2013 Subsidiary Financial Statements … · Corporations Act 1993 (the “Act”) and other relevant legislation issued pursuant to that Act. Significant changes in the state of affairs

As per the Queensland Treasury and Trade's Policy; ‘Company Financial Reporting in

the Queensland Public Sector’, the following financial statements relating to Ergon

Energy Corporation Limited’s subsidiaries have been provided for tabling in Parliament

with Ergon Energy’s Annual Stakeholder Report and the Annual Financial Statements

for Ergon Energy Corporation Limited and its Controlled Entities.

Ergon Energy Queensland Pty Ltd

Ergon Energy Telecommunications Pty Ltd

Ergon Energy Queensland Pty Ltd

ABN 11 121 177 802

Annual Financial Statements For the year ended 30 June 2013

Ergon Energy Queensland Pty Ltd Table of Contents For the year ended 30 June 2013

1

Annual financial statements Page

Directors' report 2

Statement of comprehensive income 5

Statement of financial position 6

Statement of changes in equity 7

Statement of cash flows 8

Notes to the financial statements

1. Significant accounting policies 9

2. Critical accounting estimates and judgements 18

3. Revenue and other income 19

4. Expenses 19

5. Taxation 20

6. Cash and cash equivalents 20

7. Trade and other receivables 21

8. Financial assets 22

9. Other assets 23

10. Property, plant and equipment 23

11. Intangible assets 24

12. Net deferred tax equivalent liability 24

13. Trade and other payables 25

14. Interest bearing liabilities 26

15. Provisions 26

16. Financial liabilities 27

17. Other liabilities 27

18. Share capital 27

19. Other owner’s contributions and retained earnings 27

20. Financial instruments and financial risk management 28

21. Commitments 36

22. Contingent assets and liabilities 36

23. Notes to statement of cash flows 37

24. Key management personnel disclosures 37

25. Related party transactions 38

26. Auditor’s remuneration 38

27. Events after reporting date 39

Directors' declaration 40

Independent auditor’s report 41

Auditor's independence declaration 43

Ergon Energy Queensland Pty Ltd Directors' report For the year ended 30 June 2013

2

The directors present their report together with the financial report of Ergon Energy Queensland Pty Ltd ("the Company") for the year ended 30 June 2013 and the auditor's report thereon.

Directors The names of the directors of the Company in office during or since the end of the financial year are as follows:

Ian McLeod (Chairman)

Justin Fitzgerald

John Hooper

Principal activities The principal activity of the Company during the financial year was non-contestable electricity retailing in regional Queensland.

Dividends A declaration was made by the directors on 17 June 2013 for 100% of total operating profit after income tax equivalent expense for the year to be paid to the parent entity.

Dividends of $58,760 thousand (2012: $56,319 thousand) have been provided for during the financial year.

Dividends for 2012 were paid on 31 December 2012. Dividends for 2013 were not paid during the financial year.

Operating and financial review The Company’s profit after income tax equivalent expense for the financial year was $85,170 thousand (2012: $56,319 thousand). This was $31,150 thousand favourable to budget primarily due to a strong performance in the environmental portfolio contributing $19,302 thousand and the impact of anticipated changes to the Long-term energy procurement (LEP) component of the Community Service Obligation Deed.

The financial statements are a general purpose financial report that have been prepared in accordance with Australian Accounting Standards and Interpretations, requirements of the Corporations Act 2001, provisions of the Government Owned Corporations Act 1993 (the “Act”) and other relevant legislation issued pursuant to that Act.

Significant changes in the state of affairs In May 2013, as part of an ongoing review of energy purchasing arrangements, the Queensland Government announced changes to the Company’s energy supply arrangements. From 2013/14, energy will be supplied predominantly through state-owned electricity generators, CS Energy and Stanwell. The new market-based wholesale energy procurement arrangements will be implemented for a term of up to four years from 2013/14. The new contracting arrangements will support energy purchasing price certainty for the retail load. This will build on the significant turnaround in trading results achieved over the past year through effort in the trading area’s front and middle office to understand our revenue and risk.

There have been no other significant changes in the state of affairs of the Company.

Events after reporting date There are no significant events after the reporting date.

Likely developments and future results The Company expects to continue its non-contestable electricity retailing in regional Queensland.

Industry Reviews

On 16 June 2013, the Queensland Government announced in-principle approval of a recommendation to establish a new holding company for Ergon Energy Corporation Limited and Energex Limited, as the two government-owned distributors. This change, and a range of other proposed reforms, are about addressing the rising electricity costs.

The reforms are part of a suite of recommendations to come from the Interdepartmental Committee on Electricity Reform. This committee was formed in mid-2012 to scrutinise cost pressures on electricity prices, network costs, electricity supply and retail competition.

Community Service Obligations

The Company is legally required to charge its retail customers in regional Queensland at notified prices. As a consequence, the tariff revenue collected is below the cost of supplying electricity. The Community Service Obligations and Energy Procurement Deed (CSO Deed) between the Company and the State of Queensland contains the details of Community Service Obligation (CSO) payments to be made by the State of Queensland to the Company. The CSO Deed has been extended to 30 June 2014. In accordance with the Interdepartmental Committee on Electricity Sector Reform May 2013 recommendations, the Company is negotiating with the State of Queensland to revise the CSO arrangements to the Company's retail business to replace the Long Term Energy Procurement Deed, and improve monitoring and reporting of CSO cost inputs.

Ergon Energy Queensland Pty Ltd Directors' report For the year ended 30 June 2013

3

Notwithstanding the current expiry date of the CSO Deed being one year from the end of the financial year, the terms contained in the CSO Deed and laws concerning CSO, management expects that the State of Queensland will continue to pay an appropriate CSO to the Company should notified prices continue to not reflect the costs and risks of supplying the electricity to its retail customers in regional Queensland. Accordingly, management expects that the Company will continue to operate a profitable business model into the future.

Environmental regulation and performance The Company's environmental obligations are regulated under State and Federal laws.

All environmental performance obligations are reported to the Operational Risk Committee and are, from time to time, subject to government agency, internal and external professional agency audits, as well as ongoing review to ensure compliance. No environmental breaches have been notified by any government agency during the period.

There have been no major non-conformances/incidents (defined in internal policy guidelines as Class 1 or 2) reported in the financial period. For further environmental performance information, refer to the Annual Stakeholder Report for Ergon Energy Corporation Limited, which is available on the website – www.ergon.com.au.

Indemnification and insurance of directors and officers During the period, a policy was held to insure all directors and officers of the Company against liabilities incurred in their capacity as director or officer. The provisions of this policy prohibit the disclosure of the nature of the liabilities and the amount of the premium paid. The Corporations Act 2001 does not require disclosure of this information in these circumstances.

Ergon Energy Corporation Limited (EECL) (the parent entity) indemnifies the directors of the Company. The indemnity relates to any liability (claim, action, suit, proceeding, investigation, inquiry, damage, loss, cost or expense) incurred by virtue of being a director of the Company, other than:

A liability owed to the Company;

A liability for a pecuniary penalty or compensation order under the Corporations Act 2001; and

A liability owed to someone other than the Company that did not arise out of conduct in good faith.

The parent entity also indemnifies each director against any legal costs incurred in respect of a liability incurred by virtue of being a director of the Company, other than for legal costs incurred in the following circumstances:

In defending or resisting proceedings in which the director could not be indemnified;

In defending or resisting criminal proceedings in which the director is found guilty; and

In defending or resisting proceedings brought by the Australian Securities and Investments Commission (ASIC) or a liquidator for a court order.

The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the company or any related body corporate against a liability incurred as such by an officer or auditor.

Auditor’s Independence Declaration The Auditor’s independence declaration is set out on page 43 and forms part of the Directors’ report for the period ended 30 June 2013.

Ergon Energy Queensland Pty Ltd Statement of comprehensive income For the year ended 30 June 2013

The statement of comprehensive income is to be read in conjunction with the notes to the financial statements. 5

Note

2013

$'000

2012

$'000

Revenue 3 2,255,890 2,008,512

Other income 3 37,727 -

Network charges / electricity purchases 4 (2,002,380) (1,773,109)

Materials and services (49,015) (52,587)

Depreciation, amortisation and impairments 4 (11,511) (9,339)

Finance costs 4 (3,354) (2,853)

Environmental certificate compliance expenses (95,020) (77,795)

Other expenses (11,185) (12,919)

Profit before income tax equivalent expense 121,152 79,910

Income tax equivalent expense 5 (35,982) (23,591)

Profit after income tax equivalent expense 85,170 56,319

Other comprehensive income - -

Total comprehensive income 85,170 56,319

Profit attributable to:

Shareholders of the Company 85,170 56,319

Total comprehensive income attributable to:

Shareholders of the Company 85,170 56,319

Ergon Energy Queensland Pty Ltd Statement of financial position As at 30 June 2013

The statement of financial position is to be read in conjunction with the notes to the financial statements. 6

Note

2013

$'000

2012

$'000

CURRENT ASSETS

Cash and cash equivalents 6 105,814 137,456

Trade and other receivables 7 409,910 291,346

Financial assets 8 92,768 77,383

Other assets 9 39,958 40,873

Total current assets 648,450 547,058

NON-CURRENT ASSETS

Property, plant and equipment 10 196 224

Intangible assets 11 4,703 6,746

Total non-current assets 4,899 6,970

TOTAL ASSETS 653,349 554,028

CURRENT LIABILITIES

Trade and other payables 13 342,762 283,061

Interest bearing liabilities 14 23,900 22,331

Provisions 15 397 663

Financial liabilities 16 70,416 72,668

Other liabilities 17 32,537 31,762

Total current liabilities 470,012 410,485

NON-CURRENT LIABILITIES

Provisions 15 2,806 2,664

Net deferred tax equivalent liabilities 12(c) 46,992 33,750

Total non-current liabilities 49,798 36,414

TOTAL LIABILITIES 519,810 446,899

NET ASSETS 133,539 107,129

EQUITY

Share capital 18 - -

Other owner’s contributions 19(a) 94,358 94,358

Retained earnings 19(b) 39,181 12,771

TOTAL EQUITY 133,539 107,129

Ergon Energy Queensland Pty Ltd Statement of changes in equity For the year ended 30 June 2013

The statement of changes in equity is to be read in conjunction with the notes to the financial statements. 7

Share capital

$'000

Other owner’s contributions

$'000

Retained earnings

$'000

Total equity

$'000

Changes in equity for 2012

Balance at 1 July 2011 - 94,358 12,771 107,129

Dividends - - (56,319) (56,319)

Total comprehensive income for the financial year - - 56,319 56,319

Balance at 30 June 2012 - 94,358 12,771 107,129


Dividends - - (58,760) (58,760)

Total comprehensive income for the financial year - - 85,170 85,170

Balance at 30 June 2013 - 94,358 39,181 133,539

Ergon Energy Queensland Pty Ltd Statement of cash flows For the year ended 30 June 2013

The statement of cash flows is to be read in conjunction with the notes to the financial statements. 8

Note

2013

$'000

2012

$'000

Cash flows from operating activities

Receipts from customers 1,773,137 1,633,288

Receipts for customer service obligations 573,450 476,451

Payments to suppliers (2,328,211) (1,979,483)

Interest received 8,814 8,998

Interest paid (3,620) (2,778)

Net cash flows from operating activities 23 23,570 136,476

Cash flows from investing activities

Payments for property, plant and equipment (2) (147)

Payments for intangible assets (461) (1,643)

Net cash flows from investing activities (463) (1,790)

Cash flows from financing activities

Proceeds from repayable deposits 1,570 2,518

Dividends paid (56,319) (68,143)

Net cash flows from financing activities (54,749) (65,625)

Net increase/(decrease) in cash and cash equivalents (31,642) 69,061

Cash and cash equivalents at beginning of the financial year 137,456 68,395

Cash and cash equivalents at the end of the financial year 6(a) 105,814 137,456

Ergon Energy Queensland Pty Ltd Notes to the financial statements For the year ended 30 June 2013

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NOTE 1: Significant accounting policies

Ergon Energy Queensland Pty Ltd (the Company) is a proprietary company limited by shares and is a company domiciled in Australia.

The Company’s registered office and its principal place of business are as follows:

Registered Office Principal Place of Business

22 Walker Street 34-46 Dalrymple Road

Townsville Queensland 4810 Garbutt Queensland 4814

The company is a for-profit entity.

The principal activity of the Company during the financial period was electricity retailing in Queensland.

The financial statements were authorised for issue by the directors on 26 August 2013.

(a) Statement of compliance

The financial statements are a general purpose financial report that have been prepared in accordance with Australian Accounting Standards and Interpretations, requirements of the Corporations Act 2001, provisions of the Government Owned Corporations Act 1993 (the “Act”), and provisions of the Corporations Regulations 2001, and other relevant legislation issued pursuant to the Act.

(b) Basis of preparation

The financial statements are presented in Australian dollars. The Company is of a kind referred to in Class Order 98/100 issued by ASIC relating to the ''rounding off'' of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars.

Historical cost convention

The financial statements are prepared on the historical cost basis, except for the valuation of certain financial assets and liabilities at fair value through profit or loss.

Critical accounting estimates

The preparation of financial statements in accordance with Australian Accounting Standards 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 2 to the financial statements.

Consistent accounting policies

The accounting policies have been consistently applied to all periods presented, unless otherwise stated. No material reclassifications to comparative information have been made to the current year’s financial statement presentation.

Early adoption of standards

The Company has not elected to adopt any standards or interpretations in advance of their effective dates.

Going concern basis

The financial statements are prepared on a going concern basis, which assumes that the Company will continue to operate under its existing profitable business model.

The Company is legally required to charge its retail customers in regional Queensland at notified prices. Consequently, the tariff revenue collected is below the cost of supplying electricity. The Community Service Obligations and Energy Procurement Deed (CSO Deed) between the Company and the State of Queensland confirms the details of Community Service Obligation (CSO) payments to be made by the State of Queensland to the Company. The CSO Deed has been extended to 30 June 2014. In accordance with the Interdepartmental Committee on Electricity Sector Reform May 2013 recommendations, the Company is negotiating with the State of Queensland to revise the CSO arrangements to the Company’s retail business to replace the Long Term Energy Procurement Deed, and improve monitoring and reporting of CSO cost inputs.


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NOTE 1: Significant accounting policies (continued)

Notwithstanding the current expiry date of the CSO Deed being one year from the end of the financial year and the expected replacement of the CSO Deed being within one year, the terms contained in the CSO Deed and laws concerning CSO, management expects that the State of Queensland will continue to pay an appropriate CSO to the Company should notified prices continue to not reflect the costs and risks of supplying the electricity to its retail customers in regional Queensland. Accordingly, management expects that the Company will continue to operate a profitable business model into the future.

(c) Foreign currency translation

Foreign currency transactions of the Company are translated into Australian dollars, being the functional currency and presentation currency of the Company, using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.

(d) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and is net of returns, trade allowances and duties and taxes paid. Revenue is recognised for the major business activities as follows:

(i) Electricity sales revenue

Revenue recognised is the aggregate of invoices raised, together with the estimated metered but not invoiced energy consumption.

(ii) Community service obligations

The CSO is recognised as Revenue when the underlying service obligations are performed. The CSO is calculated as the allowable costs to Ergon Energy of supplying electricity to its customers (as specified in the Deed and CSO claim process) less tariff revenue. The allowable costs of supplying electricity include the costs of the long-term energy procurement arrangement (LEP) which is accounted for as a derivative financial instrument (Note 1(u)).

(e) Expenses

(i) Services

The Company is operated by employees of the parent entity, Ergon Energy Corporation Limited and incurs a service charge for the services provided to the Company.

(ii) Cost of sales

Cost of sales is the accumulation of costs associated with network charges, electricity purchases and any other costs associated with the sale of electricity.

(iii) Operating lease payments

Payments made under operating leases are recognised in the statement of comprehensive income on a straight-line basis over the term of the lease. Lease incentives received are recognised in the statement of comprehensive income as an integral part of the total lease expense.

(iv) Finance lease payments

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term to produce a constant periodic rate of interest on the remaining balance of the liability. The interest expense component of finance lease payments is recognised in the statement of comprehensive income using the effective interest rate method.

(v) Finance and related costs

Finance costs are recognised as expenses in the period in which they are incurred except where borrowings have been taken to fund a qualifying constructed asset, in which case the expense is capitalised into the carrying value of the asset.


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(f) Income tax

(i) Tax equivalents

The Company is part of a tax-consolidated group that is subject to the National Tax Equivalents Regime (NTER) in relation to income tax. The regime is administered by the Australian Taxation Office (ATO). The NTER broadly utilises the provisions of the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 and associated legislation, the NTER Manual as well as Rulings and other pronouncements by the ATO, in order to determine the tax payable by Ergon Energy Corporation Limited (the head entity) in respect of the Company’s operations. (refer Note 5).

The Company is not required to maintain a franking account. (ii) Current tax equivalents payable

Consistent with the requirements of Australian Accounting Standards Board (AASB) Interpretation 1052 Disaggregated Disclosures, as the Company is a member of a tax-consolidated group, the current tax equivalents payable/(receivable) is recognised in the accounts of the head entity, Ergon Energy Corporation Limited. The balance assumed by the head entity is recognised as an amount payable/(receivable) to the Company in conjunction with the tax funding arrangement (refer below).

Notional current tax equivalents is the expected notional tax equivalents payable on the company’s notional taxable income for the period using tax rates enacted or substantively enacted at the end of the financial period and any adjustment to notional tax equivalents payable in respect of previous years.

Notional current tax equivalents payable is recognised as current tax expense except to the extent that it relates to items recognised directly in equity, in which case that portion is recognised directly in equity.

(iii) Deferred tax equivalent assets and liabilities

Deferred tax equivalent assets and liabilities are deductible or taxable temporary differences recognised using tax rates enacted or substantively enacted at the reporting date. Temporary differences are differences between the carrying amount of an asset and liability for financial reporting purposes and their tax bases. Tax bases are determined based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities.

Deferred tax is not recognised for the following temporary differences:

The initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit;

Differences relating to investments in subsidiaries and jointly controlled entities to the extent that the Group is able to control the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

Differences arising on the initial recognition of goodwill.

Deferred tax equivalent assets are recognised only to the extent that it is probable that future taxable amounts will be available against which the asset can be utilised.

Movements in deferred tax equivalent assets and liabilities balances are recognised as deferred tax equivalent expenses, except to the extent they relate to:

Items recognised directly in equity, in which case that portion is recognised in equity; and

Acquisitions of entities or operations, in which case that portion is recognised in goodwill.

Deferred tax equivalent assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities, which they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

(iv) Income tax equivalent expense

Income tax equivalent expense for the reporting period consists of current tax expense and deferred tax expense.

(v) Tax consolidation

The Company is a wholly-owned subsidiary in a tax-consolidated group with Ergon Energy Corporation Limited as the head entity. The implementation date of the tax consolidation system for the tax-consolidated group was 1 July 2002.

Current tax expense/income, deferred tax equivalent liabilities and deferred tax equivalent assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the group allocation approach based on the allocation specified in the tax funding agreement.


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The tax funding agreement requires a notional current and deferred tax equivalents calculation for each entity as if it were a taxpayer in its own right, except that distributions made and received arising within the tax-consolidated group are treated as having no tax consequences.

Any notional current tax equivalents liabilities (or assets) and deferred tax equivalent assets arising from unused tax losses and tax credits of the Company assumed by the head entity of the tax-consolidated group are recognised as amounts payable (receivable) to the Company in conjunction with any tax funding arrangement amounts (refer below). Any differences between these amounts is recognised as a contribution from (or distribution to) equity participants.

The Company recognises notional deferred tax equivalent assets arising from unused tax losses and tax credits to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised. The Company assesses the recovery of its unused tax losses and tax credits only in the period in which they arise and before assumption by the head entity, in accordance with AASB 112 Income Taxes applied in the context of the tax-consolidated group.

Any subsequent period adjustments to deferred tax equivalent assets arising from unused tax losses and tax credits as a result of revised assessments of the probability of recoverability is recognised by the head entity only.

(vi) Nature of tax funding arrangement and tax sharing agreements

The Company, in conjunction with other members of the tax-consolidated group, has entered into a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the notional current tax equivalents liability (asset) assumed by the head entity and any notional tax loss or tax credit deferred tax asset assumed by the head entity, resulting in the Company recognising an inter-entity payable (receivable) equal in amount to the notional tax equivalents liability (asset) assumed. The inter-entity payable (receivable) is at call.

Contributions to fund the notional current tax equivalents liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax equivalents liabilities to the relevant tax authorities.

The Company, in conjunction with other members of the tax-consolidated group, has also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax equivalents liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement, as payment of any amounts under the tax sharing agreement is considered remote.

(g) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and investments in money market instruments. They are highly liquid, subject to an insignificant risk of change in value and have a maturity of three months or less at date of acquisition. Bank overdrafts in the form of working capital facilities are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

(h) Trade and other receivables

Trade and other receivables are recognised when the Company has a legal right to receive cash, cash equivalent or economic benefit.

Trade and other receivables are measured at amortised cost less provision for impaired receivables.

The recoverability of trade and other receivables is reviewed on an ongoing basis. A provision for impairment is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables and hence the receivables are impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments are considered indicators that the trade receivable is impaired. The recoverable amount is discounted at the effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of the discounting is immaterial. The amount of the provision is recognised in the statement of comprehensive income.

(i) Energy certificates Renewable energy certificates are classified into two certificate types, large-scale generation certificates (LGCs) and small-scale technology certificates (STCs).

LGCs held for trading purposes are measured at fair value at the end of the financial year, adjusted for known market forces with changes in fair value recognised in the statement of comprehensive income. Energy certificates are disclosed in the financial statements as other assets. LGCs are valued using a combination of data sources including trades executed by the Company, ICAP, TFS and other market intelligence. The Company has sufficient market information to reliably measure the value of these certificates in accordance with the requirements of Australian Accounting Standards.


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LGCs used solely to satisfy retail sales commitments and surrender obligations are measured at cost. They are disclosed in the financial statements as other assets.

STCs are measured at fair value at the end of the financial year, with changes in fair value recognised in the income statement. STCs are disclosed in the financial statements as other assets. STCs are valued at the market price on the measurement date.

Gas electricity certificates (GECs) on hand (including forward purchase agreements) are acquired for the Company’s acquittal purposes and are measured at cost. They are disclosed in the financial statements as other assets.

(j) Property, plant and equipment

(i) Recognition and measurement

Property, plant and equipment is measured at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of these items.

(ii) Depreciation

Depreciation is calculated on the straight line basis by reference to the useful life and residual value of each item of property, plant and equipment. The expected useful lives of plant and equipment vary from 3 to 7 years. An assessment of useful lives is performed annually.

(iii) Acquisition of assets

The purchase method of accounting is used for all acquisitions of assets. Cost is measured as the fair value of the assets given up or liabilities undertaken at the date of the acquisition plus incidental costs directly attributable to the acquisition.

(iv)Disposal of items of property, plant and equipment

The gains and losses on disposal of items of property, plant and equipment are determined by comparing the proceeds of disposals with the carrying amounts of the items. The net gains and losses on disposals are included in the income statement.

(k) Intangible assets

(i) Internally generated assets including, expenditure on research and development

Internally generated intangible assets are measured at historical cost less accumulated amortisation and accumulated impairment losses. All costs directly attributable to the creation of the asset from the point when it first meets the recognition criteria are capitalised into the value of the asset.

Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge or understanding, is recognised in the statement of comprehensive income when incurred.

Expenditure on development activities, whereby research findings are applied to a plan or design for the production of a new or substantially improved product and process, is capitalised if the product or process is technically and commercially feasible, the Company has sufficient resources to complete development and it can measure reliably the expenditure attributable to the intangible asset during its development.

(ii) Software

Software is measured at historical cost less accumulated amortisation and accumulated impairment losses.

(iii) Amortisation

The cost of an intangible asset is amortised on a straight-line basis over the estimated useful life of the asset unless such assets have an indefinite useful life. The estimated useful lives vary from 3 to 10 years.

(l) Impairment of assets

Assets that have an indefinite useful life are not subject to depreciation or amortisation and are tested annually for impairment or more frequently, if events or changes in circumstances indicate that the assets may be impaired.

All assets which are depreciated or amortised are reviewed for events or changes in circumstances that may indicate that the carrying amount may not be recoverable. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).


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Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimated future cash flows have not been adjusted.

An impairment loss is recognised for the amount by which the carrying amount of the asset (or cash generating unit) exceeds its recoverable amount. An impairment loss is recognised immediately in the statement of comprehensive income. When an impairment loss subsequently reverses, the carrying amount of the asset (cash generating unit) is increased to the revised estimate of the recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the statement of comprehensive income, unless the relevant asset is carried at fair value, in which case the reversal is treated as a revaluation increase.

(m) Non-current assets held for sale and discontinued operations

Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition.

Non-current assets held for sale are stated at the lower of carrying amount and fair value less costs to sell. An impairment loss is recognised for the write-down of an asset to fair value less costs to sell.

An operation is classified as a discontinued operation when it has been disposed of or meets the criteria to be classified as held for sale and it represents a major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively for resale.

(n) Trade and other payables

(i) Trade and other payables

Trade and other payables are recognised when the Company has a legal obligation to pay cash. Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost.

(ii) Dividends payable

A liability for dividends payable is recognised in the reporting period in which the dividends are declared for the entire undistributed amount.

(o) Borrowings

Borrowings are initially recognised at fair value net of transaction costs incurred. Interest-bearing borrowings are subsequently measured on an amortised cost basis with any difference between cost and redemption value being recognised in the statement of comprehensive income over the period of the borrowings on an effective interest basis.

(p) Provisions

Provisions are recognised when there is a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. Where material the increase in the provision due to the passage of time is recognised as interest expense.

(i) Security deposit interest

A provision for security deposit interest is created for interest owed by the Company on the deposits and is calculated based on the balance of deposits held at the end of the reporting period using the interest rate set by State Government Legislation.

(ii) Onerous contracts

A provision for an onerous contract is recognised when the expected benefits to be derived from a contract are lower than the unavoidable costs of meeting the obligations under the contract.

(q) Share capital

Ordinary shares are classified as equity.


15


(r) Lease commitments

(i) Operating leases

Leases in which substantially all of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease unless an alternative basis is more representative of the time pattern of benefits to be obtained from the leased property.

(ii) Finance leases

Leases in which substantially all of the risks and rewards of ownership are transferred to the lessee are classified as finance leases. A finance lease asset and a finance lease liability are recorded on the statement of financial position. The lease asset and the lease liability are established at the fair value of the asset or, if lower, at the present value of minimum lease payments. Lease payments are allocated between the finance charge and the reduction of the outstanding liability over the life of the lease.

(iii) Lease incentives

Where the Company is a lessee under an operating lease, the aggregate benefit of any incentive provided by the lessor for a new or renewed lease is recognised as an adjustment to rental expense over the term of the lease on a straight-line basis, unless another systematic basis is more representative of the time pattern of benefit from the use of the leased asset.

(s) Contingent assets and liabilities

Contingent assets are not recognised in the financial statements. Other than when required on acquisition of a business, contingent liabilities are not recognised in the financial statements. They are however, disclosed in the notes to the financial statements, where appropriate.

(t) Government grants

Government grants are recognised at their fair value when there is reasonable assurance that the grant will be received and the Company will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the statement of comprehensive income over the period necessary to match the grants with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the statement of comprehensive income on a straight-line basis over the expected lives of the related assets.

(u) Derivative financial instruments - Fair value accounting through the profit and loss

Derivatives are recognised at fair value at the date that a derivative contract is entered into (trade date) and is subsequently measured at fair value at each reporting date. A positive revaluation amount is reported as an asset and a negative revaluation amount is reported as a liability. The resulting gain or loss is recognised in the statement of comprehensive income immediately.

The following transactions are classified as derivative financial instruments and measured at fair value through the profit and loss.

(i) Derivative financial instruments held or issued for hedging franchise load

Derivative financial instruments held or issued for hedging franchise load are recorded at their fair value. The contracts are valued using a combination of data sources including current trades executed by the Company, the SFE, ICAP, TFS and other market intelligence. The Company trades frequently in these instruments and has sufficient market information to reliably measure the value of these contracts in accordance with the requirements of Australian Accounting Standards.

(ii) Power purchase agreements

Power purchase agreements (PPAs) are agreements for the sale and purchase of the energy exported from a generator and of LGCs. PPAs held for trading purposes represent derivative financial instruments that are measured at fair value through the profit and loss.

PPAs are valued using a combination of data sources including trades executed by the Company, the SFE, ICAP, TFS and other market intelligence. The Company has sufficient market information to reliably measure the value of these agreements in accordance with the requirements of Australian Accounting Standards.


16


(iii) Long-term Energy Procurement Agreement (LEP)

The LEP Agreement is a component of the CSO Deed. Its purpose relates to the management of the risk exposure from electricity price volatility experienced by the Company on franchise load. The counterparty to the CSO Deed is the State of Queensland and the CSO Deed was initially due to expire on 31 December 2007. Since this date, the Company has been maintaining the existing terms based on a formal exchange of letters with the Queensland Government agreeing to the extension of the Deed, including the framework already established as part of the existing LEP Agreement. The LEP Agreement consists of a tiered pricing structure with a cap and floor provision. The LEP Agreement represents a derivative financial instrument that is measured at fair value through the profit and loss.

Fair value is determined by using a combination of data sources including the Deed, trades executed by the Company, the SFE, ICAP, TFS and other market intelligence.

(iv) Embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not measured at fair value with changes in fair value recognised in profit or loss. Where the embedded derivative cannot be measured separately from the host contract, the entire contract is measured at fair value through profit and loss.

(v) Power purchase agreements

PPAs that are entered into for the Company’s own use are not considered financial instruments and are therefore accrual accounted.

(w) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the ATO. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position for the Company. This is in accordance with GST grouping provisions of A New Tax System (Goods and Services Tax) Act 1999.

Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows, arising from investing and financing activities, which are recoverable from, or payable to, the ATO, are classified as operating cash flows.

Commitments are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(x) Other owner’s contribution

Where assets and liabilities are transferred between entities of the wholly-owned group, or between State of Queensland controlled entities, under the directive of the ultimate Shareholder (being the State of Queensland) and the consideration paid is not equal to the value recognised on the transferred assets and liabilities, the difference is recognised as an other owner’s contribution.

(y) Application of new Accounting Standards and Interpretations

The AASB has published certain new accounting standards and interpretations in the current year. The Company has adopted all of the new and revised standards and interpretations that are relevant to its operations and effective for the current reporting period. The adoption of these new and revised Standards and Interpretations does not have a material impact on the result or disclosure of the Company in the current reporting period.

The AASB has also published certain new accounting standards and interpretations that are not mandatory for 30 June 2013 reporting periods and which the Company has not early adopted. The Company’s assessment of the initial impact of the following Standards and Interpretations on its financial report is outlined below.

(i) AASB 2012-2 Disclosures – Offsetting Financial Assets and Financial liabilities and AASB 2012-3 Offsetting Financial Assets and Financial Liabilities.

AASB 2012-2 and AASB 2012-3 were both approved 29 June 2012, effective for annual reporting periods beginning on or after 1 January 2013 and 1 January 2014 respectively. This amendment will require additional disclosure about the rights of offset and related arrangements for financial instruments under an enforceable master netting agreement or similar arrangement . Additional disclosure requirements will be required for the Company’s financial instruments.


17


(ii) AASB 13 Fair Value measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13

AASB 13 replaces the guidance on fair value measurement in existing AASB accounting literature with a single standard. AASB 13 defines fair value, provides guidance on how to determine fair value and required disclosures about fair value measures. However, AASB 13 does not change the requirements regarding which items should be measured or disclosed at fair value. Under AASB 13, the Company will be required to incorporate the credit risk of trading counterparties when valuing derivate instruments

The Company’s assessment of the initial impact of the following standards and interpretations either do not apply to the Company or are not expected to have an impact on the financial report of the Company:

Standard / Interpretation Effective for annual reporting periods beginning on or after

Expected to be initially applied to the financial year ending

AASB 9 Financial Instruments

AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9

AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)

AASB 2012-6 Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosures

1 January 2015 30 June 2015

AASB 10 Consolidated Financial Statements

AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements standards


AASB 11 Joint Arrangements 1 January 2013 30 June 2014

AASB 12 Disclosures of Interests in Other Entities 1 January 2013 30 June 2014

AASB 127 Separate Financial Statements 1 January 2013 30 June 2014

AASB 128 Investments in Associates and Joint Ventures 1 January 2013 30 June 2014

AASB 119 Employee Benefits (2011)

AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (2011)


AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements

1 July 2013 30 June 2014

AASB 2012-4 Amendments to Australian Accounting Standards – Government Loans


AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle



18

NOTE 2: Critical accounting estimates and judgements

Estimates and judgements 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.

Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period or in the period of revision and future periods if the revision affects both current and future periods.

(a) Critical accounting estimates and assumptions

The Company makes estimates and assumptions concerning the future. The resulting 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 within the next financial year are discussed below.

(i) Electricity financial instruments measured at fair value

The Company enters into electricity financial instruments. The Company determines the fair value of these financial instruments, which includes swaps, options, swaptions, PPAs and long-term energy procurement using market based valuation methods as outlined in Note 1. It has taken into account the conditions existing at balance date and has used its judgement in the following areas:

Future price and volume estimation using in-house and off-the-shelf valuation models; and

Discounting for time value of money; and

Option volatility.

(ii) Energy certificates

Like financial instruments measured at fair value, energy certificates held for trading are measured at fair value. The Company determines the fair value of these certificates using market based valuation methods as outlined in Note 1. It has taken into account the conditions existing at balance date and has used its judgement in determining the fair value.

LGCs and GECs used solely to satisfy retail sales commitments and surrender obligations are measured at cost.

(iii) Unbilled energy Sales

Unbilled energy sales are accrued monthly. The previous 14 months billed consumption data is used to calculate a weighted daily average which is then multiplied by the unbilled days left in the period and seasonally adjusted.

(b) Critical judgements in applying the Company’s accounting policy

The Company has made critical judgements in applying the Company’s accounting policies. Listed below are the areas where critical judgement has been applied.

(i) Impairment of trade receivables

The Company recognises a provision for impaired receivables in accordance with the requirements with AASB 139 Financial Instruments: Recognition and Measurement. In some cases, due to the high volume, low value of such trade receivables, management has exercised judgement in determining the provision for impaired trade receivables based on evidence of significant financial difficulties of the debtor and probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency. In addition to these indicators, the Company considers evidence of the trends of bad debts experienced within certain levels of aged receivables.


19

2013

$'000

2012

$'000 NOTE 3: Revenue and other income (a) Revenue

Sales revenue

Sales revenue – parent entity 417 453

Sales revenue 1,646,563 1,580,390

Other revenue

Community service obligations 596,413 415,218

Interest received 8,814 8,998

Other operating revenue 3,683 3,453

Total revenue 2,255,890 2,008,512

(b) Other income

Gain on disposal of property, plant and equipment - -

Fair value gains on financial instruments at fair value through profit and loss 37,219 -

Fair value gains on energy certificates at fair value through profit and loss 508 -

Total other income 37,727 -

NOTE 4: Expenses

Profit before income tax equivalent expense includes the following specific expenses:

Network charges / electricity purchases

Cost of sales 594,026 469,178

Cost of sales – parent entity 1,408,354 1,303,931

2,002,380 1,773,109

Finance costs

Interest paid or payable 3,354 2,853

Depreciation

Plant and equipment 31 26

Amortisation

Intangible assets 2,502 1,412

Impairment

Trade receivables 9,307 8,232

Recovery of impairments on trade receivables (329) (331)

Total depreciation, amortisation and impairment 11,511 9,339

Fair value losses

Fair value losses on financial instruments measured at fair value through profit and loss

- 3,377

Fair value losses on energy certificates measured at fair value through profit and loss

- 1,696


20

2013

$'000

2012

$'000 NOTE 5: Taxation

(a) Income tax equivalent expense

Current tax expense 23,475 26,596

Deferred tax expense 12,507 (3,005)

Income tax equivalent expense 35,982 23,591

Deferred income tax expense included in income tax expense comprises:

Decrease/(increase) in deferred tax assets 637 21,905

Increase/(decrease) in deferred tax liabilities 11,870 (24,910)

Income tax expense attributable to profit from continuing operations 12,507 (3,005)

(b) Numerical reconciliation of income tax equivalent expense/(benefit) to prima facie notional tax equivalents payable

Net profit before income tax equivalent expense 121,152 79,910

Prima facie income tax equivalent expense on operating profit at 30% (2012: 30%) 36,346 23,973

Decrease in income tax equivalent expense:

Depreciation deductible for tax purposes only (407) (407)

Increase in income tax equivalent expense:

Non-deductible provisions 43 25

Income tax equivalent expense 35,982 23,591

NOTE 6: Cash and cash equivalents

Cash at bank and on hand 20,252 48,749

Short term deposits 85,562 88,707

Total cash and cash equivalents 105,814 137,456

(a) Reconciliation to cash at the end of the financial year in the statement of cash flows The above figures are reconciled to cash and cash equivalents at the end of the financial year as shown in the statement of cash flows:

Cash and cash equivalents 105,814 137,456

Total cash and cash equivalents 105,814 137,456


21

2013

$'000

2012

$'000 NOTE 7: Trade and other receivables

Current

Trade receivables and unread meters 296,952 254,941

Provision for impaired receivables (11,490) (8,763)

285,462 246,178

Community service obligations 115,448 36,350

Hedge and other receivables 9,000 8,818

Total current trade and other receivables 409,910 291,346

The fair value of all receivables amounts is consistent with the carrying value.

(a) Impaired trade receivables

An allowance has been made for estimated irrecoverable trade receivable amounts arising from past sales determined by reference to past default experience and other relevant evidence such as significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy or financial reorganisation and payment default or delinquency.

Ageing of impaired receivables

Gross

2013

$'000

Impairment

2013

$'000

Gross

2012

$'000

Impairment

2012

$'000

Less than one month overdue 23,657 887 20,656 805

One to two months overdue 7,359 1,472 5,405 1,081

Two to three months overdue 3,442 1,205 2,203 771

Over three months overdue 8,463 7,926 6,548 6,106

42,921 11,490 34,812 8,763

Movements in the provision for impaired of receivables are as follows:

2013

$'000

2012

$'000

Carrying amount at the beginning of the financial year 8,763 9,066

Provision for impairment recognised during the financial year 9,307 8,231

Receivables written off during the financial year as uncollectible (6,580) (8,534)

Carrying amount at the end of the financial year 11,490 8,763

The recognition and reversal of the provision for impaired receivables are included in “Depreciation, amortisation and impairments” in the statement of comprehensive income. Amounts charged to the provision are generally written off when there is no expectation of recovery.


22

NOTE 7: Trade and other receivables (continued)

(b) Past due but not impaired

As at 30 June 2013, trade receivables of $nil (2012: nil) of the Company were past due but not impaired.

The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on the credit history of these other classes, it is expected that these amounts will be received when due.

(c) Fair value and credit risk

Components of the community service obligation receivable have been discounted to reflect the time value of money.

Due to the short-term nature of the remaining current receivables, their carrying amount approximates their fair value.

Refer to Note 20 for more information on the risk management policy of the Company and the credit quality of the Company’s trade receivables.

2013

$'000

2012

$'000

NOTE 8: Financial assets

Current

At fair value through profit and loss

Electricity hedges 86,271 19,461

Long-term energy procurement asset - 49,332

Power purchase agreements held for trading 6,497 8,590

Total current financial assets 92,768 77,383

Changes in the fair values of financial instruments at fair value through profit and loss are recorded in other income or other expense in the statement of comprehensive income.


23

2013

$'000

2012

$'000 NOTE 9: Other assets

Current

Energy certificates 39,958 40,873

Total current other assets 39,958 40,873

NOTE 10: Property plant and equipment

Power stations

At cost 9,239 9,239

Less: accumulated depreciation and impairment (9,219) (9,219)

20 20

Other plant and equipment

At cost 351 349

Less: accumulated depreciation and impairment (175) (145)

176 204

Total property, plant and equipment 196 224

Reconciliations

Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:

Power stations

Cost at the beginning of the financial year 9,239 9,239

Accumulated depreciation and impairment at the beginning of the financial year (9,219) (9,219)

Carrying amount at the beginning of the financial year 20 20

Carrying amount at the end of the financial year 20 20

Other plant and equipment

Cost at the beginning of the financial year 349 624

Accumulated depreciation and impairment at the beginning of the financial year (145) (541)


Additions 3 147

Depreciation expense (31) (26)


Total property, plant and equipment 196 224


24

2013

$'000

2012

$'000

NOTE 11: Intangible assets

Software - at cost 11,023 9,358

Less: accumulated amortisation and impairment (7,169) (4,666)

3,854 4,692

Work in progress – at cost 849 2,054

Total intangible assets 4,703 6,746

Reconciliations

Software


Accumulated amortisation and impairment at the beginning of the financial year (4,666) (5,070)


Additions – internally developed 1,664 -

Amortisation expense (2,502) (1,412)


Work in Progress

Carrying amount at start of year 2,054 4,082

Transfer to intangible assets and plant and equipment (1,666) -

Expense projects not proceeding - (3,671)

Additions 461 1,643

Carrying amount at the end of the financial year 849 2,054


NOTE 12: Net deferred tax equivalent liability

(a) Deferred tax equivalent assets

The balance comprises temporary differences attributable to:

Amounts recognised in the statement of comprehensive income:

Provisions 13,194 12,238

Derivatives 20,404 21,801

Property, plant and equipment - 204

Other 138 765

Tax losses - -

Tax losses transferred to head entity of tax consolidated group - -

Deferred tax equivalent assets 33,736 35,008


25

2013

$'000

2012

$'000 NOTE 12: Net deferred tax equivalent liability (continued)

(b) Deferred tax equivalent liabilities

The balance comprises temporary differences attributable to:


Property, plant and equipment 454 429

Derivatives

Other

80,233

41

68,329

-

Deferred tax equivalent liabilities 80,728 68,758

(c) Net deferred tax equivalent liability

Deferred tax equivalent assets 33,736 35,008

Deferred tax equivalent liabilities (80,728) (68,758)

Net deferred tax equivalent liability (46,992) (33,750)

NOTE 13: Trade and other payables

Current

Trade payables 51,491 27,619

Dividends payable 58,760 56,319

Trade payables – parent entity 175,114 151,761

Hedge and other payables 57,397 47,362

Total current payables 342,762 283,061

Foreign exchange and interest rate risk Information about the Company’s exposure to foreign currency risk and interest rate risk is provided in Note 20.


26

2013

$'000

2012

$'000 NOTE 14: Interest bearing liabilities

Current

Unsecured liabilities

Customer security deposits 23,900 22,331

Total non-current interest bearing liabilities 23,900 22,331

Customer security deposits

Customer security deposits include security deposits received by the Company in relation to electricity supply to certain customers. Interest is paid on the deposits and credited to the customers’ accounts annually.

Interest rate and liquidity risk

The Company has a working capital facility available from the QTC for $300,000 thousand. The facility was not utilised at the end of the year. Further information about the Company’s exposure to interest rate and liquidity risk is provided in Note 20. NOTE 15: Provisions

Current

Security deposit interest 397 663

Total current provisions 397 663

Non-current

Provision for rehabilitation 2,806 2,664

Total non-current provisions 2,806 2,664

Reconciliations

Reconciliations of the carrying amounts of each class of provision are set out below:

Security deposit interest


Provision made during the financial year 477 799

Provisions used during the financial year (743) (724)


Provision for rehabilitation


Provision made during the financial year 142 83


(a) Security deposit interest

The Company holds security deposits in relation to electricity supplied to certain customers. Interest is paid on the deposits and credited to the customers annually. A provision has been created for the interest owed by the Company on the deposits and has been calculated based on the balance of deposits held at the end of the reporting period using the interest rate set by State Government Legislation.

(b) Rehabilitation

The rehabilitation provision relates to the costs set aside to rehabilitate the Barcaldine Power Station site and the Cheepie-Barcaldine Gas Pipeline.


27

2013

$'000

2012

$'000 NOTE 16: Financial liabilities

Current

At fair value through profit and loss

Electricity hedges 57,143 72,455

Power purchase agreements held for trading 240 213

Long-term energy procurement 13,033 -

Total current financial liabilities 70,416 72,668

Changes in fair values of financial liabilities at fair value through profit and loss are recorded in other income or other expenses in the statement of comprehensive income. NOTE 17: Other liabilities

Current

Environmental certificate acquittal 32,092 31,368

Unclaimed monies 445 394

Total current other liabilities 32,537 31,762 NOTE 18: Share capital

Share capital

100 fully paid ordinary shares - -

Total share capital - -

Issued capital totals $100 (2012: $100).

Movement in share capital

Balance at the beginning of the financial year - -

Balance at the end of the financial year - -

Fully paid ordinary shares carry one vote per share and carry the rights to dividends. The shares have no par value. NOTE 19: Other owner’s contributions and retained earnings

(a) Other owner’s contributions

Contributions by owner – retail industry restructure 91,855 91,855

– Queensland Power Trading Corporation restructure 2,503 2,503

94,358 94,358 There have been no movements in the current or prior financial years.


28

2013

$'000

2012

$'000 NOTE 19: Other owner’s contributions and retained earnings (continued)

(b) Retained earnings

Retained earnings 39,181 12,771

Movements:

Balance at the beginning of the financial year 12,771 12,771

Net profit for the financial year 85,170 56,319

Dividends (58,760) (56,319)

Balance at the end of the financial year 39,181 12,771

Dividends of $587,600 per share (2012: $563,190 per share) have been declared and provided for during the financial year. NOTE 20: Financial instruments and financial risk management

The Company has policies and procedures in place to manage the financial risks associated with its operating activities. Exposure to credit, interest rate, price, liquidity and currency risks arises in the normal course of the Company's business. Derivative financial instruments are used to hedge exposure to fluctuations in electricity prices.

Financial risk management

(a) Credit risk

Credit risk arises from the potential failure of counterparties to meet their obligations under the respective contracts at maturity.

The Company manages its credit risks by having established and maintained an appropriate credit review process. Furthermore, the Company minimises concentration of credit risk by undertaking transactions with a large number of retail customers and limiting credit to any individual customer.

Where it is considered appropriate, collateral in the form of a cash deposit is obtained from customers as a means of mitigating the risk of financial loss from defaults. At the end of the financial year, the Company held collateral of $ 23,900 thousand (2012: $22,331 thousand).

The Company manages its credit settlement risk associated with electricity market trading by maintaining a Wholesale Trading Credit Assessment Policy. Credit settlement risk is managed by maintaining approved counterparty credit limits. The values of counterparty credit limits are determined by reference to each counterparty’s credit rating, as determined by a recognised credit rating agency or, if the counterparty does not have a credit rating, by reference to the results of a detailed credit analysis. Where considered appropriate. The Company requires counterparties who have not been rated by a credit rating agency to provide appropriate letters of credit or bank guarantees. These letters of credit and bank guarantees reduced the Company’s exposure to credit risk by $6,500 thousand as at 30 June 2013 (30 June 2012:$3,840 thousand).

The Company trades with wholesale counterparties, principally large banks and other electricity corporations. In order to meet its liabilities under the Renewable Energy Target Scheme, the Company also trades with non-wholesale market entities. The Company takes no credit settlement risk with such entities and trades solely via spot transactions.

At the balance date, there were no significant concentrations of credit risk other than those disclosed below. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the statement of financial position.

Concentrations of credit risk that arise from derivative instruments exist for groups of counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Concentrations of credit risk on electricity derivatives are indicated in the following table by percentage of the total balance receivable from counterparties in the specified categories:

Counterparty classification

2013

2012

Queensland Government-owned electricity entities 67% 73%

Entities with a Standard & Poors credit rating A 2% -

Entities with a Standard & Poors credit rating AA 10% 16%

Entities with a Standard & Poors credit rating BBB 3% 6%

Other entities 18% 5%

The above credit risk exposure does not take into account the value of any collateral or security. Receivables due from major counterparties are monitored regularly.


29

NOTE 20: Financial instruments and financial risk management (continued)

(b) Interest rate risk

Floating interest rate borrowings expose the Company to interest rate cash flow risk.

The Company does not hold or require long-term borrowings as the Company is self-funded through its income from customer receipts and community service obligation payments from the Queensland State Government. Short term borrowings are available to the Company from QTC. The Company has access to same day funds through a $300 million Working Capital Facility provided by QTC, which has a floating interest rate. Short term borrowings from the parent company are through the provision of an intercompany cash management facility, which has a floating interest rate.

Other liabilities exposing the Company to interest rate risk include the repayable deposits (floating interest rate exposure).

Sensitivity Analysis

At 30 June 2013, if interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company’s net profit and equity would increase or decrease by $819 thousand (2012: $1,151 thousand).

The following table indicates the effective interest rates on the Company's financial assets and liabilities at the end of the reporting period:

Floating interest rate

Weighted average

interest rate

Note $'000

2013

Financial assets

Cash and cash equivalents 6 105,814 4.05%

Financial liabilities

Customer security deposits 14 23,900 2.18%

Floating interest rate

Weighted average

interest rate

Note $'000

2012

Financial assets

Cash and cash equivalents 6 137,456 5.08%


Customer security deposits 14 22,331 3.73%


30


(c) Price risk

Electricity

Electricity price risk is the risk of an adverse financial outcome resulting from a change in the price of electricity in the National Electricity Market. This can be a change in the electricity pool price or a change in the forward price of electricity. Exposures mainly arise from positions in wholesale contracts, franchise load or PPAs. Wholesale contracts relating to franchise load are generally dealt over a period of less than three years. PPAs are measured up to the end of the contract.

The parent entity’s Board has approved a Franchise Energy Risk Policy. The Franchise Energy Risk Policy provides a framework for managing risks arising from the energy purchasing activities of the entity. The policy includes a trading and exposure limit framework, monitoring and reporting requirements and audit requirements.

The Company uses derivative financial instruments to manage its electricity price risk, consumer variable volume risk and cash flow risk as well as hedge exposure to pool price fluctuations and against the committed and anticipated electricity purchases. The hedge contracts are designated against the forecast mass-market electricity load. The hedge contracts are valued at fair value through profit and loss – hedge accounting is not employed. The hedge portfolio consists predominantly of swaps, caps and option contract types.

The following table details the Company’s sensitivity to a 10% increase and decrease in the electricity pool price with all other variables held constant:

Electricity Pool Price

+10%

2013

$’000

+10%

2012

$’000

-10%

2013

$’000

-10%

2012

$’000

Profit / (loss) before tax 57,854 5,110 (57,854) (4,275)

Equity 57,854 5,110 (57,854) (4,275)

The result above, i.e. large increase in electricity pool price risk for this financial year, is due to the large portfolio of government directed deals and the expected replacement of the long term energy procurement arrangement.

Large-scale generation certificates

LGC price risk is the risk of an adverse outcome resulting from a change in the current or forward price of LGCs.

The company holds LGCs to meet its annual compliance obligations under the Renewable Energy (Electricity) Act 2000 and National Green Power Accreditation Program. A separate portfolio of LGCs is held for trading purposes and includes entitlements to LGCs under PPAs.

LGCs held for compliance purposes are carried at cost whilst LGCs held for trading are carried at fair value. The LGC compliance obligation liability is carried at cost with shortfalls recognised at market price as a proxy for cost.

LGC entitlements under PPAs entered into for trading purposes are carried at fair value.

Price and volume risk is managed under the Franchise Energy Risk Policy referred to above.

The following table details the Company’s sensitivity to a 10% increase and decrease in price of LGCs with all other variables held constant.

LGCs

+10%

2013

$’000

+10%

2012

$’000

-10%

2013

$’000

-10%

2012

$’000

Profit / (loss) before tax 2,596 5,141 (2,596) (5,141)

Equity 2,596 5,141 (2,596) (5,141)


31


(d) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close-out market positions. A working capital facility is in place with the parent entity and with QTC. Liquidity risk associated with electricity market trading is controlled by the Australian Energy Market Operator (AEMO) whereby all market participants are required to deliver irrevocable bank guarantees as security for timely settlement. These guarantees are held for and on behalf of all participants thereby limiting exposure to liquidity risk.

Where the Company enters into contracts external to the regulated market, such contracts are transacted within the terms of the Franchise Energy Risk Policy which provides a framework for monitoring and limiting exposures.

The tables below disclose the Company’s financial liabilities, including derivative financial instruments, into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are contractual, undiscounted cash flows. The maturities of derivative financial instruments are calculated on the basis that derivatives will be settled on a gross basis.

At 30 June 2013

Less than 1 year

$'000

1 to 5 years

$'000

Over 5 years

$'000

Total contractual cash flows

$'000

Carrying amount

$'000


Electricity hedges 31,699 45,040 - 76,739 57,143

Power purchase agreements held for trading 5,666 6,145 - 11,811 240

Long-term energy procurement 13,119 - - 13,119 13,033

Non-interest bearing 340,458 - - 340,458 340,458

Variable rate 23,900 - - 23,900 23,900

Total financial liabilities 414,842 51,185 - 466,027 434,774

At 30 June 2012


Electricity hedges 45,561 46,456 - 92,017 72,455

Power purchase agreements held for trading 2,925 6,094 - 9,019 213

Non-interest bearing 282,293 - - 282,293 282,293

Variable rate 22,331 - - 22,331 22,331

Total financial liabilities 353,110 52,550 - 405,660 377,292

(e) Fair value

The fair value of a financial asset or a financial liability is the amount at which the asset could be exchanged, or liability settled, in a current transaction between willing parties after allowing for transaction costs.

The carrying amounts of financial assets and financial liabilities are not materially different from their estimated fair values at the end of the financial period, unless otherwise stated.

Financial assets and liabilities not measured at fair value and classified as non-current are discounted to determine the fair value using a risk free interest rate where the impact of discounting is considered material.


32


Fair value measurements

The Company requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

a) Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);

b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2), and

c) 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 at 30 June 2013.

Level 1

$’000

Level 2

$’000

Level 3

$’000

Total

$’000

2013

Assets

Electricity hedges - 52,851 33,420 86,271

Power purchase agreements held for trading - - 6,497 6,497

Large-scale generation certificates held for trading - 13,159 - 13,159

Small-scale technology certificates held for trading - 20,454 - 20,454

- 86,464 39,917 126,381

Liabilities

Electricity hedges (366) (29,540) (27,237) (57,143)

Power purchase agreements held for trading - - (240) (240)

Long-term energy procurement liability - - (13,033) (13,033)

(366) (29,540) (40,510) (70,416)

2012

Assets

Electricity hedges - 17,656 1,805 19,461

Power purchase agreements held for trading - - 8,590 8,590

Long-term energy procurement asset - - 49,332 49,332

Large-scale generation certificates held for trading - 23,125 - 23,125

Small-scale technology certificates held for trading - 11,560 11,560

- 52,341 59,727 112,068

Liabilities

Electricity hedges - (43,391) (29,064) (72,455)

Power purchase agreements held for trading - - (213) (213)

- (43,391) (29,277) (72,668)

There were no transfers between Level 1 and 2 in the period.


33


Reconciliation of Level 3 fair value measurements

Electricity hedges

$’000

Power purchase agreements held

for trading

$’000

Long-term energy

procurement asset/(liability)

$’000

Total

$’000

2013

Assets

Opening balance 1,805 8,590 49,332 59,727

Transfers out of Level 3 - - - -

Purchases 29,009 - - 29,009

Settlements (354) (3,799) - (4,153)

Total gains or losses recognised in profit and loss

2,960 1,706 (49,332) (44,666)

Closing balance 33,420 6,497 - 39,917

Liabilities

Opening balance (29,064) (213) - (29,277)

Transfers out of Level 3 - - - -

Purchases (11,504) - - (11,504)

Settlements 11,982 (232) (21,942) (10,192)


1,349 205 8,909 10,463

Closing balance (27,237) (240) (13,033) (40,510)

2012

Assets

Opening balance 4,535 5,797 125,075 135,407

Transfers out of Level 3 (1,172) - - (1,172)

Purchases 2,942 - - 2,942

Settlements (1,450) 1,978 (103,377) (102,849)


(3,050) 815 27,634 25,399

Closing balance 1,805 8,590 49,332 59,727

Liabilities

Opening balance (44,286) (121) - (44,407)

Transfers out of Level 3 11,356 - - 11,356

Purchases 1,309 1,309

Settlements 15,957 266 - 16,223


(13,400) (358) - (13,758)

Closing balance (29,064) (213) - (29,277)

There were no transfers into or out of level 3 in the period.


34


Net fair value losses are included in other expenses in the income statement.

Methods and assumptions used in determining fair value of financial assets and liabilities

The Company currently has five different classes of financial instruments that are measured at fair value through profit and loss, these being: swaps, options, PPAs, LGCs and LEP.

Swaps

Swaps are valued using a curve sourced from Tradition Financial Services (TFS). Where positions are held in periods beyond the curve, the curve is extended accordingly.

Options

(i) $300 Exchange Traded Options

$300 Exchange Traded Options are valued using the SFE $300 cap curve. Where positions are held in periods beyond the curve, the curve is extended accordingly.

(ii) Caps

$300 and $100 caps valued using a mean reversion jump diffusion model incorporating historical pool price outcomes and quoted cap prices.

(iii) Swaptions

Over-The-Counter Swaptions are valued applying a Black Scholes 76 methodology incorporating a curve sourced from TFS. Volatility is calculated based on historical pool prices. SFE Swaptions are valued applying the fair value on the exchange.

Power purchase agreements

Electricity entitlements under PPAs are valued using an input or curve sourced from the TFS. Load volumes under fair valued PPAs are determined based on forecasts.

Large-scale generation certificates

LGC entitlements are valued using a curve derived from externally sourced broker quotes. Where positions are held in periods beyond the curve, the curve is extended accordingly. LGC volumes under fair valued PPAs are determined based on forecasts

Long-term energy procurement

The LEP instrument is made up of revenue from tiered target hedging levels valued against a curve sourced from TFS and the operation of a cap and floor arrangement with the Queensland State Government.

The following table details the Company’s sensitivity to a 10% increase and decrease in forecast load of PPAs and price of all other instruments in Level 3 with all other variables held constant:

Reflected in statement of comprehensive income

Favourable

$’000

Unfavourable

$’000

2013 2012 2013 2012

Power purchase agreements 626 1,727 (626) (1,727)

LEP and Electricity Hedges 20,695 3,935 (20,695) -


35


(f) Capital management

The Company manages its capital to ensure that it will be able to continue as a going concern. The Company’s overall strategy remains unchanged from 2012.

The capital structure of the Company consists of equity, comprising issued capital, owner’s contributions and retained earnings disclosed in Notes 18 and 19. The Company has a working capital facility in place for $300,000 thousand with QTC (2012: $150,000 thousand). This facility was not utilised at the end of the year and the Company has no other external borrowings. The parent entity has borrowing facilities in place with the QTC and is required to maintain minimum financial ratios under the associated lending terms and conditions. These minimum financial ratios must be calculated from the consolidated financial statements of the parent entity and its controlled entities. The requirements are to maintain an earnings before interest, tax, depreciation and amortisation (EBITDA) interest coverage of greater than or equal to 1.5 times, except where the total debt to total capital is greater than 75% in which case the EBITDA interest coverage must be equal or greater than 2.0 times. Operating cash flows are used to make the routine outflows of operating expenditure and dividends. The Company’s policy is to borrow from QTC and its parent entity to meet its short-term cash management and working capital requirements. The Company monitors capital through the gearing ratio (borrowings / (borrowings + equity). The gearing ratios based on continuing operations at 30 June 2013 and 30 June 2012 were as follows:

2013 2012

Gearing ratio 0.0% 0.0%

EBITDA to Interest cover (times) 40.6 32.3

Return on equity 70.8% 52.6%


36

NOTE 21: Commitments

At 30 June 2013, the Company had no contracted commitments for capital or non-cancellable operating lease expenditure (2012: nil).

NOTE 22: Contingent assets and liabilities

(a) Legal claims

The Company is not aware of any material legal claims being made against it.

(b) Guarantees issued

In order to participate in the electricity market, the Company is required to deliver acceptable security as collateral for their obligations arising as a consequence of normal trading. Security, in the form of payment guarantees totalling $111,057 thousand (2012: $120,000 thousand) have been issued by QTC to NEMMCO. These guarantees are supported by counter indemnities to the QTC totalling $350,000 thousand (2012: $350,000 thousand) by the parent entity.

(c) Environmental liabilities

While the directors believe that, based upon current information, its provisions for environmental rehabilitation are adequate, there can be no assurance that material new provisions will not be required as a result of new information or regulatory requirements with respect to known sites or identification of new remedial obligations at other sites.


37

2013

$'000

2012

$'000 NOTE 23: Notes to statement of cash flows

Reconciliation of profit after income tax equivalent expenses to the net cash flows provided by/(used in) operating activities

Profit after income tax equivalent expense 85,170 56,319

Non-cash flows in profit from ordinary activities:

Depreciation and amortisation 2,533 1,438

Loss/(gain) on disposal of non-current assets - 3,671

Changes in provisions (266) 75

Loss/(gain) on revaluation of financial instruments at fair value through profit and loss (37,219) 3,377

Loss/(gain) on revaluation of energy certificates at fair value through profit and loss (508) 1,696

Impairments 8,978 7,901

Other non-cash flow items 35,982 23,591

Changes in assets and liabilities

Trade and other receivables (112,026) (44,275)

Other assets (14,469) 84,119

Trade and other payables 34,519 (17,813)

Other liabilities 20,734 16,294

Payment from provision 142 83

Net cash flow provided by/(used in) operating activities 23,570 136,476

NOTE 24: Key management personnel disclosures (a) Names, positions and terms held of directors

The directors of the Company during the financial year ended 30 June 2013 were:

Justin Fitzgerald Executive Director

Ian McLeod Executive Director

John Hooper Executive Director

(b) Compensation - directors

The directors are all executives of the parent entity. The directors' appointments are as a result of their executive positions in the parent entity and no compensation has been made for their directorship of the Company (or any other subsidiary).

Information regarding the compensation received by the directors as a result of their executive positions in the parent entity is included in the financial statements of the parent entity.

(c) Transactions with related parties of key management personnel

Key management personnel of the Company and its related parties, or their related parties, conduct transactions with the Company on terms and conditions no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-related entities on an arm's length basis.

All transactions with key management personnel or related parties that occurred during the period are trivial or domestic in nature.


38

NOTE 25: Related party transactions

(a) Transactions with the parent entity and with the wholly owned group

The parent entity provided business management, financial and corporate services and customer care administration services (including retail products and services administration) to the Company. The total value of these services during the year was $47,029,290 (2012: $50,789,756). All services were undertaken on normal commercial terms and conditions.

Transactions with and amounts due and receivable from related parties in the wholly owned group are as set out in the respective notes to the financial statements.

(b) Controlling entities

The Australian parent entity is Ergon Energy Corporation Limited.

(c) Transactions with State of Queensland controlled entities

The Company transacts with other State of Queensland controlled entities. All transactions are negotiated on terms equivalent to those that prevail in arm’s length transactions.

The value of these related party transactions and balances, as reported in the statement of financial position and statement of comprehensive income, are disclosed below:

Revenue

2013

$

2012

$

CSO and LEP revenue 596,412,821 415,217,638

Pensioner rebate and grant revenue from Department of Communities 34,670,248 35,547,090

Interest received on deposits with QTC 8,209,641 8,299,971

Expenses

Interest on QTC borrowings (Includes administration fees) 346,146 302,634

Electricity trading with State of Queensland controlled entities 23,823,753 118,364,589

Environmental certificate transactions with State of Queensland controlled entity counterparties

3,206,911 1,007,015

Assets

Deposits held with QTC 85,562,226 88,707,233

CSO amounts receivable 115,447,703 36,349,854

Liabilities

Trade payable with State of Queensland controlled entities 3,302,985 6,869,543

Community Ambulance Cover Levy payable to Office of State Revenue 173,584 232,863

No security has been obtained or provided for the above assets and liabilities. Settlement is in Australian dollars.

NOTE 26: Auditor’s remuneration Remuneration for audit and review of the financial reports of the Company:

Auditor-General of Queensland

Audit services

Audit and review of financial reports 208,500 116,168

Other audit services 27,000 26,900

235,500 143,068


39

NOTE 27: Events after the reporting date

There are no events after the reporting date.


ABN 34 106 459 465

Annual Financial Statements For the year ended 30 June 2013

Ergon Energy Telecommunications Pty Ltd Table of Contents For the year ended 30 June 2013

1

Annual financial statements Page

Directors' report 2 Statement of comprehensive income 4

Statement of financial position 5 Statement of changes in equity 6 Statement of cash flows 7

Notes to the financial statements 1. Significant accounting policies 8

2. Critical accounting estimates and judgements 13 3. Revenue 14

4. Expenses 14 5. Taxation 14

6. Trade and other receivables 15 7. Intangible assets 16

8. Deferred tax equivalent assets and liabilities 16 9. Trade and other payables 17

10. Unearned sales revenue 17 11. Share capital 17

12. Retained earnings 18 13. Financial instruments and financial risk management 18

14. Commitments 19 15. Contingencies 19

16. Notes to statement of cash flows 19 17. Key management personnel disclosures 19

18. Related party disclosures 20 19. Auditor’s remuneration 20

20. Events after reporting date 20 Directors' declaration 21

Independent auditor’s report 22 Auditor's independence declaration 24


Directors' report For the year ended 30 June 2013

2

The directors present their report together with the financial report of Ergon Energy Telecommunications Pty Ltd (the Company), for the year ended 30 June 2013 and the auditor's report thereon.

Directors

The names of the directors of the Company in office during the financial year and up to the date of this report are as follows:

John Bird (resigned 30 November 2012)

Ian McLeod (appointed 30 November 2012)

John Hooper (appointed 30 November 2012)

Principal activities

The principal activity of the Company is the provision of wholesale telecommunications services in Queensland on a non-exclusive basis to carriers and carriage service providers, as well as internally to Ergon Energy Corporation Limited and its controlled entities.

Dividends paid or declared

A declaration was made by the directors on 28 June 2013 for 100% of total operating profit after income tax equivalent expense for the year to be paid to the parent entity.

Dividends amounting to $2,658,970 (2012: $3,513,663) have been provided for during the financial year. A final dividend of $3,513,663 was paid on 31 December 2012 in respect of the 2012 financial year. The dividend for the 2013 financial year was not paid during the year.

Operating and financial review

The statement of comprehensive income shows a profit after income tax equivalent expense of the Company for the financial year of $2,658,970 (2012: $2,568,301).

Nexium continued to provide wholesale and retail high-speed optic-fibre connectivity to the mining, energy and government sectors, as well as internal support to our operational communications network, SCADA network and corporate connections.

The financial statements are a general purpose financial report that have been prepared in accordance with Australian Accounting Standards and Interpretations, requirements of the Corporations Act 2001, provisions of the Government Owned Corporations Act 1993 (the “Act”) and other relevant legislation issued pursuant to that Act.

Significant changes in the state of affairs

No significant changes in the state of affairs of the Company occurred during the financial year.

Significant events after balance date

No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years.

Likely developments and future results

The Company expects to continue its wholesale telecommunications services in Queensland.

Industry Reviews

On 16 June 2013, the Queensland Government announced in-principle approval of a recommendation to establish a new holding company for Ergon Energy Corporation Limited and Energex Limited, as the two government-owned distributors. This change, and a range of other proposed reforms, are about addressing the rising electricity costs.

The reforms are part of a suite of recommendations to come from the Interdepartmental Committee on Electricity Reform. This committee was formed in mid-2012 to scrutinise cost pressures on electricity prices, network costs, electricity supply and retail competition.

Environmental regulation and performance

The Company's operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory.

Ergon Energy Telecommunications Pty Ltd Statement of comprehensive income For the year ended 30 June 2013

The statement of comprehensive income is to be read in conjunction with the notes to the financial statements 4

Note

2013

$

2012

$

Revenue 3 10,739,677 11,241,156

Cost of sales 4 (4,942,310) (5,487,021)

Materials and services (1,984,472) (2,081,108)

Amortisation 4 (4,879) (4,892)

Other income/(expenses) (9,488) 866

Profit before income tax equivalent expense 3,798,528 3,669,001

Income tax equivalent expense 5(a) (1,139,558) (1,100,700)

Profit after income tax equivalent expense 2,658,970 2,568,301

Other comprehensive income for the financial year, net of tax - 1

Total comprehensive income for the financial year 2,658,970 2,568,302

Profit attributable to:

Shareholders of the Company 2,658,970 2,568,301

Total comprehensive income attributable to:

Shareholders of the Company 2,658,970 2,568,302

Ergon Energy Telecommunications Pty Ltd Statement of financial position As at 30 June 2013

The statement of financial position is to be read in conjunction with the notes to the financial statements 5

Note 2013

$

2012

$

CURRENT ASSETS

Trade and other receivables 6 4,153,624 5,986,608

Total current assets 4,153,624 5,986,608

NON-CURRENT ASSETS

Intangible assets 7 1,818 6,697

Net deferred tax equivalent assets 8 2,542 1,376

Total non-current assets 4,360 8,073

TOTAL ASSETS 4,157,984 5,994,681

CURRENT LIABILITIES

Trade and other payables 9 4,142,336 5,281,876

Unearned sales revenue 10 15,024 712,181

Total current liabilities 4,157,360 5,994,057

NON-CURRENT LIABILITIES

Total non-current liabilities - -

TOTAL LIABILITIES 4,157,360 5,994,057

NET ASSETS 624 624

EQUITY

Share capital 11 100 100

Retained earnings 12 524 524

TOTAL EQUITY 624 624


Statement of changes in equity For the year ended 30 June 2013

The statement of changes in equity is to be read in conjunction with the notes to the financial statements 6

Note

Share capital

$

Retained earnings

$

Total equity

$


Balance at 1 July 2011 100 945,885 945,985

Dividends - (3,513,663) (3,513,663)

Total comprehensive income for the financial year - 2,568,302 2,568,302

Balance at 30 June 2012 100 524 624


Dividends - (2,658,970) (2,658,970)

Total comprehensive income for the financial year - 2,658,970 2,658,970

Balance at 30 June 2013 100 524 624


Statement of cash flows For the year ended 30 June 2013

The statement of changes in equity is to be read in conjunction with the notes to the financial statements 7

Note

2013

$

2012

$

Cash flows from operating activities

Net cash flows from operating activities 16 - -

Cash flows from investing activities

Net cash flows from investing activities - -

Cash flows from financing activities

Net cash flows from financing activities - -

Net increase/(decrease) in cash and cash equivalents - -

Cash and cash equivalents at beginning of the financial year - -

Cash and cash equivalents at the end of the financial year - -

Ergon Energy Telecommunications Pty Ltd NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013

8

NOTE 1: Significant accounting policies

Ergon Energy Telecommunications Pty Ltd (the “Company”) is a proprietary company limited by shares and is a company domiciled in Australia. The Company’s registered office and its principal place of business are as follows:

Registered Office

22 Walker Street Townsville Queensland 4810

Principal Place of Business

34-46 Dalrymple Road

Garbutt Queensland 4814

The Company is a for-profit entity and the principal activities during the financial year consisted of the provision of wholesale telecommunications services in Queensland on a non-exclusive basis to carriers and carriage service providers, as well as internally to Ergon Energy Corporation Limited and its controlled entities.

The financial statements were authorised for issue by the directors on XX August 2013.

(a) Basis of accounting

Statement of compliance

The financial statements are a general purpose financial report that have been prepared in accordance with Australian Accounting Standards and Interpretations, requirements of the Corporations Act 2001, provisions of the Government Owned Corporations Act 1993, provisions of the Corporations Regulations 2001, and other relevant legislation issued pursuant to that Act.

Basis of preparation

The financial statements are presented in Australian dollars. The company is of a kind referred to in Class Order 98/100 issued by ASIC relating to the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest dollar.

Going concern basis

The financial statements have been prepared on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.

At 30 June 2013, the Company has a working capital deficit of $3,736 (2012: deficit $7,449).

The Director’s consider the Company will be able to pay its debts as and when they fall due by relying on the letter of support issued by Ergon Energy Corporation Limited each year.

Historical cost convention

The financial statements are prepared on an historical cost basis.

Critical accounting estimates

The preparation of financial statements in accordance with Australian Accounting Standards 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 2 to the financial statements.

Consistent accounting policies

The accounting policies have been consistently applied to all periods presented, unless otherwise stated. No material reclassifications to comparative information have been made to the current year’s financial statement presentation.

Early adoption of standards

The Company has not elected to adopt any standards or interpretations in advance of their effective dates.


9


(b) Revenue recognition

Operating revenue comprises revenue from the provision of services, which is recognised by reference to the stage of completion of the transaction. Interest income is recognized in the income statement as it accrues, using the effective interest rate method. All revenue is stated net of the amount of Goods and Services Tax (GST). (c) Cost of sales

Cost of sales is the accumulation of costs associated with the delivery of wholesale telecommunication services.

(d) Cash and cash equivalents

The Company does not operate a bank account nor hold any cash balances or investments in money market instruments. The parent company provides all cash transaction services including all payments and receipts. These transactions are recorded in an intercompany loan account.

(e) Trade and other receivables

Trade and other receivables are recognised when the Company has a legal right to receive cash, cash equivalent or economic benefit.

Trade and other receivables are measured at amortised cost less provision for impaired receivables.

The recoverability of trade and other receivables is reviewed on an ongoing basis. A provision for impaired receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables and hence the receivables are impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments are considered indicators that the trade receivable is impaired. The movement in the provision is recognised in the statement of comprehensive income.

(f) Income taxes (i) Tax equivalents

The Company is part of a tax-consolidated group that is subject to the National Tax Equivalents Regime (NTER) in relation to income tax. The regime is administered by the Australian Taxation Office (ATO). The NTER broadly utilises the provisions of the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 and associated legislation, the NTER Manual as well as Rulings and other pronouncements by the ATO, in order to determine the tax payable by Ergon Energy Corporation Limited (the head company) in respect of the Economic Entity’s operations. (Refer Note 5).

The Company is not required to maintain a franking account.

(ii) Current tax payable

Consistent with the requirements of Australian Accounting Standards Board (AASB) Interpretation 1052 Disaggregated Disclosures, as the Company is a member of a tax-consolidated group, the current tax equivalents payable/(receivable) is recognised in the accounts of the head entity, Ergon Energy Corporation Limited. The balance assumed by the head entity is recognised as an amount payable/(receivable) to the Company in conjunction with the tax funding arrangement (refer below).

Notional current tax equivalents is the expected notional tax equivalents payable on the Company’s notional taxable income for the period using tax rates enacted or substantively enacted at the end of the financial period and any adjustment to notional tax equivalents payable in respect of previous years. Notional current tax equivalents payable is recognised as current tax expense except to the extent that it relates to items recognised directly in equity, in which case that portion is recognised directly in equity. (iii) Deferred tax equivalent assets and liabilities

Deferred tax equivalent assets and liabilities are deductible or taxable temporary differences recognised using tax rates enacted or substantively enacted at the reporting date. Temporary differences are differences between the carrying amount of an asset and liability for financial reporting purposes and their tax bases. Tax bases are determined based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities.

Deferred tax is not recognised for the following temporary differences:

The initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit;

Differences relating to investments in subsidiaries and jointly controlled entities to the extent that the Group is able to control the reversal of temporary differences and it is probable that they will not reverse in the foreseeable future; and

Differences arising on the initial recognition of goodwill.

Deferred tax equivalent assets are recognised only to the extent that it is probable that future taxable amounts will be available against which the asset can be utilised.


10


Movements in deferred tax equivalent assets and liabilities balances are recognised as deferred tax equivalent expenses, except to the extent they relate to:

• Items recognised directly in equity, in which case that portion is recognised in equity; and

• Acquisitions of entities or operations, in which case that portion is recognised in goodwill.

Deferred tax equivalent assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. (iv) Income tax equivalent expense

Income tax equivalent expense for the reporting period consists of current tax expense and deferred tax expense. (v) Tax consolidation

The Company is a wholly-owned subsidiary in a tax-consolidated group with Ergon Energy Corporation Limited as the head entity. The implementation date of the tax consolidation system for the tax-consolidated group was 1 July 2002.

Current tax expense/income, deferred tax equivalent liabilities and deferred tax equivalent assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the group allocation approach based on the allocation specified in the tax funding agreement.

The tax funding agreement requires a notional current and deferred tax equivalents calculation for each as if it were a taxpayer in its own right, except that distributions made and received arising within the tax-consolidated group are treated as having no tax consequences. Any notional current tax equivalent liabilities (or assets) and deferred tax equivalent assets arising from unused tax losses and tax credits of the Company are assumed by the head entity of the tax-consolidated group are recognised as amounts payable (receivable) to the Company in conjunction with any tax funding arrangement amounts (refer below). Any differences between these amounts is recognised as a contribution from (or distribution to) equity participants.

The Company recognises notional deferred tax equivalent assets arising from unused tax losses and tax credits to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised. The Company assesses the recovery of its unused tax losses and tax credits only in the period in which they arise, and before assumption by the head entity, in accordance with AASB 112 Income Taxes applied in the context of the tax-consolidated group. Any subsequent period adjustments to deferred tax equivalent assets arising from unused tax losses and tax credits as a result of revised assessments of the probability of recoverability is recognised in the head entity only. (vi) Nature of tax funding arrangement and tax sharing agreements

The Company, in conjunction with other members of the tax-consolidated group, has entered into tax funding arrangement which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the notional current tax equivalents liability (asset) assumed by the head entity and any notional tax loss or tax credit deferred tax asset assumed by the head entity, resulting in the Company recognising an inter-entity payable (receivable) equal in amount to the notional tax equivalents liability (asset) assumed. The inter-entity payable (receivable) is at call.

Contributions to fund the notional current tax equivalents liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax equivalent liabilities to the relevant tax authorities.

The Company, in conjunction with other members of the tax-consolidated group, has also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax equivalent liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement, as payment of any amounts under the tax sharing agreement is considered remote.

(g) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the ATO. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position of the parent entity. This is in accordance with GST grouping provisions of A New Tax System (Goods and Services Tax) Act 1999.

Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

Commitments are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.


11


(h) Intangible assets

Intangible assets are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated on the straight line basis by reference to the useful life of the intangible assets. Amortisation periods are:

Measurement basis Amortisation period Licences Cost 10 years

(i) Impairment of assets

All assets which are depreciated or amortised are reviewed for events or changes in circumstances that may indicate that the carrying amount may not be recoverable. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimated future cash flows have not been adjusted.

An impairment loss is recognised for the amount by which the carrying amount of the asset (or cash generating unit) exceeds its recoverable amount. An impairment loss is recognised immediately in the Income Statement. When an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of the recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the Statement of Comprehensive Income.

(j) Trade and other payables (i) Trade and other payables

Trade and other payables are recognised when the Company has a legal obligation to pay cash. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost. (ii) Dividends payable

A liability for dividends payable is recognised in the reporting period in which the dividends are declared, for the entire undistributed amount.

(k) Provisions

Provisions are recognised when there is a present legal or constructive obligation as a result of past events it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of each reporting period. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. Where material, the increase in the provision due to the passage of time is recognised as interest expense.

(l) Contingent assets and liabilities

Contingent assets are not recognised in the financial statements. Other than when required on acquisition of a business, contingent liabilities are not recognised in the financial statements. They are, however, disclosed in the notes to the financial statements, where appropriate.

(m) Share Capital

Ordinary shares are classified as equity.


12


(n) Application of new Accounting Standards and Interpretations

The Australian Accounting Standards Board (AASB) has published certain new accounting standards and interpretations in the current year. The Company has adopted all of the new and revised standards and interpretations that are relevant to the operations and effective for the current reporting period. The adoption of these new and revised standards and interpretations does not have a material impact on the result or disclosure of the Company in the current reporting period.

The AASB has also published certain new accounting standards and interpretations that are not mandatory for 30 June 2013 reporting periods, and which the Company has not early adopted.

The Company’s assessment of the initial impact of the following standards and interpretations either do not apply to the Company or are not expected to have an impact on the financial report of the Company:

Standard / Interpretation Effective for annual reporting periods beginning on or after

Expected to be initially applied to the financial year ending

AASB 9 Financial Instruments


AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)

AASB 2012-6 Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosures


AASB 10 Consolidated Financial Statements

AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements standards

AASB 2012-10 Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments


AASB 11 Joint Arrangements 1 January 2013 30 June 2014

AASB 12 Disclosures of Interests in Other Entities 1 January 2013 30 June 2014

AASB 127 Separate Financial Statements 1 January 2013 30 June 2014

AASB 128 Investments in Associates and Joint Ventures 1 January 2013 30 June 2014

AASB 13 Fair Value Measurement



AASB 119 Employee Benefits (2011)

AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (2011)


AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements

1 July 2013 30 June 2014

AASB 2012-2 Amendments to Australian Accounting Standards - Disclosures – Offsetting Financial Assets and Financial Liabilities


AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities


AASB 2012-4 Amendments to Australian Accounting Standards - Government Loans


AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle



13

NOTE 2: Critical accounting estimates and judgements

Estimates and judgements 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 Company and that are believed to be reasonable under the circumstances.

Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period or in the period of revision and future periods if the revision affects both current and future periods.

(a) Critical accounting estimates and assumptions

The Company makes estimates and assumptions concerning the future. The resulting 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 within the next financial year are discussed below.

(i) Useful lives of intangible assets

Management has applied judgement in determining the useful lives and estimated residual value of intangible assets. The assumptions for the useful lives are discussed in Note 1 (h).

(b) Critical judgements in applying the Company’s accounting policy

The Company has made critical judgements in applying the Company’s accounting policies. The following are listed as areas where critical judgement has been applied: (i) Impairment of trade receivables

The Company recognises a provision for impaired receivables in accordance with the requirements with AASB 139 Financial Instruments: Recognition and Measurement. Impairment for trade receivables is determined on an individual basis while considering evidence of significant financial difficulties of the debtor and the probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency.


14

2013

$

2012

$

NOTE 3: Revenue

Sales revenue

Sales revenue – parent entity 4,349,603 4,553,927

Sales revenue 6,163,611 6,357,269

Other revenue

Interest received – parent entity 226,463 329,960

Total revenue 10,739,677 11,241,156

NOTE 4: Expenses

Profit before income tax equivalent expense includes the following specific expenses:

Cost of sales 4,942,310 5,487,021

Amortisation – intangible assets 4,879 4,892

NOTE 5: Taxation

(a) Income tax equivalent expense

Current tax expense 1,140,724 1,098,870

Deferred tax expense/(benefit) (1,166) 1,830

Income tax equivalent expense 1,139,558 1,100,700

Deferred income tax expense/(benefit) included in income tax expense comprises:

Decrease/(increase) in deferred tax assets (1,166) 1,830

Increase /(decrease) in deferred tax liabilities - -

Income tax expense/(benefit) attributable to profit from continuing operations (1,166) 1,830

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

Net profit before income tax equivalent expense 3,798,528 3,669,001

Prima facie income tax equivalent expense on operating profit at 30% (2012: 30%) 1,139,558 1,100,700

Income tax equivalent expense 1,139,558 1,100,700


15

2013

$

2012

$

NOTE 6: Trade and other receivables

Current

Trade receivables 399,198 1,125,041

Trade receivables – parent entity 3,660,600 4,730,741

Prepayments and other receivables 93,826 130,826

Total current trade and other receivables 4,153,624 5,986,608

(a) Impaired trade receivables

No impairment has been raised in 2013 financial year (2012: nil). This has been determined by reference to past default experience and other relevant evidence such as significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy or financial reorganisation and payment default or delinquency.

(b) Foreign exchange and interest rate risk

Information about the Company’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in Note 13.

(c) Fair value and credit risk

Due to the short-term nature of the remaining current receivables, their carrying amount approximates their fair value.

Refer to Note 13 for more information on the risk management policy of the Economic Entity and the credit quality of its trade receivables.

Ergon Energy Telecommunications Pty Ltd Notes to the financial statements For the year ended 30 June 2013

16

2013

$

2012

$

NOTE 7: Intangible assets

Intangible assets – at cost 20,977 20,977

Less: accumulated amortisation (19,159) (14,280)


RECONCILIATION


Accumulated amortisation and impairment at the beginning of the financial year (14,280) (9,388)


Amortisation expense (4,879) (4,892)


NOTE 8: Deferred tax equivalent assets and liabilities

(a) Deferred tax equivalent assets

The balance comprises temporary difference attributable to:


Intangibles 2,542 1,376

Total deferred tax equivalent asset 2,542 1,376

(b) Deferred tax equivalent liabilities

The balance comprises temporary difference attributable to:

Total deferred tax equivalent liability - -

(c) Total net deferred tax equivalent asset/(liability)

Net deferred tax equivalent assets 2,542 1,376

Net deferred tax equivalent liabilities - -

Total net deferred tax equivalent asset/(liability) 2,542 1,376


17

2013

$

2012

$

NOTE 9: Trade and other payables

Current

Trade payables and accruals 342,642 264,188

Dividend payable 2,658,970 3,513,663

Payable to parent entity 1,140,724 1,504,025

Total current trade and other payables 4,142,336 5,281,876

NOTE 10: Unearned sales revenue

Unearned sales revenue 15,024 712,181

Total unearned sales revenue 15,024 712,181

NOTE 11: Share capital

100 - fully paid ordinary shares 100 100

Total share capital 100 100

Movement in share capital



Fully paid ordinary shares carry one vote per share and carry the rights to dividends. The shares have no par value.


18

2013

$

2012

$

NOTE 12: Retained earnings

Carrying amount at the beginning of the financial year 524 945,885


Dividends (2,658,970) (3,513,663)

Other comprehensive income - 1


NOTE 13: Financial instruments and financial risk management

The Company has policies and procedures in place to control the financial risks associated with its operating activities. Exposure to credit, interest rate, price, foreign currency and liquidity risks arises in the normal course of the Company's business.

(a) Credit risk

Credit risk arises from the potential failure of counterparties to meet their obligations under the respective contracts at maturity. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows:

2013

$

2012

$

Trade receivables 399,198 1,125,041

Trade receivables – parent entity 3,660,600 4,730,741

The Company manages credit risk by maintaining an established and appropriate credit review process. Furthermore, the Company’s largest customer is the parent entity, which decreases the credit risk.

The Company trades with wholesale counterparties, principally telecommunications carriers. The company has not recognized an impairment loss against any existing customers for many years.

(b) Interest rate risk

The Company does not operate a bank account nor hold any cash balances or investments in money market instruments. The parent entity provides all cash transaction services including all payments and receipts. Accordingly, the Company’s exposure to interest rate risk is low. The company earns interest on the loan to the parent entity.

(c) Price risk

The Company has no price risk, as its only expenditure is on purchasing use of fibre optic cable, and the Service level agreement with the parent entity to provide business management, financial and corporate services and customer care administration services (including services administration) to the Company. The Company has long term agreements in place for the use and price of the fibre optic cables.

(d) Foreign currency risk management

The Company’s trading operations are based in Australia and its clients are Australian based companies. Consequently, it is not exposed to significant foreign currency risk.

(e) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.


19

NOTE 14: Commitments

The Company has no capital commitments contracted for at the end of the financial year (2012: nil).

NOTE 15: Contingencies

The Company has no contingent liabilities.

NOTE 16: Notes to statement of cash flows

2013

$2012

$

Reconciliation of profit after income tax equivalent expenses to the net cash flows provided by/(used in) operating activities


Non-cash flows in profit from ordinary activities:

Depreciation and amortisation 4,879 4,892

Interest Received (226,463) (329,960)

Income tax 1,139,558 1,100,700

Changes in assets and liabilities:

Trade and other receivables 2,059,448 384,831

Trade and other payables (5,635,226) (3,727,594)

Net Deferred tax assets (1,166) (1,170)

Net cash flow provided by/(used in) operating activities - -

NOTE 17: Key management personnel disclosures (a) Names, positions and terms held of directors

The directors of the Company during the financial year ended 30 June 2013 were:

Ian Mcleod Executive Director Appointed 30 November 2012

John Hooper Executive Director Appointed 30 November 2012

John Bird Director Resigned 30 November 2012

(b) Compensation - directors

The directors are executives of the parent entity. The directors' appointments are as a result of their executive positions in the parent entity and no compensation has been made for their directorship of the Company (or any other subsidiary).

Information regarding the compensation received by the directors as a result of their executive positions in the parent entity is included in the financial statements of the parent entity.

(c) Transactions with related parties of key management personnel

The Company has not entered into transactions with key management personnel of the Company or their related parties.


20

NOTE 18: Related party transactions

(a) Transactions with the parent entity

The parent entity provided business management, financial and corporate services and customer care administration services (including services administration) to the Company. The total value of these services during the financial year was $1,984,472 (2012:$2,081,108). All services were undertaken on normal commercial terms and conditions.

The Company provided telecommunication services to the parent entity, the total value of these services during the financial year is as per note 3.

All services were undertaken on normal commercial terms and conditions.

Transactions with and amounts due and receivable from related parties in the wholly owned group are as set out in the respective note to the financial statements.

(b) Controlling entities

The Australian parent entity is Ergon Energy Corporation Limited.

(c) Transactions with State of Queensland controlled entities

The Company transacts with other State of Queensland controlled entities. All transactions are negotiated on terms equivalent to those that prevail in arm’s length transactions.

The value of these related party transactions as reported in the statement of financial position and statement of comprehensive income, are disclosed below:

Revenue

2013

$

2012

$

Revenue from State of Queensland controlled entities 446,530 250,000

Expenses

Costs paid to State of Queensland controlled entities 1,669,423 3,303,155

Assets

Trade receivable from State of Queensland controlled entities 6,877 148,391

No security has been obtained or provided for the above assets and liabilities. Settlement is in Australian dollars.

NOTE 19: Auditor’s remuneration

Remuneration for audit and review of the financial statements of the Company:

Auditor-General of Queensland

Audit services

- Audit and review of the financial statements 30,500 29,600

30,500 29,600

Audit remuneration will be paid by the parent company.

NOTE 20: Events after reporting date No events of a material nature have occurred subsequent to 30 June 2013.

Documents

2013 Subsidiary Financial Statements … · Corporations Act 1993 (the “Act”) and other relevant legislation issued pursuant to that Act. Significant changes in the state of affairs