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ANNUAL REPORT 2016 – 2017

ANNUAL REPORT 2016 – 2017

Page

Transmittal Letter 1

Chairman and CEO’s Letter 2

About Us 4

Corporate Governance Statement 10

Board and Management 14

Directors’ Report 24

Auditor’s Independence Declaration 28

Directors’ Declaration 29

Independent Auditor’s Report to the Members 30

Financial Statements 32

Notes to Financial Statements 36

Corporate Directory 69

Index of Requirements 70

CONTENTS

61 Veitch Road, Osbourne SA 5017

PO Box 2404, Port Adelaide SA 5015 T +61 8 8248 9600

E [email protected]

Senator the Hon Mathias Cormann Minister for Finance Parliament House CANBERRA ACT 2600

The Hon Christopher PyneMinister for Defence IndustryParliament House CANBERRA ACT 2600

Dear Ministers,

Australian Naval Infrastructure Pty Ltd 2016-17 Annual Report

I am pleased to submit the 2016-17 Annual Report for Australian Naval Infrastructure Pty Ltd (ANI), which has been prepared in accordance with the Public Governance, Performance and Accountability Act 2013 (Cth) (PGPA Act).

The Annual Report includes the financial statements for the financial year ended 30 June 2017 as well as reports on ANI’s progress since the company was formed on 26 March 2017.

During the year, ANI separated from ASC Pty Ltd and since that time has moved quickly to establish itself as an independent business with appropriate operational capability and capacity.

The Company’s primary purpose is to support the Commonwealth’s continuous naval shipbuilding program through acquiring, holding, managing and developing the infrastructure and related facilities used in connection with that program, and to efficiently and effectively manage the infrastructure (including providing access) in a manner that ensures an integrated and coordinated approach to the delivery of all elements of that program.

ANI’s Board has approved this report in accordance with a resolution on 22 September 2017.

I would be grateful if you could endorse this document for tabling in Parliament.

Yours sincerely,

LUCIO Di BARTOLOMEO Chairman Australian Naval Infrastructure Pty Ltd

TRANSMITTAL LETTER

1ANNUAL REPORT 2016 – 2017

2

We are extremely pleased to present the inaugural Annual Report for Australian Naval Infrastructure Pty Ltd (ANI). The formation of ANI represents a nation-building commitment by the Government which will see the establishment of state-of-the-art infrastructure for the domestic manufacture of world class naval vessels.

ANI will support the Australian Government’s continuous naval shipbuilding program by being the owner, developer and asset manager of shipyard infrastructure, in the Osborne precinct of South Australia, and at Henderson in Western Australia.

ANI was established through the separation of ASC Engineering Pty Ltd (as ANI was formerly known) from the ASC Group on 26 March 2017. This process gave effect to the separation of infrastructure ownership from the activities of construction and sustainment of naval vessels. ANI’s shareholders are the Minister for Defence Industry and the Minister for Finance, and the company has been prescribed as a Government Business Enterprise (GBE) from 1 July 2017.

ANI’s operating model centres on the provision of critical infrastructure to builders of naval vessels in return for lease charges for the use of that infrastructure. The charges will reflect the capital cost of the infrastructure, as well as fees for other services which will be provided by ANI. It is expected that ANI will deliver positive returns to its shareholders over the long term.

ANI’s operations are presently focused on the Osborne surface ship construction and submarine sustainment yards in South Australia. The infrastructure that ANI owns includes land, buildings and sheds, as well as fixtures and critical equipment.

CHAIR AND CEO’s LETTER

LUCIO Di BARTOLOMEO Chairman and

Non-Executive Director

DAVID KNOX Managing Director and CEO


In the three months since separation, the focus areas of the business have been:

a) the full separation of operations from ASC and the stand up of ANI in its own right;

b) the first tranche of expansion activities comprising the purchase of land from Defence SA (including the Maritime Skills Centre), which was completed on 10th August 2017;

c) preparation for the purchase of the Common User Facility (CUF) from Defence SA which is expected to be complete by the end of December 2017; and

d) tendering for a Managing Contractor Contract (MCC) for shipyard expansion activities in support of the Future Frigates program.

Ultimately, ANI will deliver the shipyard infrastructure required to place Australia at the forefront of naval shipbuilding capability.

ANI stands for reinvesting into the nation’s economy and its skilled workforce through creating a continuous thriving industry that is in the best interests of Australia.

LUCIO Di BARTOLOMEO Chairman


Adelaide 26 September 2017

CHAIR AND CEO’s LETTER cont

4

ANI is a Commonwealth Company, prescribed as a Government Business Enterprise.

The company’s function is to support the Commonwealth’s continuous naval shipbuilding program through:

• acquiring, holding, managing and developing the infrastructure and related facilities used in connection with that program; and

• efficiently and effectively managing the infrastructure (including providing access) in a manner that ensures an integrated and co-ordinated approach to delivery of all elements of that program.

In defining ANI’s corporate identity, ANI has adopted Morse code, a communication method still used as an important tool today on seafaring vessels as a means of ‘silent’ communication, or as a fall back when other methods are unavailable or disabled. The Morse graphic literally translates as ANI.

Following separating from ASC Pty Ltd, ANI has moved quickly to establish appropriate operational capability and capacity, including staffing and corporate functions.

ABOUT US


Organisational Structure

For the majority of 2016-17, ANI operated as a subsidiary of a Commonwealth Company. As at 30 June 2017, the company comprised the Managing Director and Interim CEO (now Managing Director and CEO) as the only employee.

Since the financial year end, additional personnel have been added, including the CFO, General Counsel and Company Secretary, and General Manager, Operations.

ANI is headquartered in Osborne, South Australia, and currently owns the infrastructure necessary for ongoing naval vessel building and sustainment at Osborne, South Australia as well as assets within the Henderson site in Western Australia.

In supporting the Australian Government’s continuous naval shipbuilding program, ANI expects the continuous local build of naval ships will deliver spill-over benefits, driving investment, jobs, growth and innovation across the wider economy, and create opportunities for small to medium sized businesses across the nation.

ABOUT US

ANI Infrastructure locations

PERTH

ADELAIDE

6

Osborne Shipyard

ANI’s current operations are focused on the Osborne surface ship construction and submarine sustainment yards in South Australia. The critical infrastructure that ANI owns includes land, improvements such as buildings and sheds, as well as critical fixtures and equipment.

ANI’s Osborne Shipyard is currently home to two Defence naval projects:

• Hobart class Air Warfare Destroyer construction program, delivered by the AWD Alliance (ASC, Raytheon Australia and the Commonwealth of Australia); and

• Collins Class Submarine Sustainment program, delivered by ASC.

The ANI shipyard is supported by the Common User Facility, including access to Australia’s largest ship lift, wharf and transfer area. It is envisaged that this infrastructure, which is currently owned by Defence SA, will be acquired by ANI before the end of 2017.

ABOUT US

Osborne South Shipyard Expansion – artist’s impression


ABOUT US

8

ABOUT US cont

Osborne South Shipyard

Hobart Class Air Warfare Destroyer Program

ANI currently leases the Osborne South shipyard to the AWD program operator, the AWD Alliance (ASC, Raytheon Australia and the Commonwealth of Australia).

The AWD program is scheduled to deliver the three vessels by 2020.

Infrastructure and critical assets owned by ANI include:• Outfit support towers• Construction and assembly halls• Abrasive blasting and painting facilities• Cranes and lift equipment• Support facilities• Shipyard wharf facilities and

dockside maintenance

Offshore Patrol Vessel Program

The next class of vessels to be constructed will be the Offshore Patrol Vessels (OPV). The Australian Government is presently tendering for the design and construction of these vessels. Following award, ANI expects that the first two OPVs will be constructed in the existing Osborne South shipyard facilities as the AWD program nears completion.

Following delivery of the first two vessels, it is planned that the OPV program will transfer to Henderson in Western Australia to enable Future Frigate construction to commence in Osborne South.

Osborne North Shipyard

Collins Class Submarine Sustainment

Osborne North is the location for full cycle docking and maintenance of the Royal Australian Navy’s six existing Collins Class Submarines.

Infrastructure and critical assets associated with this program include:• Ship lift, docking and transfer system• Wharf facilities• Hardstand area• Construction and assembly halls• Maintenance support tower• Warehousing• Laboratory facilities• Painting and blasting facilities• Diesel generator test facilities


ABOUT US cont

Osborne South Shipyard Expansion

In April 2016, the Commonwealth Government announced that major surface combatants and submarine naval shipbuilding in Australia will be centred at the Osborne Shipyard.

To support future major surface shipbuilding, commencing with the Future Frigate program, ANI is undertaking a major expansion and construction program at Osborne which has been estimated by the Government to cost up to $535 million.

ANI has tendered for a Managing Contractor Contract (MCC) to manage the construction activities, which will enable the construction of the Future Frigates to commence in 2020.

The expanded Osborne shipyard will build on the success of the yard to date, enabling high productivity construction methods ensuring the delivery of secure and modern facilities to accommodate the world’s best shipbuilding practices. The expanded shipyard will provide flexibility to accommodate the varying needs of future operators, including infrastructure to support computer-aided design and manufacturing systems and integrated information technology to direct, support and enable consistency in builds and design.

Common User Facility Acquisition

ANI is in the process of acquiring ownership of the land and Common User Facility (CUF) from the South Australian Government, for a total investment of approximately $230 million as announced by the Australian Government in May 2017. The acquisitions are in two parts, with Tranche 1 completed in August 2017, and Tranche 2 forecast to be completed by December 2017.

Tranche 1

• vacant land which will be used for the construction of the new shipyards; and

• a commercial and education precinct, including the Maritime Skills Centre (delivering the trade and technical skills required for the AWD program).

Tranche 2

• common user shipbuilding facilities, including a 213-metre wharf, dry berth, transfer system and the largest shiplift in the southern hemisphere; and

• an industrial precinct for suppliers.

Henderson (Western Australia) Assets

ANI maintains ownership of the minor assets in support of Collins Class Sustainment mid-cycle docking by ASC at their Henderson site in Western Australia.

10

Governance Structure

Australian Naval Infrastructure Pty Ltd (ANI) is incorporated as a company under the Corporations Act 2001 (Cth) (Corporations Act), limited by shares and is subject to the Public Governance, Performance and Accountability Act, 2013 (Cth) (PGPA Act).

All the shares issued in the capital of ANI are owned by the Commonwealth of Australia.

Under the PGPA Act, ANI is a Commonwealth Company and is prescribed as a GBE. While the Corporations Act is the primary regulatory framework, the PGPA Act sets the standards of governance and accountability and imposes specific duties on our Board of Directors and Executive relating to the use and management of resources.

Shareholder Ministers

The Commonwealth’s investment (shares) in ANI sits within the Finance portfolio of the Australian Government. Our Board of Directors report to both the Minister for Finance and the Minister for Defence Industry as Shareholder Ministers (Responsible Ministers).

As at 30 June 2017, our Shareholder Ministers were:

Minister for Finance, Senator the Hon Mathias Cormann

Minister for Defence Industry, The Hon Christopher Pyne MP

Ministerial Directions

ANI did not receive any direction by a Minister, under the constitution, an Act or instrument, or any government policy orders (under section 93 of the PGPA Act) in the 2016-17 financial year.

The Board

The ANI Board comprises six members. The Board is chaired by an Independent Non-Executive Director and the roles of Chair and Managing Director are separate. The Managing Director is the only Executive Director on the Board and is also the Chief Executive Officer. All other Directors are Independent Non-Executive Directors.

The Board is responsible for the corporate governance of ANI, and operates within an approved Board Charter. Each Director is appointed by the Shareholder Ministers pursuant to a formal letter of appointment.

The Board’s role and responsibilities

The Board acts in the best interests of ANI as a whole and on behalf of the shareholders and is accountable to shareholders for the overall strategic direction, management and corporate governance of ANI.

CORPORATE GOVERNANCE STATEMENT


Subject to the PGPA Act, the constitution and directions from the Shareholder Ministers, the Board is responsible for:

(a) overseeing ANI, including control and accountability systems;

(b) appointing and monitoring the performance of the CEO and the Company Secretary and, where appropriate, the removal of the CEO and Company Secretary;

(c) providing strategic advice to management;

(d) approving and monitoring the progress of major capital expenditure projects, capital management, acquisitions and divestitures, as well as financial and other reporting;

(e) approving annual budgets and key performance indicators, and reviewing ANI’s performance against them and monitoring the implementation of necessary corrective actions;

(f) reviewing and interrogating systems of risk management, internal control and legal compliance to satisfy itself that appropriate compliance frameworks and controls are in place;

(g) reviewing and overseeing the implementation of ANI’s Code of Conduct;

(h) appointing Board committees and approving the composition, and any charters, of Board committees;

(i) monitoring and verifying compliance with legal and regulatory requirements, ethical standards and policies; and

( j) exercising due diligence to ensure that ANI complies with its work, health and safety obligations.

Conflicts

Directors are expected to be sensitive to conflicts of interest or duty that may arise and mindful of their fiduciary obligations. Directors must:

(a) disclose to the Board any actual or potential conflict of interest or duty that might reasonably be thought to exist as soon as the situation arises;

(b) take necessary and reasonable action to resolve or avoid any actual or potential conflict of interest or duty; and

(c) comply with the Corporations Act and the constitution in relation to disclosing material personal interests and any restrictions on voting.

Chair

Lucio Di Bartolomeo was appointed Chair on 26 June 2017. The Chair of the Board is responsible for the leadership of the Board and for the efficient and proper functioning of the Board, including maintaining relationships with the shareholders.

Delegations of Authority

Clear delegated authorities consistent with maintaining efficiency of operations and effective management of risks has been implemented by the ANI Board.

CORPORATE GOVERNANCE STATEMENT

12

Board Committees

Audit and Risk Committee

The Board established an Audit and Risk Committee on 15 August 2017, to assist the Board in carrying out its responsibilities, to share detailed work and to consider certain issues and functions in detail.

The committee’s charter sets out the matters relevant to the composition, responsibilities and administration of the committee, and has been approved by the Board.

The Audit and Risk Committee will meet as often as it considers necessary but at least four times a year. A quorum for an Audit and Risk Committee meeting is two Audit and Risk Committee members.

The objectives of the Audit and Risk Committee are to:

(a) help the Board achieve its objectives in relation to reviewing the appropriateness of the:

(i) financial reporting;

(ii) performance reporting;

(iii) systems of risk (financial and performance) oversight and management;

(iv) systems of internal control;

(v) annual budgeting; and

(vi) the application of accounting policies;

(b) maintain and improve the quality, credibility and objectivity of the financial accountability process (including financial reporting on a consolidated basis);

(c) assess ANI’s risk management principles, policies, processes and practices so that it can satisfy itself that:

(i) adequate systems are in place for the effective identification and assessment of all areas of potential material business risk;

(ii) adequate policies, processes and procedures have been designed and implemented to manage identified material risks;

(iii) appropriate action is undertaken to bring the identified material risks within ANI’s risk tolerance levels;

(iv) a culture of compliance is being promoted; and

(v) compliance strategies and functions are effective;

(d) establish and maintain effective internal and external audit functions, and communication between the Board and the internal and external auditor; and

(e) verify financial compliance strategies and financial compliance functions are effective.

As at the date of this report, the committee comprises Janice van Reyk (Chair), Peter Iancov and Jeremy Schultz.

CORPORATE GOVERNANCE STATEMENT cont


Code of Conduct

ANI adopted a Code of Conduct on 15 August 2017 that sets out the standards of conduct expected of ANI’s directors, employees and contractors (ANI personnel).

The Code articulates the high standards of honesty, integrity, ethical and law abiding behaviour expected of ANI personnel and encourages the observance of those standards to protect and promote the interests of ANI, its shareholders and other stakeholders.

Compliance with the Code will assist ANI in creating a safe, healthy and productive work environment and preserve and enhance ANI’s reputation in the community. The Code supports ANI’s purpose to be the owner, developer and asset manager of shipyard infrastructure, in the Osborne precinct (South Australia) and other associated activities throughout Australia.

This Code operates in conjunction with ANI’s policies and procedures.

Public Governance, Performance and Accountability Act and Rules

ANI will operate within the PGPA Act which sets out the requirements for the governance, reporting and accountability of Commonwealth entities and Commonwealth companies.

Government Business Enterprise (GBE) requirements

From 1 July 2017, ANI was prescribed as a GBE within the definitions outlined in the PGPA Act. As a GBE, ANI is required to follow the GBE guidelines.

Wholly owned GBEs (including ANI) are required to prepare a Statement of Corporate Intent (SCI) in consultation with Shareholder Ministers. An SCI focuses on the purpose and corporate outlook of a GBE, and expresses the expectations of its management in relation to future financial and non-financial performance.

ANI’s first SCI will be developed in late 2017.

Community service obligations

The Company is not required to fulfil any community service obligations.

Decisions affecting the Company and particulars of reports on the Company during the period

During the period, there were no judicial or administrative tribunal decisions applicable or reports on the Company.

Commercially sensitive information excluded from the annual report.

The directors have not excluded from the annual report any information that is considered to be commercially sensitive and would be likely to result in unreasonable commercial prejudice to the Company.

CORPORATE GOVERNANCE STATEMENT cont

14

The below table details Board of Directors and Committee meetings and director attendance during the reporting period.

Board of Directors Held Attended

Lucio Di Bartolomeo 0 0

Peter Iancov 4 4

Alan (Jim) Whalley 0 0

Jeremy Schultz 1 1

David Knox 0 0

Bruce Carter 4 4

Loretta Reynolds 4 4

Dr Rosalind Dubs 2 2

Paul Rizzo 2 2

Joycelyn Morton 1 1

The Hon Gary Gray AO 1 1

TABLE: Director attendance at Board and committee meetings, 2016-17. Further detail on Board membership is set out on page 24.

BOARD AND MANAGEMENT


The names and details of the directors in office as at 30 June 2017 are as follows:

BOARD AND MANAGEMENT

LUCIO DI BARTOLOMEO Chairman and


PETER IANCOV Non-Executive Director

Mr Iancov was appointed ANI Interim non-executive director since 13 February 2017 and formally appointed on 26 June 2017. His current term will expire on 25 June 2020.

Mr Iancov is a highly experienced executive with over 25 years’ expertise gained in the energy infrastructure, mining, commercial construction, contracting and defence sectors. Mr Iancov has previously held senior executive positions with responsibility for building business partnerships across Australian and multinational organisations.

In his previous CEO and executive roles, Mr Iancov has been instrumental in securing and delivering major infrastructure projects and was responsible for the management, construction and operation of critical energy infrastructure assets in excess of $4.3 billion.

Mr Iancov’s other directorships include Southern Ports and Western Power, and prior to joining ANI was a non-executive director of ASC Pty Ltd.

Mr Di Bartolomeo was appointed as Chair on 26 June 2017. His current term will expire on 25 June 2020.

With over 40 years’ experience in the transport industry, Mr Di Bartolomeo brings extensive knowledge in rail, infrastructure and engineering fields to the ANI Board as a non-executive director. He is currently the Chairman of Northwest Rapid Transit and Health Infrastructure NSW as well as director of Moorebank Intermodal Company and Australian Super. He was, until recently, a non-executive director of Australian Rail Track Corporation. Prior to taking on non-executive director roles, Mr Di Bartolomeo was the Managing Director of ADI Limited, Country Director of Thales (Australia) and Managing Director of FreightCorp.

16

BOARD AND MANAGEMENT cont

JEREMY SCHULTZ Non-Executive Director

Mr Schultz was appointed on 13 February 2017 and reappointed on 26 June 2017. His current term will expire on 25 June 2020.

Jeremy is currently Chairman of Partners at Finlaysons and practices in Corporate and Energy practice areas.

He is an Australian Institute of Company Directors Fellow, a former Deputy Chair, Law Council of Australia, Business Law Section - Corporations Committee, Clean Energy Council - Founding Board Member, current Australian Institute of Energy Board Member, Les Favell Cricket Foundation Trustee and Lisa Fahey Foundation Inc. Board Member.


Mr Whalley was appointed on 26 June 2017. His current term will expire on 25 June 2020.

Jim is a co-founder and executive director of Nova Systems, one of Australia’s largest privately owned defence professional service providers. He is a former air force fighter pilot, with over 5,000 flying hours on more than 40 types of aircraft and a graduate of the Royal Air Force Empire Test Pilots’ School.

Amongst other qualifications, he holds a Masters of Business Administration, a science degree and is a graduate of the Harvard Business School OPM Executive Education Program. He is a member of the Sir Ross and Keith Smith Advisory Committee, a director of AMCHAM and the Adelaide Festival.

He is also a former member of The University of Adelaide Business School Advisory Council, the Federal Government’s Defence Industry Innovation Centre Advisory Board, the AIG Defence council and Deputy Chair of The Repat Foundation. Jim is a member of the Society of Experimental Test Pilots, the Flight Test Society of Australia, the Royal Aeronautical Society and a graduate of the Australian Institute of Company Directors course.



MS JANICE VAN REYK Non-Executive Director

After 30 June 2017, an additional director was appointed to the ANI Board.

Ms van Reyk was appointed on 14 August 2017. Her current term will expire on 13 August 2020.

Ms van Reyk is a non-executive director serving on the boards of Lochard Energy Group, Citywide, Victorian Ports Corporation and Northern Territory EPA. Previously, she enjoyed a career as a senior executive in ASX 100 companies (BHP, Orica, National Foods).

She also serves as an independent member of Vic Roads Risk Audit & Governance Committee. She is a Fellow of the AICD, a CPA and a Leadership Victoria Fellow.


Mr Knox was appointed MD and interim CEO on 13 June 2017 and appointed MD and CEO on 13 September 2017. His current term will expire on 12 September 2020.

Prior to his appointment at ANI, David was MD and CEO of Santos Limited from 2008 to 2015. David was previously the Managing Director for BP Developments in Australasia from 2003 to 2007. He has worked for BP in the United Kingdom and Pakistan, and has held management and engineering positions at ARCO and Shell in the USA, Netherlands, United Kingdom and Norway.

David is Chair of TACSI and i3 Energy (UK Ltd) and a director of Redflow, Adelaide Festival, Migration Council and Adelaide Botanical Gardens Foundation. He is a member of the Commonwealth Science Council, a council member of RiAus and deputy chair of the Economic Development Board of SA.

David holds a Bachelor of Science (Honours) in Mechanical Engineering, a Masters of Business Administration and is a Graduate Member of the Australian Institute of Company Directors.

18


ANDREW SEATON Chief Financial Officer

SALLY McLENNAN General Counsel and

Company Secretary

Sally was appointed General Counsel and Company Secretary in August 2017.

Sally is an experienced in-house commercial and corporate lawyer. Prior to joining ANI, she held senior legal roles at ASC Pty Ltd and Santos Limited. Sally’s prior experience includes commercial and human resources roles across industries, including oil and gas, telecommunications and manufacturing sectors. Sally has a Bachelor of Laws (with Honours), Graduate Diploma in Legal Practice and a Bachelor of Management (Labour Relations).

Andrew was appointed Chief Financial Officer in July 2017.

Andrew has over 30 years’ experience encompassing a broad range of finance, strategy, commercial, investment banking, engineering and project management roles. He was most recently the CFO of Santos Limited, a significant Australian producer of oil, domestic gas and LNG and he previously worked in Investment Banking with Merrill Lynch. Andrew has an honours degree in Chemical Engineering, a Graduate Diploma in Business Administration and is a Graduate Member of the Australian Institute of Company Directors.



PAUL BATES General Manager Operations

Paul was appointed General Manager Operations in June 2017.

Paul has substantial maritime operations experience. Prior to his appointment at ANI, Paul was General Manager Operations of the Defence SA Techport Common User Facility (CUF), ensuring the successful delivery of the CUF and other contracted services to the Air Warfare Destroyer Program since 2009. From 2006, Paul was Project and Bid Manager for DMS Maritime Pty Ltd (now Serco Defence), leading a number of successful tenders for that company.

Paul is a graduate of the Australian Defence Force Academy and served for 18 years in the Royal Australian Navy, holding a variety of operations roles both at sea and ashore.

FINANCIALS



This financial report covers Australian Naval Infrastructure Pty Ltd.

This financial report is presented in Australian currency.

Page

Directors’ Report 24

Auditor’s Independence Declaration 28

Directors’ Declaration 29

Independent Auditor’s Report to the Members 30

Financial Statements

Statement of Comprehensive Income 32

Statement of Financial Position 33

Statement of Changes in Equity 34

Statement of Cash Flows 35

Notes to the Financial Statements 36

CONTENTS

24

Your directors present their report, together with the financial report of Australian Naval Infrastructure Pty Ltd (the Company), for the year ended 30 June 2017 and the auditor’s report thereon.

Directors

The following person was a director of the Company during the entire financial year up to the date of this report:• Peter Iancov

The following were directors from the beginning of the financial year until their retirement as a result of the restructure of the ASC Group:• Dr Rosalind Dubs - retired on 25 March 2017• Paul Rizzo - retired on 25 March 2017• Bruce Carter - retired on 25 June 2017• Loretta Reynolds - retired on 25 June 2017

The following were appointed as directors until their retirement on 25 March 2017:• Joycelyn Morton - appointed 1 January 2017• The Hon Gary Gray AO - appointed 1 January 2017• Jeremy Schultz - appointed 13 February 2017 (subsequently re-appointed)

The following were appointed as directors during the period:• David Knox - appointed 13 June 2017• Lucio Di Bartolomeo - appointed 26 June 2017• Jeremy Schultz - appointed 26 June 2017• Alan (Jim) Whalley - appointed 26 June 2017• Janice van Reyk - appointed 14 August 2017

Principal activities

Up until 25 March 2017, the Company held property, plant and equipment utilised for the Air Warfare Destroyer (AWD) program. Effective 26 March 2017, the Company holds critical infrastructure for the maintenance of the Collins Class submarines and construction of the AWDs.

Result

The net profit of the Company for the financial year attributable to the shareholders of the Company was $263,616 (2016: $4,152,503 loss) after an income tax expense of $112,978 (2016: $1,779,644 benefit).

Review of operations

The Company holds critical infrastructure for the maintenance of the Collins Class submarines and construction of the AWDs.

Dividends - Australian Naval Infrastructure Pty Ltd

As at the date of this report, the directors had not paid or declared any dividends since the end of the previous financial year.

DIRECTORS’ REPORT / 30 June 2017


Particulars relating to the entity

Australian Naval Infrastructure Pty Ltd is incorporated in Australia. The registered office and principal place of business is at 61 Veitch Road, Osborne SA 5017. Up until 25 March 2017, the Company was known as ASC Engineering Pty. Limited and was a subsidiary of ASC Pty Ltd. It is now wholly owned by the Commonwealth of Australia (CoA).

State of affairs

In October 2016, the Minister for Finance (the Honourable Senator Mathias Cormann), the Minister for Defence Industry (the Honourable Christopher Pyne MP) and the Minister for Defence (the Honourable Senator Marise Payne) announced the separation of ASC into three individual Government owned companies. These companies will support the key capabilities of shipbuilding, submarine sustainment and infrastructure.

On 15 March 2017, the Minister for Finance approved the restructure of the ASC Group (“Legacy ASC”) into two separate Government owned entities, ASC Pty Ltd (“Residual ASC”) and Australian Naval Infrastructure Pty Ltd (formerly known as ASC Engineering Pty. Ltd.) (ANI). The Board of ASC Pty Ltd approved the restructure on 22 March 2017, with an effective date of separation of 26 March 2017.

The impact of the separation on the Company’s financial position is disclosed in note 2.

Environmental regulation

The operations of the Company are subject to environmental regulation under both Commonwealth and State legislation in relation to activities undertaken on site in South Australia.

The Company is committed to achieving a high standard of environmental performance consistent with the requirements of AS/NZ ISO 14001. The South Australian shipbuilding facility has accreditation for AS/NZ ISO 14001: Environmental Management Systems.

The Company has complied with all applicable environmental regulations and site specific environmental licence requirements.

There have been no environmental incidents in the reporting period requiring official regulatory notification.

Events subsequent to the end of the reporting period

On the 24th of August 2017, the CoA announced the Company had finalised the purchase of the initial tranche of South Australian government owned land and facilities for $20 million. At the same time, the CoA also outlined the designs for the surface shipbuilding yard to be established on this land.

There are no further matters that have arisen between the end of the financial year and the date of this report, including any item, transaction or event of a material and unusual nature, likely, in the opinion of the directors of the Company, to affect significantly the operations of the economic entity, the results of those operations, or the state of affairs of the Company, in subsequent financial periods.

DIRECTORS’ REPORT cont / 30 June 2017

26

Likely developments

In May 2017, the CoA announced the Naval Shipbuilding Plan. Among the key points in the plan is the substantial upgrade to the infrastructure and facilities which are critical to the capability and capacity of the Osborne Naval Shipyard to undertake the continuous build of major surface combatants and construction of future submarines. Upgrading the shipyard to modern standards, including the introduction of advanced manufacturing capabilities, requires a consolidation of the critical assets under Commonwealth ownership during the first stage of the structural separation of ASC Pty Ltd announced by the CoA in October 2016.

Under a Memorandum of Understanding between the Commonwealth and the State of South Australia, the Company will purchase the Osborne Common User Infrastructure presently owned by Defence SA. The consideration for this purchase is $210 million and the transaction is expected to be completed by 31 December 2017.

Directors’ benefits

Since the end of the previous financial year, no director of the Company has received or become entitled to receive any benefit (other than reimbursement of expenses and the aggregate amount of remuneration received or due and receivable by directors shown in the consolidated accounts) because of a contract made by the Company, or a related body corporate with the director or with a firm of which the director is a member, or with an entity in which the director has a substantial interest.

Indemnification and insurance of directors and officers

(a) Indemnification

The Company has agreed to indemnify the current and previous directors and officers of the Company for all liabilities to another person (other than the Company or a related body corporate) that may arise in their capacity as directors and officers of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The agreements stipulate that the Company will meet, to the extent permitted by law, the full amount of any such liabilities, including costs and expenses.

(b) Insurance premiums

Since the end of the previous financial year the Company, its directors and officers have paid insurance premiums in respect of directors’ and officers’ liability insurance contracts for current and former directors and officers, including executive officers of the Company and directors. The insurance premiums cover directors and officers for actual losses incurred in their capacity as directors and officers of the Company, which are not indemnified by the Company and which the director or officer becomes legally obligated to pay on account of certain claims made against him/her individually or otherwise. The terms of the insurance policy prohibit disclosure of the amounts of the premium payable.



Lead auditor’s independence declaration

The Auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 28.

This report is made in accordance with a resolution of directors.





28

AUDITOR’S INDEPENDENCE DECLARATION / 30 June 2017


The directors declare that, in the directors’ opinion:

(a) the financial statements and notes set out on pages 36 to 68 are in accordance with the Corporations Act 2001, including:

(i) complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and

(ii) giving a true and fair view of the entity’s financial position as at 30 June 2017 and of its performance for the year ended on that date, and

(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

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

This declaration is made in accordance with a resolution of directors.




DIRECTORS’ DECLARATION / 30 June 2017

30

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS / 30 June 2017


INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS / 30 June 2017

32

June June 2017 2016 Notes $ $

Revenue from continuing operations

Total revenue from continuing operations 5 15,391,423 15,178,240

Expenses

Depreciation and amortisation expense 6(a) (8,620,979) (8,943,985)

Utilities (1,894,800) (2,161,447)

Repairs & maintenance (1,544,649) (2,272,725)

Office expenses (950,436) (1,379,064)

Impairment of plant & equipment 6(a) (458,821) (448,922)

Other expenses from operating activities (1,173,678) (420,859)

Finance costs 6(a) (371,466) (5,483,384)

Profit before income tax 376,594 (5,932,146)

Income tax expense 7 (112,978) 1,779,643

Profit for the period 263,616 (4,152,503)

Other comprehensive income

Items that will not be reclassified to profit and lossGain on revaluation of land and buildings 11(b) 2,973,910 (1,878,767)

Income tax relating to these items (764,916) 563,630

Other comprehensive income for the period, net of tax 2,208,994 (1,315,137)

Total comprehensive income for the period 2,472,610 (5,467,640)

Profit is attributable to:

Owners of Australian Naval Infrastructure Pty Ltd 263,616 (4,152,503)

Total comprehensive income for the period is attributable to:

Owners of Australian Naval Infrastructure Pty Ltd 2,472,610 (5,467,640)

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

STATEMENT OF COMPREHENSIVE INCOME / For the year ended 30 June 2017



ASSETS

Current assets

Cash and cash equivalents 8(a) 41,509,188 -

Trade and other receivables 8(b) 2,545,073 52,387

Prepayments 10 98,763 -

Total current assets 44,153,024 52,387

Non-current assets

Property, plant and equipment 9(a) 279,402,133 141,475,206

Total non-current assets 279,402,133 141,475,206

Total assets 323,555,157 141,527,593

LIABILITIES

Current liabilities

Trade and other payables 8(c) 361,733 651,201

Current tax liabilities 421,188 -

Provisions 9(c) 2,077 -

Total current liabilities 784,998 651,201

Non-current liabilities

Deferred tax liabilities 9(b) 36,010,793 8,210,040

Interest bearing liabilities 8(d) - 140,659,415

Non interest-bearing liabilities 8(d) 15,560,064 3,071

Total non-current liabilities 51,570,857 148,872,526

Total liabilities 52,355,855 149,523,727

Net assets 271,199,302 (7,996,134)

EQUITY

Share capital 11(a) 286,722,826 10,000,000

Other reserves 11(b) 26,616,475 24,620,580

Retained earnings 11(c) (42,139,999) (42,616,714)

Total equity 271,199,302 (7,996,134)

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

STATEMENT OF FINANCIAL POSITION / As at 30 June 2017

34

Asset Share Revaluation Retained Total capital reserve earnings equity $ $ $ $

Balance at 1 July 2015 10,000,000 25,935,717 (38,464,211) (2,528,494)

Profit (loss) for the period - - (4,152,503) (4,152,503)

Revaluation of land and buildings - (1,878,767) - (1,878,767)

Income tax relating to these items - 563,630 - 563,630

Total comprehensive income for the year - (1,315,137) (4,152,503) (5,467,640)

Balance at 30 June 2016 10,000,000 24,620,580 (42,616,714) (7,996,134)

Balance at 1 July 2016 10,000,000 24,620,580 (42,616,714) (7,996,134)

Profit (loss) for the period - - 263,616 263,616

Revaluation of land and buildings - 2,973,910 - 2,973,910

Asset revaluation reserve balance adjustment - (213,099) 213,099 -

Income tax relating to these items - (764,916) - (764,916)

Total comprehensive income for the year - 1,995,895 476,715 2,472,610

Transactions with owners in their capacity as owners:

Contributions of equity 40,000,000 - - 40,000,000

Conversion of intercompany loan to equity 236,722,826 - - 236,722,826

276,722,826 - - 276,722,826

Balance at 30 June 2017 286,722,826 26,616,475 (42,139,999) 271,199,302

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

STATEMENT OF CHANGES IN EQUITY / For the year ended 30 June 2017



Cash flows from operating activities

Receipts from customers (inclusive of goods and services tax) 12,845,934 15,178,240

Payments to suppliers and employees (inclusive of goods and services tax) (5,902,045) (6,598,850)

Net cash inflow from operating activities 15(a) 6,943,889 8,579,390

Cash flows from investing activities

Payments for property, plant and equipment (1,433,072) (2,799,361)

Proceeds from sale of property, plant and equipment 1,997,513 190,401

Interest received 5,132 -

Loan to ASC Pty Ltd (14,854,386) (15,178,240)

Loan from ASC Pty Ltd 8,850,112 14,691,194

Net cash (outflow) from investing activities (5,434,701) (3,096,006)

Cash flows from financing activities

Proceeds from issues of shares and other equity securities 11(a) 40,000,000 -

Interest paid - (5,483,384)

Net cash inflow (outflow) from financing activities 40,000,000 (5,483,384)

Net increase in cash and cash equivalents 41,509,188 -

Cash and cash equivalents at end of year 8(a) 41,509,188 -

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

STATEMENT OF CASH FLOWS / For the year ended 30 June 2017

36

CONTENTS

Contents of the notes to the financial statements

Page

1 Summary of significant accounting policies 37

2 Significant changes in the current reporting period 46

3 Critical accounting estimates and judgements 47

4 Financial and capital risk management 48

5 Revenue 52

6 Other income and expense items 52

7 Income tax expense 53

8 Financial assets and financial liabilities 54

9 Non-financial assets and liabilities 57

10 Other current assets 63

11 Equity 63

12 Economic dependency 65

13 Events occurring after the reporting period 65

14 Related party transactions 65

15 Cash flow information 67

16 Remuneration of auditors 68

NOTES TO THE FINANCIAL STATEMENTS / 30 June 2017


1 Summary of significant accounting policies

Australian Naval Infrastructure Pty Ltd is a company domiciled in Australia. The financial report is presented in Australian dollars.

The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

(a) Basis of preparation

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Australian Naval Infrastructure Pty Ltd is a for-profit entity for the purpose of preparing the financial statements.

( i ) Compliance with IFRS

The financial statements of the Company also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

( i i ) Historical cost convention

These financial statements have been prepared under the historical cost basis, except for the following:• certain classes of property, plant and equipment - measured at fair value• financial assets and liabilities (including derivative instruments) - measured at fair value.

Critical accounting estimates

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3.

(b) Revised standards and interpretations applied

The Company has applied the following revised standards and interpretations for the first time in the financial year commencing 1 July 2016.

AASB 2015-1 Annual Improvements 2012-2014

The AASB introduced minor amendments and clarification to a range of standards as a result of the annual improvements cycle undertaken by the International Accounting Standards Board. These amendments are not significant for the Company.

AASB 2015-2 - Disclosure Initiative

This standard makes amendments to AASB 101 Presentation of Financial Statements arising from the IASB’s disclosure initiative project. The amendments are on the disclosure of only material information and the presentation of information in the notes.

NOTES TO THE FINANCIAL STATEMENTS cont / 30 June 2017

38

1 Summary of significant accounting policies (continued)

(c) Impact of standards issued but not yet applied

Certain new accounting standards, interpretations and amendments have been published that are not mandatory for 30 June 2017 reporting periods and have not been early adopted by the Company. The Company’s assessment of the impact of these new standards and interpretations is set out below.

AASB 2016-1 Scope amendment to AASB 112 (effective for the 30 June 2018 financial year)The AASB introduced minor amendments and clarification in relation to accounting for deferred tax on assets measured at fair value. The impact of these amendments is not expected to be significant for the Company.

AASB 2016-2 Scope amendment to AASB107 (effective for the 30 June 2018 financial year)The AASB introduced minor amendments and clarification in relation to disclosure of liabilities in the statement of cash flows. The impact of these amendments is not expected to be significant for the Company.

AASB 9 Financial Instruments (effective for the 30 June 2019 financial year)AASB 9 addresses the classification, measurement and derecognition of financial assets that are designated at fair value through profit and loss and the change in the fair value of the financial liabilities is not due to the change in the Company’s own credit risk. The standard is not expected to have a material impact to the Company’s result.

AASB 15 Revenue from Contracts with Customers (effective for the 30 June 2019 financial year)This standard will replace AASB 118 Revenue which covers contracts for goods and services and AASB 111 Construction Contracts which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer, so the notion of control replaces the existing notion of risks and rewards.

The Company will have to adopt a new five-step process for the recognition of revenue:1. Identify contract with customers2. Determine the separate performance obligations3. Determine the transaction price of the contract4. Allocate the transaction price to each of the separate performance obligations5. Recognise revenue as each performance obligation is satisfied.

The impact of the new standard is not expected to be significant for the Company.

AASB 16 Leases (effective for the 30 June 2020 financial year)

This standard will replace AASB 117 Leases. The new standard introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying assets are of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. The Company is still evaluating the impact of the new standard.




(d) Revenue recognition

Revenue is measured at the fair value of consideration received or receivable. Revenue is recognised when it can be reliably measured, it is probable that economic benefits will flow to the entity and specific criteria have been met for each of the Company’s activities.

( i ) Facilities and services charge

The charge is made up of a capital charge and depreciation charge. Revenue for both charges is recognised in the period invoiced.

Capital charge

Revenue is recognised based on a percentage of the depreciated historic cost of critical infrastructure assets that have not been funded by a program or project.

Depreciation charge

Revenue is recognised based on the depreciation of critical infrastructure assets provided by the Company.

( i i) Interest income

Interest income is recognised as it accrues, using the effective interest method.

(e) Foreign currency

(i) Functional and presentation currency

Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The financial statements are presented in Australian dollars, which is Australian Naval Infrastructure Pty Ltd’s functional and presentation currency.

( i i ) Transactions and balances

Foreign currency transactions are translated to Australian currency at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at balance date are translated at the rates of exchange ruling on that date.


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(f) Property, plant and equipment

Land and buildings are shown at fair value, based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

Increases in the carrying amounts arising on revaluation of land and buildings are recognised, net of tax, in other comprehensive income and accumulated in reserves in equity. To the extent that the increase reverses a decrease previously recognised in the statement of comprehensive income, the increase is first recognised in the statement of comprehensive income. Decreases that reverse previous increases of the same asset are first recognised in other comprehensive income to the extent of the remaining surplus attributable to the asset; all other decreases are charged to statement of comprehensive income.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant and equipment, the shorter lease term as follows:

• Freehold buildings 8 - 60 years

• Plant and equipment 3 - 20 years

The cost of an individual item of property, plant and equipment with an acquisition cost of less than $1,000 will be considered a minor equipment purchase and will therefore not be depreciated but expensed at acquisition. Assets are tested for impairment whenever events and changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Further details are disclosed in note 1(n). Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These amounts are included in the statement of comprehensive income. When revalued assets are sold, it is the Company’s policy to transfer any amounts included in other reserves in respect of those assets to retained earnings.




(g) Leases

Leases of property, plant and equipment where the Company, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the Company will obtain ownership at the end of the lease term.

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

(h) Taxation

Income tax

Up until 25 March 2017, the Company was a member of the tax-consolidated group comprising all the Australian wholly-owned subsidiaries of ASC Pty Ltd (the Head entity). The Company accounts for its own tax liability arising from external transactions effective 26 March 2017.

Accounting for income tax

Income tax on profit or loss for the year comprises current and deferred tax. Income tax is recognised in the statement of comprehensive income, except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on income tax for the year, using tax rates enacted or substantially enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the statement of financial position liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted or substantively enacted at statement of financial position date.


42


(h) Taxation (continued)

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

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

(i) Employee benefits

( i ) Short-term obligations

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for accumulating sick leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables.

( i i ) Other long-term employee benefit obligations

The liabilities for long service leave and annual leave are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. They are recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of corporate bonds with terms and currency that match, as closely as possible, the estimated future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss.

The obligations are presented as current liabilities in the statement of financial position if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur.




(j) Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date.

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial re-organisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.

The amount of the impairment loss is recognised in profit or loss within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss.

(k) Trade and other payables

These amounts represent liabilities for goods and services provided to the Company prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

(l) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows.


44


(m) Provisions

A provision is recognised in the statement of financial position when the entity has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

(n) Impairment of assets

Financial assets

The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss, is reclassified from equity and recognised in profit or loss as a reclassification adjustment. Impairment losses recognised in profit or loss on equity instruments classified as available-for-sale are not reversed through profit or loss.

If there is evidence of impairment for any of the Company’s financial assets carried at amortised cost, the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, excluding future credit losses that have not been incurred. The cash flows are discounted at the financial asset’s original effective interest rate. The loss is recognised in profit or loss.

Non-financial assets

The carrying amount of the Company’s assets other than inventories and deferred tax assets, are reviewed at each statement of financial position date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amount is estimated.

Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the 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). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.




(o) Cash and cash equivalents

Cash and cash equivalents include:

• cash at bank and on hand;

• deposits held at call with financial institutions;

• other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value; and

• bank overdrafts.

Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.

(p) Interest and non interest bearing liabilities

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs.

To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs.

Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

(q) Borrowing costs

Borrowing costs incurred during the financial year are expensed.

(r) Dividends

Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Company, on or before the end of the reporting period but not distributed at the end of the reporting period. Provision must be made in compliance with s 254T of the Corporations Act 2001.

(s) Contributed equity

Ordinary shares are classified as equity.


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2 Significant changes in the current reporting period

Effective 26 March 2017, the Government finalised the separation of ASC resulting in certain assets and liabilities of ASC being transferred to Australian Naval Infrastructure Pty Ltd (ANI) (formerly known as ASC Engineering Pty Ltd). All assets deemed as Critical Infrastructure and owned by ASC were transferred to ANI and all non-critical infrastructure assets owned by ANI were transferred to ASC. In addition, the separation of ASC resulted in payables due from ANI to ASC being converted into equity and debts due from ANI to ASC Shipbuilding Pty Ltd and ASC AWD Shipbuilder Pty Ltd being transferred to ASC. The table below shows the impact of the separation on the statement of financial position of ANI as at 26 March 2017.

Statement of Financial Position as at 26 March 2017 Pre Post Separation Separation Inc (Dec) $ $ $

Assets

Current assets

Trade and other receivables 64,836 64,836 0

Total current assets 64,836 64,836 0

Non current assets

Property, plant and equipment 137,201,436 281,798,696 144,597,260

Intercompany receivable 12,248,622 0 (12,248,622 )

Total non current assets 149,450,058 281,798,696 132,348,638

Total Assets 149,514,894 281,863,532 132,348,638

Liabilities

Current liabilities

Intercompany payable 131,649,917 0 (131,649,917 )

Total current liabilities 131,649,917 0 (131,649,917 )

Non current liabilities

Non interest bearing liabilities 15,188,599 15,188,599 0

Deferred tax liabilities (net) 8,869,348 36,145,076 27,275,728

Total non current liabilities 24,057,946 51,333,675 27,275,728

Total Liabilities 155,707,863 51,333,675 (104,374,188 )

Net Assets (6,192,969) 230,529,857 236,722,826

Equity

Contributed equity 10,000,000 246,722,826 236,722,826

Asset revaluation reserve 26,405,385 26,616,475 211,090

Retained earnings (42,598,354) (42,809,444) (211,090 )

Total Equity (8,192,969) 230,529,857 236,722,826



3 Critical accounting estimates and judgements

The Company makes estimates, judgements and assumptions concerning the future. These estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

Accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities, and by default amounts recognised in the profit and loss, in future periods include:

Fair value of land and buildings

The fair value of land and buildings is determined by market-based evidence. If no market-based evidence exists, the depreciated replacement cost approach is applied. This approach is often used if an item is of a specialised nature and is rarely sold. As part of the separation process, the fair values of critical land and buildings were assessed on 25 March 2017 which is earlier than the normal 30 June fair valuation date. Based on the independent professionally qualified valuer’s assessment, the fair value of critical land and buildings for the Company as at 25 March 2017 was $112,744,000 (30 June 2016: $113,626,000).

Critical and non-critical land and buildings were transferred to and from the Company on 25 March 2017:

• The fair value of the critical land and buildings from ASC Pty Ltd transferred to the Company was $160,944,000;

• The fair value of the non-critical buildings transferred from the Company to ASC Shipbuilding Pty Ltd was $548,000.

The fair value of the land and buildings of the Company after the transfers was $273,140,000.


48

4 Financial and capital risk management

Financial risk management

The Company’s activities expose it to a variety of financial risks. This note presents information about the Company’s exposure to financial risks, the objectives, policies and processes for measuring and managing risk, and the management of capital.

The board has overall responsibility for the establishment and oversight of the risk management framework. The board has tasked the Audit and Risk Committee to oversee how management monitors compliance with the Company’s financial risk management policies and procedures. It also reviews the adequacy of the financial risk management framework of the Company.

June June 2017 2016 $ $

Financial assets

Cash and cash equivalents 41,509,188 -

Trade and other receivables 2,545,073 52,387

44,054,261 52,387

June June 2017 2016 $ $

Financial liabilities

Trade and other payables 361,733 651,201

Non interest-bearing liabilities 15,560,064 3,071

15,921,797 654,272

(a) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities.

Trade and other receivables

The Company’s credit exposures to customers, including outstanding receivables and committed transactions, are minimal. The Company presently has two customers, which are ASC Pty Ltd and its wholly owned subsidiary, ASC Shipbuilding Pty Ltd. ASC Pty Ltd is a Government Business Enterprise owned by the Commonwealth of Australia which has a “AAA” credit rating from Standard & Poor’s.



4 Financial and capital risk management (continued)

(a) Credit risk (continued)

Cash and cash equivalents

The Company limits its exposure to credit risk by placing its cash with a counterparty that has a credit rating of “AA-” from Standard & Poor’s. Given the high credit rating, management does not expect the counterparty to fail to meet its obligations.

Guarantees

The Company has not issued any financial guarantees to any party during the period.

Financial securities received

The Company has not received any financial securities from any party during the period.

Recognised financial instruments

June June 2017 2016 $ $

Trade receivables

AAA (Commonwealth of Australia) 2,545,073 52,387

2,545,073 52,387

June June 2017 2016 $ $

AA- rated cash at bank


41,509,188 -

The credit risk on financial assets of the Company which have been recognised on the statement of financial position, is the carrying amount, net of any provision for doubtful debts as summarised above.

A substantial portion of the Company’s operations are in relation to the holding of critical infrastructure for the maintenance of the Collins Class submarines and construction of the AWDs. The Company charges both projects the depreciation of the critical infrastructure assets and a capital charge based on the depreciated historic cost of non-program funded critical infrastructure. The depreciation charge is a direct project cost which is reimbursable from the Commonwealth as the ultimate customer while the capital charge is a self funded cost by both projects. Therefore, the Company has immaterial exposure to credit risk in its operations.

Off statement of financial position financial instruments

The Company has not entered into any off statement of financial position financial instruments during the period.


50


(b) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

Maturities of financial liabilities

The tables below analyse the Company’s financial liabilities into relevant maturity groups based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Total CarryingContractual maturities of Less Between contractural amountfinancial liabilities than 6 6 - 12 1 and 2 Between 2 Over 5 cash (assets)/ months months years and 5 years years flows liabilitiesAt 30 June 2017 $ $ $ $ $ $ $

Non-derivatives

Non interest bearing - 361,733 - 20,322,869 200,000 20,884,602 15,921,797

Total non-derivatives - 361,733 - 20,322,869 200,000 20,884,602 15,921,797

At 30 June 2016

Non-derivatives

Non interest bearing - 651,201 - - 200,000 851,201 654,272

Total non-derivatives - 651,201 - - 200,000 851,201 654,272




(c) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Interest rate risk

As the Company holds cash in bank and no term interest bearing assets, its exposure to changes in market interest rates is minimal.

The exposures of the Company to interest rate risk as well as the effective weighted average interest rate for classes of financial assets and financial liabilities are set out below:

30 June 2017 30 June 2016 Effective EffectiveFinancial assets $ interest rate $ interest rate

Cash and cash equivalents 41,509,188 0.31% - 0.00%

Trade and other receivables 2,545,073 0.00% 52,387 0.00%

Total financial assets 44,054,261 52,387

30 June 2017 30 June 2016 Effective EffectiveFinancial liabilities $ interest rate $ interest rate

Trade and other payables 361,733 0.00% 651,201 0.00%

Non interest bearing liabilities 15,560,064 1.76% 3,071 5.50%

Total financial liabilities 15,921,797 654,272

The effective interest rate of the non interest-bearing liabilities reflects the effective discount rate applied in calculating the present value of the liabilities.

Sensitivity

There are no material changes or sensitivities related to market risk.

Capital risk management

The objectives of the Company in managing capital are to safeguard its ability to continue as a going concern, so that it can continue to provide returns for the shareholder and benefits for other stakeholders and to sustain future development of the business. The Company monitors the return on capital.

There were no changes in the approach adopted by the Company in capital management during the year.


52

5 Revenue

June June 2017 2016 $ $

Revenue from continuing operations

Facilities and services charge 15,386,290 15,178,240

Total 15,386,290 15,178,240

Interest income 5,133 -

Total revenue from continuing operations 15,391,423 15,178,240

6 Other income and expense items

(a) Items included in profit before tax

June June 2017 2016 $ $

Depreciation

Buildings 5,178,013 4,466,308

Plant and equipment 3,442,966 4,477,677

Total 8,620,979 8,943,985

Finance costs

Interest expense - other 371,466 160

Interest expense - related parties - 5,483,224

Total 371,466 5,483,384

Impairment of plant and equipment

Impairment of plant and equipment 458,821 448,922

Total 458,821 448,922



7 Income tax expense

(a) Income tax expense

Recognised in the statement of comprehensive income

June June 2017 2016 $ $

Current tax expense

Current year 352,870 (1,480,841)

Total current tax expense 352,870 (1,480,841)

Deferred income tax

Temporary differences arising during the year, net of reversal (239,892) (298,802)

Total deferred tax expense/(benefit) (239,892) (298,802)

Income tax expense 112,978 (1,779,643)

Income tax expense is attributable to:

Profit from continuing operations 112,978 (1,779,643)

(b) Numerical reconciliation of income tax expense to prima facie tax payable

June June 2017 2016 $ $

Profit from continuing operations before income tax expense 376,594 (5,932,146)

Tax at the Australian tax rate of 30.0% (2016 - 30.0%) 112,978 (1,779,643)


(c) Amounts recognised directly in equity

Aggregate current and deferred tax arising in the reporting period and not recognised in net profit or loss but

directly debited or credited to equity.

June June 2017 2016 $ $

Net deferred tax 764,916 (563,630)


54

8 Financial assets and financial liabilities

(a) Cash and cash equivalents

June June 2017 2016 $ $

Current assets


41,509,188 -

The Company’s exposure to interest rate risk is discussed in note 4

( i ) Reconciliation to cash flow statement

The above figures reconcile to the amount of cash shown in the statement of cash flows at the end of the financial year as follows: June June 2017 2016 $ $

Balances as above 41,509,188 -

(b) Trade and other receivables

June June 2017 2016 $ $

Current

Trade receivables 2,539,595 -

Other receivables 5,478 52,387

2,545,073 52,387

June June 2017 2016 $ $

Accounts Receivable Ageing Profile

Not past due 1,493,470 52,387

Past due 1-30 days 1,051,603 -

Past due 31-60 days - -

Past due 61-90 days - -

Past due 90+ days - -

2,545,073 52,387



8 Financial assets and financial liabilities (continued)

(c) Trade and other payables

June June 2017 2016 $ $

Current liabilities

Trade payables 54,783 160,106

Other payables 306,950 491,095

Total 361,733 651,201

(d) Borrowings

Interest bearing liabilities

June June 2017 2016 $ $

Non current

Loan from controlling entity - 140,659,415

Total - 140,659,415

Loan from controlling entity

Prior to 26 March 2017, the Company had an interest bearing loan with its parent, ASC Pty Ltd, established under a loan agreement between both parties. According to the terms of the agreement, this loan was repayable on demand and accrued interest at a marginal rate of 2% over the Reserve Bank of Australia “cash rate”.

The loan was converted to share capital when the Company was separated from ASC Pty Ltd on 26 March 2017.

Non interest bearing liabilities

June June 2017 2016 $ $

Non current

Term loan 3,240 3,071

Deferred purchase obligation 15,556,824 -

Total 15,560,064 3,071


56

8 Financial assets and financial liabilities (continued)

(d) Borrowings (continued)

Term loan

The term loan consists of an interest free 99 year loan to the Company from the Department of Manufacturing Industry, Small Business and Regional Development (SA), for expenditure on capital items and to assist with site development costs.

The $200,000 term loan is repayable in 2094 or at the option of the Company at any time prior to 2094.

The term loan has been discounted to its fair value of $3,240 for the year ended 30 June 2017 (2016: $3,071) under AASB 139 Financial Instruments: Recognition and Measurement.

Deferred Purchase Obligation

As part of the Air Warfare Destroyer program, ASC AWD Shipbuilder Pty Ltd and ASC Engineering Pty. Limited, subsidiaries of ASC Pty Ltd, entered into an agreement with the Commonwealth of Australia where the Commonwealth of Australia made a contribution to build a production facility required for the construction of the Air Warfare Destroyers.

Under this arrangement, ASC AWD Shipbuilder Pty Ltd had an obligation to purchase the facility within three months of the completion of the last Air Warfare Destroyer at an amount equal to the lesser of the written down value of the facility at an agreed depreciation rate, and the fair market value determined by a licensed valuer. No loss is expected to be incurred in relation to this deferred purchase obligation.

As of 26 March 2017, this obligation has been transferred to the Company as owner of the critical infrastructure of the AWD shipyard.

The deferred purchase obligation has been discounted to its fair value of $15,556,824 for the year ending 30 June 2017 under AASB 139 Financial Instruments Recognition and Measurement.



9 Non-financial assets and liabilities

(a) Property, plant and equipment

June June 2017 2016 $ $Freehold land

Freehold land 31,500,000 12,500,000

Freehold buildings

Freehold buildings 239,288,860 101,126,000

Plant and equipment

Gross value 13,811,553 38,950,014

Accumulated depreciation (5,361,776) (11,231,761)

8,449,777 27,718,253

Assets under construction

Assets under construction 163,496 130,953

163,496 130,953

Total Property, Plant and Equipment 279,402,133 141,475,206

Freehold Freehold Plant and Assets under land buildings equipment construction Total $ $ $ $ $Year ended 30 June 2016

Opening net book amount 11,916,000 107,632,967 30,095,760 303,088 149,947,815

Revaluation surplus 584,000 (2,462,770) - - (1,878,770)

Additions - 422,111 843,594 1,533,656 2,799,361

Transfers - - 1,705,791 (1,705,791) -

Depreciation charge - (4,466,308) (4,477,677) - (8,943,985)

Impairment loss - - (448,922) - (448,922)

Disposals - - (293) - (293)

Closing net book amount 12,500,000 101,126,000 27,718,253 130,953 141,475,206

Year ended 30 June 2017

Opening net book amount 12,500,000 101,126,000 27,718,253 130,953 141,475,206

Revaluation surplus - 2,973,911 - - 2,973,911

Additions 19,000,000 141,943,210 4,812,552 1,596,568 167,352,330

Transfers - 38,900 1,332,192 (1,371,092) -

Depreciation charge - (5,178,013) (3,442,966) - (8,620,979)

Impairment loss - - (458,822) - (458,822)

Disposals - (1,615,148) (21,511,432) (192,933) (23,319,513)

Closing net book amount 31,500,000 239,288,860 8,449,777 163,496 279,402,133


58

9 Non-financial assets and liabilities (continued)

(a) Property, plant and equipment (continued)

( i ) Valuations of land and buildings

An independent valuation of all land and buildings of the Company was carried out by Griffin Valuation Advisory as at 25 March 2017.

The fair value of the land is based on recent market transactions on arm’s length terms and the fair value of buildings is based on the depreciated replacement cost approach.

( i i ) Carrying amounts that would have been recognised if land and buildings were stated at cost

If freehold land and buildings were stated on the historical cost basis, the amounts would be as follows:

June June 2017 2016 $ $

Freehold land

Cost 2,721,066 1,099,185

Buildings

Cost 269,269,677 107,280,504

Accumulated depreciation (131,627,297) (25,243,124)

Net book amount 137,642,380 82,037,380

(iii) Non-current assets pledged as security

There are no non-current assets pledged as security by the Company.




(b) Deferred tax balances

Net position as presented in the statement of financial position

June June 2017 2016 $ $

Net deferred tax liabilities

Deferred tax assets 10,847,025 1,123,961

Deferred tax liabilities (46,857,818) (9,334,001)

Total (36,010,793) (8,210,040)

( i ) Deferred tax assets June June 2017 2016 $ $

The balance comprises temporary differences attributable to:

Property, plant and equipment 10,847,025 1,123,961

Total 10,847,025 1,123,961

Property, plant and equipment Total $ $

Movements

At 1 July 2015 1,052,590 1,052,590

(Charged)/credited

- to profit or loss 71,371 71,371

At 30 June 2016 1,123,961 1,123,961

At 30 June 2016 1,123,961 1,123,961

(Charged)/credited

- to profit or loss 121,405 121,405

Transfer of non critical assets (606,983) (606,983)

Transfer of critical assets 10,208,642 10,208,642

At 30 June 2017 10,847,025 10,847,025


60


(b) Deferred tax balances (continued)

( i i ) Deferred tax liabilities June June 2017 2016 $ $

The balance comprises temporary differences attributable to:

Property, plant and equipment 46,739,593 9,147,458

Sundry items 118,225 186,543

Total 46,857,818 9,334,001

Property, plant

and equipment Sundry items Total

Movements $ $ $

At 1 July 2015 10,065,871 59,127 10,124,998

Charged/(credited)

- profit or loss (918,413) 127,416 (790,997)

At 30 June 2016 9,147,458 186,543 9,334,001

Property, plant

and equipment Sundry items Total

Movements $ $ $

At 1 July 2016 9,147,458 186,543 9,334,001

Charged/(credited)

- profit or loss (50,168) (68,318) (118,486)

- to other comprehensive income 764,916 - 764,916

Transfer of non critical assets 90,467 - 90,467

Transfer of critical assets 36,786,920 - 36,786,920

At 30 June 2017 46,739,593 118,225 46,857,818

( i i i ) Net deferred tax June June 2017 2016 $ $

The net balance comprises temporary differences attributable to:

Property, plant and equipment (35,892,568) (8,023,497)

Sundry items (118,225) (186,543)

(36,010,793) (8,210,040)





(c) Provisions June 2017 June 2016

Current Non-current Total Current Non-current Total $ $ $ $ $ $

Employee benefits 2,077 - 2,077 - - -

2,077 - 2,077 - - -

(d) Recognised fair value measurements

The Company measures and recognises the following assets and liabilities at fair value on a recurring basis:• Land and buildings

( i ) Fair value hierarchy

AASB 13 requires disclosure of fair value measurements by level of the following fair value measurementhierarchy:

• quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);

• inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and

• inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).

The following table presents the Company’s assets and liabilities measured and recognised at fair value as at 30 June 2017 and 30 June 2016.

Recurring fair value measurements Level 1 Level 2 Level 3 Total30 June 2017 Notes $ $ $ $


Buildings

Buildings 9(a) - - 239,288,860 239,288,860

Freehold land 9(a) - 31,500,000 - 31,500,000

Total non-financial assets - 31,500,000 239,288,860 270,788,860

Level 1 Level 2 Level 3 Total30 June 2016 Notes $ $ $ $


Buildings

Buildings 9(a) - - 101,126,000 101,126,000

Freehold land 9(a) - 12,500,000 - 12,500,000

Total non-financial assets - 12,500,000 101,126,000 113,626,000

62


(d) Recognised fair value measurements (continued)

Disclosed fair values

The Company also has a number of assets and liabilities which are not measured at fair value, but for which fair values are disclosed in the notes.

The carrying amounts of trade receivables, trade payables and interest and non-interest bearing liabilities are approximately their fair values.

( ii) Valuation techniques used to determine level 2 and level 3 fair values

The Company obtains independent valuations for its land and buildings (classified as property, plant and equipment) at least triannually. At the end of each reporting period, management updates their assessment of the fair value of each property, taking into account the most recent independent valuations. Management determines a property’s value within a range of reasonable fair value estimates.

The best evidence of fair value is current prices in an active market for similar properties. The level 2 fair value of land has been derived using the sales comparison approach. Sales prices of comparable land in close proximityare adjusted for differences in key attributes such as property size. The most significant input into this valuation approach for land and buildings is price per square metre. All resulting fair value estimates for buildings are included in level 3 as their level 2 input are adjusted for depreciation which is an unobservable input.

( i i i ) Fair value measurements using significant unobservable inputs (level 3)

The following table presents the changes in level 3 items for the periods ended 30 June 2017 and 30 June 2016 for recurring fair value measurements: Buildings $

Opening balance 1 July 2015 107,632,967

Acquisitions 422,111

Revaluation increment (decrement) (2,462,770)

Depreciation and impairment (4,466,308)

Closing balance 30 June 2016 101,126,000

Buildings $

Opening balance 1 July 2016 101,126,000

Acquisitions 141,943,210

Revaluation increment (decrement) 2,973,910

Depreciation and impairment (5,178,013)

Disposals (1,615,146)

Transfers 38,899

Closing balance 30 June 2017 239,288,860




(d) Recognised fair value measurements (continued)

( iv) Valuation inputs and relationships to fair value

The following table summarises the quantitative information about the significant unobservable inputs used in recurring level 3 fair value measurements. See note 9(d)(ii) above for the valuation techniques adopted.

Range of inputs (probability – Fair value at weighted average) Relationship of

30 June 30 June Unobservable unobservable inputsDescription 2017 $ 2016 $ inputs 2017 2016 to fair value The higher the Depreciation depreciation rate, theBuildings 239,288,860 101,126,000 rates 7.10% 7.10% lower the fair value

(v) Valuation processes

The Company engages an external, independent and qualified valuer to determine the fair value of the land and buildings at the end of every financial year. As at 25 March 2017, the fair values of the land and buildings were determined by Griffin Valuation Advisory.

10 Other current assets June June 2017 2016 $ $

Prepayments 98,763 -

11 Equity

(a) Share capital

(i) Movements in ordinary share:

Details Number of shares $

Opening balance 1 July 2015 10,000,000 10,000,000

Balance 30 June 2016 10,000,000 10,000,000

Opening balance 1 July 2016 10,000,000 10,000,000

Equity injection from shareholder 40,000,000 40,000,000

Conversion of loan to equity 236,722,826 236,722,826

Balance 30 June 2017 286,722,826 286,722,826

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held.


64

11 Equity (continued)

(b) Asset revaluation reserve

Revaluation surplus $

Balance at 1 July 2015 25,935,717

Revaluation - gross (1,878,767)

Deferred tax 563,630

Other comprehensive income (1,315,137)

At 30 June 2016 24,620,580

Balance at 1 July 2016 24,620,580

Revaluation - gross 2,973,910

Balance adjustment (213,099)

Deferred tax (764,916)

Other comprehensive income 1,995,895

At 30 June 2017 26,616,475

(i ) Nature and purpose of other reserves

Revaluation surplus – property, plant and equipment

The property, plant and equipment revaluation surplus is used to record increments and decrements on the revaluation of land and buildings. June June 2017 2016 $ $

Revaluation surplus

Land 7,685,255 7,980,571

Building 18,931,220 16,640,009

Total 26,616,475 24,620,580

(c) Retained earnings

Movements in retained earnings were as follows:

June June 2017 2016 $ $

Balance 1 July (42,616,714) (38,464,211)

Net profit (loss) for the period 263,616 (4,152,503)

Asset revaluation reserve balance adjustment 213,099 -

Balance 30 June (42,139,999) 42,616,714)



12 Economic dependency

The normal trading activities of the Company depend on the provision of critical infrastructure assets for the maintenance of the Collins Class submarines and construction of the AWDs. The dependencies existed from 26 March 2017 for the maintenance of the Collins Class submarines and all of the financial year for the construction of the AWDs.

13 Events occurring after the reporting period

There are no other matters that have arisen between the end of the financial year and the date of this report including any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly its operations, the results of those operations, or the state of affairs of the Company, in subsequent financial years.

14 Related party transactions

(a) Key management personnel compensation

The key management compensation included in personnel expenses are as follows:

June June 2017 2016 $ $

Short-term employee benefits 8,182 -

Post-employment benefits 722 -

Other long term benefits 190 -

Total 9,094 -

There was one key management personnel for the year (2016: nil).


66

14 Related party transactions (continued)

(b) Directors

The following person was a director of Australian Naval Infrastructure Pty Ltd during the entire financial year:• Peter Iancov

The following were directors from the beginning of the financial year until their retirement as a result of the restructure of the ASC Group:• Dr Rosalind Dubs - retired on 25 March 2017• Paul Rizzo - retired on 25 March 2017• Bruce Carter - retired on 25 June 2017• Loretta Reynolds - retired on 25 June 2017

The following were appointed as directors until their retirement on 25 March 2017:• Joycelyn Morton - appointed 1 January 2017• The Hon Gary Gray AO - appointed 1 January 2017• Jeremy Schultz - appointed 13 February 2017 (subsequently re-appointed)

The following were appointed as directors during the period:• David Knox - appointed 13 June 2017• Lucio Di Bartolomeo - appointed 26 June 2017• Jeremy Schultz - appointed 26 June 2017• Alan (Jim) Whalley - appointed 26 June 2017• Janice van Reyk - appointed 14 August 2017

(c) Other related parties

Australian government ministers

There have been no transactions with any Australian government ministers during the financial year.

Shareholders

The Company transferred the existing share capital from ASC Pty Ltd to the Commonwealth as sole shareholder as part of the separation from ASC Pty Ltd on 25 March 2017. The Company received a capital injection on 28 June 2017. The Company also converted the intercompany loan from ASC Pty Ltd into share capital on 25 March 2017.



14 Related party transactions (continued)

(d) Loans to/from the Commonwealth of Australia and its related parties

June June 2017 2016 $ $

Deferred purchase obligation

Loan transferred from ASC AWD Shipbuilder Pty Ltd 15,158,426 -

Fair value adjustment 398,398 -

End of period 15,556,824 -

15 Cash flow information

(a) Reconciliation of profit after income tax to net cash inflow from operating activities

June June 2017 2016 $ $

Profit (loss) for the period 263,615 (4,152,503)

Adjustment for:

Depreciation and amortisation 8,620,979 8,324,403

Interest paid 371,466 5,483,384

Change in fair value of non-interest bearing liabilities - 160

Impairment of plant and equipment 458,821 448,922


Interest received (5,132) -

Change in operating assets and liabilities:

(Increase) / decrease in trade debtors and bills of exchange (2,539,595) -

(Decrease) / increase in trade creditors (240,480) 254,668

(Increase) / decrease in prepayments (98,763) -

Net cash inflow (outflow) from operating activities 6,943,889 8,579,390


68

16 Remuneration of auditors

During the year the following fees were paid or payable for services provided by the auditor of the Company:

(i) Audit and other assurance services

June June 2017 2016 $ $

Audit and other assurance services

Audit and review of financial statements 84,500 -

Total remuneration for audit and other assurance services 84,500 -

PricewaterhouseCoopers (Pwc) has been contracted by the Australian National Audit Office (ANAO) to provideaudit related services on the ANAO’s behalf.

No costs were borne by the Company in relation to audit or non-audit services for the year ended 30 June 2016.The costs relating to the Company for the year ended 30 June 2016 were incurred by the ASC Group on behalfof the Company.



Directors• Lucio Di Bartolomeo (Chairman)• Peter Iancov• Janice van Reyk• Jeremy Schultz• Alan (Jim) Whalley• David Knox Company Secretary• Sally McLennan AuditorsANAO and PricewaterhouseCoopers(as agent for ANAO)

BankersWestpac Banking Corporation

Registered Office694 Mersey Road North Osborne SA 5017

Head Office61 Veitch Road Osborne SA 5017 Websitewww.ani.com.au Media [email protected] ABN 45 051 762 639 A copy of the ANI Annual Report will be on our website at www.ani.com.au

A copy can be requested by telephoning + 61 8 7078 4575

CORPORATE DIRECTORY

70

INDEX OF REQUIREMENTS

This list of requirements has been prepared in accordance with Resource Management Guide No. 137, Annual report for Commonwealth Companies published by the Department of Finance (Public Management Reform Agenda group) in May 2017.

Description Page(s)

(a) the purposes of the company as included in the company’s corporate plan for the period; Page 2

(b) the names of the persons holding the position of responsible Minister or responsible Ministers during the period, and the titles of those responsible Ministers;

Page 2, 10

(c) any directions given to the entity by a Minister under the company’s constitution, an Act or an instrument during the period;

Page 10

(d) any government policy orders that applied in relation to the company during the period under section 93 of the Act;

Page 10

(e) if, during the period, the company has not complied with a direction or order referred to in paragraph (c) or (d) – particulars of the non compliance;

N/A

(f) information on each director of the company during the period, including: (i) the name of the director; and (ii) the qualifications of the director; and (iii) the experience of the director; and (iv) the number of meetings of the board of the company attended by the director during the period; and (v) whether the director is an executive director or non executive director;

Page 14

(g) an outline of the organisational structure of the company (including any subsidiaries of the company)

Page 4

(h) an outline of the location (whether or not in Australia) of major activities or facilities of the company

Page 4

(i) information in relation to the main corporate governance practices used by the company during the period

Page 10

(j) the decision making process undertaken by the directors of the company for making a decision if: (i) the decision is to approve the company paying for a good or service from a

Commonwealth entity or a company, or providing a grant to a Commonwealth entity or a company; and

(ii) the company, and the Commonwealth entity or the company, are related entities; and

(iii) the value of the transaction, or if there is more than one transaction, the aggregate value of those transactions, is more than $10,000 (GST inclusive);

Page 10


(k) if the annual report includes information under paragraph (j): (i) if there is only one transaction—the value of the transaction; and (ii) if there is more than one transaction—the number of transactions and the

aggregate of value of the transactions;

Page 10

(l) any significant activities and changes that affected the operations or structure of the company during the period

Page 24

(m) particulars of judicial decisions or decisions of administrative tribunals made during the period that have had, or may have, a significant effect on the operations of the company

Page 10

(n) particulars of any report on the company given during the period by: (i) the Auditor General; or (ii) a Committee of either House, or of both Houses, of the Parliament; or (iii) the Commonwealth Ombudsman; or (iv) the Office of the Australian Information Commissioner; or (v) the Australian Securities and Investments Commission

Page 10

(o) if the directors have been unable to obtain information from a subsidiary of the company that is required to be included in the annual report – an explanation of the information that was not obtained and the effect of not having the information on the annual report

Page 4

(p) an index identifying where the requirements of this section and section 28F (if applicable) are to be found.

Page 70

Changes in financial conditions and community service obligations(a) an assessment of:

(i) significant changes in the company’s overall financial structure and financial condition during the reporting period; and (ii) any events or risks that could cause financial information that is reported not to be

indicative of future operations or financial condition;(b) dividends paid or recommended in relation to the reporting period; (c) details of any community service obligations the government business enterprise has,

including: (i) an outline of actions the government business enterprise has taken to fulfil

those obligations; and (ii) an assessment of the cost of fulfilling those obligations.

Page 24

Information that is commercially prejudicialInformation may be excluded if the directors of the government business enterprise believe, on reasonable grounds, that the information is commercially sensitive and would be likely to result in unreasonable commercial prejudice to the government business enterprise. The annual report must state whether such information has been excluded.

Page 10

61 Veitch Road, Osborne SA 5017

T +61 8 8248 9600

E [email protected]

ani.com.au

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