), 18 May 2020 ($50 million limit), 19 September 2020 ($207.5 million limit), 19 December 2020 ($100 million limit) and 18 May 2021 ($150 million limit).
(b) The first call date is 31 March 2018.
(c) Facilities are denominated in or fully swapped by way of CCIRS into US$. Cashflows represent the US$ cashflow translated at the USD/AUD spot rate as at 30 June 2017. These amounts are fully hedged by forward exchange contracts or future US$ revenues.
(d) Rates shown are the coupon rate.

Maturity Average interest rate % p.a. 2016 Unsecured financial liabilities Trade and other payables – Unsecured bank borrowings(a) 2.82 2012 Subordinated Notes 1-Oct-72 6.78 Interest rate swaps (net settled) – Denominated in A$ Other financial liabilities(b) Guaranteed Senior Notes(c) Denominated in A$ 2007 Series A 15-May-17 7.33 2007 Series C 15-May-17 7.38 2007 Series E 15-May-19 7.40 2007 Series G 15-May-22 7.45 2007 Series H 15-May-22 7.45 2010 AUD Medium Term Notes 22-Jul-20 7.75 Denominated in US$ 2003 Series C 9-Sep-15 5.77 2003 Series D 9-Sep-18 6.02 2007 Series B 15-May-17 5.89 2007 Series D 15-May-19 5.99 2007 Series F 15-May-22 6.14 2009 Series A 1-Jul-16 8.35 2009 Series B 1-Jul-19 8.86 2012 US 144A 11-Oct-22 3.88 2015 US 144A(b) 23-Mar-25 4.20 2015 US 144A(b) 23-Mar-35 5.00 Denominated in stated foreign currency 2012 JPY Medium Term Notes 22-Jun-18 1.23 2012 CAD Medium Term Notes 24-Jul-19 4.25 2012 GBP Medium Term Notes 26-Nov-24 4.25 2015 GBP Medium Term Notes(b) 22-Mar-30 3.50 2015 EUR Medium Term Notes(b) 22-Mar-22 1.38 2015 EUR Medium Term Notes(b) 22-Mar-27 2.00	Less than 1 year $000 252,661 19,610 33,267 – 7,841 5,367 106,475 5,045 6,002 4,617 23,250 – 6,930 204,864 11,111 11,354 90,569 11,761 49,123 62,001 20,130 8,559 19,529 39,459 53,312 36,060 40,301 1,129,198	1 – 5 years $000 – 726,228 130,200 – 31,367 – – 78,259 24,008 18,468 381,375 – 106,290 – 173,435 45,416 – 128,286 196,762 248,004 80,521 134,424 338,237 157,943 213,349 144,240 161,205 3,518,017	More than 5 years $000 – – 2,381,395 – 42,806 – – – 86,584 66,603 – – – – – 165,079 – – 809,056 1,724,389 684,650 – – 674,364 1,668,898 1,023,284 1,158,689
			10,485,797

– II-130 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(a) Facilities mature on 19 September 2017 ($311.25 million limit), 18 May 2018 ($100 million limit), 19 September 2018 ($311.25 million limit), 18 May 2019 ($50 million limit), 19 December 2019 ($100 million limit), 18 May 2020 ($50 million limit), 19 September 2020 ($207.5 million limit), 19 December 2020 ($100 million limit) and 18 May 2021 ($150 million limit).
(b) Facilities are denominated in or fully swapped by way of CCIRS into US$. Cashflows represent the US$ cashflow translated at the USD/AUD spot rate as at 30 June 2016. These amounts are fully hedged by forward exchange contracts or future US$ revenues.
(c) Rates shown are the coupon rate.

Critical accounting judgements and key sources of estimation uncertainty – fair value of financial instruments

Fair value measurements recognised in the statement of financial position

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Transfers between levels of the fair value hierarchy occur at the end of the reporting period. There have been no transfers between the levels during 2017 (2016: none). Transfers between level 1 and level 2 are triggered when there are changes to the availiability of quoted prices in active markets. Transfers into level 3 are triggered when the observable inputs become no longer observable, or vice versa for transfer out of level 3.

– II-131 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Fair value of the Group’s financial assets and liabilities that are measured at fair value on a recurring basis

The fair values of financial assets and financial liabilities are measured at the end of each reporting period and determined as follows:

the fair values of available-for-sale financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices. These instruments are classified in the fair value hierarchy at level 1;
the fair values of forward foreign exchange contracts included in hedging assets and liabilities are calculated using discounted cash flow analysis based on observable forward exchange rates at the end of the reporting period and contract forward rates discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;
the fair values of interest rate swaps, cross currency swaps, equity forwards and other derivative instruments included in hedging assets and liabilities are calculated using discounted cash flow analysis using observable yield curves at the end of the reporting period and contract rates discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;
the fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current markets discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;
the fair value of financial guarantee contracts is determined based upon the probability of default by the specified counterparty extrapolated from market-based credit information and the amount of loss, given the default. These instruments are classified in the fair value hierarchy at level 2; and
the carrying value of financial assets and liabilities recorded at amortised cost in the financial statements approximate their fair value having regard to the specific terms of the agreements underlying those assets and liabilities.

– II-132 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Fair value hierarchy

2017 Financial assets measured at fair value Equity forwards designated as fair value through profit or loss Cross currency interest rate swaps used for hedging Forward foreign exchange contracts used for hedging Financial liabilities measured at fair value Interest rate swaps used for hedging Cross currency interest rate swaps used for hedging Forward foreign exchange contracts used for hedging 2016 Financial assets measured at fair value Equity forwards designated as fair value through profit or loss Cross currency interest rate swaps used for hedging Forward foreign exchange contracts used for hedging Financial liabilities measured at fair value Interest rate swaps used for hedging Cross currency interest rate swaps used for hedging Forward foreign exchange contracts used for hedging	Level 1 $000 – – – – – – – – – – – – – – – –	Level 2 $000 2,673 416,256 65,485 484,414 4,977 269,019 27,912 301,908 2,566 417,949 22,941 443,456 8,993 267,287 10,137 286,417	Level 3 $000 – – – – – – – – – – – – – – – –	Total $000 2,673 416,256 65,485
				484,414

				4,977 269,019 27,912
				301,908

				2,566 417,949 22,941
				443,456

				8,993 267,287 10,137
				286,417

– II-133 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Fair value measurements of financial instruments measured at amortised cost

Financial liabilities Unsecured long term Private Placement Notes Unsecured Australian Dollar Medium Term Notes Unsecured Japanese Yen Medium Term Notes Unsecured Canadian Dollar Medium Term Notes Unsecured US Dollar 144A Medium Term Notes Unsecured British Pound Medium Term Notes Unsecured Euro Medium Term Notes	Carrying 2017 $000 710,742 500,000 115,738 301,230 3,906,504 1,610,281 2,007,377 9,151,872	amount 2016 $000 1,124,099 300,000 129,964 310,555 2,885,325 1,688,747 2,008,378 8,447,068	Fair value (level 2)(a) 2017 2016 $000 $000 774,803 1,246,720 534,030 346,153 116,681 132,575 308,490 317,912 4,008,505 3,015,771 1,721,799 1,822,352 1,976,924 1,958,596 9,441,232 8,840,079	Fair value (level 2)(a) 2017 2016 $000 $000 774,803 1,246,720 534,030 346,153 116,681 132,575 308,490 317,912 4,008,505 3,015,771 1,721,799 1,822,352 1,976,924 1,958,596 9,441,232 8,840,079
				8,840,079

(a) The fair values have been determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current markets, discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2.

21. OTHER FINANCIAL INSTRUMENTS

Derivatives at fair value: Equity forward contracts Derivatives at fair value designated as hedging instruments: Foreign exchange contracts – cash flow hedges Interest rate swaps – cash flow hedges Cross currency interest rate swaps – cash flow hedges Financial item carried at amortised cost: Redeemable preference share interest Current	Assets 2017 2016 $000 $000 1,484 1,864 32,991 1,389 - - 17,574 31,602 285 285 52,334 35,140	Liabilities 2017 2016 $000 $000 – – 14,267 1,421 4,214 3,925 127,287 109,328 – – 145,768 114,674	Liabilities 2017 2016 $000 $000 – – 14,267 1,421 4,214 3,925 127,287 109,328 – – 145,768 114,674
			114,674

– II-134 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Financial items carried at amortised cost: Redeemable ordinary shares Redeemable preference shares Derivatives – at fair value: Equity forward contracts Derivatives at fair value designated as hedging instruments: Foreign currency contracts – cash flow hedges Interest rate swaps – cash flow hedges Cross currency interest rate swaps – cash flow hedges Non-current	Assets 2017 2016 $000 $000 – 15,699 10,400 10,400 1,189 702 32,494 21,552 – – 414,690 398,717 458,773 447,070	Liabilities 2017 2016 $000 $000 – – – – – – 13,645 8,716 2,072 6,246 166,370 179,629 182,087 194,591	Liabilities 2017 2016 $000 $000 – – – – – – 13,645 8,716 2,072 6,246 166,370 179,629 182,087 194,591
			194,591

Redeemable ordinary shares related to APA Group’s 19.9% investment in Energy Infrastructure Investments Pty Ltd where APL, as responsible entity for APTIT, acquired the redeemable ordinary shares, which included a debt component. The redeemable ordinary shares were redeemed for ordinary shares in Energy Infrastructure Investments Pty Ltd on 23 December 2016.

Recognition and measurement

Hedge accounting

At the inception of the hedge relationship, APA Group formally designates and documents the hedge relationship, including the risk management strategy for undertaking the hedge. This includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness. Hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and they are regularly assessed to ensure they continue to be effective.

Note 20 contains details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in equity are detailed in the Consolidated Statement of Changes in Equity.

– II-135 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Cash flow hedges

For cash flow hedges, the portion of the gain or loss on the hedging instrument that is effective is recognised directly in equity, while the ineffective portion is recognised in profit or loss.

Impairment of financial assets

– II-136 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

22. ISSUED CAPITAL

Units 1,114,307,369 units, fully paid (2016: 1,114,307,369 units, fully paid)(a) Movements Balance at beginning of financial year Capital distributions paid_(Note 8)_ Issue costs of securities Deferred tax on issue costs of securities Balance at end of financial year	2017 No. of units 000 1,114,307 – – – 1,114,307	2017 $000 3,114,617 2016 No. of 2017 units $000 000 3,195,445 1,114,307 (80,828) – – – – – 3,114,617 1,114,307		2016 $000 3,195,445 2016 $000 3,195,449 – (6) 2 3,195,445

(a) Fully paid securities carry one vote per security and carry the right to distributions.

– II-137 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

GROUP STRUCTURE

23. NON-CONTROLLING INTERESTS

Summarised financial information for APTIT is set out below, the amounts disclosed are before intercompany eliminations.

Financial position Current assets Non-current assets Total assets Current liabilities Total liabilities Net assets Equity attributable to non-controlling interests Financial performance Revenue Expenses Profit for the year Other comprehensive income Total comprehensive income allocated to non-controlling interests for the year Cash flows Net cash provided by operating activities Net cash provided by/(used in) investing activities Distributions paid to non-controlling interests Net cash used in financing activities	2017 $000 738 1,009,757 1,010,495 13 13 1,010,482 1,010,482 72,979 (12) 72,967 – 72,967 75,570 33,801 (109,371) (109,371)	2016 $000 704 1,046,193 1,046,897 11 11 1,046,886 1,046,886 85,483 (381) 85,102 (595) 84,507 86,451 (16,647) (69,778) (69,804)

The accounting policies of APTIT are the same as those applied to APA Group.

There are no material guarantees, contingent liabilities or restrictions imposed on APA Group from APTIT’s non-controlling interests.

– II-138 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT Investment Trust Other non-controlling interest APT Investment Trust Issued capital: Balance at beginning of financial year Distribution – capital return_(Note 8) Issue costs of units Reserves: Available-for-sale investment revaluation reserve: Balance at beginning of financial year Valuation loss recognised Retained earnings: Balance at beginning of financial year Net profit attributable to APTIT unitholders Distributions paid(Note 8)_ Other non-controlling interest Issued capital Reserves Retained earnings	2017 $000 1,010,482 53 1,010,535 1,005,074 (28,790) – 976,284 – – – 41,812 72,967 (80,581) 34,198 4 1 48 53	2016 $000 1,046,886 53 1,046,939 1,005,086 – (12) 1,005,074 595 (595) – 26,488 85,102 (69,778) 41,812 4 1 48 53

– II-139 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

24. JOINT ARRANGEMENTS AND ASSOCIATES

		Country of	Ownership	interest %
Name of entity	Principal activity	incorporation	2017	2016
Joint ventures:
SEA Gas	Gas transmission	Australia	50.00	50.00
SEA Gas (Mortlake)	Gas transmission	Australia	50.00	–
Energy Infrastructure
Investments	Energy infrastructure	Australia	19.90	19.90
EII 2	Power generation (wind)	Australia	20.20	20.20
Associates:
GDI (EII)	Gas distribution	Australia	20.00	20.00
			2017	2016
			$000	$000
Investment in joint ventures and associates using the
equity method			259,882	197,185

Joint ventures
Aggregate carrying amount of investment			229,693	170,408
APA Group’s aggregated share	of:
Profit from continuing operations			17,175	13,640
Other comprehensive income			8,007	(8,103)
Total comprehensive income			25,182	5,537

Associates
Aggregate carrying amount of investment			30,189	26,777
APA Group’s aggregated share	of:
Profit from continuing operations			4,618	3,337
Other comprehensive income			2,914	(1,327)
Total comprehensive income			7,532	2,010

Investment in associates

– II-140 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Contingent liabilities and capital commitments

APA Group’s share of the contingent liabilities, capital commitments and other expenditure commitments of joint operations is disclosed in Note 26.

APA Group is a venturer in the following joint operations:

		Output	interest
		2017	2016
Name of venture	Principal activity	%	%
Goldfields Gas Transmission	Gas pipeline operation – Western Australia	88.2(a)	88.2(a)
Mid West Pipeline	Gas pipeline operation – Western Australia	50.0(b)	50.0(b)

(a) On 17 August 2004, APA acquired a direct interest in the Goldfields Gas Transmission joint operations as part of the SCP Gas Business acquisition.
(b) Pursuant to the joint venture agreement, APA Group receives a 70.8% share of operating income and expenses.

Interest in joint arrangements

– II-141 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

25. SUBSIDIARIES

	Country of	Ownership	interest
	registration/	2017	2016
Name of entity	incorporation	%	%
Parent entity
Australian Pipeline Trust(a)
Subsidiaries
Agex Pty. Ltd.(b),(c)	Australia	100	100
Amadeus Gas Trust(g)	–	96	96
APA (BWF Holdco) Pty Ltd(b),(c)	Australia	100	100
APA (EDWF Holdco) Pty Ltd(b),(c)	Australia	100	100
APA (EPX) Pty Limited(b),(c)	Australia	100	100
APA (NBH) Pty Limited(b),(c)	Australia	100	100
APA (Pilbara Pipeline) Pty Ltd(b),(c)	Australia	100	100
APA (SWQP) Pty Limited(b),(c)	Australia	100	100
APA (WA) One Pty Limited(b),(c)	Australia	100	100
APA AIS 1 Pty Limited(b),(c)	Australia	100	100
APA AIS 2 Pty Ltd(b),(c)	Australia	100	100
APA AIS Pty Limited(b),(c)	Australia	100	100
APA AM (Allgas) Pty Limited(b),(c)	Australia	100	100
APA BIDCO Pty Limited(b),(c)	Australia	100	100
APA Biobond Pty Limited(b),(c)	Australia	100	100
APA Country Pipelines Pty Limited(b),(c)	Australia	100	100
APA DPS Holdings Pty Limited(b),(c)	Australia	100	100
APA DPS2 Pty Limited(b),(c)	Australia	100	100
APA East Pipelines Pty Limited(b),(c)	Australia	100	100
APA EE Australia Pty Limited(b),(c)	Australia	100	100
APA EE Corporate Shared Services Pty Limited(b),(c)	Australia	100	100
APA EE Holdings Pty Limited(b),(c)	Australia	100	100
APA EE Pty Limited(b),(c)	Australia	100	100
APA Ethane Pty Limited(b),(c),(f)	Australia	100	100
APA Facilities Management Pty Limited(b),(c)	Australia	100	100
APA Midstream Holdings Pty Limited(b),(c),(d)	Australia	100	–
APA Operations (EII) Pty Limited(b),(c)	Australia	100	100
APA Operations Pty Limited(b),(c)	Australia	100	100
APA Pipelines Investments (BWP) Pty Limited(b),(c)	Australia	100	100
APA Power Holdings Pty Limited(b),(c)	Australia	100	100
APA Power PF Pty Limited(b),(c)	Australia	100	100
APA Reedy Creek Wallumbilla Pty Limited(b),(c),(e)	Australia	100	100
APA SEA Gas (Mortlake) Holdings Pty Ltd(b),(c)	Australia	100	100
APA SEA Gas (Mortlake) Pty Ltd(b)	Australia	100	100
APA Services (Int) Inc.(d)	United States	100	–
APA Sub Trust No 1(b),(g)	–	100	100
APA Sub Trust No 2(b),(g)	–	100	100
APA Sub Trust No 3(b),(g)	–	100	100
APA Transmission Pty Limited(b),(c)	Australia	100	100
APA VTS A Pty Limited(b),(c)	Australia	100	100
APA VTS Australia (Holdings) Pty Limited(b),(c)	Australia	100	100
APA VTS Australia (NSW) Pty Limited(b),(c)	Australia	100	100

– II-142 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

	Country of	Ownership	interest
	registration/	2017	2016
Name of entity	incorporation	%	%
APA VTS Australia (Operations) Pty Limited(b),(c)	Australia	100	100
APA VTS Australia Pty Limited(b),(c)	Australia	100	100
APA VTS B Pty Limited(b),(c)	Australia	100	100
APA Western Slopes Pipeline Pty Limited(b),(c),(d)	Australia	100	–
APA WGP Pty Ltd(b),(c)	Australia	100	100
APT (MIT) Services Pty Limited(b),(c)	Australia	100	100
APT AM (Stratus) Pty Limited(b),(c)	Australia	100	100
APT AM Employment Pty Limited(b),(c)	Australia	100	100
APT AM Holdings Pty Limited(b),(c)	Australia	100	100
APT Facility Management Pty Limited(b),(c)	Australia	100	100
APT Goldfields Pty Ltd(b),(c)	Australia	100	100
APT Management Services Pty Limited(b),(c)	Australia	100	100
APT O&M Holdings Pty Ltd(b),(c)	Australia	100	100
APT O&M Services (QLD) Pty Ltd(b),(c)	Australia	100	100
APT O&M Services Pty Ltd(b),(c)	Australia	100	100
APT Parmelia Holdings Pty Ltd(b),(c)	Australia	100	100
APT Parmelia Pty Ltd(b),(c)	Australia	100	100
APT Parmelia Trust(b),(g)	–	100	100
APT Petroleum Pipelines Holdings Pty Limited(b),(c)	Australia	100	100
APT Petroleum Pipelines Pty Limited(b),(c)	Australia	100	100
APT Pipelines (NSW) Pty Limited(b),(c)	Australia	100	100
APT Pipelines (NT) Pty Limited(b),(c)	Australia	100	100
APT Pipelines (QLD) Pty Limited(b),(c)	Australia	100	100
APT Pipelines (SA) Pty Limited(b),(c)	Australia	100	100
APT Pipelines (WA) Pty Limited(b),(c)	Australia	100	100
APT Pipelines Investments (NSW) Pty Limited(b),(c)	Australia	100	100
APT Pipelines Investments (WA) Pty Limited(b),(c)	Australia	100	100
APT Pipelines Limited(b),(c)	Australia	100	100
APT Sea Gas Holdings Pty Limited(b),(c)	Australia	100	100
APT SPV2 Pty Ltd(b)	Australia	100	100
APT SPV3 Pty Ltd(b)	Australia	100	100
Australian Pipeline Limited(b)	Australia	100	100
Central Ranges Pipeline Pty Ltd(b),(c)	Australia	100	100
Darling Downs Solar Farm Pty Ltd(b),(c),(d)	Australia	100	–
Diamantina Holding Company Pty Limited(b),(c)	Australia	100	100
Diamantina Power Station Pty Limited(b),(c)	Australia	100	100
East Australian Pipeline Pty Limited(b),(c)	Australia	100	100
EDWF Holdings 1 Pty Ltd(b),(c)	Australia	100	100
EDWF Holdings 2 Pty Ltd(b),(c)	Australia	100	100
EDWF Manager Pty Ltd(b),(c)	Australia	100	100
Epic Energy East Pipelines Trust(b),(g)	–	100	100
EPX Holdco Pty Limited(b),(c)	Australia	100	100
EPX Member Pty Limited(b),(c)	Australia	100	100
EPX Trust(b),(g)	–	100	100
Ethane Pipeline Income Financing Trust(b),(g)	–	100	100
Ethane Pipeline Income Trust(b),(g)	–	100	100
Gasinvest Australia Pty Ltd(b),(c)	Australia	100	100
GasNet A Trust(g)	–	100	100
GasNet Australia Investments Trust(g)	–	100	100
GasNet Australia Trust(b),(g)	–	100	100
GasNet B Trust(b),(g)	–	100	100
Goldfields Gas Transmission Pty Ltd(b)	Australia	100	100

– II-143 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

	Country of	Ownership	interest
	registration/	2017	2016
Name of entity	incorporation	%	%
Gorodok Pty. Ltd.(b),(c)	Australia	100	100
Griffin Windfarm 2 Pty Ltd(b)	Australia	100	100
Moomba to Sydney Ethane Pipeline Trust(b),(g)	–	100	100
N.T. Gas Distribution Pty Limited(b),(c)	Australia	100	100
N.T. Gas Easements Pty. Limited(b),(c)	Australia	100	100
N.T. Gas Pty Limited	Australia	96	96
Roverton Pty. Ltd.(b),(c)	Australia	100	100
SCP Investments (No. 1) Pty Limited(b),(c)	Australia	100	100
SCP Investments (No. 2) Pty Limited(b),(c)	Australia	100	100
SCP Investments (No. 3) Pty Limited(b),(c)	Australia	100	100
Sopic Pty. Ltd.(b),(c)	Australia	100	100
Southern Cross Pipelines (NPL) Australia Pty Ltd(b),(c)	Australia	100	100
Southern Cross Pipelines Australia Pty Limited(b),(c)	Australia	100	100
Trans Australia Pipeline Pty Ltd(b),(c)	Australia	100	100
Votraint No. 1606 Pty Ltd(b)	Australia	100	100
Votraint No. 1613 Pty Ltd(b)	Australia	100	100
Western Australian Gas Transmission Company
1 Pty Ltd(b),(c)	Australia	100	100
Wind Portfolio Pty Ltd(b),(c)	Australia	100	100

(a) Australian Pipeline Trust is the head entity within the APA tax-consolidated group.
(b) These entities are members of the APA tax-consolidated group.
(c) These wholly-owned subsidiaries have entered into a deed of cross guarantee with APT Pipelines Limited pursuant to ASIC Corporations Instrument 2016/785 and are relieved from the requirement to prepare and lodge an audited financial report.
(d) Entity was acquired or registered during the 2017 year.
(e) Entity previously known as “APA Newco Pty Limited” during the 2016 year.
(f) Entity changed its company type from Limited to Pty. Limited during the 2017 year.
(g) These trusts are unincorporated and not required to be registered. In respect of APT Parmelia Trust, the governing law of the trust deed was changed from Cayman Islands to New South Wales, Australia on 7 August 2017.

– II-144 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

OTHER ITEMS

26. COMMITMENTS AND CONTINGENCIES

Capital expenditure commitments APA Group – plant and equipment APA Group’s share of jointly controlled operations – plant and equipment Contingent liabilities Bank guarantees	2017 $000 583,387 2,698 586,085 43,034	2016 $000 151,710 4,402
		156,112

		42,027

APA Group had no contingent assets as at 30 June 2017 and 30 June 2016.

27. DIRECTOR AND SENIOR EXECUTIvE REMUNERATION

Remuneration of Directors

The aggregate remuneration of Directors of APA Group is set out below:

Short-term employment benefits Post-employment benefits Total remuneration: Non-Executive Directors Short-term employment benefits Post-employment benefits Cash settled security-based payments Total remuneration: Executive Director(a) Total remuneration: Directors Remuneration of senior executives(a) The aggregate remuneration of senior executives of APA Group is set out below: Short-term employment benefits Post-employment benefits Cash settled security-based payments Total remuneration: senior executives	2017 $ 1,682,077 160,104 1,842,181 3,589,472 35,000 1,485,242 5,109,714 6,951,895 11,108,724 551,107 3,730,048 15,389,879	2016 $ 1,548,424 217,041
		1,765,465
		3,544,861 35,000 1,579,531
		5,159,392
		6,924,857

		10,992,475 856,636 4,429,999
		16,279,110

(a) The remuneration for the Chief Executive Officer and Managing Director, Michael (Mick) McCormack, is included in both the remuneration disclosure for Directors and senior executives.

– II-145 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

28. REMUNERATION OF EXTERNAL AUDITOR

Amounts received or due and receivable by Deloitte Touche Tohmatsu for: Auditing the financial report Compliance plan audit Other assurance services(a)	2017 $ 654,900 18,900 263,700 937,500	2016 $ 643,000 18,500 75,000
		736,500

(a) Services provided were in accordance with the external auditor independence policy. Other assurance services mainly comprise assurance services in relation to the 2017 144A debt issuance and procedures in relation to ASIC Regulatory Guide 231 requirements.

29. RELATED PARTY TRANSACTIONS

(a) Equity interest in related parties

Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 25 and the details of the percentage held in joint operations, joint ventures and associates are disclosed in Note 24.

(b) Responsible Entity – Australian Pipeline Limited

The Responsible Entity is wholly owned by APT Pipelines Limited.

(c) Transactions with related parties within APA Group

Transactions between the entities that comprise APA Group during the financial year consisted of:

dividends;
asset lease rentals;
loans advanced and payments received on long-term inter-entity loans;
management fees;
operational services provided between entities;
payments of distributions; and
equity issues.

The above transactions were made on normal commercial terms and conditions. The Group charges interest on inter-entity loans from time to time.

All transactions between the entities that comprise APA Group have been eliminated on consolidation.

Refer to Note 25 for details of the entities that comprise APA Group.

– II-146 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Australian Pipeline Limited

Management fees of $3,967,352 (2016: $3,999,694) were paid to the Responsible Entity as reimbursement of costs incurred on behalf of APA Group. No amounts were paid directly by APA Group to the Directors of the Responsible Entity, except as disclosed at Note 27.

(d) Transactions with other associates and joint ventures

The following transactions occurred with APA Group’s associates and joint ventures on normal market terms and conditions:

2017 SEA Gas Energy Infrastructure Investments EII 2 GDI (EII) 2016 SEA Gas Energy Infrastructure Investments EII 2 APA Ethane Ltd Diamantina Power Station(a) GDI (EII)	Dividends from related parties $000 10,357 4,689 3,244 4,121 22,411 10,523 3,810 3,102 – – 4,102 21,537	Sales to related parties $000 3,717 26,553 752 51,711 82,733 3,371 35,114 725 192 950 55,775 96,127	Purchases from related parties $000 – – – 99 99 – 157 – – – 54 211	Amount owed by related parties $000 96 5,792 46 7,094 13,028 10 4,344 45 – – 7,830 12,229	Amount owed to related parties $000 – – – –
					–

					– – – – – –
					–

(a) Following APA Group’s acquisition of the remaining 50% of Diamantina Power Station on 31 March 2016, transactions with Diamantina Power Station now form part of inter entity balances and are eliminated on consolidation.

– II-147 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

30. PARENT ENTITY INFORMATION

The accounting policies of the parent entity, which have been applied in determining the financial information below, are the same as those applied in the consolidated financial statements.

Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Total liabilities Net assets Equity Issued capital Retained earnings Total equity Financial performance Profit for the year Other comprehensive income Total comprehensive income	2017 $000 2,497,220 757,947 3,255,167 127,269 127,269 3,127,898 3,114,616 13,282 3,127,898 283,264 – 283,264	2016 $000 2,573,646 752,939
		3,326,585
		112,169
		112,169
		3,214,416

		3,195,445 18,971
		3,214,416

		186,014 2,258
		188,272

Guarantees entered into by the parent entity in relation to the debts of its subsidiaries

Due to the contingent nature of these financial guarantees no liability has been recorded (2016: $nil).

Contingent liabilities of the parent entity

No contingent liabilities have been identified in relation to the parent entity.

– II-148 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

31. ADOPTION OF NEw AND REvISED ACCOUNTING STANDARDS

Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)

Standards and Interpretations issued not yet adopted

At the date of authorisation of the financial statements, the Standards and Interpretations listed below were on issue but not yet effective.

		Effective for annual	Expected to be
		reporting periods	initially applied in the
Standard/Interpretation		beginning on or after	financial year ending
•	AASB 9 ‘Financial Instruments’, and the
	relevant amending standards	1 January 2018	30 June 2019
•	AASB 15 ‘Revenue from Contracts with
	Customers’, and AASB 2015-8 ‘Amendments
	t o A u s t r a l i a n A c c o u n t i n g S t a n d a r d s –
	Effective date of AASB 15’	1 January 2018	30 June 2019
•	AASB 16 ‘Leases’	1 January 2019	30 June 2020

The potential impacts of the initial application of the Standards above are yet to be fully quantified.

32. EvENTS OCCURRING AFTER REPORTING DATE

On 22 August 2017, the Directors declared a final distribution of 23.00 cents per security ($256.3 million) for APA Group. This is comprised of a distribution of 16.24 cents per unit from APT and a distribution of 6.76 cents per unit from APTIT. The APT distribution represents a 4.67 cents per unit franked profit distribution, a 0.79 cents per unit unfranked profit distribution and 10.78 cents per unit capital distribution. The APTIT distribution represents a 3.07 cent per unit profit distribution and a 3.69 cents per unit capital distribution. Franking credits of 2.0 cents per security will be allocated to the franked profit distribution. The distribution will be paid on 13 September 2017.

Other than the events disclosed above, there have not been any events or transactions that have occurred subsequent to year end that would require adjustment to or disclosure in the financial statements.

– II-149 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES

DECLARATION BY THE DIRECTORS OF AUSTRALIAN PIPELINE LIMITED For the financial year ended 30 June 2017

The Directors declare that:

(a) in the Directors’ opinion, there are reasonable grounds to believe that Australian Pipeline Trust will be able to pay its debts as and when they become due and payable;
(b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with Accounting Standards and giving a true and fair view of the financial position and performance of APA Group;
(c) in the Directors’ opinion, the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board;
(d) the Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of the Directors of the Responsible Entity made pursuant to section 295(5) of the Corporations Act 2001.

On behalf of the Directors

==> picture [136 x 36] intentionally omitted <==

Leonard Bleasel AM Chairman

==> picture [133 x 36] intentionally omitted <==

Steven Crane Director

SYDNEY, 23 August 2017

– II-150 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIvE INCOME

For the financial year ended 30 June 2017

Note Continuing operations Revenue 4 Expenses 4 Profit before tax Income tax expense 5 Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: Loss on disposal of available-for-sale investments Other comprehensive income for the year Total comprehensive income for the year Profit Attributable to: Unitholders of the parent Total comprehensive income attributable to: Unitholders of the parent Earnings per unit Basic and diluted (cents per unit) 6	2017 $000 72,979 (12) 72,967 – 72,967 – – 72,967 72,967 72,967 72,967 2017 6.5	2016 $000 85,483 (381) 85,102 – 85,102 (595) (595) 84,507 85,102 85,102 84,507 2016 7.6

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

– II-151 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2017

Note Current assets Receivables 8 Non-current assets Receivables 8 Other financial assets 11 Non-current assets Total assets Current liabilities Trade and other payables 9 Total liabilities Net assets Equity Issued capital 13 Retained earnings Total equity	2017 $000 738 8,511 1,001,246 1,009,757 1,010,495 13 13 1,010,482 976,284 34,198 1,010,482	2016 $000 704
		9,249 1,036,944
		1,046,193
		1,046,897
		11
		11
		1,046,886

		1,005,074 41,812
		1,046,886

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

– II-152 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CHANGES IN EqUITY

For the financial year ended 30 June 2017

Note Balance at 1 July 2015 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Issue of capital (net of issue costs) 13 Distributions to unitholders 7 Balance at 30 June 2016 Balance at 1 July 2016 Profit for the year Total comprehensive income for the year Distributions to unitholders 7 Balance at 30 June 2017	Issued capital $000 1,005,086 – – – (12) – 1,005,074 1,005,074 – – (28,790) 976,284	Reserves $000 595 – (595) (595) – – – – – – – –	Retained earnings $000 26,488 85,102 – 85,102 – (69,778) 41,812 41,812 72,967 72,967 (80,581) 34,198	Total $000 1,032,169 85,102 (595) 84,507 (12) (69,778) 1,046,886 1,046,886 72,967 72,967 (109,371) 1,010,482

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

– II-153 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOwS

For the financial year ended 30 June 2017

Cash flows from operating activities Trust distribution – related party Dividends received Interest received – related parties Proceeds from repayment of finance leases Receipts from customers Payments to suppliers Net cash provided by operating activities Cash flows from investing activities Proceeds from transfer of financial asset to related party Receipts from/(advances to) related parties Proceeds from disposal of available-for-sale investment Net cash provided by/(used in) investing activities Cash flows from financing activities Payment of unit issue costs Distributions to unitholders Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year	2017 $000 28,610 – 45,531 1,167 274 (12) 75,570 32,566 1,235 – 33,801 – (109,371) (109,371) – – –	2016 $000 31,747 126 53,229 1,167 193 (11) 86,451 – (18,192) 1,545 (16,647) (26) (69,778) (69,804) – – –

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

– II-154 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended 30 June 2017

BASIS OF PREPARATION

1. ABOUT THIS REPORT

Basis of Preparation

Financial Performance

Operating Assets and Liabilities

About this report
Segment information
Receivables
General information
Profit from operations
Payables
Income tax
Leases
Earnings per unit
Distributions

Capital Management Group Structure

Other

Other financial instruments 14. Subsidiaries
Commitments and contingencies
Financial risk management
Director and senior executive remuneration
Issued capital
Remuneration of external auditor
Related party transactions
Parent entity information
Adoption of new and revised Accounting Standards
Events occurring after reporting date

– II-155 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

2. GENERAL INFORMATION

All intragroup transactions and balances have been eliminated on consolidation. Where necessary, adjustments are made to the assets, liabilities, and results of subsidiaries, joint arrangements and associates to bring their accounting policies into line with those used by the Consolidated Entity.

APTIT’s registered office and principal place of business is as follows:

Level 19 HSBC Building 580 George Street SYDNEY NSW 2000 Tel: (02) 9693 0000

APTIT operates as an investment entity within APA Group.

The financial report for the year ended 30 June 2017 was authorised for issue in accordance with a resolution of the directors on 23 August 2017.

This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB), and also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

– II-156 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

FINANCIAL PERFORMANCE

3. SEGMENT INFORMATION

The Consolidated Entity has one reportable segment being energy infrastructure investment.

The Consolidated Entity is an investing entity within the Australian Pipeline Trust stapled group. As the Trust only operates in one segment, it has not disclosed segment information separately.

4. PROFIT FROM OPERATIONS

Profit before income tax includes the following items of income and expense:

Revenue Distributions Trust distribution – related party Other entities Finance income Interest – related parties Loss on financial asset held at fair value through profit or loss Finance lease income – related party Other revenue Other Total revenue Expenses Audit fees Loss on disposal of available-for-sale investment Total expenses	2017 $000 28,610 – 28,610 44,141 (510) 464 44,095 274 72,979 (12) – (12)	2016 $000 31,747 95 31,842 53,684 (756) 497 53,425 216 85,483 (11) (370) (381)

Interest revenue , which is recognised as it accrues and is determined using the effective interest method;
Distribution revenue , which is recognised when the right to receive a distribution has been established;
Finance lease income , which is recognised when receivable.

– II-157 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

5. INCOME TAX

6. EARNINGS PER UNIT

2017 cents Basic and diluted earnings per unit 6.5 The earnings and weighted average number of units used in the calculation of basic and per unit are as follows: 2017 $000 Net profit attributable to unitholders for calculating basic and diluted earnings per unit 72,967 2017 No. of units 000 Adjusted weighted average number of ordinary units used in the calculation of basic and diluted earnings per unit 1,114,307	2016 cents 7.6

	diluted earnings 2016 $000 85,102

	2016 No. of units 000 1,114,307

The earnings and weighted average number of units used in the calculation of basic and diluted earnings per unit are as follows:

– II-158 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

7. DISTRIBUTIONS

Recognised amounts Final distribution paid on 16 September 2016 (2016: 16 September 2015) Profit distribution(a) Capital distribution Interim distribution paid on 15 March 2017 (2016: 16 March 2016) Profit distribution(a) Capital distribution Total distributions recognised Profit distributions(a) Capital distributions Unrecognised amounts Final distribution payable on 13 September 2017(b) (2016: 16 September 2016) Profit distribution(a) Capital distribution	2017 cents per unit 3.75 0.63 4.38 3.48 1.96 5.44 7.23 2.59 9.82 3.07 3.69 6.76	2017 Total $000 41,811 6,976 48,787 38,770 21,814 60,584 80,581 28,790 109,371 34,198 41,107 75,305	2016 cents per unit 2.38 – 2.38 3.88 – 3.88 6.26 – 6.26 3.75 0.63 4.38	2016 Total $000 26,488 –
				26,488

				43,290 –
				43,290

				69,778 –
				69,778

				41,811 6,976
				48,787

(a) Profit distributions unfranked (2016: unfranked).

(b) Record date 30 June 2017.

– II-159 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

OPERATING ASSETS AND LIABILITIES

8. RECEIvABLES

Finance lease receivable – related party_(Note 10) Current Finance lease receivable – related party(Note 10)_ Non-current	2017 $000 738 738 8,511 8,511	2016 $000 704
		704

		9,249
		9,249

None of the above receivables is past due.

9. PAYABLES

Other payables 13 11

– II-160 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

10. LEASES

Finance leases

Leasing arrangements – receivables

Finance lease receivables relate to the lease of a pipeline lateral.

There are no contingent rental payments due.

Finance lease receivables

Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years Minimum future lease payments receivable(a) Gross finance lease receivables Less: unearned finance lease receivables Present value of lease receivables Included in the financial statements as part of: Current receivables_(Note 8) Non-current receivables(Note 8)_	2017 $000 1,167 4,669 5,837 11,673 11,673 (2,424) 9,249 738 8,511 9,249	2016 $000 1,167 4,669 7,004 12,840 12,840 (2,887) 9,953 704 9,249 9,953

(a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual.

Consolidated Entity as lessor

– II-161 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CAPITAL MANAGEMENT

11. OTHER FINANCIAL INSTRUMENTS

Non-current Advance to related party Investments carried at cost: Investment in related party(a) Financial assets carried at fair value: Redeemable ordinary shares(b)	2017 $000 893,867 107,379 1,001,246 – 1,001,246	2016 $000 895,102 107,379
		1,002,481 34,463
		1,036,944

(a) The investment in related party reflects GasNet Australia Investments Trust’s (“GAIT”) investment in 100% of the B Class units in GasNet A Trust. The B Class units give GAIT preferred rights to the income and capital of GasNet A Trust, but hold no voting rights. The A Class unitholder may however suspend for a period or terminate all of the B Class unitholder rights to income and capital. As such, GAIT neither controls nor has a significant influence over GasNet A Trust. GasNet Australia Trust, a related party wholly owned by APA Group, owns 100% of the A Class units in GasNet A Trust and, accordingly, GasNet A Trust is included in the consolidation of the APA Group. The investment has not been measured at fair value as the units of GasNet A Trust are not available for trade on an active market and as such, the fair value of the units cannot be reliably determined. The Consolidated Entity does not intend to dispose of its interest in GasNet A Trust.
(b) Financial assets carried at fair value related to APA Group’s 19.9% investment in Energy Infrastructure Investments Pty Ltd where Australian Pipeline Limited (APL), as Responsible Entity for APTIT, acquired the redeemable ordinary shares (“ROS”). This investment was classified at fair value through profit or loss. The redeemable ordinary shares held in Energy Infrastructure Investments were disposed of by the Consolidated Entity on 22 December 2016, transferring the investment to another entity within the APA Group via an inter-company loan.

Financial assets are classified into the following specified categories: ‘available-for-sale’ financial assets, ‘loans and receivables’ and ‘fair value through profit or loss’.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

Fair value through profit or loss

– II-162 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Receivables and loans

Impairment of financial assets

12. FINANCIAL RISk MANAGEMENT

APA Group’s corporate Treasury department is responsible for the overall management of the Consolidated Entity’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee approves written principles for overall risk management, as well as policies covering specific areas such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. The Consolidated Entity’s Board of Directors ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting from the Treasury department.

The Consolidated Entity’s activities generate financial instruments comprising of cash, receivables, payables and interest bearing liabilities which expose it to various risks as summarised below:

(a) Market risk including currency risk, interest rate risk and price risk;
(b) Credit risk; and
(c) Liquidity risk.

Treasury as a centralised function provides the Consolidated Entity with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost, and minimises risks through the use of natural hedges and derivative instruments. The Consolidated Entity does not engage in speculative trading. All derivatives have been transacted to hedge underlying or existing exposures and have adhered to the Audit and Risk Management Committee approved Treasury Risk Management Policy.

(a) Market risk

– II-163 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates on loans with related parties. A 100 basis points increase or decrease is used and represents management’s assessment of the greatest possible change in interest rates. At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were constant, the Consolidated Entity’s net profit would increase by $6,431,000 or decrease by $6,372,000 (2016: increase by $5,963,000 or decrease by $5,883,000 respectively). This is mainly attributable to the Consolidated Entity’s exposure to interest rates on its variable rate inter-entity balances and the fair value movement on the ROS. The sensitivity has increased due to higher inter-entity balances.

(b) Credit risk

(c) Liquidity risk

The Consolidated Entity’s exposure to liquidity risk is limited to trade payables of $13,000 (2016: $11,000), all of which are due in less than 1 year (2016: less than 1 year).

(d) Fair value of financial instruments

– II-164 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Fair value measurements recognised in the statement of financial position

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Transfers between levels of the fair value hierarchy occur at the end of the reporting period. There have been no transfers between the levels during 2017 (2016: none). Transfers between level 1 and level 2 are triggered when there are changes to the availability of quoted prices in active markets. Transfers into level 3 are triggered when the observable inputs become no longer observable, or vice versa for transfer out of level 3.

Fair value of the Group‘s financial assets and liabilities that are measured at fair value on a recurring basis

The fair values of financial assets and financial liabilities are measured at the end of each reporting period and determined as follows:

Unlisted redeemable ordinary shares

The 2016 financial statements included redeemable ordinary shares (“ROS”) held in an unlisted entity which were measured at fair value (Note 11). The redeemable ordinary shares held in Energy Infrastructure Investments were disposed of by the Consolidated Entity on 22 December 2016, transferring the investment to another entity within APA Group. In 2016 the fair market value of the ROS was derived from a binomial tree model, which included some assumptions that were not able to be supported by observable market prices or rates. The model mapped the different possible valuation paths of three distinct components:

value of the debt component;
value of the ROS discretionary dividends; and
value of the option to convert to ordinary shares.

– II-165 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

In determining the fair value in 2016, the following assumptions were used:

the risk adjusted rate for the ROS was estimated as the required rate of return based on projected cash flows to equity at issuance assuming the ROS price at issuance ($0.99) and the ordinary price at issuance ($0.01) are at their fair value;
the risk free rate of return was 1.57% per annum and was based upon an interpolation of the three and five year Government bond rates at the valuation date;
the ROS discretionary dividends were estimated based on an internal forecasted cash flow model;
the value of the option to convert was deemed to be zero. For conversion to occur, a number of conditions must be met. At the reporting date, it was deemed highly unlikely these conditions would occur based on an internal forecasting model; and
these instruments were classified in the fair value hierarchy at level 3.

The fair value was impacted by the following unobservable inputs:

an increase in the discount rate would have resulted in a decrease in the fair value;
an increase in discretionary dividends would have resulted in an increase in the fair value; and
meeting conditions to trigger the conversion of the option would result in an increase in the fair value.

Fair value hierarchy

2017 Financial assets measured at fair value Unlisted redeemable ordinary shares Energy Infrastructure Investments 2016 Financial assets measured at fair value Unlisted redeemable ordinary shares Energy Infrastructure Investments	Level 1 $000 – – – –	Level 2 $000 – – – –	Level 3 $000 – – 34,463 34,463	Total $000 –
				–

				34,463
				34,463

– II-166 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

	Fair value through Profit or Loss	Fair value through Profit or Loss
	2017	2016
	$000	$000
Reconciliation of Level 3 fair value measurements
of financial assets
Opening balance	34,463	34,765
Total gains or losses:
– in profit or loss: Interest – related parties	1,071	4,264
– in profit or loss: Loss on financial asset held at
fair value through profit or loss	(510)	(756)
Distributions	(2,459)	(3,810)
Disposal(a)	(32,565)	–
Closing balance	–	34,463

(a) The redeemable ordinary shares held in Energy Infrastructure Investments were disposed of by the Consolidated Entity on 22 December 2016, transferring the investment to another entity within APA Group.

13. ISSUED CAPITAL

Units 1,114,307,369 units, fully paid (2016: 1,114,307,369 units, fully paid)(a) 2017 No. of units 2017 000 $000 Movements Balance at beginning of financial year 1,114,307 1,005,074 Capital distributions paid_(Note 7)_ – (28,790) Issue cost of units – – Balance at end of financial year 1,114,307 976,284		2017 $000 976,284 2016 No. of units 000 1,114,307 – –		2016 $000 1,005,074 2016 $000 1,005,086 – (12) 1,005,074


		1,114,307

(a) Fully paid units carry one vote per unit and carry the right to distributions.

– II-167 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

GROUP STRUCTURE

14. SUBSIDIARIES

		Ownership interest
Name of entity	Country of registration	2017	2016
		%	%
Parent entity
APT Investment Trust
Subsidiary
GasNet Australia Investments Trust	Australia	100	100

OTHER

15. COMMITMENTS AND CONTINGENCIES

The Consolidated Entity had no material contingent assets, liabilities and commitments as at 30 June 2017 and 30 June 2016.

16. DIRECTOR AND SENIOR EXECUTIvE REMUNERATION

Remuneration of Directors

The aggregate remuneration of Directors of the Consolidated Entity is set out below:

Short-term employment benefits Post-employment benefits Total remuneration: Non-Executive Directors Short-term employment benefits Post-employment benefits Cash settled security-based payments Total remuneration: Executive Director(a) Total Remuneration: Directors	2017 $ 1,682,077 160,104 1,842,181 3,589,472 35,000 1,485,242 5,109,714 6,951,895	2016 $ 1,548,424 217,041
		1,765,465
		3,544,861 35,000 1,579,531
		5,159,392
		6,924,857

– II-168 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Remuneration of senior executives[(a)]

The aggregate remuneration of senior executives of the Consolidated Entity is set out below:

Short-term employment benefits Post-employment benefits Cash settled security-based payments Total remuneration: senior executives	11,108,724 551,107 3,730,048 15,389,879	10,992,475 856,636 4,429,999
		16,279,110

(a) The remuneration of the Chief Executive Officer and Managing Director, Michael (Mick) McCormack, is included in both the remuneration disclosure for Directors and senior executives.

17. REMUNERATION OF EXTERNAL AUDITOR

Amounts received or due and receivable by Deloitte Touche Tohmatsu for: Auditing the financial report Compliance plan audit	5,900 5,600 11,500	5,800 5,500
		11,300

18. RELATED PARTY TRANSACTIONS

(a) Equity interest in related parties

Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 14.

(b) Responsible Entity – Australian Pipeline Limited

The Responsible Entity is wholly owned by APT Pipelines Limited (2016: 100% owned by APT Pipelines Limited).

(c) Transactions with related parties within the Consolidated Entity

During the financial year, the following transactions occurred between the Trust and its other related parties:

loans advanced and payments received on long-term inter-entity loans; and
disposal of unlisted redeemable ordinary shares; and
payments of distributions.

All transactions between the entities that comprise the Consolidated Entity have been eliminated on consolidation.

Refer to Note 14 for details of the entities that comprise the Consolidated Entity.

– II-169 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(d) Transactions with other related parties

The following balances arising from transactions between APTIT and its other related parties are outstanding at reporting date:

current receivables totalling $738,000 are owing from a subsidiary of APT for amounts due under a finance lease arrangement (2016: $704,000);
non-current receivables totalling $8,511,000 are owing from a subsidiary of APT for amounts due under a finance lease arrangement (2016: $9,249,000); and
non-current receivables totalling $893,867,000 (2016: $895,102,000) are owing from a subsidiary of APT for amounts due under inter-entity loans.

Australian Pipeline Limited

Management fees of $943,000 (2016: $957,000) were paid to the Responsible Entity as reimbursement of costs incurred on behalf of APTIT. No amounts were paid directly by APTIT to the Directors of the Responsible Entity.

Australian Pipeline Trust

Management fees of $943,000 (2016: $957,000) were reimbursed by APT.

– II-170 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

19. PARENT ENTITY INFORMATION

The accounting policies of the parent entity, which have been applied in determining the financial information below, are the same as those applied in the consolidated financial statements.

Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Total liabilities Net assets Equity Issued capital Retained earnings Reserves Total equity Financial performance Profit for the year Other comprehensive income Total comprehensive income	2017 $000 738 1,009,757 1,010,495 13 13 1,010,482 976,284 34,198 – 1,010,482 72,967 – 72,967	2016 $000 704 1,046,193 1,046,897 11 11 1,046,886 1,005,074 41,812 – 1,046,886 85,102 (595) 84,507

Guarantees entered into by the parent entity in relation to the debts of its subsidiaries

No guarantees have been entered into by the parent entity in relation to the debts of its subsidiaries.

Contingent liabilities of the parent entity

No contingent liabilities have been identified in relation to the parent entity.

– II-171 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

20. ADOPTION OF NEw AND REvISED ACCOUNTING STANDARDS

Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)

Standards and Interpretations issued not yet adopted

At the date of authorisation of the financial statements, the Standards and Interpretations listed below were on issue but not yet effective.

		Effective for annual	Expected to be
		reporting periods	initially applied in the
	Standard/Interpretation	beginning on or after	financial year ending
•	AASB 9 ‘Financial Instruments’, and the	1 January 2018	30 June 2019
	relevant amending standards
•	AASB 15 ‘Revenue from Contracts with	1 January 2018	30 June 2019
	Customers’, and AASB 2015-8 ‘Amendments
	to Australian Accounting Standards – Effective
	date of AASB 15’
•	AASB 16 ‘Leases’	1 January 2019	30 June 2020

The potential impacts of the initial application of the standards above are not expected to be material for the consolidated entity.

21. EvENTS OCCURRING AFTER REPORTING DATE

On 22 August 2017, the Directors declared a final distribution for the 2017 financial year of 6.76 cents per unit ($75.3 million). The distribution represents a 3.07 cents per unit unfranked profit distribution and 3.69 cents per unit capital distribution. The distribution will be paid on 13 September 2017.

– II-172 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES

DECLARATION BY THE DIRECTORS OF AUSTRALIAN PIPELINE LIMITED For the financial year ended 30 June 2017

The Directors declare that:

(a) in the Directors’ opinion, there are reasonable grounds to believe that APT Investment Trust will be able to pay its debts as and when they become due and payable;
(b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with Accounting Standards and giving a true and fair view of the financial position and performance of the Consolidated Entity;
(c) in the Directors’ opinion, the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board; and
(d) the Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of the Directors of the Responsible Entity made pursuant to section 295(5) of the Corporations Act 2001.

On behalf of the Directors

==> picture [136 x 37] intentionally omitted <==

Leonard Bleasel AM Chairman

==> picture [133 x 36] intentionally omitted <==

Steven Crane Director

SYDNEY, 23 August 2017

– II-173 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The following is an extract of the audited financial statements of the Target Group for the year ended 30 June 2018, which were prepared in accordance with the Australian Accounting Standards and which comply with IFRS, from the 2018 annual report of the Target issued on 22 August 2018.

– II-174 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIvE INCOME

For the financial year ended 30 June 2018

Note Continuing operations Revenue 4 Share of net profits of associates and joint ventures using the equity method 4 Asset operation and management expenses Depreciation and amortisation expense 5 Other operating costs – pass-through 5 Finance costs 5 Employee benefit expense 5 Other expenses Profit before tax Income tax expense 6 Profit for the year Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss: Actuarial gain on defined benefit plan Income tax relating to items that will not be reclassified subsequently Items that may be reclassified subsequently to profit or loss: Transfer of gain on cash flow hedges to profit or loss (Loss)/gain on cash flow hedges taken to equity Gain on associate hedges taken to equity Income tax relating to items that may be reclassified subsequently Other comprehensive income for the year (net of tax) Total comprehensive income for the year	2018 $000 2,364,798 21,924 2,386,722 (214,339) (578,916) (445,307) (515,515) (197,545) (5,206) 429,894 (165,055) 264,839 1,588 (476) 1,112 93,901 (278,831) 8,632 52,906 (123,392) (122,280) 142,559	2017 $000 2,304,627 21,793 2,326,420 (207,329) (570,021) (438,140) (518,249) (197,747) (8,600) 386,334 (149,488) 236,846 5,452 (1,636) 3,816 92,459 164,536 10,921 (80,354) 187,562 191,378 428,224

– II-175 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Note Profit attributable to: Unitholders of the parent Non-controlling interest – APT Investment Trust unitholders APA stapled securityholders Total comprehensive income attributable to: Unitholders of the parent Non-controlling interest – APT Investment Trust unitholders APA stapled securityholders Earnings per security Basic and diluted (cents per security) 7	2018 $000 196,790 68,049 264,839 74,510 68,049 142,559 2018 23.3	2017 $000 163,879 72,967 236,846 355,257 72,967 428,224 2017 (Restated) 21.2

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

– II-176 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2018

Note Current assets Cash and cash equivalents 18 Trade and other receivables 9 Other financial assets 20 Inventories Other Current assets Non-current assets Trade and other receivables 9 Other financial assets 20 Investments accounted for using the equity method 23 Property, plant and equipment 11 Goodwill 12 Other intangible assets 12 Other 15 Non-current assets Total assets Current liabilities Trade and other payables 10 Borrowings 18 Other financial liabilities 20 Provisions 14 Unearned revenue Current liabilities Non-current liabilities Trade and other payables 10 Borrowings 18 Other financial liabilities 20 Deferred tax liabilities 6 Provisions 14 Unearned revenue Non-current liabilities Total liabilities Net assets	2018 $000 100,643 251,720 55,525 28,534 12,487 448,909 14,030 591,487 271,597 9,691,666 1,183,604 2,992,431 33,502 14,778,317 15,227,226 381,676 329,219 139,401 83,629 20,922 954,847 5,089 9,321,377 128,510 558,442 71,951 60,183 10,145,552 11,100,399 4,126,827	2017 $000 394,501 289,709 52,334 25,260 10,527
		772,331
		15,496 458,773 259,882 9,150,165 1,183,604 3,174,282 31,415
		14,273,617
		15,045,948
		312,611 126,858 145,768 93,773 19,225
		698,235
		4,984 9,573,907 182,087 502,265 69,051 37,236
		10,369,530
		11,067,765
		3,978,183

– II-177 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Note Equity Australian Pipeline Trust equity: Issued capital 21 Reserves Retained earnings Equity attributable to unitholders of the parent Non-controlling interests: APT Investment Trust: Issued capital Retained earnings Equity attributable to unitholders of APT Investment Trust 22 Other non-controlling interest Total non-controlling interests Total equity	2018 $000 3,288,123 (331,165) 105,412 3,062,370 1,030,176 34,228 1,064,404 53 1,064,457 4,126,827	2017 $000 3,114,617 (207,773) 60,804 2,967,648 976,284 34,198 1,010,482 53 1,010,535 3,978,183

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

– II-178 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

				Total	$000	4,029,111	236,846	273,368		(81,990)	428,224	(479,152)	3,978,183	3,978,183	264,839	(174,710)		52,430	142,559	(490,295)	505,016	(11,160)	2,524	4,126,827

		Other non–	controlling	interest	$000	53	–	–		–	–	–	53	53	–	–		–	–	–	–	–	–	53
Australian Pipeline Trust APT Investment Trust Other non-controlling interest	Attributable	Asset to owners APT	Issued Revaluation Hedging Other Retained of the Issued Retained Investment Issued Retained	Capital Reserve Reserve Reserve earnings parent Capital earnings Trust Capital Other earnings	$000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000	Balance at 1 July 2016 3,195,445 8,669 (404,004) – 182,062 2,982,172 1,005,074 41,812 1,046,886 4 1 48	Profit for the year – – – – 163,879 163,879 – 72,967 72,967 – – –	Other comprehensive income – – 267,916 – 5,452 273,368 – – – – – –	Income tax relating to components of other	comprehensive income – – (80,354) – (1,636) (81,990) – – – – – –	Total comprehensive income for the year – – 187,562 – 167,695 355,257 – 72,967 72,967 – – –	Payment of distributions_(Note 8)_ (80,828) – – – (288,953) (369,781) (28,790) (80,581) (109,371) – – –	Balance at 30 June 2017 3,114,617 8,669 (216,442) – 60,804 2,967,648 976,284 34,198 1,010,482 4 1 48	Balance at 1 July 2017 3,114,617 8,669 (216,442) – 60,804 2,967,648 976,284 34,198 1,010,482 4 1 48	Profit for the year – – – – 196,790 196,790 – 68,049 68,049 – – –	Other comprehensive income – – (176,298) – 1,588 (174,710) – – – – – –	Income tax relating to components of other	comprehensive income – – 52,906 – (476) 52,430 – – – – – –	Total comprehensive income for the year – – (123,392) – 197,902 74,510 – 68,049 68,049 – – –	Payment of distributions_(Note 8)_ (201,385) – – – (153,294) (354,679) (67,597) (68,019) (135,616) – – –	Securities issued under entitlement offer 380,782 – – – – 380,782 124,234 – 124,234 – – –	Issue cost of securities (8,415) – – – – (8,415) (2,745) – (2,745) – – –	Tax relating to security issue costs 2,524 – – – – 2,524 – – – – – –	Balance at 30 June 2018 3,288,123 8,669 (339,834) – 105,412 3,062,370 1,030,176 34,228 1,064,404 4 1 48	The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

– II-179 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOwS

For the financial year ended 30 June 2018

Note Cash flows from operating activities Receipts from customers Payments to suppliers and employees Dividends received from associates and joint ventures Proceeds from repayment of finance leases Interest received Interest and other costs of finance paid Income tax paid Net cash provided by operating activities Cash flows from investing activities Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Payments for equity accounted investments Payments for controlled entities net of cash acquired Payments for intangible assets Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Loans advance to related parties Proceeds from issue of securities Payments of security issue costs Payment of debt issue costs Release of restricted cash Distributions paid to: Unitholders of APT Unitholders of non-controlling interests – APTIT Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Unrealised exchange losses on cash held Cash and cash equivalents at end of financial year 18	2018 $000 2,635,344 (1,111,969) 18,841 1,774 9,967 (473,243) (49,087) 1,031,627 (875,030) 663 – – (1,161) (875,528) 309,718 (761,733) (282) 505,016 (10,554) (1,581) – (354,679) (135,616) (449,711) (293,612) 394,501 (246) 100,643	2017 $000 2,508,269 (1,065,473) 22,411 2,290 5,755 (481,427) (17,889) 973,936 (340,753) 693 (35,250) (760) (1,456) (377,526) 2,144,576 (1,944,932) – – – (8,446) 2,149 (369,781) (109,371) (285,805) 310,605 84,506 (610) 394,501

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

– II-180 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Reconciliation of profit for the year to the net cash provided by operating activities

Note Profit for the year Acquisition costs from business combinations (Profit)/loss on disposal of property, plant and equipment Share of net profits of joint ventures and associates using the equity method Dividends/distributions received from equity accounted investments Depreciation and amortisation expense Finance costs Unrealised foreign exchange loss Realised hedging loss Changes in assets and liabilities: Trade and other receivables Inventories Other assets Trade and other payables Provisions Other liabilities Income tax balances Net cash provided by operating activities	2018 $000 264,839 – (466) (21,924) 18,841 578,916 15,569 1,966 6,904 18,894 (3,177) (1,695) 20,115 (11,303) 28,167 115,981 1,031,627	2017 $000 236,846 (101) (311) (21,793) 22,411 570,021 13,926 28 7,514 (16,766) (371) 266 27,286 (562) 3,943 131,599 973,936

– II-181 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the financial year ended 30 June 2018

BASIS OF PREPARATION

1. ABOUT THIS REPORT

Basis of Preparation

Financial Performance

Operating Assets and Liabilities

About this report
Segment information
Receivables
General information
Revenue
Payables
Expenses
Property, plant and equipment
Income tax
Goodwill and intangibles
Earnings per security
Impairment of non-financial assets
Distributions
Provisions
Other non-current assets
Employee superannuation plans
Leases

Capital Management

Group Structure

Other

Net debt
Non-controlling interests
Commitments and contingencies
Financial risk management
Joint arrangements and associates
Director and senior executive remuneration
Other financial instruments
Subsidiaries
Remuneration of external auditor
Issued capital
Related party transactions
Parent entity information
Adoption of new and revised Accounting Standards
Events occurring after reporting date

– II-182 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

2. GENERAL INFORMATION

APT’s registered office and principal place of business is as follows: Level 25 580 George Street SYDNEY NSW 2000 Tel: (02) 9693 0000

The consolidated general purpose financial report for the year ended 30 June 2018 was authorised for issue in accordance with a resolution of the directors on 22 August 2018.

This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

working capital position

The working capital position as at 30 June 2018 for APA Group is that current liabilities exceed current assets by $505.9 million (2017: current assets exceeded current liabilities by $74.1 million) primarily as a result of current borrowings of $329.2 million and $139.4 million (AUD equivalent) of cash flow hedge liabilities.

– II-183 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APA Group has access to sufficient available committed, un-drawn bank facilities of $868.8 million as at 30 June 2018 (2017: $1,068.8 million) to meet the repayment of current borrowings on due date.

Foreign currency transactions

FINANCIAL PERFORMANCE

3. SEGMENT INFORMATION

APA Group operates in one geographical segment, being Australia and the revenue from major products and services is shown by the reportable segments.

APA Group comprises the following reportable segments:

Energy Infrastructure , which includes all wholly or majority owned pipelines, gas storage and processing assets, and power generation assets;
Asset Management , which provides commercial services, operating services and/or asset maintenance services to APA Group’s energy investments and Australian Gas Networks Limited for appropriate fees; and
Energy Investments , which includes APA Group’s strategic stakes in a number of investment entities that house energy infrastructure assets, generally characterised by long term secure cashflows, with low capital expenditure requirements.

Reportable segments

Energy Infrastructure 2018 $000 Segment revenue (a) External sales revenue 1,802,505 Equity accounted net profits – Pass-through revenue 44,265 Finance lease and investment interest income 1,454 Total segment revenue 1,848,224 Other interest income Consolidated revenue	Asset Management $000 108,537 – 401,042 – 509,579	Energy Investments $000 – 21,924 – 1,144 23,068	Other $000 – – – – –	Consolidated $000 1,911,042 21,924 445,307 2,598
				2,380,871 5,851
				2,386,722

– II-184 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Energy Infrastructure 2018 $000 Segment result Earnings before interest, tax, depreciation and amortisation (“EBITDA”) 1,495,642 Share of net profits of joint ventures and associates using the equity method – Finance lease and investment interest income 1,454 Corporate costs – Total EBITDA 1,497,096 Depreciation and amortisation (567,925) Earnings before interest and tax (“EBIT”) 929,171 Net finance costs(b) Profit before tax Income tax expense Profit for the year Segment assets and liabilities Segment assets 13,995,163 Carrying value of investments using the equity method – Unallocated assets(c) Total assets Segment liabilities 440,276 Unallocated liabilities(d) Total liabilities	Asset Management $000 66,204 – – – 66,204 (10,991) 55,213 212,521 – 64,829	Energy Investments $000 – 21,924 1,144 – 23,068 – 23,068 10,967 271,597 –	Other $000 – – – (67,894) (67,894) – (67,894) – – –	Consolidated $000 1,561,846 21,924 2,598 (67,894)
				1,518,474 (578,916)
				939,558 (509,664)
				429,894 (165,055)
				264,839

				14,218,651 271,597 736,978
				15,227,226

				505,105 10,595,294
				11,100,399

(a) The revenue reported above represents revenue generated from external customers. Any intersegment sales were immaterial.
(b) Excluding finance lease and investment interest income, and any gains or losses on revaluation of derivatives included as part of EBIT for segment reporting purposes, but including other interest income.
(c) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards.
(d) Unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts.

– II-185 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Energy Infrastructure 2017 $000 Segment revenue (a) External sales revenue 1,771,349 Equity accounted net profits – Pass-through revenue 48,646 Finance lease and investment interest income 1,643 Total segment revenue 1,821,638 Other interest income Consolidated revenue Segment result Earnings before interest, tax, depreciation and amortisation (“EBITDA”) 1,452,029 Share of net profits of joint ventures and associates using the equity method – Finance lease and investment interest income 1,643 Corporate costs – Total EBITDA 1,453,672 Depreciation and amortisation (559,033) Earnings before interest and tax (“EBIT”) 894,639 Net finance costs(b) Profit before tax Income tax expense Profit for the year Segment assets and liabilities Segment assets 13,670,034 Carrying value of investments using the equity method – Unallocated assets(c) Total assets Segment liabilities 376,220 Unallocated liabilities(d) Total liabilities	Asset Management $000 86,424 – 389,494 – 475,918 58,719 – – – 58,719 (10,988) 47,731 210,449 – 55,626	Energy Investments $000 – 21,793 – 2,589 24,382 – 21,793 2,589 – 24,382 – 24,382 10,662 259,882 –	Other $000 – – – – – – – – (66,651) (66,651) – (66,651) – – –	Consolidated $000 1,857,773 21,793 438,140 4,232
				2,321,938 4,482
				2,326,420

				1,510,748 21,793 4,232 (66,651)
				1,470,122 (570,021)
				900,101 (513,767)
				386,334 (149,488)
				236,846

				13,891,145 259,882 894,921
				15,045,948

				431,846 10,635,919
				11,067,765

(a) The revenue reported above represents revenue generated from external customers. Any intersegment sales were immaterial.
(b) Excluding finance lease and investment interest income, and any gains or losses on revaluation of derivatives included as part of EBIT for segment reporting purposes, but including other interest income.
(c) Unallocated assets consist of cash and cash equivalents, fair value of interest rate swaps, foreign exchange contracts and equity forwards.
(d) Unallocated liabilities consist of current and non-current borrowings, deferred tax liabilities, fair value of interest rate swaps and foreign exchange contracts.

– II-186 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Information about major customers

Included in revenues arising from energy infrastructure of $1,802.5 million (2017: $1,771.3 million) are revenues of approximately $689.4 million (2017: $704.8 million) which arose from sales to APA Group’s top three customers.

4. REvENUE

An analysis of APA Group’s revenue for the year is as follows:

Energy Infrastructure revenue Pass-through revenue Energy Infrastructure revenue Asset Management revenue Pass-through revenue Asset Management revenue Operating revenue Interest income Interest income on redeemable preference shares (GDI)(a) Finance lease income Finance income Rental income Total revenue Share of net profits of joint ventures and associates using the equity method	2018 $000 1,801,962 44,265 1,846,227 108,537 401,042 509,579 2,355,806 5,851 1,144 1,454 8,449 543 2,364,798 21,924 2,386,722	2017 $000 1,770,794 48,646
		1,819,440
		86,424 389,494
		475,918
		2,295,358
		4,482 2,589 1,643
		8,714
		555
		2,304,627 21,793
		2,326,420

(a) 2017 includes interest on redeemable ordinary shares (EII)

Operating revenue , which is earned from the transportation, processing and storage of gas, generation of electricity and other related services and is recognised when the services are provided net of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the taxation authority;
Pass-through revenue , for which no margin is earned, is recognised when the services are provided and offset by corresponding pass-through costs;

– II-187 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Interest revenue , which is recognised as it accrues and is determined using the effective interest method;
Dividend revenue , which is recognised when the right to receive the payment has been established; and
Finance lease income , which is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

5. EXPENSES

Depreciation of non-current assets Amortisation of non-current assets Depreciation and amortisation expense Energy infrastructure costs – pass-through Asset management costs – pass-through Other operating costs – pass-through Interest on bank overdrafts and borrowings(a) Amortisation of deferred borrowing costs Other finance costs Less: amounts included in the cost of qualifying assets Gain on derivatives Unwinding of discount on non-current liabilities Finance costs Defined contribution plans Defined benefit plans_(Note 16)_ Post-employment benefits Termination benefits Cash settled security-based payments(b) Other employee benefits Employee benefit expense	2018 $000 395,904 183,012 578,916 44,265 401,042 445,307 517,503 8,968 6,990 533,461 (23,697) 509,764 743 5,008 515,515 12,417 2,280 14,697 (4,221) 20,915 166,154 197,545	2017 $000 387,140 182,881 570,021 48,646 389,494 438,140 506,124 9,578 5,742 521,444 (7,099) 514,345 (152) 4,056 518,249 11,308 3,033 14,341 2,295 25,993 155,118 197,747

– II-188 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(a) The average interest rate applying to drawn debt is 5.65% p.a. (2017: 5.56% p.a.) excluding amortisation of borrowing costs and other finance costs.
(b) APA Group provides benefits to certain employees in the form of cash settled security-based payments. For cash settled security-based payments, a liability equal to the portion of services received is recognised at the current fair value determined at each reporting date.

6. INCOME TAX

The major components of tax expense are:

Income statement Current tax expense in respect of the current year Adjustments recognised in the current year in relation to current tax of prior years Deferred tax expense relating to the origination and reversal of temporary differences Total tax expense Tax reconciliation Profit before tax Income tax expense calculated at 30% Non-assessable trust distribution Non deductible expenses Non assessable income Franking credits received Previously unbooked losses now recognised Adjustments recognised in the current year in relation to the current tax of prior years R&D tax incentive	2018 $000 (54,536) 612 (111,131) (165,055) 429,894 (128,968) 20,415 (58,319) 19 (166,853) – 690 612 496 (165,055)	2017 $000 (34,518) 456 (115,426) (149,488) 386,334 (115,900) 21,891 (59,263) 319 (152,953) 708 533 456 1,768 (149,488)

Income tax expense for the year is $165.1 million (2017: $149.5 million). An income tax provision of $33.8 million (2017: $28.9 million) has been recognised after utilisation of all available group tax losses and partial utilisation of available transferred tax losses (refer to Note 10).

– II-189 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Deferred tax balances

Deferred tax (liabilities)/assets arise from the following:

2018 Gross deferred tax liabilities Property, plant and equipment Deferred expenses Defined benefit obligation Other Gross deferred tax assets Provisions Cash flow hedges Security issue costs Deferred revenue Investments equity accounted Tax losses Net deferred tax liability 2017 Gross deferred tax liabilities Property, plant and equipment Deferred expenses Defined benefit obligation Other Gross deferred tax assets Provisions Cash flow hedges Security issue costs Deferred revenue Investments equity accounted Tax losses Net deferred tax liability	Opening balance $000 (810,121) (56,480) (68) (1,054) (867,723) 45,891 87,819 3,624 4,406 2,441 221,277 365,458 (502,265) (724,525) (54,563) 1,383 (730) (778,435) 45,723 165,027 5,443 5,811 6,445 245,137 473,586 (304,849)	Charged to income $000 (93,648) 1,677 47 821 (91,103) (2,500) (118) (2,317) 9,342 (108) (24,327) (20,028) (111,131) (85,596) (1,917) 185 (324) (87,652) 168 (305) (1,819) (1,405) (553) (23,860) (27,774) (115,426)	Charged to equity $000 – – (476) – (476) – 53,534 2,524 – (628) – 55,430 54,954 – – (1,636) – (1,636) – (76,903) – – (3,451) – (80,354) (81,990)	Closing balance $000 (903,769) (54,803) (497) (233) (959,302) 43,391 141,235 3,831 13,748 1,705 196,950 400,860 (558,442) (810,121) (56,480) (68) (1,054) (867,723) 45,891 87,819 3,624 4,406 2,441 221,277 365,458 (502,265)

– II-190 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Unrecognised deferred tax assets

	2018	2017
	$000	$000
The following deferred tax assets have not been brought to
account as assets:
Tax losses – capital	1,641	1,641

i) initial recognition of goodwill;
ii) initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and
iii) differences relating to investments in wholly-owned entities to the extent that they will probably not reverse in the foreseeable future.

Deferred tax is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using the appropriate tax rates at the end of the reporting period.

Tax consolidation

Nature of tax funding arrangement and tax sharing agreement

– II-191 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

7. EARNINGS PER SECURITY

		2017
	2018	(Restated)
	cents	cents
Basic and diluted earnings per security	23.3	21.2

The earnings and weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security are as follows:

Net profit attributable to securityholders for calculating basic and diluted earnings per security Adjusted weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security	2018 $000 264,839 2018 No. of securities 000 1,136,875	2017 $000 236,846

		2017 (Restated) No. of securities 000 1,118,522

During March 2018, APA Group issued 65,586,479 new ordinary securities on completion of the fully underwritten pro-rata accelerated institutional tradeable renounceable entitlement offer (Entitlement Offer). The Entitlement Offer was offered at $7.70 per security, a discount to APA Group’s closing market price of $8.26 per security on the 23 February 2018, the last trading day before the record date of 26 February 2018. The number of securities used for the current and prior period calculation of earnings per security have been adjusted for the discounted rights issue. An adjustment factor of 1.0038 has been calculated, being the closing market price per security on 23 February 2018, divided by the theoretical ex-rights price (TERP) of $8.23 per security.

– II-192 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

8. DISTRIBUTIONS

Recognised amounts Final distribution paid on 13 September 2017 (2017: 16 September 2016) Profit distribution – APT(a) Capital distribution – APT Profit distribution – APTIT(a) Capital distribution – APTIT Interim distribution paid on 14 March 2018 (2017: 15 March 2017) Profit distribution – APT(b) Capital distribution – APT Profit distribution – APTIT(a) Capital distribution – APTIT Total distributions recognised Profit distributions Capital distributions Unrecognised amounts Final distribution payable on 12 September 2018 (c) (2017: 13 September 2017) Profit distribution – APT(d) Capital distribution – APT Profit distribution – APTIT(a) Capital distribution – APTIT	2018 cents per security 5.46 10.78 3.07 3.69 23.00 8.30 7.29 3.03 2.38 21.00 19.86 24.14 44.00 8.93 9.03 2.90 3.14 24.00	2018 Total $000 60,803 120,183 34,198 41,107 256,291 92,491 81,202 33,821 26,490 234,004 221,313 268,982 490,295 105,412 106,513 34,228 37,022 283,175	2017 cents per security 16.34 1.78 3.75 0.63 22.50 9.59 5.47 3.48 1.96 20.50 33.16 9.84 43.00 5.46 10.78 3.07 3.69 23.00	2017 Total $000 182,063 19,869 41,811 6,976
				250,719

				106,890 60,959 38,770 21,814
				228,433

				369,534 109,618
				479,152

				60,803 120,183 34,198 41,107
				256,291

(a) Profit distributions were unfranked (2017: unfranked).

(b) Interim profit distributions were 5.83 cents per security franked and 2.47 cents per security unfranked (2017: 4.67 cents per security franked and 4.92 cents per security unfranked).
(c) Record date 29 June 2018.
(d) Final profit distributions are to be fully franked (2017: 4.67 cents per security franked and 0.79 cents per security unfranked).

– II-193 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Adjusted franking account balance (tax paid basis) OPERATING ASSETS AND LIABILITIES 9. RECEIvABLES Trade receivables Allowance for doubtful debts Trade receivables Receivables from associates and related parties Finance lease receivables_(Note 17) Interest receivable Other debtors Current Finance lease receivables(Note 17)_ Non-current	2018 $000 3,228 2018 $000 226,315 (1,494) 224,821 25,252 1,480 88 79 251,720 14,030 14,030	2017 $000 4,413

		2017 $000 275,331 (2,120)
		273,211 13,028 1,787 1,605 78
		289,709

		15,496
		15,496

Trade receivables are non-interest bearing and are generally on 30 day terms. There are no material trade receivables past due and not provided for.

10. PAYABLES

Trade payables(a) Income tax payable Other payables Current Other payables Non-current	41,392 33,754 306,530 381,676 5,089 5,089	40,827 28,914 242,870
		312,611

		4,984
		4,984

(a) Trade payables are non-interest bearing and are normally settled on 15 – 30 day terms.

– II-194 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Payables are recognised inclusive of GST, except for accrued revenue and accrued expense at balance dates which exclude GST.

11. PROPERTY, PLANT AND EqUIPMENT

Freehold land and buildings – at cost Leasehold improvements – at cost $000 $000 Gross carrying amount Balance at 1 July 2016 234,838 5,072 Additions 2,280 – Disposals (24) – Transfers 5,639 5,095 Balance at 30 June 2017 242,733 10,167 Additions 702 – Disposals – – Transfers 5,282 493 Balance at 30 June 2018 248,717 10,660 Accumulated depreciation Balance at 1 July 2016 (32,015) (2,279) Disposals 24 – Depreciation expense_(Note 5) (7,430) (750) Transfers 260 – Reclassification to inventories – – Balance at 30 June 2017 (39,161) (3,029) Disposals – – Depreciation expense(Note 5)_ (7,184) (923) Balance at 30 June 2018 (46,345) (3,952) Net book value As at 30 June 2017 203,572 7,138 As at 30 June 2018 202,372 6,708	Plant and equipment – at cost $000 10,059,642 5,150 (9,089) 295,300 10,351,003 31,278 (4,071) 272,876 10,651,086 (1,271,303) 8,707 (378,960) (260) 861 (1,640,955) 3,874 (387,797) (2,024,878) 8,710,048 8,626,208	work in progress – at cost $000 195,132 340,309 – (306,034) 229,407 905,622 – (278,651) 856,378 – – – – – – – – – 229,407 856,378	Total $000 10,494,684 347,739 (9,113) –
			10,833,310 937,602 (4,071) –
			11,766,841

			(1,305,597) 8,731 (387,140) – 861
			(1,683,145) 3,874 (395,904)
			(2,075,175)

			9,150,165

			9,691,666

– II-195 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Critical accounting judgements and key sources of estimation uncertainty – useful lives of noncurrent assets

The following estimated useful lives are used in the calculation of depreciation:

•	buildings	30 – 50 years;
•	compressors	10 – 50 years;
•	gas transportation systems	10 – 80 years;
•	meters	20 – 30 years;
•	power generation facilities	3 – 25 years; and
•	other plant and equipment	3 – 20 years.

12. GOODwILL AND INTANGIBLES

Goodwill Balance at beginning of financial year Finalisation of provisional purchase price accounting Balance at end of financial year Allocation of goodwill to cash-generating units	2018 $000 1,183,604 – 1,183,604	2017 $000 1,184,588 (984) 1,183,604

Goodwill has been allocated for impairment testing purposes to individual cash-generating units.

The East Coast Grid is an interconnected pipeline network that includes, inter alia, the Wallumbilla Gladstone, Moomba Sydney, Roma Brisbane, Carpentaria Gas and South West Queensland pipelines and the Victorian Transmission System. Since the acquisition of the South West Queensland Pipeline to complete the formation of APA’s East Coast Grid in December 2012, APA has installed facilities to enable bi-directional transportation of gas to meet the demand of our major customers who now typically operate portfolios of gas supply and demand. Through the provision of multi-asset services, bi-directional transportation, capacity trading and gas storage and parking facilities, APA’s East Coast Grid delivers options for customers to choose from, and move gas between, more than 40 receipt points and over 100 delivery points on the east coast of Australia. The East Coast Grid is categorised as an individual cash-generating unit.

– II-196 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The carrying amount of goodwill allocated to cash-generating units that are significant individually or in aggregate is as follows:

Asset Management business Energy Infrastructure East Coast Grid Diamantina Power Station Other energy infrastructure(a)	2018 $000 21,456 1,060,681 43,104 58,363 1,183,604	2017 $000 21,456 1,060,681 43,104 58,363
		1,183,604

(a) Primarily represents goodwill relating to the Pilbara Pipeline System ($32.6m) and the Goldfields Gas Pipeline ($18.5m).

Goodwill acquired in a business combination is initially measured at cost and subsequently at cost less accumulated impairment.

Contract and other intangibles Gross carrying amount Balance at beginning of financial year Acquisitions/additions Write-offs Balance at end of financial year Accumulated amortisation and impairment Balance at beginning of financial year Amortisation expense_(Note 5)_ Write-offs Balance at end of financial year	2018 $000 3,589,799 1,161 – 3,590,960 (415,517) (183,012) – (598,529) 2,992,431	2017 $000 3,604,143 1,456 (15,800)
		3,589,799
		(248,436) (182,881) 15,800
		(415,517)
		3,174,282

APA Group holds various third party operating and maintenance contracts. The combined gross carrying amount of $3,591.0 million amortises over terms ranging from one to 20 years. Useful life is determined based on the underlying contractual terms plus estimations of renewal of up to two terms where considered probable by management. Amortisation expense is not a cash item, and is included in the line item of depreciation and amortisation expense in the statement of profit or loss and other comprehensive income.

– II-197 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

13 IMPAIRMENT OF NON-FINANCIAL ASSETS

Critical accounting judgements and key sources of estimation uncertainty – impairment of assets

For fully regulated assets, cash flows have been extrapolated on the basis of existing transportation contracts and government policy settings, and expected contract renewals with a resulting average annual growth rate of 1.0% p.a. (2017: 1.1% p.a.). These expected cash flows are factored into the regulated asset base and do not exceed management’s expectations of the long-term average growth rate for the market in which the cash generating unit operates.

As contracts mature, given ongoing demand for capacity, it is assumed that the majority of the capacity is resold at similar pricing levels.

Asset Management cash flow projections reflect long term agreements with assumptions of renewal on similar terms and conditions based on management’s expectations.

Cash flow projections are estimated for a period of up to 20 years, with a terminal value, recognising the long term nature of the assets. The pre-tax discount rates used are 8.25% p.a. (2017: 8.25% p.a.) for Energy Infrastructure assets and 8.25% p.a. (2017: 8.25% p.a.) for Asset Management.

These assumptions have been determined with reference to historic information, current performance and expected changes taking into account external information.

– II-198 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

14. PROvISIONS

Employee benefits Other Current Employee benefits Other Non-current Employee benefits Incentives Cash settled security-based payments Leave balances Termination benefits Current Cash settled security-based payments Defined benefit liability_(Note 16)_ Leave balances Non-current	2018 $000 78,433 5,196 83,629 30,180 41,771 71,951 28,153 8,299 41,981 – 78,433 14,791 5,032 10,357 30,180	2017 $000 83,787 9,986
		93,773

		33,598 35,453
		69,051

		29,357 8,857 39,976 5,597
		83,787

		18,939 4,645 10,014
		33,598

Provision is made for benefits accruing to employees in respect of wages and salaries, incentives, annual leave and long service leave when it is probable that settlement will be required. Provisions made in respect of employee benefits expected to be settled within 12 months, are recognised for employee services up to reporting date at the amounts expected to be paid when the liability is settled. Provisions made in respect of employee benefits which are not expected to be wholly settled within 12 months are measured as the present value of the estimated future cash outflows using a discount rate based on the corporate bond yield in respect of services provided by employees up to reporting date.

– II-199 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

15. OTHER NON-CURRENT ASSETS

Line pack gas Gas held in storage Defined benefit asset_(Note 16)_ Other assets	2018 $000 20,607 6,010 6,693 192 33,502	2017 $000 20,343 6,010 4,870 192
		31,415

16 EMPLOYEE SUPERANNUATION PLANS

The most recent actuarial valuations of plan assets and the present value of the defined benefit obligations were determined at 30 June 2018. The present value of the defined benefit obligations, and the related current service cost and past service cost, were measured using the projected unit credit method.

The following sets out details in respect of the defined benefit plans only:

Amounts recognised in the statement of profit or loss and other comprehensive income Current service cost Net interest expense Components of defined benefit costs recognised in profit or loss (Note 5) Amounts recognised in the statement of financial position Fair value of plan assets Present value of benefit obligation Defined benefit asset – non-current(Note 15) Defined benefit liability – non-current (Note 14) Opening defined benefit obligation Current service cost Interest cost Contributions from plan participants Actuarial loss Benefits paid Administrative expenses, taxes and premiums paid Closing defined benefit obligation	2018 $000 2,234 46 2,280 135,620 (133,959) 6,693 (5,032) 134,804 2,234 5,369 786 5,138 (13,873) (499) 133,959	2017 $000 2,842 191
		3,033

		135,029 (134,804)
		4,870 (4,645)

		143,101 2,842 4,599 1,001 1,550 (17,665) (624)
		134,804

– II-200 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Movements in the present value of the plan assets in the current period were as follows:

Opening fair value of plan assets Interest income Actual return on plan assets excluding interest income Contributions from employer Contributions from plan participants Benefits paid Administrative expenses, taxes and premiums paid Closing fair value of plan assets	2018 $000 135,029 5,323 6,726 2,128 786 (13,873) (499) 135,620	2017 $000 138,488 4,408 7,002 2,419 1,001 (17,665) (624) 135,029

Defined contribution plans

Contributions to defined contribution plans are expensed when incurred.

Defined benefit plans

Past service cost is recognised in profit or loss in the period of a plan amendment.

Key actuarial assumptions used in the determination of the defined benefit obligation is a discount rate of 4.1% gross of tax (2017: 4.1%), based on the corporate bond yield curve published by Milliman, an expected salary increase rate of 3.0% (2017: 3.0%), and pension indexation rate of 2.0% (2017: 2.0%). The sensitivity analysis below has been determined based on reasonable possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant:

If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by $5,722,000 (increase by $6,321,000);
If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by $1,813,000 (decrease by $1,715,000); and
If the expected pension indexation rate increases (decreases) by 0.5%, the defined benefit obligation would increase by $4,313,000 (decrease by $3,932,000).

– II-201 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APA Group expects to pay $2.0 million in contributions to the defined benefit plans during the year ending 30 June 2019.

17. LEASES

Finance lease receivables relate to the lease of a metering station, natural gas vehicle refuelling facilities and two pipeline laterals.

Finance lease receivables Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years Minimum future lease payments receivable(a) Gross finance lease receivables Less: unearned finance lease receivables Present value of lease receivables Included in the financial statements as part of: Current trade and other receivables_(Note 9) Non-current receivables(Note 9)_	2018 $000 2,775 8,763 12,832 24,370 24,370 (8,860) 15,510 1,480 14,030 15,510	2017 $000 3,227 9,655 14,715 27,597 27,597 (10,314) 17,283 1,787 15,496 17,283

(a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual.

APA Group as a lessor

APA Group as a lessee

Finance lease assets are amortised on a straight-line basis over the estimated useful life of the asset.

– II-202 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Non-cancellable operating leases

Operating lease obligations are primarily related to commercial office leases and motor vehicles.

Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years	2018 $000 13,641 36,487 22,437 72,565	2017 $000 12,970 41,660 26,462
		81,092

CAPITAL MANAGEMENT

Operating cash flows are used to maintain and expand APA Group’s assets, make distributions to securityholders and to repay maturing debt.

Controlled entities are subject to externally imposed capital requirements. These relate to the Australian Financial Services Licence held by Australian Pipeline Limited, the Responsible Entity of APA Group, and were adhered to for the entirety of the 2018 and 2017 periods.

APA Group’s capital management strategy remains unchanged from the previous year.

APA Group’s Board of Directors reviews the capital structure on a regular basis. As part of the review, the Board considers the cost of capital and the state of the markets. APA Group targets gearing in a range of 65% to 68%. Gearing is determined as the proportion of net debt to net debt plus equity. APA Group balances its overall capital structure through equity issuance, new debt or the redemption of existing debt and through a disciplined distribution payment policy.

18. NET DEBT

Cash and cash equivalents comprise of cash on hand, at call bank deposits and investments in money market instruments that are readily convertible to known amounts for cash. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows are reconciled to the related items in the statement of financial position detailed in the table below.

– II-203 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Cash at bank and on hand Short-term deposits Cash and cash equivalents Guaranteed senior notes(a) Other financial liabilities Current borrowings Guaranteed senior notes(a) Bank borrowings(b) Subordinated notes(c) Other financial liabilities Less: unamortised borrowing costs Non-current borrowings Total borrowings Net debt	2018 $000 99,277 1,366 100,643 (318,373) (10,846) (329,219) (9,089,991) (200,000) – (73,458) 42,072 (9,321,377) (9,650,596) (9,549,953)	2017 $000 43,087 351,414 394,501 (115,738) (11,120) (126,858) (9,022,710) – (515,000) (82,059) 45,862 (9,573,907) (9,700,765) (9,306,264)

(a) Represents USD denominated private placement notes of US$384 million, CAD medium term notes (MTN) of C$300 million, GBP MTNs of £950 million, EUR MTN of €1,350 million and USD denominated 144a notes of US$3,000 million measured at the exchange rate at reporting date, and A$211 million of AUD denominated private placement notes and AUD MTN of A$500 million (2017: Includes JPY MTN of ¥10,000 million). Refer to Note 19 for details of interest rates and maturity profiles.
(b) Refer to Note 19 for details of interest rates and maturity profiles.
(c) Represents AUD denominated subordinated notes. Refer to Note 19 for details of interest rates and maturity profiles.

– II-204 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Reconciliation of net debt

Net debt as at 1 July 2016 Cash movements Foreign exchange movements due to fair value changes Transfer from due after 1 year to due within 1 year Amortisation of deferred borrowing costs Net debt as at 30 June 2017 Net debt as at 1 July 2017 Cash movements Foreign exchange movements due to fair value changes Transfer from due after 1 year to due within 1 year Amortisation of deferred borrowing costs Net debt as at 30 June 2018 Financing facilities available Total facilities Guaranteed senior notes(a) Bank borrowings(b) Subordinated notes(c) Facilities used at balance date Guaranteed senior notes(a) Bank borrowings(b) Subordinated notes(c) Facilities unused at balance date Guaranteed senior notes(a) Bank borrowings(b) Subordinated notes(c)	Cash and cash equivalents $000 84,506 310,605 (610) – – 394,501 394,501 (293,612) (246) – – 100,643	Borrowings due within 1 year $000 (409,829) 392,437 27,519 (136,985) – (126,858) (126,858) 137,015 (13,298) (326,078) – (329,219)	Borrowings due within 1 year $000 (409,829) 392,437 27,519 (136,985) – (126,858) (126,858) 137,015 (13,298) (326,078) – (329,219)	Borrowings due after 1 year $000 (9,314,373) (592,081) 196,360 136,985 (798) (9,573,907) (9,573,907) 315,000 (384,758) 326,078 (3,790) (9,321,377) 2018 $000 9,408,364 1,068,750 – 10,477,114 9,408,364 200,000 – 9,608,364 – 868,750 – 868,750	Borrowings due after 1 year $000 (9,314,373) (592,081) 196,360 136,985 (798) (9,573,907) (9,573,907) 315,000 (384,758) 326,078 (3,790) (9,321,377) 2018 $000 9,408,364 1,068,750 – 10,477,114 9,408,364 200,000 – 9,608,364 – 868,750 – 868,750	Net debt $000 (9,639,696) 110,961 223,269 – (798) (9,306,264) (9,306,264) 158,403 (398,302) – (3,790) (9,549,953) 2017 $000 9,138,448 1,068,750 515,000 10,722,198 9,138,448 – 515,000 9,653,448 – 1,068,750 – 1,068,750

				2018 $000 9,408,364 1,068,750 – 10,477,114 9,408,364 200,000 – 9,608,364 – 868,750 – 868,750

– II-205 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(a) Represents USD denominated private placement notes of US$384 million, CAD medium term notes (MTN) of C$300 million, GBP MTNs of £950 million, EUR MTN of €1,350 million and USD denominated 144a notes of US$3,000 million measured at the exchange rate at reporting date, and A$211 million of AUD denominated private placement notes and AUD MTN of A$500 million (2017: Includes JPY MTN of ¥10,000 million). Refer to Note 19 for details of interest rates and maturity profiles.
(b) Refer to Note 19 for details of interest rates and maturity profiles.
(c) Represents AUD denominated subordinated notes. Refer to Note 19 for details of interest rates and maturity profiles.

19. FINANCIAL RISk MANAGEMENT

APA Group’s activities generate financial instruments comprising of cash, receivables, payables and interest bearing liabilities which expose it to various risks as summarised below:

(a) Market risk including currency risk, interest rate risk and price risk;
(b) Credit risk; and
(c) Liquidity risk.

Treasury as a centralised function provides APA Group with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost and manages risks through the use of natural hedges and derivative instruments. APA Group does not engage in speculative trading. All derivatives have been transacted to hedge underlying or existing exposures and have adhered to the ARMC approved Treasury Risk Management Policy.

(a) Market risk

forward exchange contracts to hedge the exchange rate risk arising from foreign currency cash flows, mainly US dollars, derived from revenues, interest payments and capital equipment purchases;
cross currency interest rate swaps to manage the currency risk associated with foreign currency denominated borrowings;
foreign currency denominated borrowings to manage the currency risk associated with foreign currency denominated revenue and receivables; and
interest rate swaps to mitigate interest rate risk.

APA Group is also exposed to price risk arising from its forward purchase contracts over listed equities and electricity price risk arising from the electricity contract for difference.

– II-206 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Foreign currency risk

APA Group’s foreign exchange risk arises from future commercial transactions (including revenue, interest payments and principal debt repayments on long-term borrowings and the purchases of capital equipment). Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts, cross currency swap contracts and foreign currency denominated borrowings. All foreign currency exposure was managed in accordance with the Treasury Risk Management Policy.

The carrying amount of APA Group’s foreign currency denominated monetary assets, monetary liabilities and derivative notional amounts at the reporting date is as follows:

2018 US Dollar (USD) Japanese Yen (JPY) Canadian Dollar (CAD) British Pound (GBP) Euro (EUR) Swedish Krona (SEK) Danish Krona (DKK) 2017 US Dollar (USD) Japanese Yen (JPY) Canadian Dollar (CAD) British Pound (GBP) Euro (EUR) Swedish Krona (SEK) Danish Krona (DKK)	Cash & cash equivalents $000 3,143 – – – – – – 3,143 3,393 – – – – – – 3,393	Receivables $000 – – – – – – – – 40,002 – – – – – – 40,002	Total borrowings $000 (4,576,684) – (308,496) (1,694,493) (2,129,801) – – (8,709,474) (4,406,537) (115,738) (301,230) (1,610,280) (2,007,377) – – (8,441,162)	Cross currency swaps $000 (433,791) – 308,496 1,694,493 2,129,801 – – 3,698,999 (417,663) 115,738 301,230 1,610,280 2,007,377 – – 3,616,962	Foreign exchange contract $000 (109,807) – – – 18,911 43,344 4,102 (43,450) (347,362) – – – 45,024 61,196 104,038 (137,104)	Net foreign currency position $000 (5,117,139) – – – 18,911 43,344 4,102
						(5,050,782)

						(5,128,167) – – – 45,024 61,196 104,038
						(4,917,909)

Forward foreign exchange contracts

It is the policy of APA Group to hedge 100% of all foreign exchange exposures in excess of US$1 million equivalent that are certain. Forecast foreign currency denominated revenues and interest payments will be hedged by forward exchange contracts on a rolling basis with the objective being to lock in the AUD gross cash flows and manage liquidity.

– II-207 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The following table details the forward foreign exchange currency contracts outstanding at reporting date:

Cash flow hedges

Foreign Average exchange rate 2018 currency $ Forecast revenue and associated receivable Pay USD/receive AUD USD 0.6528 Forecast capital purchases Pay AUD/receive USD USD 0.7596 Pay AUD/receive EUR EUR 0.6821 Pay AUD/receive SEK SEK 5.7572 Pay AUD/receive DKK DKK 5.1321 Foreign Average exchange rate 2017 currency $ Forecast revenue and associated receivable Pay USD/receive AUD USD 0.7082 Forecast capital purchases Pay AUD/receive USD USD 0.7507 Pay AUD/receive EUR EUR 0.6884 Pay AUD/receive SEK SEK 5.8684 Pay AUD/receive DKK DKK 5.2308	< 1 year Contract value 1 – 2 years $000 $000 137,462 – (27,515) (140) (17,039) (77) (2,087) (7,045) (4,102) – 86,719 (7,262) < 1 year Contract value 1 – 2 years $000 $000 306,474 146,605 (92,269) (13,308) (26,461) (16,691) (18,108) (1,831) (99,936) (4,102) 69,700 110,673	2 – 5 years $000 – – (1,795) (34,212) – (36,007) 2 – 5 years $000 – (140) (1,872) (41,257) – (43,269)	Fair value $000 15,957 734 1,706 (3,142) 387
			15,642

			Fair value $000 33,119 (2,113) 2,153 (2,129) 6,543
			37,573

As at reporting date, APA Group has entered into forward contracts to hedge net US exchange rate risk arising from anticipated future transactions with an aggregate notional principal amount of $137.5 million (2017: $453.1 million) which are designated in cash flow hedge relationships. The hedged anticipated transactions denominated in US dollars are expected to occur at various dates between one month to three years from reporting date.

Cross currency swap contracts

APA Group enters into cross currency swap contracts to mitigate the risk of adverse movements in foreign exchange rates in relation to principal and interest payments arising from foreign currency borrowings. APA Group receives fixed amounts in the various foreign currencies and pays both variable interest rates (based on Australian BBSW) and fixed interest rates for the full term of the underlying borrowings. In certain circumstances borrowings are retained in the foreign currency, or hedged from one foreign currency to another to match payments of interest and principal against expected future business cash flows in that foreign currency.

– II-208 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The following table details the cross currency swap contract principal payments due as at the reporting date:

Cash flow hedges

Foreign Exchange rate 2018 currency $ Pay AUD/receive foreign currency 2003 USPP Notes AUD/USD 0.6573 2007 USPP Notes AUD/USD 0.8068 2009 USPP Notes AUD/USD 0.7576 2012 CAD Medium Term Notes AUD/CAD 1.0363 2012 US144A AUD/USD 1.0198 2012 GBP Medium Term Notes AUD/GBP 0.6530 2017 US144A AUD/USD 0.7668 Pay USD/receive foreign currency 2015 EUR Medium Term Notes USD/EUR 0.9514 2015 GBP Medium Term Notes USD/GBP 0.6773 2017 Pay AUD/receive foreign currency 2003 USPP Notes AUD/USD 0.6573 2007 USPP Notes AUD/USD 0.8068 2009 USPP Notes AUD/USD 0.7576 2012 JPY Medium Term Notes AUD/JPY 79.4502 2012 CAD Medium Term Notes AUD/CAD 1.0363 2012 US144A AUD/USD 1.0198 2012 GBP Medium Term Notes AUD/GBP 0.6530 2017 US144A AUD/USD 0.7668 Pay USD/receive foreign currency 2015 EUR Medium Term Notes USD/EUR 0.9514 2015 GBP Medium Term Notes USD/GBP 0.6773	Less than 1 year $000 (95,847) (151,215) – – – – – – – (247,062) – – – (125,865) – – – – – – (125,865)	1 – 2 years $000 – – (98,997) (289,494) – – – – – (388,491) (95,847) (151,215) – – – – – – – – (247,062)	2 – 5 years $000 – (153,694) – – (735,438) – – (994,901) – (1,884,033) – (153,694) (98,997) – (289,494) – – – (957,914) – (1,500,099)	More than 5 years $000 – – – – – (535,988) (1,108,503) (924,013) (1,198,134)
				(3,766,638)

				– – – – – (735,438) (535,988) (1,108,503) (889,661) (1,153,591)
				(4,423,181)

Foreign currency denominated borrowings

– II-209 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Foreign currency sensitivity analysis

The analysis below shows the effect on profit and total equity of retranslating cash, receivables, payables and interest-bearing liabilities denominated in USD, CAD, GBP and EUR into AUD, had the rates been 20 percent higher or lower than the relevant year end rate, with all other variables held constant, and taking into account all underlying exposures and related hedges. A sensitivity of 20 percent has been selected and represents management’s assessment of the possible change in rates taking into account the current level of exchange rates and the volatility observed both on an historical basis and on market expectations for possible future movements.

There would be no impact on net profit as all foreign currency exposures are fully hedged (2017: nil); and
Equity reserves would decrease by $1,272.0 million with a 20 percent depreciation of the A$ or increase by $849.4 million with a 20 percent increase in foreign exchange rates (2017: decrease by $1,255.0 million or increase by $839.8 million respectively).

Interest rate risk

APA Group’s exposures to interest rate risk on financial liabilities are detailed in the liquidity risk management section of this note. Exposure to financial assets is limited to cash and cash equivalents amounting to $100.6 million as at 30 June 2018 (2017: $394.5 million).

Cross currency swap and interest rate swap contracts

The following table details the notional principal amounts and remaining terms of the cross currency and interest rate swap contracts outstanding as at the end of the financial year:

	weighted average	weighted average	Notional	Notional
	interest rate		principal amount		Fair	value
	2018	2017	2018	2017	2018	2017
	% p.a.	% p.a.	$000	$000	$000	$000
Cash flow hedges – Pay fixed AUD interest – receive floating			AUD or fixed foreign currency
Less than 1 year	7.30	6.80	247,062	125,865	1,036	(14,249)
1 year to 2 years	8.05	7.30	388,491	247,062	11,950	(9,706)
2 years to 5 years(a)	5.14	5.18	1,884,033	1,500,099	338,786	85,006
5 years and more(a)	5.11	5.38	3,766,638	4,423,181	24,031	81,206
			6,286,224	6,296,207	375,803	142,257

(a) This amount includes a notional amount of USD2.3 billion (2017: USD2.3 billion) which is subject to USD interest rate risk.

– II-210 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Interest rate sensitivity analysis

net profit would decrease by $2,000,000 or increase by $2,000,000 (2017: decrease by $5,150,000 or increase by $5,150,000). This is mainly attributable to APA Group’s exposure to interest rates on its variable rate borrowings; and
equity reserves would increase by $40,738,000 with a 100 basis point decrease in interest rates or decrease by$31,154,000 with a 100 basis point increase in interest rates (2017: increase by $31,379,000 or decrease by $27,772,000 respectively). This is due to the changes in the fair value of derivative interest instruments.

APA Group’s profit sensitivity to interest rates has decreased during the current year due to the overall decrease in the level of APA Group’s unhedged floating rate borrowings. The increase/ decrease in equity reserves is based on 1.00% p.a. increase/decrease in the yield curve at the reporting date. The increase in sensitivity in equity is due to the impact of the 1.00% change in interest rates on the higher derivative fair value this year, which has been partially offset by the reduction in the tenor of the derivatives.

Price risk – equity price

– II-211 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Price risk sensitivity

net profit would have been unaffected as there is no effect from the forwards as the corresponding exposure will offset in full (2017: $nil); and
there is no effect on equity reserves as APA Group holds no available-for-sale investments (2017: $nil).

Price risk – electricity price

APA Group is exposed to electricity price risk arising from a contract for difference in an electricity agreement with a customer. The contract guarantees the Group a fixed price for electricity offtake. The sensitivity of the contract for difference to changes in the electricity price is provided in the fair value of financial instrument section.

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to APA Group. APA Group has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or bank guarantees where appropriate as a means of mitigating the risk of loss. For financial investments or market risk hedging, APA Group’s policy is to only transact with counterparties that have a credit rating of A– (Standard & Poor’s)/A3 (Moody’s) or higher unless specifically approved by the Board. Where a counterparty’s rating falls below this threshold following a transaction, no other transactions can be executed with that counterparty until the exposure is sufficiently reduced or their credit rating is upgraded above APA Group’s minimum threshold. APA Group’s exposure to financial instrument and deposit credit risk is closely monitored against counterparty credit limits imposed by the Treasury Risk Management Policy approved by the ARMC. These limits are regularly reviewed by the Board.

The carrying amount of financial assets recorded in the financial statements, net of any allowances, represents APA Group’s maximum exposure to credit risk in relation to those assets.

Cross guarantee

In accordance with a deed of cross guarantee, APT Pipelines Limited, a subsidiary of APA Group, has agreed to provide financial support, when and as required, to all wholly-owned controlled entities with either a deficit in shareholders’ funds or an excess of current liabilities over current assets. The fair value of the financial guarantee as at 30 June 2018 has been determined to be immaterial and no liability has been recorded (2017: $nil).

(c) Liquidity risk

– II-212 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Maturity Average interest rate % p.a. 2018 Unsecured financial liabilities Trade and other payables – Unsecured bank borrowings(a) 3.07 Denominated in A$ Other financial liabilities(b) Guaranteed Senior Notes (c) Denominated in A$ 2007 Series E 15–May– 19 7.40 2007 Series G 15–May– 22 7.45 2007 Series H 15–May– 22 7.45 2010 AUD Medium Term Notes 22–Jul–20 7.75 2016 AUD Medium Term Notes 20–Oct–23 3.75 Denominated in US$ 2003 Series D 9–Sep–18 6.02 2007 Series D 15–May– 19 5.99 2007 Series F 15–May– 22 6.14 2009 Series B 1–Jul–19 8.86 2012 US 144A 11–Oct–22 3.88 2015 US 144A(b) 23–Mar–25 4.20 2015 US 144A(b) 23–Mar–35 5.00 2017 US 144A 15–Jul–27 4.25 Denominated in stated foreign currency 2012 CAD Medium Term Notes 24–Jul–19 4.25 2012 GBP Medium Term Notes 26–Nov–24 4.25 2015 GBP Medium Term Notes(b) 22–Mar–30 3.50 2015 EUR Medium Term Notes(b) 22–Mar–22 1.38 2015 EUR Medium Term Notes(b) 22–Mar–27 2.00	Less than 1 year $000 381,676 6,114 7,903 73,214 6,002 4,617 23,250 7,500 99,360 162,324 11,354 11,761 49,123 62,483 20,287 58,523 19,529 39,351 53,726 36,341 40,615 1,175,053	1 – 5 years $000 – 204,419 29,578 – 98,588 75,837 334,875 30,000 – – 187,787 104,797 907,572 249,932 81,147 235,087 299,179 157,727 215,008 1,103,923 162,458 4,477,914	More than 5 years $000 – – 29,367 – – – – 203,750 – – – – – 1,612,832 649,400 1,371,999 – 595,446 1,574,423 – 1,086,471
			7,123,688

(a) Bank facilities mature or expire on 2 July 2018 ($518.75 million limit), 18 May 2019 ($50 million limit), 19 December 2019 ($100 million limit), 18 May 2020 ($150 million limit), 19 December 2020 ($100 million limit) and 18 July 2022 ($150 million limit). A new $1,000 million syndicated bank facility came into effect on 2 July 2018. The two tranches of this facility mature on 30 June 2023 and 31 December 2023 respectively.
(b) Facilities are denominated in or fully swapped by way of CCIRS into US$. Cashflows represent the US$ cashflow translated at the USD/AUD spot rate as at 30 June 2018. These amounts are fully hedged by forward exchange contracts or future US$ revenues.
(c) Rates shown are the coupon rate.

– II-213 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Maturity Average interest rate % p.a. 2017 Unsecured financial liabilities Trade and other payables – Unsecured bank borrowings(a) – 2012 Subordinated Notes(b) 1–Oct–72 6.30 Denominated in A$ Other financial liabilities(c) Guaranteed Senior Notes (d) Denominated in A$ 2007 Series E 15–May–19 7.40 2007 Series G 15–May–22 7.45 2007 Series H 15–May–22 7.45 2010 AUD Medium Term Notes 22–Jul–20 7.75 2016 AUD Medium Term Notes 20–Oct–23 3.75 Denominated in US$ 2003 Series D 9–Sep–18 6.02 2007 Series D 15–May–19 5.99 2007 Series F 15–May–22 6.14 2009 Series B 1–Jul–19 8.86 2012 US 144A 11–Oct–22 3.88 2015 US 144A(c) 23–Mar–25 4.20 2015 US 144A(c) 23–Mar–35 5.00 2017 US 144A 15–Jul–27 4.25 Denominated in stated foreign currency 2012 JPY Medium Term Notes 22–Jun–18 1.23 2012 CAD Medium Term Notes 24–Jul–19 4.25 2012 GBP Medium Term Notes 26–Nov–24 4.25 2015 GBP Medium Term Notes(c) 22–Mar–30 3.50 2015 EUR Medium Term Notes(c) 22–Mar–22 1.38 2015 EUR Medium Term Notes(c) 22–Mar–27 2.00	Less than 1 year $000 312,611 – 32,221 7,609 5,045 6,002 4,617 23,250 7,500 6,930 11,111 11,354 5,897 49,123 60,160 19,533 48,046 134,424 19,529 39,783 51,729 34,990 39,105 930,569	1 – 5 years $000 – – 142,361 30,436 73,214 104,590 80,454 358,125 30,000 99,360 162,324 199,141 116,558 196,627 240,641 78,130 235,087 – 318,708 157,619 207,013 1,097,872 156,419 4,084,679	More than 5 years $000 – – 2,567,692 33,927 – – – – 211,250 – – – – 760,068 1,613,033 644,790 1,430,522 – – 634,905 1,567,617 – 1,085,184
			10,548,988

(a) Undrawn bank facilities mature on 18 May 2018 ($100 million limit), 19 September 2018 ($311.25 million limit), 18 May 2019 ($50 million limit), 19 December 2019 ($100 million limit), 18 May 2020 ($50 million limit), 19 September 2020 ($207.5 million limit), 19 December 2020 ($100 million limit) and 18 May 2021 ($150 million limit).
(b) The first call date is 31 March 2018.
(c) Facilities are denominated in or fully swapped by way of CCIRS into US$. Cashflows represent the US$ cashflow translated at the USD/AUD spot rate as at 30 June 2017. These amounts are fully hedged by forward exchange contracts or future US$ revenues.
(d) Rates shown are the coupon rate.

– II-214 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Critical accounting judgements and key sources of estimation uncertainty – fair value of financial instruments

Fair value measurements recognised in the statement of financial position

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Transfers between levels of the fair value hierarchy occur at the end of the reporting period. There have been no transfers between the levels during 2018 (2017: none). Transfers between level 1 and level 2 are triggered when there are changes to the availability of quoted prices in active markets. Transfers into level 3 are triggered when the observable inputs become no longer observable, or vice versa for transfer out of level 3.

Fair value of the Group’s financial assets and liabilities that are measured at fair value on a recurring basis

The fair values of financial assets and financial liabilities are measured at the end of each reporting period and determined as follows:

the fair values of available-for-sale financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices. These instruments are classified in the fair value hierarchy at level 1;
the fair values of forward foreign exchange contracts included in hedging assets and liabilities are calculated using discounted cash flow analysis based on observable forward exchange rates at the end of the reporting period and contract forward rates discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;
the fair values of interest rate swaps, cross currency swaps, equity forwards and other derivative instruments included in hedging assets and liabilities are calculated using discounted cash flow analysis using observable yield curves at the end of the reporting period and contract rates discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;

– II-215 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

the fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current markets discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2;
the fair value of financial guarantee contracts is determined based upon the probability of default by the specified counterparty extrapolated from market-based credit information and the amount of loss, given the default. These instruments are classified in the fair value hierarchy at level 2; and
the carrying value of financial assets and liabilities recorded at amortised cost in the financial statements approximate their fair value having regard to the specific terms of the agreements underlying those assets and liabilities.

Contract for difference

The financial statements include a contract for difference arising from an electricity agreement with a customer that guarantees the Group a fixed price for electricity offtake for the agreed term which is measured at fair value. The fair value of the contract for difference is derived from internal discounted cash flow valuation methodology, which includes some assumptions that are not able to be supported by observable market prices or rates.

In determining the fair value, the following assumptions were used:

estimated long term forecast electricity pool prices are applied as market prices are not readily observable for the corresponding term;
forecast electricity volumes are estimated based on an internal forecastoutput model;
the discount rates are based on observable market rates for risk-free instruments of the appropriate term;
credit adjustments are applied to the discount rates to reflect the risk of default by either the Group or a specific counterparty. Where a counterparty specific credit curve is not observable, an estimated curve is applied which takes into consideration the credit rating of the counterparty and its industry; and
these instruments are classified in the fair value hierarchy at level 3.

Changes in any of the aforementioned assumptions may be accompanied by changes in other assumptions which may have an offsetting impact.

– II-216 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Fair value hierarchy

Level 1 Level 2 2018 $000 $000 Financial assets measured at fair value Equity forwards designated as fair value through profit or loss – 2,045 Cross currency interest rate swaps used for hedging – 592,244 Forward foreign exchange contracts used for hedging – 29,130 – 623,419 Financial liabilities measured at fair value Interest rate swaps used for hedging – 800 Cross currency interest rate swaps used for hedging – 215,641 Forward foreign exchange contracts used for hedging – 13,486 Contract for difference used for hedging(a) – – – 229,927 (a) This represents the fair value change during the year. There were no Level 1 Level 2 2017 $000 $000 Financial assets measured at fair value Equity forwards designated as fair value through profit or loss – 2,673 Cross currency interest rate swaps used for hedging – 416,256 Forward foreign exchange contracts used for hedging – 65,485 – 484,414 Financial liabilities measured at fair value Interest rate swaps used for hedging – 4,977 Cross currency interest rate swaps used for hedging – 269,019 Forward foreign exchange contracts used for hedging – 27,912 – 301,908	Level 3 Total $000 $000 – 2,045 – 592,244 – 29,130 – 623,419 – 800 – 215,641 – 13,486 6,536 6,536 6,536 236,463 settlements during the year. Level 3 Total $000 $000 – 2,673 – 416,256 – 65,485 – 484,414 – 4,977 – 269,019 – 27,912 – 301,908	Total $000 2,045 592,244 29,130
		623,419

		800 215,641 13,486 6,536
		236,463

		484,414

		4,977 269,019 27,912
		301,908

– II-217 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Fair value measurements of financial instruments measured at amortised cost

Financial liabilities Unsecured long term Private Placement Notes Unsecured Australian Dollar Medium Term Notes Unsecured Japanese Yen Medium Term Notes Unsecured Canadian Dollar Medium Term Notes Unsecured US Dollar 144A Medium Term Notes Unsecured British Pound Medium Term Notes Unsecured Euro Medium Term Notes	Carrying 2018 $000 730,049 500,000 – 308,496 4,057,344 1,694,492 2,129,801 9,420,182	amount 2017 $000 710,742 500,000 115,738 301,230 3,906,504 1,610,281 2,007,377 9,151,872	Fair value (level 2)(a) 2018 2017 $000 $000 768,992 774,803 528,646 534,030 – 116,681 312,539 308,490 3,992,019 4,008,505 1,768,993 1,721,799 2,108,339 1,976,924 9,479,528 9,441,232	Fair value (level 2)(a) 2018 2017 $000 $000 768,992 774,803 528,646 534,030 – 116,681 312,539 308,490 3,992,019 4,008,505 1,768,993 1,721,799 2,108,339 1,976,924 9,479,528 9,441,232
				9,441,232

(a) The fair values have been determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current markets, discounted at a rate that reflects the credit risk of the various counterparties. These instruments are classified in the fair value hierarchy at level 2.

– II-218 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

20. OTHER FINANCIAL INSTRUMENTS

Derivatives at fair value: Equity forward contracts Derivatives at fair value designated as hedging instruments: Foreign exchange contracts – cash flow hedges Interest rate swaps – cash flow hedges Cross currency interest rate swaps – cash flow hedges Contract for difference – cash flow hedges Financial item carried at amortised cost: Redeemable preference share interest Current Financial items carried at amortised cost: Redeemable preference shares Derivatives – at fair value: Equity forward contracts Indexed revenue contracts Derivatives at fair value designated as hedging instruments: Foreign exchange contracts – cash flow hedges Interest rate swaps – cash flow hedges Cross currency interest rate swaps – cash flow hedges Contract for difference – cash flow hedges Non-current	Assets 2018 2017 $000 $000 1,236 1,484 29,101 32,991 – – 24,903 17,574 – – 285 285 55,525 52,334 10,400 10,400 809 1,189 – – 29 32,494 – – 580,249 414,690 – – 591,487 458,773	Liabilities 2018 2017 $000 $000 – – 10,656 14,267 2,100 4,214 120,551 127,287 6,094 – – – 139,401 145,768 – – – – 3,767 – 2,830 13,645 – 2,072 121,471 166,370 442 – 128,510 182,087	Liabilities 2018 2017 $000 $000 – – 10,656 14,267 2,100 4,214 120,551 127,287 6,094 – – – 139,401 145,768 – – – – 3,767 – 2,830 13,645 – 2,072 121,471 166,370 442 – 128,510 182,087
			145,768

			– – – 13,645 2,072 166,370 –
			182,087

– II-219 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Recognition and measurement

Hedge accounting

At the inception of the hedge relationship, APA Group formally designates and documents the hedge relationship, including the risk management strategy for undertaking the hedge. This includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness. Hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and they are regularly assessed to ensure they continue to be effective.

Note 19 contains details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in equity are detailed in the Consolidated Statement of Changes in Equity.

Cash flow hedges

For cash flow hedges, the portion of the gain or loss on the hedging instrument that is effective is recognised directly in equity, while the ineffective portion is recognised in profit or loss.

Impairment of financial assets

– II-220 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss, to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised in other comprehensive income.

21. ISSUED CAPITAL

Units 1,179,893,848 securities, fully paid (2017: 1,114,307,369 securities, fully paid)(a) 2018 No. of units 000 Movements Balance at beginning of financial year 1,114,307 Securities issued under entitlement offer 65,586 Capital distributions paid_(Note 8)_ – Issue costs of securities – Tax relating to security issue costs – Balance at end of financial year 1,179,893	2018 $000 3,114,617 380,782 (201,385) (8,415) 2,524 3,288,123		2018 $000 3,288,123 2017 No. of units 000 1,114,307 – – – –		2017 $000 3,114,617 2017 $000 3,195,445 – (80,828) – – 3,114,617


			1,114,307

(a) Fully paid securities carry one vote per security and carry the right to distributions.

– II-221 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

GROUP STRUCTURE

22. NON-CONTROLLING INTERESTS

Summarised financial information for APTIT is set out below, the amounts disclosed are before intercompany eliminations.

Financial position Current assets Non-current assets Total assets Current liabilities Total liabilities Net assets Equity attributable to non-controlling interests Financial performance Revenue Expenses Profit for the year Total comprehensive income allocated to non-controlling interests for the year Cash flows Net cash provided by operating activities Net cash (used in)/provided by investing activities Distributions paid to non-controlling interests Net cash used in financing activities	2018 $000 774 1,063,708 1,064,482 78 78 1,064,404 1,064,404 68,061 (12) 68,049 68,049 68,852 (54,725) (135,616) (14,127)	2017 $000 738 1,009,757 1,010,495 13 13 1,010,482 1,010,482 72,979 (12) 72,967 72,967 75,570 33,801 (109,371) (109,371)

The accounting policies of APTIT are the same as those applied to APA Group.

There are no material guarantees, contingent liabilities or restrictions imposed on APA Group from APTIT’s non-controlling interests.

– II-222 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT Investment Trust Other non-controlling interest APT Investment Trust Issued capital: Balance at beginning of financial year Issue of securities under entitlement offer Distribution – capital return_(Note 8) Issue costs of units Reserves: Retained earnings: Balance at beginning of financial year Net profit attributable to APTIT unitholders Distributions paid(Note 8)_ Other non-controlling interest Issued capital Reserves Retained earnings	2018 $000 1,064,404 53 1,064,457 976,284 124,234 (67,597) (2,745) 1,030,176 – 34,198 68,049 (68,019) 34,228 4 1 48 53	2017 $000 1,010,482 53 1,010,535 1,005,074 – (28,790) – 976,284 – 41,812 72,967 (80,581) 34,198 4 1 48 53

– II-223 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

23. JOINT ARRANGEMENTS AND ASSOCIATES

		Country of	Ownership	interest %
Name of entity	Principal activity	incorporation	2018	2017
Joint ventures:
SEA Gas	Gas transmission	Australia	50.00	50.00
SEA Gas (Mortlake)	Gas transmission	Australia	50.00	50.00
Energy Infrastructure	Energy infrastructure	Australia	19.90	19.90
Investments
EII 2	Power generation (wind)	Australia	20.20	20.20
Associates:
GDI (EII)	Gas distribution	Australia	20.00	20.00
			2018	2017
			$000	$000
Investment in joint ventures and associates using the
equity method			271,597	259,882

Joint ventures
Aggregate carrying amount of investment			242,768	229,693
APA Group’s aggregated share	of:
Profit from continuing operations			17,105	17,175
Other comprehensive income			9,039	8,007
Total comprehensive income			26,144	25,182

Associates
Aggregate carrying amount of investment			28,829	30,189
APA Group’s aggregated share	of:
Profit from continuing operations			4,819	4,618
Other comprehensive income			(407)	2,914
Total comprehensive income			4,412	7,532

Investment in associates

– II-224 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Contingent liabilities and capital commitments

APA Group’s share of the contingent liabilities, capital commitments and other expenditure commitments of joint operations is disclosed in Note 25.

APA Group is a venturer in the following joint operations:

		Output	interest
		2018	2017
Name of venture	Principal activity	%	%
Goldfields Gas Transmission	Gas pipeline operation – Western Australia	88.2(a)	88.2(a)
Mid West Pipeline	Gas pipeline operation – Western Australia	50.0(b)	50.0(b)

(a) On 17 August 2004, APA acquired a direct interest in the Goldfields Gas Transmission joint operations as part of the SCP Gas Business acquisition.
(b) Pursuant to the joint venture agreement, APA Group receives a 70.8% share of operating income and expenses.

Interest in joint arrangements

– II-225 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

24. SUBSIDIARIES

	Country of	Ownership	interest
	registration/	2018	2017
Name of entity	incorporation	%	%
Parent entity
Australian Pipeline Trust(a)
Subsidiaries
Agex Pty. Ltd.(b),(c)	Australia	100	100
Amadeus Gas Trust(e)	–	96	96
APA (BWF Holdco) Pty Ltd(b),(c)	Australia	100	100
APA (EDWF Holdco) Pty Ltd(b),(c)	Australia	100	100
APA (EPX) Pty Limited(b),(c)	Australia	100	100
APA (NBH) Pty Limited(b),(c)	Australia	100	100
APA (Pilbara Pipeline) Pty Ltd(b),(c)	Australia	100	100
APA (SWQP) Pty Limited(b),(c)	Australia	100	100
APA (WA) One Pty Limited(b),(c)	Australia	100	100
APA AIS 1 Pty Limited(b),(c)	Australia	100	100
APA AIS 2 Pty Ltd(b),(c)	Australia	100	100
APA AIS Pty Limited(b),(c)	Australia	100	100
APA AM (Allgas) Pty Limited(b),(c)	Australia	100	100
APA BIDCO Pty Limited(b),(c)	Australia	100	100
APA Biobond Pty Limited(b),(c)	Australia	100	100
APA Country Pipelines Pty Limited(b),(c)	Australia	100	100
APA DPS Holdings Pty Limited(b),(c)	Australia	100	100
APA DPS2 Pty Limited(b),(c)	Australia	100	100
APA East Pipelines Pty Limited(b),(c)	Australia	100	100
APA EE Australia Pty Limited(b),(c)	Australia	100	100
APA EE Corporate Shared Services Pty Limited(b),(c)	Australia	100	100
APA EE Holdings Pty Limited(b),(c)	Australia	100	100
APA EE Pty Limited(b),(c)	Australia	100	100
APA Ethane Pty Limited(b),(c)	Australia	100	100
APA Facilities Management Pty Limited(b),(c)	Australia	100	100
APA Midstream Holdings Pty Limited(b),(c)	Australia	100	100
APA Operations (EII) Pty Limited(b),(c)	Australia	100	100
APA Operations Pty Limited(b),(c)	Australia	100	100
APA Orbost Gas Plant Pty Ltd(c),(d)	Australia	100	–
APA Pipelines Investments (BWP) Pty Limited(b),(c)	Australia	100	100
APA Power Holdings Pty Limited(b),(c)	Australia	100	100
APA Power PF Pty Limited(b),(c)	Australia	100	100
APA Reedy Creek Wallumbilla Pty Limited(b),(c)	Australia	100	100
APA SEA Gas (Mortlake) Holdings Pty Ltd(b),(c)	Australia	100	100
APA SEA Gas (Mortlake) Pty Ltd(b)	Australia	100	100
APA Services (Int) Inc.	United States	100	100
APA Sub Trust No 1(b),(e)	–	100	100
APA Sub Trust No 2(b),(e)	–	100	100
APA Sub Trust No 3(b),(e)	–	100	100
APA Transmission Pty Limited(b),(c)	Australia	100	100
APA VTS A Pty Limited(b),(c)	Australia	100	100

– II-226 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

	Country of	Ownership	interest
	registration/	2018	2017
Name of entity	incorporation	%	%
APA VTS Australia (Holdings) Pty Limited(b),(c)	Australia	100	100
APA VTS Australia (NSW) Pty Limited(b),(c)	Australia	100	100
APA VTS Australia (Operations) Pty Limited(b),(c)	Australia	100	100
APA VTS Australia Pty Limited(b),(c)	Australia	100	100
APA VTS B Pty Limited(b),(c)	Australia	100	100
APA Western Slopes Pipeline Pty Limited(b),(c)	Australia	100	100
APA WGP Pty Ltd(b),(c)	Australia	100	100
APT (MIT) Services Pty Limited(b),(c)	Australia	100	100
APT AM (Stratus) Pty Limited(b),(c)	Australia	100	100
APT AM Employment Pty Limited(b),(c)	Australia	100	100
APT AM Holdings Pty Limited(b),(c)	Australia	100	100
APT Facility Management Pty Limited(b),(c)	Australia	100	100
APT Goldfields Pty Ltd(b),(c)	Australia	100	100
APT Management Services Pty Limited(b),(c)	Australia	100	100
APT O&M Holdings Pty Ltd(b),(c)	Australia	100	100
APT O&M Services (QLD) Pty Ltd(b),(c)	Australia	100	100
APT O&M Services Pty Ltd(b),(c)	Australia	100	100
APT Parmelia Holdings Pty Ltd(b),(c)	Australia	100	100
APT Parmelia Pty Ltd(b),(c)	Australia	100	100
APT Parmelia Trust(b),(e)	–	100	100
APT Petroleum Pipelines Holdings Pty Limited(b),(c)	Australia	100	100
APT Petroleum Pipelines Pty Limited(b),(c)	Australia	100	100
APT Pipelines (NSW) Pty Limited(b),(c)	Australia	100	100
APT Pipelines (NT) Pty Limited(b),(c)	Australia	100	100
APT Pipelines (QLD) Pty Limited(b),(c)	Australia	100	100
APT Pipelines (SA) Pty Limited(b),(c)	Australia	100	100
APT Pipelines (WA) Pty Limited(b),(c)	Australia	100	100
APT Pipelines Investments (NSW) Pty Limited(b),(c)	Australia	100	100
APT Pipelines Investments (WA) Pty Limited(b),(c)	Australia	100	100
APT Pipelines Limited(b),(c)	Australia	100	100
APT Sea Gas Holdings Pty Limited(b),(c)	Australia	100	100
APT SPV2 Pty Ltd(b)	Australia	100	100
APT SPV3 Pty Ltd(b)	Australia	100	100
Australian Pipeline Limited(b)	Australia	100	100
Central Ranges Pipeline Pty Ltd(b),(c)	Australia	100	100
Darling Downs Solar Farm Pty Ltd(b),(c)	Australia	100	100
Diamantina Holding Company Pty Limited(b),(c)	Australia	100	100
Diamantina Power Station Pty Limited(b),(c)	Australia	100	100
East Australian Pipeline Pty Limited(b),(c)	Australia	100	100
EDWF Holdings 1 Pty Ltd(b),(c)	Australia	100	100
EDWF Holdings 2 Pty Ltd(b),(c)	Australia	100	100
EDWF Manager Pty Ltd(b),(c)	Australia	100	100
Epic Energy East Pipelines Trust(b),(e)	–	100	100
EPX Holdco Pty Limited(b),(c)	Australia	100	100
EPX Member Pty Limited(b),(c)	Australia	100	100
EPX Trust(b),(e)	–	100	100
Ethane Pipeline Income Financing Trust(b),(e)	–	100	100
Ethane Pipeline Income Trust(b),(e)	–	100	100
Gasinvest Australia Pty Ltd(b),(c)	Australia	100	100
GasNet A Trust(e)	–	100	100
GasNet Australia Investments Trust(e)	–	100	100

– II-227 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

	Country of	Ownership	interest
	registration/	2018	2017
Name of entity	incorporation	%	%
GasNet Australia Trust(b),(e)	–	100	100
GasNet B Trust(b),(e),(f)	–	–	100
Goldfields Gas Transmission Pty Ltd(b)	Australia	100	100
Gorodok Pty. Ltd.(b),(c)	Australia	100	100
Griffin Windfarm 2 Pty Ltd(b)	Australia	100	100
Moomba to Sydney Ethane Pipeline Trust.(b),(e)	–	100	100
N.T. Gas Distribution Pty Limited(b),(c)	Australia	100	100
N.T. Gas Easements Pty. Limited(b),(c)	Australia	100	100
N.T. Gas Pty Limited	Australia	96	96
Roverton Pty. Ltd.(b),(c)	Australia	100	100
SCP Investments (No. 1) Pty Limited(b),(c)	Australia	100	100
SCP Investments (No. 2) Pty Limited(b),(c)	Australia	100	100
SCP Investments (No. 3) Pty Limited(b),(c)	Australia	100	100
Sopic Pty. Ltd.(b),(c)	Australia	100	100
Southern Cross Pipelines (NPL) Australia	Australia	100	100
Pty Limited(b),(c)
Southern Cross Pipelines Australia Pty Limited(b),(c)	Australia	100	100
Trans Australia Pipeline Pty Ltd(b),(c)	Australia	100	100
Votraint No. 1606 Pty Limited(b)	Australia	100	100
Votraint No. 1613 Pty Limited(b)	Australia	100	100
Western Australian Gas Transmission	Australia	100	100
Company 1 Pty Ltd(b),(c)
Wind Portfolio Pty Ltd(b),(c)	Australia	100	100

(a) Australian Pipeline Trust is the head entity within the APA tax-consolidated group.
(b) These entities are members of the APA tax-consolidated group.
(c) These wholly-owned subsidiaries have entered into a deed of cross guarantee with APT Pipelines Limited pursuant to ASIC Corporations Instrument 2016/785 and are relieved from the requirement to prepare and lodge an audited financial report.
(d) Entity was acquired or registered during the 2018 year.
(e) These trusts are unincorporated and not required to be registered. In respect of APT Parmelia Trust, the governing law of the trust deed was changed from Cayman Islands to New South Wales, Australia on 7 August 2017.
(f) APA GasNet B trust terminated on 17 May 2018.

– II-228 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

OTHER

25. COMMITMENTS AND CONTINGENCIES

Capital expenditure commitments APA Group – plant and equipment APA Group’s share of jointly controlled operations – plant and equipment Contingent liabilities Bank guarantees	2018 $000 287,506 2,293 289,799 52,586	2017 $000 583,387 2,698
		586,085

		43,034

APA Group had no contingent assets as at 30 June 2018 and 30 June 2017.

26. DIRECTOR AND SENIOR EXECUTIvE REMUNERATION

Remuneration of Directors

The aggregate remuneration of Directors of APA Group is set out below:

Short-term employment benefits Post-employment benefits Total remuneration: Non-Executive Directors Short-term employment benefits Post-employment benefits Cash settled security-based payments Total remuneration: Executive Director(a) Total remuneration: Directors Remuneration of senior executives (a),(b) The aggregate remuneration of senior executives of APA Group is set out below: Short-term employment benefits Post-employment benefits Cash settled security-based payments Total remuneration: senior executives	2018 $ 1,625,875 154,482 1,780,357 3,638,690 25,000 1,479,646 5,143,336 6,923,693 7,748,591 95,049 2,822,148 10,665,788	2017 $ 1,682,077 160,104
		1,842,181
		3,589,472 35,000 1,485,242
		5,109,714
		6,951,895

		7,509,920 135,000 2,849,270
		10,494,190

(a) The remuneration for the Chief Executive Officer and Managing Director, Michael (Mick) McCormack, is included in both the remuneration disclosure for Directors and senior executives.

(b) The FY2017 total remuneration differs from the amount disclosed in the prior year due to the review of the composition of Executive KMP, refer to the remuneration report for further details.

– II-229 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

27. REMUNERATION OF EXTERNAL AUDITOR

Amounts received or due and receivable by Deloitte Touche Tohmatsu for: Auditing the financial report Compliance plan audit Other assurance services(a) Other non-audit, non-assurance services(b)	2018 $ 734,800 19,300 544,915 9,091 1,308,106	2017 $ 654,900 18,900 263,700 –
		937,500

(a) Services provided were in accordance with the external auditor independence policy. Other assurance services mainly comprise assurance services in relation to the AER financial reporting guideline for Non-Scheme pipelines, security related transactions (equity and debt raisings) and procedures in relation to ASIC Regulatory Guide 231 requirements (2017: Consisted of 2017 144A debt issuance and procedures in relation to ASIC Regulatory 231 requirements).
(b) Services provided were in accordance with the external auditor independence policy. Other nonaudit, non-assurance services comprise the facilitation of an industry charter workshop.

28. RELATED PARTY TRANSACTIONS

(a) Equity interest in related parties

Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 24 and the details of the percentage held in joint operations, joint ventures and associates are disclosed in Note 23.

(b) Responsible Entity – Australian Pipeline Limited

The Responsible Entity is wholly owned by APT Pipelines Limited.

(c) Transactions with related parties within APA Group

Transactions between the entities that comprise APA Group during the financial year consisted of:

dividends;
asset lease rentals;
loans advanced and payments received on long-term inter-entity loans;
management fees;
operational services provided between entities;
payments of distributions; and
equity issues.

The above transactions were made on normal commercial terms and conditions. The Group charges interest on inter-entity loans from time to time.

All transactions between the entities that comprise APA Group have been eliminated on consolidation.

Refer to Note 24 for details of the entities that comprise APA Group.

– II-230 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Australian Pipeline Limited

Management fees of $4,717,014 (2017: $3,967,352) were paid to the Responsible Entity as reimbursement of costs incurred on behalf of APA Group. No amounts were paid directly by APA Group to the Directors of the Responsible Entity, except as disclosed at Note 26.

(d) Transactions with other associates and joint ventures

The following transactions occurred with APA Group’s associates and joint ventures on normal market terms and conditions:

2018 SEA Gas Energy Infrastructure Investments EII 2 GDI (EII) 2017 SEA Gas Energy Infrastructure Investments EII 2 GDI (EII)	Dividends from related parties $000 5,975 3,841 3,253 5,772 18,841 10,357 4,689 3,244 4,121 22,411	Sales to related parties $000 3,853 46,671 764 62,053 113,341 3,717 26,553 752 51,711 82,733	Purchases from related parties $000 – – – – – – – – 99 99	Amount owed by related parties $000 311 15,486 47 7,417 23,261 96 5,792 46 7,094 13,028	Amount owed to related parties $000 – – – –
					–

					– – – –
					–

At year end, APA Group had a shareholder loan receivable from SEA Gas of $0.3 million (2017: $nil).

– II-231 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

29. PARENT ENTITY INFORMATION

The accounting policies of the parent entity, which have been applied in determining the financial information below, are the same as those applied in the consolidated financial statements.

Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Total liabilities Net assets Equity Issued capital Retained earnings Total equity Financial performance Profit for the year Total comprehensive income	2018 $000 2,695,971 731,861 3,427,832 132,313 132,313 3,295,519 3,288,123 7,396 3,295,519 147,408 147,408	2017 $000 2,497,220 757,947
		3,255,167
		127,269
		127,269
		3,127,898

		3,114,616 13,282
		3,127,898

		283,264
		283,264

Guarantees entered into by the parent entity in relation to the debts of its subsidiaries

Due to the contingent nature of these financial guarantees no liability has been recorded (2017: $nil).

Contingent liabilities of the parent entity

No contingent liabilities have been identified in relation to the parent entity.

– II-232 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

30. ADOPTION OF NEw AND REvISED ACCOUNTING STANDARDS

Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)

Standards and Interpretations issued not yet adopted

At the date of authorisation of the financial statements, the Standards and Interpretations listed below were on issue but not yet effective.

		Effective for annual	Expected to be
		reporting periods	initially applied in the
	Standard/Interpretation	beginning on or after	financial year ending
•	AASB 9 ‘Financial Instruments’, and the
	relevant amending standards	1 January 2018	30 June 2019
•	AASB 15 ‘Revenue from Contracts with
	Customers’, and AASB 2015–8 ‘Amendments
	to Australian Accounting Standards-Effective
	date of AASB 15’	1 January 2018	30 June 2019
•	AASB 16 ‘Leases’	1 January 2019	30 June 2020

As per the table above a number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2018 with earlier adoption permitted. APA Group has chosen not to early adopt the new or amended standards in preparing these consolidated financial statements.

The expected impacts of the new standards on APA Group include:

AASB 9 ‘Financial Instruments’

AASB 9 ‘Financial Instruments’ (AASB 9) is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. APA Group will apply this new standard from 1 July 2018 (financial year ended 30 June 2019). AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.

APA Group has completed an assessment of the potential impact of the adoption of AASB 9 on the consolidated financial statements and does not expect the new standard to affect the classification and measurement of its financial assets or financial liabilities. The new hedge accounting rules will align the accounting for hedging instruments more closely with APA Group’s risk management practices. AASB 9 will expand the range of eligible hedging instruments, and allow for a portfolio management approach to hedge accounting. Changes in the fair value of foreign exchange forward contracts attributable to forward points, and basis spread in relation to cross currency swaps, provide the option to be deferred in a new cost of hedging reserve within equity. The deferred amounts are to be recognised against the related hedge transaction when it occurs. APA Group confirms that its current hedge relationships will qualify as continuing hedges upon the adoption of AASB 9.

AASB 9 requires the recognition of impairment provisions based on expected credit losses rather than only incurred credit losses as is the case under AASB 139. Based upon this assessment, aside from the additional disclosure requirements, it is not expected that AASB 9 will have any material impact on APA Group’s accounts.

– II-233 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APA Group will apply the new rules retrospectively, except for hedge accounting which is applied prospectively, with practical expedients permitted under the standard, although no material changes are expected. A review of the current classification and measurement of financial assets and liabilities has been undertaken to see if any changes are required. However due to the nature of instruments held, no changes were identified. A detailed assessment of all current hedge relationships has been undertaken to ensure they comply under the new rules and confirm if any of the new concepts could be employed to better manage the existing risks. Once again nothing has been identified. New hedge documentation has been completed for each type of current hedge relationship and regression testing completed in the Treasury Management System for a sample of relationships to ensure no system errors or constraints result, and that effectiveness results are as expected. Recognition of impairment is also not expected to change. The history of collection rates shows that APA Group does not have an expected loss on collection of debtors or loans.

AASB 15 ‘Revenue from Contracts with Customers’

AASB 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. APA will apply this new standard from 1 July 2018 (financial year ended 30 June 2019).

APA Group has completed an assessment of the impact of the adoption of AASB 15 on the consolidated financial statements.

The key components of the assessment project included stratification of revenue streams, data gathering, review of contracts, and assessment and quantification of the expected impact.

APA Group’s approach to assessing the impact of the transition to AASB 15 centred on detailed reviews of the major contracts covering each of the revenue streams, contracts were selected based on their representativeness of and significance for that revenue stream. Each contract reviewed was assessed against the AASB 15 five-step model and other considerations under the standard. A comparison was also made against APA Group’s current accounting policies to quantify the impact. The key judgements and assumptions made have been reviewed by internal stakeholders.

Apart from providing more extensive disclosures on the Group’s revenue transactions, APA Group does not anticipate that the application of AASB 15 will have a significant impact on the financial position and/or financial performance of the Group.

AASB 16 ‘Leases’

AASB 16 ‘Leases’ (AASB 16) is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply AASB 15 at or before the date of initial application of AASB 16. APA will apply AASB 16 in the financial year beginning 1 July 2019 (financial year ended 30 June 2020).

Under AASB 16, the Group’s accounting for leases as a lessee will result in the recognition of a right-of-use (ROU) asset and an associated lease liability in the Consolidated Statement of Financial Position. The lease liability represents the present value of future lease payments, with the exception of short-term leases. An interest expense will be recognised on the lease liabilities and a depreciation charge will be recognised for the ROU assets. There will also be additional disclosure requirements under the new standard. The Group’s accounting for leases as a lessor remains unchanged under AASB 16.

APA Group has completed an initial assessment of the impact of the adoption of AASB 16 on the consolidated financial statements. This assessment covered a variety of scenarios based on the various transition options and practical expedients applied. At this stage no decision has been made as to the transition option to be taken. The key judgements and assumptions made to date have been reviewed by internal stakeholders.

– II-234 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APA Group’s approach to assessing the impact of the transition to AASB 16 centred on data gathering, discount rate determination, detailed reviews of each lease contract, and evaluation under the requirements of AASB16.

The impact on the Group’s consolidated statement of Profit or Loss as a result of the adoption of AASB 16 will depend on, inter alia, the transition method chosen, discount rates applied, the extent to which APA Group uses the practical expedients and recognition exemptions, and any additional leases that APA Group enters into prior to 1 July 2019.

As at 30 June 2018, APA Group had non-cancellable undiscounted operating lease commitments of $72.6 million as disclosed in Note 17 of the 2018 APA Group consolidated financial statements. These commitments predominantly relate to commercial offices, motor vehicles and Crown leases which will require recognition as ROU assets and associated lease liabilities. The implementation of AASB 16 is not expected to result in the recognition of ROU assets or lease liabilities each totalling more than the reported commitments as at 30 June 2018, nor does APA Group expect the adoption of AASB 16 to materially affect its financial results or to impact its ability to comply with any of its loan covenants.

31. EvENTS OCCURRING AFTER REPORTING DATE

On 2 July 2018 a new $1,000 million syndicated bank facility came into effect. This new facility has two tranches maturing on 30 June 2023 and 31 December 2023 respectively.

On 13 August 2018, APA announced that it had entered into a conditional Implementation Agreement with CK Infrastructure Holdings Limited (CKI), CK Asset Holdings Limited (CKA), Power Assets Holdings Limited (PAH) and CKM Australia Bidco Pty Ltd (Bidder) under which Bidder (a wholly owned subsidiary of CKA) will acquire all of the stapled securities in APA under trust schemes (Schemes). If the Schemes are implemented, APA Securityholders will receive A$11.00 cash per stapled security. The transaction does not affect APA’s final distribution for the 2018 financial year. If the Schemes are implemented at any time after 31 December 2018, APA Securityholders will receive an additional distribution of 4.0 cents per APA stapled security for each full month in calendar 2019 which elapses prior to implementation of the Schemes (up to, and including, March 2019). Implementation of the Schemes is subject to certain conditions, including regulatory and shareholder approvals.

On 22 August 2018, the Directors declared a final distribution of 24.00 cents per security ($283.2 million) for APA Group. This is comprised of a distribution of 17.96 cents per unit from APT and a distribution of 6.04 cents per unit from APTIT. The APT distribution represents a 8.93 cents per unit fully franked profit distribution and 9.03 cents per unit capital distribution. The APTIT distribution represents a 2.90 cent per unit profit distribution and a 3.14 cents per unit capital distribution. Franking credits of 3.83 cents per security will be allocated to the franked profit distribution. The distribution will be paid on 12 September 2018.

– II-235 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

AUSTRALIAN PIPELINE TRUST AND ITS CONTROLLED ENTITIES DECLARATION BY THE DIRECTORS OF AUSTRALIAN PIPELINE LIMITED For the financial year ended 30 June 2018

The Directors declare that:

(a) in the Directors’ opinion, there are reasonable grounds to believe that Australian Pipeline Trust will be able to pay its debts as and when they become due and payable;
(b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with Accounting Standards and giving a true and fair view of the financial position and performance of APA Group;
(c) in the Directors’ opinion, the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board; and
(d) the Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of the Directors of the Responsible Entity made pursuant to section 295(5) of the Corporations Act 2001.

On behalf of the Directors

==> picture [125 x 61] intentionally omitted <==

Michael Fraser Chairman

==> picture [110 x 50] intentionally omitted <==

Debra Goodin Director

SYDNEY, 22 August 2018

– II-236 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIvE INCOME

For the financial year ended 30 June 2018

Note Continuing operations Revenue 4 Expenses 4 Profit before tax Income tax expense 5 Profit for the year Other comprehensive income Total comprehensive income for the year Profit Attributable to: Unitholders of the parent Total comprehensive income attributable to: Unitholders of the parent Earnings per unit Basic and diluted (cents per unit) 6	2018 $000 68,061 (12) 68,049 – 68,049 – 68,049 68,049 68,049 68,049 2018 6.0	2017 $000 72,979 (12) 72,967 – 72,967 – 72,967 72,967 72,967 72,967 2017 (Restated) 6.5

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

– II-237 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2018

Note Current assets Receivables 8 Non-current assets Receivables 8 Other financial assets 11 Non-current assets Total assets Current liabilities Trade and other payables 9 Total liabilities Net assets Equity Issued capital 13 Retained earnings Total equity	2018 $000 774 7,737 1,055,971 1,063,708 1,064,482 78 78 1,064,404 1,030,176 34,228 1,064,404	2017 $000 738
		8,511 1,001,246
		1,009,757
		1,010,495
		13
		13
		1,010,482

		976,284 34,198
		1,010,482

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

– II-238 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES

Consolidated Statement of Changes in Equity

For the financial year ended 30 June 2018

Note Balance at 1 July 2016 Profit for the year Total comprehensive income for the year Distributions to unitholders 7 Balance at 30 June 2017 Balance at 1 July 2017 Profit for the year Total comprehensive income for the year Issue of capital (net of issue costs) 13 Distributions to unitholders 7 Balance at 30 June 2018	Issued capital $000 1,005,074 – – (28,790) 976,284 976,284 – – 121,489 (67,597) 1,030,176	Retained earnings $000 41,812 72,967 72,967 (80,581) 34,198 34,198 68,049 68,049 – (68,019) 34,228	Total $000 1,046,886 72,967 72,967 (109,371) 1,010,482 1,010,482 68,049 68,049 121,489 (135,616) 1,064,404

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

– II-239 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOwS

For the financial year ended 30 June 2018

Cash flows from operating activities Trust distribution – related party Interest received – related parties Proceeds from repayment of finance leases Receipts from customers Payments to suppliers Net cash provided by operating activities Cash flows from investing activities Proceeds from transfer of financial asset to related party (Advances to)/receipts from related parties Net cash (used in)/provided by investing activities Cash flows from financing activities Proceeds from issue of units Payment of unit issue costs Distributions to unitholders Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year	2018 $000 27,979 39,349 1,167 369 (12) 68,852 – (54,725) (54,725) 124,234 (2,745) (135,616) (14,127) – – –	2017 $000 28,610 45,531 1,167 274 (12) 75,570 32,566 1,235 33,801 – – (109,371) (109,371) – – –

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

– II-240 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the financial year ended 30 June 2018

BASIS OF PREPARATION

1. ABOUT THIS REPORT

Basis of Preparation

Financial Performance Operating Assets and Liabilities

About this report
Segment information
Receivables
General information
Profit from operations
Payables
Income tax
Leases
Earnings per unit
Distributions

Capital Management

Group Structure

Other

Other financial instruments 14. Subsidiaries
Commitments and contingencies
Financial risk management
Director and senior executive remuneration
Issued capital
Remuneration of external auditor
Related party transactions
Parent entity information
Adoption of new and revised Accounting Standards
Events occurring after reporting date

– II-241 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

2. GENERAL INFORMATION

All intragroup transactions and balances have been eliminated on consolidation. Where necessary, adjustments are made to the assets, liabilities, and results of subsidiaries, joint arrangements and associates to bring their accounting policies into line with those used by the Consolidated Entity.

APTIT’s registered office and principal place of business is as follows:

Level 25 580 George Street SYDNEY NSW 2000 Tel: (02) 9693 0000

APTIT operates as an investment entity within APA Group.

The financial report for the year ended 30 June 2018 was authorised for issue in accordance with a resolution of the directors on 22 August 2018.

This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB), and also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

FINANCIAL PERFORMANCE

3. SEGMENT INFORMATION

The Consolidated Entity has one reportable segment being energy infrastructure investment.

The Consolidated Entity is an investing entity within the Australian Pipeline Trust stapled group. As the Trust only operates in one segment, it has not disclosed segment information separately.

– II-242 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

4. PROFIT FROM OPERATIONS

Profit before income tax includes the following items of income and expense:

Revenue Distributions Trust distribution – related party Finance income Interest – related parties Loss on financial asset held at fair value through profit or loss Finance lease income – related party Other revenue Other Total revenue Expenses Audit fees Total expenses	2018 $000 27,979 27,979 39,350 – 430 39,780 302 68,061 (12) (12)	2017 $000 28,610 28,610 44,141 (510) 464 44,095 274 72,979 (12) (12)

Interest revenue , which is recognised as it accrues and is determined using the effective interest method;
Distribution revenue , which is recognised when the right to receive a distribution has been established;
Finance lease income , which is recognised when receivable.

5. INCOME TAX

– II-243 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

6. EARNINGS PER UNIT

	2018	2017
		(Restated)
	cents	cents
Basic and diluted earnings per unit	6.0	6.5

The earnings and weighted average number of units used in the calculation of basic and diluted earnings per unit are as follows:

Net profit attributable to unitholders for calculating basic and diluted earnings per unit Adjusted weighted average number of ordinary units used in the calculation of basic and diluted earnings per unit	2018 $000 68,049 2018 No. of units 000 1,136,875	2017 $000 72,967

		2017 (Restated) No. of units 000 1,118,522

During March 2018, APA Group issued 65,586,479 new ordinary securities on completion of the fully underwritten pro-rata accelerated institutional tradeable renounceable entitlement offer (Entitlement Offer). The Entitlement Offer was offered at $7.70 per security, a discount to APA Group’s closing market price of $8.26 per security on the 23 February 2018, the last trading day before the record date of 26 February 2018. The number of securities used for the current and prior period calculation of earnings per security has been adjusted for the discounted rights issue. An adjustment factor of 1.0038 has been calculated, being the closing market price per security on 23 February 2018, divided by the theoretical ex-rights price (TERP) of $8.23 per security.

– II-244 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

7. DISTRIBUTIONS

Recognised amounts Final distribution paid on 13 September 2017 (2017: 16 September 2016) Profit distribution(a) Capital distribution Interim distribution paid on 14 March 2018 (2017: 15 March 2017) Profit distribution(a) Capital distribution Total distributions recognised Profit distributions(a) Capital distributions Unrecognised amounts Final distribution payable on 12 September 2018 (b) (2017: 13 September 2017) Profit distribution(a) Capital distribution	2018 cents per unit 3.07 3.69 6.76 3.03 2.38 5.41 6.10 6.07 12.17 2.90 3.14 6.04	2018 Total $000 34,198 41,107 75,305 33,821 26,490 60,311 68,019 67,597 135,616 34,228 37,022 71,250	2017 cents per unit 3.75 0.63 4.38 3.48 1.96 5.44 7.23 2.59 9.82 3.07 3.69 6.76	2017 Total $000 41,811 6,976
				48,787

				38,770 21,814
				60,584

				80,581 28,790
				109,371

				34,198 41,107
				75,305

(a) Profit distributions unfranked (2017: unfranked).

(b) Record date 29 June 2018.

– II-245 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

OPERATING ASSETS AND LIABILITIES

8. RECEIvABLES

Finance lease receivable – related party_(Note 10) Current Finance lease receivable – related party(Note 10)_ Non-current	2018 $000 774 774 7,737 7,737	2017 $000 738
		738

		8,511
		8,511

None of the above receivables is past due.

9. PAYABLES

Other payables 78 13

– II-246 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

10. LEASES

Finance leases

Leasing arrangements – receivables

Finance lease receivables relate to the lease of a pipeline lateral. There are no contingent rental payments due.

Finance lease receivables Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years Minimum future lease payments receivable(a) Gross finance lease receivables Less: unearned finance lease receivables Present value of lease receivables Included in the financial statements as part of: Current receivables_(Note 8) Non-current receivables(Note 8)_	2018 $000 1,167 4,669 4,669 10,505 10,505 (1,994) 8,511 774 7,737 8,511	2017 $000 1,167 4,669 5,837 11,673 11,673 (2,424) 9,249 738 8,511 9,249

(a) Minimum future lease payments receivable include the aggregate of all lease payments receivable and any guaranteed residual.

Consolidated Entity as lessor

– II-247 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

CAPITAL MANAGEMENT

11. OTHER FINANCIAL INSTRUMENTS

Non-current Advance to related party Investments carried at cost: Investment in related party(a)	2018 $000 948,592 107,379 1,055,971	2017 $000 893,867 107,379
		1,001,246

(a) The investment in related party reflects GasNet Australia Investments Trust’s (“GAIT”) investment in 100% of the B Class units in GasNet A Trust. The B Class units give GAIT preferred rights to the income and capital of GasNet A Trust, but hold no voting rights. The A Class unitholder may however suspend for a period or terminate all of the B Class unitholder rights to income and capital. As such, GAIT neither controls nor has a significant influence over GasNet A Trust. GasNet Australia Trust, a related party wholly owned by APA Group, owns 100% of the A Class units in GasNet A Trust and, accordingly, GasNet A Trust is included in the consolidation of the APA Group. The investment has not been measured at fair value as the units of GasNet A Trust are not available for trade on an active market and as such, the fair value of the units cannot be reliably determined. The Consolidated Entity does not intend to dispose of its interest in GasNet A Trust.

Financial assets are classified into the following specified categories: ‘available-for-sale’ financial assets and ‘loans and receivables’.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

Receivables and loans

Impairment of financial assets

– II-248 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

12. FINANCIAL RISk MANAGEMENT

APA Group’s corporate Treasury department is responsible for the overall management of the Consolidated Entity’s capital raising activities, liquidity, lender relationships and engagement, debt portfolio management, interest rate and foreign exchange hedging, credit rating maintenance and third party indemnities (bank guarantees) within risk management parameters reviewed by the Board. The Audit and Risk Management Committee (“ARMC”) approves written principles for overall risk management, as well as policies covering specific areas such as liquidity and funding risk, foreign currency risk, interest rate risk, credit risk, contract and legal risk and operational risk. The Consolidated Entity’s ARMC ensures there is an appropriate Risk Management Policy for the management of treasury risk and compliance with the policy through monthly reporting to the Board from the Treasury department.

The Consolidated Entity’s activities generate financial instruments comprising of cash, receivables, payables and interest bearing liabilities which expose it to various risks as summarised below:

(a) Market risk including currency risk, interest rate risk and price risk;
(b) Credit risk; and
(c) Liquidity risk.

Treasury as a centralised function provides the Consolidated Entity with the benefits of efficient cash utilisation, control of funding and its associated costs, efficient and effective management of aggregated financial risk and concentration of financial expertise, at an acceptable cost, and minimises risks through the use of natural hedges and derivative instruments. The Consolidated Entity does not engage in speculative trading. All derivatives have been transacted to hedge underlying or existing exposures and have adhered to the Audit and Risk Management Committee approved Treasury Risk Management Policy.

(a) Market risk

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates on loans with related parties. A 100 basis points increase or decrease is used and represents management’s assessment of the greatest possible change in interest rates within a given period of time. At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were constant, the Consolidated Entity’s net profit would increase by $6,023,000 or decrease by $5,968,000 (2017: increase by $6,431,000 or decrease by $6,372,000 respectively). This is mainly attributable to the Consolidated Entity’s exposure to interest rates on its variable rate inter-entity balances. The sensitivity has decreased due to lower weighted average interentity balances.

– II-249 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(b) Credit risk

(c) Liquidity risk

The Consolidated Entity’s exposure to liquidity risk is limited to other payables of $78,000 (2017: $13,000), all of which are due in less than 1 year (2017: less than 1 year).

13. ISSUED CAPITAL

Units 1,179,893,848 units, fully paid (2017: 1,114,307,369 units, fully paid)(a) 2018 No. of units 2018 000 $000 Movements Balance at beginning of financial year 1,114,307 976,284 Issue of units under entitlement offer 65,586 124,234 Capital distributions paid_(Note 7)_ – (67,597) Issue cost of units – (2,745) Balance at end of financial year 1,179,893 1,030,176		2018 $000 1,030,176 2017 No. of units 000 1,114,307 – – –		2017 $000 976,284 2017 $000 1,005,074 – (28,790) – 976,284


		1,114,307

(a) Fully paid units carry one vote per unit and carry the right to distributions.

– II-250 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

GROUP STRUCTURE

14. SUBSIDIARIES

		Ownership interest
	Country of
Name of entity	registration	2018	2017
		%	%
Parent entity
APT Investment Trust
Subsidiary
GasNet Australia Investments Trust	Australia	100	100

OTHER

15. COMMITMENTS AND CONTINGENCIES

The Consolidated Entity had no material contingent assets, liabilities and commitments as at 30 June 2018 and 30 June 2017.

16. DIRECTOR AND SENIOR EXECUTIvE REMUNERATION

Remuneration of Directors

The aggregate remuneration of Directors of the Consolidated Entity is set out below:

Short-term employment benefits Post-employment benefits Total remuneration: Non-Executive Directors Short-term employment benefits Post-employment benefits Cash settled security-based payments Total remuneration: Executive Director(a) Total Remuneration: Directors	2018 $ 1,625,875 154,482 1,780,357 3,638,690 25,000 1,479,646 5,143,336 6,923,693	2017 $ 1,682,077 160,104
		1,842,181
		3,589,472 35,000 1,485,242
		5,109,714
		6,951,895

– II-251 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Remuneration of senior executives[(a),(b)]

The aggregate remuneration of senior executives of the Consolidated Entity is set out below:

Short-term employment benefits Post-employment benefits Cash settled security-based payments Total remuneration: senior executives	2018 $ 7,748,591 95,049 2,822,148 10,665,788	2017 $ 7,509,920 135,000 2,849,270
		10,494,190

(a) The remuneration of the Chief Executive Officer and Managing Director, Michael (Mick) McCormack, is included in both the remuneration disclosure for Directors and senior executives.
(b) The FY2017 total remuneration differs from the amount disclosed in the prior year due to the review of the composition of Executive KMP, refer to the remuneration report for further details.

17. REMUNERATION OF EXTERNAL AUDITOR

Amounts received or due and receivable by Deloitte Touche Tohmatsu for:

Auditing the financial report Compliance plan audit Other assurance services(a)	6,000 5,700 15,990 27,690	5,900 5,600 –
		11,500

(a) Services provided were in accordance with the external auditor independence policy. Other assurance services comprise assurance services in relation to security related transactions (equity raising).

– II-252 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

18. RELATED PARTY TRANSACTIONS

(a) Equity interest in related parties

Details of the percentage of ordinary securities held in subsidiaries are disclosed in Note 14.

(b) Responsible Entity – Australian Pipeline Limited

The Responsible Entity is wholly owned by APT Pipelines Limited (2017: 100% owned by APT Pipelines Limited).

(c) Transactions with related parties within the Consolidated Entity

During the financial year, the following transactions occurred between the Trust and its other related parties:

loans advanced and payments received on long-term inter-entity loans; and
payments of distributions.

All transactions between the entities that comprise the Consolidated Entity have been eliminated on consolidation.

Refer to Note 14 for details of the entities that comprise the Consolidated Entity.

(d) Transactions with other related parties

The following balances arising from transactions between APTIT and its other related parties are outstanding at reporting date:

current receivables totalling $774,000 are owing from a subsidiary of APT for amounts due under a finance lease arrangement (2017: $738,000);
non-current receivables totalling $7,737,000 are owing from a subsidiary of APT for amounts due under a finance lease arrangement (2017: $8,511,000); and
non-current receivables totalling $948,592,000 (2017: $893,867,000) are owing from a subsidiary of APT for amounts due under inter-entity loans.

Australian Pipeline Limited

Management fees of $1,152,000 (2017: $943,000) were paid to the Responsible Entity as reimbursement of costs incurred on behalf of APTIT. No amounts were paid directly by APTIT to the Directors of the Responsible Entity.

Australian Pipeline Trust

Management fees of $1,152,000 (2017: $943,000) were reimbursed by APT.

– II-253 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

19. PARENT ENTITY INFORMATION

The accounting policies of the parent entity, which have been applied in determining the financial information below, are the same as those applied in the consolidated financial statements.

Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Total liabilities Net assets Equity Issued capital Retained earnings Reserves Total equity Financial performance Profit for the year Other comprehensive income Total comprehensive income	2018 $000 774 1,063,708 1,064,482 78 78 1,064,404 1,030,176 34,228 – 1,064,404 68,049 – 68,049	2017 $000 738 1,009,757
		1,010,495
		13
		13
		1,010,482

		976,284 34,198 –
		1,010,482

		72,967 –
		72,967

Guarantees entered into by the parent entity in relation to the debts of its subsidiaries

No guarantees have been entered into by the parent entity in relation to the debts of its subsidiaries.

Contingent liabilities of the parent entity

No contingent liabilities have been identified in relation to the parent entity.

– II-254 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

20. ADOPTION OF NEw AND REvISED ACCOUNTING STANDARDS

Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)

Standards and Interpretations issued not yet adopted

At the date of authorisation of the financial statements, the Standards and Interpretations listed below were on issue but not yet effective.

	Effective for annual	Expected to be
	reporting periods	initially applied in the
Standard/Interpretation	beginning on or after	financial year ending
• AASB 9 ‘Financial Instruments’, and the relevant
amending standards	1 January 2018	30 June 2019
• AASB 15 ‘Revenue from Contracts with
Customers’, and AASB 2015-8 ‘Amendments to
Australian Accounting Standards – Effective date
of AASB 15’	1 January 2018	30 June 2019
• AASB 16 ‘Leases’	1 January 2019	30 June 2020

As per the table above a number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2018 with earlier application permitted. The Consolidated Entity has not chosen to early adopt the new or amended standards in preparing these consolidated financial statements.

The expected impacts of the new standards on the Consolidated Entity include:

AASB 9 ‘Financial Instruments’

AASB 9 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The Consolidated Entity will apply this new standard from 1 July 2018 (financial year ended 30 June 2019). AASB 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.

The Consolidated Entity has completed an assessment of the potential impact of the adoption of AASB 9 on the consolidated financial statements and does not expect the new standard to affect the classification and measurement of its financial assets or financial liabilities. The new hedge accounting rules will align the accounting for hedging instruments more closely with APA Group’s risk management practices. The new impairment model requires the recognition of impairment provisions based on expected credit losses rather than only incurred credit losses as is the case under AASB 139. Based upon the Consolidated Entity’s assessment, aside from the additional disclosure requirements, it is not expected that AASB 9 will have any material impact to the Consolidated Entity’s accounts.

– II-255 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Due to the nature of instruments held, no changes are required to the current classification and measurement of financial assets and liabilities. The Consolidated Entity currently has not entered into any hedge relationships, and as a result will not be impacted by the hedge accounting changes in AASB 9. Recognition of impairment is not expected to change, with historic collection rates demonstrating that the Consolidated Entity does not have an expected loss on collection of debtors or loans.

AASB 15 ‘Revenue from Contracts with Customers’

AASB 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The Consolidated Entity will apply this new standard from 1 July 2018 (financial year ended 30 June 2019).

The Consolidated Entity has completed an assessment of the potential impact of the adoption of AASB 15. As the revenue of the Consolidated Entity is limited to interest earnt on inter-entity loans, distribution revenue and finance lease income, AASB 15 does not have any impact on the Consolidated Entity.

AASB 16 ‘Leases’

AASB 16 is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply AASB 15 at or before the date of initial application of AASB 16. The consolidated entity will apply AASB 16 in the financial year beginning 1 July 2019 (financial year ended 30 June 2020).

The Consolidated Entity has completed an assessment of the potential impact of the adoption of AASB 16. As the Consolidated Entity is a lessor only, the new standard will not have a material impact on the consolidated financial statements.

21. EvENTS OCCURRING AFTER REPORTING DATE

On 22 August 2018, the Directors declared a final distribution for the 2018 financial year of 6.04 cents per unit ($71.3 million). The distribution represents a 2.90 cents per unit unfranked profit distribution and 3.14 cents per unit capital distribution. The distribution will be paid on 12 September 2018.

– II-256 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APT INvESTMENT TRUST AND ITS CONTROLLED ENTITIES

DECLARATION BY THE DIRECTORS OF AUSTRALIAN PIPELINE LIMITED For the financial year ended 30 June 2018

The Directors declare that:

(a) in the Directors’ opinion, there are reasonable grounds to believe that APT Investment Trust will be able to pay its debts as and when they become due and payable;
(b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with Accounting Standards and giving a true and fair view of the financial position and performance of the Consolidated Entity;
(c) in the Directors’ opinion, the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board; and
(d) the Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of the Directors of the Responsible Entity made pursuant to section 295(5) of the Corporations Act 2001.

On behalf of the Directors

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Michael Fraser Chairman

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Debra Goodin Director

SYDNEY, 22 August 2018

– II-257 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

B. REPORTS FROM THE AUDITORS ON THE AUDITED FINANCIAL INFORMATION OF THE TARGET GROUP OF EACH OF THE THREE YEARS ENDED 30 JUNE 2016, 2017 AND 2018
The following is the text of the report from Deloitte Australia, Chartered Accountants, Australia, in respect of the audited financial information of the Target Group as of and for the year ended 30 June 2016 issued on 24 August 2016.

– II-258 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

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Deloitte Touche Tohmatsu ABN 74 490 121 060

Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

INDEPENDENT AUDITOR’S REPORT TO THE UNITHOLDERS OF AUSTRALIAN PIPELINE TRUST

REPORT ON THE FINANCIAL REPORT

We have audited the accompanying financial report of Australian Pipeline Trust, which comprises the statement of financial position as at 30 June 2016, the statement of profit or loss and other comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the Trust and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 65 to 126.

Directors’ Responsibility for the Financial Report

The directors of Australian Pipeline Limited are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that the financial statements comply with International Financial Reporting Standards.

Auditor’s Responsibility

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

Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited

– II-259 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

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

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

Auditor’s Independence Declaration

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001 , which has been given to the directors of Australian Pipeline Limited as responsible entity for Australian Pipeline Trust would be in the same terms if given to the directors as at the time of this auditor’s report.

Opinion

In our opinion:

(a) the financial report of Australian Pipeline Trust is in accordance with the Corporations Act 2001 , including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and
(b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 2.

REPORT ON THE REMUNERATION REPORT

We have audited the Remuneration Report included in pages 44 to 64 of the directors’ report of Australian Pipeline Limited as responsible entity for Australian Pipeline Trust for the year ended 30 June 2016. The directors have voluntarily prepared and presented the Remuneration Report in accordance with the requirements of section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Opinion

In our opinion the Remuneration Report of Australian Pipeline Limited for the year ended 30 June 2016, has been prepared in accordance with the requirements of section 300A of the Corporations Act 2001 .

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DELOITTE TOUCHE TOHMATSU

==> picture [119 x 42] intentionally omitted <==

A v Griffiths

Partner Chartered Accountants Sydney, 24 August 2016

– II-261 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

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Deloitte Touche Tohmatsu ABN 74 490 121 060

Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

INDEPENDENT AUDITOR’S REPORT TO THE UNITHOLDERS OF APT INvESTMENT TRUST

We have audited the accompanying financial report of APT Investment Trust, which comprises the statement of financial position as at 30 June 2016, the statement of profit or loss and other comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the Trust and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 135 to 154.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL REPORT

AUDITOR’S RESPONSIBILITY

Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

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

AUDITOR’S INDEPENDENCE DECLARATION

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 . We confirm that the independence declaration required by the Corporations Act 2001 , which has been given to the directors of Australian Pipeline Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

OPINION

In our opinion:

(a) the financial report of APT Investment Trust is in accordance with the Corporations Act 2001 , including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 2.

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DELOITTE TOUCHE TOHMATSU

==> picture [119 x 42] intentionally omitted <==

A v Griffiths

Partner Chartered Accountants Sydney, 24 August 2016

– II-264 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The following is the text of the report from Deloitte Australia, Chartered Accountants, Australia, in respect of the audited financial information of the Target Group as of and for the year ended 30 June 2017 issued on 23 August 2017.

– II-265 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

==> picture [148 x 29] intentionally omitted <==

Deloitte Touche Tohmatsu ABN 74 490 121 060

Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

INDEPENDENT AUDITOR’S REPORT TO THE UNITHOLDERS OF AUSTRALIAN PIPELINE TRUST

REPORT ON THE AUDIT OF THE FINANCIAL REPORT

Opinion

We have audited the financial report of Australian Pipeline Trust (the “Trust”) and its subsidiaries (the “Group”), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration.

In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001 , including:

(i) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year then ended; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 .

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

We confirm that the independence declaration required by the Corporations Act 2001 , which has been given to the directors of Australian Pipeline Limited as responsible entity of Australian Pipeline Trust, would be in the same terms if given to the directors as at the time of this auditor’s report.

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

key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

key Audit Matter

Carrying value of Property, Plant and Equipment, Goodwill and Other Intangible Assets

As disclosed in Notes 11 and 12, at 30 June 2017 the Group’s balance sheet includes property, plant and equipment of $9.2 billion, goodwill of $1.2 billion and other intangible assets of $3.2 billion, which are allocated across several cash generating units (CGUs).

The assessment of the recoverable amount of the Group’s property, plant and equipment, goodwill and other intangible asset balances requires the exercise of significant judgement in respect of factors such as discount rates, future contract renewals, contracting of spare capacity, as well as economic assumptions such as inflation.

How the scope of our audit responded to the key Audit Matter

Our procedures included, amongst others:

Assessing management’s determination of the Group’s CGUs based on our understanding of the business. We also analysed the internal reporting to assess how earning streams are monitored and reported
Understanding the appropriateness of management’s controls over the evaluation of the carrying value of the Group’s property, plant and equipment, goodwill and other intangible assets to determine any asset impairments
In conjunction with our corporate finance specialists, challenging the Group’s assumptions and estimates used to determine the recoverable amount of a sample of CGUs, including those relating to:
forecast revenue by reference to:
- future contract renewals
- contracting of spare capacity

The outcome of this assessment could vary significantly if different assumptions were applied and as a result the evaluation of the carrying value of property, plant and equipment, goodwill and other intangible assets is a key audit matter.

operating and maintenance expenses with reference to actual costs incurred in the current period and approved budgets for forecast periods
discount rates with reference to:
- external data
- Deloitte developed discount rates.
Assessing historical accuracy of budgeting and forecasting of the Group
Testing, on a sample basis, the mathematical accuracy of the cash flow models and agreeing relevant data to approved budgets and latest forecasts
Performing sensitivity analysis in relation to key assumptions, with particular focus on the discount rate and assumptions relating to contract renewals and contracting of spare capacity; and
Assessing the adequacy of the disclosures in the financial statements.

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

key Audit Matter

Derivative transactions and balances including the application of hedge accounting

As disclosed in Note 19, the Group has variable and fixed rate borrowings totalling $9.7 billion extending through to 2035. These borrowings are denominated in Australian, US and Canadian dollars as well as Japanese Yen, British Pounds and Euros. As a result the Group is exposed to interest rate and foreign exchange rate movements and enters into the following types of derivative financial instruments to manage those exposures:

Interest rate swaps to mitigate the risk of rising interest rates
Cross currency interest rate swaps to manage the currency risk associated with foreign currency denominated borrowings.

In addition, as disclosed in Note 20, revenue for the Wallumbilla Gladstone Pipeline (WGP) is denominated in US dollars. In order to manage the currency risk the Group designates US dollar borrowings (which acts as a natural hedge of the forecast US dollar denominated revenue) against a portion of the US dollar revenue stream. The Group also uses forward exchange contracts to hedge that portion of the exchange rate risk not covered by the US dollar borrowings. The Group applies hedge accounting in respect of these arrangements.

How the scope of our audit responded to the key Audit Matter

In conjunction with our Treasury specialists, we performed procedures including:

Understanding management’s controls over the recording of derivative transactions and application of hedge accounting
Testing the accuracy and completeness of derivative transactions and balances by agreeing to third-party confirmations
Evaluating the appropriateness of the valuation methodologies applied and testing the valuation of the derivative financial instruments on a sample basis
Testing the application of hedge accounting on a sample basis (including hedge effectiveness and measurement of ineffectiveness), in particular for WGP, and validating that the derivative financial instruments qualified for hedge accounting in accordance with AASB 139; and
Assessing the adequacy of the disclosures in notes 19 and 20.

The Group’s hedging arrangements and accounting for these arrangements are complex.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Other Information

The directors of Australian Pipeline Limited (“the directors”) as responsible entity of Australian Pipeline Trust are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon.

Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the Financial Report

The directors are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report of Australian Pipeline Limited as responsible entity of Australian Pipeline Trust included in pages 48 to 66 of the directors’ report of Australian Pipeline Limited as responsible entity of Australian Pipeline Trust for the year ended 30 June 2017.

In our opinion, the Remuneration Report of Australian Pipeline Limited as responsible entity of Australian Pipeline Trust for the year ended 30 June 2017, has been prepared in accordance with section 300A of the Corporations Act 2001 .

Responsibilities

The directors have voluntarily presented the Remuneration Report of Australian Pipeline Limited as responsible entity of Australian Pipeline Trust in accordance with the requirements of section 300A of the Corporations Act 2001. We conducted our audit in accordance with Australian Auditing Standards.

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DELOITTE TOUCHE TOHMATSU

==> picture [119 x 42] intentionally omitted <==

A v Griffiths Partner Chartered Accountants Sydney, 23 August 2017

– II-272 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

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Deloitte Touche Tohmatsu ABN 74 490 121 060

Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

INDEPENDENT AUDITOR’S REPORT TO THE UNITHOLDERS OF APT INvESTMENT TRUST

REPORT ON THE AUDIT OF THE FINANCIAL REPORT

Opinion

We have audited the accompanying financial report of APT Investment Trust (the “consolidated entity”), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration.

In our opinion the accompanying financial report of the consolidated entity is in accordance with the Corporations Act 2001 , including:

(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its performance for the year then ended; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and

The financial statements also comply with International Financial Reporting Standards as disclosed in Note 2.

Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the consolidated entity in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

We confirm that the independence declaration required by the Corporations Act 2001 , which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report.

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

Other Information

The directors of Australian Pipeline Limited (“the directors”) as responsible entity for the consolidated entity are responsible for the other information. The other information comprises the information included in the consolidated entity’s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon.

Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon.

Responsibilities of the Directors for the Financial Report

The directors are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

In preparing the financial report, the directors are responsible for assessing the ability of the consolidated entity to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the consolidated entity or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Report

As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the consolidated entity’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the consolidated entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the consolidated entity to cease to continue as a going concern.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.

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DELOITTE TOUCHE TOHMATSU

==> picture [119 x 41] intentionally omitted <==

A v Griffiths Partner Chartered Accountants Sydney, 23 August 2017

– II-276 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The following is the text of the report from Deloitte Australia, Chartered Accountants, Australia, in respect of the audited financial information of the Target Group as of and for the year ended 30 June 2018 issued on 22 August 2018.

– II-277 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

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Deloitte Touche Tohmatsu ABN 74 490 121 060

Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

INDEPENDENT AUDITOR’S REPORT TO THE UNITHOLDERS OF AUSTRALIAN PIPELINE TRUST

REPORT ON THE AUDIT OF THE FINANCIAL REPORT

Opinion

We have audited the financial report of Australian Pipeline Trust (the “Trust”) and its controlled entities (the “Group”), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration.

In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001 , including:

(i) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 .

Basis for Opinion

Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

We confirm that the independence declaration required by the Corporations Act 2001 , which has been given to the directors of Australian Pipeline Limited (the “Responsible Entity”), would be in the same terms if given to the directors as at the time of this auditor’s report.

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

key Audit Matters

key Audit Matter

How the scope of our audit responded to the key Audit Matter

Carrying value of Property, Plant and Equipment, Goodwill and Other Intangible Assets

As at 30 June 2018 the Group’s balance sheet includes property, plant and equipment (PPE) of $9.7 billion, goodwill of $1.2 billion and other intangible assets of $3.0 billion, which are allocated across several cash generating units (CGUs) as disclosed in Notes 11 and 12.

The assessment of the recoverable amount of the Group’s PPE, goodwill and other intangible asset balances requires the exercise of significant judgement in respect of factors such as discount rates, future contract renewals, contracting of spare capacity, as well as economic assumptions such as inflation.

Our procedures included, but were not limited to:

Assessing management’s determination of the Group’s CGUs based on our understanding of the business. We have also analysed the internal reporting to assess how earning streams are monitored and reported,
Understanding the appropriateness of management’s controls over the evaluation of the carrying value of the Group’s PPE, goodwill and other intangible assets to determine any asset impairments,
Challenging in conjunction with our corporate finance specialists the Group’s assumptions and estimates used to determine the recoverable amount of a sample of CGUs, including those relating to:
forecast revenue by reference to:
- future contract renewals
- contracting of spare capacity
operating and maintenance expenses with reference to actual costs incurred in the current period and approved budgets for forecast periods

– II-279 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

key Audit Matter

How the scope of our audit responded to the key Audit Matter

discount rates with reference to:
- external data
- Deloitte developed discount rates.
Assessing historical accuracy of managements budgeting and forecasting of the Group,
Testing on a sample basis, the mathematical accuracy of the cash flow models and agreeing relevant data to approved budgets and latest forecasts, and
Performing sensitivity analysis in relation to key assumptions, with particular focus on the discount rate and assumptions relating to contract renewals and contracting of spare capacity; and

We also assessed the appropriateness of the disclosures in Notes 11 and 12 to the financial statements.

– II-280 –

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

key Audit Matter

Derivative transactions and balances including the application of hedge accounting

As at 30 June 2018 the Group has variable and fixed rate borrowings totalling $9.7 billion extending through to 2035. These borrowings are denominated in Australian, US and Canadian dollars as well as British Pounds and Euros as disclosed in Note 18.

As a result, the Group is exposed to interest rate and foreign exchange rate movements and enters into the following types of derivative financial instruments to manage those exposures:

Interest rate swaps to mitigate the risk of rising interest rates, and
Cross currency interest rate swaps to manage the currency risk associated with foreign currency denominated borrowings.

In addition, as disclosed in Note 19, revenue for the Wallumbilla Gladstone Pipeline (WGP) is denominated in US dollars. In order to manage the currency risk the Group designates US dollar borrowings (which acts as a natural hedge of the forecast US dollar denominated revenue) against a portion of the US dollar revenue stream. The Group also uses forward exchange contracts to hedge that portion of the exchange rate risk not covered by the US dollar borrowings. The Group applies hedge accounting in respect of these arrangements which are complex.

How the scope of our audit responded to the key Audit Matter

Our procedures included, but were not limited to, engaging our Treasury specialists to assist with:

Understanding management’s controls over the recording of derivative transactions and the application of hedge accounting,
Testing the accuracy and completeness of derivative transactions and balances by agreeing to third-party confirmations,
Evaluating the appropriateness of the valuation methodologies applied and testing on sample basis the valuation of the derivative financial instruments, and
Testing on a sample basis the application of hedge accounting (including hedge effectiveness and measurement of ineffectiveness), in particular for WGP, and validating that the derivative financial instruments qualified for hedge accounting are in accordance with the relevant accounting standards.

We also assessed the appropriateness of the disclosures in Notes 18 and 19 to the financial statements.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Other Information

The directors of the Responsible Entity (“the Directors”) are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon.

Our opinion on the financial report does not cover the other information and we do not

express any form of assurance conclusion thereon.

Responsibilities of the Directors for the Financial Report

Auditor’s Responsibilities for the Audit of the Financial Report

As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

– II-283 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report of the Responsible Entity of Australian Pipeline Trust included in pages 54 to 70 of the Directors’ Report for the year ended 30 June 2018.

In our opinion, the Remuneration Report of Australian Pipeline Limited as responsible entity of Australian Pipeline Trust for the year ended 30 June 2018, has been prepared in accordance with section 300A of the Corporations Act 2001 .

Responsibilities

The directors have voluntarily presented the Remuneration Report of the Responsible Entity of Australian Pipeline Trust in accordance with the requirements of section 300A of the Corporations Act 2001 . We conducted our audit in accordance with Australian Auditing Standards.

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DELOITTE TOUCHE TOHMATSU

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A v Griffiths Partner Chartered Accountants Sydney, 22 August 2018

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

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Deloitte Touche Tohmatsu ABN 74 490 121 060

Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

INDEPENDENT AUDITOR’S REPORT TO THE UNITHOLDERS OF APT INvESTMENT TRUST

REPORT ON THE AUDIT OF THE FINANCIAL REPORT

Opinion

We have audited the accompanying financial report of APT Investment Trust (the “consolidated entity”), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration.

In our opinion the accompanying financial report of the consolidated entity is in accordance with the Corporations Act 2001 , including:

(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its performance for the year then ended; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and

The financial statements also comply with International Financial Reporting Standards as disclosed in Note 2.

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the consolidated entity in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

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

Other Information

The directors of Australian Pipeline Limited (“the directors”) as responsible entity for the consolidated entity are responsible for the other information. The other information comprises the information included in the consolidated entity’s annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon.

Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon.

Responsibilities of the Directors for the Financial Report

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Auditor’s Responsibilities for the Audit of the Financial Report

As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the consolidated entity’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the consolidated entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the consolidated entity to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

==> picture [151 x 47] intentionally omitted <==

DELOITTE TOUCHE TOHMATSU

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A v Griffiths

Partner Chartered Accountants Sydney, 22 August 2018

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

C. RECONCILIATION

The following is a line-by-line reconciliation of the consolidated statements of financial position of the Target Group (for the financial years ended 30 June 2016, 2017 and 2018) to address the differences in the Target Group’s financial information had it been prepared in accordance with the Company’s accounting policies.

The process applied in the preparation of this reconciliation is set out in the “ Basis of Preparation ” and “ Reconciliation Process ” sections below.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

		Adjusted	Financial	Information	of the	Target Group	under the	Company’s	policies	AUD’000		100,643	251,720	55,525	28,534	12,487	448,909		–	14,030	591,487	242,768	28,829	–	9,691,666	1,183,604	2,992,431	33,502	14,778,317	15,227,226
	As at 30 June 2018								Reclassification	AUD’000 (Note)												242,768 (i)	28,829 (ii)	(271,597) (i) & (ii)
					Unadjusted	Financial	Information	of the	Target Group	AUD’000		100,643	251,720	55,525	28,534	12,487	448,909		–	14,030	591,487	–	–	271,597	9,691,666	1,183,604	2,992,431	33,502	14,778,317	15,227,226
		Adjusted	Financial	Information	of the	Target Group	under the	Company’s	policies	AUD’000		394,501	289,709	52,334	25,260	10,527	772,331		–	15,496	458,773	229,693	30,189	–	9,150,165	1,183,604	3,174,282	31,415	14,273,617	15,045,948
	As at 30 June 2017								Reclassification	AUD’000 (Note)												229,693 (i)	30,189 (ii)	(259,882) (i) & (ii)
					Unadjusted	Financial	Information	of the	Target Group	AUD’000		394,501	289,709	52,334	25,260	10,527	772,331		–	15,496	458,773	–	–	259,882	9,150,165	1,183,604	3,174,282	31,415	14,273,617	15,045,948
		Adjusted	Financial	Information	of the	Target Group	under the	Company’s	policies	AUD’000		84,506	263,232	35,140	24,891	13,023	420,792		2,149	17,283	447,070	170,408	26,777	–	9,189,087	1,184,588	3,355,707	28,814	14,421,883	14,842,675
	As at 30 June 2016								Reclassification	AUD’000 (Note)												170,408 (i)	26,777 (ii)	(197,185) (i) & (ii)
(i) Line-by-line reconciliation					Unadjusted	Financial	Information	of the	Target Group	AUD’000	Current assets	Cash and cash equivalents 84,506	Trade and other receivables 263,232	Other financial assets 35,140	Inventories 24,891	Other 13,023	Current assets 420,792	Non-current assets	Cash on deposit 2,149	Trade and other receivables 17,283	Other financial assets 447,070	Joint ventures –	Associates –	Investments accounted for using the equity method 197,185	Property, plant and equipment 9,189,087	Goodwill 1,184,588	Other Intangible assets 3,355,707	Other 28,814	Non-current assets 14,421,883	Total assets 14,842,675

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

As at 30 June 2018	Adjusted	Financial	Information	of the	Target Group	under the	Company’s	Reclassification policies	AUD’000 (Note) AUD’000		(33,754) (iii) 347,922	139,401 (iv) 139,401	329,219	(139,401) (iv) –	83,629	20,922	33,754 (iii) 33,754	954,847		5,089	9,321,377	128,510 (v) 128,510	(128,510) (v) –	558,442	(5,032) (vi) 66,919	60,183	5,032 (vi) 5,032	10,145,552	11,100,399	4,126,827
				Unadjusted	Financial	Information	of the	Target Group	AUD’000		381,676	–	329,219	139,401	83,629	20,922	–	954,847		5,089	9,321,377	–	128,510	558,442	71,951	60,183	–	10,145,552	11,100,399	4,126,827
As at 30 June 2017	Adjusted	Financial	Information	of the	Target Group	under the	Company’s	Reclassification policies	AUD’000 (Note) AUD’000		(28,914) (iii) 283,697	145,768 (iv) 145,768	126,858	(145,768) (iv) –	93,773	19,225	28,914 (iii) 28,914	698,235		4,984	9,573,907	182,087 (v) 182,087	(182,087) (v) –	502,265	(4,645) (vi) 64,406	37,236	4,645 (vi) 4,645	10,369,530	11,067,765	3,978,183
				Unadjusted	Financial	Information	of the	Target Group	AUD’000		312,611	–	126,858	145,768	93,773	19,225	–	698,235		4,984	9,573,907	–	182,087	502,265	69,051	37,236	–	10,369,530	11,067,765	3,978,183
As at 30 June 2016	Adjusted	Financial	Information	of the	Target Group	under the	Company’s	Reclassification policies	AUD’000 (Note) AUD’000		(13,848) (iii) 238,813	114,674 (iv) 114,674	409,829	(114,674) (iv) –	93,033	13,735	13,848 (iii) 13,848	883,932		3,007	9,314,373	194,591 (v) 194,591	(194,591) (v) –	304,849	(7,017) (vi) 63,900	41,895	7,017 (vi) 7,017	9,929,632	10,813,564	4,029,111
				Unadjusted	Financial	Information	of the	Target Group	AUD’000	Current liabilities	Trade and other payables 252,661	Others –	Borrowings 409,829	Other financial liabilities 114,674	Provisions 93,033	Unearned revenue 13,735	Provision for taxation –	Current liabilities 883,932	Non-current liabilities	Trade and other payables 3,007	Borrowings 9,314,373	Derivative financial instruments –	Other financial liabilities 194,591	Deferred tax liabilities 304,849	Provisions 70,917	Unearned revenue 41,895	Pension obligations –	Non-current liabilities 9,929,632	Total liabilities 10,813,564	Net assets 4,029,111

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

	Adjusted	Financial	Information	of the	Target Group	under the	Company’s	policies	AUD’000			3,288,123	(331,165)	105,412	3,062,370			1,030,176	34,228	1,064,404	53	1,064,457	4,126,827
As at 30 June 2018								Reclassification	AUD’000 (Note)
				Unadjusted	Financial	Information	of the	Target Group	AUD’000			3,288,123	(331,165)	105,412	3,062,370			1,030,176	34,228	1,064,404	53	1,064,457	4,126,827
	Adjusted	Financial	Information	of the	Target Group	under the	Company’s	policies	AUD’000			3,114,617	(207,773)	60,804	2,967,648			976,284	34,198	1,010,482	53	1,010,535	3,978,183
As at 30 June 2017								Reclassification	AUD’000 (Note)
				Unadjusted	Financial	Information	of the	Target Group	AUD’000			3,114,617	(207,773)	60,804	2,967,648			976,284	34,198	1,010,482	53	1,010,535	3,978,183
	Adjusted	Financial	Information	of the	Target Group	under the	Company’s	policies	AUD’000			3,195,445	(395,335)	182,062	2,982,172			1,005,074	41,812	1,046,886	53	1,046,939	4,029,111
As at 30 June 2016								Reclassification	AUD’000 (Note)
				Unadjusted	Financial	Information	of the	Target Group	AUD’000			3,195,445	(395,335)	182,062	2,982,172			1,005,074	41,812	1,046,886	53	1,046,939	4,029,111
										Equity	Australian Pipeline Trust equity:	Issued capital	Reserves	Retained earnings	Equity attributable to unitholders of the parent	Non-controlling interests:	APT Investment Trust:	Issued capital	Retained earnings	Equity attributable to unitholders of APT Investment Trust	Other non-controlling interest	Total non-controlling interests	Total equity

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Note: The following reclassifications are to align the classifications of the respective amounts of the relevant financial line items shown in the consolidated statement of financial position of the Target Group to those of the consolidated statement of financial position of the Group:

(i) from “Investments accounted for using equity method” of the Target Group to “Joint ventures” of the Group for joint ventures of the Target Group;
(ii) from “Investments accounted for using equity method” of the Target Group to “Associates” of the Group for associates of the Target Group;
(iii) from “Trade and other payables” of the Target Group to “Provision for taxation” of the Group for income tax payable of the Target Group;
(iv) from “Other financial liabilities (current)” of the Target Group to “Others” of the Group for derivatives of the Target Group;
(v) from “Other financial liabilities (non-current)” of the Target Group to “Derivative financial instruments” of the Group for derivatives of the Target Group; and
(vi) from “Provisions” of the Target Group to “Pension obligations” of the Group for defined benefit liability of the Target Group.

Other than the reclassification adjustments set out in the Reconciliation above, there are no material differences between the Target Group’s consolidated financial statements for each of the three years ended 30 June 2016, 2017 and 2018, compared to such financial statements had they been prepared applying the accounting policies presently adopted by the Company.

A line-by-line reconciliation of the consolidated statements of profit or loss of the Target Group for the financial years ended 30 June 2016, 2017 and 2018 has not been included in this circular as there are no differences between the accounting policies of the Target Group and the Company in respect of those statements.

Your attention is drawn to the fact that the work carried out in accordance with HKSAE 3000 is different in scope from an audit or a review conducted in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA and consequently, Deloitte Hong Kong did not express an audit opinion nor a review conclusion on the Reconciliation.

(ii) Basis of Preparation

The Reconciliation above for each of the three years ended 30 June 2016, 2017 and 2018 was prepared by restating the “Unadjusted Financial Information of the Target Group” as if it had been prepared in accordance with the accounting policies presently adopted by the Company, if any.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(iii) Reconciliation Process

The Reconciliation above has been prepared by the Directors of the Company by comparing the differences between the accounting policies adopted by the Target Group for each of the three financial years ended 30 June 2016, 2017 and 2018 respectively on the one hand, and the accounting policies presently adopted by the Company on the other hand and in accordance with the basis of preparation in respect of each of the three years ended 31 December 2015, 2016 and 2017, as appropriate, and quantifying the relevant material financial effects of such differences, if any. Your attention is drawn to the fact that the Reconciliation above has not been subject to an independent audit.

Accordingly, no opinion is expressed by an auditor on whether it presents a true and fair view of the Target Group’s financial positions as at 30 June 2016, 2017 and 2018, nor its results for the years ended under the accounting policies presently adopted by the Company.

Deloitte Hong Kong was engaged by the Company to conduct work in accordance with the Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” (“ HkSAE 3000 ”) issued by the HKICPA on the Reconciliation above. The work consisted primarily of:

(i) comparing the “Unadjusted Financial Information of the Target Group” as set out in the Reconciliation above with the audited consolidated financial statements of the Target Group, as appropriate;
(ii) considering the adjustments made and evidence supporting the adjustments made in arriving at the “Adjusted Financial Information of the Target Group under the Company’s Policies” also set out above in the Reconciliation, which included examining the differences between the Target Group’s accounting policies and the Company’s accounting policies; and
(iii) checking the arithmetic accuracy of the computation of the “Adjusted Financial Information of the Target Group under the Company’s Policies” in the Reconciliation above. Deloitte Hong Kong’s engagement did not involve independent examination of any of the underlying financial information. The work carried out in accordance with HKSAE 3000 is different in scope from an audit or a review conducted in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA and consequently, Deloitte Hong Kong did not express an audit opinion nor a review conclusion on the Reconciliation.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Deloitte Hong Kong’s engagement was intended solely for the use of the Directors of the Company in connection with this Circular and may not be suitable for another purpose. Based on the work performed, Deloitte Hong Kong has concluded that:

(i) the “Unadjusted Financial Information of the Target Group” as set out in the Reconciliation above is in agreement with the audited consolidated financial statements of the Target Group;
(ii) the adjustments reflect, in all material respects, the differences between the Target Group’s accounting policies and the Company’s accounting policies; and
(iii) the computation of the “Adjusted Financial Information of the Target Group under the Company’s Policies” in the Reconciliation above is arithmetically accurate.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

D. SUPPLEMENTAL FINANCIAL INFORMATION OF THE TARGET GROUP

1. The Company sets out the following supplemental financial information of the Target Group, which was not included in the Target’s audited consolidated financial statements for the three financial years ended 30 June 2016, 2017 and 2018.

TRADE RECEIvABLES

Ageing analysis of trade receivables

The following is an ageing analysis of trade receivables net of allowance for doubtful debts presented based on invoices.

0-30 days 31-60 days 61-90 days 91-120 days Over 120 days	Year ended 30 June 2016 2017 2018 AUD’000 AUD’000 AUD’000 247,245 255,211 223,868 648 1,662 630 311 124 268 2 2,102 51 11 14,112 4 248,217 273,211 224,821	Year ended 30 June 2016 2017 2018 AUD’000 AUD’000 AUD’000 247,245 255,211 223,868 648 1,662 630 311 124 268 2 2,102 51 11 14,112 4 248,217 273,211 224,821
		224,821

TRADE PAYABLES

Ageing analysis of trade payables

The following is an ageing analysis of trade payables presented based on invoices.

0-30 days 31-60 days 61-90 days 91-120 days Over 120 days	Year ended 30 June 2016 2017 2018 AUD’000 AUD’000 AUD’000 23,934 39,189 32,096 2,176 1,254 6,862 474 (16) 1,373 180 212 449 546 188 612 27,310 40,827 41,392	Year ended 30 June 2016 2017 2018 AUD’000 AUD’000 AUD’000 23,934 39,189 32,096 2,176 1,254 6,862 474 (16) 1,373 180 212 449 546 188 612 27,310 40,827 41,392
		41,392

The average credit period on purchases of goods was 30 days from the end of the month in which the invoice was dated.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

BORROwINGS

The carrying amounts of borrowings are repayable

Within one year Within a period of more than one year but not exceeding two years Within a period of more than two years but not exceeding five years Within a period of more than five years	Year ended 30 June 2016 2017 2018 AUD’000 AUD’000 AUD’000 409,829 126,858 329,219 447,084 317,253 619,257 1,443,383 1,026,635 2,751,321 7,423,906 8,230,019 5,950,799 9,724,202 9,700,765 9,650,596	Year ended 30 June 2016 2017 2018 AUD’000 AUD’000 AUD’000 409,829 126,858 329,219 447,084 317,253 619,257 1,443,383 1,026,635 2,751,321 7,423,906 8,230,019 5,950,799 9,724,202 9,700,765 9,650,596
		9,650,596

2. The Company sets out the following supplemental information of the Target Group, which was not included in the management discussion and analysis of the results of the Target Group for the years ended 30 June 2016, 2017 and 2018 from the 2016, 2017 and 2018 annual reports of the Target.

(a) Number and remuneration of employees, remuneration policies, bonus and share options schemes and training schemes

At year end 30 June 2016, 2017 and 2018, the Target Group (including its subsidiaries) employed, respectively, approximately 1,537, 1,535 and 1,575 employees and remuneration for the year (excluding directors’ emoluments) amounted to, respectively, approximately AUD246 million, AUD250 million and AUD260 million.

The Target Group ensures that the pay levels of its employees are competitive. Approximately 1,200 of its employees as at 30 June 2018 were rewarded on an individual performance related basis, together with reference to the profitability of the Target Group, remuneration benchmarks in the industry, and prevailing market conditions within the general framework of the Target Group’s salary and bonus system.

The remaining approximately 500 employees as at 30 June 2018 are employed under industrial instruments that are structured along a framework of skill based pay, with no bonuses applicable.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(b) Charges on assets

There were no charges on the assets of the Target Group for the years ended 30 June 2016, 2017 and 2018.

(c) Gearing ratio

The following table sets forth the Target Group’s net debt, net debt plus equity and gearing ratio for the years ended 30 June 2016, 2017 and 2018:

		Year	ended 30 June	ended 30 June
		2016	2017	2018
Net debt	AUD’000	9,637,547	9,306,264	9,549,953
Net debt plus equity	AUD’000	13,666,658	13,284,447	13,676,780
Gearing ratio	%	66.4	67.4	65.4

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

E. MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

The following is an extract of the management discussion and analysis of the results of the Target Group for the year ended 30 June 2016, from the 2016 annual report of the Target issued on 24 August 2016.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

FINANCIAL OvERvIEw

Earnings before interest and tax (“EBIT”) and EBIT before depreciation and amortisation (“EBITDA”) excluding significant items are financial measures not prescribed by Australian Accounting Standards (“AIFRS”) and represent the profit under AIFRS adjusted for specific significant items. The Directors consider these measures to reflect the core earnings of the Consolidated Entity, and these are therefore described in this report as ‘normalised’ measures.

For the financial year to 30 June 2016 APA reported EBITDA of $1,330.5 million, an increase of 61.8% or $508.3 million on the previous corresponding period normalised EBITDA of $822.3 million[1] .

Revenue (excluding pass-through revenue) increased by $533.0 million to $1,656.0 million, an increase of 48.0% on the previous corresponding period (FY2015: $1,119.2 million).

Increased revenues and EBITDA were primarily attributable to:

a full year contribution from the Wallumbilla Gladstone Pipeline;
full year contribution from the expanded East Coast Grid (South West Queensland Pipeline in particular);
part-year contributions from the Ethane Pipeline and the Diamantina and Leichhardt Power Stations acquired during the year; and
commissioning of the Eastern Goldfields Pipeline in November 2015.

These increases were partially offset by an increase in corporate costs, driven mainly by the North East Gas Interconnect project and APA’s bid for the Iona gas storage facility during the financial year. Ongoing compliance costs relating to a number of inquiries into the gas market and costs associated with an externally facilitated strategy and planning review undertaken during the year also contributed to the increase.

Depreciation, amortisation and interest costs each increased by 150.2% and 56.6% respectively, as a result of the acquisition of the Wallumbilla Gladstone Pipeline, adding further significant fixed and intangible assets that are depreciated and amortised for the full year and due to the increase in debt as part of the funding of the acquisition. This resulted in a decrease of profit after tax by 12.0% to $179.5 million (FY2015 (normalised): $203.9 million).

1 Excluding significant items of $447.2 million relating mainly to profit on the sale of APA’s shareholding in Australian Gas Networks Limited, previously Envestra Limited.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

An important primary measure of the success of APA’s business and the execution of its strategy is that of operating cash flow, which was $862.4 million for FY2016. This represents an increase of 58.2% or $317.4 million over the previous year (FY2015 (normalised): $545.0 million), with operating cash flow per security increasing by 41.2%, or 22.6 cents, to 77.4 cents per security (FY2015 (normalised): 54.8 cents per security).

The following table provides a summary of key financial data for FY2016 and includes key reconciling items between statutory results and the normalised financial measures.

Total revenue Pass-through revenue (1) Total revenue excluding pass-through EBITDA Depreciation and amortisation expenses EBIT Finance costs and interest income Profit before income tax Income tax (expense) / benefit Profit after income tax Operating cash flow (3) Operating cash flow per security (cents) Earnings per security (cents) Distribution per security (cents) Distribution payout ratio (4) Weighted average number of securities_(000)_	30 June 2016 ($000) Significant Statutory items 2,094,304 – 438,330 – 1,655,974 – 1,330,543 – (520,890) – 809,653 – (507,658) – 301,995 – (122,524) – 179,471 – 862,435 – 77.4 16.1 41.5 53.6% 1,114,307	Normalised 2,094,304 438,330 1,655,974 1,330,543 (520,890) 809,653 (507,658) 301,995 (122,524) 179,471 862,435 77.4 16.1 41.5 53.6% 1,114,307	30 June 2015 ($000) Significant Statutory items (2) 1,553,615 – 434,382 – 1,119,233 – 1,269,490 447,240 (208,200) – 1,061,290 447,240 (324,162) – 737,128 447,240 (177,198) (91,222) 559,930 356,018 562,190 17,201 56.5 56.3 38.0 66.6% 995,245	Normalised 1,553,615 434,382 1,119,233 822,250 (208,200) 614,050 (324,162) 289,888 (85,976) 203,912 544,989 54.8 20.5 38.0 68.8% 995,245	Changes in Statutory accounts $000 % 540,689 34.8% 3,948 0.9% 536,741 48.0% 61,053 4.8% (312,690) (150.2%) (251,637) (23.7%) (183,496) (56.6%) (435,133) (59.0%) – 30.9% (380,307) (67.9%) 300,245 53.4% 20.9 37.0% (40.2) (71.4%) 3.5 9.2% (13.0%) (19.5%) 119,062 12.0%	Changes in Normalised accounts $000 % 540,689 34.8% 3,948 0.9% 536,741 48.0% 508,293 61.8% (312,690) (150.2%) 195,603 31.9% (183,496) (56.6%) 12,107 4.2% – (42.5%) (24,441) (12.0%) 317,446 58.2% 22.6 41.2% (4.4) (21.5%) 3.5 9.2% (15.1%) (22.0%) 119,062 12.0%	Changes in Normalised accounts $000 % 540,689 34.8% 3,948 0.9% 536,741 48.0% 508,293 61.8% (312,690) (150.2%) 195,603 31.9% (183,496) (56.6%) 12,107 4.2% – (42.5%) (24,441) (12.0%) 317,446 58.2% 22.6 41.2% (4.4) (21.5%) 3.5 9.2% (15.1%) (22.0%) 119,062 12.0%

							61.8% (150.2%) 31.9% (56.6%) 4.2% (42.5%) (12.0%)

							58.2% 41.2% (21.5%) 9.2% (22.0%) 12.0%

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Notes: Numbers in the table may not add up due to rounding.

(1) Pass-through revenue is revenue on which no margin is earned. Pass-through revenue arises in the asset management operations in respect of costs incurred in, and passed on to Australian Gas Networks Limited (“AGN”, formerly Envestra Limited) and GDI in respect of the operation of the AGN and GDI assets respectively.
(2) Significant items: 2015 relates to a net gain realised from the sale of APA’s investment in AGN as well as the successful recovery of fees paid by Hastings Diversified Utilities Fund to Hastings Funds Management Limited.
(3) Operating cash flow = net cash from operations after interest and tax payments.
(4) Distribution payout ratio = total distribution payments as a percentage of normalised operating cash flow.

BUSINESS SEGMENT PERFORMANCES AND OPERATIONAL REvIEw

Statutory reported revenue and EBITDA performance of APA’s business segments is set out in the table below.

Revenue (continuing businesses) Energy Infrastructure East Coast Grid: Queensland East Coast Grid: NSW East Coast Grid: Victoria East Coast Grid: South Australia Northern Territory Western Australia Energy Infrastructure total Asset Management Energy Investments Total segment revenue Pass-through revenue Unallocated revenue(1) Divested business(2) Total revenue	30 June 2016 $000 939,963 143,427 152,991 2,871 28,843 260,481 1,528,576 95,430 28,271 1,652,277 438,330 3,697 – 2,094,304	30 June 2015 $000 388,916 137,998 163,592 2,725 27,877 265,972 987,080 85,056 21,784 1,093,920 434,382 24,322 991 1,553,615	Changes $000 % 551,047 141.7% 5,429 3.9% (10,601) (6.5%) 146 5.4% 966 3.5% (5,491) (2.1%) 541,496 54.9% 10,374 12.2% 6,487 29.8% 558,357 51.0% 3,948 0.9% (20,625) (84.8%) (991) (100.0%) 540,689 34.8%

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

EBITDA (continuing businesses) Energy Infrastructure East Coast Grid: Queensland East Coast Grid: NSW East Coast Grid: Victoria East Coast Grid: South Australia Northern Territory Western Australia Energy Infrastructure total Asset Management Energy Investments Corporate costs Total segment EBITDA Divested business(2) Total EBITDA before significant items Significant items(3) Total EBITDA	30 June 2016 $000 855,753 121,709 120,583 2,536 17,460 217,558 1,335,599 53,858 27,796 (86,710) 1,330,543 – 1,330,543 – 1,330,543	30 June 2015 $000 340,131 120,808 130,170 1,940 17,954 212,604 823,607 49,448 21,783 (73,579) 821,259 991 822,250 447,240 1,269,490	Changes $000 % 515,622 151.6% 901 0.7% (9,587) (7.4%) 596 30.7% (494) (2.8%) 4,954 2.3% 511,992 62.2% 4,410 8.9% 6,012 27.6% (13,131) 17.8% 509,284 62.0% (991) (100.0%) 508,293 61.8% (447,240) (100.0%) 61,053 4.8%

Notes: Numbers in the table may not add up due to rounding.

(1) Interest income is not included in calculation of EBITDA, but nets off against interest expense in calculating net interest cost.
(2) Investment in Australian Gas Networks Limited (“AGN”) sold in August 2014.
(3) Significant items: For FY2015, these relate to net proceeds realised from the sale of APA’s investment in AGN as well as successful recovery of fees paid by Hastings Diversified Utilities Fund to Hastings Funds Management Limited.

APA’s financial performance during the financial year reflects solid operations and continued investment in our assets.

Total segment EBITDA, which is earnings from APA’s continuing businesses, increased by $509.3 million, or 62.0%, to $1,330.5 million, over FY2015 figure of $821.3 million).

APA derives its revenue through a mix of regulated revenue, long-term negotiated revenue contracts, asset management fees and investment earnings. Earnings are underpinned by solid cash flows generated from high quality, geographically diversified assets and a portfolio of highly creditworthy customers.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(a) Energy Infrastructure

The Energy Infrastructure segment includes the interconnected energy infrastructure footprint across the mainland of Australia and includes gas transmission, gas compression and storage assets and a number of other wholly owned energy infrastructure assets. During the financial year, the Ethane Pipeline and the Diamantina and Leichhardt Power Stations were transferred into this segment from the Energy Investment segment, as APA gained full ownership of these assets. These acquisitions were in line with APA’s strategy to continue to invest in energy infrastructure that is underpinned by long term contracts from highly creditworthy counterparties.

This segment contributed 92.5% of group revenue (for continuing businesses, excluding pass-through) and 94.2% of group EBITDA (for continuing businesses and before corporate costs) during the financial year. Revenue (excluding pass-through revenue) was $1,528.6 million, an increase of 54.9% on the previous year (FY2015: $987.1 million). EBITDA (for continuing businesses, before corporate costs) increased by 62.2% on the previous year to $1,335.6 million (FY2015: $823.6 million). The majority of revenues in the Energy Infrastructure segment is derived from either regulatory arrangements or long term capacity-based contracts.

Regulatory arrangements on regulated assets are reviewed every five years. A national regulatory regime includes mechanisms for regulatory pricing and is encapsulated in the National Gas Law and National Gas Rules. The economic regulation aspects of the regime apply to most gas distribution networks and a number of gas transmission pipelines in Australia.

The regime provides for two forms of regulation based on a pipeline’s relative market power – full regulation and light regulation. For assets under full regulation, the regulator approves price and other terms of access for standard (“reference”) services as part of an access arrangement process, such that the asset owner has a reasonable opportunity to recover at least the efficient costs of owning and operating the asset to provide the reference services. Access arrangement periods usually run for five years. For assets under light regulation, contractual terms (including price) are negotiated between the service provider and customer with recourse to arbitration by the regulator in the absence of agreement.

Contracted revenues are sourced from unregulated assets and assets under light regulation as well as assets under full regulation. Contracts generally entitle customers to capacity reservation, with the majority of the revenue fixed over the term of the relevant contract. There is typically a small portion of the contract subject to throughput volume. The split between capacity charge and throughput charge differs between contracts and generally ranges from 85%/15% to 100%/0%.

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

During the financial year, 75% of Energy Infrastructure revenue (excluding pass-through) was from capacity reservation charges from term contracts, 6% from other contracted fixed revenues and 7% from throughput charges and other variable components. Given the dynamic east coast gas market, there were additional revenues from provision of flexible short term services, accounting for around 2.0%. The portion of APA’s revenue that is regulated has decreased to about 10% of FY2016 Energy Infrastructure revenue.

The increase in FY2016 earnings for Energy Infrastructure was primarily due to the full year contribution of the Wallumbilla Gladstone Pipeline (acquired June 2015), approximately seven months’ contribution from the Eastern Goldfields Pipeline (commissioned November 2015), three months’ EBITDA contribution from the Diamantina and Leichhardt Power Stations (acquired March 2016) and approximately two and a half months’ EBITDA contribution from the Ethane Pipeline (acquisition completed June 2016) as well as contributions from various other expansions that commissioned during the period.

APA manages its counterparty risk in a variety of ways. One aspect is to consider customers’ credit ratings. During FY2016, around 94% of revenue was received from investment grade counterparties. Diversification of customer base is another – during FY2016, 56% from energy sector customers (includes BG Group, on the Wallumbilla Gladstone Pipeline in particular); 29% of revenue was from customers in the utility sector; 12% from resources sector customers; and 3% from industrial customers. Revenues by customer industry segment changed from the majority sourced from utility customers in FY2015 to the majority coming from energy customers in FY2016, reflecting the impact of the long term contracts on the Wallumbilla Gladstone Pipeline.

APA’s Integrated Operations Centre (“IOC”) in Brisbane is now the operations control centre for APA’s transmission pipeline assets across the country. Centralised control at APA’s IOC, which houses a multi-disciplinary team of pipeline controllers, engineers, technicians and commercial operations specialists, has enabled more agile implementation of customer needs and allows APA to ensure that gas is moved to where it is required by customers in the most timely and efficient manner. The IOC, coupled with our unique customer management system, APA Grid, allows APA to offer innovative services to customers.

East Coast Grid + Northern Territory

APA’s 7,500 plus kilometre integrated pipeline grid on the east coast of Australia has the ability to transport gas seamlessly from multiple gas production facilities to gas users across four states and the ACT, as well as to the export LNG market which has developed out of Gladstone. With the proposed construction of the Northern Gas Pipeline, APA’s Northern Territory assets will in the future be connected to the East Coast Grid.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

During FY2016, APA purchased the remaining 50% stake in the Diamantina and Leichhardt Power Stations, adding further complementary assets to the East Coast Grid that will continue to enhance our service offering to our customers on the east coast of Australia.

Bi-directional and multi-asset services across our interconnected East Coast Grid have meant that APA is now a “one-stop shop” for many energy producers and users. Customers have the flexibility to access 40 receipt points and approximately 100 delivery points across the East Coast Grid.

APA has continued to invest in pipeline assets and services, commencing hub services at the Moomba gas hub, in addition to the Wallumbilla hub, and providing enhanced information transparency to the market via APA’s website.

FY2016 saw a material increase in earnings from assets in Queensland. This was largely driven by acquisitions (full year benefit from Wallumbilla Gladstone Pipeline and three months contribution from Diamantina and Leichhardt Power Stations). This was partially offset by a slight reduction in volumes on the Carpentaria Gas Pipeline due to reduced deliveries to power generators off the pipeline, given that the Diamantina Power Station is a more efficient power station than the previous incumbent, Mica Creek.

Contracts from phase 1 of the Victoria Northern Interconnect expansion project contributed for the full financial year. Revenue generated from these contracts was recorded across NSW and Victoria. Revenue and EBITDA in Victoria decreased in FY2016 compared to last year, partially due to weaker volumes and non-recurrence of a one-off item during FY2015.

APA also purchased the remaining 94% of the Ethane Pipeline Income Fund that it did not own during FY2016. The Ethane Pipeline now forms part of the Energy Infrastructure segment.

During the financial year, APA’s assets in the Northern Territory continued to perform to expectations.

Western Australia

In Western Australia, APA’s assets serve a variety of customers in the resources, industrial and utility sectors, mainly in the Perth, Pilbara and Goldfields regions.

EBITDA from APA’s western assets for the financial year was up slightly by 2.3% compared with the previous corresponding period.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The Eastern Goldfields Pipeline (“EGP”), which was commissioned in November 2015, contributed seven months earnings from gas transportation agreements with AngloGold Ashanti. A new agreement to transport gas to the Gold Fields Limited owned Granny Smith gold mine commenced in April 2016 and contributed three months earnings. With over 1,800km of pipeline infrastructure able to securely and reliably transport gas to the Goldfields mining region, APA continues to work with interested parties on other opportunities in the region.

Further, earnings from the Mondarra Gas Storage Facility increased due to additional capacity generated through an injection/withdrawal well enhancement project that was contracted to an existing customer. There continues to be interest from the market for gas storage services, which enables customers to manage their gas portfolios effectively.

These increases were partially offset by a reduction in revenue from the Goldfields Gas Pipeline (“GGP”) for the current period, reflecting tariff reductions contained in the final decision by the Economic Regulation Authority (“ERA”) on the access arrangement for the GGP that was announced on 30 June 2016. Whilst cash flow was not impacted during the year due to the timing of the final decision, the ultimate outcome has been provided for in the FY2016 results.

(b) Asset Management

APA provides asset management and operational services to the majority of its energy investments and to a number of third parties. Its main customers are Australian Gas Networks Limited (“AGN”), Energy Infrastructure Investments and GDI (EII). Asset management services are provided to these customers under long term contracts.

Revenue (excluding pass-through revenue) from asset management services increased by $10.4 million or 12.2% to $95.4 million (FY2015: $85.1 million) and EBITDA (for continuing businesses, excluding corporate costs) increased by $4.4 million or 8.9% to $53.9 million (FY2015: $49.4 million).

This increase in revenue and EBITDA is due to organic growth, reflecting increases in connections and asset management fees. This was partially offset by low gas volumes in the second half of FY2016, mainly due to a milder winter, which affects management fees earnt.

The gas distribution businesses of the bulk of AGN and GDI have seen solid connection growth through continued investment in new housing estates and high rise apartment developments as natural gas continues to be a fuel of choice for cooking, hot water and heating in these markets.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Customer contributions were in-line with the long term average of approximately $10 million per annum. APA continues to expect annual swings in customer contributions, as these are driven by customers’ work programmes and requirements.

APA sold its 33.05% stake in AGN in August 2014, however, the operating and maintenance agreements remain on foot until 2027.

(c) Energy Investments

APA has interests in a number of complementary energy investments across Australia.

APA’s ability to manage these investments and provide operational and/ or corporate support services gives it flexibility in the way it grows the business and harnesses expertise in-house. It provides options depending on opportunities available, energy market conditions and capital markets environment.

During the year, two of the assets that were previously managed under Energy Investments were acquired in full and transferred to Energy Infrastructure as wholly owned assets of APA.

On 31 March 2016, APA completed the acquisition of the 50% interest in Diamantina and Leichhardt Power Stations that it did not already own.
On 16 June 2016, APA completed the acquisition of the 94% interest in the Ethane Pipeline Income Trust that it did not already own, by way of an off-market takeover.

Both acquisitions fit with APA’s growth strategy to build out its energy infrastructure business and to leverage in-house asset management, development and operational capabilities. Both of these transactions are earnings per security accretive and make sense to APA, in light of market conditions and strategic benefit to APA.

In August 2016, APA acquired a 50% interest in the Mortlake Pipeline via a stake in the newly established SEA Gas (Mortlake) Partnership. The pipeline was commissioned in January 2011, and provides gas to the 550MW open cycle gas turbines at Mortlake Power Station. SEA Gas (Mortlake) Partnership and Origin have entered into long term contracts for the provision of transmission and storage services on the pipeline.

In terms of numbers, EBITDA from continuing investments increased by 4.8% to $22.8 million (FY2015: $21.8 million).

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(d) Corporate Costs

Corporate costs for the financial year increased by $13.3 million over the previous corresponding period to $86.7 million (FY2015: $73.6 million). This increase was primarily due to a number of one-off items including costs related to APA’s involvement in the Northern Territory’s NEGI process, APA’s unsuccessful bid for the Iona Gas Storage Facility, costs incurred in relation to a number of ongoing governmental enquiries into the gas market as well as an externally facilitated strategy and planning review undertaken during the year.

CAPITAL AND INvESTMENT EXPENDITURE

Capital and investment expenditure for FY2016 totalled $673.6 million. Of this, investment expenditure of $339.9 million related to the acquisitions during the year of Diamantina and Leichhardt Power Stations and the Ethane Pipeline, which have been described above.

Total capital expenditure (including stay-in-business capital expenditure but excluding acquisitions and other investing cash flows) for FY2016 was $333.7 million compared with $396.3 million last year. Growth project expenditure of $281.0 million (FY2015: $343.1 million) was related to the following projects during the year:

construction of the Eastern Goldfields Pipeline in Western Australia, which was completed during the financial year ahead of schedule;
completion of a further connection to Granny Smith gold mine on the Eastern Goldfields Pipeline in February 2016;
completion of bi-directional projects on Moomba Sydney Pipeline and Roma Brisbane Pipeline, with the main pipelines on APA’s East Coast Grid now all bi-directional;
continued works on the Victorian-Northern Interconnect expansion project, which will, when complete, expand the interconnect to 200 TJ/day in a northerly direction; and
completion of an injection/withdrawal enhancement project at the Mondarra Gas Storage Facility, on the back of an extension and additional contract with an existing customer.

APA’s growth capital expenditure continues to generally be either fully underwritten through long-term contractual arrangements or have regulatory approval through a relevant access arrangement.

– II-309 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Capital and investment expenditure for the financial year is detailed in the table below.

Capital and investment expenditure (1) Description of major projects Growth expenditure Regulated VNI looping and compression; various upgrades Non-regulated Queensland RBP bi-directional flow, SWQP easternhaul, Wallumbilla compression New South Wales Culcairn compressor, MSP reverse flow Western Australia EGP, Mondarra additional well, Granny Smith metering Other Sub-total unregulated capex Total growth capex Stay-in business capex Total capital expenditure Acquisitions WGP stamp duty, DPS, EPX Other investing cash flows Proceeds from sale of PP&E Total investment expenditure Total capital and investment expenditure	30 June 2016 ($ million) 130.9 14.0 4.8 97.6 33.7 150.1 281.0 52.7 333.7 340.3 (0.4) 339.9 673.6	30 June 2015 ($ million) 136.1
		104.4 12.1 64.2 29.0
		209.7
		345.8 50.6
		396.3
		5,866.8 21.2
		5,888.0
		6,284.3

Notes: Numbers in the table may not add up due to rounding.

(1) The capital expenditure shown in this table represents actual cash payments as disclosed in the cash flow statement, and excludes accruals brought forward from the prior period and carried forward to next period.

APA conducted an externally facilitated strategy and planning review during FY2016 and identified significant and ongoing opportunities for growth over the longer term.

As part of this review, APA has identified around $1.5 billion of organic opportunities in the near term, across pipeline extensions and expansions (circa $700 million), expansion of its renewables and generation foot print (circa $500 million) and expansion of its midstream asset foot print (circa $300 million).

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APA’s growth strategy will continue to be considered with the same principles and criteria that APA has always adhered to:

ensure appropriate funding and capital structure;
entering into contracts with strong counterparties;
maintain appropriate risk structure; and
leverage in-house operational expertise.

APA will also continue to assess the appropriateness of international opportunities.

FINANCING ACTIvITIES

(a) Capital Management

As at 30 June 2016, APA had 1,114,307,369 securities on issue. This was unchanged from 30 June 2015.

During the financial year, APA extended the term to maturity on its syndicated and bilateral bank facilities by between 12 and 24 months and entered into five new bilateral bank facilities for terms of between two and five years providing $350 million of further committed debt funding. APA repaid the $185.6 million (US$122.0 million) of US Private Placement Notes that matured in September 2015. This has resulted in the reduction of the proportion of fixed or hedged interest rate exposures within APA’s drawn debt portfolio, which is outlined further below.

APA’s debt portfolio has a broad spread of maturities extending out to FY2035, with an average maturity of drawn debt of 7.4 years at 30 June 2016. APA’s gearing[2] of 66.4% at 30 June 2016 was up on the 63.4% at 30 June 2015 due primarily to the acquisition of the Ethane Pipeline and the Diamantina and Leichhardt Power Stations. APA remains well positioned to fund its planned organic growth activities from available cash and committed resources.

As at 30 June 2016, APA had over $754 million in cash and committed undrawn facilities available to meet the continued capital growth needs of the business.

APA has a prudent treasury policy which requires conservative levels of hedging of interest rate exposures to minimise the potential impacts from adverse movements in interest rates. Other than noted below, all interest rate and foreign currency exposures on debt raised in foreign currencies have been hedged.

2 For the purpose of the calculation, drawn debt that has been kept in USD (rather than AUD) has been nominally exchanged at AUD/USD exchange rates of 0.7772 for Euro and GBP MTN issuances and 0.7879 for US144A notes at respective inception dates.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The majority of the revenues to be received over the next 20 years from the foundation contracts on the Wallumbilla Gladstone Pipeline will be received in USD. The US$3.7 billion of debt raised to fund that acquisition is being managed as a “designated hedge” for these revenues and therefore has been retained in USD. Net USD cash flow (after servicing the USD interest costs) that is not part of that “designated relationship” will continue to be hedged into AUD on a rolling basis for an appropriate period of time, in-line with APA’s treasury policy. To date, the following net USD cash flow hedging has been undertaken:

	Average forward
Period	USD/AUD exchange rate
FY2017	0.7381
FY2018	0.7282
1H FY2019 (to Dec 2018)	0.6716

A large portion of the net revenue from March 2019 is in that designated hedge relationship with the USD debt and as such, when that revenue is receivable, will be recognised in the P&L at an average rate of around 0.78.

APA also enters into interest rate hedges for a proportion of the interest rate exposure on its floating rate borrowings. As at 30 June 2016, 86.5% (30 June 2015: 94.0%) of interest obligations on gross borrowings was either hedged into or issued at fixed interest rates for varying periods extending out to 2035.

(b) Borrowings and finance costs

As at 30 June 2016, APA had borrowings of $9,037.3 million ($8,642.8 million at 30 June 2015) from a mix of syndicated and bilateral bank debt facilities, US Private Placement Notes, Medium Term Notes in several currencies, Australian Medium Term Notes, United States 144A Notes and APA Group Subordinated Notes.

Net finance costs increased by $183.5 million, or 56.6%, to $507.7 million (FY2015: $324.2 million). The increase is primarily due to having the additional US$3.7 billion of debt issued in March 2015 to support the acquisition of the Wallumbilla Gladstone Pipeline for the full 2016 financial year. The average interest rate (including credit margins)[3] applying to drawn debt was 5.64% for the current period (FY2015: 6.76%).

APA’s interest cover ratio for the current period was 2.6 times[4] (June 2015: 2.6 times). This remains well in excess of its debt covenant default ratio of 1.1 times and distribution lock up ratio of 1.3 times.

3 For the purpose of the calculation, drawn debt that has been kept in USD (rather than AUD) has been nominally exchanged at AUD/USD exchange rates of 0.7772 for Euro and GBP MTN issuances and 0.7879 for US144A notes at respective inception dates.

4 For the calculation of interest cover, significant items are excluded from the EBITDA used.

– II-312 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The following is an extract of the management discussion and analysis of the results of the Target Group for the year ended 30 June 2017, from the 2017 annual report of the Target issued on 23 August 2017.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

FINANCIAL OvERvIEw

Earnings before interest and tax (EBIT) and EBIT before depreciation and amortisation (EBITDA) excluding significant items are financial measures not prescribed by Australian Accounting Standards (AIFRS) and represent the profit under AIFRS adjusted for specific significant items. The Directors consider these measures to reflect the core earnings of the Consolidated Entity, and therefore these are described in this report as ‘normalised’ measures.

For the financial year to 30 June 2017 APA reported EBITDA of $1,470.1 million, an increase of 10.5% or $139.6 million on the previous corresponding period EBITDA of $1,330.5 million.

Total revenue (excluding pass-through revenue) increased by $232.3 million to $1,888.3 million, an increase of 14.0% on the previous corresponding period (FY2016: $1,656.0 million).

Increased revenues and EBITDA were primarily attributable to:

a full year contribution from the Eastern Goldfields Pipeline, Ethane Pipeline and the Diamantina and Leichhardt Power Stations (DPS);
contributions from various new contracts that commenced on the East Coast Grid; and
a decrease in corporate costs, where the FY2016 results included certain oneoff items.

Most significantly, during FY2017, APA announced in excess of $1.2 billion of new growth projects to be commissioned over the next 2 years.

All of these projects will contribute to future operating cash flow, which in FY2017 was $973.9 million. This represents an increase of 12.9% or $111.5 million over the previous year (FY2016: $862.4 million), with operating cash flow per security increasing by 12.9%, or 10 cents, to 87.4 cents per security (FY2016: 77.4 cents per security).

– II-314 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The following table provides a summary of key financial data for FY2017.

Total revenue Pass-through revenue(1) Total revenue excluding pass-through EBITDA Depreciation and amortisation expenses EBIT Finance costs and interest income Profit before income tax Income tax (expense)/benefit Profit after income tax Operating cash flow(2) Operating cash flow per security (cents) Earnings per security (cents) Distribution per security (cents) Distribution payout ratio(3) Weighted average number of securities (000)	30 June 2017 $000 2,326,420 438,140 1,888,280 1,470,122 (570,021) 900,101 (513,767) 386,334 (149,488) 236,846 973,936 87.4 21.3 43.5 49.8% 1,114,307	30 June 2016 $000 2,094,304 438,330 1,655,974 1,330,543 (520,890) 809,653 (507,658) 301,995 (122,524) 179,471 862,435 77.4 16.1 41.5 53.6% 1,114,307	Changes $000 % 232,116 11.1% (190) – 232,306 14.0% 139,579 10.5% (49,131) (9.4%) 90,448 11.2% (6,109) (1.2%) 84,339 27.9% (26,964) (22.0%) 57,375 32.0% 111,501 12.9% 10.0 12.9% 5.2 32.3% 2.0 4.8% (3.8%) (7.1%) – –

Notes: Numbers in the table may not add up due to rounding.

(1) Pass-through revenue is revenue on which no margin is earned. Pass-through revenue arises in the asset management operations in respect of costs incurred in, and passed on to Australian Gas Networks Limited (AGN) and GDI in respect of the operation of the AGN and GDI assets respectively.
(2) Operating cash flow = net cash from operations after interest and tax payments.
(3) Distribution payout ratio = total distribution applicable to the financial year as a percentage of operating cash flow.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

BUSINESS SEGMENT PERFORMANCES AND OPERATIONAL REvIEw

Statutory reported revenue and EBITDA performance of APA’s business segments is set out in the table below.

Revenue Energy Infrastructure East Coast: Queensland East Coast: NSW East Coast: Victoria East Coast: South Australia Northern Territory Western Australia Energy Infrastructure total Asset Management Energy Investments Total segment revenue Pass-through revenue Unallocated revenue(1) Total revenue EBITDA Energy Infrastructure East Coast: Queensland East Coast: NSW East Coast: Victoria East Coast: South Australia Northern Territory Western Australia Energy Infrastructure total Asset Management Energy Investments Corporate costs Total EBITDA	30 June 2017 $000 1,114,428 176,000 156,946 2,958 30,932 291,728 1,772,992 86,424 24,382 1,883,798 438,140 4,482 2,326,420 925,366 149,484 123,008 2,319 18,771 234,724 1,453,672 58,719 24,382 (66,651) 1,470,122	30 June 2016 $000 939,963 143,427 152,991 2,871 28,843 260,481 1,528,576 95,430 28,271 1,652,277 438,330 3,697 2,094,304 855,753 121,709 120,583 2,536 17,460 217,558 1,335,599 53,858 27,796 (86,710) 1,330,543	Changes $000 % 174,465 18.6% 32,573 22.7% 3,955 2.6% 87 3.0% 2,089 7.2% 31,247 12.0% 244,416 16.0% (9,006) (9.4%) (3,889) (13.8%) 231,521 14.0% (190) – 785 21.2% 232,116 11.1% 69,613 8.1% 27,775 22.8% 2,425 2.0% (217) (8.6%) 1,311 7.5% 17,166 7.9% 118,073 8.8% 4,861 9.0% (3,414) (12.3%) 20,059 23.1% 139,579 10.5%

Notes: Numbers in the table may not add up due to rounding.

(1) Interest income is not included in calculation of EBITDA, but nets off against interest expense in calculating net interest cost.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APA’s financial performance during the financial year reflects solid operations and continued investment in our assets.

Total segment EBITDA increased by $139.6 million, or 10.5%, to $1,470.1 million, over the FY2016 result of $1,330.5 million.

(a) Energy Infrastructure

This segment contributed 94.1% of group revenue (excluding pass-through) and 94.6% of group EBITDA (before corporate costs) during the financial year. Revenue (excluding pass-through revenue) was $1,773.0 million, an increase of 16% on the previous year (FY2016: $1,528.6 million). EBITDA (before corporate costs) increased by 8.8% on the previous year to $1,453.7 million (FY2016: $1,335.6 million).

The increase in FY2017 earnings for Energy Infrastructure was primarily due to the full year contribution from the Eastern Goldfields Pipeline, the Diamantina and Leichhardt Power Stations (DPS) and the Ethane Pipeline.

The majority of revenues in the Energy Infrastructure segment are derived from either regulatory arrangements or long term capacity-based contracts. Regulatory arrangements on regulated assets are usually reviewed every five years. A national regulatory regime includes mechanisms for regulatory pricing and is encapsulated in the National Gas Law and National Gas Rules. The economic regulation aspects of the regime apply to most gas distribution networks and a number of gas transmission pipelines in Australia.

The regime provides for two forms of regulation based on a pipeline’s relative market power – full regulation and light regulation. For assets under full regulation, the regulator approves price and other terms of access for standard (“reference”) services as part of an access arrangement process, such that the asset owner has a reasonable opportunity to recover at least the efficient costs of owning and operating the asset to provide the reference services. Access arrangement periods usually run for five years. For assets under light regulation, contractual terms (including price) are negotiated between the service provider and customer with recourse to dispute resolution by the regulator in the absence of agreement.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

During FY2017, the COAG Energy Council accepted the recommendations from Dr Michael Vertigan to increase information disclosure and implement a commercial arbitration framework for unregulated pipelines. These and other gas market regulatory reform initiatives have now moved to further development and implementation.

During the financial year, 74.2% of Energy Infrastructure revenue (excluding pass-through) was from capacity reservation charges from term contracts, 4.6% from other contracted fixed revenues and 9.9% from throughput charges and other variable components. Given the dynamic east coast gas market, there were additional revenues from provision of flexible short term services, accounting for around 1.7%. The portion of APA’s regulated revenue is 9.4% of FY2017 Energy Infrastructure revenue.

APA manages its counterparty risk in a variety of ways. One aspect is to consider customers’ credit ratings. During FY2017, more than 92% of Energy Infrastructure revenue was received from investment grade counterparties. Diversification of customer base is another strength of APA’s business, with our customers split across the energy, utility, resources and industrial sectors.

APA’s Integrated Operations Centre in Brisbane has continued to generate operational, safety and financial benefits from having real-time visibility across transmission assets throughout Australia. Integrating the elements of engineering, commercial and system operation in daily decision making has enabled better outcomes for our customers under both normal operating conditions as well as unplanned plant, market or customer disruption periods. Knowledge around individual customer requirements and nuances are captured to improve and customise services to APA’s customers, as well as to enhance operational risk management across the national platform.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

East Coast and Northern Territory

EBITDA from APA’s assets on the eastern states increased by 9% during the

year.

During FY2017, NSW earnings were boosted by a full year contribution from the Ethane Pipeline. The Victorian-Northern Interconnect expansion was also completed, and new contracts progressively contributed to additional earnings across both Victorian and NSW pipeline systems, including the multi-services contract with AGL that commenced on 1 January 2017. Victoria’s EBITDA also benefited from a colder winter and spring, earlier in the financial year.

In Queensland, FY2017 saw the first full year contribution from DPS, the remaining 50% of which was acquired during FY2016. Whilst the Queensland results also benefited from a number of multi-asset contracts which commenced during the period, this was partially offset by a reduction in short term revenues seen during LNG projects ramping up in FY2016.

APA continues to develop new opportunities for its assets on the east coast of Australia. Growth projects announced during the year were:

the Reedy Creek Wallumbilla Pipeline, which will connect Australia Pacific LNG’s coal seam gas fields directly to APA’s East Coast Grid. Construction is on track and commissioning is expected mid-2018, at which time, APLNG will have the capability to move up to 300TJ per day of gas into and out of the East Coast Grid, helping to balance domestic gas supply and demand.
the Orbost Gas Processing Plant, for which works have also commenced late in FY2017. The plant will be connected to Cooper Energy’s Sole gas field and bring in much needed additional gas supply to the eastern markets.
the 110MW Darling Downs Solar Farm project, which APA purchased from Origin Energy. It has a 12 year offtake contract with Origin Energy and is expected to start producing electricity by late 2018.

During the financial year, APA’s assets in the Northern Territory continued to perform to expectations.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Western Australia

In Western Australia, APA’s assets serve a variety of customers in the resources, industrial and utility sectors, mainly in the Perth, Pilbara and Goldfields regions.

EBITDA from APA’s Western Australian assets for the financial year was up

by 7.9% compared with FY2016.

Full year earnings from the Eastern Goldfields Pipeline contributed to the increased earnings for APA’s Western Australian assets. The additional transaction announced during the year to connect the Gruyere Gold Project to reliable energy across 1,500 km using APA’s Goldfields Gas Pipeline, Murrin Murrin Lateral, Eastern Goldfields Pipeline and the to be constructed Yamarna Gas Pipeline further underwrites the value of our interconnected gas infrastructure into the minerals rich region of Goldfields and Pilbara. Both the pipeline and the power station have commenced construction with a target commissioning date of late 2018.

In APA’s energy precinct north of Perth, earnings from the Mondarra Gas Storage and Processing Facility increased year on year, due to a well enhancement project in FY2016. The Emu Downs Wind Farm benefited from better wind resource. This site will be further enhanced as APA is erecting solar panels with a capacity of 20MW (Emu Downs Solar Farm) and expanding its wind farm footprint to an adjacent site at Badgingarra with the construction of a 130MW wind farm (Badgingarra Wind Farm). All three renewable energy power generation assets will share existing infrastructure and on-the-ground resources, and generate additional revenues for APA once completed.

The increase in revenue from Mondarra Gas Storage and Processing Facility were partially offset by a reduction in revenue from the Goldfields Gas Pipeline for the current period, reflecting tariff reductions contained in the new access arrangement that came into effect during the period.

(b) Asset Management

APA provides asset management and operational services to the majority of its energy investments and to a number of third parties. Its main customers are Australian Gas Networks Limited (AGN)[1] , Energy Infrastructure Investments and GDI (EII). Asset management services are provided to these customers under long-term contracts.

1 APA sold its 33.05% stake in AGN in August 2014, however, the operating and maintenance agreements remain on foot until 2027.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Revenue (excluding pass-through revenue) from asset management services decreased by $9.0 million or 9.4% to $86.4 million (FY2016: $95.4 million) and EBITDA (excluding corporate costs) increased by $4.9 million or 9.0% to $58.7 million (FY2016: $53.9 million).

Customer contributions, which are payments received from a third party for APA to undertake work on the assets it manages to accommodate that third party’s project, remains in-line with the long term average of approximately $10 million per annum. APA continues to expect annual swings in customer contributions, as these are driven by customers’ requirements.

Excluding customer contributions, both revenue and EBITDA decreased slightly for the Asset Management business. Whilst a colder winter contributed to higher network volumes this was offset by lower tariffs on AGN’s South Australian distribution network, given the new access arrangement that took effect from the beginning of FY2017, as well as the transfer of the Ethane Pipeline and Diamantina and Leichhardt Power Stations to full ownership by APA, and now included under Energy Infrastructure. The Australian Energy Regulator is expected to hand down its final decision on the Access Arrangement for AGN’s Victorian distribution network during 1H FY2018, with the new tariffs applying from January 2018.

The gas distribution businesses of AGN and GDI have seen solid connection growth through continued investment in new housing estates and high rise apartment developments as natural gas continues to be a fuel of choice for cooking, hot water and heating in these markets.

(c) Energy Investments

APA has interests in a number of complementary energy investments across Australia.

APA’s ability to manage these investments and provide operational and/or corporate support services gives it flexibility in the way it grows the business and harnesses expertise in-house.

EBITDA from Energy Investments was $24.4 million (FY2016: $27.8 million). The reduction is due to DPS and the Ethane Pipeline being transferred to the Energy Infrastructure segment from Energy Investments segment, partly offset by increased income from our investment in GDI(EII).

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

(d) Corporate Costs

Corporate costs for the financial year decreased by $20.0 million over the previous corresponding period to $66.7 million (FY2016: $86.7 million). This reflects the one-off nature of certain costs incurred in the previous corresponding period (around $13 million) and ongoing cost control within the business.

CAPITAL AND INvESTMENT EXPENDITURE

Capital and investment expenditure for FY2017 totalled $377.5 million.

Total capital expenditure (including stay-in-business capital expenditure but excluding acquisitions and other investing cash flows) for FY2017 was $340.7 million compared with $333.7 million last year. Growth project expenditure of $271.9 million (FY2016: $281.0 million) was related to the following projects during the year:

completion of the latest stage of the Victorian-Northern Interconnect expansion project, which has expanded the bi-directional interconnect;
Moomba Interconnect project, which, for minimal capital spend, has increased the efficiency of the operation of APA’s East Coast Grid, facilitating gas flows through Moomba; and
commencement of growth projects announced during the year, including Reedy Creek Wallumbilla Pipeline, Emu Downs Solar Farm, Badgingarra Wind Farm, Darling Downs Solar Farm and the Orbost Gas Processing Plant.

APA’s growth capital expenditure continues to be fully underwritten through longterm contractual arrangements or to have regulatory approval through a relevant access arrangement. Capital and investment expenditure for the financial year is detailed in the table below.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Capital and investment expenditure(1) Description of major projects Growth expenditure Regulated Victorian-Northern Interconnect expansion Non-regulated Queensland Darling Downs Solar Farm, Reedy Creek Wallumbilla Pipeline New South Wales Western Australia Badgingarra Wind Farm, Emu Downs Solar Farm, Yamarna Pipeline & Power Station Other Sub-total unregulated capex Total growth capex Stay-in business capex Total capital expenditure Investment and acquisitions(2) Total capital and investment expenditure	30 Jun 2017 ($ million) 106.1 78.3 0.4 30.6 56.5 165.8 271.9 68.8 340.7 36.8 377.5	30 Jun 2016 ($ million) 130.9
		14.0 4.8 97.6 33.7
		150.1
		281.0 52.7
		333.7 339.9
		673.6

Notes: Numbers in the table may not add up due to rounding.

(1) The capital expenditure shown in this table represents net cash used in investing activities as disclosed in the cash flow statement, and excludes accruals brought forward from the prior period and carried forward to next period.

(2) Investments & acquisitions capital expenditure is net of gains on disposals.

APA announced at its FY2016 annual results presentation last August that it had identified around $1.5 billion of organic opportunities in the near term.

During the course of FY2017, APA announced in excess of $1.2 billion of projects in the areas of pipeline extensions and expansions, renewables and mid-stream assets that will require in the order of $800 million of growth capital investment in FY2018, with revenues to be received from early FY2019.

Beyond FY2018 APA expects $300 to $400 million per annum over the next two to three years in growth projects coming to fruition across all of those sectors, as we continue to engage with our customers on what their needs are within that timeframe. These projects are underwritten by long term contracts with our customers and will increase APA’s earnings base as they are commissioned.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Major projects announced to date are:

The Reedy Creek Wallumbilla Pipeline is a 50km, 300TJ per day, bidirectional pipeline connected to APA’s East Coast Grid that will provide a key link to the Wallumbilla Gas Hub for Australia Pacific LNG Marketing Pty Limited, at an estimated cost of $80 million and scheduled to complete around the middle of 2018. APA has entered into a 20-year contract with APLNG.
The Emu Downs Solar Farm is a 20MW solar farm, being built next to the Emu Downs Wind Farm site. Synergy, the Western Australian energy provider has entered into a 13-year offtake agreement for both the energy and the Largescale Renewable Generation Certificates (LGCs), commencing January 2018. The estimated $50 million project will be partially funded with a $5.5 million grant from the Australian Renewable Energy Agency (ARENA).
The Badgingarra Wind Farm is a 130MW wind farm, to be built at an estimated cost of $315 million, on the site adjacent to the existing Emu Downs Wind Farm (final condition precedent expected to be met in August 2017). Alinta Energy has entered into a 12-year offtake agreement for both the energy and the LGCs, commencing January 2019.
The Orbost Gas Processing Plant is (subject to conditions precedent) being acquired and upgraded by APA for an estimated cost of $270 million and upon completion of the refurbishment, will process raw natural gas from Cooper Energy’s offshore Sole gas field under a multi-year Gas Processing Agreement from mid-2019.
The Darling Downs Solar Farm is a 110MW solar farm, to be built at an estimated cost of $200 million (partially funded with a $20 million grant from ARENA). Origin Energy has entered into a 12-year offtake agreement for both the energy and the LGCs from late 2018.
The Yamarna Gas Pipeline (YGP) and the Yamarna Power Station (YPS) which will deliver energy to the Gruyere Gold Project in Western Australia. The YGP is a 198km pipeline that will deliver gas to the 45MW YPS across 1,500km, connecting through the Goldfields Gas Pipeline, Murrin Murrin Lateral and the Eastern Goldfields Pipeline. A 15-year gas transportation agreement and a 15year electricity supply agreement have been entered into with the Gruyere Gold Project, a 50:50 joint venture between ASX listed Gold Road Resources Ltd and the global miner Gold Fields Limited. Commissioning is expected in late 2018, and total project cost is estimated to be $180 million.

In addition to these committed projects, APA continues to develop opportunities with our customers to deliver more energy to users, including the Western Slopes Pipeline, which, subject to Santos’ FID, will connect the proposed Narrabri Gas Project to APA’s Moomba Sydney Pipeline and feasibility study to connect Northern Queensland gas basins to APA’s East Coast Grid.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APA’s growth strategy will continue to be considered using the same principles and criteria that APA has always adhered to, which are to:

maintain an appropriate risk and return structure;
ensure an appropriate funding and capital structure;
enter into contracts with highly creditworthy counterparties; and
leverage in-house operational expertise.

Stay-in business capex increased from $52.7 million in FY2016 to $68.8 million during this financial year. This was in line with both the long term asset management planning cycle across our assets and the increasing scale of the business.

FINANCING ACTIvITIES

(a) Capital Management

As at 30 June 2017, APA had 1,114,307,369 securities on issue. This was unchanged from 30 June 2016.

During the financial year, APA issued A$200 million of 7-year fixed-rate Australian dollar Medium Term Notes in October 2016 and US$850 million (A$1,109 million) of 10.3-year senior guaranteed notes into the US 144A market in March 2017. APA repaid $85.8 million (US$65.0 million) and $295.0 million (US$154.0 million and A$104.2 million) of US Private Placement Notes when they matured in July 2016 and May 2017 respectively.

APA’s debt portfolio has a broad spread of maturities extending out to FY2035, with an average maturity of drawn debt of 7.5 years at 30 June 2017. APA’s gearing[2] of 67.4% at 30 June 2017 was marginally higher than the 66.4% at 30 June 2016. APA remains well positioned to fund its planned growth activities with over $1,460 million in cash and committed undrawn facilities, as well as ongoing access to a broad range of debt capital markets available as at 30 June 2017.

2 For the purpose of the calculation, drawn debt that has been kept in USD (rather than AUD) has been nominally exchanged at AUD/USD exchange rates of 0.7772 for Euro and GBP MTN issuances and 0.7879 for US144A notes at respective inception dates.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The majority of the revenues to be received over the remaining 18.5 years of the foundation contracts on the Wallumbilla Gladstone Pipeline will be in USD. The US$3.7 billion of debt raised to fund that acquisition is being managed as a “designated hedge” for these revenues and therefore has been retained in USD. Net USD cash flow (after servicing the USD interest costs) that is not part of that “designated relationship” will continue to be hedged into AUD on a rolling basis for an appropriate period of time, in-line with APA’s treasury policy. To date, the following net USD cash flow hedging has been undertaken:

	Average forward
Period	USD/AUD exchange rate
FY2017	0.7381
FY2018	0.7282
1H FY2019 (to Dec 2018)	0.6716

APA also enters into hedges to manage its interest rate exposure on its floating rate and other non-Australian dollar borrowings. As at 30 June 2017, 94.5% (30 June 2016: 86.5%) of interest obligations on gross borrowings was either hedged into or issued at fixed interest rates for varying periods extending out to March 2035.

(b) Borrowings and finance costs

As at 30 June 2017, APA had borrowings of $9,249.7 million ($9,037.3 million at 30 June 2016) from a mix of US Private Placement Notes, Medium Term Notes in several currencies, United States 144A Notes and APA Group Subordinated Notes. APA also had $1,068.8 million of undrawn committed syndicated and bilateral bank facilities.

Net finance costs increased by $6.1 million, or 1.2%, to $513.8 million (FY2016: $507.7 million). The increase is primarily due to having a higher level of drawn debt in FY17 relative to FY16. The average interest rate (including credit margins)[3] applying to drawn debt was 5.56% for the current period (FY2016: 5.78%).

APA’s interest cover ratio for the current period was 2.8 times (June 2016: 2.6 times). This remains well in excess of its debt covenant default ratio of 1.1 times and distribution lock up ratio of 1.3 times.

3 For the purpose of the calculation, drawn debt that has been kept in USD (rather than AUD) has been nominally exchanged at AUD/USD exchange rates of 0.7772 for Euro and GBP MTN issuances and 0.7879 for US144A notes at respective inception dates.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The following is an extract of the management discussion and analysis of the results of the Target Group for the year ended 30 June 2018, from the 2018 annual report of the Target issued on 22 August 2018.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

FINANCIAL OvERvIEw

For the financial year to 30 June 2018, APA reported EBITDA of $1,518.5 million, an increase of 3.3% or $48.4 million on the previous corresponding period EBITDA of $1,470.1 million. This is slightly above the upper level of APA’s guidance range of $1,475 million to $1,510 million, as advised at the announcement of our FY2017 results and reconfirmed at our 1HFY18 results.

Total revenue (excluding pass-through revenue) increased by $53.1 million to $1,941.4 million, an increase of 2.8% on the previous corresponding period (FY2017: $1,888.3 million).

Increased revenues and EBITDA were primarily attributable to:

part year contributions from newly commissioned organic growth assets including the Reedy Creek Wallumbilla Pipeline (QLD), Mt Morgans Gas Pipeline (WA) and the Emu Downs Solar Farm (WA). Less than $5 million in revenue in FY2018 was from the new growth projects, with the full accretive impact from these projects to flow from FY2019;
new gas transportation contracts across APA’s East and West Coast Grids, and a new mining customer for the Diamantina Power Station; and
US CPI escalation and favourable USD/AUD exchange rates in relation to the Wallumbilla Gas Pipeline.

The solid FY2018 results endorse APA’s prudent and consistent strategy of pursuing secure and sustainable growth opportunities that earn fair commercial returns. The astute investments, acquisitions and organic growth developments over the last 18 years, continue to sustain the business as it undertakes the largest growth expansion capital spend in the Group’s history. Across the three-year period of FY2017 to FY2019, APA will spend in excess of $1.4 billion on committed growth projects, all of which will contribute to future operating cash flow.

In FY2018, operating cash flow was $1,031.6 million. This represents an increase of 5.9% or $57.7 million over the previous year (FY2017: $973.9 million), with operating cash flow per security increasing by 4.1%, or 3.6 cents, to 90.7 cents per security (FY2017: 87.1[1] cents per security).

1 Operating cash flow per security has been adjusted for the Entitlement Offer completed on the 23 March 2018. An adjustment factor of 1.0038 has been calculated, being the closing market price per security on 23 February 2018, divided by the theoretical ex-rights price (TERP) of $8.23 per security.

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FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The following table provides a summary of key financial data for FY2018.

Total revenue Pass-through revenue(1) Total revenue excluding pass-through EBITDA Depreciation and amortisation expenses EBIT Finance costs and interest income Profit before income tax Income tax (expense)/benefit Profit after income tax Operating cash flow(2) Operating cash flow per security (cents) Earnings per security (cents) Distribution per security (cents) Distribution payout ratio(3) Weighted average number of securities (000)(4)	30 June 2018 $000 2,386,722 445,307 1,941,415 1,518,474 (578,916) 939,558 (509,664) 429,894 (165,055) 264,839 1,031,627 90.7 23.3 45.0 51.5% 1,136,875	30 June 2017 $000 2,326,420 438,140 1,888,280 1,470,122 (570,021) 900,101 (513,767) 386,334 (149,488) 236,846 973,936 87.1 21.2 43.5 49.8% 1,118,523	Changes $000 % 60,302 2.6% 7,167 1.6% 53,135 2.8% 48,352 3.3% (8,895) (1.6%) 39,457 4.4% 4,103 0.8% 43,560 11.3% (15,567) (10.4%) 27,993 11.8% 57,691 5.9% 3.6 4.1% 2.1 9.9% 1.5 3.4% 1.7% 3.4% 18,352 1.6%

Notes: Numbers in the table may not add up due to rounding.

(1) Pass-through revenue is revenue on which no margin is earned. Pass-through revenue arises in the asset management operations in respect of costs incurred in, and passed on to Australian Gas Networks Limited (AGN) and GDI in respect of the operation of the AGN and GDI assets respectively.
(2) Operating cash flow = net cash from operations after interest and tax payments.
(3) Distribution payout ratio = total distribution applicable to the financial year as a percentage of operating cash flow.
(4) On the 23 March 2018, APA Group issued 65,586,479 new ordinary securities on completion of the fully underwritten pro-rata accelerated institutional tradeable renounceable entitlement offer (Entitlement Offer), resulting in total securities on issue as at 30 June 2018 of 1,179,893,848. The Entitlement Offer was offered at $7.70 per security, a discount to APA Group’s closing market price of $8.26 per security on the 23 February 2018, the last trading day before the record date of 26 February 2018. The number of securities used for FY2018 and FY2017 calculation of earnings per security and operating cash flow per security have been adjusted.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

BUSINESS SEGMENT PERFORMANCES AND OPERATIONAL REvIEw

Statutory reported revenue and EBITDA performance of APA’s business segments is set out in the table below.

Revenue Energy Infrastructure East Coast: Queensland East Coast: New South Wales East Coast: Victoria East Coast: South Australia Northern Territory Western Australia Energy Infrastructure total Asset Management Energy Investments Total se gment revenue Pass-through revenue Unallocated revenue(1) Total revenue EBITDA Energy Infrastructure East Coast: Queensland East Coast: New South Wales East Coast: Victoria East Coast: South Australia Northern Territory Western Australia Energy Infrastructure total Asset Management Energy Investments Corporate costs Total EBITDA	30 June 2018 $000 1,153,214 166,506 153,699 2,998 32,861 294,681 1,803,959 108,537 23,068 1,935,564 445,307 5,851 2,386,722 962,231 147,095 124,631 2,577 22,923 237,639 1,497,096 66,204 23,068 (67,894) 1,518,474	30 June 2017 $000 1,114,428 176,000 156,946 2,958 30,932 291,728 1,772,992 86,424 24,382 1,883,798 438,140 4,482 2,326,420 925,366 149,484 123,008 2,319 18,771 234,724 1,453,672 58,719 24,382 (66,651) 1,470,122	Changes $000 % 38,786 3.5% (9,494) (5.4%) (3,247) (2.1%) 40 1.4% 1,929 6.2% 2,953 1.0% 30,967 1.7% 22,113 25.6% (1,314) (5.4%) 51,766 2.7% 7,167 1.6% 1,369 30.5% 60,302 2.6% 36,865 4.0% (2,389) (1.6%) 1,623 1.3% 258 11.1% 4,152 22.1% 2,915 1.2% 43,424 3.0% 7,485 12.7% (1,314) (5.4%) (1,243) (1.9%) 48,352 3.3%

Notes: Numbers in the table may not add up due to rounding.

(1) Interest income is not included in calculation of EBITDA, but nets off against interest expense in calculating net interest cost.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APA has delivered a solid result in FY2018 reflecting sustainable operations and the intrinsic value of the business, which is more than the sum of its individual assets. APA’s diversity of expertise, asset type and geographic spread all contribute to APA’s business sustainability.

Total EBITDA increased by $48.4 million, or 3.3%, to $1,518.5 million, over the FY2017 result of $1,470.1 million. APA derives its revenue through a mix of regulated revenue, long-term negotiated revenue contracts, asset management fees and investment earnings. Earnings are underpinned by solid cash flows generated from high quality, geographically diversified assets and a portfolio of highly creditworthy customers.

(a) Energy Infrastructure

The Energy Infrastructure segment consists of all APA’s interconnected energy infrastructure footprint across mainland Australia including gas transmission, gas compression, processing and storage assets, renewable energy power generation, and gas-fired power generation.

This segment is the largest contributor to group revenue, contributing 93.2% (excluding pass-through) and 94.4% of group EBITDA (before corporate costs) during the financial year. Revenue (excluding pass-through revenue) was $1,804.0 million, an increase of 1.7% on the previous year (FY2017: $1,773.0 million). EBITDA (before corporate costs) increased by 3.0% on the previous year to $1,497.1 million (FY2017: $1,453.7 million).

This segment is characterised by the East Coast Gas Grid and the West Coast Gas Grid, the nature of which will result in both positive and negative swings over the longer term in revenue and EBITDA on the individual assets that make up each of those grids. In FY2018, for example, increased revenue and EBITDA in Queensland offset reductions in New South Wales and Victoria as customers with more flexible multi-asset, multi service contracts determined their respective needs, period on period, for gas sourcing and delivery.

During the reporting period, new earnings were realised from recently completed and commissioned assets including the Reedy Creek Wallumbilla Pipeline, the Mt Morgans Gas Pipeline and the Emu Downs Solar Farm. FY2018 earnings for Energy Infrastructure also benefitted from the US CPI increase on the Wallumbilla Gladstone Pipeline contract, along with a favourable USD/AUD exchange rate as the majority of contract revenues are in USD.

The majority of revenues in the Energy Infrastructure segment derive from either regulatory arrangements or long term capacity-based contracts. Contracts generally have the majority of the revenue fixed over the term of the relevant contract.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

During FY2018, APA refreshed its suite of gas pipeline services, to provide customers with more options and additional flexibility making it simpler for customers to better manage their gas portfolios. The refreshed services and approach provide additional clarity and ease of access for customers to APA’s infrastructure, which will help promote gas market liquidity.

During the reporting period, APA announced several significant new or renewal contracts including: a new $40 million revenue contract over three years for gas transportation and storage from Queensland into southern markets; a $38 million contract extension over two years for an East Coast Grid customer; and a new gas transportation agreement with Incitec Pivot to transport gas over 3,300 km from the Northern Territory to their Gibson Island fertilizer plant near Brisbane.

Changes to Part 23 of the National Gas Rules during the reporting period provide a commercial arbitration framework in the event parties cannot agree a negotiated contract. APA has continued to successfully negotiate all new contracts and contract renewals with its customers.

During the financial year, 78.7% of Energy Infrastructure revenue (excluding pass-through) was from capacity reservation charges from term contracts, 4.3% from other contracted fixed revenues and 6.8% from throughput charges and other variable components. Given the dynamic east coast gas market, there were additional revenues from the provision of flexible short term services, accounting for around 1.0%. The regulated portion of APA’s revenue makes up 9.0% of total FY2018 Energy Infrastructure revenue. Given the take-orpay nature of the majority of APA’s Energy Infrastructure contracts, APA had direct oversight of 92.0% of its revenue earning for this business segment during the reporting period.

As part of APA’s product refresh of gas transportation services during the period, many of APA’s standard service offerings and tariffs are now effectively 100% capacity reservation.

APA manages its counterparty risk in a variety of ways. One aspect is to consider customers’ credit ratings. During FY2018, 95.6% of Energy Infrastructure revenue was received from investment grade counterparties. Diversification of customer base is another strength of APA’s business, with our customers split across the energy, utility, resources and industrial sectors.

APA strives to continually enhance the service offerings available to customers to better address their increasingly complex and dynamic gas portfolio needs. Significant investment by APA has been made in energy infrastructure in the last decade to support customers’ needs. The state-of-the-art Integrated Operations Centre (IOC) is one of those customer focused initiatives that APA has invested in to deliver seamless and reliable services for the benefit of the Australian energy market.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APA’s IOC in Brisbane has dramatically improved Australia’s gas transmission operations, providing customers access to greater operating flexibility and smarter gas portfolio management. It improves market resilience significantly by utilising the breadth of the Grid to respond to contingencies. The facility continues to evolve its services and functions to meet the growing and changing needs of both our customers and APA’s operations.

The IOC plays a major role in APA being able to provide the benefits of system flexibility, efficiencies, cost effective solutions and safety from having real-time visibility across transmission assets throughout Australia, 24 hours a day, seven days a week.

Engineering, commercial and systems operation skills integrate into daily decision making to give the business both big picture and detailed oversight of operations. Gas market opportunities for customers can be quickly realised as can immediate response and management to periods of unplanned plant, market or customer disruption.

The IOC also plays a key role in keeping our remote employees safe by monitoring and managing the In-Vehicle Monitoring System (IVMS) thereby better managing APA’s operational risk. More importantly, it provides employees and their families with a high level of comfort that someone knows where they are at all times whilst they travel between remote locations.

East Coast and Central Region

EBITDA from APA’s assets on the east coast increased by 3.0% during the financial year.

In NSW and Victoria, continued demand for bi-directional services due to dynamic southern and northern gas markets contributed to the earnings increase. The Moomba Sydney Pipeline continues to play a critical role to the operation of the East Coast Grid as both a bi-directional gas transmission highway and gas storage facility.

In Queensland, the South West Queensland Pipeline and its bi-directional capability played a key role in gas moving both east and west. APA’s newest Queensland pipeline and extension to the East Coast Grid – the 49km Reedy Creek Wallumbilla Pipeline – was completed and commissioned in May 2018. An official opening by the Queensland Premier, The Honourable Annastacia Palaszczuk, the Minister for Natural Resources, Mines and Energy, the Honourable Dr Anthony Lynham, and the Mayor for Maranoa Regional Council, Tyson Golder was held in June 2018, at APA’s Wallumbilla operations site.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

APA’s Diamantina gas-fired power station in Mount Isa, Queensland benefitted from a new mining customer during the period. Capricorn Copper operates the Capricorn Copper mine, north of Mount Isa and was in ramp-up mode for the first seven months of FY2018, and is now at full contract capacity. The mine is a restart of prior mining operations, which recommenced in 2017.

During the financial year, APA’s assets in the Northern Territory recorded an uplift in earnings from additional contracting achieved on the Amadeus Gas Pipeline. South Australian earnings were in line with expectations.

Western Australia

APA services a range of customers in Western Australia within the resources, industrial and utility sectors. In recent years, interconnections off the main Goldfields pipeline to mining sites has not only extended the Western Australian Grid, but also reinforced the importance of the Goldfields Gas Pipeline in moving gas from the north into the south-eastern region of Western Australia.

EBITDA from APA’s Western Australian assets for the financial year increased

by 1.2% compared with FY2017.

The Eastern Goldfields Pipeline continues to contribute to increased earnings for APA’s Western Australian assets. During the period, the new Mt Morgans Gas Pipeline was completed to supply gas to Dacian Gold mining operations. APA has a 10.5 year gas transportation agreement with Dacian Gold and the pipeline commenced generating earnings in the second half of the reporting period.

In June 2017, APA announced the Yamarna Gas Pipeline and Power Station greenfield projects on behalf of the Gruyere Joint Venture mine project. Construction and commissioning of the 198 km pipeline was completed during the reporting period, with the power station construction completed recently in August. Commissioning of the Yamarna Power Station will take place between August and October. First gold pour is scheduled for the FY2019 June quarter.

With the addition of the Gruyere mine in June 2019, the Eastern Goldfields Pipeline will have five mines using approximately 1,700 kms of interconnected pipelines to the eastern goldfields region in Western Australia. APA expects further opportunities for growth in this area as miners are seeking reliable and economical energy solutions to ensure their operations are viable for the life of the mines.

APA is developing a significant renewable energy precinct in the West and during FY2018 completed and commissioned the 20 MW Emu Downs Solar Farm which was underpinned by a 13 year power purchase agreement with Synergy. The project received $5.5 million funding from the Australian Renewable Energy Agency (ARENA).

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The site is co-located with APA’s 80 MW Emu Downs Wind Farm, taking advantage of shared transmission connection infrastructure. The wind and solar generation profiles at this location are largely predictable and complementary, enabling APA to leverage the combined wind and solar resources and transmit renewable energy through a single infrastructure network. During the period, there was a minor impact on earnings for the Emu Downs Wind Farm due to the cut-in of the Solar Farm, this was more than offset by the contribution of the Solar Farm, in the latter part of the financial year.

In FY2017, APA announced construction of the 130 MW Badgingarra Wind Farm after entering into a long term offtake agreement with Alinta to satisfy its renewable energy requirements. Construction was advanced during the reporting period and is due for completion in early 2019. During FY2018, APA agreed with Alinta to extend the original 12 year power purchase agreement for the Badgingarra Wind Farm by five years, and undertake a new 17.5 MW co-located Solar Farm on the Badgingarra site, which is adjacent to the Emu Downs renewables farm. Both Badgingarra Wind and Solar farms will also share transmission connection infrastructure.

When complete, APA will have an energy precinct in Western Australia d e l i v e r i n g o v e r 2 4 5 M W o f r e n e w a b l e e n e r g y c a p i t a l i s i n g o n t h e complementary wind and solar relationship in this region.

(b) Asset Management

APA provides asset management and operational services to the majority of its energy investments and to a number of third parties. Its main customers are Australian Gas Networks Limited (AGN)[2] , Energy Infrastructure Investments and GDI (EII). Asset management services are provided to these customers under long-term contracts.

APA has the expertise and diversified skillset to provide whole-of-life asset management and operational services for high voltage power, power generation, gas rotating plant and equipment, stationary engines, gas transmission pipelines and gas distribution pipelines. These services also include asset inspection, vegetation management, aerial patrols, metering services and specialist utility asset services.

Revenue (excluding pass-through revenue) from asset management services increased by $22.1 million or 25.6% to $108.5 million (FY2017: $86.4 million) and EBITDA (excluding corporate costs) increased by $7.5 million or 12.7% to $66.2 million (FY2017: $58.7 million).

2 APA sold its 33.05% stake in AGN in August 2014, however, the operating and maintenance agreements remain on foot until 2027.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Customer contributions are payments received from a third party for APA to undertake work on the assets it manages to accommodate that third party’s project. Customer contributions have increased in FY2018 moving the long term average per annum to approximately $12 million from $10 million per annum average over the last five years. APA continues to expect annual swings in customer contributions, as these are driven by customer requirements.

Excluding customer contributions, both revenue and EBITDA increased for the Asset Management business due to tariff adjustments in line with regulatory approvals. Solid connection growth for the gas distribution businesses of AGN and GDI continues through ongoing investment in new housing estates and high-rise apartment developments, with natural gas continuing to be a fuel of choice for cooking, hot water and heating in these markets.

(c) Energy Investments

APA has interests in a number of complementary energy investments across Australia.

APA’s ability to manage these investments and provide operational and/or corporate support services gives it flexibility in the way it grows the business and harnesses expertise in-house, thereby delivering services from a lower cost base due to portfolio synergies.

EBITDA from Energy Investments was marginally reduced for the reporting period to $23.0 million (FY2017: $24.4 million).

(d) Corporate Costs

Corporate costs of $67.9 million for the financial year were slightly above the previous corresponding period (FY2017: $66.7 million) due to additional costs associated with the new Part 23 compliance requirements. Excluding those additional compliance costs, APA has kept corporate costs contained during the largest organic growth cycle that the business has undertaken.

CAPITAL AND INvESTMENT EXPENDITURE

Capital and investment expenditure for FY2018 totalled $875.5 million. Total capital expenditure (including stay-in-business capital expenditure but excluding acquisitions and other investing cash flows) for FY2018 was $855.5 million compared with $340.7 million last year. Growth project expenditure of $742.9 million (FY2017: $271.9 million) was largely related to the following projects during the year:

Construction of the Darling Downs Solar Farm and completion and commissioning of the Reedy Creek Wallumbilla Pipeline in Queensland;
Construction and completion of Western Australia projects including the Yamarna Gas Pipeline, Mt Morgans Gas Pipeline and Emu Downs Solar Farm;

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Construction of the Murrin Compressor Station. Yamarna Power Station and Badgingarra Wind Farm are also well underway, and will be completed in FY2019;
Commencement of the upgrade of the Orbost Gas Processing Plant in Victoria; and
Pre-investigative and preliminary license approval undertakings for the proposed Western Slopes Pipeline and Crib Point Pakenham Pipeline.

Capital and investment expenditure(1) Description of major projects Growth expenditure Regulated Victorian-Northern Interconnect expansion, South West Pipeline Westernhaul Expansion Non-regulated Queensland Darling Downs Solar Farm, Reedy Creek Wallumbilla Pipeline Victoria Orbost Gas Processing Plant, early works on Crib Point to Pakenham Pipeline New South Wales Western Slopes Pipeline early works Western Australia and Northern Territory Yamarna Gas Pipeline and Power Station, Emu Downs Solar Farm, Badgingarra Wind Farm, Mt Morgans Gas Pipeline, Murrin Compressor Station Other VIC Metering Sub-total non-regulated capex Total growth capex Stay-in business capex Total capital expenditure Investment and acquisitions Total capital and investment expenditure	30 Jun 2018 ($ million) 33.0 199.2 116.7 10.7 369.1 14.2 709.9 742.9 112.6 855.5 20.0(2) 875.5	30 Jun 2017 ($ million) 106.1
		78.3 - 0.4 30.6 56.5
		165.8
		271.9 68.8
		340.7 36.8
		377.5

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Notes: Numbers in the table may not add up due to rounding.

(1) The capital expenditure shown in this table represents net cash used in investing activities as disclosed in the cash flow statement, and excludes accruals brought forward from the prior period and carried forward to next period.
(2) Represents the share purchase price for the Orbost Gas Processing Plant.

As part of the FY2016 results, APA announced that it had identified around $1.5 billion of organic growth opportunities across FY2017 to FY2019. APA continues to successfully pursue organic growth opportunities. To-date across FY2017 and FY2018, APA has spent in excess of $1.0 billion on these growth projects in the areas of pipeline extensions and expansions, renewables and mid-stream assets.

In FY2018, growth capex expenditure was $742.9 million, which is almost double the average annual growth capex spend of previous years. The FY2018 actual spend is lower than the approximate $850 million figure indicated to the market in May 2018. This is due to finessing of project timings for procurement contracts as projects have progressed to ensure materials are better timed to arrive when required. This has resulted in some committed capital expenditure moving from FY2018 into FY2019. APA expects to spend in the order of $425 million during FY2019 on the in-flight committed organic growth projects.

Some of the new projects completed in FY2018 have now commenced generating revenues. These revenues will increase in FY2019 as more projects are completed and the projects completed in FY2018 provide a full year of earnings. The full benefit of the now $1.4 billion plus of growth projects will be received from FY2020 onwards.

Beyond the approximately $425 million guidance for FY2019, APA expects growth capital expenditure in the order of $300 to $400 million per annum over the next two to three years as further growth projects come to fruition across all energy infrastructure sectors. All projects will continue to be underwritten by long term contracts with customers and will increase APA’s earnings base as they are commissioned.

Progress on the remaining major committed projects is as follows:

The Badgingarra Wind Farm (130MW wind farm) project was extended during the reporting period to include a co-located 17.5 MW solar farm that will share transmission connection infrastructure with the wind farm. Badgingarra is located adjacent to APA’s operational 100 MW Emu Downs Wind and Solar Farm in Western Australia. Alinta Energy also extended the offtake agreement for another 5 years for both the energy and the Large Scale Generation Certificates, commencing January 2019 through to end CY2035. The wind farm will consist of 37 turbines each with a total blade and tower height of 150 metres and the solar farm will have approximately 61,800 solar tracking panels. Both projects are on track for commissioning in December 2018 for contract commencement in January 2019.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

The Orbost Gas Processing Plant acquired by APA in FY2018 will process raw natural gas from Cooper Energy’s offshore Sole gas field under a multiyear Gas Processing Agreement from mid-2019. When complete, up to 70TJ per day of gas will be available for the east coast gas market from this new source of supply. APA is undertaking an upgrade of the site, whilst also adding a hydrogen sulphide treatment plant to the facility. During the reporting period, APA undertook extensive stakeholder engagement with the surrounding community, as well as providing local sponsorship and opportunities for employment of local contractors. In March 2018, The Hon. Lily D’Ambrosio, Minister for Energy, Environment and Climate Change toured the site and congratulated both APA and Cooper Energy for working together to deliver more gas into Victoria and the East Coast gas market and jointly creating more than 800 jobs during construction of onshore and offshore facilities.
The Darling Downs Solar Farm near Dalby in Queensland is a 110MW solar farm, being built at a cost of around $200 million (partially funded with a $20 million grant from ARENA). Origin Energy has entered into a 12-year offtake agreement for both the energy and the Large Scale Generation Certificates. The project is on track for completion in September 2018. Over 423,000 fixed solar panels will be installed over a 250 hectare site, connecting to the existing Braemar Substation. The Queensland Premier, The Hon. Annastacia Palaszczuk toured the site in January 2018, along with The Hon. Dr Anthony Lynham, Minister for Mines and Energy; The Hon. Mark Furner, Minister for Agricultural Industry Development and Natural Resources; Paul McVeigh, Mayor of the Western Downs Regional Council; and Deputy Mayor, Andrew Smith.
APA announced the new build Yamarna Gas Pipeline (YGP) and the Yamarna Power Station (YPS) projects in FY2017. APA will transport gas a total of almost 1,600 kms over four APA interconnected pipelines, including the greenfield YGP that will connect to the YPS, to deliver energy to the Gruyere Gold Project in Western Australia. The 198 km YGP was fully constructed during FY2018 and has now been commissioned to allow the constructed 45MW YPS to be commissioned, which is expected to be complete in between August and October 2018. A 15-year gas transportation agreement and a 15year electricity supply agreement have been entered into with the Gruyere Gold Project, a 50:50 joint venture between ASX listed Gold Road Resources Ltd and the global miner Gold Fields Limited. Total project cost is estimated to be $180 million.

APA’s growth strategy will continue to be considered using the same principles and criteria that APA has always adhered to, which are to:

maintain an appropriate risk and return structure;
ensure an appropriate funding and capital structure;

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

enter into contracts with highly creditworthy counterparties; and
leverage in-house operational expertise.

APA continues to talk with customers to develop new opportunities and help them manage their energy portfolio requirements including the potential projects of the Western Slopes Pipeline, the Crib Point Pakenham Pipeline, future mining connection opportunities in Western Australia and connecting Northern Queensland gas basins to APA’s East Coast Grid.

In FY2017, APA announced that it had contracted with a subsidiary of Santos Limited to commence development of a new 450 km Western Slopes Pipeline connecting the proposed Narrabri Gas Project (NGP) to APA’s East Coast Grid through the Moomba Sydney Pipeline. The project is subject to FID of the NGP by Santos. During the reporting period, APA commenced engagement with stakeholders along a possible pipeline route.

During FY2018, APA announced that it had entered into a Development Agreement and an associated 20 Year gas transportation agreement with AGL Energy to develop and construct a new 60 km pipeline with a capacity of at least 550TJ/ day. The Crib Point Pakenham Pipeline would connect AGL’s proposed floating LNG regasification plant at Crib Point, to APA’s East Coast Grid via the Victorian Transmission System at Pakenham. APA’s potential capital expenditure investment would be in the range of $160 million to $200 million. Since announcing the project in June 2018, APA has been undertaking engagement with local communities and environmental reviews to determine the best possible route for the pipeline. The project is subject to Final Investment Decision by AGL during FY2019.

Stay-in business capex increased to $112.6 million in FY2018 from $68.8 million in FY2017. This remains in line with both the long term asset management planning cycle across our assets and the increasing scale of the business and did reflect in FY18 ongoing business and technology spend of in the order of $22.4 million – reflecting the continuing growth of the business.

FINANCING ACTIvITIES

(a) Capital Management

As at 30 June 2018, APA had 1,179,893,848 securities on issue. This changed from 30 June 2017, with 65,586,479 new stapled securities issued following the $500 million capital raise (Entitlement Offer) announced on 21 February 2018 and completed on 23 March 2018. This additional equity strengthened APA’s balance sheet enabling it to efficiently and prudently fund the approximately $1.4 billion plus of committed growth capex projects, due for completion through the period to June 2019.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Over many years, APA has consistently maintained the process of funding its growth from a mix of cash generated from within the business and appropriate levels of debt and equity.

Significant debt transactions during FY2018 were the redemption of the $515 million of Subordinated Notes at their first-call date of 31 March 2018 and the repayment of $125.8 million (JPY 10 billion) Japanese Medium Term Notes at maturity on 22 June 2018. Committed bank debt funding was increased and extended with the execution in May 2018 of a two tranche 5 and 5.5 year $1,000 million Syndicated Bank Facility, to replace the $518.8 million of syndicated facilities maturing in September 2018 and 2020. Maturity dates of a number of existing bilateral bank facilities with commitments totalling $250 million, were also extended during the year.

APA’s debt portfolio has a broad spread of maturities extending out to FY2035, with an average maturity of drawn debt of 6.9 years at 30 June 2018. APA’s gearing[3] of 65.4% at 30 June 2018 was lower than the 67.4% at 30 June 2017 due to the $500 million equity raised through the Entitlement Offer. APA remains well positioned to fund its planned growth activities with around $1,400 million in cash and committed undrawn facilities post completion of the 2 July 2018 syndicated debt facility, as well as ongoing access to a broad range of debt capital markets.

APA’s appetite for foreign currency and interest rate risk is low. This is reflected in the Treasury Risk Management Policy that requires conservative levels of hedging of interest rate and foreign currency exposures to minimise the potential impacts from adverse movements in markets. Other than as noted below, all interest rate and foreign currency exposures on debt raised in foreign currencies have been hedged.

The majority of the revenues to be received over the remaining 17 years of the foundation contracts on the Wallumbilla Gladstone Pipeline will be in received USD. The US$3.7 billion of debt raised to fund that acquisition is being managed as a “designated hedge” for these revenues and therefore have been retained in USD. Net USD cash flow (after servicing the USD interest costs) that is not part of that “designated relationship” will continue to be hedged into AUD on a rolling basis for an appropriate period of time, in-line with APA’s treasury policy. To date, the following net USD cash flow hedging has been undertaken:

Average forward Period USD/AUD exchange rate

FY2019 (to Feb 2019)

0.6927

3 For the purposes of the calculation, drawn debt that has been kept in USD (rather than AUD) has been nominally exchanged at AUD/USD exchange rates of 0.7772 for Euro and GBP MTN issuances and 0.7879 for US144A notes at their respective inception dates.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

A large portion of the net revenue from March 2019 is in a designated hedge relationship with the USD debt and as such, when that revenue is receivable, will be recognised in the P&L at an average rate of around 0.78.

APA also enters into hedges to manage its interest rate exposure on its floating rate and other non-Australian dollar borrowings. As at 30 June 2018, 97.7% (30 June 2017: 94.5%) of interest obligations on gross borrowings was either hedged into or issued at fixed interest rates for varying periods extending out to March 2035.

(b) Borrowings and finance costs

As at 30 June 2018, APA had borrowings of $8,810.4 million ($9,249.7 million at 30 June 2017) from a mix of US Private Placement Notes, Medium Term Notes in several currencies, United States 144A Notes and committed bank facilities.

Net finance costs decreased by $4.1 million, or 0.8%, to $509.7million (FY2017: $513.8 million). The decrease is primarily due to having a lower level of net drawn debt in FY18 relative to FY17. The average interest rate (including credit margins)[4] applying to drawn debt was 5.65% for the current period (FY2017: 5.56%).

APA’s interest cover ratio for the current period was 2.7 times (June 2017: 2.8 times). This remains well in excess of its debt covenant default ratio of 1.1 times and distribution lock up ratio of 1.3 times.

4 For the purposes of the calculation, drawn debt that has been kept in USD (rather than AUD) has been nominally exchanged at AUD/USD exchange rates of 0.7772 for Euro and GBP MTN issuances and 0.7879 for US144A notes at their respective inception dates.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

In connection with the Acquisition, the Company, CKI and PAH, being the Consortium Members, have (among others) entered into the Consortium Formation Agreement pursuant to which, subject to the fulfilment of certain conditions, the relevant Consortium Members will enter into the Joint Venture Transaction to, among other things, form the Consortium, enter into the Shareholders’ Agreement and indirectly fund the Acquisition by Bidco according to the Respective Proportions of 60%, 20% and 20% or the Revised Respective Proportions (as the case may be) in accordance with the Consortium Formation Agreement.

The Group’s, CKI’s and PAH’s participation in the Joint Venture Transaction are subject to, among other conditions, obtaining the necessary JV Transaction Shareholders’ Approvals. If such conditions are not fulfilled, the Joint Venture Transaction will not proceed and the Group will, subject to obtaining the necessary approval by the shareholders of the Company and the fulfilment of certain other conditions, proceed with the Acquisition alone. If the necessary JV Transaction Shareholders’ Approvals in respect of only one of CKI’s or PAH’s participation in the Joint Venture Transaction is obtained, the composition of the consortium shall be varied accordingly.

Assuming satisfaction of the other conditions:

(i) if the JV Transaction Shareholders’ Approvals in respect of the Company, CKI and PAH are all obtained, the Joint Venture Transaction will proceed among the Group, CKI and PAH as to 60%, 20% and 20% respectively;
(ii) if the JV Transaction Shareholders’ Approvals in respect of the Company and CKI are both obtained, but the JV Transaction Shareholders’ Approval in respect of PAH is not obtained, the Joint Venture Transaction will proceed between the Group and CKI as to 80% and 20% respectively; and
(iii) if the JV Transaction Shareholders’ Approvals in respect of the Company and PAH are both obtained, but the JV Transaction Shareholders’ Approval in respect of CKI is not obtained, the Joint Venture Transaction will proceed between the Group and PAH as to 80% and 20% respectively.

If none of the necessary JV Transaction Shareholders’ Approvals are obtained or certain other conditions are not fulfilled, the Joint Venture Transaction will not proceed and the Group will, subject to obtaining approval by the shareholders of the Company and the fulfilment of other conditions, proceed with the Acquisition alone.

The unaudited pro forma financial information (the “ Unaudited Pro Forma Financial Information ”) presented below is prepared to illustrate the financial effect on the financial position of the Group as if the Acquisition had been completed on 30 June 2018, assuming:

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(i) the completion of the Acquisition and the Target Group as a joint venture of 60% equity interest held by the Group;
(ii) the completion of the Acquisition and the Target Group as a joint venture of 80% equity interest held by the Group (under the scenario that the JV Transaction Shareholders’ Approval of the Group and only one of the JV Transaction Shareholders’ Approvals of CKI or PAH are obtained and other conditions being fulfilled); and
(iii) the completion of the Acquisition and the Target Group as a wholly owned subsidiary of the Group (under the scenario that none of the necessary JV Transaction Shareholders’ Approvals are obtained or certain other conditions as set out in the Implementation Agreement are not fulfilled and the Group proceeds with the Acquisition alone, subject to fulfilment of all necessary conditions).

The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company for illustrative purposes only and because of its hypothetical nature, it may not purport to present the true picture of the financial effect on the financial position of the Group upon the completion of the Acquisition as at 30 June 2018 or at any future dates.

The Unaudited Pro Forma Financial Information has been prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Acquisition as if the Acquisition had been completed on 30 June 2018.

The Unaudited Pro Forma Financial Information is prepared based on the unaudited consolidated statement of financial position of the Group as at 30 June 2018 extracted from the published interim report of the Group for the period ended 30 June 2018 and the audited consolidated statement of financial position of the Target Group as at 30 June 2018 as extracted from the reports set out in Appendix II to this Circular, after making pro forma adjustments relating to the Acquisition that are (i) directly attributable to the Acquisition and (ii) factually supportable, as if the Acquisition had been completed on 30 June 2018.

The Unaudited Pro Forma Financial Information should be read in conjunction with other financial information included elsewhere in this Circular.

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APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

(i) The completion of the Acquisition and the Target Group as a joint venture of 60% equity interest held by the Group

Non-current assets Fixed assets Investment properties Joint ventures Associates Investment in securities Long term receivables and others Deferred tax assets Current assets Stock of properties Short term loan receivable Debtors, prepayments and others Bank balances and deposits Current liabilities Bank and other loans Creditors, accruals and others Customers’ deposits received Provision for taxation Net current assets Non-current liabilities Bank and other loans Deferred tax liabilities Derivative financial instruments Pension obligations Net assets	The Group as at 30 June 2018 (Note 1) HK$ Million 37,074 121,057 64,029 7,486 6,825 11,072 2,723 250,266 --------------- 137,445 10,230 5,476 55,222 208,373 1,889 13,546 41,361 1,474 58,270 150,103 --------------- 59,347 10,951 146 137 70,581 --------------- 329,788	Effect of acquisition of 60% of the Target Group HK$ Million 45,897 (Note 2) 45,897 --------------- (45,897) (Note 3) (45,897) – (45,897) --------------- – --------------- –	Unaudited pro forma statement of assets and liabilities of the Enlarged Group
			HK$ Million 37,074 121,057 109,926 7,486 6,825 11,072 2,723
			296,163 --------------- 137,445 10,230 5,476 9,325
			162,476
			1,889 13,546 41,361 1,474
			58,270
			104,206 --------------- 59,347 10,951 146 137
			70,581 --------------- 329,788

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Notes:

(1) The balances have been extracted from the unaudited consolidated statement of financial position of the Group as at 30 June 2018 contained in the Group’s published 2018 interim report.
(2) The amount represents 60% of the Scheme Consideration and transaction costs and estimated stamp duty payable by the Group pursuant to the Implementation Agreement dated 12 August 2018.

Australian dollar is translated into Hong Kong dollar at the rate of AUD1: HK$5.81 as at 30 June 2018.

(3) The Scheme Consideration and transaction costs and estimated stamp duty are assumed to be satisfied by bank balances and deposits of the Group for illustrative purposes.

– III-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(ii) The completion of the Acquisition and the Target Group as a joint venture of 80% equity interest held by the Group

Non-current assets Fixed assets Investment properties Joint ventures Associates Investment in securities Long term receivables and others Deferred tax assets Current assets Stock of properties Short term loan receivable Debtors, prepayments and others Bank balances and deposits Current liabilities Bank and other loans Creditors, accruals and others Customers’ deposits received Provision for taxation Net current assets Non-current liabilities Bank and other loans Deferred tax liabilities Derivative financial instruments Pension obligations Net assets	The Group as at 30 June 2018 (Note 1) HK$ Million 37,074 121,057 64,029 7,486 6,825 11,072 2,723 250,266 --------------- 137,445 10,230 5,476 55,222 208,373 1,889 13,546 41,361 1,474 58,270 150,103 --------------- 59,347 10,951 146 137 70,581 --------------- 329,788	Effect of acquisition of 80% of the Target Group HK$ Million 61,196 (Note 2) 61,196 --------------- (55,222) (Note 3) (55,222) 5,974 (Note 3) 5,974 (61,196) --------------- – --------------- –	Unaudited pro forma statement of assets and liabilities of the Enlarged Group
			HK$ Million 37,074 121,057 125,225 7,486 6,825 11,072 2,723
			311,462 --------------- 137,445 10,230 5,476 –
			153,151
			1,889 19,520 41,361 1,474
			64,244
			88,907 --------------- 59,347 10,951 146 137
			70,581 --------------- 329,788

– III-5 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Notes:

(1) The balances have been extracted from the unaudited consolidated statement of financial position of the Group as at 30 June 2018 contained in the Group’s published 2018 interim report.
(2) The amount represents 80% of the Scheme Consideration and transaction costs and estimated stamp duty payable by the Group pursuant to the Implementation Agreement dated 12 August 2018.

Australian dollar is translated into Hong Kong dollar at the rate of AUD1: HK$5.81 as at 30 June 2018.

(3) The Scheme Consideration and transaction costs and estimated stamp duty are assumed to be satisfied firstly by bank balances and deposits of the Group and the remaining amounts are presented as payables for illustrative purposes.

– III-6 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(iii) The completion of the Acquisition and the Target Group as a wholly owned subsidiary of the Group

The Group as at 30 June 2018		The Target Group as at 30 June 2018
	The Target Group as at 30 June 2018
(Note 1) HK$ Million 37,074 121,057 64,029 7,486 6,825 11,072 2,723	(Note 2) AUD’000 9,691,666 1,183,604 2,992,431 271,597 47,532 591,487	(Note 3) HK$ Million 56,309 6,877 17,386 1,578 276 3,437
250,266 - - - - - - - - - - 137,445 10,230 5,476 55,222	14,778,317 - - - - - - - - - - 264,207 55,525 28,534 100,643	85,863 - - - - - - - - - - 1,535 323 166 585
208,373	448,909	2,609
1,889 13,546 41,361 1,474	329,219 381,676 139,401 83,629 20,922	1,913 2,218 810 486 122
58,270	954,847	5,549
150,103 - - - - - - - - - - 59,347 10,951 146 137	(505,938) - - - - - - - - - - 9,321,377 5,089 558,442 128,510 71,951 60,183	(2,940) - - - - - - - - - - 54,157 30 3,245 747 418 350
70,581 - - - - - - - - - - 329,788	10,145,552 - - - - - - - - - - 4,126,827	58,947 - - - - - - - - - - 23,976

– III-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Notes:

(1) The balances have been extracted from the unaudited consolidated statement of financial position of the Group as at 30 June 2018 contained in the Group’s published 2018 interim report.
(2) The balances have been extracted from the audited consolidated statement of financial position of the Target Group as at 30 June 2018 contained in the Target Group’s published 2018 annual report.
(3) Australian dollar is translated into Hong Kong dollar at the rate of AUD1: HK$5.81 as at 30 June 2018.
(4) Reclassifications are to align the classifications of the respective amounts of financial line items as shown on the consolidated statement of financial position of the Target Group to those of the consolidated statement of financial position of the Group:
(i) from “Investments accounted for using equity method” of the Target Group to “Joint ventures” of the Group for joint ventures of the Target Group;
(ii) from “Investments accounted for using equity method” of the Target Group to “Associates” of the Group for associates of the Target Group;
(iii) from “Other financial liabilities (current)” of the Target Group to “Creditors, accruals and others” of the Group for derivatives of the Target Group;
(iv) from “Creditors, accruals and others” of the Target Group to “Provision for taxation” of the Group for income tax payable of the Target Group;
(v) from “Other financial liabilities (non-current)” of the Target Group to “Derivative financial instruments” of the Group for derivatives of the Target Group; and
(vi) from “Provisions” of the Target Group to “Pension obligations” of the Group for defined benefit liability of the Target Group.
(5) The goodwill of the Target Group is not recognised as it is not considered as identifiable assets acquired in accordance with International Financial Reporting Standard 3 “Business Combinations” (“IFRS 3”). The excess of Scheme Consideration over the book value of net assets of the Target Group amounting to approximately HK$58,309 million as at 30 June 2018 is recognised as goodwill for illustrative purposes. Transaction costs and estimated stamp duty are accounted for as expenses.

Pursuant to IFRS 3, the fair values of identifiable assets acquired and liabilities assumed of the Target Group at the date of completion of the Acquisition shall be recognised and any excess of Scheme Consideration over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with IFRS 3 of the Target Group shall be recognised as goodwill. As the fair values of the identifiable net assets of the Target Group may be different from the book values of the net assets of the Target Group as at 30 June 2018, actual excess of Scheme Consideration over the fair values of the identifiable net assets of the Target Group and the final amounts of assets and liabilities of the Target Group recognised may be different from the amounts above.

(6) The Scheme Consideration and transaction costs and estimated stamp duty are assumed to be satisfied firstly by bank balances and deposits of the Group and the remaining amounts are presented as payables for illustrative purposes.

– III-8 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report received from Deloitte Hong Kong, Certified Public Accountants, Hong Kong, for inclusion in this circular, in respect of the unaudited pro forma financial information of the Enlarged Group.

3. REPORT FROM THE REPORTING ACCOUNTANTS ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

To the Directors of CK Asset Holdings Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of CK Asset Holdings Limited (the “ Company ”) and its subsidiaries (hereinafter collectively referred to as the “ Group ”) by the directors of the Company (the “ Directors ”) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of assets and liabilities as at 30 June 2018 and related notes as set out on pages III-3 to III-8 of Appendix III of the circular issued by the Company dated 10 October 2018 (the “ Circular ”). The applicable criteria on the basis of which the Directors have compiled the unaudited pro forma financial information are described on pages III-1 to III-2 of the Appendix III of the Circular.

The unaudited pro forma financial information has been compiled by the Directors to illustrate the impact of the proposed acquisition by CKM Australia Bidco Pty Ltd, by way of certain trust schemes, of all of the stapled securities in issue of APA which are listed on the Australian Securities Exchange (the “ Acquisition ”) on the Group’s financial position as at 30 June 2018 as if the Acquisition had taken place at 30 June 2018. As part of this process, information about the Group’s financial position has been extracted by the Directors from the Group’s financial statements for the period ended 30 June 2018, on which no auditor’s report or review report has been published.

Directors’ Responsibilities for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the unaudited pro forma financial information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and with reference to Accounting Guideline 7 “ Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars ” (“ AG 7 ”) issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”).

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the “ Code of Ethics for Professional Accountants ” issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

– III-9 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Our firm applies Hong Kong Standard on Quality Control 1 “ Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements ” issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “ Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus ” issued by the HKICPA. This standard requires that the reporting accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the unaudited pro forma financial information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the unaudited pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the unaudited pro forma financial information.

The purpose of unaudited pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the event or transaction at 30 June 2018 would have been as presented.

A reasonable assurance engagement to report on whether the unaudited pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the unaudited pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

the related pro forma adjustments give appropriate effect to those criteria; and

– III-10 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

the unaudited pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction in respect of which the unaudited pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the unaudited pro forma financial information.

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

Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong, 10 October 2018

– III-11 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. INTERESTS OF DIRECTORS

2.1 Interests in shares, underlying shares and debentures of the Company and its associated corporations

As at the Latest Practicable Date, the interests or short positions of the Directors and chief executives of the Company in the Shares, underlying shares and debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which were recorded in the register required to be kept by the Company under Section 352 of the SFO, or which were required, pursuant to the Model Code for Securities Transactions by Directors adopted by the Company (the “ Model Code ”) to be notified to the Company and the Stock Exchange, were as follows:

Long Position in Shares

(i) The Company

Name of Director	Capacity		Number of Ordinary Shares	Number of Ordinary Shares	Number of Ordinary Shares		Approximate % of shareholding
		Personal interest	Family interest	Corporate interest	Other interest	Total
Li Tzar Kuoi, Victor Kam Hing Lam Chow Nin Mow, Albert Hung Siu-lin, Katherine Donald Jeffrey Roberts	Beneficial owner, interest of child or spouse, interest of controlled corporations & beneficiary of trusts Beneficial owner & interest of child or spouse Beneficial owner Beneficial owner Beneficial owner	220,000 51,040 66 43,256 167,396	405,200 57,360 – – –	53,688,850 (Note 1) – – – –	1,160,195,710 (Note 2) – – – –	1,214,509,760 108,400 66 43,256 167,396	32.88% 0.0029% �0% 0.0012% 0.0045%

– IV-1 –

APPENDIX IV

GENERAL INFORMATION

(ii) Associated Corporations

Number of Ordinary Shares

Name of Company Precise Result Global Limited Jabrin Limited Mightycity Company Limited	Name of Director Li Tzar Kuoi, Victor Li Tzar Kuoi, Victor Li Tzar Kuoi, Victor	Capacity Beneficiary of trusts Beneficiary of trusts Beneficiary of trusts	Personal interest – – –	Family interest – – –	Corporate interest – – –	Other interest 15 (Note 3) 2,000 (Note 3) 168,375 (Note 3)	Total 15 2,000 168,375	Approximate % of shareholding
								15% 20% 1.53%

Notes:

(1) The 53,688,850 shares of the Company comprise:
(a) 35,728,850 shares held by certain companies of which Mr. Li Tzar Kuoi, Victor is entitled to exercise or control the exercise of one-third or more of the voting power at their general meetings.
(b) 17,960,000 shares held by the Li Ka Shing Foundation Limited (“ LKSF ”). By virtue of the terms of the constituent documents of LKSF, Mr. Li Tzar Kuoi, Victor may be regarded as having the ability to exercise or control the exercise of one-third or more of the voting power at general meetings of LKSF.
(2) The 1,160,195,710 shares of the Company comprise:
(a) 1,003,380,744 shares held by Li Ka-Shing Unity Trustee Company Limited (“ TUT1 ”) as trustee of UT1 and its related companies in which TUT1 as trustee of UT1 is entitled to exercise or control the exercise of one-third or more of the voting power at their general meetings (“ TUT1 related companies ”). Mr. Li Ka-shing is the settlor of each of DT1 and DT2. Each of TDT1 and TDT2 holds units in UT1 but is not entitled to any interest or share in any particular property comprising the trust assets of the said unit trust. The discretionary beneficiaries of each of DT1 and DT2 are, inter alia, Mr. Li Tzar Kuoi, Victor, his wife and children, and Mr. Li Tzar Kai, Richard.

The entire issued share capital of TUT1, TDT1 and TDT2 are owned by Li Ka-Shing Unity Holdings Limited (“ Unity Holdco ”). Mr. Li Ka-shing and Mr. Li Tzar Kuoi, Victor are respectively interested in one-third and two-thirds of the entire issued share capital of Unity Holdco. TUT1 is only interested in the shares of the Company by reason only of its obligation and power to hold interests in those shares in its ordinary course of business as trustee and, when performing its functions as trustee, exercises its power to hold interests in the shares of the Company independently without any reference to Unity Holdco or any of Mr. Li Ka-shing and Mr. Li Tzar Kuoi, Victor as a holder of the shares of Unity Holdco as aforesaid.

As Mr. Li Tzar Kuoi, Victor is a discretionary beneficiary of each of DT1 and DT2, and by virtue of the above, Mr. Li Tzar Kuoi, Victor is taken to have a duty of disclosure in relation to the said shares of the Company held by TUT1 as trustee of UT1 and TUT1 related companies under the SFO as a Director of the Company.

– IV-2 –

APPENDIX IV

GENERAL INFORMATION

(b) 72,387,720 shares held by Li Ka-Shing Castle Trustee Company Limited (“ TUT3 ”) as trustee of UT3 and its related companies in which TUT3 as trustee of UT3 is entitled to exercise or control the exercise of one-third or more of the voting power at their general meetings (“ TUT3 related companies ”). Mr. Li Ka-shing is the settlor of each of DT3 and DT4. Each of TDT3 and TDT4 holds units in UT3 but is not entitled to any interest or share in any particular property comprising the trust assets of the said unit trust. The discretionary beneficiaries of each of DT3 and DT4 are, inter alia, Mr. Li Tzar Kuoi, Victor, his wife and children, and Mr. Li Tzar Kai, Richard.

The entire issued share capital of TUT3, TDT3 and TDT4 are owned by Li Ka-Shing Castle Holdings Limited (“ Castle Holdco ”). Mr. Li Ka-shing and Mr. Li Tzar Kuoi, Victor are respectively interested in one-third and two-thirds of the entire issued share capital of Castle Holdco. TUT3 is only interested in the shares of the Company by reason only of its obligation and power to hold interests in those shares in its ordinary course of business as trustee and, when performing its functions as trustee, exercises its power to hold interests in the shares of the Company independently without any reference to Castle Holdco or any of Mr. Li Ka-shing and Mr. Li Tzar Kuoi, Victor as a holder of the shares of Castle Holdco as aforesaid.

As Mr. Li Tzar Kuoi, Victor is a discretionary beneficiary of each of DT3 and DT4, and by virtue of the above, Mr. Li Tzar Kuoi, Victor is taken to have a duty of disclosure in relation to the said shares of the Company held by TUT3 as trustee of UT3 and TUT3 related companies under the SFO as a Director of the Company.

(c) 84,427,246 shares held by a company controlled by TDT3 as trustee of DT3.
(3) These are subsidiaries of the Company and such shares are held through TUT1 as trustee of UT1. By virtue of Mr. Li Tzar Kuoi, Victor’s deemed interests as described in Note (2)(a) above, Mr. Li Tzar Kuoi, Victor is taken to have a duty of disclosure in relation to such shares under the SFO as a Director of the Company.

Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had or was deemed to have any interests or short positions in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including the interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register maintained by the Company referred to therein, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

2.2 Interests in assets, contracts or arrangements of the Group

As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which have been acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by, or leased to, any member of the Group or the Target Group since 31 December 2017, being the date to which the latest published audited accounts of the Group were made up.

– IV-3 –

GENERAL INFORMATION

APPENDIX IV

As at the Latest Practicable Date, there was no contract or arrangement subsisting in which any of the Directors was materially interested and which was significant in relation to the businesses of the Group or of the Target Group taken as a whole.

2.3 Competing Businesses

2.3.1 Principal Business Activities of the Group

The principal business activities of the Group comprise the following:

(1) property development and investment;
(2) hotel and serviced suite operation;
(3) property and project management;
(4) interests in Real Estate Investment Trusts;
(5) ownership and leasing of movable assets; and
(6) joint ventures in infrastructure and utility asset operation.

2.3.2 Interests in Competing Businesses

As at the Latest Practicable Date, the interests of Directors in the businesses which compete or are likely to compete, either directly or indirectly, with the businesses of the Group (the “ Competing Businesses ”), as required to be disclosed pursuant to the Listing Rules, were as follows:

Name of Director Li Tzar Kuoi, Victor	Name of Company CK Hutchison Holdings Limited CK Infrastructure Holdings Limited CK Life Sciences Int’l., (Holdings) Inc. HK Electric Investments and HK Electric Investments Limited Husky Energy Inc. Power Assets Holdings Limited	Nature of Interest Chairman and Group Co-Managing Director Chairman Chairman Non-executive Director and Deputy Chairman Co-Chairman Non-executive Director	Competing Businesses (Note)
			(6) (5) & (6) (1) (6) (6) (6)

– IV-4 –

GENERAL INFORMATION

APPENDIX IV

Name of Director Kam Hing Lam Ip Tak Chuen, Edmond Chiu Kwok Hung, Justin Chow Wai Kam	Name of Company CK Hutchison Holdings Limited CK Infrastructure Holdings Limited CK Life Sciences Int’l., (Holdings) Inc. Hui Xian Asset Management Limited CK Hutchison Holdings Limited CK Infrastructure Holdings Limited CK Life Sciences Int’l., (Holdings) Inc. Hui Xian Asset Management Limited ARA Asset Management Limited ARA Asset Management (Fortune) Limited ARA Asset Management (Prosperity) Limited AVIC International Holding (HK) Limited	Nature of Interest Deputy Managing Director Group Managing Director President and Chief Executive Officer Chairman Deputy Managing Director Deputy Chairman Senior Vice President and Chief Investment Officer Non-executive Director Director Non-executive Director Chairman Non-executive Director	Competing Businesses (Note)
			(6) (5) & (6) (1) (1), (2), (3) & (4) (6) (5) & (6) (1) (1), (2), (3) & (4) (3), (4) & (6) (3) & (4) (3) & (4) (1)

Note: Such businesses may be conducted through subsidiaries, associated companies or by way of other form of investments. Please refer to “ 2.3.1 Principal Business Activities of the Group ” above for the types of the Competing Businesses.

As at the Latest Practicable Date, save as disclosed above, none of the Directors or their respective close associates (as if each of them was treated as a controlling shareholder under Rule 8.10 of the Listing Rules) had any interest in a business which competes or is likely to compete, either directly or indirectly, with the businesses of the Group.

– IV-5 –

GENERAL INFORMATION

APPENDIX IV

2.4 Common directors

As at the Latest Practicable Date, the following Directors are also directors of certain companies which have an interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO (the “ Relevant Companies ”):

Name of

Director Relevant Companies in which the Director is also a director

Li Tzar Kuoi, Li Ka-Shing Unity Trustee Company Limited as trustee of The Victor Li Ka-Shing Unity Trust Li Ka-Shing Unity Trustee Corporation Limited as trustee of The Li Ka-Shing Unity Discretionary Trust
Li Ka-Shing Unity Trustcorp Limited as trustee of another discretionary trust
Pau Yee Wan, Li Ka-Shing Unity Trustee Company Limited as trustee of The Ezra Li Ka-Shing Unity Trust
Li Ka-Shing Unity Trustee Corporation Limited as trustee of The Li Ka-Shing Unity Discretionary Trust
Li Ka-Shing Unity Trustcorp Limited as trustee of another discretionary trust
Li Ka-Shing Unity Trustee Corporation Limited as trustee of The Li Ka-Shing Unity Discretionary Trust
Li Ka-Shing Unity Trustcorp Limited as trustee of another discretionary trust

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Group and/or the Target Group (excluding contracts expiring or determinable by the relevant member of the Group and/or the Target Group within one year without payment of compensation (other than statutory compensation)).

4. MATERIAL CONTRACTS

No material contracts (not being a contract entered into in the ordinary course of business) have been entered into by members of the Group and/or of the Target Group within the two years immediately preceding the Latest Practicable Date.

5. MATERIAL LITIGATION

As at the Latest Practicable Date, no members of the Group or the Target Group were engaged in any litigation of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Group or the Target Group.

– IV-6 –

GENERAL INFORMATION

APPENDIX IV

6. EXPERTS

6.1 Qualification of experts

The following are the names and qualification of the experts who have given its opinion or advice which are contained in this circular:

Name Deloitte Touche Tohmatsu Hong Kong Deloitte Touche Tohmatsu Australia Anglo Chinese Corporate Finance, Limited	Qualifications
	Certified Public Accountants, Hong Kong Chartered Accountants, Australia A licensed corporation permitted to carry out type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

6.2 Interests of experts

As at the Latest Practicable Date, neither Deloitte Hong Kong, Deloitte Australia nor Anglo Chinese was interested in any securities of any member of the Group or of the Target Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any securities in any member of the Group or of the Target Group, and neither Deloitte Hong Kong, Deloitte Australia nor Anglo Chinese had any direct or indirect interest in any assets which had been, since 31 December 2017 (being the date to which the latest published audited consolidated financial statements of the Group were made up), acquired or disposed of by, or leased to, or were proposed to be acquired or disposed of by, or leased to, any member of the Group or of the Target Group.

7. CONSENTS

Each of Deloitte Hong Kong, Deloitte Australia and Anglo Chinese has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or references to its name in the form and context in which they respectively appear in this circular.

8. MISCELLANEOUS

(i) The registered office of the Company is situated at PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands and the principal place of business of the Company in Hong Kong is situated at 7th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong.

– IV-7 –

GENERAL INFORMATION

APPENDIX IV

(ii) The Company’s Hong Kong share registrar and transfer office is Computershare Hong Kong Investor Services Limited, Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(iii) The Company’s principal share registrar and transfer office is Maples Fund Services (Cayman) Limited, PO Box 1093, Boundary Hall, Cricket Square, Grand Cayman, KY1-1102, Cayman Islands.
(iv) The company secretary of the Company is Ms. Eirene Yeung. Ms. Eirene Yeung is a solicitor of the High Court of the Hong Kong Special Administrative Region and a non-practising solicitor of the Senior Courts of England and Wales. Ms. Eirene Yeung is also a fellow member of The Hong Kong Institute of Chartered Secretaries and The Institute of Chartered Secretaries and Administrators.
(v) The English text of this circular shall prevail over the Chinese text in the event of any inconsistency.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Freshfields Bruckhaus Deringer at 55th Floor, One Island East, Taikoo Place, Quarry Bay, Hong Kong during normal business hours from 9:00 a.m. to 5:00 p.m. on any weekday, except Saturdays, Sundays and public holidays, during the period of 14 days from the date of this circular:

(i) the amended and restated Memorandum and Articles of Association of the Company;
(ii) the Implementation Agreement;
(iii) the Consortium Formation Agreement;
(iv) the Respective Proportions Determination Side Letter;
(v) the letter from the Board, the text of which is set out in the Letter from the Board;
(vi) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out in the Letter from the Independent Board Committee;
(vii) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out in the “Letter from the Independent Financial Adviser” to this circular;
(viii) the annual reports of the Company for each of the financial years ended 31 December 2015, 2016 and 2017;
(ix) the interim report of the Company for the six months ended 30 June 2018;

– IV-8 –

GENERAL INFORMATION

APPENDIX IV

(x) the audited financial information of the Target Group for each of the financial years ended 30 June 2016, 2017 and 2018 prepared in accordance with the Australian Accounting Standards, as set out in Appendix II to this circular;
(xi) the report from Deloitte Hong Kong in relation to the unaudited pro forma financial information of the Enlarged Group as set out in Appendix III to this circular;
(xii) the written consents referred to in the section headed “ 7. Consents ” in this Appendix; and
(xiii) this circular.

– IV-9 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [63 x 39] intentionally omitted <==

CK ASSET HOLDINGS LIMITED 長江實業集團有限公司

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 1113)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ Meeting ”) of CK Asset Holdings Limited (the “ Company ”) will be held at the Grand Ballroom, 1st Floor, Harbour Grand Hong Kong, 23 Oil Street, North Point, Hong Kong on Tuesday , 30 October 2018 at 10:15 a.m. (or, in the event that a black rainstorm warning signal or tropical cyclone warning signal no. 8 or above is in force in Hong Kong at 8:00 a.m. on that day, at the same time and place on Wednesday, 31 October 2018) for the purpose of considering and, if thought fit, passing, with or without amendments, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “THAT :

(a) the major transaction that is contemplated by the Company proceeding with the Acquisition alone, through CKM Australia Bidco Pty Ltd as its wholly-owned subsidiary, pursuant to the terms of the Implementation Agreement (a copy of the circular of the Company dated 10 October 2018 (the “ Circular ”) marked “ A ” together with a copy of the Implementation Agreement marked “ B ” having been tabled before the Meeting and initialled by the Chairman of the Meeting for the purpose of identification) be and is hereby approved, subject to the Joint Venture Transaction being terminated in accordance with its terms and not proceeding (including, without limitation, due to the ordinary resolution 2 below not being approved by the shareholders of the Company); and
(b) the directors of the Company, acting collectively and individually, be and are hereby authorised to take all such steps, do all such acts and things and to sign, execute, seal (where required) and deliver all such documents which he/she may in his/her absolute discretion, consider necessary, appropriate, desirable or expedient in connection with or to implement or give effect to the above resolution and all of the transactions contemplated thereunder.”

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NOTICE OF EXTRAORDINARY GENERAL MEETING

2. “THAT :

(a) both:
(1) the connected and major transactions that are contemplated between the Company and its subsidiaries with:
- (i) CK Infrastructure Holdings Limited and its subsidiaries; and/or
- (ii) Power Assets Holdings Limited and its subsidiaries,

pursuant to, and in connection with, the Consortium Formation Agreement (a copy of the Consortium Formation Agreement marked “ C ” having been tabled before the Meeting and initialled by the Chairman of the Meeting for the purpose of identification), including, but not limited to, the formation of a consortium with the Company, CK Infrastructure Holdings Limited (if applicable) and Power Assets Holdings Limited (if applicable) in relation to the Joint Venture Transaction; and

(2) the major transaction that is contemplated by the Company proceeding with the Joint Venture Transaction pursuant to the Implementation Agreement,

be and are hereby approved; and

(b) the directors of the Company, acting collectively and individually, be and are hereby authorised to take all such steps, do all such acts and things and to sign, execute, seal (where required) and deliver all such documents which he/she may in his/her absolute discretion, consider necessary, appropriate, desirable or expedient in connection with or to implement or give effect to the above resolutions and all of the transactions contemplated thereunder.”

By Order of the Board

Eirene YEUNG

Executive Committee Member & Company Secretary

Hong Kong, 10 October 2018

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

Unless otherwise defined in this notice or the context requires otherwise, terms defined in the Circular shall have the same meanings when used in this notice.
At the Meeting, the Chairman of the Meeting will put each of the above resolutions to be voted by way of a poll under Article 81 of the Company’s Amended and Restated Articles of Association.
Any member entitled to attend and vote at the Meeting is entitled to appoint more than one proxy in accordance with the relevant provisions of the Amended and Restated Articles of Association of the Company to attend and on a poll, vote in his/her stead. A proxy need not be a member of the Company.
To be valid, the proxy form together with any power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power or authority must be deposited at the Company’s principal place of business in Hong Kong at 7th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong not less than 48 hours before the time appointed for the holding of the Meeting or any adjournment thereof (as the case may be).
Completion and return of the proxy form will not preclude a member from attending and voting in person at the Meeting or any adjournment thereof (as the case may be) should the member so desire and, in such event, the proxy form shall be deemed to be revoked.
For the purpose of determining the entitlement to attend and vote at the Meeting, the Register of Members of the Company will be closed from Thursday, 25 October 2018 to Tuesday, 30 October 2018 (or Wednesday, 31 October 2018 in the event that the Meeting is to be held on Wednesday, 31 October 2018 because of a black rainstorm warning signal or tropical cyclone warning signal no.8 or above is in force in Hong Kong (as detailed in note 7 below)), both days inclusive, during which period no transfer of Shares will be effected. In order to be entitled to attend and vote at the Meeting, all share certificates with completed transfer forms, either overleaf or separately, must be lodged with the Company’s Hong Kong Share Registrar, Computershare Hong Kong Investor Services Limited, at Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not later than 4:30 p.m. on Wednesday, 24 October 2018.
The Meeting will be held at the Grand Ballroom, 1st Floor, Harbour Grand Hong Kong, 23 Oil Street, North Point, Hong Kong on Tuesday, 30 October 2018 at 10:15 a.m. as scheduled regardless of whether or not an amber or red rainstorm warning signal or a tropical cyclone warning signal no. 3 or below is in force in Hong Kong at any time on that day.
However, if a black rainstorm warning signal or a tropical cyclone warning signal no. 8 or above is in force in Hong Kong at 8:00 a.m. on Tuesday, 30 October 2018, the Meeting will not be held on that day but will be automatically postponed and, by virtue of this notice, be held at the same time and place on Wednesday, 31 October 2018 instead.

Members who have any queries concerning these arrangements, please call the Company at (852) 2128 8888 during business hours from 9:00 a.m. to 5:00 p.m. on Mondays to Fridays, excluding public holidays.

Members should make their own decision as to whether they would attend the Meeting under bad weather conditions at their own risk having regard to their own situation and if they should choose to do so, they are advised to exercise care and caution.

In the case of joint holders of a share of the Company, any one of such joint holders may vote at the Meeting, either personally or by proxy, in respect of such share as if he/she/it was solely entitled thereto. If more than one of such joint holders are present at the Meeting, the more senior shall alone be entitled to vote in respect of the relevant joint holding. For this purpose, seniority shall be determined by reference to the order in which the names of the joint holders stand on the Register of Members of the Company in respect of the relevant joint holding.
The translation into Chinese language of this notice is for reference only. In case of any inconsistency, the English version shall prevail.

– N-3 –

This circular is available in both English and Chinese versions (“ Circular ”). Shareholders who have received either the English or the Chinese version of this Circular may request a copy in the other language by writing to the Company c/o the Company’s Hong Kong Share Registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong or by email to [email protected].

This Circular (both English and Chinese versions) has been posted on the Company’s website at www.ckah.com. Shareholders who have chosen (or are deemed to have consented) to read the Company’s corporate communications (including but not limited to the Circular) published on the Company’s website in place of receiving printed copies thereof may request the printed copy of the Circular in writing to the Company c/o the Company’s Hong Kong Share Registrar or by email to [email protected].

Shareholders who have chosen (or are deemed to have consented) to receive the corporate communications using electronic means through the Company’s website and who for any reason have difficulty in receiving or gaining access to the Circular posted on the Company’s website will upon request in writing to the Company c/o the Company’s Hong Kong Share Registrar or by email to [email protected] promptly be sent the Circular in printed form free of charge.

Shareholders may at any time choose to change their choice as to the means of receipt (i.e. in printed form or by electronic means through the Company’s website) and/or the language of the Company’s corporate communications by reasonable prior notice in writing to the Company c/o the Company’s Hong Kong Share Registrar or sending a notice to [email protected].

AI assistant

CK Asset Holdings Limited — Proxy Solicitation & Information Statement 2018

49696_rns_2018-10-09_62bdcb0e-1941-4e7b-8aca-80074488da1b.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

CK ASSET HOLDINGS LIMITED 長江實業集團有限公司

CONNECTED TRANSACTION AND MAJOR TRANSACTION

PROPOSED ACQUISITION BY BIDCO BY WAY OF THE TRUST SCHEMES OF ALL OF THE STAPLED SECURITIES IN ISSUE OF APA WHICH ARE LISTED ON THE AUSTRALIAN SECURITIES EXCHANGE AND FORMATION OF JOINT VENTURE

Independent Financial Adviser to the Independent Board Committee and Independent Shareholders

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

“End Date”

DEFINITIONS

“Independent Shareholders”

DEFINITIONS

“JV Co”

DEFINITIONS

DEFINITIONS

“Sale Shares”

“Scheme Consideration”

DEFINITIONS

DEFINITIONS

“Trust Schemes”

“UK Gas Group”

“UK Gas ExCo”

“%”

CK ASSET HOLDINGS LIMITED 長江實業集團有限公司

Board of Directors

Company Secretary

CONNECTED TRANSACTION AND MAJOR TRANSACTION

PROPOSED ACQUISITION BY BIDCO BY WAY OF THE TRUST SCHEMES OF ALL OF THE STAPLED SECURITIES IN ISSUE OF APA WHICH ARE LISTED ON THE AUSTRALIAN SECURITIES EXCHANGE AND FORMATION OF JOINT VENTURE

1. INTRODUCTION

LETTER FROM THE BOARD

2. ACQUISITION

2.1 The outline of the Trust Schemes

2.2 Implementation of the Trust Schemes

2.3 Conditions to the Trust Schemes

2.3.1 either:

2.3.4 the EC Approval is obtained;

LETTER FROM THE BOARD

other than:

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

2.4 Guarantee

2.5 Exclusivity

2.6 Target break fee

2.7 Recommendations and undertaking with respect to the Company Transaction Shareholders’ Approval

2.8 Reverse break fee

LETTER FROM THE BOARD

2.9 End Date

2.10 Recommendation by and voting intentions of directors of Target RE

3. JOINT VENTURE TRANSACTION

3.1 The Consortium Formation Agreement

3.1.1 Participation of the Consortium Members – JV Transaction Shareholders’ Approvals and EC Approval

LETTER FROM THE BOARD

3.1.2 Maximum Financial Commitment

3.1.3 Termination

3.2 The Shareholders’ Agreement

3.2.1 Board role and composition

3.2.2 Quorum

3.2.3 Voting on board resolutions

LETTER FROM THE BOARD

3.2.4 Shareholder Reserved Matters

3.2.5 Dividend and distribution policy

3.2.6 Pre-emption rights

4. INFORMATION ON THE TARGET GROUP

LETTER FROM THE BOARD

5. INFORMATION ON THE GROUP

6. INFORMATION ON THE CKI GROUP

7. INFORMATION ON THE PAH GROUP

8. REASONS FOR, AND BENEFITS OF, THE ACQUISITION AND JOINT VENTURE TRANSACTION

LETTER FROM THE BOARD

9. FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

10. IMPLICATIONS UNDER THE LISTING RULES

11. WAIVER FROM STRICT COMPLIANCE WITH THE LISTING RULES

LETTER FROM THE BOARD

CK Asset Holdings Limited Proxy Solicitation & Information Statement 2018