Directors’ Report and Financial Statements -...

Directors’ Report and Financial Statementsfor the year ended 30 June 2016

Sydney Motorway Corporation Pty Limited ABN 47 601 507 591 and its Controlled Entities

ContentsDirectors’ Report 4Auditor’s Independence Declaration 11Statement of Comprehensive Income 12Statement of Financial Position 13Statement of Changes in Equity 14Statement of Cash Flows 15 Notes to the Financial Statements 16Directors’ Declaration 42Independent Auditor’s Report 43

Directors’ Report and Financial Statements | 3

Directors’ Report

The Directors of Sydney Motorway Corporation Pty Limited present their report of the consolidated entity (referred to hereafter as “the Group,” “SMC,” or “the company”), consisting of Sydney Motorway Corporation Pty Limited ABN 47 601 507 591 and its controlled entities for the financial year ended 30 June 2016 and the auditor’s independence declaration thereon.

Organisation overviewSydney Motorway Corporation (SMC) is a private company limited by shares and established by the NSW Government in August 2014 under the Corporations Act 2001 (Cth).

SMC is governed by a majority independent Board appointed by its joint shareholders, the NSW Treasurer and NSW Minister for Roads, Maritime and Freight.

Principal activities SMC, through its subsidiaries, finances and delivers major infrastructure solutions to support Sydney’s long-term economic and population growth.

During FY2016, SMC was responsible for financing and delivering key components of WestConnex – Australia’s largest transport infrastructure project, including:

• M4 Widening and M4 East

• New M5 (including King Georges Road Interchange Upgrade)

• M4-M5 Link.

WestConnex is a central part of an integrated transport solution for Sydney. It was a key recommendation of the State Infrastructure Strategy 2012 (and updated in 2014) and the Long Term Transport Master Plan.

WestConnex will provide improved connectivity between Greater Sydney and Global Sydney’s primary economic centres and international gateways.

Key functional changes this year Following its inception in 2014, SMC was commissioned by the NSW Government to secure financing solutions for the delivery of WestConnex.

Until 30 September 2015, WestConnex Delivery Authority, a subsidiary of Roads and Maritime, was responsible for the procurement and project delivery of WestConnex. On 1 October 2015, WestConnex Delivery Authority’s procurement and project delivery functions transferred to SMC. WDA’s Government client functions such as property acquisition and obtaining planning approvals were transferred to Roads and Maritime Services.


Board of Directors and Officers Directors

Name Position Appointed/Resigned

Anthony Shepherd AO Chair, Non-executive Director May 2015 – resigned September 2015

Peter Brecht Chair, Non-executive Director May 2015 (as Chair from October 2015)

Penelope Graham Chair, Non-executive Director September 2014 (as Deputy Chair since May 2015)

Mary Ploughman Non-executive Director September 2014

Cameron Robertson Non-executive Director September 2014

Rodney Pearse Non-executive Director September 2014

Leilani Frew Non-executive Director August 2014 – resigned in August 2016

John Cooper Non-executive Director June 2016

Dennis Cliche Executive Director June 2015

Peter Regan Executive Director August 2014 – resigned November 2015

John Kite Company Secretary and Chief Financial Officer

September 2014 – resigned as Company Secretary in February 2016

Roderick MacKinnon Company Secretary February 2016

Officers of the company

Name Position Appointed/Resigned

Dennis Cliche Chief Executive Officer June 2015

John Kite Company Secretary January 2015 - resigned February 2016

Roderick MacKinnon Company Secretary February 2016

ShareholdersSMC has two shareholders:

• The Hon Gladys Berejiklian MP, NSW Treasurer

• The Hon Duncan Gay MLC, Minister for Roads, Maritime and Freight

Audit and Risk Committee SMC has an independent Audit and Risk Committee comprising:

Name Position

Rodney Pearse Chair, Non-executive Director

Peter Brecht* Non-executive Director

John Cooper Non-executive Director

Cameron Robertson Non-executive Director

Mary Ploughman Non-executive Director

Dennis Cliche Chief Executive Officer and Executive Director

Roderick MacKinnon Company Secretary

*Peter Brecht resigned from the Audit Risk Committee on 16 June 2016 and was replaced by John Cooper the same day.


Directors’ Report continued

Remuneration Committee SMC has a Remuneration Committee comprising:

Name Position

Penelope Graham Chair, Non-executive Director

Rodney Pearse Non-executive Director

Dennis Cliche Chief Executive Officer and Executive Director

Steve Doran Director HR & Services

The year in review – highlights

July 2015 Work on WestConnex King Georges Road Interchange Upgrade commenced, marking the start of New M5 project – 18 months early

August 2015 Work commenced at St Lukes Park, Concord to build a new hockey facility for the community in preparation for construction of the WestConnex M4 East

September 2015 WestConnex M4 East Environmental Impact Statement released for public submissions

October 2015 WestConnex Delivery Authority’s procurement and delivery functions transferred to SMC

November 2015 The first of 240 girders moulded for construction of the WestConnex M4 Widening viaduct

November 2015 WestConnex Updated Strategic Business Case published

November 2015 WestConnex New M5 preferred design released and design and construction contract awarded

November 2015 Financial close for WestConnex New M5 – $1.5 billion in private sector debt and a $2 billion Australian Government concessional loan, the first of its kind

November 2015 WestConnex New M5 Environmental Impact Statement released for public submissions

January 2016 WestConnex M4-M5 Link State Significant Infrastructure Application Report lodged with NSW Department of Planning and Environment – marking commencement of the planning assessment process

February 2016 WestConnex M4 East State planning approval granted

February 2016 New, international-standard hockey facilities for the community at St Lukes Park Concord completed

March 2016 Department of Planning and Environment issued Secretary’s Environmental Assessment Requirements for WestConnex M4-M5 Link

March 2016 WestConnex M4 East construction commenced

March 2016 Alexandria Landfill major clean-up completed on this site, for use as the St Peters Interchange, part of WestConnex New M5

March 2016 Testing commenced on the WestConnex M4 Widening tolling systems

April 2016 WestConnex New M5 State planning approval granted

April 2016 WestConnex King Georges Road Interchange Upgrade construction reaches half way point

Significant changes since 30 June 2016• July 2016: WestConnex New M5 approved under the Commonwealth Environmental Protection and Biodiversity

Conservation Act 1999, the final planning approval required prior to construction.

• July 2016: WestConnex New M5 construction commenced.

• July 2016: WestConnex M4 East tunnelling commenced.

• WCX M4 Pty Ltd entity is in the process of being restructured from a single entity into a dual flow-through trust structure similar to the WCX M5 group. This is expected to be implemented in the last quarter of this year. SMC has commenced work to obtain a limited recourse debt facility for the M4 concession. It is seeking to raise up to $1.8 billion with financial close targeted for late 2016.


Events occurring after balance sheet date• Post reporting date, a claim has been received with respect to WCX M4 Pty Limited. The validity of this claim is currently

being assessed. Roads and Maritime Services (RMS) has been advised of this claim in accordance with requirements of the Project Deed. Finalisation of this matter is subject to further discussions and negotiation.

• On 22 July 2016, WCX M5 Finco Pty Ltd effected the drawdown of funds under the Senior Syndicated Facility Agreement and Subordinated Commonwealth Loan Agreement.

OutlookIn the coming year, Sydney Motorway Corporation expects to:

• Complete construction and commence operation of the widened M4 Motorway between Parramatta and Homebush

• Increase tunnelling activity on the M4 East motorway project as 18 roadheaders are progressively brought into service

• Achieve approval of M4 East key reports and plans required under the project’s Conditions of Approval

• Secure private sector debt finance for Westconnex M4

• Release a reference design for WestConnex M4-M5 Link

• Start tunnelling on WestConnex New M5

• Complete construction on WestConnex King Georges Road Interchange Upgrade

• Exhibit the WestConnex M4-M5 Link’s Environmental Impact Statement for public comment

• Start major procurement for WestConnex M4-M5 Link

• Launch SMC’s community, education and training employment programs.

SMC projectsWestConnex is part of an integrated transport plan to keep Sydney moving – easing congestion, creating jobs and connecting communities. The new motorway will provide vital support for Sydney’s long-term economic and population growth.

WestConnex is being delivered in stages and is expected to be completed in 2023. It will:

• Widen the M4 Motorway and extend it in underground tunnels between Homebush and Haberfield

• Double road capacity along the M5 corridor with the New M5 underground tunnels running between St Peters and Kingsgrove

• Provide an underground link between the M4 and M5 motorways creating a seamless motorway without traffic lights

• Provide a western bypass of Sydney city’s central business district

• Provide connections to the Western Harbour Tunnel and BeachesLink and a future southern Sydney F6 extension

• Enable a connection to Sydney Airport and Port Botany via Sydney Gateway (currently being designed by Roads and Maritime Services)

• Provide improved connectivity between key employment, residential and industrial hubs throughout Greater Western Sydney

• Enable improved public transport along key corridors including Parramatta Road (between Burwood Road and Haberfield) and along Victoria Road Rozelle

• Provide more than 18 hectares of new open space and 14 kilometres of new and improved cycleways and walkways providing improved connectivity for non-motorway users as well.

WestConnex M4 Widening WestConnex M4 Widening involves widening the M4 Motorway between Parramatta and Homebush creating an additional lane in each direction.

Construction on the project commenced in March 2015 with a total project value of approximately $0.5 billion.

The project is about 7.5 kilometres in length and the motorway is expected to open to traffic in 2017.

WestConnex M4 East WestConnex M4 East involves extending the M4 Motorway from Homebush to Haberfield (via Concord) in underground tunnels, including providing future connections to the M4–M5 Link.



Construction on the project commenced in March 2016.

The project is about 6.5 kilometres in length (with 5.5 kilometres of the motorway in tunnel) and the motorway is expected to open to traffic in 2019.

WestConnex New M5 WestConnex New M5 involves duplicating the M5 East motorway corridor, with new underground motorway tunnels between Beverly Hills and a new interchange at St Peters. This Interchange allows for connections to Sydney Gateway and the M4-M5 Link.

Construction on the project commenced in July 2016 with completion targeted for 2020.

The New M5 tunnels provide connections for the proposed M4–M5 Link and the Southern Connector (a new potential motorway connecting to Sydney’s southern suburbs).

WestConnex M4-M5 Link WestConnex M4-M5 Link will connect the M4 East in Haberfield to the New M5 in St Peters (via Rozelle and Camperdown) in underground motorway tunnels. It includes a future connection for the Western Harbour Tunnel and BeachesLink. This project is in the early planning stages.

Financing and investmentSMC’s commercial objective is to safely develop, deliver and operate all stages of the WestConnex Project through the provision of best-value solutions for our shareholders.

SMC’s financing strategy for the WestConnex motorway is based on a limited recourse project financing and sale-of-business model.

This strategy involves establishing SMC subsidiaries to enable the raising of limited-recourse debt against net toll revenues to fund the construction costs of each WestConnex project.

M4 Widening and M4 EastSMC has commenced work for a limited recourse debt-raising process for the M4 East and M4 Widening, seeking to raise up to $1.8 billion with financial close targeted for November 2016.

New M5In November 2015, SMC successfully raised:

• $1.5 billion limited recourse in senior debt from domestic and international financiers

• $2.0 billion limited recourse subordinated loan from the Australian Government.

M4-M5 LinkSMC is continuing to work with the NSW Government on financing and procurement strategy for the M4-M5 Link.

Planning approvals for WestConnexEach WestConnex project is subject to a thorough environmental impact assessment under the Environmental Planning and Assessment Act 1979.

This process involves the preparation and public exhibition of an Environmental Impact Statement (EIS). Each EIS includes information on the project design, air quality, heritage, traffic and transport impacts, and the management of other construction and operational impacts.

Stakeholders and members of the community are able to provide feedback during the preparation and exhibition of the EIS. Submissions received during the EIS exhibition are addressed in a Submissions and Preferred Infrastructure Report and submitted to the Minister for Planning for consideration in the planning approval assessment process.


WestConnex projects that have received planning approval are:

• M4 Widening

• M4 East

• King Georges Road Interchange Upgrade

• New M5.

The EIS for WestConnex M4–M5 Link is expected to the exhibited in 2017.

Environmental regulationsSMC and its contractors are delivering WestConnex in accordance with:

• The measures identified in the related Environmental Impact Statement and Submissions and Preferred Infrastructure Report

• The Conditions of Approval set out by the Department of Planning and Environment and Minister for Planning

• The related project Environmental Protection Licences.

Our key stakeholders and regulators include:

• The NSW Environment Protection Authority (EPA), which monitors compliance with the Environmental Protection Licences and regulates environmental performance

• Department of Planning and Environment, which monitors compliance with the conditions of project approval and mitigation measures agreed to during planning approval

• Commonwealth Department of the Environment, which regulates national environmental laws, some of which focus on the conservation of biodiversity.

SMC has invested into project-specific environmental expertise and management systems that advise, guide, monitor and report on the fulfilment of environmental obligations by our contractors and delivery teams.

The EPA is the primary governing body for all the requirements associated with NSW environmental regulations. The WestConnex projects are subject to environmental regulations under Australian Commonwealth and State laws. WCX M4 and WCX M5 is committed to managing construction and operations of the WestConnex Motorways in an environmentally responsible manner.

Operating and financial review

Consolidated Financial Highlights 30 June 2016 $m

30 June 2015 $m

Summary of financial performance

Revenue 1,560.0 173.2

Expenses 1,547.5 163.0

Profit for the year 12.5 10.2

Summary of financial position

Total assets 2,709.6 1,063.7

Total liabilities 421.7 113.5

Total equity 2,287.9 950.2

Financial statistics

Current ratio 3.1 7.5

Total equity to total assets 84.4% 89.3%

Other balance sheet items

Cash and cash equivalents 862.1 829.4

Current trade and other receivables 72.5 17.2



How we have performed this year• Work commenced on the construction of Stage 1B (M4 East) and Stage 2 (New M5) projects

• There was also increased activity on Stage 1A (M4 widening) which commenced in March 2015 and is expected to be completed in 2017

• This resulted in increased construction revenue and construction expense for 2016

• The Group incurred $1.5 billion in construction costs, with an equivalent amount recognised as construction revenue, in accordance with AASB Interpretation 12 Service Concession Agreements

• This also gave rise to an intangible asset, with a total carrying value of $1.8 billion as at 30 June 2016

• The $12.5 million profit for the year is underpinned by interest income.

How we funded the business and managed risks• $3.5 billion of Senior and Subordinated Debt was successfully raised to finance the New M5 project. The final environmental

approval was received in July 2016

• $2.4 billion was progressively contributed by shareholders to 30 June 2016 under equity subscription agreements

• A total of $1.8 billion has been invested from December 2014 to June 2016 across all the projects

• No debt was utilised as at 30 June 2016. The first drawdown under the New M5 facilities was in July 2016

• $1.5 billion of forward interest rates swaps are in place to reduced future volatility in interest rate movements.

DividendsSubject to the Corporations Act, the Board needs to determine the dividend policy of the Company from time to time and in doing so will consider the implications for cash reserves and solvency of the Company. No dividends were paid or proposed to be paid to members during the financial year ended 30 June 2016. The Company has no plans to pay a dividend until the current construction projects are completed.

Indemnification of officers and auditors As provided under the Constitution, the Company indemnifies current and former directors and officers for any loss arising from any claim by reason of any wrongful act committed by them in their capacity as a director or officer (subject to certain exclusions as required by law). During the financial year, the Company has paid premiums in respect of contracts insuring the directors and officers against any liability of this nature. In accordance with normal commercial practices, under the terms of the insurance contracts, the nature of the liabilities insured against and the amount of premiums paid are confidential. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or any related body corporate against a liability incurred as such by an officer or auditor.

Auditor’s independence declarationThe auditor’s independence declaration for the year ended 30 June 2016 is attached to this Directors’ Report.

Rounding of amountsThe Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the financial report and Director’s report have been rounded off to the nearest thousand dollars, unless otherwise stated.

This report is made in accordance with a Resolution of the Board of Directors and is signed for and on behalf of Directors pursuant to s.298 (2) of the Corporations Act 2001.

Peter Brecht Dennis ClicheChairman Director

Sydney, 22 September 2016


Auditor’s Independence DeclarationDirectors’ Report and Financial Statements | 11

Statement of Comprehensive IncomeFor the year ended 30 June 2016

Consolidated Parent

Note2016

$’0002015

$’0002016

$’0002015

$’000

Revenue

Construction revenue 2 1,518,917 161,688 – –

Management services revenue – – 30,755 –

Interest income 25,508 11,560 20,102 11,540

Other gain – – 10,000 –

Other revenue 15,609 – 12,806 –

Total revenue 1,560,034 173,248 73,663 11,540

Expenses

Construction costs 3 1,485,384 161,688 – –

Interest expense on derivatives 31 – – –

Employee related costs 4 27,476 448 20,754 448

Other operating expenses 5 34,292 897 33,152 897

Finance costs 6 18 – – –

Depreciation and amortisation 9 & 10 316 12 316 12

Total expenses 1,547,517 163,045 54,222 1,357

Profit for the year 12,517 10,203 19,441 10,183

Other comprehensive income

Items that may be reclassified subsequently to the profit or loss:

Loss on cash flow hedges (121,016) – – –

Total other comprehensive loss for the year (121,016) – – –

Total comprehensive income/(loss) for the year (108,499) 10,203 19,441 10,183

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


Statement of Financial PositionAs at 30 June 2016

Consolidated Parent

Note2016

$’0002015

$’0002016

$’0002015

$’000

Current assets

Cash and cash equivalents 7 862,069 829,364 520,351 828,612

Trade and other receivables 8 72,455 17,165 17,547 8,983

Other assets 12 7,565 – – –

Total current assets 942,089 846,529 537,898 837,595

Non-current assets

Property, plant and equipment 9 3,189 119 2,976 119

Intangible assets 10 1,745,585 217,014 18 55,326

Investment in subsidiaries 11 – – 1,898,298 69,078

Other assets 12 18,685 – – –

Total non-current assets 1,767,459 217,133 1,901,292 124,523

Total assets 2,709,548 1,063,662 2,439,190 962,118

Current liabilities

Trade and other payables 13 295,414 113,336 20,255 11,812

Provisions 14 3,773 117 2,201 117

Total current liabilities 299,187 113,453 22,456 11,929

Non-current liabilities

Derivative financial liabilities 15 121,016 – – –

Provisions 14 1,484 6 953 6

Total non-current liabilities 122,500 6 953 6

Total liabilities 421,687 113,459 23,409 11,935

Net assets 2,287,861 950,203 2,415,781 950,183

EQUITY

Issued capital 16 2,386,157 940,000 2,386,157 940,000

Reserves 17 (121,016) – – –

Retained earnings 22,720 10,203 29,624 10,183

Total equity 2,287,861 950,203 2,415,781 950,183

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


Statement of Changes in EquityFor the year ended 30 June 2016

Consolidated

Contributedequity$’000

Cash flow hedge reserve

$’000

Retained earnings

$’000Total equity

$’000

Balance at 28 August 2014 – – – –

Profit for the period – – 10,203 10,203

Other comprehensive income – – – –

Total comprehensive income – – 10,203 10,203

Issue of share capital 940,000 – – 940,000

Balance at 30 June 2015 940,000 – 10,203 950,203

Profit for the year – – 12,517 12,517

Other comprehensive loss – (121,016) – (121,016)

Total comprehensive (loss)/income – (121,016) 12,517 (108,499)

Issue of share capital 1,446,157 – – 1,446,157

Balance at 30 June 2016 2,386,157 (121,016) 22,720 2,287,861

Parent

Contributedequity$’000

Cash flow hedge reserve

$’000

Retained earnings

$’000Total equity

$’000


Profit for the period – – 10,183 10,183



Issue of share capital 940,000 – – 940,000

Balance at 30 June 2015 940,000 – 10,183 950,183

Profit for the year – – 19,441 19,441



Issue of share capital 1,446,157 – – 1,446,157

Balance at 30 June 2016 2,386,157 – 29,624 2,415,781

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


Statement of Cash FlowsFor the year ended 30 June 2016

Consolidated Parent

Note2016

$’0002015

$’0002016

$’0002015

$’000

Cash flows from operating activities

Interest received 24,958 11,075 19,597 11,057

Other receipts 138,502 5,163 43,525 134

Payments to employees and suppliers (167,024) (8,186) (50,625) (8,186)

Net cash (used in)/from operating activities 23 (3,564) 8,052 12,497 3,005

Cash flows from investing activities

Payments for concession assets (1,380,262) (118,558) (22,873) (45,185)

Payments for property, plant and equipment (3,376) (130) (3,163) (130)

Payments for investments – – (1,829,220) (69,078)

Proceeds on transfer of intangibles – – 88,341 –

Net cash used in investing activities (1,383,638) (118,688) (1,766,915) (114,393)

Cash flows from financing activities

Proceeds from issue of share/unit capital 1,446,157 940,000 1,446,157 940,000

Payments of financing costs (26,250) – – –

Net cash from financing activities 1,419,907 940,000 1,446,157 940,000

Net increase/(decrease) in cash and cash equivalents 32,705 829,364 (308,261) 828,612

Opening cash and cash equivalents 829,364 – 828,612 –

Closing cash and cash equivalents 7 862,069 829,364 520,351 828,612

The above Statement of Cash Flows should be read in conjunction with the accompanying notes.


Notes to the Financial StatementsFor the year ended 30 June 2016

1. Summary of Significant Accounting PoliciesSydney Motorway Corporation Pty Limited (the ‘Company’ or ‘SMC’) is a private company limited by shares and established by the New South Wales State on 28 August 2014 under the Corporations Act 2001. The role of the Company is to invest (directly and/or indirectly) in, and provide or arrange finance for, Designated Road Projects which the Board has determined are reasonably expected to generate a return.

This consolidated financial statement of the Company and its subsidiaries as listed below, were authorised for issue in accordance with the resolution of the Directors on 22 September 2016.

WCX M4 Pty Limited (WCX M4)

WCX M5 Entities consist of the following:

WCX M5 AT Pty Ltd

WCX M5 PT Pty Ltd

WCX M5 AHT Pty Ltd

WCX M5 PHT Pty Ltd

WCX M5 AT Pty Ltd as Trustee of WCX M5 Asset Trust (WCX M5 Asset Trust)

WCX M5 PT Pty Ltd as Trustee of WCX M5 Project Trust (WCX M5 Project Trust)

WCX M5 AHT Pty Ltd as Trustee of WCX M5 Asset Hold Trust (WCX M5 Asset Hold Trust)

WCX M5 PHT Pty Ltd as Trustee of WCX M5 Asset Hold Trust (WCX M5 Project Hold Trust)

WCX M5 Finco Pty Ltd (WCX M5 Finco)

a) Basis of preparationThe consolidated financial statements are general purpose financial statements and have been prepared in accordance with the requirements of the Corporations Act 2001, applicable Australian Accounting Standards (including the Australian Accounting Interpretations), the requirements of the Public Finance and Audit Act 1983 and Public Finance and Audit Regulation 2015, and the Treasurer’s Directions.

SMC is classified as a for-profit entity for the purposes of the application of Australian Accounting Standards and under the NSW Treasury Policy TPP 05-4 Distinguishing For-Profit from Not-For-Profit Entities.

The historical cost basis of accounting has been adopted except where otherwise stated.

The current year includes WCX M5 Entities for the period from their respective incorporation dates to 30 June 2016. In addition, the prior year comparative includes WCX M4 Pty Limited for the period 28 August 2014 to 30 June 2015.

Unless otherwise stated, all amounts are rounded to the nearest one thousand dollars ($’000) and expressed in Australian dollars.

Judgements, key assumptions and estimates used by management are disclosed in the relevant notes to the consolidated financial statements.


b) Principals of ConsolidationThese financial statements have been consolidated in accordance with Australian Accounting Standards AASB 10 Consolidated Financial Statements.

The consolidated financial statements comprise the financial statements of the Company and its wholly-owned subsidiaries, as at 30 June 2016 (collectively referred to as the ‘group’ or ‘the consolidated entity’). Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Consolidation of a controlled entity ceases with the Group loses control of the controlled entity.

Assets and liabilities, income and expenses of a controlled entity acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the controlled entity.

Controlled entitiesControlled entities are entities over which the Group has power to control, which is when the Group is exposed, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.

Controlled entities are fully consolidated when the Group has less than a majority of the voting or similar rights of an entity.

All inter-entity balances and transactions between entities in the Group have been eliminated in full on consolidation.

c) Segment reportingOperating segments are reported in a manner that is consistent with internal reporting provided to the chief operating decision maker. The chief operating decision maker has identified the Group operates in one segment.

d) Statement of complianceThe consolidated financial statements and accompanying notes comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

e) Going concernThe consolidated financial statements have been prepared on the basis that the Group is expected to be able to pay its debts as and when they fall due and continue in operation without any intention or necessity to liquidate or otherwise wind up their operations.

f) New or revised Australian Accounting Standards and Interpretations not yet adoptedThe Group did not early adopt any new accounting standards that are not yet effective.

The following new accounting standards and interpretations have been published that are not mandatory for 30 June 2016 reporting period:

AASB 9 Financial Instruments (effective for financial years commencing on or after 1 January 2018)

AASB 9, published in July 2014, replaces the existing guidance in AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment of financial assets, and the new general hedge accounting requirements. It also carries forward guidance on recognition and de-recognition of financial instruments from AASB 139. The impact of AASB 9 is being considered.

AASB 15 Revenue from Contracts with Customers (effective for financial years commencing on or after 1 January 2018)

AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue and AASB 111 Construction Contracts. The impact of AASB 15 is being considered.

AASB 16 Leases (effective for financial years commencing on or after 1 January 2019)

AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. This standard will predominately affect lessees, bringing all major leases on balance sheet. The impact of AASB 16 is being considered.


Notes to the Financial Statements continued

For the year ended 30 June 2016

1. Summary of Significant Accounting Policies continued

g) Critical accounting estimates and judgementsThe preparation of the consolidated financial statements require management to make judgements, estimates and assumptions that affect the amounts reported in the financial statements. The estimates and associated assumptions are based on factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.

The main area where a high degree of judgement or complexity arises or where assumptions and estimates are significant to the financial statements are found in the following notes:

Fair value of derivatives. Refer to note 18(c).

Impairment testing of motorway concession assets under construction. Refer to note 10.

Valuation techniques used, which involves estimates are discussed in detail in the relevant note(s).

h) Revenue recognitionRevenue is measured at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

Revenue is recognised for the major business activities as follows:

Interest incomeInterest income is recognised on an accruals basis using the effective interest rate method.

Construction revenueDuring the construction phase of service concession infrastructure assets, the Group records an intangible asset which represents the right to charge users of the infrastructure and recognises construction revenue from the construction of the infrastructure. Revenue and expenses associated with construction contracts are recognised in accordance with the percentage of completion method.

i) Construction CostsWCX M4 Pty Limited, a wholly owned subsidiary of the Company, holds the concession for the WestConnex Stage 1 motorway project which grants the company the right to design, build, operate and maintain WestConnex Stage 1 motorway for the concession period ending in 2060. Construction costs incurred in the development and management of the WestConnex Stage 1 motorway project are recognised in the consolidated Statement of Comprehensive Income and subsequently capitalised to intangible assets (assets under construction – Stage 1) in the consolidated Statement of Financial Position.

The WCX M5 Entities have been granted the tolling rights to the WestConnex Stage 2 M5 East and New M5 motorways. This right includes the operation, maintenance and repair of the motorway (O&M) until 31 December 2060. Construction costs incurred in the development and management of the WestConnex Stage 2 motorway project are recognised in the consolidated Statements of Comprehensive Income and subsequently capitalised to intangible assets (assets under construction – Stage 2) in the consolidated Statement of Financial Position.

Refer 1(n) for further details on intangible assets.

j) InsuranceThe Project Deed with RMS requires WCX M4 Pty Limited to effect or cause to effect certain policies of insurance. Subsequent to this obligation, the project related insurances have been passed down through the Design and Construction (D&C) deed to the D&C Contractor under a contractor arranged insurance approach for the WestConnex Stage 1 M4 Widening and M4 East Road Projects.

The Project Deed with Roads and Maritime Services (RMS) requires WCX M5 Asset Trustee to effect or cause to effect certain policies of insurance. Subsequent to this obligation, the project related insurances have been passed down through the Design and Construction (D&C) deed to the D&C Contractor under a contractor arranged insurance approach for the WestConnex Stage 2 New M5.


k) Cash and cash equivalentsCash includes cash at bank and deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value and are held for the purpose of meeting short term cash commitments rather than for investment or other purposes. Term deposits with a term of 90 days or less from the date of inception are classified as cash equivalent.

l) Trade and other receivablesTrade and other receivable are initially recognised at fair value, usually based on the transaction cost or face value. Subsequent measurement is at amortised cost using the effective interest method, less any allowance for uncollectible amounts. Changes are recognised in the Statement of Comprehensive Income when trade and other receivables are impaired or de-recognised. Short term receivables with no stated interest rate are measured at the original invoice amount where the effect of discounting is immaterial.

m) Property, plant and equipmentAcquisition of assetsAssets acquired are initially recognised at cost. Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire the asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the requirements of other Australian Accounting Standards.

Capitalisation thresholdsExpenditure on the acquisition, replacement or enhancement of property, plant and equipment is capitalised, provided it exceeds the capitalisation threshold. The capitalisation threshold for a network of property, plant and equipment items or for an individual (non-networked) item is $5,000.

Impairment of assetsAt each reporting date, the carrying amounts of assets are reviewed to ensure that they represent fair value. If the carrying amount requires a valuation adjustment in order to represent fair value, this is carried out at the reporting date. In addition, the carrying amounts are reviewed to determine whether there is an indication of impairment. If any indication of impairment exists, a formal estimate of their recoverable amount is made. Where the carrying amount of an asset is greater than its recoverable amount, the asset is considered impaired.

An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost of disposal and value in use. Impairment losses are recognised as an expense in profit or loss, unless an asset has previously been revalued through the asset revaluation reserve, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through profit or loss.

If the asset’s carrying amount is greater than its estimated recoverable amount, the carrying amount is reduced to recoverable amount and the reduction is recognised as an impairment loss.

Depreciation of property, plant and equipmentDepreciation is provided for on a straight-line basis over the useful life of the assets.

The depreciation charge for each period is recognised as an expense unless it is included in the carrying amount of another asset. In determining an asset’s useful life consideration is given to its expected usage, its expected wear and tear, technical or commercial obsolescence and legal or similar limits on its use.

The expected useful lives of items of property, plant and equipment are as follows:

• Computer and IT Hardware 3 – 5

• Leasehold improvements over the life of the relevant lease





n) Intangible assetsThe Group recognises intangible assets only if it is probable that future economic benefits will flow to the Group and the cost of the asset can be measured reliably.

SoftwareIntangible assets are measured initially at cost and the cost is its fair value as at the date of acquisition.

Development costs are only capitalised when certain criteria are met. Intangible assets are subsequently measured at fair value only if there is an active market. As there is no active market for the Group’s intangible assets, the assets are carried at cost less accumulated amortisation and impairment losses.

In determining the asset’s useful life, consideration is given to its expected usage, technical, technological, commercial or other types of obsolesce, legal or similar limits on its use, and whether its life is dependent on the useful life of other assets. The expected useful life of an item of software ranges between 2 and 5 years. Software is amortised on a straight-line basis over its estimated useful life commencing when the item is available for use.

All research costs are expensed.

Concession assets under constructionWCX M4 Pty Limited and WCX M5 Entities respectively hold the concession for the WestConnex Stage 1 and Stage 2 motorway project which grants the entities the right to design, build, operate and maintain WestConnex motorway for the concession period ending in 2060. At the end of the concession period, all concession assets are to be returned to the New South Wales Government – Roads and Maritime Services.

Management judgement is required in the assessment of the types of costs that are directly attributable to the increase in value of the intangible asset. Satisfying the directly attributable criteria requires an assessment of those unavoidable costs that, if not incurred, would result in the intangible asset not being constructed. Costs include cost of materials, services, direct labour and an appropriate portion of overheads. Attributable overheads are allocated to the cost of construction of an asset using direct labour cost.

Concession assets such as the right to future toll revenue will be amortised over the period of expected future benefits once the motorway is fully constructed and operational. Useful lives of these assets are finite.

Intangible assets not yet available for use are subject to an annual review of impairment.

Intangible assets in use are tested for impairment where an indicator of impairment exists. If the recoverable amount is less than its carrying amount, the carrying amount is reduced to the recoverable amount and the reduction is recognised as an impairment loss.

An intangible asset is de-recognised either on disposal or when its service potential ceases and it is not expected to have any disposal value. On de-recognition any gain or loss is recognised in the consolidated Statement of Comprehensive Income.

Impairment TestingAt each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes an estimate of the recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units).

Where the carrying amount of an intangible asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount through profit or loss. The decrement in the carrying amount is recognised as an expense in profit or loss in the reporting period in which the impairment occurs.

The recoverable amount of the Group’s cash generating units have been determined based on value-in-use calculations.

o) Investments in subsidiariesInvestments in subsidiaries are accounted for at cost less impairment losses, if any, in the financial statements of the parent entity. On disposal of such an investment, the difference between the net disposal proceeds and its carrying amount is included in Statement of Comprehensive Income.


p) Impairment of financial assetsAll financial assets, except those measured at fair value through profit and loss, are subject to an annual review for impairment. An allowance for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due.

For financial assets carried at amortised cost, the amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the impairment loss is recognised in the consolidated Statement of Comprehensive Income.

q) Other assetsOther assets including prepayments are recognised on a historic cost basis.

r) Trade and other payablesThese amounts comprise trade creditors and accrued expenses owing by the Group at reporting date and represent liabilities for goods and services received by Group prior to the end of the financial year which remain unpaid.

Payables are unsecured and are usually paid within 30 days of recognition. Payables are recognised initially at fair value, usually based on the transaction cost or face value and subsequently measured at amortised cost using the effective interest method. Short-term payables with no stated interest rate are measured at original invoice amount where the effect of discounting is immaterial.

s) Employee benefits and other provisionsSalaries and wages, annual leave, sick leave and on-costsLiabilities for wages and salaries (including non-monetary benefits) and annual leave are recognised in payables within accrued employee entitlements and are measured at the amounts expected to be paid when the liabilities are settled.

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave that is expected to be settled within 12 months from reporting date are recognised in respect of employees’ services are up to reporting date and included as current liabilities in the consolidated Statement of Financial Position. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. Employee benefit on-costs are included in accrued employee entitlements in the consolidated Statement of Financial Position and employee expenses in the consolidated Statement of Comprehensive Income when the employee entitlements to which they relate are recognised.

Long service leave and superannuationLong Service Leave is measured at present value in accordance with AASB 119 Employee Benefits.

Liabilities for long service leave are recognised when employees reach a qualifying period of continuous service and are measured at the amount expected to be settled within 12 months from reporting date. Any amount which is expected to be payable after 12 months from reporting date is measured as the present value of expected future payments. Consideration is given to future wage and salary levels, experience of employee departures and periods of service and discounted using the 10-year Australian Government bond rate at reporting date, with terms to maturity that match, as closely as possible, the estimated future cash flows.

The Group has recognised employee leave entitlement balances transferred from New South Wales Treasury, Road and Maritime Services and Transport for NSW.

The Group has no unfunded superannuation liability. Superannuation is contributed to plans as nominated by the employee. The cost of current employee contributions to employee contribution plans are charged to the consolidated Statement of Comprehensive Income.

Consequential on-costsConsequential costs to employment are recognised separately as liabilities and expenses where the employee benefits to which they relate have been recognised. This includes outstanding amounts of payroll tax, workers’ compensation insurance premiums and fringe benefits tax.

Other provisionsOther provisions exist when the Group has a present legal or constructive obligation as a result of a past event; it is probable that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.





t) Income taxIncome taxThe Company and its subsidiaries are exempt from income tax as a State/Territory Body under Division 1AB in Part III of the Income Tax Assessment Act 1936 (ITAA 1936).

Tax equivalent regimesThe Company and its subsidiaries are exempt from the National Tax Equivalent Regime (NTER) and the State Tax Equivalent Regime (STER), pursuant to an exemption granted by the NSW Premier.

u) Goods and Services Tax (GST)Income, expenses and assets are recognised net of the amount of GST, except that the:

• Amount of GST incurred by the Group as a purchaser that is not recoverable from the Australian Taxation Office is recognised as part of an asset’s cost of acquisition or as part of an item of expenses;

• Receivables and trade payables are stated with the amount of GST included; and

• Cash flows are included in the consolidated Statement of Cash Flows on a gross basis. However, the GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to the Australian Taxation Office are classified as part of operating cash flows.

v) Financial instrumentsFinancial instruments are contracts that give rise to both a financial asset of one entity and a financial liability (or equity instrument) of another entity. They include cash and cash equivalents, receivables, payables, and borrowings.

RecognitionA financial asset or financial liability is recognised when the Group becomes a party to the contractual provisions of the instrument.

Financial assets are de-recognised when the contractual rights to the associated cash flows expire, are effectively transferred, or are otherwise lost. Financial liabilities are de-recognised when the contractual obligation is discharged, is cancelled, or expires.

Any applicable amortisation, impairment loss (or reversal), or fair value adjustment is recognised in the consolidated Statement of Comprehensive Income.

On de-recognition, any difference between financial assets and liabilities carrying amount and the consideration received or paid is recognised in the consolidated Statement of Comprehensive Income.

MeasurementFinancial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available for sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset.

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Company’s financial liabilities include trade and other payables, borrowings and derivative financial instruments.

After initial recognition, receivables, payables, loans and borrowings are carried in the consolidated Statement of Financial Position at amortised cost and derivative financial measurements are carried at fair value.


w) Derivative financial instruments and hedge accountingInitial recognition and subsequent measurementThe Group uses derivative financial instruments such as interest rate swaps to hedge its interest rate risk. Such derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

For the purpose of hedge accounting, hedges are classified as:

• Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment

• Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment

• Hedges of a net investment in a foreign operation.

At inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for the undertaking of the hedge. The documentation includes the identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial periods for which they have been designated.

Hedges that meet the strict criteria for hedge accounting are accounted for, as described below:

Cash flow hedgesThe effective portion of the gain or loss on the derivative is recognised in other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the Statement of Comprehensive Income.

If the derivative no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised without replacement or rollover, or the hedge designation revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the underlying forecast transaction occurs. When the hedged item is the cost of a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the non-financial asset when it is recognised. In other cases, the amount recognised in equity is transferred to the profit or loss in the same period of the hedged item affects the profit or loss.

Derivatives that do not qualify for hedge accountingChanges in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the profit or loss.

Fair value estimationThe fair value of financial instruments traded in active markets is based on quoted market prices at reporting date. The fair value of instruments that are not traded in an active market is determined by the Group using valuation techniques based on assumptions, and market conditions existing at reporting date.

The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows.

x) Loans and borrowingsLoans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, these financial liabilities are stated at amortised cost, with any difference between cost and redemption value being recognised in the profit or loss over the period of the loans and borrowings on an effective interest basis.

Interest and other borrowing costs are recognised as expenses in the period in which they are incurred, unless they relate to qualifying assets, in which case they are capitalised as part of the cost of those assets. Capitalisation of borrowing costs is undertaken where a direct relationship can be established between the borrowings and the relevant projects giving rise to qualifying assets. Where funds are borrowed specifically for the acquisition, construction or production of a qualifying asset, the amount of borrowing costs capitalised is net of any interest earned on those borrowings.

y) LeasesLeases where the lessor retains substantially the risks and benefits of ownership of the asset are classified as operating leases. Net rental payments for operating leases are recognised as an expense in the consolidated Statement of Comprehensive Income on a straight-line basis over the period of the lease.




2. Construction revenue

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Construction revenue 1,518,917 161,688 – –

Total construction revenue 1,518,917 161,688 – –

Construction revenue is recognised during the construction phase of an intangible asset.

3. Construction costs

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Design and Construction costs 1,377,769 116,162 – –

Pre-development costs 78,380 – – –

Professional services contracts 27,656 42,775 – –

Other project costs 1,579 2,751 – –

Total construction costs 1,485,384 161,688 – –

Construction costs cover all contracted Design and Construction (D&C) payments, all pre-construction development costs and any other project costs attributable to the assets under construction. The costs are recognised in accordance with the percentage of completion method. Other costs include all directly attributable costs of the projects, including an appropriate allocation of overheads.

4. Employee related costs

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Salaries and wages (including annual leave) 13,917 1,309 9,240 1,309

Contractors 8,342 450 7,102 450

Superannuation – defined contribution 927 53 607 53

Long service leave 816 80 393 80

Other employee related expenses 3,474 63 3,412 63

Amounts recharged to project – (1,507) – (1,507)

Total employee related costs 27,476 448 20,754 448


5. Other operating expenses

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Audit of financial statements 193 80 43 42

Environment Impact Survey – costs 9,871 – 9,871 –

Professional services 16,159 481 16,309 481

Office accommodation and support 1,880 21 1,880 59

IT costs 2,013 – 2,013 –

Consultants 1,132 – – –

Other costs 3,044 315 3,036 315

Total other operating expenses 34,292 897 33,152 897

6. Finance costs

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Commitment fees 7,235 – – –

Agency fees 90 – – –

Borrowing costs capitalised to qualifying asset (7,325) – – –

Other fees 18 – – –

Total finance costs 18 – – –

7. Cash and cash equivalents

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Cash at bank 452,069 54,364 110,351 53,612

Term deposits 410,000 775,000 410,000 775,000

Total cash and cash equivalents 862,069 829,364 520,351 828,612

Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amounts of cash and cash equivalents represent fair value.

Term deposits are made for varying periods, depending on the immediate cash requirements of the Group, and earn interest at the respective short term deposit rates.

The amount shown in cash and cash equivalents includes $38.5m not available for general use at 30 June 2016 (2015: nil). This comprises amounts required to be held under maintenance and funding reserves, the use of which is subject to certain conditions.




8. Trade and other receivables

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Goods and Services Tax (GST) receivable 60,915 16,531 2,286 5,648

Roads and Maritime Services 10,033 – 10,033 –

Intercompany – WCX M4 Pty Limited – – 1,386 2,703

Intercompany – WCX M5 Project Trust – – 2,460 –

Accrued interest 1,023 485 988 483

Prepayments 375 149 375 149

Other 109 – 19 –

Total current – trade and other receivables 72,455 17,165 17,547 8,983

9. Property, plant and equipment

Consolidated

Computerhardware

$’000

Leaseholdimprovements

$’000 Total

$’000

Cost 132 3,374 3,506

Accumulated depreciation and impairment (54) (263) (317)

Net carrying amount at 30 June 2016 78 3,111 3,189

Cost 130 – 130

Accumulated depreciation and impairment (11) – (11)

Net carrying amount at 30 June 2015 119 – 119

Movement in property, plant and equipment

Balance at 1 July – – –

Additions 130 – 130

Revaluation increment less revaluation decrements – – –

Depreciation expense (11) – (11)


Additions 2 3,374 3,376


Depreciation expense (43) (263) (306)



Parent

Computerhardware

$’000

Leaseholdimprovements

$’000 Total

$’000

Cost 132 3,161 3,293

Accumulated depreciation and impairment (54) (263) (317)


Cost 130 – 130

Accumulated depreciation and impairment (11) – (11)


Movement in property, plant and equipment

Balance at 1 July – – –

Additions 130 – 130


Depreciation expense (11) – (11)


Additions 2 3,161 3,163


Depreciation expense (43) (263) (306)





10. Intangible assets

Concession assetsService Concession Arrangements have been accounted for in accordance with AASB Interpretation 12 and as such the concession assets have been classified as Intangible Assets.

As at 30 June 2016 the Group is responsible for WestConnex Stage 1 (the scope of which includes widening of the existing M4 motorway and the construction of the new M4 East motorway) and WestConnex Stage 2 (the scope of which includes construction and maintenance services of the new M5 in accordance with the Project Deed).

The concession for Stage 1 of the project is held by WCX M4 Pty Limited which grants the company the right to design, build, operate and maintain Stage 1 motorway for the concession period. The concession for Stage 2 of the project is held by WCX M5 Asset Trust which grants the company the right to design, build, operate and maintain Stage 2 motorway for the concession period ending in 2060.

ConsolidatedSoftware

$’000

Asset underConstruction

Stage 1$’000


Stage 2$’000

Total$’000

Cost 29 1,024,165 721,402 1,745,596

Accumulated amortisation and impairment (11) – – (11)

Net carrying amount at 30 June 2016 18 1,024,165 721,402 1,745,585

Cost 28 161,688 55,299 217,015


Net carrying amount at 30 June 2015 27 161,688 55,299 217,014

Movement in intangible assets


Additions 28 161,688 55,299 217,015

Impairment losses – – – –

Amortisation (1) – – (1)

Net carrying amount at 30 June 2015 27 161,688 55,299 217,014

Additions 1 862,477 666,103 1,528,581



Net carrying amount at 30 June 2016 18 1,024,165 721,402 1,745,585


ParentSoftware

$’000


Stage 1$’000


Stage 2$’000

Total$’000

Cost 29 – – 29


Net carrying amount at 30 June 2016 18 – – 18

Cost 28 – 55,299 55,327


Net carrying amount at 30 June 2015 27 – 55,299 55,326

Movement in intangible assets


Additions 28 – 55,299 55,327



Net carrying amount at 30 June 2015 27 – 55,299 55,326

Transfer of Stage 2 related intangibles – – (78,341) (78,341)

Additions 1 – 23,042 23,043



Net carrying amount at 30 June 2016 18 – – 18

Concession assets under constructionConcession assets under construction represent the Group’s right to operate roads under Service Concession Arrangements. All concession assets are classified as intangible assets and once completed and ready for use, will be amortised on a straight line basis over the term of the right to operate the asset.

At the end of the concession period, all concession assets are to be returned to New South Wales Government – Road and Maritime Services.

Impairment testing of motorway concession assets under constructionAt each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes an estimate of the recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units or CGUs).

Where the carrying amount of an intangible asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount through profit or loss. The decrement in the carrying amount is recognised as an expense in profit or loss in the reporting period which the impairment occurs. The recoverable amount of the Group’s cash generating units have been determined based on value-in-use calculations.

The following paragraph and table sets out the key assumptions on which management has based its cash flow projections. These have been considered by the Board for the purposes of impairment testing.

The calculations use cash flow projections based on the relevant investment cases approved by the Board.

A long term CPI annual growth rate of 2.5% (2015: 2.5%), a long term average weekly earnings (LTAWE) annual growth rate of 3.5% (2015: 3.5%) have been used in the calculations. Operating and maintenance costs are escalated in line with a combination of the CPI and LTAWE annual growth rates. The Group has applied post-tax discount rates to discount the forecast future attributable post tax cash flows. The equivalent pre-tax nominal discount rate ranges of 9.75% to 10.90% have been applied for WCX M4 Pty Limited and 9.25% to 10.30% for WCX M5 entities.




10. Intangible assets continued

The Board has determined the values assigned to each of the above key assumptions as follows:

Assumption Approach used to determine values

Traffic volume Based on the project entities long term traffic forecasting models

Long term CPI (% annual growth) Based on independent external forecasts

Long term average weekly earnings (% annual growth) Based on independent external forecasts

Post-tax discount rate Discount rates consider specific risks relating to the CGU. In performing the value-in-use calculations for each CGU, the Group has applied post-tax discount rates to discount the forecast future attributable post tax cash flows. The equivalent pre-tax rates are disclosed above.

Key Estimates The Group makes certain assumptions in calculating the recoverable amount of its intangible assets. These include assumptions around expected traffic flows and forecast operational costs. In performing the value-in-use calculation, the Group has applied the assumptions noted above. The Board does not consider that any reasonable possible change in the assumptions will result in the carrying value of a CGU exceeding its recoverable amount as at 30 June 2016.

11. Investment in subsidiaries

Name of EntityCountry of establishment Principal activities

Ownership interest

%

Parent2016

$’000

Parent2015

$’000

WCX M4 Pty Limited Australia Delivery of the WestConnex Stage 1 motorway 100 1,057,997 69,078

WCX M5 Project Hold Trust Australia Delivery of the WestConnex Stage 2 motorway 100 1 –

WCX M5 Asset Hold Trust Australia Delivery of the WestConnex Stage 2 motorway 100 840,300 –

WCX M5 Project Trust Australia Delivery of the WestConnex Stage 2 motorway 100 – –

WCX M5 Asset Trust Australia Delivery of the WestConnex Stage 2 motorway 100 – –

WCX M5 AT Pty Ltd1 Australia Trustee 100 – –

WCX M5 PT Pty Ltd1 Australia Trustee 100 – –

WCX M5 AHT Pty Ltd1 Australia Trustee 100 – –

WCX M5 PHT Pty Ltd1 Australia Trustee 100 – –

WCX M5 Finco Pty Ltd Australia Financing company 100 – –

Total investments in subsidiaries 1,898,298 69,078

1. The Trustee Companies have been established with a share capital of $10 each.


12. Other assets

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Deferred finance cost – Syndicated Facility Agreement 7,565 – – –

Total current – other assets 7,565 – – –

Deferred finance cost – Syndicated Facility Agreement 18,685 – – –

Total non-current – other assets 18,685 – – –

Deferred finance cost relates to establishment costs incurred in connection with obtaining the Syndicated Facility Agreement. As at 30 June 2016, the consolidated group had no drawn debt. As a result, the establishment cost has been recognised as a deferred asset and will be amortised at the commencement of the draw down which is expected to take place in July 2016.

13. Trade and other payables

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Trade Creditors 2,764 – 2,147 –

Unearned revenue 6,500 – – –

Inter-entity – WCX M4 Pty Limited – – 541 –

Design, construction and development costs 267,166 99,405 – 9,951

Other project accruals 11,133 – 11,133 –

WestConnex Delivery Authority recharge – 11,910 – –

Accrued salaries, wages and on-costs 523 454 523 454

Other 7,328 1,567 5,911 1,407

Total current – trade and other payables 295,414 113,336 20,255 11,812

Due to the short-term nature of current trade and other payables, their carrying value is deemed to approximate their fair value.




14. Provisions

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Employee benefits and related on–costs

Employee benefits – annual leave 982 42 582 42

Employee benefits – long service leave1 367 75 106 75

Employee benefits – other 2,424 – 1,513 –

Total current – provisions 3,773 117 2,201 117

Employee benefits and related on–costs

Employee benefits – long service leave 517 6 348 6

Employee benefits – other 967 – 605 –

Total non-current – provisions 1,484 6 953 6

Aggregate employee benefits and related on-costs

Provisions – current 3,773 117 2,201 117

Provisions – non-current 1,484 6 953 6

Accrued salaries, wages and on-costs (note 13) 523 454 523 454

Total employee benefits and related on-costs 5,780 577 3,677 577

1. Included in this amount is $93k which is not expected to be settled within 12 months of balance date.

15. Derivative financial liabilities

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Cash flow hedge 121,016 – – –

Total non-current derivative financial liabilities 121,016 – – –

Please refer to Note 18(e) for details of the interest rate swaps entered into on 20 November 2015.


16. Issued capital

Consolidated and parent2016 Shares

000’s 2015 Shares

000’s 2016

$’0002015

$’000

Fully paid shares

Opening balance 940,000 – 940,000 –

Issued 625,000 940,000 625,000 940,000

Partially paid shares

Opening balance – – – –

Partly paid 821,157 – 821,157 –

Balance at 30 June 2016 2,386,157 940,000 2,386,157 940,000

Sydney Motorway Corporation Pty Limited was established as a company on 28 August 2014. Shares are held by the NSW Treasurer and the portfolio Minister (Minister for Roads, Maritime and Freight) as voting shareholders.

17. Reserves

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Interest rate swap – cash flow hedge 121,016 – – –

Total reserves 121,016 – – –

The hedge reserve comprises the effective portion of the cumulative net change in the fair value of the cash flow hedging instruments related to hedged transactions.

18. Financial instruments

a) Capital ManagementThe Group’s overall risk management program focuses on ensuring compliance with the Group’s Constitution(s).

Capital and financial risk management is carried out by the Group through the Treasury function. SMC’s Treasury function identifies, evaluates and hedges financial risks which are presented to the Board for approval, after endorsement by the Audit & Risk Committee (ARC).

On an annual basis, the Group’s capital management strategy is reviewed and adjusted where necessary by SMC’s Treasury function and presented to the Board for approval. This strategy includes the debt and hedging strategy overview for the Group.

The Group’s objective when managing its capital requirements is to maintain an optimal capital structure, while ensuring that the compliance with capital requirements of the Constitution, regulatory authorities and lenders, and continues to operate as a going concern.

There have been no breaches of the financial covenants of any interest bearing loans and borrowings during the year as no debt has been drawn down. No changes were made in the objectives, policies or processes for the managing of capital during the year.

b) OverviewFinancial instruments comprise cash, trade debtors, trade creditors, derivatives, loans and borrowings and short term deposits. The main purpose of these financial instruments is to manage the Group’s operations and to invest surplus cash. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

The Group’s main risks arising from financial instruments together with the entity’s objectives, policies and processes for measuring and managing risk, quantitative and qualitative disclosures are included throughout these financial statements.

The Board has overall responsibility for the establishment and oversight of risk management and reviews and agrees policies for managing each of these risks. Risk management policies are established to identify and analyse the risks faced by the entity, to set risk limits and controls and to monitor risks.




18. Financial instruments continued

c) Fair valuesThe fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

Due to the short-term nature of the current receivables, their carrying value is assumed to approximate their fair value and based on credit history it is expected that the receivables that are neither past due nor impaired will be received when due.

The Group does not own any land or building. The current holding of Property, Plant and Equipment is operational equipment with useful lives of 3 years or less. Management has reviewed and concluded that the written down value of these assets approximate their fair value.

The fair value of interest rate swaps is calculated using the present value of estimated future cash flows. The fair value for this instrument used market observable inputs (Level 2).

A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When measuring fair value, the valuation technique used maximises the use of relevant observable inputs and minimises the use of unobservable inputs. Under AASB 13 Fair Value Measurement, the entity categorises, for disclosure purposes, the valuation techniques based on the inputs used in the valuation techniques as follows:

Level 1 – quoted prices in active markets for identical assets / liabilities that the entity can access at the measurement date.

Level 2 – inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.

Level 3 – inputs that are not based on observable market data (unobservable inputs).

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability; or

• In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Group.

The fair value of an asset or a liability is measured using the assumptions that the market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The estimates and assumptions that have a significant risk of causing a material adjustment relate to the Groups interest rate swaps. The interest rate swaps were taken out under the expectation that there would be a highly probable refinancing event at the maturity of the syndicated bank loan.

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

The carrying value of the Group’s financial assets and liabilities approximate fair value. The carrying amounts shown in the statement of financial position, are presented as follows:

ConsolidatedCarrying amount

ParentCarrying amount

Note2016

$’0002015

$’0002016

$’0002015

$’000

Financial assets

Cash and cash equivalents 7 862,069 829,364 520,351 828,612

Trade and other receivables 8 11,165 485 14,886 3,186

Financial liabilities

Trade and other payables 13 288,914 113,336 20,255 11,812

Interest rate swaps 15 121,016 – – –

Note: Financial assets and liabilities exclude Goods and Services Tax, unearned revenue and prepayments which are not within the scope of AASB 7.


d) Financial riskThe operational activities of the Group expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate risk). A risk management program focuses on financial performance and seeks to minimise potential adverse effects from financial market price movements. Methods used to measure risk include sensitivity analysis in the case of interest rate and an analysis of future commitments for liquidity risk.

Risk management is carried out under Treasury risk policies. The Group’s Treasury Risk Policy Framework establishes a prudential framework covering policies, best practice internal controls and reporting systems for the management of financial risks.

The Group’s Treasury Risk Policy Framework covers specific areas of financial risk including, interest rate risk, credit risk and hedging, use of derivative financial instruments, liquidity and investment of excess funds.

The primary objective of this policy is to achieve management of all financial risks in strict compliance with internal policies and guidelines within the broad framework of the Public Authorities (Financial Arrangements) Act 1987 (PAFA) Act and the Corporations Act 2001 (Cth).

e) Market riskMarket risk relates to fluctuations in the fair value of future cash flows of financial instruments because of changes in market prices. This applies to the Group’s interest rate risk. The Group is not exposed to foreign exchange risk as all significant contractual commercial transactions are denominated in local currency.

The group uses derivative financial instruments to hedge market risks where appropriate.

Generally, the group seeks to apply hedge accounting principles in respect of derivative instruments.

Interest rate riskInterest rate risk refers to the market value of financial instruments or cash flows associated with the instruments fluctuating due to changes in market yields. The Group’s main interest rate risk relates primarily to cash at bank, current investments and borrowings.

The Group borrows at floating rates of interest and holds cash or short-term investments that earn interest at floating rates, consequently cash flows are exposed to the impact of adverse changes in benchmark interest rates.

The Group manages its interest rate exposures by maintaining a policy to combine fixed and floating rate liabilities, through the use of approved derivative instruments, such as interest rate swaps, and entry into fixed rate borrowings.

Fixed rate borrowings and receivables are carried at amortised cost. They are therefore not subject to interest rate risk as defined by AASB 7, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.

Interest rate swapsOn 20 November 2015 the Group entered into interest rate swap agreements with a notional amount of $1.5 billion (2015: $nil). The Group’s policy is to manage its interest rate risk by entering into interest rate swap contracts in respect of its floating rate debt.

The notional amount of interest rate derivative contracts that were in place at 30 June 2016 was $1.5 billion (2015: $nil). All outstanding derivative interest rate swap contracts have been stated at their fair value at the reporting date.




18. Financial instruments continued

e) Market risk continued

Interest rate swaps continuedThe following table demonstrates the sensitivity to a reasonably possible change in interest rates on Group’s financial assets and financial liabilities. With all other variables held constant, the Group’s profit is affected as follows:

Consolidated

Weighted average

effective interest rate

%

Carrying amount

$’000

Change as a result of +1% movement in interest rate

Change as a result of -1% movement in interest rate

Profit$’000

Equity$’000

Profit$’000

Equity$’000

2016 Financial assets

Cash at bank 1.75 452,069 4,521 4,521 (4,521) (4,521)

Short-term investments 2.64 410,000 4,100 4,100 (4,100) (4,100)

Financial liabilities

Interest rate swaps 5.17 121,016 86,681 86,681 (101,457) (101,457)


Cash at bank 2.00 54,364 544 544 (544) (544)


Parent

Weighted average

effective interest rate

%

Carrying amount

$’000

Change as a result of +1% movement in interest rate

Change as a result of -1% movement in interest rate

Profit$’000

Equity$’000

Profit$’000

Equity$’000


Cash at bank 1.75 110,351 1,104 1,104 (1,104) (1,104)



Cash at bank 2.00 53,612 536 536 (536) (536)


f) Credit riskCredit risk represents the loss that would be recognised if counterparties failed to perform as contracted. Market prices generally incorporate credit assessments into valuations and risk of loss is implicitly provided for in the carrying value of financial assets and liabilities when valued at fair value. The maximum exposure to credit risk at reporting date is therefore the carrying amount of financial assets recognised in the Statement of Financial Position.

Credit risk is limited in relation to cash and cash equivalents and receivables as counterparties are banks with high credit ratings or government agencies.

In respect of cash and cash equivalents, and investments in marketable securities the Group only deals with creditworthy counterparties and recognised financial intermediaries as a means of mitigating against the risk of financial losses from defaults. Policies are in place to monitor the credit ratings of counterparties and to limit the amount of funds placed with those counterparties, depending on their credit rating. In addition, only highly liquid marketable securities are used for investment purposes.

Credit risk associated with the Group’s financial assets, other than receivables, is managed through the sound selection of counterparties and establishment of minimum credit rating standards.

The Company’s maximum exposure for credit risk is the carrying amount of all cash assets, long term deposits, trade and other receivables and derivative balances. There are no financial assets past due or impaired. The Group does not hold any collateral and has not granted any financial guarantees.


g) Liquidity riskLiquidity risk refers to the Group being unable to meet its payment obligations when they fall due. The Group manages risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

During the year, there have been no defaults or breaches on any amounts payable. The Group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low.

Liabilities are recognised for amounts due to be paid in the future for goods and services received, whether or not invoiced. If trade terms are not specified, payment is generally made no later than the end of the month following the month in which an invoice or a statement is received.

On 20 November 2015, the WCX M5 Finco Pty Ltd entered into a $1.5 billion Senior Syndicated Facility Agreement and a $2 billion Subordinated Commonwealth Loan Agreement. The Company entered into On-Loan Agreements with the parent, WCX M5 Asset Trust on substantially the same terms with those issued under the Senior Syndicated Facility and Subordinated Commonwealth Loan Agreements.

As at 30 June 2016, the company had not yet commenced drawdowns on either of these loans.

The following table(s) provide the maturity profiles of the Groups financial liabilities:

Consolidated Within one

year$’000

1-5 years$’000

> 5 years$’000

Total$’000

2016 Non-derivativesTrade and other payables 288,914 – – 288,914 DerivativesInterest rate swaps1 4,290 76,103 71,398 151,791

1. The above amount does not equal the carrying value as this amount is based on undiscounted cash flows whereas the carrying value is based on discounted cash flows.

2015 Non-derivatives

Trade and other payables 113,336 – – 113,336

Derivatives

Interest rate swaps – – – –

ParentWithin one

year$’000

1-5 years$’000

> 5 years$’000

Total$’000








19. Related party disclosuresThe Group has related party relationships with key management personnel (refer (a) below) and their related entities (refer (b) below).

a) Key management personnel compensationKey management personnel (KMP) are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. This comprises all directors, whether executive or non-executive, and senior executives who lead, direct and control functions of the parent entity or the Group.

Key management personnel compensation is as follows:

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Short-term employee benefits 5,476 1,418 3,800 1,418

Post-employment benefits 164 63 120 63

Other long-term benefits 3 5 3 5

Total compensation 5,643 1,486 3,923 1,486

Senior executives 5,151 1,214 3,431 1,214

Directors – non-executive 492 272 492 272

Total compensation 5,643 1,486 3,923 1,486

The above includes all amounts paid and payable for employee benefits during the reporting period. The compensation paid to senior executives who also serve as executive directors has been included in the senior executive category as they are not compensated separately for their directorship services.

ParentThe increase in the KMP compensation from 2015 to 2016 is largely due to the significant growth in size and activities of SMC between FY15 and FY16. In 2015 SMC comprised of a limited number of roles as the project procurement, project delivery and project management functions were sitting within a separate entity, WestConnex Delivery Authority (WDA). Following the transfer of WDA’s procurement and project management functions to SMC from 1 October 2015, there was a significant increase in the total number of SMC staff and KMP roles, reflecting the merged SMC business. In addition, the 2015 KMP figures reflect part year costs only as SMC commenced operation part way through the 2015 year and KMP personnel were employed progressively through the year. The 2016 figures reflect the impact of annualised, full-year costs. On a comparable basis, total FY16 KMP costs reflect a relatively small increase from FY15.

ConsolidatedIn addition to the reasons noted above under “Parent”, the increase in KMP costs at a consolidated level includes all KMP within SMC’s subsidiary entities. The 2016 values therefore represent additional project company KMP, additional KMP in total and the full year impact of some KMP in 2016. On a comparable basis, total FY16 KMP costs reflect a relatively small increase from FY15.

b) Other transactions with key management personnel and related entitiesRoads and Maritime Services (RMS) is a NSW statutory authority established on 1 November 2011 under the Transport Legislation Amendment Act 2011. RMS is responsible for implementing strategy and delivering essential frontline services to people who use roads, harbours and waterways. RMS is the custodian of Sydney’s roads and motorway network and its activities are overseen by the NSW Minister for Roads, Maritime and Freight.

RMS has granted SMC the right to undertake design and construction, operation and maintenance of the WestConnex Stage 1 and Stage 2 projects.


WestConnex Delivery Authority (WDA) was established by the NSW State Government to manage the development and delivery of the WestConnex motorway. WDA was overseen by a majority independent board, reporting to the NSW Minister for Roads, Maritime and Freight. The NSW Government decided to refine the responsibilities of RMS and the Company for the delivery of WestConnex Project. As a result, a number of activities previously managed by WDA were transferred progressively to the Group during 2015-16.

Directors – some Directors of the Company were also Directors of other companies. A declaration of Directors’ conflict of interests is provided at the start of each Board or Committee meeting. During the year, the Company has not been a party to any material transaction, or proposed transactions, in which any member of the key management personnel (including directors, any other executive officer and senior manager) had or was to have a direct or indirect material interest.

Inter-entity related transactionsStage 2 pre-construction development funding WCX M5 Asset Trust paid $88.4m to SMC for the costs funded by SMC for the pre-construction development costs of the New M5 project.

The New M5 project has a budgeted total cost of $4,335m. The New M5 Development costs of $88m cover the development, procurement and financing of the project during 2014/15 and through to financial close in November 2015.

Project development and procurement costs include technical advice, geotechnical works, commencement of the remediation of the Alexandria Landfill, air quality monitoring, environmental advice, traffic advice, legal advice and accounting advice; as well as corporate support costs including management, accounting, HR, legal, procurement, communications, IT and property.

Financing costs include legal, financial advisory, due diligence and accounting fees.

Management Services Agreement (MSA) between SMC and WCX M5 Project TrustA Management Service Agreement (MSA) exists between SMC and WCX M5 Project Trust for the purpose of reimbursing SMC for corporate services and management costs incurred by SMC on behalf of the New M5 project and payable by WCX M5 Project Trust. These include corporate support services, general management services, environmental impact statement (EIS) costs and other specific reimbursable costs.

During the financial year, a total of $19.3m was charged by the company to WCX M5 Project Trust, of which $9.9m was in relation to EIS costs.

Intra Group Management Services Agreement (IG-MSA) between WCX M5 Project Trust, WCX M5 Asset Trust and WCX M5 FincoAn IG-MSA exists between WCX M5 Project Trust, WCX M5 Asset Trust and WCX M5 Finco for the purpose of reimbursing WCX M5 Project Trust for corporate services and management costs incurred on behalf of WCX M5 Asset Trust and WCX M5 Finco. These include corporate support services, general management services, EIS costs and other specific reimbursable costs.

During the financial year, a total of $14.7m and $1.5m was charged by WCX M5 Project Trust to WCX M5 Asset Trust and WCX M5 Finco respectively.

Design, Construction and Asset Renewal Management Services Agreement (DCAR-MSA) between WCX M5 Project Trust and WCX M5 Asset TrustA DCAR agreement exists between WCX M5 Project Trust and WCX M5 Asset Trust for all services necessary to allow WCX M5 Asset Trustee to manage the discharge of its design, construction and asset renewal obligations under the project documents and any related contractual arrangements and any other services directed by WCX M5 Asset Trust.

During the financial year, a total of $3.6m was charged by WCX M5 Project Trust to WCX M5 Asset Trust in relation to DCAR costs.

Corporate recharges between SMC and WCX M4Corporate services and management costs are charged by the parent entity to WCX M4 in line with an agreed budget.

During the financial year, a total of $11.4m was charged by SMC to WCX M4. Of this amount, $9.2m was for the M4 East project and $2.2m was in relation to M4 widening project.




20. Operating lease commitmentsNon-cancellable operating lease rentals are payable as follows:

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Within one year 2,261 – 2,043 –

Later than one year but no later than five years 8,208 – 7,807 –

Later than five years – – – –

10,469 – 9,850 –

SMC and its controlled subsidiaries lease properties under non-cancellable operating leases expiring between four and five years.

21. Capital commitments The Group has signed contracts for project work relating to WestConnex Stage 1 and Stage 2.

Future minimum payments under non-cancellable contracts but not recognised as liabilities are as follows:

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Within one year 2,110,394 889,733 – –

Later than one year but no later than five years 3,539,925 1,986,653 – –

Later than five years 66,676 – – –

5,716,995 2,876,386 – –

22. ContingenciesAs at 30 June 2016, claims have been received with respect to WCX M5 entities. The validity of these claims are currently being assessed and cannot be reliably measured. Roads and Maritime Services (RMS) has been notified of upstream claims in accordance with requirements of the Project Deeds and the claims have been disclosed to WCX M5 lenders in accordance with debt documentation. Finalisation of these matters are subject to discussion and negotiation.


23. Reconciliation of profit for the year to cash flows from operating activities

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Profit for the year 12,517 10,203 19,441 10,183

Adjustments for non-cash items

Depreciation and amortisation 316 12 316 12

Other gain – – (10,000) –

(Increase)/decrease in assets

(Increase)/decrease in receivables (55,290) (17,165) (8,564) (8,983)

(Decrease)/increase in liabilities

(Decrease)/Increase in payables 33,759 14,996 8,273 1,787

(Decrease)/Increase in provisions 5,134 6 3,031 6

Net cash flows (used in)/from operating activities (3,564) 8,052 12,497 3,005

24. Subsequent eventsWCX M4 Pty Limited entity is in the process of being restructured from a single entity into a dual flow-through trust structure similar to the WCX M5 group. This is expected to be implemented in the last quarter of this year. SMC has commenced work to obtain a limited recourse debt facility for the M4 concession. It is seeking to raise up to $1.8 billion with financial close targeted for late 2016.

Post reporting date, a claim has been received with respect to WCX M4 Pty Limited. The validity of this claim is currently being assessed. Roads and Maritime Services (RMS) has been advised of this claim in accordance with requirements of the Project Deed. Finalisation of this matter is subject to further discussions and negotiation.

On 22 July 2016, WCX M5 Finco Pty Ltd effected the drawdown of funds under the Senior Syndicated Facility Agreement and Subordinated Commonwealth Loan Agreement.

There have been no other matters or circumstances occurring subsequent to the end of the financial year, that have significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future years except those mentioned in the review and results of operations of this Report.

25. Auditor’s remuneration

Consolidated Parent

2016$’000

2015$’000

2016$’000

2015$’000

Statutory audit of financial statements 193 80 43 42

Total amounts paid and payable to auditor 193 80 43 42

SMC as the parent of WCX M4 and WCX M5 Entities pays the audit fees on behalf of those entities. The increase in fees during the year reflects the first year audit fees for the WCX M5 Entities.


Directors’ Declaration

1. In the opinion of the Directors’ the financial statements and notes set out on pages 12 to 41.

i. give a true and fair view of the financial position of the Company and its controlled entities as at 30 June 2016 and of its performance for the financial year ended on that date; and

ii. comply with Australian Accounting Standards, the Corporations Act 2001, the provisions of the Public Finance and Audit Act 1983 and Public Finance and Audit Regulations 2015, International Financial Reporting Standards as disclosed in Note 1, other mandatory professional reporting requirements and the Treasurer’s Directions.

2. There are reasonable grounds to believe that the Company and its controlled entities will be able to pay its debts as and when they become due and payable.

This declaration has been made pursuant to S295(5) of the Corporations Act 2001 in accordance with a resolution of the Board of Directors dated 22 September 2016.

Signed on behalf of the Board:

Peter Brecht Dennis ClicheChairman Director

Sydney, 22 September 2016 Sydney, 22 September 2016


Independent Auditor’s Report Directors’ Report and Financial Statements | 43

Independent Auditor’s Report continued


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