Annual Report - Victorian Ports Corporation · 1 PORT OF MELBOURNE CORPORATION ANNUAL REPORT 2015-16 ... Melbourne Harbour Trust was created to develop the ... Webb Dock precinct

Annual Report

1 PORT OF MELBOURNE CORPORATION ANNUAL REPORT 2015-16

The Hon Luke Donnellan MP Minister for Ports1 Spring Street Melbourne Victoria 3000

The Hon Tim Pallas MP Treasurer1 Treasury PlaceMelbourne Victoria 3000

Dear Ministers,

Port of Melbourne Corporation 2015-16 Annual Report

I have much pleasure in submitting to you the Annual Report of Port of Melbourne Corporation (PoMC) for the period 1 July 2015 to 30 June 2016, in accordance with the provisions of the Transport Integration Act 2010 (Vic) and the Financial Management Act 1994 (Vic).

Yours sincerely,

Mark Birrell Chairman

26 October 2016

Letter to the Ministers



Letter to the Ministers 1From the Chairman 4From the Chief Executive Officer 5Vision, goals and values 6Key achievements of 2015-16 6The Port of Melbourne – overview 7Corporate governance 8Board of Directors 11Board and Committee meetings 14Executive Management Team 17Our people 18Organisational structure 19Trade performance 20Finance in brief 22Financial summary 24Port of Melbourne Lease Transaction 25Port operations 26Port Capacity Project 27Port pricing 28Statement of Corporate Intent 29Additional information 38 Transport Integration Act 2010 (Vic) 38 Significant legislative changes 39 National Competition Policy 40 Victorian Industry Participation Policy 40 Victorian Government Risk Management Framework 41 Assets 41 Building and maintenance compliance 41 Protected disclosure 41 Privacy 42 Freedom of Information 42 ICT expenditure 42 Consultancies 43 Advertising expenditure 43 Availability of additional information 43Financial statements 44Certification of financial statements 119Auditor-General’s Report 120Disclosure index 122

Table of contents


From the Chairman

The Port of Melbourne has strengthened its role as Australia’s largest maritime trade and logistics hub, with the 2015-16 business year seeing:• record high levels of trade through the Port, with

throughput exceeding 2.6 million containers for the first time

• the most significant expansion of the Port in a generation, with the new container and automotive terminals progressing on time, under budget and with outstanding OH&S outcomes

• strategic pursuit of the Port’s mission to facilitate trade and commerce, with PoMC utilising its Balance Sheet and skills to ensure sustainable financial and environmental management of one of the State’s most important assets.

Since its inception in 2003, the Port of Melbourne Corporation (PoMC) has played a crucial and demonstrable role in supporting the trade ambitions and prosperity of south-eastern Australia. During this time, PoMC has undertaken capital expenditure of around $2 billion in port infrastructure, handled almost 30 million containers and coordinated the safe passage of 90,000 vessel transits to and from Port Phillip.

The Victorian Government’s policy initiative to seek private sector interest to lease the commercial operations of the Port of Melbourne represents the latest chapter in an historic period of adaptation, reform and renewal stretching back to 1877 when the Melbourne Harbour Trust was created to develop the Port as a trade gateway for the young Victorian colony.

With the completion of the lease transaction this Annual Report for 2015-16 will be PoMC’s last. The new private lessee will oversee the operations of the Port for the next fifty years and Victorian Ports Corporation (Melbourne) has been established as the successor entity to PoMC. It will assume responsibility for those functions and activities which remain with the State, including Vessel Traffic Services for safe navigation, waterside emergency management, towage regulation and management of the Station Pier cruise ship terminal.

PoMC’s legacy is one of considerable accomplishment which is borne out by the transformation of the Webb Dock precinct into a world class container and automotive facility as part of the flagship Port Capacity Project. This project is now well advanced with the completion of the automotive berths at Webb Dock West 1 and 2, commencement of operations at the Pre-Delivery Inspection Hub, the arrival of ship to shore cranes at the Victoria International Container Terminal Limited (VICTL) terminal and significant investment in community amenity and facilities.

The major infrastructure expansion is crucial given the Port has experienced its strongest trade growth since 2011-12. All cargo types other than dry bulk exports showed positive growth resulting in new record benchmarks as total trade approached 90 million revenue tonnes and container throughput exceeded 2.6 million TEU (Twenty-foot equivalent units), the highest volume ever.

In its final year of operation, PoMC’s robust trade performance was matched by its strong balance sheet with earnings before interest and tax (EBIT) of $126.3 million and an after tax profit of $95.8 million. In addition, a dividend of $29.9 million was paid to the Victorian Government.

The Board has played a central role throughout the Port of Melbourne Lease Transaction, a process led by the Department of Treasury and Finance. I thank my fellow Directors for their diligence and commitment during this period of historic transition.

On behalf of the Board, I would like to express our deep appreciation to Chief Executive Officer, Nick Easy, and his team for their excellent work. They have simultaneously overseen the day to day business of PoMC, while implementing the Port Capacity Project and guiding the Corporation through the privatisation process.

The Port of Melbourne has had a successful year and is well positioned for the next chapter in its life.

Mark BirrellChairman


From the Chief Executive Officer

The Victorian Government’s policy initiative to commence a market process for a 50 year lease of the Port of Melbourne’s commercial operations heralds a new era for the Port’s management.

During the year, PoMC supported the market process and undertook a formal business separation following passage of the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic). Throughout this period, PoMC sought to provide a seamless transition for its customers and to support the new arrangements for staff who either transferred to the new leaseholder or continued in similar roles with PoMC’s successor, Victorian Ports Corporation (Melbourne).

This document reflects the entire activities and value of the Port of Melbourne Lease Transaction following the Victorian Government’s announcement of the successful bidder on 19 September 2016.

Infrastructure investment in the Port’s development can only be undertaken with prudent financial management which saw operating revenue increase by $12.5 million to $394.2 million in 2015-16. This strong financial result was delivered in a year when overall fees and charges increased by CPI only and wharfage for loaded export containers was frozen at the previous years’ rate.

Over its 13-year tenure as the strategic manager of the nation’s largest container and automotive port, PoMC firmly established itself as one of Victoria’s leading agencies for infrastructure delivery. Around $525 million has been allocated to port infrastructure projects over the past two years, including capital expenditure of $215.4 million in 2015-16, of which $176.5 million was allocated to the Port Capacity Project.

While PoMC’s capital expenditure investment is significant, often overlooked is the fact that the delivery of the Port Capacity Project has been undertaken without a single lost time injury in over 1.5 million hours of construction. This milestone is one amongst many reached throughout the year which saw the automotive berths at Webb Dock West commence operation and the container terminal development by VICTL at Webb Dock East nears completion.

Alongside PoMC’s continued customer and stakeholder engagement through industry forums and the Port Education Program, relations with our regional trading partners saw PoMC host a series of international delegations from port and trade bodies as well as our participation at the 16th Sister Ports Conference in Shanghai. In June, PoMC marked the 30th anniversary of its Trade Cooperation relationship with the Port of Yokohama in a formal ceremony attended by the Minister for Ports.

I would like to thank the Chairman, Mark Birrell, and the Board of Directors for their support throughout the year. I also express my appreciation for the professionalism and commitment of the Executive Management Team and PoMC staff who have delivered a record of achievement of which the organisation can be proud.

Nick EasyChief Executive Officer


Vision, goals and values

Our vision is for the Port of Melbourne to be Australia’s best connected port.

Our goals are focused on achieving the corporate vision and are responsive to PoMC’s charter ensuring a balanced and sustainable approach to the development and management of the Port of Melbourne. They include:

• Delivering world class port facilities and services• Driving integrated freight transport outcomes• Enhancing Australian and international trading activities

• Ensuring sustainable business performance• Nurturing a shared port-city vision• Developing talented and committed people

Our values are a shared understanding of what we stand for as an organisation. They describe the things we strive for with our customers, the community and each other. They include:

• People - respecting diversity, knowledge and wellbeing• Excellence - being the best we can be• Responsibility - taking ownership of safety, the environment and economic prosperity• Collaboration - achieving more by working together

Key achievements of 2015-16

Trade • Total port trade of 89.3 million revenue tonnes• Total container throughput of 2.64 million TEU• Total of 372,539 new motor vehicles handled

Finance• Revenue of $394.2 million• Earnings before interest and tax of $126.3 million• Operating profit after tax of $95.8 million• Net assets of $10.1 billion• Total dividends of $29.9 million paid

Stakeholders• PoMC continued its engagement with customers,

tenants and suppliers on a range of issues including port pricing, supply chain efficiency and the Port of Melbourne Lease Transaction

• PoMC’s community sponsorship program helped support a wide range of eligible community festivals and initiatives

• Over 6,000 students visited the Port Education Centre to learn about the port’s role and operations

• Marked the 30th anniversary of the Trade Cooperation Port relationship with the Port and Harbour Bureau of the City of Yokohama

Port projects• Total capital expenditure of $215.4 million of which

$176.5 million was invested in the Port Capacity Project

• International container terminal at Webb Dock East well advanced with arrival and commissioning of automated cranes and carriers

• Automotive terminal at Webb Dock West commenced operations

• Both Pre-Delivery Inspection Hub private operators commenced operations

Port operations • Welcomed 3,044 ship visits, including 1095 container

vessels• Welcomed the arrival of E.R. Long Beach as the

largest container ship to call at the Port of Melbourne measured by TEU capacity (7,488 TEU)

• Hosted the world’s largest car carrier, Höegh Target, at the new automotive terminal berths at Webb Dock

• Hosted 76 cruise ship visits with around 244,000 passengers and crew

Our people• Engagement with staff on the Port of Melbourne Lease

Transaction and organisational structures• No lost time through industrial activities• No lost time through injuries


The Port of Melbourne – overview

The Port of Melbourne is Australia’s largest maritime hub for containerised and automotive cargo and a key economic asset.

Strategic managementPoMC was established on 1 July 2003 to provide for the strategic management and development of the Port of Melbourne in line with functions and responsibilities set out in the Port Management Act 1995 (Vic) and other relevant legislation. In the reporting period, PoMC’s statutory objectives, powers and functions were carried out under the Transport Integration Act 2010 (Vic).

In March, passage of the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic) provided the legislative framework for the Victorian Government to seek Expressions of Interest for a lease of the Port of Melbourne’s commercial operations. This legislation also provided for the establishment of Victorian Ports Corporation (Melbourne) as the successor entity to PoMC.

Historical developmentThe Melbourne Harbor Trust was formed in 1877 to create an authority for the development and management of the Port of Melbourne and to foster the city’s international trade links.

From 2003 to 2016, PoMC was the contemporary successor of that historical legacy and worked to ensure the Port of Melbourne continued to deliver economic benefits to its customers and the wider community.

TradeThe Port of Melbourne is Australia’s largest container and automotive port handling a total trade volume of 89.3 million revenue tonnes comprising 2.64 million TEU and over 372,000 new motor vehicles annually.

Port infrastructureThe Port of Melbourne has benefitted from over $2 billion invested in marine and land infrastructure over the last decade. In addition to the channels, PoMC owns and manages around 510 hectares of port land with 36 commercial berths to handle a diverse range of containerised and non-containerised cargo.

Shipping and navigationSafe navigation is supported by modern communication centres located at the Port Operations Control Centre (Melbourne VTS) and Point Lonsdale (Lonsdale VTS).

From 2003 to 2016, PoMC managed around 90,000 vessel transits to and from Port Phillip.

Tourism gateway

PoMC manages the heritage-listed Station Pier as Victoria’s cruise shipping gateway. The terminal also accommodates TT-Line’s Spirit of Tasmania passenger ferries and other visiting ships including Australian and international navy vessels.

Upon completion of the Port of Melbourne Lease Transaction, Victorian Ports Corporation (Melbourne) will assume responsibility for Station Pier and work to ensure Melbourne continues to benefit from one of the fastest growing sectors in tourism.

Customer focusWith a trade catchment area covering south-eastern Australia, PoMC works with its customers to share its expertise and understanding of the landside transport connections to benefit their businesses. PoMC’s commitment to trade development is supported by regional offices in Tasmania and New South Wales.

Port of Melbourne Corporation 2003-16• Handled a combined total of nearly thirty million containers and around four million motor vehicles• Now handles around 3000 additional containers a day on average than it did in 2003• Coordinated the safe passage of around 90,000 vessel transits to and from Port Phillip• Delivered vital port infrastructure projects including Channel Deepening and the Port Capacity Project

(ongoing) with total capital expenditure by PoMC of over $2 billion• Welcomed around 600 cruise ships since assuming management of Station Pier in 2005• Promoted a greater understanding of the role of the port and international trade for thousands of

stakeholders through its community and education programs.


Corporate governance

PoMC is governed by a Board of Directors who set the strategic direction for the business to achieve its corporate goals, compliance, risk and legislative requirements.

The primary responsibility of PoMC’s Board is to manage and develop the Port of Melbourne consistent with the vision statement and transport system objectives as set out in the Transport Integration Act 2010 (Vic) (TIA).

Accountable to the Minister for Ports, Directors are appointed pursuant to section 145(1) of the TIA having regard to the expertise necessary for PoMC to achieve its objectives and functions. Directors are appointed on terms and conditions specified in the instrument of appointment and have overall responsibility for the governance of PoMC and may exercise the powers conferred on PoMC.

With the aim of achieving best practice, the Board has developed and endorsed a set of governance principles which are in line with its responsibilities under the TIA. As a result, the primary focus of the Board is on:

• setting the strategic direction of PoMC including the approval and oversight of the corporate plan, annual operating and capital budgets, port development, risk management policy and strategy, corporate policies and all delegations of authority (including financial delegations) made pursuant to section 170 of the TIA

• having regard to the transport system objectives, the decision making principles and any relevant statement of policy principles in carrying out its functions and exercising its powers

• ensuring accountabilities to the Minister for Ports and the Treasurer of Victoria under the legislation are understood by PoMC

• approving capital projects where the total project value exceeds $5 million (or any other capital projects of strategic significance)

• monitoring compliance with legislative and regulatory requirements, ethical standards and external commitments

• appointing and reviewing the performance of the Chief Executive Officer

• having regard to the safety and security of the Port of Melbourne

• encouraging the business of the Port of Melbourne.

Details of the number of Board and Committee meetings, together with the number of meetings attended by each of the Directors during 2015-16, are provided on page 15.

Ministerial DirectionsPoMC received the following Ministerial Direction during the reporting period:

Execution of Documents and project assistance June 2016

The Secretary of the Department of Premier and Cabinet, as delegate for the Premier, issued a Direction under the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic) related to the execution of documents and instruments, together with information disclosure and full cooperation and assistance to the State for implementation of the Port of Melbourne Lease Transaction.

The previously reported Ministerial Direction of 15 May 2015 remained current for the reporting period and related to ongoing cooperation, assistance and support for the Port of Melbourne Lease Transaction including procurement, preparation and compilation of analysis, reports and advice.

Under the auspices of this Direction, PoMC also received an additional series of instructions from the State Representative (Deputy Secretary, Commercial of the Department of Treasury and Finance) to provide assistance on land package matters (acquisitions, divestment and transfers), commercial lease matters and the establishment of subsidiary entities and a unit trust to support the Port of Melbourne Lease Transaction.

This instruction resulted in the establishment of:

• Port of Melbourne Operations Pty Ltd, a company established on 21 March 2016 under the Corporations Act 2001 (Cth) as a wholly owned subsidiary of PoMC

• Melbourne Port Lessor Pty Ltd, a company established on 21 March 2016 under the Corporations Act 2001 (Cth) as a wholly owned subsidiary of PoMC; and

• Port of Melbourne Unit Trust, a unit trust established on 21 March 2016 of which Port of Melbourne Operations Pty Ltd will be the trustee and the units in which will be wholly owned by PoMC.


Following the creation of the subsidiaries outlined previously, Directions were subsequently issued to:

Port of Melbourne Operations Pty Ltd - April 2016 Application for port licence and project assistance

The Premier issued a Direction under the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic) related to the application for a port licence by the newly created subsidiary, Port of Melbourne Operations Pty Ltd, for the provision of prescribed services.

Port of Melbourne Operations Pty Ltd - June 2016 Execution of Documents and project assistance


Melbourne Port Lessor Pty Ltd - June 2016 Execution of Documents and project assistance


The following Directions were received after 1 July 2016 but relate to the Port Lease Transaction events and activities reported in this document.

Port of Melbourne Corporation – September 2016Execution of Documents and Project Assistance

The Special Minister of State, as delegate for the Premier, issued a Direction under the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic) related to the execution of documents and project assistance including instructions regarding the application of the 1997 Tax Act in relation to the lease of port land and the sublease of the Channel seabed, take necessary actions to give effect to the Completion Readiness Plan and execution of documents related to the Western Distributor Project.

Port of Melbourne Operations Pty Ltd – September 2016Execution of Documents and Project Assistance


Melbourne Port Lessor Pty Ltd – September 2016Execution of Documents and Project Assistance


Port of Melbourne Corporation – October 2016Transfer of shares in Melbourne Port Lessor Pty Ltd

The Special Minister of State, as delegate for the Premier, issued a Direction under the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic) related to the transfer of shares in Melbourne Port Lessor Pty Ltd, including execution of the relevant Deeds and documents.

Melbourne Port Lessor Pty Ltd – October 2016Transfer of shares in Melbourne Port Lessor Pty Ltd

The Special Minister of State, as delegate for the Premier, issued a Direction under the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic) related to the transfer of shares in Melbourne Port Lessor Pty Ltd, including execution of the relevant Deeds and documents.


Subsidiary governancePoMC’s Board Directors were also Directors of the established subsidiaries Port of Melbourne Operations Pty Ltd and Melbourne Port Lessor Pty Ltd. The Board of each subsidiary met seven times between 21 March and 20 October 2016.

Declaration of pecuniary interestsAll Directors and nominated officers completed a declaration of pecuniary interests.

Business risksThe procedures and policies established at Board and management level are designed to protect PoMC’s assets and interests, uphold the integrity of its reporting systems, maintain its operational viability and ensure compliance with legislative requirements.

PoMC is managed through a comprehensive set of policies and procedures which are subject to regular audit review. These include financial reporting, environmental management, risk management and internal control policies and procedures.


Board of Directors

Mark Birrell, Chairman Mark Birrell was appointed Chairman of Port of Melbourne Corporation (PoMC) on 18 October 2011 and reappointed on 1 October 2014.

Mark brings a wealth of expertise and leadership in the areas of infrastructure development, project management and finance to Australia’s largest container and general cargo port.

Mark is the Chairman of Infrastructure Australia and serves as President of the Victorian Chamber of Commerce and Industry. He is Chairman of PostSuper Pty Ltd, of Regis Healthcare Limited and of the Australian Payments Council.

An experienced company director and corporate adviser, Mark was the founding Chairman of Infrastructure Partnerships Australia and has served previously as Chairman of Evans & Peck Limited and National Leader of the Infrastructure Group at Minter Ellison Lawyers.

He has a significant public policy background through his earlier roles as Minister for Major Projects and then Minister for Industry, Science & Technology.

Mark holds Bachelor of Economics and Bachelor of Laws degrees and is a Fellow of the Australian Institute of Company Directors.

Board Committee membership: ͳ Chair, Remuneration and People Committee (1 July 2015 to 14 December 2015)

ͳ Audit and Finance Committee (ex officio member)

ͳ Risk Committee (ex officio member) ͳ People and Transition Committee (ex officio member – established 14 December 2015)

James Cain, Deputy ChairmanJames Cain was appointed Deputy Chairman of PoMC on 1 July 2010 and reappointed on 15 July 2013.

James has an extensive background in project development management in property and infrastructure, in both the public and private sectors.

James’ professional experience includes 12 years with property and construction company Lend Lease in various roles including General Manager for Victoria, Tasmania and South Australia, and five years with the Victorian Government as Executive Director of Major Projects Victoria, the Victorian Government’s major capital works agency.

Since 2006, James has developed his interests in commercial, infrastructure and property areas through his own consulting business.

James is also Chair of the Industry Superannuation Property Trust (ISPT). He was Chair of Port of Hastings Corporation until September 2010 and was a Director of Victorian Rail Track (VicTrack) between April 2008 and July 2010.

Board Committee membership: ͳ Chair, Risk Committee ͳ Chair, People and Transition Committee (established 14 December 2015)

ͳ Remuneration and People Committee (1 July 2015 to 14 December 2015)

David CranwellDavid Cranwell was appointed as a Director of PoMC on 1 July 2003 and reappointed on 1 July 2006, 2008, 2010, 15 July 2013 and 1 October 2014.

David is a Partner of Spencer Stuart, a leading global senior level executive search and director recruitment partnership.

Before joining Spencer Stuart, David spent 11 years in a number of roles with Mayne Group Ltd, including Director of Development; CEO Asia covering China, Thailand, Malaysia, Singapore and Indonesia; CEO of the global logistics business; and more recently, Group General Manager of Pharmacy Retailing and Distribution.

During his time in the health sector, David played an active role serving as President of the National Pharmaceutical Services Association and Chairman, Medicines Partnership of Australia.

David has a Master of Nautical Science degree from RMIT University, Melbourne, an MBA from the Graduate School of Management at Melbourne University, and qualified as a Master Mariner Class 1 with ANL.

Board Committee membership: ͳ Audit and Finance Committee


Ingilby DicksonIngilby Dickson was appointed as a Director of PoMC on 1 January 2013 and reappointed on 1 January 2016.

Ingilby joined the PoMC Board having served as General Manager Supply Chain and Processing for BlueScope Steel, commencing with the company in 2003 as the first external head of the Transport and Logistics function.

Responsible for global supply chain and logistics across all transport modes, including the operations in Australia, New Zealand, Asia and North America, Ingilby also oversaw significant safety improvements across BlueScope’s Australian business.

Ingilby was appointed to the NSW Road Freight Advisory Council in 2007 and was awarded Freight Personality of the Year at the Australian Freight and Logistics Industry Awards that same year. Ingilby is also a Board member for the Australian Logistics Council. Prior to his appointment at BlueScope Steel as Vice President Logistics and Procurement, Ingilby held senior Supply Chain and Logistics positions with Goodman Fielder, Toll, Mayne Nickless and Hutchison Australia. He is a Director of Anglesea Surf Life Saving Club.

Ingilby holds a Bachelor of Business, Graduate Diploma in Accounting, Graduate Diploma in Institute of Directorships and is a Fellow of the Chartered Institute of Transport and a Certified Practising Accountant.


John FitzgeraldJohn Fitzgerald was appointed as a Director of PoMC on 1 January 2013 and reappointed on 1 January 2016.

John joined the PoMC Board with extensive experience in infrastructure delivery and was the acting CEO of Infrastructure Australia until March 2015. He is also the Independent Chair of the ACT Government Capital Metro Agency Project Board; Chair of Assetco Management Pty Ltd and related companies; Chair of the NSW Government Steering Committee for the Sydney International Convention, Exhibition and Entertainment Precinct Project; a Director of the Barangaroo Delivery Authority; and a Director of the Victorian Funds Management Corporation.

John is a specialist advisor to KPMG on infrastructure and government sectors and his previous Board positions included Director on the National Advisory Board of Infrastructure Partnerships Australia and Executive Director Department of Treasury and Finance (Victoria) Executive Board.

With over 30 years of commercial and financial experience in infrastructure, John was previously a Deputy Secretary, Commercial Division, Department of Treasury and Finance, and has held senior management positions in banking and finance.

John holds a Master of Public Infrastructure (Research) from the University of Melbourne and is a Fellow of the Australian Institute of Company Directors and the Institute of Public Administration Australia (Victoria).

Board Committee membership: ͳ Audit and Finance Committee ͳ People and Transition Committee (established 14 December 2015)

Jim MarshallJim Marshall was appointed as a Director of PoMC on 15 July 2013.

Jim is a Director of Sai Chang (a joint venture between Australia Post and China Post). He is also a Trustee of the Australia Post Superannuation Scheme.

Having served as the Executive General Manager Postal Services at Australia Post, Jim oversaw a $3.6 billion business encompassing the letters, parcels and international mail businesses as well as the enterprise sales force. Prior to 2010, he managed the Mail and Network Division for nine years and was previously the Group Manager, National Operations in Australia Post’s Head Office overseeing significant change programs in the operations of the business.

Jim was also a member of Australia Post’s Executive Committee, a Director of Australian Air Express, Chairman of Post Logistics Australasia and Chairman of Printsoft Holdings.

Awarded a Public Service Medal in the January 2012 Australia Day Honours, Jim holds a Bachelor of Arts, Bachelor of Economics and Masters of Business Administration from the University of Adelaide.

Board Committee membership: ͳ Risk Committee ͳ People and Transition Committee (established 14 December 2015)


Bruce NichollsBruce Nicholls was appointed as a Director of PoMC on 1 January 2013 and reappointed on 1 January 2016.

Bruce joined the PoMC Board with an extensive background in international trade and investment, having served as Trade Commissioner for Australia in India, Germany, Switzerland, China and Hong Kong, before returning to the private sector to serve on the boards of several public companies in Hong Kong and Australia.

Bruce has served as Chairman of the Royal Automobile Club of Australia, as a director of Crownhampton International (HK) Limited, Promet Petroleum Limited and Goulburn Valley Water Corporation. He is a director of Norcen Financial Services and Chadcorp Communications.

Bruce also served as President of the Australia China Chamber of Commerce & Industry and as a Trustee of the Committee for Economic Development of Australia. He holds a Bachelor of Commerce Degree in Economics, a Diploma in Business and is a Foundation Fellow of the Australian Institute of Company Directors.

Board Committee membership: ͳ People and Transition Committee (established 14 December 2015)

ͳ Remuneration and People Committee (1 July 2015 to 14 December 2015)

ͳ Risk Committee

Janice van ReykJanice van Reyk was appointed as a Director of PoMC on 25 October 2011 and reappointed on 1 October 2014.

Janice is an experienced non-executive Director with broad based business skills gained as a senior executive in listed industrial companies.

She is a non-executive Director of Lochard Energy Group, Chair of its Audit Committee; a non-executive Director of Citywide, Chair of its Safety Risk and Environment Committee and a member of its Audit and Finance Committee; and a member of the Northern Territory Environment Protection Authority.

Janice has an extensive professional background in major capital projects, infrastructure, finance and capital markets, mergers and acquisitions, commercial negotiations, risk management, environmental management and stakeholder engagement.

Janice also holds a Master of Commerce, a Master of Environment (Hons), Bachelor of Laws (Hons) and a Bachelor of Arts (Economics). Janice is a Fellow of the Australian Institute of Company Directors and a Leadership Victoria Fellow.

Board Committee membership: ͳ Chair, Audit and Finance Committee ͳ Risk Committee

Alice Williams Alice Williams was appointed as a Director of PoMC on 15 July 2013.

Alice has over 25 years of senior management and board level experience in corporate and government sectors and investment banking. She has been actively involved in strategy and policy development, corporate advisory and funds management through her consulting practice which has been engaged by Australian Government organisations, including the Australian Competition and Consumer Commission, to undertake reviews of competition policy and regulation.

Alice was formerly a Director of NM Rothschild and Sons (Australia) Limited, Director of Strategy and Planning for Ansett Australia Holdings Limited and a Vice President at JP Morgan Australia. Alice has also held management positions with Elders Finance Group, Hong Kong Bank of Australia Limited and Citibank NA in London.

Alice is a non-executive Director on a range of government, public and private Boards including Djerriwarrh Investments, Equity Trustees Ltd, Guild Group, Defence Health, Cooper Energy, Barristers Chambers Ltd, Foreign Investment Review Board and Victorian Funds Management Corporation. Alice is also a Member of the Felton Bequest Committee.

Alice holds a Bachelor of Commerce from Melbourne University and is a Chartered Financial Analyst (Virginia, USA). She is a Fellow of the Australian Institute of Company Directors and a Fellow Certified Practising Accountant.



Board and Committee meetings

Audit and Finance CommitteeThe Audit and Finance Committee’s objective is to support the Board by overseeing PoMC’s financial and capital investment activities, internal and external audit functions, compliance requirements and the effectiveness of the internal control environment.

Members of the Audit and Finance Committee are PoMC Board Directors and are independent members in accordance with the requirements of section 2.2(f) of the Standing Directions of the Minister for Finance under the Financial Management Act 1994 (Vic).

Remuneration and People CommitteeThe Remuneration and People Committee’s objective was to support the Board by reviewing and overseeing PoMC’s policies and processes relating to the remuneration of executives and the development of PoMC’s people and its culture. This Committee was superseded by the People and Transition Committee from 14 December 2015 as outlined below.

People and Transition CommitteeThe People and Transition Committee’s objectives are to support the Board:

• with regard to the people related transitional arrangements associated with the Port of Melbourne Lease Transaction

• by reviewing and overseeing PoMC’s and Victorian Ports Corporation (Melbourne)’s (VPCM) policies and processes relating to the remuneration of executives and the development of PoMC’s people and its culture.

Risk CommitteeThe Risk Committee’s objective is to support the Board by overseeing PoMC’s risk management framework and policy to evaluate effectiveness of risk identification and management and compliance with internal guidelines and external requirements.


Attendance at Board and Committee meetings 1 July 2015 - 30 June 2016

Chairman /Director Port of Melbourne Operations Pty Ltd Melbourne Port Lessor Pty Ltd

Meetings eligible to attend

Meetings attended

Meetings eligible to attend

Meetings attended

M Birrell (Chairman) 3 3 3 3

J Cain (Deputy Chairman) 3 3 3 3

D Cranwell 3 2 3 2

I Dickson 3 3 3 3

J Fitzgerald 3 3 3 3

J Marshall 3 3 3 3

B Nicholls 3 2 3 2

J van Reyk 3 3 3 3

A Williams 3 1 3 1

Chairman /Director

Board Audit and Finance Committee

Remuneration and People Committee

( 1 July 2015 to 14 December 2016)

People and Transition

Committee

Risk Committee

Mee

tings

el

igib

le to

att

end

Mee

tings

att

ende

d

Mee

tings

el

igib

le to

att

end

Mee

tings

att

ende

d

Mee

tings

el

igib

le to

att

end

Mee

tings

att

ende

d

Mee

tings

el

igib

le to

att

end

Mee

tings

att

ende

d

Mee

tings

el

igib

le to

att

end

Mee

tings

att

ende

d

M Birrell (Chairman)

11 11 4 3 1 1 3 3 4 4

J Cain (Deputy Chairman)

11 11 - - 1 1 3 3 4 4

D Cranwell 11 10 4 1 - - - - - -

I Dickson 11 10 4 4 - - - - - -

J Fitzgerald 11 10 4 3 - - 3 2 - -

J Marshall 11 11 - - - - 3 3 4 4

B Nicholls 11 10 - - 1 1 3 2 4 3

J van Reyk 11 9 4 4 - - - - 4 2

A Williams 11 9 4 4 - - - - - -

In accordance with the Ministerial Directions and instructions related to the establishment of subsidiary entities outlined on page 8, the Board of the Port of Melbourne Operations Pty Ltd (as Trustee for Port of Melbourne Unit Trust) and the Board of the Melbourne Port Lessor Pty Ltd met on three occasions during the reporting period.



Executive Management Team

Nick Easy, Chief Executive OfficerNick commenced as Chief Executive Officer of PoMC in February 2014, providing leadership for the strategic management of Australia’s largest container and automotive port.

Prior to joining PoMC, Nick was the Chief Executive Officer at the Metropolitan Fire and Emergency Service Board (MFB) from June 2011 until February 2014 where he was responsible for leading an organisation of 2,300 staff through a period of sector reform while it continued to deliver emergency services to the Victorian community and beyond.

Before taking up the MFB appointment, Nick had previously served with PoMC and its forerunner for over 13 years in various senior management positions, most notably as Executive General Manager Port Capacity and Executive General Manager Channel Deepening Project.

Nick holds a Bachelor of Applied Science Planning, a Post-Graduate Diploma in Environmental Management and is a member of the Australian Institute of Company Directors.

Caryn Anderson, Executive General Manager - Business and PlanningCaryn leads a division which oversees trade development and marketing, infrastructure and land use planning, information technology services and port community relations. More recently, Caryn has also coordinated the planning and preparatory phases of the proposed Port Lease Transaction ahead of a functional separation of the business.

Having joined PoMC in 2006, Caryn’s widely regarded expertise in trade and strategic infrastructure development draws on over 20 years’ experience in the Australian and international ports, shipping and logistics sector.

In addition to her practical industry experience, Caryn holds formal qualifications in science and postgraduate qualifications in law and business.

Keith Gordon, Executive General Manager - Port Operations Keith oversees a wide range of operational responsibilities including marine and navigation services, environment services, asset and spatial data management, infrastructure projects, cruise shipping, port security, safety and emergency management.

Before joining PoMC in 2006, Keith held a number of senior management roles including that of Chief Executive Officer of Geraldton Port Authority. Keith also served as General Manager Ports for Toll Holdings with responsibility for the ports of Geelong and Hastings for almost a decade.

With over 25 years’ experience in the shipping and logistics industry, Keith has a strong understanding of PoMC’s commercial and operational requirements and obligations.

Matt O’Meara, Executive General Manager - CommercialMatt leads PoMC’s Commercial Division and is responsible for overseeing financial management, port pricing, planning and analysis, investment evaluation, taxation, insurance, treasury and financial operations, legal services, Board support, corporate governance arrangements and knowledge management and administration.

Having joined PoMC in 2009, Matt has worked in senior finance roles for over a decade in Australia and overseas. Matt holds a Bachelor of Business (Accounting) and is a Certified Practicing Accountant (CPA).

Jason Price, Executive General Manager - Port CapacityJason is responsible for leading PoMC’s Port Capacity Division. This division oversees the planning, approval, management and development of container and automotive capacity for the Port of Melbourne.

Jason is also responsible for managing PoMC’s property holdings including the strategic development of property assets, commercial use of land and improvements, together with leasing arrangements and liaison with port tenants.

Joining the Executive team in June 2009, Jason has extensive experience in service delivery in complex environments, with nearly two decades of professional practice in project and contract management. Before joining PoMC in 2007, Jason held a number of senior management positions with international building and construction materials supplier Boral Limited, and construction and mining equipment manufacturer Caterpillar. Jason holds a Bachelor of Engineering and postgraduate management qualifications.


Our people

PoMC recognises that its record for safe and sustainable infrastructure delivery is reliant on retaining and recruiting a diverse range of skills to underpin the ongoing success of one of Victoria’s key economic assets.

Employee relationsCompletion of the Port of Melbourne Lease Transaction will culminate in the separation of the current PoMC business in 2016-17 and this has been the key focus of staff communications and People and Culture activities during the reporting period.

As a result of business separation, some staff will remain with PoMC’s successor entity, Victorian Ports Corporation (Melbourne) and others will transfer to the new private leaseholder.

PoMC has worked to keep staff informed of the process and more detailed information was made available after the passage of the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic).

Under the Act, all permanent employees, other than those on executive contracts, who transfer to the private leaseholder, will have the benefit of an employment guarantee period of two years from the transaction date.

An important milestone was reached in May with the release to staff of the organisational structures for both Victorian Ports Corporation (Melbourne) and the private leaseholder.

These structures reflect the respective functions and responsibilities for each organisation at the completion of the Port of Melbourne Lease Transaction and followed a detailed job matching exercise. An employee expression of interest process resulted in all staff matched to a role accepting an employment offer with the private leaseholder.

The key principle in this process was to match employees to the roles they currently perform where possible with only a small number of changes to reporting lines and duties.

PoMC will continue to engage with staff throughout the Port of Melbourne Lease Transaction process to ensure a seamless transition.

Health and safetyAs an integral part of its safety culture, PoMC takes a proactive approach to managing its occupational health and safety (OH&S) responsibilities and continues to deliver initiatives and programs designed to prevent safety incidents and injuries.

Alongside a broad range of safety inductions for employees and contractors, PoMC also uses the automated Port of Melbourne Incident and Emergency Response System (PIER) to report and address hazards, incidents and injuries.

In 2015-16, there were no reportable PoMC injuries and no lost time injuries. Importantly, the Port Capacity Project has been delivered without a single lost time injury in over 1.5 million hours of construction.

Statutory complianceThere was no lost time through industrial relations activities in 2015-16.

PoMC complies with all relevant statutory requirements in relation to employment legislation which is captured in the Enterprise Agreement. PoMC continues to monitor the National Employment Standards and Fair Work Act 2009 (Clth) to ensure compliance.

PoMC continues to foster a culture where it values human rights and subscribes to the Victorian Charter of Human Rights and Responsibilities.

PoMC’s Workplace Relations Policy underpins a commitment to ensuring that all employees are free to work in a harmonious and safe environment, adhering to the PoMC Code of Organisational Values and Behaviour of Employees and to reject discrimination and harassment in the workplace.


Staff at 30 June 20162016 2015

Male Female Total Male Female Total

Full-time permanent 101 35 136 114 47 161

Full-time temporary 35 20 55 30 21 51

Part-time 2 11 13 4 5 9

Total 138 66 204 148 73 221

Station Pier / Cruise Shipping

Infrastructure Projects

Marine and Navigation Infrastructure Delivery

Assets and Spatial Data Bid Management

Safety, Environmental and Business Resilence Commercial

Security Approvals and Compliance

Legal

Board Secretariat

Property

Knowledge Management and Administration

Communications

Strategy

Trade and Marketing

Information Technology

Port Community

FinanceInfrastructure Planning

Organisational structure

Chief Executive Officer NIck Easy

Commercial Matt O’Meara

Business and Planning Caryn Anderson

Port Operations Keith Gordon

Port Capacity Jason Price

People and Culture

Corporate Affairs


Trade performance

Trade summary

Cargo type Throughput 2015-16 % change on 2014-15Total trade 89.3 million revenue tonnes + 2.6%Containers 2.64 million TEU + 2.3%New motor vehicles 5.1 million revenue tonnes (372,539 units) + 8.4%Liquid bulk 6.3 million revenue tonnes + 2.5%Dry bulk 3.8 million revenue tonnes - 7.8%Breakbulk 9.7 million revenue tonnes + 6.7%

Total tradeTotal trade through the Port of Melbourne increased by 2.6% over the previous financial year to 89.3 million revenue tonnes (34.7 million mass tonnes). Total imports increased 4.0% to 50.6 million revenue tones and total exports increased by 0.8% to 38.7 million revenue tonnes.

Overseas imports increased 4.2% to 38.2 million revenue tonnes and overseas exports decreased marginally by 0.5% to 26.5 million revenue tonnes. Coastal imports increased by 3.3% to 12.4 million revenue tonnes while coastal exports increased by 3.8% to 12.2 million revenue tonnes.

Container tradeTotal container throughput recorded its fastest growth rate since 2011-12 increasing by 2.3% to 2.64 million TEU. Full container imports increased 3.5% and full container exports had a modest decrease of 0.7%. Empty container movements increased by 4.3%.

The top ten containerised commodity exports were miscellaneous manufactures, cereal grains, dairy products, stockfeed, beverages, pulp and waste paper, meat, timber, fruit and vegetables, and paper boards.

The top ten containerised commodity imports were miscellaneous manufactures, furniture, electrical equipment, metal manufactures, miscellaneous food preparations, clothing, machinery, vehicle parts, paper boards, and paper and newsprint.

Non-container tradeTotal non-containerised trade increased 2.6% to 24.6 million revenue tonnes (11.1 million mass tonnes). Total imports of non-containerised cargo increased 5.6% to 18.3 million revenue tonnes (9.3 million mass tonnes), and total exports decreased 5.2% to 6.3 million revenue tonnes (1.8 million mass tonnes).

The main non-containerised commodities exported were motor vehicles, miscellaneous manufactures, petroleum products, transport equipment and cereal grains. The main non-containerised commodity imports were motor vehicles, crude oil, cement, petroleum products, and transport equipment.

New motor vehiclesNew motor vehicle trade rebounded strongly in 2015-16 to record growth of 8.4% amounting to over 5 million revenue tonnes (372,539 units).

The main contributor to the growth was the overseas imports of new motor vehicles which grew by 12.5% to 3.9 million revenue tonnes (286,688 unts), while total exports decreased by 1.7% to 1.1 million revenue tonnes (82,000 units).

Liquid bulkLiquid bulk trade fluctuated throughout 2015-16 to record steady growth of 2.5% to 6.3 million revenue tonnes (5.2 million mass tonnes).

Dry bulkDry bulk trade decreased 7.8% to 3.8 million revenue tonnes (3.7 million mass tonnes). The main imports were cement, gypsum and sugar. The main exports where wheat and barley.


Coastal tradeCoastal trade increased 3.5% to 24.7 million revenue tonnes (9.4 million mass tonnes) and accounted for 27.6% of total port trade in 2015-16. Shipments between Melbourne and Tasmania, which accounted for 75.6% of this coastal trade, increased 2.4% to a total of 18.7 million revenue tonnes (5.7 million mass tonnes). This ‘Bass Strait’ trade comprised of 53.3% containerised, 40.4% non-containerised general and 6.3% bulk cargo.

The main export commodities to Tasmania were miscellaneous manufactures, accompanied passenger vehicles, miscellaneous food preparations, motor vehicles, and beverages. The main commodities imported from Tasmania were cement, miscellaneous food preparations, accompanied passenger vehicles, paper and newsprint and miscellaneous manufactures.

Mainland coastal trade increased 7.1% to 6.0 million revenue tonnes (3.7 million mass tonnes) and comprised primarily containerised cargo which accounted for 47.0% of the trade followed by dry bulk (30.9%), liquid bulk (17.5%) and 4.6% non-containerised general cargo.

Overseas tradeThe top ten international trading partners for containerised and non-contanerised trade is outlined below with their respective percentage contributions in brackets.

Exports (country of destination) Imports (country of origin)Containerised Non-containerised Containerised Non-containerisedChina (25.1) Saudi Arabia (31.9) China (39.4) Japan (17.6)New Zealand (9.8) Singapore (16.2) USA (7.9) Gabon (11.1)USA (6.5) New Zealand (13.0) New Zealand (5.9) Singapore (10.8)Japan (6.4) China (11.0) Thailand (5.1) Thailand (10.4)South Korea (4.4) United Arab Emirates (6.2) Malaysia (3.8) Malaysia (8.4)Indonesia (4.4) Kuwait (6.1) Germany (3.0) Belgium (6.8)Taiwan (4.0) Indonesia (3.4) Italy (2.6) South Korea (6.1)Malaysia (3.8) Fiji (2.2) Japan (2.6) U.S.A. - East Coast (4.8)Hong Kong (3.1) Qatar (1.6) Indonesia (2.5) New Zealand (2.9)Singapore (2.9) Oman (1.5) Singapore (2.2) Germany (2.5)

Trade definitions 1. Trade volume is measured in:

• Revenue tonnes – quantity measure based on the greater of weight in mass tonnes and volume in cubic metres

• Mass tonnes – a quantity measure based on the weight of cargo

2. Trade information can be broken down into:

• Overseas trade – trade between Melbourne and non-Australian ports

• Coastal trade – trade between Melbourne and other Australian ports

• Total trade – the sum of both overseas and coastal trade

3. A TEU is a twenty-foot equivalent unit, the standard international measure for container throughput.

4. Gross tonnage (gross tons) is a measure of the total enclosed space or internal capacity of a vessel.


Finance in brief

PoMC delivered a strong financial performance with a profit after tax of $95.8 million.

The 2015-16 financial result was influenced by ‘abnormal’ costs associated with the Port Capacity Project (PCP) and Port of Melbourne Lease Transaction (PLT).

On 19 September, the Victorian Government announced the Lonsdale Consortium as the successful bidder for the fifty year lease of the Port of Melbourne’s commercial assets for $9.7 billion. Given the material nature of this transaction, it has been treated as a subsequent event in accordance with Australian Accounting Standards Board (AASB) 110 – Events after the Reporting Period.

Financial highlights for 2015-16:

• $95.8 million operating profit after tax• $29.9 million in dividends paid• $80.2 million Port Licence Fee (PLF)• $215.4 million in capital expenditure, of which

$176.5 million was related to PCP• Increase in total assets from $4.2 billion to $10.2

billion

Finance costsPoMC had interest revenue of $1.1 million for 2015-16 on cash reserves of $29.6 million at 30 June 2016. No finance costs offset by interest income of $1.1 million. By way of background, PoMC repaid all its outstanding debt in 2014-15 and did not take on any new debt in 2015-16.

Cash flowNet cash inflows from operating activities were $258.6 million compared with $105.7 million in 2014-15. This increase was primarily due to lower finance costs and income tax instalments paid in 2015-16.

Cash outflows from investing activities decreased by $69.3 million to $238.8 million in 2015-16 due to lower spend on PCP.

Cash outflows from financing activities was $29.9 million in 2015-16 as a result of dividends paid in 2015-16.

Operating performancePoMC’s earnings before interest and tax (EBIT) were $126.3 million for 2015-16.

Revenue before interest income increased by $12.0 million as a result of price increases of 2.75% and annual trade growth of 2.6%.

Operating expenditure increased to $266.8 million from $260.7 million in 2014-15. This movement was influenced by higher depreciation costs due to the fixed assets scheduled revaluation in 2014-15.

Earnings before interest and tax (EBIT)

ProfitOperating profit after tax for 2014-15 was $95.8 million against the previous year total of $45.9 million.

PoMC’s income tax expense increased to $31.6 million primarily from a higher profit before income tax generated in 2015-16.

0

50

100

150

200

2011/2012 2012/2013 2013/2014 2014/2015 2015/2016

$m DPRL*EBIT

* The figure for 2011-12 includes $82.0 million resulting from the transfer of the Dynon Port Rail Link (DPRL) assets from the former Department of Transport to PoMC.


RevenueRevenue for 2015-16 totalled $394.2 million compared to $381.7 million in the previous year.

Trade related revenue from wharfage charges of $261.7 million increased by $20.6 million on the previous year ($241.1 million).

Property rental and licence fees ($53.8 million) and channel fees ($52.9 million) remained relatively steady and were consistant with the previous year.

Since the introduction of the PLF in 2012-13, PoMC has recovered in total $311.2 million, a variance of $1.2 million compared to the $310.0 million PLF incurred.

Revenue by segment

ExpensesTotal expenses (excluding finance charges) were $266.8 million representing an increase of $6.1 million on the previous year.

As noted, this increase was primarily the result of: • increased depreciation of $22.6 million through

a higher asset base as a result of the 2014-15 scheduled revaluation offset by:

• decrease in revaluation decrements of $7.5 million related to the 2014-15 scheduled revaluation

• decrease in land tax expenses of $5.4 million due to the favourable resolution of a Land Tax dispute

• lower contractors and consultants of $3.1 million as a result of lower PCP expenditure during 2015-16 and prudent control over contractor and consultant costs.

Balance sheetAs at 30 June 2016, PoMC’s net assets were $10.1 billion.

The balance sheet comprised:• cash assets of $29.5 million consisting of cash

on hand and term deposits. Deposits earned a weighted average interest rate of 1.54% at 30 June 2016

• infrastructure, property, plant and equipment assets of $10.1 billion including channels, port land, buildings and infrastructure assets. The key movements were related to channels and land as a result of information arising from the market process for the Port of Melbourne Lease Transaction.

Capital expenditurePoMC undertook capital expenditure projects totalling $215.4 million. Expenditure included:• Port Capacity Project (ongoing)• Maintenance Dredging• Accelerated Low Water Corrosion Protection

Program• Bulk Liquid Facility Rehabilitation Works• 26 South Wharf Rehabilitation – Stage 2.

Capital expenditure

0

100

200

300

400

500

2011/2012 2013/2014 2014/2015 2015/2016

$m

Wharfage Rental Channel Fees Other DPRL*

* The figure for 2011-12 includes $82.0 million resulting from the transfer of the Dynon Port Rail Link (DPRL) assets from the former Department of Transport to PoMC.

2012/2013

0

50

100

150

200

250

300

350

2011/201 2013/2014 2014/2015 2015/2016

Normal PCP

2012/2013

$m


Financial summary

Year ended 30 June2016

$m2015

$m2014

$m2013

$m2012

$m

Operating results

Operating revenue 394.2 381.7 368.4 344.8 349.3

Operating expenses (266.8) (260.7) (237.0) (219.6) (172.1)

Finance costs (0.0) (69.7) (29.1) (31.4) (35.3)

Operating profit before income tax 127.4 51.3 102.3 93.8 141.9

Income tax benefit (expense) (31.6) (5.4) (29.5) (27.9) (42.1)

Operating profit after income tax 95.8 45.9 72.8 65.9 99.8

Financial status

Total assets 10,225.0 4,245.9 2,549.2 2,477.2 2,499.9

Total liabilities (110.9) (880.5) (849.2) (814.0) (900.0)

Net assets 10,114.1 3,365.4 1,700.0 1,663.2 1,599.9

Contributed capital and reserves 9,787.8 3,103.9 1,453.1 1,447.8 1,420.9

Retained profits 329.3 261.5 246.9 215.4 179.0

Total equity 10,114.1 3,365.4 1,700.0 1,663.2 1,599.9

Cash flows

Cash flows from operating activities 258.6 105.6 130.7 116.1 116.0

Cash flows from investing activities (238.8) (306.5) (130.8) (56.6) (37.6)

Cash flows from financing activities (29.9) 204.3 (13.7) (63.7) (65.4)

Net cash flow (10.1) 3.4 (13.8) (4.2) 13.0

Capital works

Total expenditure 215.4 311.1 140.2 56.8 33.6

Dividend

Dividends paid 29.9 33.0 43.7 29.7 34.4

Financial strength

Gearing ratio (%) 0.0 0.0 20.4 19.6 22.5

Interest cover ratio (times) 0.0 2.5 6.2 5.5 4.2

Leverage ratio (times) 0.0 0.0 2.2 2.1 2.7


Port of Melbourne Lease Transaction

Ministerial Directions and related instructionsIn accordance with the Ministerial Directions and instructions outlined on pages 8-9, PoMC undertook a wide range of preparation and planning activities to support the Port of Melbourne Lease Transaction including:• the establishment of new subsidiaries• workforce engagement and planning to ensure robust

organisational structures for the private leaseholder and Victorian Ports Corporation (Melbourne)

• preparation and review of relevant documentation to support a vendor due diligence process

• undertaking detailed functional design review process to identify and allocate functions, assets and systems

• preparatory work for the migration of key information technology platforms and applications such as payroll, finance and port operations systems

• identification of contracts which need to be vested, retained, transferred, split or duplicated.

Legislation The Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic) was passed by the Victorian Parliament in March. This Act enabled the Victorian Government to seek private sector interest for a 50 year lease of the Port of Melbourne’s commercial operations and a successful bidder was announced on 19 September 2016.

The legislation also provides for the establishment of Victorian Ports Corporation (Melbourne) as the successor entity to PoMC which will oversee and undertake specific functions to be retained by the State. These functions include Vessel Traffic Services, the role of the Harbour Master, Station Pier, towage and marine pollution response.

Prior to the passage of the legislation, PoMC hosted a site visit for the Members of the Legislative Council Select Committee Inquiry into the Port of Melbourne Lease and provided evidence in September and November.

PoMC also provided evidence to the Legislative Council Economy and Infrastructure Standing Committee in May.

Business separation Following the passage of the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic), PoMC commenced a business separation

process concurrent with the Victorian Government’s market process which was managed by the Department of Treasury and Finance and its Joint Financial Advisers.

Separation of PoMC’s business model required the creation of two separate operating entities to support the transaction design. A new operating entity, Port of Melbourne Operations Pty Ltd, was established to manage those aspects of the Port of Melbourne’s commercial operations to be transferred to the private leaseholder. This entity was established under the Corporations Act and is the Trustee of a newly established unit trust.

PoMC will continue to manage those functions and responsibilities to be retained by the State under the auspices of Victorian Ports Corporation (Melbourne). Both entities operated under the umbrella of PoMC up until the close of the Port of Melbourne Lease Transaction.

The separation of responsibilities for the management of the Port of Melbourne’s assets and operations commenced on 1 July 2016 to coincide with the start of the new financial year.

Business separation also has implications for PoMC staff which is outlined in the Our People section of this document on page 18.

Transition period During this ‘transition period’ PoMC and its subsidiaries communicated with its customers, tenants and suppliers regarding changes to relevant banking and invoicing details, particularly with respect to the establishment of Port of Melbourne Operations Pty Ltd.

These transitional arrangements were reflected in the release of pricing documents for 2016-17 which set out the respective fees and charges to be applied by the private Port Manager (Port of Melbourne Operations Pty Ltd as the Trustee for the Port of Melbourne Unit Trust) and PoMC and its successor organisation Victorian Ports Corporation (Melbourne).

FinanceIn 2015-16, PoMC incurred total expenditure of $7.2 million in relation to the Port of Melbourne Lease Transaction, which comprised legal, project management, information technology systems and network upgrades and configuration, software licences and hardware replacement.


Port operations

The focus of PoMC’s port operations is to ensure safe navigation for vessels to and from the Port of Melbourne, together with the management of Victoria’s cruise ship gateway at Station Pier and the safety and security requirements of an urban port.

Ship visitsThe Port of Melbourne received a total of 3,044 ship visits in 2015-16, including 1,095 container vessel visits.

The arrival of several large container ships during the reporting period set new benchmarks for the largest vessels to ever call at the Port of Melbourne. The Pangal became the longest vessel to call at Swanson Dock when it arrived in August with a length of 304 metres. The MSC Alessia called in April with the highest TEU capacity (6732 TEU) and gross tonnage (75,590t) before being superseded a month later by the E R Long Beach which became the largest container vessel to visit Melbourne with a maximum capacity of 7488 TEU and gross tonnage of 83,133t.

Maintenance dredgingRoutine maintenance dredging was undertaken in South Channel and the port precinct during 2016 to ensure safe navigation at the PoMC’s declared depths.

Dredging in South Channel by the 84-metre long trailer suction hopper dredge, Brisbane, took place over a period of approximately five weeks. Sand removed from South Channel was used for capping of sediments placed in the Port of Melbourne Dredged Material Ground. PoMC also undertook some limited sweeping operations in the Great Ship Channel at the entrance to Port Phillip as part of the maintenance dredging program.

Maintenance dredging was also undertaken in the north of the bay including shipping channels and berths in the port precinct.

All of the dredging works were carried out without any environmental impacts or safety hazards in full compliance with the approved Environmental Management Plan.

Safety and Environment Management Plan (SEMP)During the reporting period, PoMC’s Safety and Environmental Management Plan (SEMP) was independently audited in accordance with the Port Management Act 1995 (Vic) (PMA). The Auditor concluded that the SEMP had been prepared in accordance with Ministerial Guidelines Port Safety and Environment Management Plans (November 2012), as required by section 91G of the PMA and adequately provided for the matters required by section 91D of the PMA.

The audit also noted PoMC compliance with the SEMP and that there were no additional recommendations to improve the implementation and adequacy of the SEMP arising from the audit.

Cruise shippingA total of 76 cruise ships visited Melbourne for the 2015-16 season with an estimated 244,000 passengers and crew passing through Station Pier. Commencing in October, the season included a record number of turnaround visits by the Golden Princess, Pacific Jewel and the Pacific Eden. The Golden Princess made its maiden call to Station Pier on the eve of the Melbourne Cup period – the first of fourteen visits the vessel made during the season.

Multiple cruise ships arrived ahead of the Melbourne Cup with the Carnival Spirit, Pacific Pearl and the Pacific Jewel all berthed simultaneously at the historic Station Pier for extended stays.

Although Station Pier has ample berth availability throughout the cruise ship season from October to May, strong demand for cruise ships berths during the peak Melbourne Cup period saw Victoria Dock accommodate the Pacific Dawn for its arrival on the morning of the Melbourne Cup.

Station Pier is now busier than it has ever been in its long history in terms of passenger numbers and its management will remain with the State following the completion of the Port of Melbourne Lease Transaction. At that time, Victorian Ports Corporation (Melbourne) will assume responsibility for Station Pier and work to ensure Melbourne continues to benefit from one of the fastest growing sectors in tourism.


Port Capacity Project

The Port Capacity Project in the Webb Dock precinct is nearing completion as new milestones were reached across every aspect of Melbourne’s most significant port project in a generation.

Project progressAutomotive terminal

The completion of the automotive berths at 1 and 2 Webb Dock West was celebrated when the world’s largest car carrier, Höegh Target, made its maiden visit to Melbourne in October 2015. With a carrying capacity of 8,500 car equivalent units, the vessel was comfortably accommodated along the redeveloped 920 metre quayline which replaces the previous pontoon configuration.

The automotive terminal operator, Melbourne International RoRo & Auto Terminal (MIRRAT), completed its development of an 18.7 hectare facility and formally commenced operations in April.

Pre-Delivery Inspection Hub

To complement the automotive trade and consolidate the import pre-delivery service into one location at the northern end of Webb Dock, Patrick Autocare (12 hectares) and Prixcar Services (4 hectares) completed their developments and commenced operations in September and November 2015 respectively.

Container terminal

The new container terminal development undertaken by Victoria International Container Terminal Limited (VICTL) at Webb Dock East has undergone a dramatic transformation during the reporting period.

Development of the 35 hectare terminal to accommodate one million TEU has taken place alongside the construction of a 10 hectare empty container park which has been completed.

This significant project reached a number of important milestones including completing construction of the administration building and gate control area of the terminal.

Reinforcing the ambition to develop the most technologically advanced container terminal in Australia, VICTL commenced commissioning and testing 11

driverless automatic container carriers, 12 rail mounted automated container stacking cranes and three remote controlled Post-Panamax ship to shore cranes.

With the completion of berth 5 at Webb Dock East, VICTL is working to a schedule to host its first container vessel arrivals in late 2016 to early 2017.

Infrastructure and access improvements

During the year PoMC completed civil works on services to support port development in the Webb Dock precinct.

The completion of internal roads also enabled PoMC to reconfigure port traffic flows onto major arterial roads.

In March, the Project reached a major milestone with the closure of Williamstown Road west of Todd Road. The completion of internal access roads including Webb Dock Drive and Kooringa Way help to redirect port truck traffic away from residential areas and directly on to the M1 access points.

Community amenity

PoMC has been mindful of community amenity from the project’s early development phase. With the benefit of the input from the community stakeholders in the Project Liaison Group, PoMC has revitalised the area with the completion of landscaping of public access, areas notably Perc White Reserve and Todd Road.

The Webb Trail which runs along the eastern side of the container terminal development has been completed and leads to the Webb Point Observation Deck.

The extensive buffering and amenity enhancements have also incorporated reconnecting bike paths, and installing drinking fountains amid widespread native landscaping.

PoMC acknowledges and thanks all members of the Project Liaison Group for their contribution to the Project.

Finance

Over $176 million was invested in the Port Capacity Project in 2015-16 in addition to the $263 million invested the previous year.


Port pricing

PoMC sought industry input in preparing its Reference Tariff Schedule which resulted in modest CPI adjustments and the introduction of differential pricing for loaded export and import containers in 2015-16.

Price determination Prices charged by PoMC for the provision of shipping channels and infrastructure related to containerised and motor vehicle cargoes are subject to price monitoring by the Essential Services Commission (ESC).

In accordance with the ESC’s Price Monitoring Determination 2010 which applied to 30 June 2016, PoMC prepared a Pricing Policy Statement (PPS) which outlined the principles that guided PoMC in setting its fees and charges for prescribed services over the regulatory period.

Reference Tariff Schedule 2015-16To encourage supply chain efficiency and enhance the Port’s competitive position in Australia, PoMC introduced differential pricing arrangements for full container export and import tariffs for the first time. Loaded international export containers benefitted from a price freeze which saw no change to the previous 2014-15 wharfage rate.

With the exception outlined above, overall tariffs in the Reference Tariff Schedule (RTS) 2015-16 increased by a CPI increment of 2.75%, including loaded international container import wharfage.

An overview of the changes to prices which applied from 1 July 2015 to 30 June 2016 is outlined below:• wharfage fees for loaded twenty-foot container

exports were unchanged at $64.90 per TEU plus GST

• wharfage fees for loaded twenty-foot container imports increased by $1.78 per TEU to $66.68 plus GST

• wharfage fees for empty containers increased by $0.44 to $16.54 plus GST

• wharfage on motor vehicles increased in line with CPI by $1.04 per vehicle on average

• channel fees for vessels visiting the Port of Melbourne increased on average by 2.7%

• the Channel Deepening Project (CDP) Infrastructure Levy increased in line with CPI.

Reference Tariff Schedule 2016-17To reflect the business separation arrangements associated with the Port of Melbourne Lease Transaction, PoMC’s RTS 2016-17 was published in two parts. The documents outlined the respective fees and charges to be applied from 1 July 2016 by PoMC and its successor organisation, Victorian Ports Corporation (Melbourne), and for the private leaseholder, Port of Melbourne (Port of Melbourne Operations Pty Ltd as the Trustee for the Port of Melbourne Unit Trust) post transaction completion.

Having considered industry submissions and other customer feedback following the publication of an Industry Information Paper in March 2016, the overall price adjustment for fees and charges was a CPI increment of 1.3% drawn from the March quarter 2015 to March quarter 2016 CPI based on the weighted average of eight capital cities published by the Australian Bureau of Statistics (ABS).

The RTS 2016-17 also included a decrease of 2.5% on wharfage fees for loaded export containers following PoMC’s Board decision in May 2015 to progressively reduce this charge by 2.5% over the period 2016-17 to 2019-20 to improve PoMC’s competitiveness on international and mainland containerised exports.

An overview of the changes to prices to apply from 1 July 2016 to 30 June 2017 is outlined below: • wharfage for loaded twenty foot container exports

will decrease by $1.62 to $63.28 per TEU plus GST• wharfage for loaded twenty foot container imports

will increase by $0.86 to $67.54 per TEU plus GST• wharfage charges for empty containers will increase

by $0.22 to $16.76 per TEU plus GST• wharfage on motor vehicles will increase by $0.52

per vehicle on average• channel fees for vessels visiting the Port of

Melbourne will increase on average by 1.3% plus GST

• The Infrastructure Levy will increase in line with CPI, equivalent to $0.50 per TEU plus GST.

The prices outlined in the RTS, together with the Essential Services Commission’s regulatory framework, will remain in place for the financial year 2016-17 and these operate under the Victorian Government’s Pricing Order.

Details of the RTS documents outlining fees and charges are available on the respective websites www.portof melbourne.com and www.vicports.vic.gov.au.


Statement of Corporate Intent

PoMC has been required to prepare the following Statement of Corporate Intent on the basis of a business-as-usual approach. It is however noted that as a result of the Port of Melbourne Lease Transaction (PLT), PoMC is undergoing a period of significant transition and will evolve into an organisation responsible for a modified set of port functions and activities.

Port overview and assets

The Port of Melbourne is Australia’s largest container, automotive and general cargo port handling around 36% of the national container trade and is one of the top 60 container ports in the world (based on 2015 throughput). The Port handles a range of maritime trades including containers, automotive, liquid bulk, dry bulk, general cargo, roll on-roll off (Tasmanian passenger / freight and freight only services) and cruise vessels.

PoMC is the strategic and operational manager of the Port of Melbourne. PoMC’s assets include approximately 510 hectares of port land (Figure 1), 100,000 hectares of declared port waters and 35 commercial berths, piers and jetties (spread across nine separate port precincts). Out of these nine precincts, one includes Station Pier which will be transferred to VPCM as a result of the PLT. Currently, approximately 3,000 commercial vessels call at the port each year connecting Melbourne with both international and Australian ports.

Figure 1 – PoMC berths and facilities

MA

RIB

YR

NO

NG

RIV

ER

PORT PHILLIP BAY

PORTMELBOURNE

STA

TIO

N P

IER

PR

INC

ES P

IER

FISHERMANS

BEND

DOCKLANDS

VICTORIAHARBOUR

WILLIAMSTOWN

NEWPORT

YARRAVILLE

SW

AN

SO

N D

OC

K W

ES

T

SW

AN

SO

N D

OC

K E

AS

T

HO

LDEN

DO

CK

APPLETON DOCK

VICTORIA DOCK

WEBB DO

CK EAST

WEBB DO

CK W

EST

THE SPIT

FOOTSCRAY ROAD

BO

LTE

BR

IDG

E

WEST GATE BRIDGE TOD

D R

OA

D

LOR

IMER

STR

EET

WILLIAMSTOWN ROAD

MEBEACON R

OAD

SOUTH WHARF

MA

RIB

YR

NO

NG

RIV

ER

GEL

LIBR

AND

PIE

R

BREAKWATER PIER

ANN

ST

PIER

S

TONY

C

REEK

BACK

WAS

H

WESTGATEPUNT WESTGATE

PARK

GREENWICH BAY

WWWWWE

WEBEBBBBBB D

BD

WWE

WEEBBBBBB

D

OCK

SSSSSSSTTTTTTTTTTTTTTTTTTTTTTTTT

CCCCCKKKKKKKKKKKKKKKKKKKKK

EEEEEEEEEEEEEEEEEAAAAAAAA

SSSWW

AAANN

APPLETON DOCKCKO

ON DET

PPL

SSWW

SSWW

SSSOOOO

NNNNNNNNNNNNNNNNDDDDDDDDDDDDDDDDDD

OOOOOOOOCCC

WWWEEE

SSSTTT

SSWW

OOONNN

DDWWW

AANN

SSSSSS

WWW 6

1

3

4

4

2

8

7 9

11

12

5

10

1. 24 Victoria Dock

2. F Appleton Dock

3. B-E Appleton Dock

4. 1-4 Swanson Dock East

5. 1-4 Swanson Dock West

6. No. 1 Maribyrnong

7. 5&6 Yarraville Berth

8. Holden Dock

9. Gellibrand & Breakwater Pier

10. Station Pier

11. 3-5 Webb Dock East

12. 1-2 Webb Dock East

13. 2 Webb Dock West

14. Melbourne VTS

15. Port Education Centre

16. 33 South Wharf

17. 27-31 South Wharf

18. 26 South Wharf

Port of Melbourne berths and facilities• Swanson Dock – main container hub with two

international terminals

• Webb Dock East – Tasmanian freight facilities and international container terminal (currently under development)

• Webb Dock West – purpose built automotive facility (partly under development)

• Holden Dock and Gellibrand Pier – handles bulk fuel, petroleum and oil

• Appleton Dock – dry and break-bulk, roll – on/ roll-off vessels

• Victoria Dock – general cargo and slipways

• Yarraville berths - bulk cargo berths for sugar, gypsum and other dry bulk products

• Maribyrnong No. 1 – non-hazardous, hazardous and liquid bulk berth, servicing Coode Island facilities

• South Wharves – multi-purpose berths for steel, gypsum, paper products and cement; marina

• Station Pier – Victoria’s premier cruise shipping and Tasmanian freight and passenger ferry hub

• Port Operations Control Centre– shipping navigation services and emergency response management

• Port Education Centre – community education facility


Corporate planning framework

PoMC has developed an integrated corporate planning framework which is presented in Figure 2. The framework involves the consideration of corporate strategy and is primarily driven by policies, legislation and the external and internal environment. This framework provides direction and strategic choice for each level of business planning.

Figure 2 – PoMC corporate planning framework

ExternalGuiding direction Government legislation, regulation and policiesOperating and strategic environment

External and internal environmental factors that affect PoMC’s strategic considerations and direction

Internal

Corporate strategic direction

Ministerial strategic directions

Board strategic directions

Corporate vision, goals and values

Corporate planning framework

Corporate Plan Statement of Corpoate Intent

Divisional Plans

Implementation framework

Strategic initiatives delivery and outcomes

Collaborative initiatives with Government

Ongoing operational plans, policies and processes

Performance monitoring and reporting

Quarterly Business Performance Reports

PoMC key performance indicators and benchmarks

Port of Melbourne performance metrics

Corporate objectives

In response to the strategic economic role of the Port of Melbourne, PoMC’s current significant focus on the delivery of the new port infrastructure and capacity, and continued evolution of the policy and external strategic environment, the following corporate objectives will continue for 2015-16.

• Objective 1 – delivering critical port infrastructure and capacity – ensuring that the current program of major infrastructure works being undertaken at the Port of Melbourne, including the Port Capacity Project, are successively delivered on time and to the agreed budgets and are able to cater for the forecast trade demands

• Objective 2 – responding to ports sector policy evolution – monitoring the evolving Victorian ports sector policy environment and responding to Government directions and requests with regard to the policy changes which impact the Port of Melbourne. This includes the provision of support for the transaction activities associated with the lease of the Port of Melbourne to the private sector

• Objective 3 – ensuring ongoing port operations – continuing to focus on the efficiency and productivity of ongoing port operations which support the prosperity of the Victorian economy

• Objective 4 – supporting and engaging with port customers – actively engaging with the full range of Port of Melbourne customers to understand their port and trade needs and support them in the moving trade through the Port of Melbourne.

The corporate objectives, in parallel with PoMC’s corporate vision, goals and values, provide the supporting framework around which the Corporate Plan has been developed.


Corporate opportunities and challenges

Overall, there are a number of strategic opportunities and challenges for PoMC and the Port of Melbourne. These need to be understood as they have the potential to influence PoMC’s strategic planning and capacity delivery considerations. These challenges and opportunities include:

• Port sector policy evolution – the Australian ports sector has recently undergone a significant period of change with the privatisation of other capital city ports. In conjunction, the Government is well advanced in the process of leasing the Port of Melbourne to the private sector. There are also a number of recent and emerging commercial changes that will influence the future port operational and commercial environment.

• Broader economic and climatic conditions – port trade volumes are driven by the broader economic, demographic and climatic conditions. Imports are influenced by population growth and prosperity while exports principally by climatic conditions and the strength of the Australian dollar. In both cases, the international context is important and trade volumes can be significantly impacted by currency exchange rates, interest rates, extreme climate conditions, changes to broad global economic and production conditions

• Port and freight supply chain competition – within the freight supply chain, there is already competition at a number of different levels, between individual ports, between the individual terminals at each port and between the various logistics players. These sectors are all currently undergoing change with the introduction of new competitors and technology, shifting ownership structures and owners, along with changing levels of supply chain vertical integration

• Container shipping industry economics and dynamics – the world shipping industry is going through a sustained period of structural change. As a result, the industry is moving towards increased concentration of market power in the hands of a smaller number of shipping lines. This is resulting in increased use of alliances for the delivery of shipping services and the potential for reductions in direct port calls and service levels. In particular, it is noted that there is an excess capacity on Australia trade routes which is resulting in significant competition between the major shipping lines

• Port and freight supply chain productivity – the Port of Melbourne is the largest Victorian port and the main State import and export gateway. The port and wider supply chain productivity is critical to Victoria’s economic and social prosperity. The productivity of the supply chain is heavily influenced by a large number of stakeholders, including Government, industry and community. As such, a ‘whole of supply chain’ focus is needed to maintain efficiencies and resolve potential bottlenecks

• Port and city growing and planning together – it is important that the planning for both the port and city is integrated and there is a robust understanding of the mixture of benefits and challenges associated with this close proximity and integration. This includes an understanding of the liveability, urban realm and commuter transport (both public and private) requirements of cities, along with the operational and economic requirements of ports and the wider freight supply chain

• Port competition and financial stability – in order to deliver positive long term trade and economic outcomes, significant investments in port infrastructure and facilities are required. It is vital that PoMC is able to sustain robust revenues and profits to fund capacity and productivity improvements while maintaining competitive within a changing and increasingly competitive port environment.


Corporate planning framework map

To enable an effective response to the current and evolving strategic and operational environment, PoMC has developed an integrated corporate planning framework which maps PoMC’s corporate goals across PoMC’s corporate delivery focus; publications; major activities, projects and deliverables. Select elements of the corporate planning framework are presented in Table 1.

Table 1 – Select PoMC corporate planning framework map elements

Corporate goals Corporate delivery focus Major 2016-17 activities, projects and deliverablesGoal 1:

Delivering world class port facilities and services

• Asset management• Land management• Port capacity and productivity• Port planning and development• Vessel management

• Continued Government engagement• New and upgraded container terminal capacity (Port

Capacity Project)• New automotive terminal capacity (Port Capacity

Project) partially operational in April 2016• Ongoing capital works and wharf rehabilitation

programs

Goal 2:

Driving integrated freight transport outcomes

• Road, rail and intermodal transport planning and development

• Continued Government engagement• Western Distributor engagement• Cook Street Ramp Upgrade • Engagement with industry and stevedore operators

regarding port freight transport considerations including High Productivity Freight Vehicle (HPFV)/ Performance Based Standard access requirement, Coode Road closure ad precinct traffic flows

• Fishermans Bend freight transport options

Goal 3:

Enhancing Australian and international trading activities

• Business intelligence• Port data collection, analysis and

reporting• Port marketing• Trade facilitation and growth

• Continued industry engagement• Maintenance of contestable trade volumes, where

practical and possible• Melbourne Port System Industry Engagement and

Facilitation• Industry sponsorships • Sister ports engagement

Goal 4:

Ensuring sustainable business performance

• Capital investment• Competitive pricing position• Corporate administration and

communications• Corporate governance and planning• Emergency and crisis management• Environmental management• Financial returns and stability• Health and safety• Risk management• Security management

• Reference Tariff Schedule• Provision of transaction related activities to support

the PLT• Corporate governance and risk management • Corporate Plan and Business Performance Reports• Financial Management Act 1994 (Vic) (FMA)

compliance• Safe and efficient port operations

Goal 5:

Nurturing a shared port-city vision

• Community engagement• Land use planning• Port education• Stakeholder relations

• Continued community and stakeholder engagement• Heritage management

Goal 6:

Developing talented and committed people

• Leadership, people and culture • Continued staff development• Recruitment of key personnel• Separation planning and staff transition management


Strategic initiatives

For the 2016-17 financial year, PoMC will continue to undertake two strategic initiatives which will dominate our activities based on the current strategic directions of the Government and the significant transition underway in regard to the Port of Melbourne Lease Transaction.

• Port Capacity Project

− The $1.6 billion Port Capacity Project, announced in April 2012, will significantly expand the Port of Melbourne’s container and automotive terminals capacities. The centrepiece for the project is the redevelopment of Webb Dock and includes the construction of a new international container terminal, a new automotive terminal and an automotive pre-delivery inspection hub.

− PoMC is responsible for the funding and delivery of the redevelopment of the Webb Dock Precinct. These works include the delivery of 920 metres of new automotive wharf as well as the redevelopment of existing wharf assets at Webb Dock East to provide 660 metres of wharf for the Port of Melbourne’s third international container terminal.

− The delivery of wharf and road network infrastructure is well advanced and has enabled the automotive terminal and pre-delivery inspection hub to commence operations. Construction works associated with the new international container terminal continue and remain on schedule to handle the first containers by the end of 2016.

− Subject to complementary investment by the incumbent operators, the Port Capacity Project also includes internal port road infrastructure works to facilitate the expansion of the container handling capacity within the two existing container terminals located at Swanson Dock.

• Port of Melbourne Lease Transaction Support

− With the passing of the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2015 (Vic), the Government has achieved a significant milestone in progressing the lease of the Port of Melbourne to the private sector. In light of the PLT, PoMC will continue to work closely with Department of Treasury and Finance (DTF) and the appointed transaction advisors, to support the Port of Melbourne Lease Transaction process and activities.

− During the transition period, PoMC will continue to provide significant support to the PLT. These activities have, and will continue to, require significant senior management, Board and staff commitment and involvement. A Transition Plan has been prepared to ensure:

i. the continued and efficient operations of PoMC (and the Port of Melbourne) during this transition periodii. an understanding of the roles, responsibilities and authorities of the individual companies and PoMC as an

overall group are managed in support of the transition iii. PoMC and the Port of Melbourne can be structurally / operationally separated to ensure efficient and

effective entity structures at financial close.


Risk management

PoMC maintains a comprehensive corporate risk management framework which is integrated into all business planning processes and activities, including corporate planning. The key elements of the PoMC risk management framework include the:

• Risk Management Policy – the policy provides a structured and consistent approach to risk management across the corporation which aligns strategy, processes, people, technology and knowledge. The purpose of the policy is to evaluate and manage the uncertainties which PoMC is facing

• Risk Management Plan and Procedures – the plan and procedures include details regarding the application of risk management at corporate and divisional levels and also for significant projects. PoMC uses the processes and procedures outlined within these documents to evaluate and prioritise the risk within the PoMC operating and business context

• Corporate, Divisional, Project / Program and Operational Risk Registers – the registers hold the risk management information relevant to the respective business level and activity and are informed by annual risk management assessments.

PoMC continuously undertakes internal reviews, updates and refinements of this risk management framework which are complemented with external strategic reviews as required.

Performance indicators and metrics

PoMC has developed an integrated set of Key Performance Indicators (KPIs) and metrics which are used to assess the operation of PoMC and the Port of Melbourne. These KPIs and metric are as follows:

• PoMC KPIs are metrics which are largely or fully under the control of PoMC

• Port of Melbourne performance metrics are metrics for which PoMC has either limited or no control.

The PoMC KPIs and Port of Melbourne performance metrics for 2016-17 are presented in Tables 2 and 3 respectively, along with their alignment to PoMC’s corporate goals.


Table 2 – PoMC Key Performance Indicators (KPI)

PoMC KPI Definition Reporting frequency

Goal 1 – Delivering world class port facilities and services1. PoMC delivery of the Port Capacity

Project according to the approved budgetPercentage of Port Capacity Project deliverables completed during the period according to the approved budget

Quarterly

2. PoMC delivery of Capital Expenditure Program (excluding Port Capacity Project) according to the approved budget

Percentage Capital Expenditure Program deliveries completed during the period according to the approved budget

Quarterly

3. Percentage of critical PoMC marine and navigational system availability – Dynamic Under Keel Clearance (DUKC)

Percentage availability of the DUKC during the period Quarterly

4. Percentage of critical PoMC marine and navigational system availability – radar

Percentage availability of the radar during the period Quarterly

5. Percentage of critical PoMC marine and navigational system availability – navigation aids

Percentage availability of the navigation aids during the period

Quarterly

Goal 4 – Ensuring sustainable business performance6. PoMC return on capital employed Adjusted net operating profit after tax divided by the

average total capital employed at the end of the periodQuarterly

7. PoMC gearing ratio Total adjusted borrowings divided by equity at the end of the period

Quarterly

8. PoMC interest cover ratio Free funds from operations divided by net finance charges Quarterly9. PoMC leverage ratio A measure of PoMC’s ability to meet its debt financing

obligations calculated as: Total adjusted borrowing divided by (free funds from operations plus net finance charges plus capitalised lease interest)

Quarterly

10. PoMC Board approval of annual risk attestation

Board approval of the annual risk attestation for inclusion in the PoMC Annual Report

Annually

11. PoMC reportable environmental regulation breaches

Number of PoMC reportable environmental regulation breaches during the period

Quarterly

12. PoMC delivery of environmental inspections according to the approved schedule

Number of environmental inspections completed during the period. The schedule may be adjusted over time subject to management approval requirements

Quarterly

13. Percentage of PoMC’s electricity consumption generated by renewable sources

Percentage of PoMC’s electricity consumption which is generated by renewable sources during the period

Quarterly

14. PoMC lost time injury frequency rate Number of lost time injuries during the period multiplied by one million and divided by the total number of hours worked during the period

Quarterly

15. PoMC reportable security regulation breaches

Number of PoMC reportable security regulation breaches during the period

Quarterly

Goal 5 – Nurturing a shared port-city vision16. Execution of all capital works projects

Stakeholder Engagement PlansPercentage execution of all Stakeholder Engagement Plans for capital works projects (as required) identified within the PoMC enterprise project management system

Annually

Goal 6 – Developing talented and committed people17. Employee satisfaction rating Employee satisfaction rating within the People Matter

SurveyEvery two years

18. Employee turnover Number of permanent and contract employees that left PoMC during the period divided by the average number of permanent and contract employees for the period

Quarterly

PoMC KPI Definition Reporting Frequency

Goal 1 – Delivering world class port facilities and services

1. PoMC delivery of the Port Capacity Project according to the approved budget

Percentage of Port Capacity Project deliverables completed during the period according to the approved budget

Quarterly

2. PoMC delivery of Capital Expenditure Program (excluding Port Capacity Project) according to the approved budget

Percentage Capital Expenditure Program deliveries completed during the period according to the approved budget

Quarterly

3. Percentage of critical PoMC marine and navigational system availability – Declared Under Keel Clearance (DUKC)

Percentage availability of the DUKC during the period

Quarterly

4. Percentage of critical PoMC marine and navigational system availability – Radar

Percentage availability of the Radar during the period

Quarterly

5. Percentage of critical PoMC marine and navigational system availability – Navigation aids

Percentage availability of the Navigation aids during the period

Quarterly

Goal 4 – Ensuring sustainable business performance

6. PoMC return on capital employed

Adjusted net operating profit after tax divided by the average total capital employed at the end of the period Quarterly

7. PoMC gearing ratio Total adjusted borrowings divided by equity at the end of the period Quarterly

8. PoMC interest cover ratio Free funds from operations divided by net finance charges Quarterly

9. PoMC leverage ratio A measure of PoMC’s ability to meet its debt financing obligations calculated as:

Total adjusted borrowing divided by (free funds from operations plus net finance charges plus capitalised lease interest)

Quarterly

10. PoMC Board approval of annual risk attestation

Board approval of the annual risk attestation for inclusion in the PoMC Annual Report Annually


PoMC KPI Definition Reporting Frequency

11. PoMC reportable environmental regulation breaches

Number of PoMC reportable environmental regulation breaches during the period Quarterly

12. PoMC delivery of environmental inspections according to the approved schedule

Number of environmental inspections completed during the period. The schedule may be adjusted over time subject to management approval requirements Quarterly

13. Percentage of PoMC’s electricity consumption generated by renewable sources

Percentage of PoMC’s electricity consumption which is generated by renewable sources during the period

Quarterly

14. PoMC lost time injury frequency rate

Number of lost time injuries during the period multiplied by 1 million and divided by the total number of hours worked during the period Quarterly

15. PoMC reportable security regulation breaches

Number of PoMC reportable security regulation breaches during the period Quarterly

Goal 6 – Developing talented and committed people

16. Employee turnover Total number of voluntary separations for the period divided by the average number of active staff at the end of the period Quarterly


Abbreviations

The following abbreviations have been used within this document:

CEO Chief Executive OfficerCPI Consumer Price IndexDTF Department of Treasury and FinanceDUKC Dynamic Under Keel Clearance EBITDA Earnings Before Interest Tax Depreciation and AmortisationELA Enterprise Labour AgreementESC Essential Service CommissionFRD Financial Reporting DirectionGDP Gross Domestic ProductGFC Global Financial CrisisGSP Gross State ProductKPIs Key Performance IndicatorsMSA Marine Safety Act 2010 (Vic)NOPATD Net Operating Profit After Tax and DividendsPMA Port Management Act 1995 (Vic)PoM Port of MelbournePoMC Port of Melbourne CorporationPPS Pricing Policy StatementTCV Treasury Corporation of VictoriaTEU Twenty –foot equivalentTIA Transport Integration Act 2010 (Vic)WACC Weighted Average Cost of Capital


Additional information

Transport Integration Act 2010 (Vic)

The Transport Integration Act 2010 (Vic) (TIA) commenced on 1 July 2010. Its purpose is to create a new framework for the provision of an integrated and sustainable transport system in Victoria consistent with the vision statement contained in section 6 which reads:

‘The Parliament recognises the aspirations of Victorians for an integrated and sustainable transport system that contributes to an inclusive, prosperous and environmentally responsible State’

PoMC is defined as a ‘transport body’ under the TIA.

Under section 24 of the TIA, PoMC is required to have regard to the ‘transport system objectives’, ‘decision-making principles’ and any applicable ‘specified policy principles’ when performing its functions or exercising its powers under any ‘transport legislation’. Transport legislation includes the Port Management Act 1995 (Vic) and the Marine Safety Act 2010 (Vic).

The transport system objectives provide for:

• Social and economic inclusion• Economic prosperity• Environmental sustainability• Integration of transport and land use• Efficiency, coordination and reliability• Safety, health and wellbeing

The decision making principles provide for:

• Integrated decision-making• Triple bottom line assessment• Equity• Transport system user perspective• The precautionary principle• Stakeholder engagement and community participation• Transparency

Section 141D: Object

The primary object of PoMC is to manage and develop the port of Melbourne consistent with the vision statement and the transport system objectives.

The primary object includes:

a. to ensure, in collaboration with relevant responsible bodies, that the port of Melbourne is effectively integrated with the transport system and other systems of infrastructure in the State;

b. to facilitate, in collaboration with relevant responsible bodies, the sustainable growth of trade through the port of Melbourne;

c. to ensure that essential port services of the port of Melbourne are available and cost effective;d. to establish and manage channels in port of Melbourne waters for use on a fair and reasonable basis.

Section 141E: Functions

The functions of PoMC are to:

a. plan for the development and operation of the port of Melbourne;


b. provide land, waters and infrastructure necessary for the development and operation of the port of Melbourne;c. develop, or enable and control the development by others of, the whole or any part of the port of Melbourne;d. manage, or enable and control the management by others of, the whole or any part of the port of Melbourne;e. provide, or enable and control the provision by others of, services for the operation of the port of Melbourne;f. promote and market the port of Melbourne;g. facilitate the integration of infrastructure and logistics systems in the port of Melbourne with the transport system

and other relevant systems outside the port of Melbourne;h. manage and, in accordance with standards developed by the Director, Transport Safety, to dredge and maintain

channels in port of Melbourne waters;i. provide and maintain, in accordance with the standards developed by the Director, Transport Safety, navigation

aids in connection with navigation in port of Melbourne waters;j. generally direct and control, in accordance with the Marine Safety Act 2010 (Vic), the movement of vessels in port

of Melbourne waters;k. perform functions in accordance with a direction given by the Minister under section 141H of the Act;l. perform any other functions or duties conferred on PoMC by any other Act or any regulations under any other Act.

In performing its functions, PoMC must:

a. carry out its functions consistently with State policies and strategies for the development of the Victorian port and freight networks; and

b. to the extent that it is possible to do so consistently with paragraph (a) above, operate in a commercially sound manner having regard to:i. the benefits of increased competition between persons and bodies that provide services related to the

operation of the port of Melbourne;ii. the persons living or working in the immediate neighbourhood of the port of Melbourne;

iii. the need to conduct research and collect information relating to the performance of the functions and the operation of the port of Melbourne so as to enable PoMC to meet its primary object;

iv. the need to deal efficiently with any complaints relating to the performance of its functions.

Section 152: Powers

As a ‘transport corporation’ under the Act, PoMC has power to do all things that are necessary or convenient to be done for or in connection with, or as incidental to, the achievement of its object and the performance of its functions.

Significant legislative changes

Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic)

The Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic) received royal assent on 22 March 2016. The legislation establishes arrangements for the Victorian Government’s medium term lease of the port of Melbourne, including amendments to the Transport Integration Act 2010 (Vic), the Port Management Act 1995 (Vic) and the Marine Safety Act 2010 (Vic).

Emergency Management Amendment (Critical Infrastructure Resilience) Act 2014 (Vic)

The Emergency Management Amendment (Critical Infrastructure Resilience) Act 2014 (Vic) commenced on 1 July 2015. The legislation amends the Emergency Management Act 2013 (Vic) and provides for new emergency risk management arrangements for Victorian critical infrastructure. It establishes a system to classify Victorian critical infrastructure as ‘significant’, ‘major’ or ‘vital’, and imposes obligations on owners and operators of ‘vital’ critical infrastructure. At the time of writing the port of Melbourne had not yet been classified.


National Competition Policy

PoMC has complied with the Victorian Government’s requirements in respect of the National Competition Policy by adopting the following behaviours and principles:

• clear and non-conflicting objectives• managerial responsibility, authority and autonomy• independent and objective performance monitoring• performance-based rewards and sanctions• competitive neutrality in input and output markets• clear delineation of commercial and non-commercial activities• clearly defined financial reporting requirements• separate accounting for and funding of non-commercial activities• appropriate return on assets used in the commercial activity• application of a tax equivalent regime• debt guarantee fees• arrangements for allocation of profits from commercial activities

Victorian Industry Participation Policy

The Victorian Industry Participation Policy Act 2003 (Vic) requires the Victorian Government to develop and implement a Victorian Industry Participation Policy (VIPP) that aims at promoting employment and business growth for local industries, providing contractors with increased access to local industry capability, exposing local industry to world’s best practice and developing local industry’s international competitiveness and flexibility in responding to changing global markets.

During 2015-16, PoMC entered into three new contracts to which the VIPP applied, with a total estimated value of $11.7 million.

One contract to which the VIPP applied was completed in 2015-16, with a total value of $1.76 million. All of these contracts are ‘metropolitan’ as defined in the VIPP guidelines.


Victorian Government Risk Management Framework

In accordance with Standing Direction 4.5.5 of the Minister for Finance, I, Mark Birrell, certify that Port of Melbourne Corporation has risk management processes in place consistent with the Australian/New Zealand Risk Management Standard (AS/NZS ISO 31000:2009) and an internal control system is in place that enables the executive of Port of Melbourne Corporation to understand, manage and satisfactorily control risk exposures. The Board verified this assurance and that the risk profile of Port of Melbourne Corporation has been critically reviewed within the last 12 months.

Mark BirrellChairman

Assets

All assets of PoMC were noted on a register maintained by the organisation in accordance with the Financial Management Act 1994 (Vic).

Building and maintenance compliance

PoMC buildings were maintained in accordance with relevant building and maintenance provisions in the Building Act 1993 (Vic) and Building Regulations 2006.

All PoMC owned buildings were audited in accordance with Part 12 of the Building Regulations 2006.

Protected disclosure

The purpose of the Protected Disclosure Act 2012 (Vic) (PDA) is to encourage and facilitate disclosure of improper conduct by public officers and public bodies and to provide protection for persons who make those disclosures. PoMC is a public body and disclosures under the PDA can therefore be made about PoMC or PoMC’s members, officers or employees. Disclosures must be made directly to the Independent Broad-based Anti-corruption Commission at:

Independent Broad-based Anti-corruption Commission

GPO Box 24234 Melbourne VIC 3001

Tel: 1300 735 135 www.ibac.vic.gov.au


Privacy

The Privacy and Data Protection Act 2014 (Vic) (PDPA) requires the responsible collection and handling of personal information in the Victorian public sector. The PDPA applies to PoMC and therefore PoMC has responsibilities under the PDPA which include:• to collect, use and disclose personal information only in accordance with the Information Privacy Principles set out

in the PDPA• to provide individuals with access to information about them held by PoMC and by its contracted service providers• to provide individuals with the right to request PoMC to correct information about them held by PoMC and its

contracted service providers• to set out in a document clearly expressed policies on its management of personal information and making the

document available to anyone on request

During 2015-16, there were no complaints by an individual to PoMC or the Commissioner for Privacy and Data Protection about an act or practice of PoMC that may be an interference with the privacy of an individual.

Freedom of Information

The Freedom of Information Act 1982 (Vic) (FOI Act) enables members of the public to obtain information held by PoMC. During the period 1 July 2015 to 30 June 2016, PoMC received six requests. Five of those requests for information came directly from the public and one was transferred from another agency. During this period there was one review by the FOI Commissioner (in relation to a decision from the previous reporting period) and one review by the Victorian Civil and Administrative Tribunal.

The outcomes of the six requests were as follows:• one request was granted in part• one request was denied in full• one request was determined to be outside the provisions of the FOI Act• three requests are still in progress.

One request from the previous reporting period was decided during the year. That request was denied in full.

Requests for documents under the FOI Act should be made in writing and addressed to:

Freedom of Information OfficerVictorian Ports Corporation (Melbourne)GPO Box 261Melbourne VIC 3001

The request should provide such information as is reasonably required to enable the documents to be identified, and include a $27.90 application fee or evidence that payment should be waived because paying it could cause hardship.

Information and communications technology expenditure

PoMC’s information and communications technology expenditure for 2015-16 is summarised below:

CategoryBAU

($ million)

Non BAU ($ million)

Total ($ million)

Capital expenditure

Operational expenditure

Salaries & Wages 1.7 - - 1.7Depreciation / Amortisation 4.2 - - -Other expenditure 5.2 0.2 0.6 6.0Total 11.1 0.2 0.6 7.7


Consultancies

To deliver its extensive capital program, together with its ongoing operational responsibilities, PoMC routinely engages a wide range of consultants including engineering, environmental, information technology and professional services providers.

Details of consultants under $10,000

For the period 1 July 2015 to 30 June 2016, PoMC engaged 10 consultants where the value of the consultancy was less than $10,000 (excluding GST). The total expenditure on these 10 consultancies was $45,389 (excluding GST). This included one consultancy related to the Port Capacity Project (PCP) with a total value of $8,538 and one consultancy related to the Port of Melbourne Lease Transaction (PLT) with a total value of $5,217.

Details of consultants over $10,000

For the period 1 July 2015 to 30 June 2016, PoMC engaged 34 consultants where the value of the consultancy was $10,000 or greater (excluding GST). The total expenditure on these 34 consultancies was $7,157,966 (excluding GST). This included 13 consultancies related to the PCP with a total value of $1,876,199 and 3 consultancies related to the PLT with a total value of $1,266,952.

The name, purpose and value of these consultancies can be found on the Victorian Ports Corporation (Melbourne) website website at www.vicports.vic.gov.au.

Advertising expenditure disclosure

During the reporting period, PoMC undertook advertising expenditure in support of its ‘Steer Clear’ campaign to promote and advocate safe boating on Port Phillip Bay with specific regard to the dangers of anchoring and mooring in shipping channels. Working alongside Victoria Water Police, Transport Safety Victoria, Port Phillip Sea Pilots, the Australian Volunteer Coast Guard and VRFish (Victorian Recreational Fishing Peak Body), the Steer Clear campaign comprised targeted broadcast advertising on C31 and print advertising in the Fishing Monthly publication. Total expenditure was less than $100,000.

Availability of additional information

The following information relating to PoMC, relevant to the period 2015-16, has been prepared and is available to the Minister, Members of Parliament and the public on request:

• A statement that declarations of pecuniary interests have been duly completed by all relevant officers• Details of shares held by a senior officer as nominee or held beneficially in a statutory authority or subsidiary• Details of publications produced by PoMC about the port of Melbourne and how these can be obtained• Details of changes in prices, fees, charges, rates and levies charged by PoMC• Details of any major external reviews carried out on PoMC• Details of major research and development activities undertaken by PoMC• Details of overseas visits undertaken including a summary of the objectives and outcomes of each visit• Details of major promotional, public relations and marketing activities undertaken by PoMC to develop community

awareness of the organisation and its services• Details of assessments and measures undertaken to improve the occupational health and safety of employees• General statements on industrial relations within PoMC and details of time lost through industrial accidents and

disputes• A list of major committees sponsored by PoMC, the purposes of each committee and the extent to which the

purposes have been achieved• Details of all consultancies and contractors including consultants/contractors engaged, services provided; and

expenditure committee to for each engagement


Financial statements

Financial statements for the year ended 30 June 2016


Port of Melbourne CorporationComprehensive Operating StatementFor the year ended 30 June 2016

2016 2015Notes $'000 $'000

Revenue 3 394,224 381,657

Expenses 4 (266,759) (260,682) Finance costs 9 (4) (69,705) Profit before income tax 127,461 51,270 Income tax expense 5(b) (31,647) (5,392)

Profit after income tax 21(b) 95,814 45,878

Other comprehensive incomeItems that will not be reclassified to profit after income tax

21(a) 5,911,158 1,425,970 Employee benefits reserve movement 21(a) (8,249) (2,180)

5 (c), 21(a) (1,773,187) (427,790) 4,129,722 996,000

Items that will be reclassified to profit after income taxCash flow hedge reserve movement 21(a) - 6,115 Income tax on items that may be reclassified to profit after income tax 5 (c), 21(a) - (1,835)

- 4,280

Other comprehensive income/(loss) for the year, net of tax 4,129,722 1,000,280

Total comprehensive income for the year 4,225,536 1,046,158

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

Income tax on items that will not be reclassified to profit after income tax

Asset revaluation reserve movement

3

Port of Melbourne CorporationComprehensive Operating StatementFor the year ended 30 June 2015

2015 2014Notes $'000 $'000

Continuing operations

Revenue 3 381,657 368,421

Expenses 4 (260,682) (237,031) Finance costs 9 (69,705) (29,093) Profit before income tax 51,270 102,297 Income tax expense 5 (5,392) (29,542)

Profit after income tax 20(b) 45,878 72,755

Other comprehensive incomeItems that will not be reclassified to profit after income taxAsset revaluation reserve movement 20(a) 1,425,970 - Employee benefits reserve movement 20(a) (2,180) 5,381

5(c) (427,790) - 996,000 5,381

Items that will be reclassified to profit after income taxCash flow hedge reserve movement 20(a) 6,115 2,449 Income tax on items that may be reclassified to profit after income tax 5(c) (1,835) (735)

4,280 1,714

Other comprehensive income/(loss) for the year, net of tax 1,000,280 7,095

Total comprehensive income for the year 1,046,158 79,850

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

Income tax on items that will not be reclassified to profit after income tax


Port of Melbourne CorporationStatement of Financial PositionAs at 30 June 2016

2016 2015Notes $'000 $'000

Current assetsCash and cash equivalents 10 29,526 39,580 Receivables 11 28,436 39,998 Current tax assets 6 - 35,557 Other assets 12 1,689 2,053

59,651 117,188

Non-current assetsProperty, plant and equipment 14 10,144,972 4,110,402 Deferred tax assets 7 18,726 15,036 Intangible assets 15 1,722 3,259

10,165,420 4,128,697

Total assets 10,225,071 4,245,885

Current liabilitiesPayables 16 52,635 65,818 Interest bearing liabilities 17 - - Provisions 18 31,034 21,595 Current tax liabilities 6 3,598 - Other liabilities 19 4,046 5,067

91,313 92,480

Non-current liabilitiesInterest bearing liabilities 17 - - Deferred tax liabilities 8 18,427 786,857 Provisions 18 1,195 1,129

19,622 787,986

Total liabilities 110,935 880,466

NET ASSETS 10,114,136 3,365,419

EquityContributed capital 20 1,508,071 1,510,321 Reserves 21(a) 8,276,700 1,593,623 Retained profits 21(b) 329,365 261,475

TOTAL EQUITY 10,114,136 3,365,419

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


Port of Melbourne CorporationStatement of Changes in EquityFor the year ended 30 June 2016

Notes

Contributedcapital

$'000

Cash flow hedge

reserve $'000

Asset revaluation

reserve$'000

Employee benefits reserve

$'000

Retained profits

$'000Total equity

$'000

Balance at 1 July 2014 858,021 (4,280) 594,015 5,381 246,867 1,700,004 Profit for the year 21(b) - - - - 45,878 45,878 Other comprehensive income 21(a) - 4,280 998,180 (2,180) - 1,000,280 Total comprehensive income for the year - 4,280 998,180 (2,180) 45,878 1,046,158

Transactions with owners in their capacity as owners:Contributions/(distributions) of equity, net of transaction costs 20 652,300 - - - - 652,300 Dividends paid 21(b) - - - - (33,043) (33,043) Transfers from asset revaluation reserve to retained profits 21(a) (b) - - (1,773) - 1,773 -

652,300 - (1,773) - (31,270) 619,257

Balance at 1 July 2015 1,510,321 - 1,590,422 3,201 261,475 3,365,419

Balance at 1 July 2015 1,510,321 - 1,590,422 3,201 261,475 3,365,419 Profit for the year 21(b) - - - - 95,814 95,814 Other comprehensive income 21(a) - - 4,137,971 (8,249) - 4,129,722 Total comprehensive income for the year - - 4,137,971 (8,249) 95,814 4,225,536

Transactions with owners in their capacity as owners:Contributions/(distributions) of equity, net of transaction costs 20 (2,250) - - - - (2,250) Dividends paid 21(b) - - - - (29,908) (29,908) Transfers from asset revaluation reserve to retained profits 21(a) (b) - - (1,984) - 1,984 -

De-recognition of Deferred tax liabilities - specific to the Port of Melbourne Lease Transaction (PLT) 21 (a) - - 2,555,339 - - 2,555,339

(2,250) - 2,553,355 - (27,924) 2,523,181

Balance at 30 June 2016 1,508,071 - 8,281,748 (5,048) 329,365 10,114,136

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


Port of Melbourne CorporationStatement of Cash FlowsFor the year ended 30 June 2016

2016 2015Notes $'000 $'000

Cash flows from operating activitiesReceipts from customers 436,028 411,581 Payments to suppliers and employees (105,479) (123,386) Interest received 1,026 676 Interest paid (269) (75,838) Income tax instalments refund/(paid) 6 17,311 (24,421) Goods and Services Tax paid (10,178) (5,045)

4(i) (79,758) (77,882) Net cash inflow from operating activities 33 258,681 105,685

Cash flows from investing activitiesPayments for property, plant and equipment (241,042) (308,134) Proceeds from sale of property, plant and equipment 2,215 1,607 Net cash (outflow) from investing activities (238,827) (306,527)

Cash flows from financing activitiesProceeds from borrowings - 188,974 Repayment of borrowings - (603,974) Capital contribution from the Department of Treasury and Finance 20 - 652,300 Dividends paid 21(b) (29,908) (33,043) Net cash (outflow) from financing activities (29,908) 204,257

Net increase/(decrease) in cash and cash equivalents (10,054) 3,415 Cash and cash equivalents at the beginning of the financial year 39,580 36,165

Cash and cash equivalents at end of the financial year 10 29,526 39,580

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

Port Licence Fee


Port of Melbourne CorporationNotes to the Financial StatementsFor the year ended 30 June 2016

1

(a)

Summary of significant accounting policies

Port of Melbourne Corporation (PoMC) is a Government Business Enterprise established by the Victorian Government under the Port Management Act 1995 (Vic) (formerly the Port Services Act 1995 (Vic)). These financial statements cover PoMC as an individual reporting entity. The Board of PoMC is directly accountable to the Victorian Government through the Minister for Ports and the Treasurer.

PoMC is responsible for the strategic management and development of the Port of Melbourne including facilitating trade and trade-related businesses. The trade and trade-related businesses in the Port of Melbourne are container and general cargo.

These financial statements incorporate all activities of PoMC.

Corporate information

On 15 October 2014, PoMC received a Direction (Direction No. 1) from the then Minister for Ports (with approval from the then Treasurer), which required PoMC to assist the Victorian Government through the Planning and Foundation stages of the PLT.

On 15 May 2015, PoMC received a further Direction (Direction No. 2) from the Minister for Ports (with approval from the Treasurer) which included instructions for PoMC to repay all its outstanding interest bearing liabilities with the Treasury Corporation of Victoria (TCV) on or before 30 June 2015 in order to prepare the business to be leased to its new operator for 50 years on a debt free basis. A capital contribution via equity in the form of cash from the Department of Treasury and Finance (DTF) enabled this repayment. The disclosure pertaining to this transaction was disclosed in the prior year Annual Financial Statements and has been reproduced in the current year Annual Financial Statements for comparative purposes. Refer to Notes 9, 17 and 28.

In accordance with the Port Management Amendment (Port of Melbourne Corporation Licence Fee) Act 2012 (Vic), PoMC is required to remit to the Victorian Government an annual Port Licence Fee (PLF). This requirement commenced on 1 July 2012. The quantum of the PLF for 2015-16 was $80.2 million (2014-15: $78.4 million) which was payable by PoMC to the Victorian Government in four equal quarterly instalments of $20.05 million.

Ministerial Directions (including instructions from the Victorian State Government (the State) given to PoMC have been issued by the Minister for Ports (with approval from the Treasurer) under section 163(b) of the Transport Integration Act 2010 (Vic).

The disclosure with respect to the Port of Melbourne Lease Transaction (PLT) that was included in the prior year Annual Financial Statements has been reproduced below in order to provide an accurate chronological record of the timeline over the two financial years 2015 and 2016. The relevant Ministerial Directions that impact these financial statements have been detailed below.

On 25 June 2015, the Legislative Assembly (Lower House) of the Victorian Parliament passed the 'Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Bill 2015' which was subsequently introduced in the Legislative Council (Upper House).



1

(a)

On 10 March 2016, the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Bill 2015, was passed by the Victorian Parliament. This legislation authorised and facilitated the leasing of land and disposal of other assets of PoMC (the Port Package) to the private sector via newly created PoMC subsidiaries and amended existing legislation to provide for an appropriate regulatory regime for the Port of Melbourne.

On 11 March 2016, the State instructed the PoMC Board to acquire 31 land parcels (21,931 square metres in total) of freehold land within the Port of Melbourne from DTF. The instructions were issued in accordance with a Direction from the Treasurer and the Minister for Ports dated 15 May 2015. Refer to Note 28 for further details.

The Treasurer's second reading speech was delivered in the Victorian Parliament on 27 May 2015. As part of the speech it was noted that the primary purposes of the Bill were to authorise and facilitate the leasing of land and disposal of other assets of the PoMC to a private sector entity and to amend existing legislation to provide for an appropriate regulatory regime for the Port of Melbourne.

On 5 August 2015, the Upper House of the Victorian Parliament established a Select Committee (Port of Melbourne Select Committee) of eight members to inquire into and report on the proposed lease of the Port of Melbourne. The reporting date for the inquiry was 30 November 2015.

On 8 December 2015, the Port of Melbourne Select Committee tabled its report entitled Inquiry into the proposed lease of Port of Melbourne in the Victorian Parliament.

Summary of significant accounting policies (continued)

Corporate information (continued)

On 11 March 2016, the State instructed the PoMC Board to establish the following subsidiaries and unit trust:- Port of Melbourne Operations Pty Ltd (PoMO), a Corporations Act 2001 (Cth) (Corporations Act) company established as a wholly owned subsidiary of PoMC;- Melbourne Port Lessor Pty Ltd (Port Lessor), a Corporations Act company established as a wholly owned subsidiary of PoMC; and- Port of Melbourne Unit Trust (PoMUT), a unit trust of which Port of Melbourne Operations Pty Ltd has been appointed as Trustee and the units of which are wholly owned by PoMC.

On 21 March 2016, PoMC (as parent entity), following Board approval, established the following Corporations Act companies, each with $10 as share capital: - Port of Melbourne Operations Pty Ltd - Melbourne Port Lessor Pty Ltd.

On the same day, PoMC applied for and was granted 10 Initial Units in the Port of Melbourne Unit Trust. PoMC agreed to pay the Trustee (Port of Melbourne Operations Pty Ltd) $10 for the 10 Initial Units. PoMC also agreed to be bound by the Trust Deed constituting the Port of Melbourne Unit Trust. The Port of Melbourne Operations Pty Ltd as trustee for (atf) Port of Melbourne Unit Trust are collectively referred to as 'Port Manager' throughout these financial statements.



1

(a)


On 21 March 2016, the Treasurer commenced the formal PLT process for a 50 year lease and disposal of other assets and liabilities of PoMC with expressions of interest requested from bidders. The functions of the Harbour Master including emergency management and business operations at Station Pier are to be retained under the State's control and are not part of the Port Package.

The two PoMC subsidiaries and the unit trust were established in order to facilitate the proposed business separation effective 1 July 2016, of the relevant assets and liabilities, functions and responsibilities of PoMC into those that are to be offered to a private operator and those that will be retained by the Victorian Government. From the time of their establishment to 30 June 2016, the two subsidiaries and the unit trust remained dormant. Further details are disclosed in Note 13 and Note 31(c).

Following a successful bidding process which was led by DTF along with their Joint Financial Advisers, on 19 September 2016, the Treasurer announced the successful bidder for the PLT as the Lonsdale Consortium.

On 1 July 2016, certain assets, rights and liabilities of PoMC were transferred to Port Lessor and Port Manager. The transfers were accounted for in accordance with FRD 119A - Transfers through Contributed Capital as designated by the Minister for Ports via a letter dated 27 June 2016. Refer to Notes 13, 14 and 31 for further details.

On 20 June 2016, a number of statutory vesting orders (effective from 1 July 2016) declared under section 86 of the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic) were received from the Premier of Victoria transferring specific assets, rights and liabilities from PoMC to Port Lessor and Port Manager.

As at the date of this report the financial close of the PLT remains to be finalised and accounted for by PoMC. The financial close is expected to occur on 31 October 2016 and ordinarily include the following:- divestment of PoMC's wholly owned Port Manager entities (PoMO and PoMUT) from PoMC to the Lonsdale Consortium, and- lease of fixed assets (Channels, Land and Infrastructure) from PoMC's wholly owned subsidiary Port Lessor to the Lonsdale Consortium for a period of 50 years.

The financial statements have incorporated a subsequent event in accordance with AASB 110 - Events after the Reporting Period due to the following events that occurred on 19 September 2016:- announcement of the Lonsdale Consortium as the successful bidder;- signing of the Sale and Purchase Deed between the State and the Lonsdale Consortium; - release of total Bid Price for the 50 year lease; and- overview of the assets subject to the 50 year lease.The adjustments pertaining to the PLT have been detailed in Notes 13, 14 and 31.

On 22 March 2016, the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Bill 2015 received Royal Assent and was subsequently enacted as the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic).

Corporate information (continued)



1

(b)

(c)

(d)

The Board of PoMC is of the view that the 2015-16 financial statements of PoMC also comply with IFRS as issued by the International Accounting Standards Board (IASB).

Compliance with International Financial Reporting Standards (IFRS)

Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

The financial statements of PoMC are general purpose financial statements in accordance with the Financial Management Act 1994 (Vic) and applicable Australian Accounting Standards and Interpretations (AAS). PoMC has been designated a "for profit" entity.

The financial statements have been prepared on an accruals and a historical cost basis, except for Property, plant and equipment which, subsequent to acquisition, are measured at a revalued amount being their fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent impairment losses. Cost is based on the fair values of the consideration given in exchange for assets. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Basis of preparation

Statement of compliance

Total operating expenses for the current reporting period incurred on the PLT are disclosed in Note 4.

Interest in Other Entities

PoMC has disclosed information about its interest in its wholly owned subsidiaries - Port of Melbourne Operations Pty Ltd, Melbourne Port Lessor Pty Ltd and the Port of Melbourne Unit Trust as prescribed by AASB 12 Disclosure of Interests in Other Entities in Note 13. From the time of their establishment to 30 June 2016, the subsidiaries remained dormant and the financial impact of consolidation is considered not material.

The annual financial statements were authorised for issue by the Board of PoMC on 24 October 2016.

The financial statements have been prepared on a going concern basis, as referred to in Note 20, taking into account that the announcement of the Lonsdale Consortium as the successful bidder with regard to the PLT is a subsequent event of an adjusting nature in accordance with AASB 110 - Events after the Reporting Period . The adjustments pertaining to the PLT have been detailed in Notes 13, 14 and 31.


Post the financial close of the PLT, Port Lessor is expected to be transferred from PoMC (as parent) to the Department of Economic Development, Jobs, Transport and Resources (DEDJTR). In addition, PoMC will be renamed as Victorian Ports Corporation (Melbourne) in accordance with the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic).



1

(e)

(f) Revenue

(iii) Rent and licence fees

(iv) Interest revenue

(v) Government grants

(i) Charges on goods (wharfage fees)

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates 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 profit or loss, except when they are deferred in equity as qualifying cash flow hedges.

Revenue is measured at the fair value of the consideration received or receivable.

Revenue is recognised for the major business activities as follows:

Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met.

Both the functional and presentation currency of PoMC is Australian dollars ($).

Foreign currency translation

PoMC recognises revenue when the amount of revenue can be reliably measured; it is probable that future economic benefits will flow to PoMC and specific criteria have been met for each of PoMC's activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the revenue have been resolved. PoMC bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.


Channel fees are charged for the provision of channels for use by vessels in Port of Melbourne waters and the provision of associated services. Channel fees are levied per ship visit on the gross tons of vessels using the channels or in other manners specified for the provision of channel related services.

Revenue from operating leases is recognised in accordance with PoMC’s accounting policy outlined in Note 1(ii).

(i) Functional and presentation currency

Interest revenue is recognised as the interest accrues to the net carrying amount of the financial asset using the effective interest rate method.

(ii) Channel usage charges (Channel fees)

Wharfage fees are charged per unit of quantity, volume or weight of cargo for all cargoes, including empty containers, loaded on or discharged from vessels or between vessels in the Port of Melbourne. Revenue is recognised at the time of the related vessel’s departure from its designated berth.

(ii) Transactions and balances



1

(f) Revenue (continued)

(vi) Other revenue

(g) Expenses

(h) Income tax

(i) Current tax

(ii) Deferred tax


Income tax expense comprises current and deferred tax expense. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised directly in equity.

Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred income tax liabilities are recognised for all taxable temporary differences.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised.

Expenses from transactions are recognised as they are incurred, and reported in the financial year to which they relate. Operating expenses generally represent day-to-day running costs incurred in normal operations.

No deferred tax assets and liabilities will be recognised from the initial recognition of an asset or liability, excluding a business combination where there is no effect on accounting or taxable profit or loss.

PoMC is subject to the National Tax Equivalent Regime (NTER). In accordance with this legislation, PoMC is required to pay to the State Government Consolidated Fund, amounts determined to be equivalent to the amounts that would be payable by PoMC if it was subject to the Income Tax Assessment Act 1936 (Cwlth) and Income Tax Assessment Act 1997 (Cwlth).

All other revenue from major business activities is recognised at the time the service to which the revenue relates is provided or work is undertaken and the revenue is receivable.



1

(h) Income tax (continued)

(ii) Deferred tax (continued)

(i) Leases

(i) Finance lease

(ii) Operating lease

PoMC as lessor

PoMC as lessee

(j)

(k)

For the Statement of Cash Flows presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short-term and highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

All assets are assessed annually for indications of impairment (i.e. as to whether their carrying value exceeds their recoverable amount).


Cash and cash equivalents

The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense in the year in which they are incurred. This reflects the pattern of benefits derived by PoMC.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease agreement.

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

Impairment of assets

If there is an indication of impairment, the assets concerned are tested as to whether their carrying value exceeds their recoverable amount. Where an asset’s carrying value exceeds its recoverable amount, the difference is written off by a charge to profit or loss except to the extent that the write-down can be debited to an asset revaluation reserve amount applicable to that specific asset. The recoverable amount for an asset is measured at the higher of the present value of future cash flows expected to be obtained from the asset and fair value less costs to sell.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and PoMC intends to settle its current tax assets and liabilities on a net basis.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.



1

(l)

(m)

If an asset's carrying amount is increased as a result of a revaluation, the increase is credited directly to equity under the heading of asset revaluation reserve net of applicable tax. However, the increase is recognised in profit or loss to the extent that it reverses a revaluation decrease previously recognised in profit or loss in respect of that asset.

Collectability of trade receivables is reviewed on an ongoing basis. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that PoMC may not be able to collect the receivable. Financial difficulties of the debtor or debts more than 120 days overdue are considered objective evidence of impairment. The amount of the impairment loss is the receivable's carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.

Receivables consist of contractual receivables and statutory receivables. Contractual receivables mainly include trade receivables in relation to goods and services. Statutory receivables include amounts owing from the Victorian Government and Goods and Services Tax (GST) input tax credits recoverable. Contractual receivables are classified as financial instruments in Note 26. Statutory receivables are not classified as financial instruments as they do not arise from a contract.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 15 to 30 days. PoMC’s trading terms allow for interest to be charged on unpaid amounts that are not settled within the normal trading terms.

Property, plant and equipment


Property, plant and equipment represent non-current assets comprising land, buildings and improvements, channel assets, and plant and equipment used by PoMC in its operations.

All non-current physical assets are measured initially at cost and subsequently revalued at fair value less accumulated depreciation and impairment.

Non-current physical assets measured at fair value are revalued in accordance with Financial Reporting Direction 103F Non-Financial Physical Assets (FRD 103F). This revaluation process occurs every five years, based upon the asset’s classification under the Government Purpose Classification, but may occur more frequently if fair value assessments indicate material changes in values. Revaluation increments or decrements arise from differences between an asset’s carrying value and fair value.

If an asset's carrying amount is decreased as a result of a revaluation, the decrease is recognised in profit or loss. However, the decrease is debited directly to equity under the heading of asset revaluation reserve to the extent of any credit balance existing in the revaluation reserve in respect of that asset.

Receivables



1

(m)

Class Method Valuer Channels Discounted cash flows

Land Income approach

Infrastructure Depreciatedreplacement cost

Plant and equipment (except for Office and computer equipment, Motor vehicles and Furniture and fittings)

Depreciatedreplacement cost

Office and computer equipment, Motor vehicles and Furniture and fittings

Depreciated writtendown value

2016 2015Channels 40 years (i) 40 yearsInfrastructure 2 - 85 years 2 - 85 yearsPlant and equipment 1 - 25 years 1 - 25 years

(i) Given the conclusion of the PLT, the useful life of the Channels has been reassessed to be indefinite and the residual value calculation of the Channels (as detailed in Note 14) has taken into account a perpetual useful life. This change in accounting estimate is as a result of new information specific to the PLT and is not considered to be a correction of an error. The change in the accounting estimate occurred on 30 June 2016 and will take effect on 1 July 2016.

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


(i) Depreciation

Management Assessment

* The valuation scope, methodology adopted and the calculations applied to the valuations were examined and certified by the Valuer-General Victoria as meeting the relevant Australian Accounting Standards and FRD 103F.

In 2015, a valuation of PoMC's non-financial physical assets was performed to determine fair value as presented below. The valuations were effective as at 30 June 2015.

Jones Lang LaSalle *



Pitcher Partners *

Property, plant and equipment (continued)Gains and losses on disposals of assets are determined by comparing proceeds from sale with the carrying amount and selling costs. These are included in profit or loss. Upon disposal or derecognition, any revaluation reserve relating to the particular asset being sold or written off is transferred to retained profits.

In 2016, the fair value assessment of PoMC's Property, plant and equipment has taken into account the impact of the PLT's conclusion. It has been considered appropriate that PoMC should take into account and reflect the final Bid price of the PLT when determining the fair value of its assets (specific to the Port Package) as at 30 June 2016. Refer to Note 14 for further details.



1

(m)

(n)

Property, plant and equipment (continued)

All items with a cost or value in excess of $1,000 (2015: $1,000) and with a useful life greater than one year are recognised as assets. All items within the threshold of $91 to $1,000 (2015: $91 to $1,000) and with a useful life greater than one year are grouped and recognised as assets within the Low Value Asset Pool. All other items are expensed as acquired.

(iv) Recoverable amountAn asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (refer to Note 1(j)).

Routine maintenance, repair costs and minor renewal costs are expensed as incurred. Where the repair relates to the replacement of a component of an asset and the cost exceeds the capitalisation threshold, the cost is capitalised and depreciated.

Assets classified as held for sale

(v) Repairs and maintenance

For an asset in the disposal group to be so classified, it must be available for immediate sale in its present condition and its sale must be highly probable. Non-current assets are not depreciated or amortised while they are classified as held for sale. Non-current assets classified as held for sale are presented separately from other assets in the Statement of Financial Position.

(ii) Change in accounting estimates

(vi) Major maintenance dredging costsThe shipping channels in Port of Melbourne waters are subject to deterioration through siltation, which reduces the depth of water available to commercial shipping. The channels are restored to declared depths by routine maintenance dredging. Dredging and associated costs (including all costs incurred under the dredging contract to restore the channels to declared depths) are capitalised and amortised.

The estimated useful lives, residual values and depreciation method are reviewed at the end of each financial reporting period and, where revised, are accounted for as a change in an accounting estimate. Where depreciation rates or methods are changed, the net written down value of the asset is depreciated from the date of the change in accordance with the new depreciation rate or method.

(iii) AcquisitionThe purchase method of accounting is used for all acquisitions of assets, being the fair value of the assets provided as consideration at the date of acquisition plus any incidental costs attributable to the acquisition. Where assets are constructed by PoMC, the costs at which they are initially recorded include an appropriate share of labour costs incurred directly in the construction of the asset.

Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell.




1

(o) Intangible assets

2016 2015Software and systems 4 years 4 years

(p) Financial Instruments

(q) Payables

(r)


Interest bearing liabilities are fixed rate facility loans and are recorded at amortised cost. Interest bearing liabilities are classified as current liabilities unless PoMC has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

Interest bearing liabilities

All interest bearing liabilities are initially recognised at fair value of the consideration received less directly attributable transaction costs. The measurement basis subsequent to initial recognition depends on whether PoMC has classified the debt as financial liabilities designated at fair value through profit and loss or financial liabilities at amortised cost.

Trade payables are carried at amortised cost. Due to their short term nature they are not discounted. They represent liabilities for goods and services provided to PoMC prior to the end of the financial year that are unpaid as at year end. The amounts are unsecured and are usually paid within 30 days of recognition.

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method less impairment.

Payables consist of contractual payables and statutory payables. Contractual payables include mainly trade payables' creditors in relation to goods and services. Statutory payables include GST payable, fringe benefits tax and other tax payable. Contractual payables are classified as financial instruments in Note 26. Statutory payables are not classified as financial instruments as they do not arise from a contract.

Due to the nature of PoMC's activities, certain financial assets and liabilities arise under statute rather than a contract. Such financial assets and liabilities do not meet the definition of financial instruments per AASB 132 - Financial Instruments: Presentation. Statutory receivables and payables arising from taxes, fines and penalties do not meet the definition of financial instruments as they do not arise under contract. Refer to Note 26 for further details.

Intangible assets are initially recognised at cost. Subsequently, intangible assets with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Costs incurred subsequent to initial acquisition are capitalised when it is expected that additional future economic benefits will flow to PoMC.

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) over the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest rate basis for debt instruments.



1

(s) Finance costs

(t) Provisions

(u) Employee benefits


Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale are expensed rather than added to the cost of the assets on the basis that PoMC's Property, plant and equipment are recognised at fair value. All other finance costs are recognised as expenses in the period in which they are incurred.

(i) Wages, salaries and sick leave

(i) Environmental restoration feasibility studies and remediation costsPoMC's land and channel assets may be subject to varying degrees of contamination. Ongoing environmental assessment and restoration costs are progressively charged as part of the expenses from ordinary activities when incurred.

Provisions are recognised when PoMC has 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 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.

Liabilities for wages and salaries, expected to be settled within 12 months of the reporting date, are measured at their nominal amounts (including on-costs) using the remuneration rates expected to apply at the time of the settlement and are recognised as current liabilities. PoMC does not have an unconditional right to defer settlement of these liabilities. No liability is recognised for non-vesting sick leave as the anticipated pattern of future sick leave taken indicates that accumulated non-vesting leave will not be used.

The direct costs of land remediation are included in the cost of the land (where it is expected to enhance the value of the land by providing future economic benefits) and a corresponding liability or provision is recognised when the obligation for remediation arises and can be reliably estimated.

Estimated costs of environmental assessment, management and restoration of assets are recognised as a liability when the obligation is identified and the costs can be reliably estimated.



1

(u) Employee benefits (continued)

(ii) Annual leave

(iii) Long service leave

(iv) Superannuation


Unconditional long service leave is disclosed as a current liability even when the liability is not expected to settle within 12 months as PoMC does not have an unconditional right to defer the settlement. Those liabilities which are expected to be wholly settled within 12 months of the reporting period, are measured at their undiscounted (nominal) values. Those liabilities that are not expected to be wholly settled beyond 12 months are measured at present value.

Past service cost is recognised immediately to the extent that the benefits are already vested, otherwise it is amortised on a straight-line basis over the average period until the benefits become vested.

Annual leave entitlements are accrued on a pro-rata basis in respect of services provided by employees up to the reporting date, having regard to rates expected to apply when the liabilities are settled. The entire obligation has been recognised as a current liability as PoMC does not have an unconditional right to defer settlement. Those liabilities which are expected to be wholly settled within 12 months of the reporting period, are measured at their undiscounted (nominal) values. Those liabilities that are not expected to be wholly settled within 12 months are also recognised in the provision for employee benefits as current liabilities, but are measured at present value of the amounts expected to be paid when the liabilities are settled using the remuneration rate expected to apply at the time of settlement.

A liability in respect of the Port of Melbourne Superannuation Fund is recognised in the Statement of Financial Position in the provision for employee benefits, and is determined using the Projected Unit Cost Method, with actuarial valuations being carried out at each reporting date. Actuarial gains and losses are recognised in Other Comprehensive Income in the period in which they occur.

Long service leave entitlements are assessed at balance date having regard to expected employees’ remuneration rates on settlement, employment related on-costs and other factors including expected accumulated years of employment on settlement and past experience. Commonwealth bond rates are used for discounting future cash flows.

Some PoMC employees are members of defined benefit superannuation schemes, being the Port of Melbourne Superannuation Fund and the State Superannuation Scheme. These defined benefit funds are closed to new members. PoMC does not recognise any defined benefit liability in respect of the State Superannuation Scheme. DTF recognises and discloses the defined benefit liabilities for the State Superannuation Scheme in its financial report. PoMC has no legal or constructive obligation to pay future benefits relating to its employees in the State Superannuation Scheme as its only obligation is to pay superannuation contributions as they fall due.

Conditional long service leave is disclosed as a non-current liability as there is an unconditional right to defer the settlement of the entitlement until the employee has completed the requisite years of service. Conditional long service leave is disclosed as a non-current liability measured at present value.



1

(u) Employee benefits (continued)

(iv) Superannuation (continued)

(v) Contributed capital

(w) Commitments

(x) Contingent assets and contingent liabilities

Contributions to defined contribution funds are made in accordance with the Superannuation Guarantee (Administration) Act 1992 (Cwlth). Contributions are charged as an expense as the contributions are paid or become payable.

Consistent with applicable Australian reporting requirements and the Financial Management Act 1994 (Vic), transfers and appropriation for additions of net assets between PoMC and State Government Departments designated as contributed capital, are recognised as capital transactions.


Contributions to defined benefit schemes are based on a percentage of members' annual salary as actuarially determined and reviewed annually. Any deficiency in the net assets of a defined benefit scheme is recognised as a liability when it arises. Refer to Note 22 for further details.

Commitments for future expenditure include operating and capital commitments arising from contracts. These commitments are disclosed in Note 29 at their nominal values inclusive of GST.

The net liability recognised in the Statement of Financial Position represents the present value of the defined benefit obligation, adjusted for unrecognised past service cost, net of the fair value of the plan assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reduction in future contributions to the plan.

Contingent assets and contingent liabilities are not recognised in the Statement of Financial Position, but are disclosed by way of a note and, if quantifiable, are measured at nominal value. Contingent assets and liabilities are presented inclusive of GST. Refer to Note 27 for further details.

Transfers of net assets arising from administrative restructures and/or from all other arrangements which are deemed to be contributions by owners, where there is insufficient contributed capital for distribution, are recognised as an expense by the transferor and income by the transferee in accordance with Financial Reporting Direction 119A - Transfers through Contributed Capital (FRD 119A). Alternatively, if the transferor has approval to reclassify sufficient accumulated funds to contributed capital prior to, or at, the time of the asset transfer date then a distribution from contributed capital can occur.



1

(y) Dividend policy

(z)

(aa)


Rounding of amounts

Revenues, expenses and assets are recognised net of GST except where the amount of GST incurred is not recoverable, in which case it is recognised as part of the cost of acquisition of an asset or part of an item of expense. The GST recoverable from, or payable to, the Australian Taxation Office is included as part of statutory receivables or statutory payables.

PoMC pays dividends in accordance with a determination of the Treasurer of Victoria under the Transport Integration Act 2010 (Vic). The obligation to pay a dividend arises after consultation between PoMC’s Board, the Minister for Ports and the Treasurer of Victoria. Following this consultation process, the Treasurer makes a formal determination. Only dividends declared on or before reporting date are recognised as a liability.

Goods and Services Tax (GST)

Unless otherwise stated, amounts in the financial report have been rounded to the nearest thousand dollars or in certain cases to the nearest dollar.



1

(ab)

(ac)

Reference SummaryApplication

date Impact on PoMC’s financial

statementsAASB 9 Financial Instruments

The key changes include the simplified requirements for the classification and measurement of financial assets, a new hedging accounting model and a revised impairment loss model to recognise impairment losses earlier, as opposed to the current approach that recognises impairment only when incurred.

1/1/2018 The assessment has identified that the financial impact of available for sale (AFS) assets will now be reported through other comprehensive income (OCI) and no longer recycled to the profit and loss. While the preliminary assessment has not identified any material impact arising from AASB 9, it will continue to be monitored and assessed.

AASB 15 Revenue from Contracts with Customers

The core principle of AASB 15 requires an entity to recognise revenue when the entity satisfies a performance obligation by transferring a promised good or service to a customer.

1/1/2018 The changes in revenue recognition requirements in AASB 15 may result in changes to the timing and amount of revenue recorded in the financial statements. The Standard will also require additional disclosures on service revenue and contract modifications. A potential impact will be the upfront recognition of revenue from licenses that cover multiple reporting periods. Revenue that was deferred and amortised over a period may now need to be recognised immediately as a transitional adjustment against the opening returned earnings if there are no former performance obligations outstanding.

New accounting standards and interpretations applicable but not operative


At the date of this financial report the following standards and interpretations which are applicable to PoMC, have been issued but are not yet operative. A discussion of their future requirements and their impact on PoMC is as follows:

New accounting standards and interpretations that became operative during the year

No new accounting standards and interpretations became operational during the year.



1

(ac)

Reference SummaryApplication

date Impact on PoMC’s financial

statementsAASB 16 Leases The key changes introduced by

AASB 16 include the recognition of most operating leases (which are currently not recognised) on balance sheet.

1/1/2019 The assessment has indicated that as most operating leases will come on balance sheet, recognition of lease assets and lease liabilities will cause net debt to increase. Depreciation of lease assets and interest on lease liabilities will be recognised in the income statement with marginal impact on the operating surplus.The amounts of cash paid for the principal portion of the lease liability will be presented within financing activities and the amounts paid for the interest portion will be presented within operating activities in the cash flow statement.No change for lessors.


New accounting standards and interpretations applicable but not operative (continued)



2

(a)

The financial statements have incorporated a subsequent event in accordance with AASB 110 - Events after the Reporting Period due to the following events that occurred on 19 September 2016:- announcement of the Lonsdale Consortium as the successful bidder;- signing of the Sale and Purchase Deed between the State and the Lonsdale Consortium; - release of total Bid Price for the 50 year lease; and- overview of the assets subject to the 50 year lease.Accordingly, the fair value adjustments pertaining to the PLT (affecting Land, Channels and Infrastructure classes of assets) have been made and are detailed in Note 14.

Critical accounting estimates and judgements

In the application of AASs, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgments. Actual results may differ from these estimates.

Critical accounting judgements

Critical judgements that management has made in the process of applying PoMC’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements are:

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 or disclosure impact on PoMC and are believed to be reasonable under the circumstances.

(i) Recovery of deferred tax assetsDeferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise these temporary differences.

(ii) Impairment of non-financial assetsPoMC assesses impairment of all non-financial assets at each reporting date by evaluating conditions specific to PoMC and to the particular asset that may lead to impairment. These include obsolescence or physical damage, technology, economic and political environments and future income expectations. If an impairment trigger exists, the recoverable amount of the asset is determined.

(iii) Fair value of property, plant and equipmentAll non-current physical assets are measured initially at cost and subsequently revalued at fair value in accordance with FRD 103F.

In 2015, the fair values of all classes of property, plant and equipment were determined by external independent valuation firms (except for Office and computer equipment, Motor vehicles and Furniture and fittings which were determined by an internal managerial assessment).

In 2016 a fair value assessment was undertaken on PoMC's Property, plant and equipment (excluding Land) to determine whether the carrying amount represented a reasonable approximation of fair value. Fair value of Land was determined by an independent valuation firm (Jones Lang LaSalle). Further details of the 2016 fair value assessment are disclosed in Note 14.



2

(b)

PoMC's Property, plant and equipment assets are measured and disclosed at fair value for financial reporting purposes as per Note 14. PoMC's financial assets and liabilities are disclosed at fair value for financial reporting purposes as per Note 26. In order to determine fair value of an asset or a liability, PoMC uses market-observable data to the extent it is available.

Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date. A quoted market price in an active market provides the most reliable evidence of fair value and is used without adjustment to measure fair value whenever available, with limited exceptions.

Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include:- quoted prices for similar assets or liabilities in active markets- quoted prices for identical or similar assets or liabilities in markets that are not active- inputs other than quoted prices that are observable for the asset or liability, for example interest rates and yield curves observable at commonly quoted intervals, implied volatilities, credit spreads, etc.- inputs that are derived principally from or corroborated by observable market data by correlation or other means ('market-corroborated inputs').

(ii) Fair value measurement and valuation processes

No provision was required to be recognised in 2015-2016 and the balance of the provision is nil at 30 June 2016 (2015: Nil).

The categorisation of fair value measurement into different levels of the fair value hierarchy depends on the degree to which the inputs into the fair value measurement are observable and the significance of the inputs into the fair value measurement. The hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable valuation inputs. The hierarchy categorises the inputs used in valuation techniques into three levels:

Critical accounting estimates and judgements (continued)

A provision is recognised for the present value of anticipated costs of future restoration of contaminated land. The provision is based on estimates and time-frames provided by external consultants. The estimates include future costs associated with remediation. The calculation of this provision requires estimations such as degree of contamination and contaminated land area compared with past experiences. These uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision recognised for each site is periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for sites are recognised in the Statement of Financial Position by adjusting both the expense or asset value (if applicable) and provision.

Key sources of estimation uncertainty

(i) Remediation of contaminated land



2

(b)

In 2016, the fair value of the Channels was assessed based on market based evidence of fair value arising from the conclusion of the PLT. Further details of the estimates and assumptions are disclosed in Note 14.

In 2015, the fair value of the Channels was determined by an independent valuation firm (Pitcher Partners). The valuation scope, methodology adopted and the calculations applied to the Channel assets' valuation have been examined and certified by the Valuer-General Victoria as meeting the relevant Australian Accounting Standards and FRD 103F. Further details of the estimates and assumptions are disclosed in Note 14.

The Channels are subject to annual fair value assessments as required by FRD 103F.(iii) Fair value assessment of Channels

Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. An entity develops unobservable inputs using the best information available in the circumstances, which might include the entity's own data, taking into account all information about market participant assumptions that is reasonably available.

Critical accounting estimates and judgements (continued)

Key sources of estimation uncertainty (continued)

(ii) Fair value measurement and valuation processes (continued)



2016 2015Notes $'000 $'000

3 Revenue

Operating revenues

Charges on goods (wharfage fees) 261,675 241,149 Rent and licence fees 53,768 54,164 Channel usage charges (channel fees) 52,884 50,129 Land tax recovered from tenants 5,068 8,406 Charges for berth and area hire 6,812 6,799 Other charges for services 5,081 4,514 Recoverable works 7,398 8,395 Total operating revenues (i) 392,686 373,556

Other incomes

Interest received 26(a) 1,082 590

- 7,172 Other revenue 456 339 Total other incomes 1,538 8,101

Total revenues 394,224 381,657

Year ended 30 June 2015


Reversal of prior period revaluation decrements - Property, plant and equipment

The quantum of the PLF for 2015-16 was $80.2 million and this was payable by PoMC to the Victorian Government in four equal quarterly instalments of $20.05 million. Total operating revenue includes $81.5 million of revenue related to the recovery of the PLF. This represents an over-recovery of $1.3 million when compared to the $80.2 million PLF payable to the Victorian Government for 2015-16.

(i) The Port Management Amendment (Port of Melbourne Corporation Licence Fee) Act 2012 (Vic) which received royal assent on 6 March 2012 with an effective date of commencement of 1 July 2012, requires PoMC to remit to the Victorian Government an annual Port Licence Fee (PLF).

The quantum of the PLF for 2014-15 was $78.4 million and this was payable by PoMC to the Victorian Government in four equal quarterly instalments of $19.6 million. Total operating revenue included $76.7 million of revenue related to the recovery of the PLF. This represented an under recovery of $1.7 million when compared to the $78.4 million PLF paid to the Victorian Government for 2014-15.

Since the PLF became effective on 1 July 2012, PoMC has incurred PLF expenditure of $310.0 million and recovered PLF revenue of $311.2 million.



2016 2015Notes $'000 $'000

4 Expenses

Operating expenses

Port Licence Fee (i) 32 80,222 78,366 Depreciation and amortisation expenses 33 103,232 80,648 Contractors and consultant expenses 33,940 36,958 Salaries and employee benefits expenses 29,427 31,171 Land tax expenses 5,555 11,004 Operating lease expenses - minimum lease payments 2,961 2,852 Other expenses 9,565 8,081 Total operating expenses (ii) 264,902 249,080

Other expenses

(Gain)/loss on disposal of Property, plant and equipment 33 1,627 3,881 230 7,721

1,857 11,602

Total expenses 266,759 260,682



(i) The Port Management Amendment (Port of Melbourne Corporation Licence Fee) Act 2012 (Vic) which received Royal Assent on 6 March 2012 with an effective date of commencement of 1 July 2012, requires PoMC to remit to the Victorian Government an annual Port Licence Fee (PLF).

Revaluation decrements - Property, plant and equipment

The quantum of the PLF for 2014-15 was $78.4 million and this was payable by PoMC to the Victorian Government in four equal quarterly instalments of $19.6 million.

The quantum of the PLF for 2015-16 was $80.2 million and this was payable by PoMC to the Victorian Government in four equal quarterly instalments of $20.05 million.

(ii) Total operating expenses for the current reporting period include $7.2 million (2015: $4.8 million) of costs incurred on the Planning and Foundation stages of the Port of Melbourne Lease Transaction.



2016 2015Notes $'000 $'000

5 Income tax expense

(a) Income tax expense

Current tax 48,466 24,131 Movement in deferred tax (10,145) (8,625) Deferred tax - research and development tax credit (6,745) (10,114) Under/(over) 71 -

31,647 5,392

(Increase)/decrease in deferred tax assets 7 (3,690) (221) (Decrease) in deferred tax liabilities 8 (6,455) (8,404)

(10,145) (8,625)

(b)

Profit from continuing operations before income tax expense 127,460 51,270 Tax at the Australian tax rate of 30% (2015 - 30%) 38,238 15,382

Under/(over) provided in prior year 71 - 84 124

Deferred tax - research and development tax credit (6,746) (10,114) Income tax expense 31,647 5,392

(c)

Asset revaluation reserve 21(a) 1,773,187 427,790 Cash flow hedge reserve 21(a) - 1,835

1,773,187 429,625

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

Tax effect of sundry amounts which are not deductible/(taxable)

Tax expense/(income) relating to items of other comprehensive income

Numerical reconciliation of income tax expense to prima facie tax payable

Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:



2016 2015Notes $'000 $'000

6 Current tax assets/ liabilities

Current tax asset - 35,557 Income tax liabilities 3,598 -

3,598 35,557

Movement in current tax (assets)/liabilities:

Carrying amount 1 July (35,557) 7,040 Charged to income tax expense 5(a) 48,466 24,131 Research and development tax incentive offset (i) (26,693) (42,307) Under/(over) provision in prior year 71 - Income tax instalment (refund)/paid 32 17,311 (24,421) Carrying amount 30 June 3,598 (35,557)

7 Deferred tax assets

The balance comprises temporary differences attributable to:Employee benefits 9,669 6,817 Derivative financial instruments - - Provision (33) (37) Income received in advance 4,841 4,803 Project costs 3,834 3,086 Accrued expenses 415 367

18,726 15,036

Movement in deferred tax assets:

Carrying amount 1 July 15,036 16,650 5(a) 3,690 221

Credited/(charged) to Statement of Equity - (1,835) Carrying amount 30 June 18,726 15,036

Credited/(charged) to Comprehensive Operating Statement

(i) The research and development tax incentive offset for the current reporting period was $26.7 million (2015: $42.3 million) based on eligible research and development expenditure of $66.7 million (2015: $107.7 million) that was undertaken as part of the Port Capacity Project.



2016 2015Notes $'000 $'000

8 Deferred tax liabilities

The balance comprises temporary differences attributable to:Depreciation 80,491 59,336 Capitalised research and development 29,458 37,120 Revalued Property, plant and equipment 2,463,817 690,401 De-recognition of Deferred tax liabilities (ii) 21 (a) (2,555,339) -

18,427 786,857

Movement in deferred tax liabilities:

Carrying amount 1 July 786,857 335,278 5(a) (6,455) (8,404)

(Credited)/charged to Statement of Equity 1,773,417 427,790 Capitalised research and development 19,947 32,193 De-recognition of Deferred tax liabilities (ii) 21 (a) (2,555,339) - Carrying amount 30 June 18,427 786,857

9 Finance costs

Interest expense (i) 26(a) 4 66,296 Other financing charges - 3,409

4 69,705

10 Cash and cash equivalents

Cash at bank and in hand (ii) 10,292 3,580 Deposits (iii) 19,234 36,000

26(b) 29,526 39,580

(iii) Deposits earn a weighted average interest rate of 1.70% at 30 June 2016 (2015: 1.95%).

(ii) Cash at bank earns a weighted average interest rate of 1.25% at 30 June 2016 (2015: 1.50%).

(i) Interest expense for 2014-15 includes $40,571,152 of 'break costs' paid to the Treasury Corporation of Victoria as part of the early repayment of PoMC's outstanding interest bearing liabilities' balance of $538,974,318 on 25 June 2015. No such payments were made in 2016.

(ii) Due to the conclusion of the PLT, management has assessed the manner of recovery in which the Deferred tax liabilities will be utilised in the future. As a result, the Deferred tax liabilities pertaining to the Port Package assets has been de-recognised and transferred to the Asset Revaluation Reserve in the Equity section of the Balance Sheet.

(Credited)/charged to Comprehensive Operating Statement



2016 2015Notes $'000 $'000

11 Receivables

CurrentContractualTrade receivables (i) (ii) (iv) 26(b) 25,342 32,976 Less provision for doubtful debt (iii) - -

25,342 32,976

StatutoryGST Input tax credit recoverable 3,094 7,022

3,094 7,022

28,436 39,998

(ii) Ageing of past due but not impaired31 - 60 days 1,425 11,245 61 - 90 days 162 85 91 - 120 days 123 -

1,710 11,330

(iii) Ageing of impaired trade receivables31 - 60 days - - 61 - 90 days - - 91 - 120 days - -

- -

(iv) Trade receivables write-offs

12 Other assets

CurrentPrepayments 1,585 2,003 Other assets 104 50

1,689 2,053

In the current financial year there were no trade receivable write-offs (2015: Nil).

(i) Refer to Note 1(l) for terms that apply to trade receivables and Note 26 for the nature and extent of risks arising from contractual receivables.



13 Interests in other entities

On 10 March 2016, the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Bill 2015, was passed by the Victorian Parliament.

On 21 March 2016, PoMC (as parent entity) following Board approval established the following Corporations Act companies, each with $10 as share capital: - Port of Melbourne Operations Pty Ltd - Melbourne Port Lessor Pty Ltd.

On the same day, PoMC applied for and was granted 10 Initial Units in the Port of Melbourne Unit Trust. PoMC agreed to pay the Trustee (Port of Melbourne Operations Pty Ltd) $10 for the 10 Initial Units. PoMC also agreed to be bound by the Trust Deed constituting the Port of Melbourne Unit Trust.

The two PoMC subsidiaries and the unit trust were established in order to facilitate the proposed business separation effective 1 July 2016, of the relevant assets, functions and responsibilities of PoMC into those that are to be offered to a private operator and those that will be retained by the Victorian Government. From the time of their establishment to 30 June 2016, the two subsidiaries and the unit trust remained dormant.

Ministerial Directions (including instructions from the State) given to PoMC have been issued by the Minister for Ports with the approval of the Treasurer under section 163(b) of the Transport Integration Act 2010 (Vic).

On 20 June 2016, a number of statutory vesting orders (effective from 1 July 2016) declared under section 86 of the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic) were received from the Premier of Victoria transferring specific assets, rights and liabilities from PoMC to Port Lessor and Port Manager (the Port of Melbourne Operations Pty Ltd as trustee for (atf) the Port of Melbourne Unit Trust are collectively referred to as 'Port Manager').

On 1 July 2016, certain specific assets, rights and liabilities of PoMC (as noted above) were transferred to Port Lessor and Port Manager. The transfers were accounted for in accordance with FRD 119A - Transfers through Contributed Capital as designated by the Minister for Ports on 27 June 2016.

On 11 March 2016, the State instructed the PoMC Board to establish the following subsidiaries and unit trust:- Port of Melbourne Operations Pty Ltd, a Corporations Act 2001 (Cth) (Corporations Act) company established as a wholly owned subsidiary of PoMC;- Melbourne Port Lessor Pty Ltd (Port Lessor), a Corporations Act company established as a wholly owned subsidiary of PoMC; and- Port of Melbourne Unit Trust (PoMUT), a unit trust of which Port of Melbourne Operations Pty Ltd, has been appointed as trustee and the units of which are wholly owned by PoMC.



13 Interests in other entities (continued)

Post the financial close of the PLT, Port Lessor is expected to be transferred from PoMC (as parent) to DEDJTR. In addition, PoMC will be renamed as Victorian Ports Corporation (Melbourne) in accordance with the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic).

As at the date of this report the financial close of the PLT remains to be finalised and accounted for by PoMC. The financial close is expected to occur on 31 October 2016 and ordinarily include the following:- divestment of PoMC's wholly owned Port Manager entities (PoMO and PoMUT) from PoMC to the Lonsdale Consortium, and- lease of fixed assets (Channels, Land and Infrastructure) from PoMC's wholly owned subsidiary Port Lessor to the Lonsdale Consortium for a period of 50 years.

The financial statements have incorporated a subsequent event in accordance with AASB 110 - Events after the Reporting Period due to the following events that occurred on 19 September 2016:- announcement of the Lonsdale Consortium as the successful bidder;- signing of the Sale and Purchase Deed between the State and the Lonsdale Consortium; - release of total Bid Price for the 50 year lease; and- overview of the assets subject to the 50 year lease.The adjustments pertaining to the PLT have been detailed in Notes 1, 14 and 31.

The nature and operations and principal activities of the subsidiaries are as follows:- Port Lessor owns the relevant port land, channels and fixtures and granted an interim lease of these assets to Port Manager, and- Port Manager owns other (i.e. non-land and majority of working capital) assets and liabilities that enable the business of the Port of Melbourne.

Following a successful bidding process which was led by the Department of Treasury and Finance along with their Joint Financial Advisers, on 19 September 2016, the Treasurer announced the successful bidder for the PLT as the Lonsdale Consortium.


35

Port

of M

elbo

urne

Cor

pora

tion

Not

es to

the

Fina

ncia

l Sta

tem

ents

For t

he y

ear e

nded

30

June

201

6

14

Pro

pert

y, p

lant

and

equ

ipm

ent

Year

end

ed 3

0 Ju

ne 2

016

Not

esCh

anne

ls$'

000

Land

$'00

0In

fras

truc

ture

$'00

0

Plan

t and

eq

uipm

ent

$'00

0

Capi

tal w

orks

in p

rogr

ess

$'00

0To

tal

$'00

0

Carr

ying

am

ount

1 Ju

ly 2

015

1,22

1,47

5 1,

674,

952

770,

370

37,9

20

405,

685

4,11

0,40

2 88

,558

7,

752

236,

712

4,21

1 (3

37,4

98)

(265

)

Addi

tions

-

-

-

-

23

1,19

9 23

1,19

9 Di

spos

als

(42)

(2,2

52)

(2,7

14)

(882

)

-

(5,8

90)

Tran

sfer

s-

-

23

6 (2

36)

-

-

Re

valu

atio

n ad

just

men

ts -

excl

udin

g th

e im

pact

of P

LT21

(a)

-

458,

393

(936

)

-

-

457,

457

Reva

luat

ion

adju

stm

ents

- sp

ecifi

c to

the

PLT

21 (a

)4,

487,

089

953,

012

13,6

00

-

-

5,45

3,70

1 De

prec

iatio

n ch

arge

(49,

204)

-

(4

6,60

3)

(5,8

25)

-

(101

,632

)

Ca

rryi

ng a

mou

nt 3

0 Ju

ne 2

016

5,74

7,87

6 3,

091,

857

970,

665

35,1

88

299,

386

10,1

44,9

72

At 3

0 Ju

ne 2

016

Fair

valu

e 20

165,

663,

250

3,09

1,85

7 74

9,12

9 31

,105

-

9,

535,

341

Cost

119,

666

-

257,

940

15,8

32

299,

386

692,

824

Accu

mul

ated

dep

reci

atio

n(3

5,04

0)

-

(36,

404)

(1

1,74

9)

-

(83,

193)

N

et b

ook

amou

nt5,

747,

876

3,09

1,85

7 97

0,66

5 35

,188

29

9,38

6 10

,144

,972

Tran

sfer

from

cap

ital w

orks

in p

rogr

ess


36

Port

of M

elbo

urne

Cor

pora

tion

Not

es to

the

Fina

ncia

l Sta

tem

ents

For t

he y

ear e

nded

30

June

201

6

14

Prop

erty

, pla

nt a

nd e

quip

men

t (co

ntin

ued)

Year

end

ed 3

0 Ju

ne 2

015

Not

esCh

anne

ls$'

000

Land

$'00

0In

fras

truc

ture

$'00

0

Plan

t and

eq

uipm

ent

$'00

0

Capi

tal w

orks

in p

rogr

ess

$'00

0To

tal

$'00

0

Carr

ying

am

ount

1 Ju

ly 2

014

882,

624

807,

179

616,

415

30,8

65

114,

112

2,45

1,19

5 Tr

ansf

er fr

om c

apita

l wor

ks in

pro

gres

s1,

475

-

21,0

36

3,00

6 (2

6,42

1)

(904

)

Addi

tions

-

-

-

-

317,

994

317,

994

Disp

osal

s-

-

(4

,479

)

(7

06)

-

(5

,185

)

Tr

ansf

ers

-

-

(2,0

29)

2,02

9 -

-

Re

valu

atio

n ad

just

men

ts21

(a)

369,

576

867,

773

179,

774

8,29

8 -

1,

425,

421

Depr

ecia

tion

char

ge(3

2,20

0)

-

(40,

347)

(5

,572

)

-

(7

8,11

9)

Carr

ying

am

ount

30

June

201

51,

221,

475

1,67

4,95

2 77

0,37

0 37

,920

40

5,68

5 4,

110,

402

At 3

0 Ju

ne 2

015

Fair

valu

e 20

151,

208,

757

1,67

4,95

2 74

9,97

1 31

,476

-

3,

665,

156

Cost

31,2

01

-

21,0

66

13,0

40

405,

685

470,

992

Accu

mul

ated

dep

reci

atio

n(1

8,48

3)

-

(667

)

(6,5

96)

-

(25,

746)

N

et b

ook

amou

nt1,

221,

475

1,67

4,95

2 77

0,37

0 37

,920

40

5,68

5 4,

110,

402



14 Property, plant and equipment (continued)

Bid componentAsset Class

Allocation of bid price

Residual value

Total Fair Value

$'000 $'000 $'000Port lease premium Land 2,855.1 222.9 3,078.0 Port lease premium Infrastructure 852.2 13.6 865.8 Channel seabed sub sublease premium Channels 5,183.0 564.9 5,747.9 Consideration for shares and units in Port Manager entities

42.1 - 42.1 Infrastructure and Plant & equipment

2016 Fair Value Assessment

It should be noted that the resultant impact from the PLT on the fair value of the asset classes held by PoMC as at 30 June 2016, is limited to the Port Package assets only, i.e. those assets that have been transferred from PoMC to Port Lessor and Port Manager effective 1 July 2016. The assets that have been retained by PoMC effective 1 July 2016 do not form part of the PLT and their fair value in PoMC's books as at 30 June 2016 remains unchanged from any PLT related adjustments.

Management has utilised Lonsdale Consortium's Bid price to inform its valuation approach with respect to the Port Package assets that are held by PoMC as at 30 June 2016.

Fair values of asset classes as at 30 June 2016

As discussed in Note 1(a) Corporate Information - the financial statements have incorporated a subsequent event in accordance with AASB 110 - Events after the Reporting Period due to the following events that occurred on 19 September 2016:- announcement of the Lonsdale Consortium as the successful bidder;- signing of the Sale and Purchase Deed between the State and the Lonsdale Consortium; - release of total Bid Price for the 50 year lease; and- overview of the assets subject to the 50 year lease.

As part of the conclusion of the PLT, the Lonsdale Consortium has allocated its Bid price across the following components that make up the Port Package:- Up-front licence fees in regard to the Port Licence Fee for 15 years from the date of commencement of the 50 year lease (if determined by the Treasurer)- Channel seabed sub sublease premium- Port lease premium- shares and units in Port Manager entities (PoMO and PoMUT).




(a) Channels

The Bid price allocation methodology adopted by the State is considered to be reasonable and in line with the Australian Accounting Standards and Financial Reporting Directions. The allocation of the Bid price is based on supportable evidence and utilised calculations undertaken by the State's advisors who have used market based information where possible.

It has been considered appropriate that PoMC should take into account and reflect the final bid price of the PLT in determining the fair value of its assets (specific to the Port Package) as at 30 June 2016 given AASB 116 Property, plant and equipment requires measurement at fair value.

The Bid price of $9.7 billion offered by Lonsdale Consortium reflects the market value of the PLT. The Bid price allocation methodology adopted by the State is considered to be reasonable and in line with the Australian Accounting Standards and Financial Reporting Directions. The allocation of the lease transaction price to the Land and Infrastructure assets has been determined based on market driven data where possible and other relevant management assumptions, with the remaining value allocated to the Channels. Property, plant and equipment values have been allocated based on the assessed depreciated replacement cost for these assets.

In order to calculate the value of the Port in perpetuity, PwC Australia has calculated a terminal value (beyond the 50 year lease period) and added this to the allocated Bid price. The inputs into the model have been determined as follows:- Discount rate adopted 8.6%- Projected cash flow inputs and outputs- Long term growth rate.

The Channel seabed sub sublease is being offered to the Lonsdale Consortium for a fixed period of 50 years and the hand-back provisions in the Port Concession Deed require the Lonsdale Consortium to maintain the Channels in their functional form throughout the lease period and up to the time of the expiration of the lease. As a result, a residual value (in addition to the bid price allocation of the Channel seabed sub sublease) is required to be calculated and included in the total fair value of the Channels as at 30 June 2016.

2016 Fair Value Assessment

The residual value has been calculated by independent valuation experts, PwC Australia, who were engaged by the State. In order to determine the residual value for the Channels, PwC Australia has calculated the value of the Port in perpetuity and deducted the bid price (fair value of the lease) along with the assessed residual value (beyond 50 year lease period) of any other remaining assets. The residual value of the Channels is $564.9 million.




(a) Channels (continued)

Channels sensitivity analysis

b) Land and Infrastructure

c) Plant and equipment

The Port lease is being offered to the Lonsdale Consortium for a fixed period of 50 years and the hand-back provisions in the Port Concession Deed require the Lonsdale Consortium to maintain the land assets (including Infrastructure assets) in their functional form throughout the lease period and up to the time of the expiration of the lease. As a result, a residual value (in addition to the consideration for the Port lease) is required to be calculated and included in the total fair value of the Land and Infrastructure assets as at 30 June 2016.

Discount rate - a change in the discount rate can have a significant impact on the residual value of the Channels as determined via PwC Australia. An increase in the discount rate by 0.5% will have an unfavourable impact of $171.6 million on the residual value of the Channels. A decrease in the discount rate by 0.5% will have a favourable impact of $194.7 million on the residual value of the Channels.

The residual value has been calculated by independent valuation experts, Jones Lang LaSalle (JLL), who were engaged by the State. In order to determine the fair value of the Land assets, JLL has adopted the capitalisation of net income approach. JLL took into consideration the overall Land package that was offered as part of the PLT, modelled the income and cash flows to determine the resultant investment parameters indicated by the transaction targeting the Port lease premium offered by the Lonsdale Consortium. Based on the leasehold arrangements in place as at 30 June 2016 the resultant Capitalisation Rate evidenced by the transaction equated to 4.5% which was assessed as being reasonable. Therefore, the discount rate utilised was determined to be calculated based on market based parameters as a direct function of the Bid price submitted by the Lonsdale Consortium.

Having regard to the open and transparent Bid process (undertaken by DTF and its Joint Financial Advisers) and the resultant Port lease premium obtained, it has been determined that the inputs into the valuation reflect a market based outcome and therefore have been assessed as being Level 2 in nature.

The assessment of fair value for the Plant and equipment class of assets is undertaken with reference to the Consumer Price Index (CPI). As the compounded movement in the CPI did not change by an amount greater than 10% it was determined that the carrying amount of the Plant and equipment class of assets approximated fair value.

2016 Fair Value Assessment (continued)




Asset Class Carrying Level 1 Level 2 Level 3

$'000 $'000 $'000 $'000Channels 5,747,876 - - 5,747,876 Land 3,091,857 - 3,091,857 Infrastructure 970,665 - 970,665 Plant and equipment 35,188 - - 35,188 Total 9,845,586 - 4,062,522 5,783,064

Channels$'000

Land$'000

Infra-structure

$'000

Plantand

equip-ment$'000

Opening balance - 1 July 2015 1,221,475 1,674,952 770,370 37,920 Additions 88,558 7,752 236,712 4,211 Disposals (42) (2,252) (2,714) (882) Transfers in/(out) - within Level 3 - - 236 (236) Transfers into/(out of) Level 3 - (3,091,857) (970,665) - Revaluation adjustments 4,487,089 1,411,405 12,664 - Depreciation (49,204) - (46,603) (5,825)

Closing balance - 30 June 2016 5,747,876 - - 35,188

Reconciliation of Level 3 fair value as at 30 June 2016:

2016 Fair Value Assessment (continued)

It should be noted that since the fair value of the Land and Infrastructure asset classes has been determined on the basis of market based evidence their classification with respect to the fair value hierarchy has been determined as being Level 2 in nature. The Land and Infrastructure classes were classified as Level 3 in 2015.

Fair value measurement at

Fair value measurement hierarchy for assets as at 30 June 2016




2015 Valuation

a) Channels

Channels sensitivity analysis

In determining the fair value of the Channel assets, the valuation inputs that were used were considered to be Level 3 inputs in accordance with the fair value hierarchy as per Note 2(b)(ii).

The discount rate, projected capital expenditure and projected trade volumes were considered to be the significant unobservable valuation inputs for the purposes of the valuation of the Channel assets.

The value of the Channel assets could change in future financial years as a result of changes outside management's control.

Independent valuations were undertaken in 2015 for Financial Reporting Purposes in accordance with the Financial Management Act 1994 (Vic). The effective date of the valuations was 30 June 2015 and they incorporated requirements outlined in:- AASB 116 Property plant and equipment ; - AASB 13 Fair Value Measurement ; and- FRD 103F Non-Financial Physical Assets , issued by DTF.

The fair value of the Channel assets was determined by an independent valuation firm (Pitcher Partners) using the discounted cash flow method (income approach). The valuation scope, methodology adopted and the calculation applied to the valuation was examined and certified by the Valuer-General Victoria as meeting the relevant Australian Accounting Standards and FRD 103F.

The main assumptions applied were as follows:- a discount rate calculated using a nominal post tax weighted average cost of capital of 7.6% (mid-point of the calculated range 6.6% - 8.6%);- cash flows modelled over a 30 year period;- trade forecasts that are consistent with PoMC’s financial models (i.e. based on Meyrick 2010 trade growth forecasts);- the 2015-16 Reference Tariff Schedule and longer term pricing assumptions consistent with PoMC's revised 2015 Pricing Policy Statement (CPI plus 1.5% plus or minus an adjustment for the Port Licence Fee);- projected expenses that are in line with PoMC's financial models (i.e. an appropriate allowance for wage inflation for labour and CPI for other expenditure items);- capital expenditure forecasts that are consistent with PoMC's current long term capital investment program; and- a terminal value based on an inflation indexed written down value approach.




b) Land

Projected trade volumes - variability in the trade volume forecast (112.4 - 204.0 million gross tons per annum) can have a significant impact on the value of the Channel assets. An increase in the total trade forecast by 1% per annum on a cascading basis would have had a favourable impact of $51.6 million (2014: $72.8 million) on the fair value of the Channel assets. A decrease in the total trade forecast by 1% per annum on a cascading basis would have had an unfavourable impact of $87.5 million (2014: $94.4 million) on the fair value of the Channel assets.

The fair value of Land assets was determined by an independent valuation firm (Jones Lang LaSalle) as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation scope, methodology adopted and the calculation applied to the valuation were examined and certified by the Valuer-General Victoria as meeting the relevant Australian Accounting Standards and FRD 103F.

In accordance with FRD 103F, PoMC is required to undertake the revaluation process once every five years unless the annual fair value assessments indicate a material change in values (refer to Note 1(m)).

In order to determine fair value of the land assets, the valuer adopted the capitalisation of net income approach as the primary methodology over both passing and conservative market rental profiles (where appropriate) and the direct comparison approach over non-income producing land and other sites (where applicable). The valuation was undertaken on a per title basis. Where new information was available, for example, where a previously vacant site became tenanted, the capitalisation of net income approach was applied instead of the direct comparison approach.

Discount rate - volatility in the discount rate can have a significant impact on the value of the Channel assets. An increase in the discount rate by 1% would have had an unfavourable impact of $141.0 million (2014: $99.1 million) on the fair value of the Channel assets. A decrease in the discount rate by 1% would have had a favourable impact of $140.0 million (2014: $117.0 million) on the fair value of the Channel assets. This is based on a discount rate range of between 6.6% - 8.6%.

Projected capital expenditure - variability in the capital expenditure forecast ($5.7 - $78.9 million per annum) can have a significant impact on the value of the Channel assets. An increase in the capital expenditure forecast by 10% per annum ($1,024.9 million of nominal capital expenditure over 30 years) would have had an unfavourable impact of $18.1 million (2014: $22.6 million) on the fair value of the Channel assets. A decrease in the capital expenditure forecast by 10% per annum ($838.5 million of nominal capital expenditure over 30 years) would have had a favourable impact of $18.1 million (2014: $22.6 million) on the fair value of the Channel assets.Projected trade volumes - variability in the trade volume forecast can have a significant impact on the value of the Channel assets. A decrease in the trade forecast by 1% would have had an unfavourable impact of $180.3 million on the fair value of the Channel assets.




The market rate, including adjustments for rental reversions, letting up and incentive allowances, future lease agreements and stepped rentals, range between $10 - $125 per square metre across PoMC's land assets. This range reflects the varying uses and activities undertaken and lease tenure durations across PoMC's Land assets.

The capitalisation percentage represents a measure of the level of confidence or risk associated with the valuer's assessment of the market rate adopted for the individual leases within each title, i.e. the higher the risk associated with achieving the market rate the higher the capitalisation percentage and vice-versa.

The capitalisation of net income approach involves the addition of the valuer's opinion of market rate (for the various tenancies contained within the title) and the deduction of outgoings (where appropriate) in order to determine the net market income on a per title basis. This net market income is capitalised at the adopted capitalisation percentage to derive a core value.

The core value is adjusted for items including rental reversions, letting up and incentive allowances, future lease agreements and stepped rentals, and capital expenditure forecasts to derive the fair value.

In determining the fair value of the Land assets, the valuation inputs that were used (in the capitalisation of net income approach) were unobservable and were considered to be Level 3 inputs in accordance with the fair value hierarchy as per Note 2(b)(ii). Therefore, as at 30 June 2015, the Land assets class were transferred from Level 2 (as previously reported) to Level 3.

The valuation of Land assets was undertaken having regard to the Highest and Best Use of the respective assets and includes the valuation of certain parcels of land on the premise that they would be fully developed in future years. Where applicable, a nil residual value was assumed for all third party assets that may transfer to PoMC at the expiration of commercial leases.

The market rate, capitalisation percentage and capital expenditure forecast were considered to be the significant unobservable valuation inputs for the purposes of the valuation of the Land assets.

The valuer considered the leasing evidence, market indicators and the level of investor sentiment for comparable real estate and adjusted specifically for the following:- the characteristics of each precinct and associated users;- the shape, topography and utility of each title;- any leasing covenants/security of income cash flow;- the weighted remaining lease duration;- the expiry profile of tenancies;- the opportunity for rental reversion to market levels;- the appropriate letting up and incentive allowances;- the present value of unexpired and/or forecast incentives;- any future lease agreement and stepped rentals; and- the capital expenditure forecast relevant to each title and/or precinct.




Land sensitivity analysis

c) Infrastructure

Capital expenditure forecast - variability in the capital expenditure forecast ($0.1 - $341.7 million) can have a significant impact on the value of the Land assets. An increase in the capital expenditure forecast by 10% would have had an unfavourable impact of $35.3 million on the fair value of the Land assets. A decrease in the capital expenditure forecast by 10% would have had a favourable impact of $35.3 million on the fair value of the Land assets.

The fair value of Infrastructure assets was determined by an independent valuation firm (Jones Lang LaSalle) using the depreciated replacement cost method. The valuation scope, methodology adopted and the calculation applied to the valuation was examined and certified by the Valuer-General Victoria as meeting the relevant Australian Accounting Standards and FRD 103F.

The valuation was based on the assumption that the Infrastructure assets were being utilised as assets of a profitable undertaking with benefits of continuity of tenure of land and buildings during the foreseeable future.

Where the fair value of an Infrastructure asset could be determined by reference to its price in an active market for the same or similar asset, the fair value of the asset was determined based on this information. Where the fair value of the asset was not able to be reliably determined using market based evidence, depreciated replacement cost was considered to be the most appropriate basis for determination of the fair value.

The value of the Land assets could change in future financial years as a result of changes in the significant and unobservable valuation inputs that were adopted to determine the fair value.

Market rate - changes in the market rate adopted ($10 - $125 per square metre) can have a significant impact on the value of the Land assets. An increase in the market rate by 10% would have had a favourable impact of $173.0 million (2014: $83.4 million) on the fair value of the Land assets. A decrease in the market rate by 10% would have had an unfavourable impact of $173.0 million (2014: $83.4 million) on the fair value of the Land assets. It should be noted that in determining the impact of changes in the market rate the capitalisation percentage adopted was maintained as a constant.

Capitalisation percentage - changes in the capitalisation percentage adopted (5.0% - 7.5%) can have a significant impact on the value of the Land assets. An increase in the capitalisation percentage by 0.5% would have had an unfavourable impact of $113.0 million (2014: $54.5 million) on the fair value of the Land assets. A decrease in the capitalisation percentage by 0.5% would have had a favourable impact of $115.0 million (2014: $55.4 million) on the fair value of the Land assets. It should be noted that in determining the impact of changes in capitalisation percentage the market rate adopted was maintained as a constant.




d) Plant and equipment

Useful life - 1 to 60 years (2014: 1 to 32 years) and a weighted average of 44 years (2014: 26 years) - A significant increase or decrease in the estimated useful life of the asset would have resulted in a significantly higher or lower valuation.

The fair value of Plant and equipment (except for Office and computer equipment, Motor vehicles and Furniture and fittings) was determined by an independent valuation firm (Jones Lang LaSalle) using the depreciated replacement cost method. The valuation scope, methodology adopted and the calculation applied to the valuation was examined and certified by the Valuer-General Victoria as meeting the relevant Australian Accounting Standards and FRD 103F.

The valuation was based on the assumption that the Plant and equipment assets were being utilised as assets of a profitable undertaking with benefits of continuity of tenure of land and buildings during the foreseeable future.

Where the fair value of a Plant and equipment asset could determined by reference to its price in an active market for the same or similar asset, the fair value of the asset was determined based on this information. Where the fair value of the asset was not able to be reliably determined using market based evidence, depreciated replacement cost was considered to be the most appropriate basis for determination of the fair value.

Replacement costs relate to costs to replace the current service capacity of the asset. Where it was not possible to examine hidden works, the use of reasonable materials and methods of construction were assumed bearing in mind the age and nature of the assets.

In determining the fair value of the Infrastructure assets, the valuation inputs that were used were considered to be Level 3 inputs in accordance with the fair value hierarchy as per Note 2(b)(ii).

The cost per unit and useful life were considered to be the significant unobservable valuation inputs for the purposes of the Infrastructure assets valuation.

Infrastructure sensitivity analysisCost per unit - $33,700 - $4,831,000 per unit (2014: $17,000 - $2,022,000 per unit) and weighted average cost of $2,931,200 per unit (2014: $1,537,000 per unit) - A significant increase or decrease in the cost per unit would have resulted in a significantly higher or lower fair value.

The valuation took into consideration the specialised nature of the Infrastructure assets and determined the fair value on the basis of a depreciated replacement cost approach. Depreciated replacement cost is the gross current replacement cost reduced by factors providing for age, physical depreciation and technical and functional obsolescence taking into account the asset's total estimated useful life and anticipated residual value (if any).




e) Office and computer equipment, Motor vehicles and Furniture and fittings

15 Intangible assets 2016 2015Notes $'000 $'000

Software and systemsAt cost 4,991 12,148 Accumulated amortisation (3,269) (8,889)

1,722 3,259

Movement in intangible assets:Carrying amount - 1 July 2015 3,259 5,188 Transfer from capital works in progress 14 265 903 Disposals (202) (303) Amortisation expense (1,600) (2,529) Carrying amount - 30 June 2016 1,722 3,259

Management determined the fair value of Office and computer equipment, Motor vehicles and Furniture and fittings on the basis that the depreciated written down value of these assets approximates their fair value. PoMC acquires, uses and depreciates these assets solely for their service potential and not to generate profits from their resale.

The main assumptions applied were as follows:- effective life of the assets is accurate (reviewed annually); and - asset utilisation remains unchanged (enables PoMC to perform its normal day-to-day operations).

In determining the fair value of the Plant and equipment assets, the valuation inputs that were used were considered to be Level 3 inputs in accordance with the fair value hierarchy as per Note 2(b)(ii).

The cost per unit and useful life were considered to be the significant valuation inputs for the purposes of the Plant and equipment assets valuation.

Plant and equipment sensitivity analysisCost per unit - $3,600 - $134,300 per unit (2014: $4,300 to $122,000 per unit) and weighted average cost of $92,200 per unit (2014: $87,000 per unit) - A significant increase or decrease in cost per unit would result in a significantly higher or lower fair value.

Useful life - 1 to 17 years (2014: 1 to 13 years) and a weighted average of 13 years (2014: 10 years) - A significant increase or decrease in the estimated useful life of the asset would result in a significantly higher or lower valuation.

The valuation took into consideration the specialised nature of the Plant and equipment assets and determined fair value on the basis of a depreciated replacement cost approach. Depreciated replacement cost is the gross current replacement cost reduced by factors providing for age, physical depreciation and technical and functional obsolescence taking into account the asset's total estimated useful life and anticipated residual value (if any).



2016 2015Notes $'000 $'000

16 Payables

CurrentUnsecured

Contractual20,056 19,592

Trade payables (i) (ii) 8,279 14,136 Accrued expenses (ii) 20,018 27,450

26(h) 48,353 61,178 Statutory

FBT payable 108 116 GST payable 4,174 4,524

4,282 4,640

52,635 65,818 (i) Refer to Note 1(q) for terms that apply to payables.

17 Interest bearing liabilities

CurrentTreasury Corporation of Victoria borrowings 26(h) - -

Non-currentTreasury Corporation of Victoria borrowings 26(h) - -

Port Licence Fee payable

(ii) Refer to Note 26 for the nature and extent of risks arising from contractual payables and maturity analysis of contractual payables.

On 15 May 2015, PoMC received Direction No. 2 from the Minister for Ports (with approval from the Treasurer) which included instructions for PoMC to repay all its outstanding interest bearing liabilities with the TCV on or before 30 June 2015 to prepare the business to be leased to its new operator for 50 years on a debt free basis. A capital contribution via equity in the form of cash from the DTF enabled this repayment. The 'break costs' incurred on the early repayment of total interest bearing liabilities is disclosed in Note 9.

During the current financial year and up to 30 June 2016, PoMC had available an unused overdraft facility of $1,000,000 (2015: $1,000,000).

PoMC did not take any new borrowings during 2016 and the balance of its interest bearing liabilities at 30 June 2016 remains Nil (2015: Nil).



2016 2015Notes $'000 $'000

18 Provisions

CurrentEmployee benefits - employee leave provisions (i) 7,192 6,726 Employee benefits - defined benefits superannuation fund liability (i) 22(a) 23,842 14,869

31,034 21,595

Non-currentEmployee benefits - employee leave provisions (i) 1,195 1,129 Total Provisions 32,229 22,724

(i) Employee benefits and related on-costs

Current employee benefitsAnnual leave entitlements

Unconditional and expected to wholly settle within 12 months 1,686 1,729 Long service leave entitlements

Unconditional and expected to wholly settle within 12 months 507 643 Unconditional and expected to wholly settle after 12 months 4,094 3,513

Defined benefits superannuation fund liability 22(a) 23,842 14,869

Non-current employee benefitsLong service leave entitlements 1,036 978

Total employee benefits 31,165 21,732

Current on-costs 905 841 Non-current on-costs 159 151

Total on-costs 1,064 992

Total employee benefits and related on-costs 32,229 22,724

(ii) Movement in Provisions2016 2016 2016

$'000 $'000 $'000

On-costs Total

Opening balance 6,863 992 7,855 Additional provision recognised 2,702 427 3,129 Reductions arising from payments (2,036) (323) (2,359) Un-wind of discount and effect of changes in discount (206) (32) (238) Closing balance 7,323 1,064 8,387

Employee benefits

The movement in the Port of Melbourne Superannuation Fund liability is disclosed in Note 22(a). Only movements in provisions for annual leave and long service leave entitlements and on-costs are presented in the table above.



2016 2015Notes $'000 $'000

19 Other liabilities

Income in advance 3,929 5,053 Other liabilities 117 14

4,046 5,067

20 Contributed capital

Carrying amount 1 July 1,510,321 858,021 Capital contribution from the Department of Treasury and Finance 32 (2,250) 652,300 Carrying amount 30 June 1,508,071 1,510,321

Capital Management

There have been no changes to the general processes and procedures that are applied by PoMC in managing capital risk since 2015.

PoMC does not have any externally imposed debt related covenants, financial ratios or any other capital requirements.

PoMC’s Treasury Management Policy and procedures are in compliance with the Borrowing and Investment Powers Act 1987 (Vic), the DTF's Treasury Management Guidelines and Standing Direction 4.5.6 Treasury Risk Management .

In accordance with the Borrowings and Investment Powers Act 1987 (Vic), the Treasurer extended a temporary purpose financial accommodation of $166 million to PoMC for the reporting period 1 July 2015 to 30 June 2016. This facility was unused in 2015-16.

As a result of the repayment of all outstanding interest bearing liabilities on 25 June 2015, as at year end 30 June 2016, the majority of PoMC's financial ratios are consistent with those at year end 30 June 2015.

PoMC manages capital risk through the monitoring and reporting of key ratios to the Board on a monthly basis including:- Interest cover ratio- Gearing ratio- Leverage ratio- Liquidity ratio

A key outcome for PoMC’s business financial sustainability is to ensure that it makes a sufficient return from its operational activities and investments in infrastructure to fund the future development of the Port. The key ratios monitored are based on maintaining a minimum of a BBB credit rating and that future decisions regarding capital investment and funding requirements ensure that PoMC does not breach these key ratios. Target maximum gearing is between 40%‑45%.



2016 2015Notes $'000 $'000

21 Reserves and retained profits

(a) Reserves

Asset revaluation reserve 8,281,748 1,590,422 - -

Employee benefits reserve (5,048) 3,201 8,276,700 1,593,623

Movement in asset revaluation reserve:Carrying amount 1 July 1,590,422 594,015 Transfer to retained earnings on assets disposed (1,984) (1,773) Revaluation 14 5,911,158 1,425,970 Tax effect charged to Other Comprehensive Income (1,773,187) (427,790) De-recognition of Deferred tax liabilities - specific to the PLT 8 2,555,339 - Carrying amount 30 June 8,281,748 1,590,422

Movement in cash flow hedge reserve:Carrying amount 1 July - (4,280) Interest bearing liabilities - Forward settled loans 26(e) - 6,115

26(e) - (1,835) Carrying amount 30 June - -

Movement in employee benefits reserve:Carrying amount 1 July 3,201 5,381 Movements in actuarial gains/ losses (8,249) (2,180)

- - Carrying amount 30 June (5,048) 3,201

(b) Retained profits

Carrying amount 1 July 261,475 246,867 Profit after income tax 95,814 45,878 Dividends paid 32 (29,908) (33,043) Transfer from asset revaluation reserve 1,984 1,773 Carrying amount 30 June 329,365 261,475

This reserve has been set up in accordance with the revised AASB 119 Employee Benefits to capture the movements in the actuarial gains and losses in respect of the Port of Melbourne Superannuation Fund. Refer to Note 22 for further details.

The cash flow hedge reserve records the unamortised portion of the gain or loss on a hedging instrument in a prior cash flow hedge that has previously been determined to be an effective hedge. The balance of this reserve is nil as the reserve was fully amortised as part of PoMC's repayment of all its outstanding interest bearing liabilities on 25 June 2015.

Cash flow hedge reserve

PoMC has a separate asset revaluation reserve for Channels, Land, Infrastructure and Plant and equipment. The reserves record the increments and decrements in the fair value of the assets net of the tax effect.

Tax effect charged to Other Comprehensive Income

Tax effect charged to other comprehensive income



22 Superannuation

Defined benefit superannuation plan

Contribution recommendations

The Fund only has defined benefit members and is closed to new members. Members receive pension benefits on retirement, death and disablement. On withdrawal, members have a choice of receiving a lump sum benefit and/or a deferred pension benefit.

A liability in respect of the Port of Melbourne Superannuation Fund (Fund) is recognised in the Statement of Financial Position, and is measured as the present value of the Defined Benefit Obligation at 30 June 2016 less the fair value of the superannuation fund’s assets at that date and any unrecognised past service cost. The present value of the Defined Benefit Obligation is based on expected future payments which arise from membership of the fund to year end, calculated annually by an independent actuary using the projected unit credit method. Consideration is given to the expected future wage and salary levels, experience of employee departures and periods of service.

Future taxes, such as taxes on investment income and employer contributions, are taken into account in the actuarial assumptions used to determine the relevant components of PoMC’s defined benefit liability.

Employer contributions to the defined benefit superannuation plan are based on recommendations by the plan’s actuary. Actuarial assessments are made annually and the last such assessment was made at 30 June 2016. The objective of funding is to ensure that the benefit entitlements of members and other beneficiaries are fully funded by the time they become payable. PoMC has no legal obligation to settle this liability with an immediate contribution or additional one-off contributions.

The Superannuation Industry Supervision (SIS) legislation governs the superannuation industry and provides the framework within which superannuation plans operate. The SIS Regulations require an actuarial valuation to be performed for each defined benefit superannuation plan every three years, or every year if the plan pays defined benefit pensions.

The Fund’s Trustee is responsible for the governance of the Fund. The Trustee has a legal obligation to act solely in the best interests of Fund beneficiaries. The Trustee has the following roles: - Administration of the Fund and payment to the beneficiaries from Fund assets when required in accordance with the Fund rules;- Management and investment of the Fund assets; and- Compliance with superannuation law and other applicable regulations.

The prudential regulator, the Australian Prudential Regulation Authority (APRA), licenses and supervises regulated superannuation plans.

As at 30 June 2016, the Fund has 8 active members (2015: 9), 1 deferred pension member (2015: 1) and 24 members drawing a pension (2015: 23).



22 Superannuation (continued)

Funding method

Nature of asset/liability

PoMC may, at any time by notice to the Trustee, terminate its contributions. PoMC has a liability to pay the contributions due before the effective date of the notice, but there is no requirement for it to pay further contributions, irrespective of the financial condition of the fund. However, PoMC does have a constructive obligation for the fund and therefore has recognised a current liability in the Statement of Financial Position in respect of its defined benefit superannuation arrangements. Refer to Note 18.

The method used to determine the employer contribution recommendations at the last actuarial review was the aggregate funding method. The method adopted affects the timing of the cost to PoMC.

The Port of Melbourne Superannuation Fund does not impose a legal liability on PoMC to cover any deficit that exists in the fund. If the fund were wound up, there would be no legal obligation on PoMC to make good any shortfall. The Trust Deed of the fund states that if the fund winds up, the remaining assets are to be distributed by the Trustee of the fund in an equitable manner as it sees fit.

The Fund typically exposes PoMC to actuarial risks such as investment risk, salary growth risk, legislative risk, pension risk and inflation risk as outlined in more detail below:

Investment risk - the risk that investment returns will be lower than assumed and PoMC will need to increase contributions to offset this shortfall.

Pension risk - the risk that, firstly pensioner mortality will be lighter than expected, resulting in pensions being paid for a longer period. Secondly, that a greater proportion of eligible members will elect to take a pension benefit, which is generally more valuable than the corresponding lump sum benefit.

Inflation risk - the risk that inflation is higher than anticipated, increasing pension payments, and thereby requiring additional employer contributions.

Salary growth risk - the risk that wages or salaries (on which future benefit amounts will be based) will rise more rapidly than assumed, increasing defined benefit amounts and thereby requiring additional employer contributions.

Legislative risk - the risk that legislative changes could be made which increase the cost of providing the defined benefits.

The defined benefit assets are invested in the BT Institutional Retirement PST and the Schroder Balanced Fund Standard Class. The assets are diversified within these investment options and therefore the Fund has no significant concentration of investment risk.

There were no plan amendments affecting the defined benefits payable, curtailments or settlements during the year. No other post retirement benefits are provided to the employees who are members of the Fund.




(a)

2016 2015$'000 $'000

Net defined benefit liability/(asset) at start of the year 14,869 13,091 + Current services cost 740 671 + Net interest 463 433 + Past service cost - - + (Gain)/loss on settlements - - - Actual return on Fund assets less interest income (982) 1,340 + Actuarial (gain)/losses arising from changes in demographic assumptions - - + Actuarial (gain)/losses arising from changes in financial assumptions 6,773 3,037 + Actuarial (gain)/losses arising from changes in liability experience 493 483 + Adjustment for effect of asset ceiling - - - Employer contributions 478 1,506 Net defined benefit liability/(asset) at end of the year 23,842 14,869

(b)

2016 2015$'000 $'000

Fair value of Fund assets at beginning of the year 29,129 26,599 + Interest income 1,062 1,092 + Actual return on Fund assets less interest income (982) 1,340 + Employer contributions 478 1,506 + Contributions by Fund participants 79 111 - Benefits paid 1,425 1,050 - Taxes, premiums and expenses paid 290 469 + Transfers in - - - Contributions to accumulation section - - + Settlements - - + Exchange rate changes - - Fair value of Fund assets at end of the year 28,051 29,129

Reconciliation of the Net Defined Benefit Liability/(Asset)

Movements in the net defined benefit liability/(asset) were as follows:

Reconciliation of Fair Value of Defined Benefit Fund Assets

Movements in the fair value of the Defined Benefit Fund assets were as follows:




(c)

2016 2015$'000 $'000

Present value of Defined Benefit Obligation at beginning of the year 43,998 39,690 + Current service cost 740 671 + Interest cost 1,525 1,525 + Contributions by Fund participants 79 111 + Actuarial (gain)/losses arising from changes in demographic assumptions - - + Actuarial (gain)/losses arising from changes in financial assumptions 6,773 3,037 + Actuarial (gain)/losses arising from changes in liability experience 493 483 - Benefits paid 1,425 1,050 - Taxes, premiums and expenses paid 290 469 + Transfers in - - - Contributions to accumulation section - - + Past service cost - - + Settlements - - + Exchange rate changes - - Present value of Defined Benefit Obligation at end of the year 51,893 43,998

(d)

Asset category Carrying amount

Level 1 Level 2 Level 3$'000 $'000 $'000 $'000

Cash and cash equivalents - - - -Equity instruments - - - -Debt instruments - - - -Real Estate - - - -Investment funds - Growth Fund 28,051 - 28,051 -Asset-backed securities - - - -Structured debt - - - -Total 28,051 - 28,051 -

As at 30 June 2016

Fair value measurement at reporting period using:

The fair value of the Fund assets does not include amounts relating to PoMC's own financial instruments or any property occupied, or other assets used.

Reconciliation of Defined Benefit Obligation

Movements in the defined benefit obligation were as follows:

Fair value of Defined Benefit Fund assets




(e) The percentage invested in each asset class at reporting date

2016 2015% %

Australian equity 33 31 International equity 22 22 Fixed income 23 22 Property 4 4 Alternatives/Other 12 11 Cash 6 10

100 100

(f) Significant actuarial assumptions at the reporting date

Assumptions to determine Defined Benefit Cost 2016 2015% %

Discount rate 3.7 4.1 Expected salary increase rate 3.4 3.4 Expected pension increase rate 2.5 2.5 Pension mortality Standard Standard

Assumptions to determine Defined Benefit Obligation 2016 2015% %

Discount rate 2.9 3.7 Expected salary increase rate 3.1 3.4 Expected pension increase rate 2.5 2.5 Pension mortality Standard Standard

(g) Sensitivity Analysis

The Defined Benefit Obligation as at 30 June 2016 under several scenarios is presented below.Scenario A: 0.5% per annum discount rate sensitivityScenario B: 0.5% per annum higher salary increase rate sensitivityScenario C: 0.5% per annum higher pension increase rate sensitivityScenario D: 90% of the Mercer Standard pensioner mortality sensitivity

Base Case

ScenarioA

ScenarioB

ScenarioC

ScenarioD

Discount rate 2.9% pa -0.5% paSalary increase rate 3.125% pa +0.5% paPension increase rate 2.5% pa +0.5% paPensioner mortality assumption Standard 90%Defined Benefit Obligation ($'000) 51,893 56,959 52,176 56,439 53,331




(h) Funding arrangements

(i) Expected contributions2017

$'000Expected employer contributions 489

(i) Maturity profile of Defined Benefit Obligations

$'00030 June 2016 1,132 30 June 2017 1,426 30 June 2018 1,541 30 June 2019 1,762 30 June 2020 1,867 Following 5 years 10,026

(j) Asset-Liability matching strategies

The financing objective adopted for the year ended 30 June 2016 was for the Fund to maintain the value of its assets at least equal to: - for defined benefits, the greater of 110% (2015: 110%) of Vested Benefits and 100% (2015: 100%) of the Actuarial Value of Accrued Benefits; and - to achieve, as far as possible, a stable level of future Employer contributions.

The weighted average duration of the Defined Benefit Obligation is 16 years

There are no asset and liability matching strategies adopted by the Fund.

For the year ended 30 June 2016, based on the actuaries recommendation, PoMC contributed the following to the Fund: - 20% (2015: 20%) of superannuation salaries; and - additional lump sum contributions of $23,175 per month (2015: $22,500) to finance expected administration and insurance costs.



23 Responsible persons

(a) Names

Responsible Ministers:The Hon. Luke Donnellan MP Minister for PortsThe Hon. Tim Pallas MP Treasurer of Victoria

Directors - as at 30 June 2016:The Hon. Mark Birrell ChairmanMr J Cain Deputy ChairmanMr D B CranwellMr I DicksonMr J FitzgeraldMr J MarshallMr B Nicholls Ms J van ReykMs A Williams

Accountable Officer:Mr N Easy Chief Executive Officer

(b)

As at 30 June 2016, the CEO was entitled to an annual remuneration package including a base salary of $447,033 (2015: $436,130) and a potential annual incentive based bonus of up to 20% of salary.

In addition, the CEO is eligible for a retention payment arrangement associated with the PLT. This arrangement was approved by the then Treasurer on 4 November 2014. Retention payments are for key executives critical to the continuing effective operation of the business and the provision of full support in the period of preparing the business for the lease of the Port of Melbourne. These payments also encourage the retention of the executives until transaction close. Payments are to be made by PoMC in instalments between completion of due diligence and transaction close. As at 30 June 2016, a retention payment of $26,822 (2015: Nil) had been made to the CEO.

In accordance with the Ministerial Directions issued by the Minister for Finance under the Financial Management Act 1994 (Vic), the following disclosures are made regarding responsible persons for the reporting period.

The names of persons who were responsible persons of PoMC at any time during the financial year were:

RemunerationThe Responsible Ministers’ remuneration is reported in the financial statements of the Department of Premier and Cabinet.

The number of responsible persons, other than Responsible Ministers, and their total remuneration received or receivable during the reporting period is shown in the first two columns in the table below in their relevant income bands.



23 Responsible persons (continued)

(b)

Income Band2016 2015 2016 2015No. No. No. No.

$30,000 to $39,999 - 1 - 1$40,000 to $49,999 - - - -$50,000 to $59,999 7 6 7 6$60,000 to $69,999 1 1 1 1$70,000 to $79,999 - - - -$80,000 to $89,999 - - - -$90,000 to $99,999 - - - -$100,000 to $109,999 1 1 1 1$140,000 to $149,999 - - - -$170,000 to $179,999 - - - -$250,000 to $259,999 - - - -$390,000 to $399,999 - - - -$430,000 to $439,999 - - - 1$500,000 to $509,999 - - 1 -$510,000 to $519,999 - 1 - -$580,000 to $589,999 1 - - -Total number of responsible persons 10 10 10 10Total Amount 1,153,108 1,071,115 1,067,939 988,250

(c) Loans

(d) Other transactions of responsible persons and their related parties

Total remuneration includes base remuneration, bonus and retention payments paid or payable and termination and retirement type payments.

Base remuneration is exclusive of bonus paid or payable and long service leave payouts, termination and retirement type payments.

Termination and retirement type payments such as long service leave payouts, redundancy payments and retirement benefits paid or payable during the year pursuant to employment contracts were Nil (2015: Nil).

Total Remuneration Base Remuneration

There were no loans in existence between PoMC and responsible persons and/or their related parties during the reporting period and at the date of this report (2015: Nil).

The terms and conditions of transactions entered into with responsible persons’ related entities occurred within a normal customer and supplier relationship on terms and conditions no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to other entities on an arm’s length basis.

Remuneration (continued)



23 Responsible persons (continued)

(d) Other transactions of responsible persons and their related parties (continued)

Mr M Birrell is the Chairman of PoMC and is the President of the Victorian Chamber of Commerce and Industry (VCCI). PoMC is a corporate member of VCCI. Expenses incurred in 2016 were $26,745 (2015: $40,299).

Mr I Dickson is a director of PoMC and a director of the Australian Logistics Council (ALC), the peak national body representing the major and national companies in the Australian freight transport and logistics supply chain. PoMC is a corporate member of ALC. Expenses incurred in 2016 were $11,949 (2015: $14,567).

Ms J van Reyk is a director of PoMC and:- a director of Citywide, a provider of open space, environmental and civil infrastructure services which provides services to PoMC. Expenses incurred in 2016 were Nil (2015: $4,640)- was a director of Melbourne Water (MW) (until her retirement in September 2015). MW manages Melbourne's water supply catchments, treats and supplies drinking and recycled water and manages waterways and major drainage systems in the Port Philip and Westernport region. In 2008, PoMC and MW entered into a Services Protection Works Agreement (SPWA) as part of the Channel Deepening Project (CDP). The SPWA provided that an integrated protective structure be designed and constructed above the Hobsons Bay Main Sewer (HBMS), which is a MW asset that was affected by the CDP undertaken by PoMC. PoMC designed and constructed the protective structure above the HBMS in 2009. Post completion, PoMC commenced a Service Life Maintenance Regime (SLMR) on the protective structure to ensure that its design functionality is maintained at all times. All costs of administering the SLMR are borne by PoMC. As part of the SLMR, PoMC undertakes hydrographic surveys every five years and shares the results with MW.

Mr N Easy is the Chief Executive Officer of PoMC. Mr N Easy's sibling was employed at SeaRoad Holdings Pty Ltd (SeaRoad) until April 2016. SeaRoad is an Australian integrated transport and logistics service provider specialising in Bass Strait shipping and logistics. SeaRoad is an existing tenant at a PoMC owned site. PoMC derives rental revenue from SeaRoad. PoMC and SeaRoad continue to maintain their pre-existing landlord-tenant relationship on a commercial basis.

Conflicts of interest are dealt with in accordance with PoMC's Financial Code of Practice which sets out standards of conduct in relation to financial dealings expected from all PoMC staff including employees, contractors, executives, managers, supervisors and Board members.



24

(a)

Bonuses paid or payable during the year pursuant to individual employment contracts are based on a short term (annual) incentive program.

In addition, 14 executive officers (excluding the CEO) are eligible for retention payment arrangements associated with the PLT. These arrangements were approved by the then Treasurer on 4 November 2014. Retention payments are for key executives critical to the continuing effective operation of the business and the provision of full support in the period of preparing the business for the lease of the port. These payments also encourage the retention of the executives until transaction close. Payments are to be made by PoMC in instalments between completion of due diligence and transaction close. As at 30 June 2016, retention payments of $123,914 have been made to the 14 eligible executive officers (2015: Nil). As at 30 June 2016, one of three retention payments linked to PLT related milestones had been paid to the eligible executive officers and the CEO.

RemunerationThe remuneration of responsible persons (Responsible Ministers, Directors and Accountable Officer (CEO)) is disclosed in Note 23.

The number of executive officers, other than responsible persons (Responsible Ministers, Directors and Accountable Officer (CEO)), and their total remuneration received or receivable during the reporting period are shown in the table below in their relevant $10,000 income bands.

Termination and retirement type payments such as long service leave payouts, redundancy payments and retirement benefits paid or payable during the year pursuant to employment contracts were Nil (2015: Nil).

The disclosure is limited to executive officers, other than responsible persons for whom the total remuneration received or receivable during the reporting period was in excess of $100,000. This is in accordance with the Financial Reporting Direction 21B (FRD 21B) - Disclosures of Responsible Persons, Executive Officers and Other Personnel (Contractors with Significant Management Responsibilities) in the Financial Report.

Total remuneration includes base remuneration, bonus and retention payments paid or payable, long service leave payouts, redundancy payments and termination and retirement type payments.

Base remuneration is exclusive of bonus paid or payable, long service leave payouts, redundancy payments and termination and retirement type payments.

The total annualised employee equivalent provides a measure of full time equivalent executive officers over the reporting period.

Remuneration of executives and payments to other personnel(i.e. contractors with significant management responsibilities)



24

(a)Income Band

2016 No. 2015 No. 2016 No. 2015 No.

$90,000 to $99,999 - - - 1$100,000 to $109,999 1 1 1 -$110,000 to $119,999 1 1 1 1$120,000 to $129,999 1 1 1 2$130,000 to $139,999 - 2 1 3$140,000 to $149,999 6 9 9 10$150,000 to $159,999 5 5 6 7$160,000 to $169,999 6 5 5 4$170,000 to $179,999 5 2 7 7$180,000 to $189,999 4 4 3 3$190,000 to $199,999 2 4 5 2$200,000 to $209,999 6 3 3 5$210,000 to $219,999 - 1 2 3$220,000 to $229,999 1 2 3 -$230,000 to $239,999 2 5 2 2$240,000 to $249,999 3 3 - 1$250,000 to $259,999 4 - 2 1$260,000 to $269,999 - 2 - -$270,000 to $279,999 1 - 1 -$280,000 to $289,999 2 2 - -$290,000 to $299,999 1 - - 1$300,000 to $309,999 - - - -$310,000 to $319,999 1 - - 1$320,000 to $329,999 - - 1 1$330,000 to $339,999 - 1 - 1$350,000 to $359,999 - 1 1 -$360,000 to $369,999 1 1 2 -$370,000 to $379,999 - - - -$380,000 to $389,999 - 1 - -$400,000 to $409,999 1 - - -$420,000 to $429,999 2 - - -Total number of executives 56 56 56 56

55.1 54.9 55.1 54.9Total Amount 11,723,883 11,103,522 10,647,174 10,086,918 i) Annualised employee equivalent is based on 38 paid working hours per week over 52 weeks.

Total Remuneration Base Remuneration

Remuneration of executives and payments to other personnel(i.e. contractors with significant management responsibilities) (continued)

Remuneration (continued)

Total annualised employee equivalent (AEE) (i)



24

(a)

(b)

Expense Band2016 2015No. No.

$100,000 to $109,999 - 2$110,000 to $119,999 - -$140,000 to $149,999 1 -$150,000 to $159,999 - -$160,000 to $169,999 1 -$170,000 to $179,999 - -$180,000 to $189,999 - -$190,000 to $199,999 - -$200,000 to $209,999 - 1$210,000 to $219,999 - 1$250,000 to $259,999 1 2$270,000 to $279,999 - 2$320,000 to $329,999 - 1$390,000 to $399,999 1 -$420,000 to $429,999 1 -Total number of contractors charged with significant management responsibilities 5 9

4.5 8.6Total Amount 1,391,391 2,018,439

(c) Loans and Other transactions of executives and their related partiesThere were no loans or other transactions in existence between PoMC and executive officers and/or their related parties during the current financial year and at the date of this report (2015: Nil).

For the 2015 and 2016 reporting periods, the contractors charged with significant management responsibilities were engaged to provide Project Management services to the Port Capacity Project, Information Technology services and Environmental services.

The number of contractors charged with significant management responsibilities other than executive officers within the relevant $10,000 expense bands for the 2015 and 2016 reporting periods are shown in the table below.

Remuneration of executives and payments to other personnel(i.e. contractors with significant management responsibilities) (continued)

Payments to other personnel, i.e. contractors with significant management responsibilities

Total Expenditure

Total annualised employee equivalent (AEE)

Remuneration (continued)In accordance with FRD 21B bonuses paid or payable disclosed in this note only relate to employment contracts where the total remuneration received or receivable during the reporting period exceeds $100,000 and they occupy a management role.



25 Remuneration of auditors

Victorian Auditor-General's Office 2016 2015$ $

Audit of financial reports 87,900 74,600

26 Financial Instruments

2016 2015Notes $'000 $'000

(a) Categorisation of financial instrumentsContractual financial assets

Current assetsCash and cash equivalents 10 29,526 39,580 Receivables - Trade receivables 11 25,342 32,976 Total contractual financial assets 54,868 72,556

Contractual financial liabilitiesLiabilities at amortised costCurrent liabilitiesPayables 16 48,353 61,178 Interest bearing liabilities 17 - - Non-current liabilitiesInterest bearing liabilities 17 - - Total contractual financial liabilities 48,353 61,178

During the year the following fees were paid or payable for services provided by the auditors of PoMC:

Details of significant accounting policies and methods adopted including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, with respect to each class of financial asset, financial liability and equity instruments are disclosed in Note 1 to the financial statements.

The main purpose in holding financial instruments is to prudentially manage PoMC's financial risks within the State Government's policy parameters. PoMC's main financial risks include credit risk, liquidity risk and foreign currency risk. PoMC manages these financial risks in accordance with its Treasury Management Policy.

The audit fee for the current financial year includes the fee for the audit of PoMC's wholly owned subsidiaries that were dormant as at 30 June 2016.



26 Financial Instruments (continued) 2016 2015Notes $'000 $'000

(a) Categorisation of financial instruments (continued)

Net holding gain/(loss) on financial instruments by categoryInterest income on contractual financial assets (i) 3 1,082 590 Interest expense on contractual financial liabilities (ii) 9 (4) (66,296) Total 1,078 (65,706)

(b) Credit quality of contractual financial assets that are neither past due nor impaired

Notes

Financialinstitu-

tioncredit ratingAAA

Govern-ment

agencycreditratingAAA

Third parties' credit rating other thanAAA Total

$'000 $'000 $'000 $'0002016Current assets Cash and cash equivalents 10 10,292 19,234 - 29,526 Receivables - Trade receivables (i) 11 - - 25,342 25,342

10,292 19,234 25,342 54,868

2015Current assetsCash and cash equivalents 10 3,580 36,000 - 39,580 Receivables - Trade receivables (i) 11 - - 32,976 32,976

3,580 36,000 32,976 72,556

(i) The total amounts disclosed exclude statutory receivables.

(i) The net holding gain/(loss) on contractual financial assets equates to the interest income on cash and cash equivalents.

(ii) The net holding gain/(loss) on contractual financial liabilities equates to the interest expense on interest bearing liabilities.



26 Financial Instruments (continued)

(c) Credit Risk

(d) Market risk

Interest rate risk sensitivity

Notes

Carrying amount

$'000

Netresult

interest rate -100

basis points

Netresult

interest rate +100

basis points

2016 - contractual financial assetsCash and cash equivalents 10 29,526 (295) 295

2015 - contractual financial assetsCash and cash equivalents 10 39,580 (396) 396

Market risk refers to the risk that PoMC's profit or loss or equity could change as a result of changes in market prices. Market risk comprises currency risk, interest rate risk and other price risk. PoMC's policy is to continuously monitor its exposure to market risk arising from existing and future transactions.

PoMC is not exposed to currency risk in the current or comparative reporting periods since its operative functional currency is the Australian Dollar. During the year and prior to their repayment on 25 June 2015, PoMC's loans had fixed rates and therefore were not subject to interest rate risk exposure. PoMC is not exposed to any other market risk.

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in a financial loss to PoMC. The carrying amount of PoMC's financial assets recognised in the Statement of Financial Position, net of any provisions for doubtful debt, represents PoMC's maximum exposure to credit risk from financial assets.

PoMC actively manages its credit risk using a range of processes and procedures. These include performing credit checks for new and existing customers as required, obtaining bank guarantees where considered appropriate and monitoring the performance of significant trading partners on an ongoing basis.

PoMC does not engage in hedging for its contractual assets. PoMC only deals with banks with high credit ratings.

A movement of 100 basis points up and down in market interest rates is "reasonably possible" over the next 12 month period. A sensitivity analysis with respect to cash and cash equivalents on the following basis is presented in the table below.

The provision for impairment of financial assets is calculated based on past experience and current and expected changes in clients' credit ratings. An ageing analysis is provided in Note 11 to outline PoMC’s exposure to credit risk.



26 Financial Instruments (continued) 2016 2015Notes $'000 $'000

(e) Derivative instruments used by PoMC

Cash flow hedges

Movements in cash flow reserve:Carrying amount 1 July - (4,280) Interest bearing liabilities - Forward settled loans 21(a) - 6,115

21(a) - (1,835) Carrying amount 30 June - -

Gain/(loss) transferred to Comprehensive Operating Statement - -

(f) Financial Risk Management

(g) Liquidity risk

In order to protect against rising interest rates, PoMC entered into forward settled loans under which it had a right to pay interest at fixed rates. The forward settled loans were measured at fair value and all gains and losses attributable to the hedged risk were taken directly to equity and amortised as the interest expense is recognised. All forward settled loans were drawn down by 30 June 2010.

Tax effect charged to Other Comprehensive Income

PoMC maintains a comprehensive Risk Management System which is integrated with its business planning processes. There is a formally documented Risk Management Policy, Risk Management Procedures and a framework which are consistently applied across all levels of the business. A Financial Risk Management Assessment is presented to the Audit and Finance Committee of the Board on an annual basis in line with the requirements of the Standing Directions of the Minister for Finance, under the Financial Management Act 1994 (Vic). In addition, a quarterly risk status report is presented to the Risk Committee and the Board outlining PoMC's significant material risks including financial risks. Each risk is reviewed regularly against the risk matrix to ensure the level of risk is appropriate and the treatment and controls are adequate.

Liquidity risk is the risk that PoMC will be unable to meet its financial obligations as and when they fall due. PoMC manages its liquidity risk to ensure that adequate cash funds are available at all times to meet its commitments as they arise. This objective is met through:- sound cash management practices;- regular identification and monitoring of the maturity profile of liquid assets and liabilities together with regular cash flow forecasting;- having sufficient overdraft facilities; and- investments that are limited to highly liquid and secure assets.

PoMC's maximum exposure to liquidity risk is the carrying amount of financial liabilities as disclosed in the Statement of Financial Position. Refer to Note 26(i) for interest rate risk and financial liability and financial asset maturity analysis.

The balance of the cash flow hedge reserve remains nil as at 30 June 2016, as the reserve was fully amortised as part of PoMC's repayment of all its outstanding interest bearing liabilities on 25 June 2015.



26 Financial Instruments (continued)

(h) Net fair value of financial assets and liabilities

Comparison betweencarrying amount and fair value Notes

Carrying amount Fair value

Carrying amount Fair value

2016 2016 2015 2015$'000 $'000 $'000 $'000

Contractual financial assets Current assetsCash and cash equivalents 10 29,526 29,526 39,580 39,580 Receivables - Trade receivables 11 25,342 25,342 32,976 32,976

54,868 54,868 72,556 72,556 Contractual financial liabilitiesCurrent liabilitiesPayables 16 48,353 48,353 61,178 61,178 Interest bearing liabilities 17 - - - - Non-current liabilitiesInterest bearing liabilities 17 - - - -

48,353 48,353 61,178 61,178

The net fair value of PoMC’s cash and deposits and non-interest bearing financial assets and liabilities is equal to their carrying value.

The net fair value of PoMC’s financial instruments assets and liabilities is determined with reference to market prices where a market exists or the net present value of expected future cash flows using a discount factor of the current interest rate applicable to liabilities with a similar risk profile as follows:

Level 1 - the fair value of financial instrument with standard terms and conditions and traded in active liquid markets are determined with reference to quoted market prices;

Level 2 - the fair value is determined using inputs other than quoted prices that are observable for the financial asset or liability, either directly or indirectly; and

Level 3 - the fair value is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using unobservable market inputs.



(h) Net fair value of financial assets and liabilities (continued)

Fair value hierarchy of financial assets and liabilities Notes Fair value

2016$'000

Contractual financial assets Current assetsCash and cash equivalents 10 (i) 29,526 Receivables - Trade receivables 11 (i) 25,342

54,868 Contractual financial liabilitiesCurrent liabilitiesPayables 16 (ii) 48,353 Interest bearing liabilities 17 (ii), (iii) - Non-current liabilitiesInterest bearing liabilities 17 (ii), (iii) -

48,353

(iii) On 25 June 2015, at the Direction of the Minister for Ports with approval from the Treasurer, PoMC repaid all its outstanding interest bearing liabilities with the TCV. A capital contribution via equity in the form of cash from the DTF enabled this repayment. The transfer was recognised as a contribution by owners in accordance with FRD 119A - Transfers through Contributed Capital.

(i) Counterparty's credit risk is considered to be a significant valuation input. However, considering the nature of PoMC's financial assets the risk is considered to be very low.

(ii) Credit risk and interest rate risk are considered to be the significant valuation inputs. However, considering the nature of PoMC's financial liabilities the risks are considered to be very low.

Discounted cash flow


All the above financial assets and liabilities are considered to fall within Level 2 of the fair value hierarchy. There has been no change in the fair value hierarchy of the above financial assets and liabilities during the reporting period.

Valuationtechnique

Valuation input

Notional amount Discounted cash flow



69

Port

of M

elbo

urne

Cor

pora

tion

Not

es to

the

Fina

ncia

l Sta

tem

ents

For t

he y

ear e

nded

30

June

201

6

26Fi

nanc

ial I

nstr

umen

ts (c

ontin

ued)

(i)

Inte

rest

rate

risk

and

fina

ncia

l lia

bilit

y an

d fin

anci

al a

sset

mat

urity

ana

lysi

s

Floa

ting

inte

rest

1 ye

ar o

r le

ssov

er 1

-2

year

sov

er 2

-3

year

sov

er 3

-4

year

sov

er 4

-5

year

sov

er 5

ye

ars

Non

-in

tere

st

bear

ing

1 ye

ar o

r le

ssTo

tal

2016

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

$'00

0

Fina

ncia

l ass

ets

Cash

and

cas

h eq

uiva

lent

s29

,526

-

-

-

-

-

-

-

29

,526

Re

ceiv

able

s - T

rade

rece

ivab

les

-

-

-

-

-

-

-

25,3

42

25,3

42

29,5

26

-

-

-

-

-

-

25,3

42

54,8

68

Wei

ghte

d av

erag

e in

tere

st ra

te1.

54%

-%

-%-%

-%-%

-%-%

-%

Fina

ncia

l lia

bilit

ies

Paya

bles

-

-

-

-

-

-

-

48,3

53

48,3

53

Inte

rest

bea

ring

liabi

litie

s (i)

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

48,3

53

48,3

53

Wei

ghte

d av

erag

e in

tere

st ra

te-%

-%

-%

-%

-%

-%

-%

-%-%

Net

fina

ncia

l ass

ets/

(liab

ilitie

s)29

,526

-

-

-

-

-

-

(2

3,01

1)

6,

515

The

expo

sure

to in

tere

st ra

te ri

sks,

the

effe

ctiv

e w

eigh

ted

aver

age

inte

rest

rate

s for

fina

ncia

l ass

ets a

nd fi

nanc

ial l

iabi

litie

s and

thei

r mat

urity

pro

files

at

the

repo

rtin

g da

te a

re a

s fol

low

s:

Fixe

d in

tere

st m

atur

ing

in:


70

Port

of M

elbo

urne

Cor

pora

tion

Not

es to

the

Fina

ncia

l Sta

tem

ents

For t

he y

ear e

nded

30

June

201

6

26Fi

nanc

ial I

nstr

umen

ts (c

ontin

ued)

(i)

Inte

rest

rate

risk

and

fina

ncia

l lia

bilit

y an

d fin

anci

al a

sset

mat

urity

ana

lysi

s (co

ntin

ued)

Floa

ting

inte

rest

1 ye

ar o

r le

ssov

er 1

-2

year

sov

er 2

-3

year

sov

er 3

-4

year

sov

er 4

-5

year

sov

er 5

ye

ars

Non

-in

tere

st

bear

ing

1 ye

ar o

r le

ssTo

tal

2015

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

$'00

0

Fina

ncia

l ass

ets

Cash

and

cas

h eq

uiva

lent

s39

,580

-

-

-

-

-

-

-

39

,580

Re

ceiv

able

s - T

rade

rece

ivab

les

-

-

-

-

-

-

-

32,9

76

32,9

76

39,5

80

-

-

-

-

-

-

32,9

76

72,5

56

Wei

ghte

d av

erag

e in

tere

st ra

te1.

91%

-

-%-%

-%-%

-%-%

-%

Fina

ncia

l lia

bilit

ies

Paya

bles

-

-

-

-

-

-

-

61,1

78

61,1

78

Inte

rest

bea

ring

liabi

litie

s-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

61

,178

61

,178

W

eigh

ted

aver

age

inte

rest

rate

-%-

-

-

-

-

-

-%

-%

Net

fina

ncia

l ass

ets/

(liab

ilitie

s)39

,580

-

-

-

-

-

-

(2

8,20

2)

11

,378

(i) O

n 25

June

201

5, a

t the

Dire

ctio

n of

the

Min

ister

for P

orts

with

app

rova

l fro

m th

e Tr

easu

rer,

PoM

C re

paid

all

its o

utst

andi

ng in

tere

st b

earin

g lia

bilit

ies

with

the

Trea

sury

Cor

pora

tion

of V

icto

ria.

Fixe

d in

tere

st m

atur

ing

in:



27 Contingencies

Contingencies as at 30 June 2016

28 Assets and liabilities transfers between public sector entities



On 28 April 2016, PoMC acquired 31 land parcels (21,931 square metres in total) of freehold land within the Port of Melbourne from the DTF for a consideration of $7.75 million (based on a market valuation conducted by the Valuer-General Victoria). The acquisition was conducted following PoMC Board approval on 18 April and in accordance with a Direction from the Treasurer and the Minister for Ports dated 15 May 2015 and further instruction from the State dated 11 March 2016.

PoMC is aware of possible contamination in relation to its land. At the certification date of the financial statements, PoMC is unable to determine the total extent of potential contamination or restoration costs.

Management is of the opinion that provisions are not required in respect of the above matters, as they are considered highly improbable that a future sacrifice of economic benefits will be required or the amounts are not capable of accurate assessment.

On the same day (28 April 2016) but prior to the acquisition, the Committee of Management at Ann Street Pier was revoked and the crown land parcels under PoMC’s control were transferred to the Department of Environment, Land, Water and Planning(DELWP) via contributed capital at a value of $2.25 million in line with an allocation statement signed by the Minister for Ports. The transfer was recognised as a distribution by owners in accordance with FRD 119A - Transfers through Contributed Capital.

During 2015, a tenant commenced legal proceedings against PoMC in the Supreme Court. The proceedings relate to clauses in the lease regarding improvements on the site. At the time of signing the Financial Statements, PoMC is unable to assess the probability of success or otherwise of the challenge.

On 25 June 2015, at the Direction of the Minister for Ports with approval from the Treasurer, PoMC repaid all its outstanding interest bearing liabilities with the TCV. A capital contribution of $652.3 million via equity in the form of cash from the DTF enabled this repayment. The transfer was recognised as a contribution by owners in accordance with FRD 119A - Transfers through Contributed Capital.



2016 2015$'000 $'000

29 Commitments for expenditure

(a) Commitments for expenditure

Capital expenditure commitments

44,988 201,191 Total capital expenditure commitments 44,988 201,191

Intangible assets commitments

- - Total intangible assets commitments - -

Operating expenditure commitments

42,137 34,545 Total operating expenditure commitments 42,137 34,545

Total commitments for expenditure 87,125 235,736

(b) Commitments for expenditure payable

Capital expenditure commitments payable- within one year 44,924 170,329 - later than one year but not later than five years 64 30,862 - later than five years - - Total capital expenditure commitments 44,988 201,191

Intangible assets commitments payable- within one year - - - later than one year but not later than five years - - - later than five years - - Total intangible assets commitments - -

Operating expenditure commitments payable (excluding lease commitments)- within one year 37,326 29,340 - later than one year but not later than five years 4,811 5,206 - later than five years - -

42,137 34,545

Total commitments for expenditure payable 87,125 235,736

Total operating expenditure commitments (excluding lease commitments)

Commitments for the construction and acquisition of Property, plant and equipment, contracted for at balance date but not incurred or recognised as liabilities

Commitments for the acquisition of intangible assets contracted for at balance date but not incurred or recognised as liabilities

Commitments for the payments of operating expenditure excluding lease commitments contracted for at balance date but not incurred or recognised as liabilities



2016 2015$'000 $'000

30 Leases

(a) Operating leasesNon-cancellable operating lease receivable- within one year 104,402 57,352 - later than one year but not later than five years 449,354 430,727 - later than five years 2,877,608 2,995,508

3,431,364 3,483,587

Non-cancellable operating lease payable- within one year 3,380 3,176 - later than one year but not later than five years 616 3,705 - later than five years 931 1,010

4,927 7,891

(b) Finance leases

PoMC leases various offices and equipment under non-cancellable operating leases expiring within 1 to 6 years. The leases have varying terms that are negotiated on renewal of the leases.

PoMC did not have any finance leases as at 30 June 2016 (2015: Nil).

PoMC has entered into a number of long and short term leases and preferential berthing licences for land, buildings and infrastructure. The leases and licences terms range from 1 year and up to 25 years or more in some cases.

Longer term leases are entered into where PoMC requires the tenant to invest substantial capital to improve the land and provide infrastructure. Ministerial approval is required for leases with terms greater than 25 years in duration, including an option term.

Generally, rental income under leases is reviewed to market at two or three yearly intervals. Some leases provide for annual or biennial CPI reviews or an agreed fixed increase.

In 2016, PoMC has recognised leases related to the Port Capacity Project given the scheduled completion of the project in 2017.



31 Events occurring after the reporting period

(a) Port Capacity Project

(b)

As at the date of this report, the PDI hub and first stage of the automotive terminal are operational and the remaining works including completion of the international container terminal are on track for operations to commence in early 2017.

The Port Capacity Project which was approved by the Victorian Government in April 2012 is nearing completion (financial close is scheduled for 30 June 2017). The PCP centres on works at Webb Dock including a new international container terminal, a world class automotive terminal and a dedicated 'on-dock' automotive pre-delivery inspection (PDI) hub.

Port of Melbourne Lease TransactionDuring the current reporting period, the Victorian Government continued with its plans to lease the Port of Melbourne's commercial operations to a private operator.

Post the financial close of the PLT, Port Lessor is expected to be transferred from PoMC (as parent) to the Department of Economic Development, Jobs, Transport and Resources (DEDJTR). In addition, PoMC will be renamed as Victorian Ports Corporation (Melbourne) in accordance with the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic).

As discussed in Note 1(a) Corporate Information - the financial statements have incorporated a subsequent event in accordance with AASB 110 - Events after the Reporting Period due to the following events that occurred on 19 September 2016:- announcement of the Lonsdale Consortium as the successful bidder,- signing of the Sale and Purchase Deed between the State and the Lonsdale Consortium, - release of total Bid Price for the 50 year lease and- overview of the assets subject to the 50 year lease.

As at the date of this report, the financial close of the PLT remains to be finalised and accounted for by PoMC. The financial close is expected to occur on 31 October 2016 and ordinarily include the following:- divestment of PoMC's wholly owned Port Manager entities (PoMO and PoMUT) from PoMC to the Lonsdale Consortium, and- lease of fixed assets (Channels, Land and Infrastructure) from PoMC's wholly owned subsidiary Port Lessor to the Lonsdale Consortium for a period of 50 years.

The 50-year lease of the Port of Melbourne is expected to be classified as an operating lease and will consist of a lease of the Land, Channels and other Infrastructure assets. The Victorian State will continue to recognise the Land, Channels and other Infrastructure assets on its balance sheet at a State Annual Financial Report level (via Port Lessor). The assets disposed off and the operation of the port business in the Port Package will be derecognised at the time of the financial close of the PLT.

The valuation of the Channels and the residual values struck for Land, Channels and other Infrastructure assets at the end of the lease term include management judgements and assumptions that are inherently subject to estimation uncertainty and are based on professional judgement and other factors that are believed to be reasonable under the circumstances. As at 30 June 2016 the fair value of Land, Channels, Infrastructure and Property, plant and equipment reflects the Bid price plus estimated residual values. Refer to Note 14 for further details.



31 Events occurring after the reporting period (continued)

(c)

Port Lessor

$'000Land 3,077,952

6,613,667 Capital works in progress 295,942 Total assets 9,987,561 Payables 14,413 Total liabilities 14,413 Net assets 9,973,148

PoMUT

$'000 28,976 1,172

Property, plant and equipment 40,513 Intangibles 1,563 Capital works in progress 1,016 Total assets 73,240 Payables 13,659 Other liabilities 3,973 Total liabilities 17,632 Net assets 55,608

Commencement of subsidiary operations - 1 July 2016

Port of Melbourne Operations Pty Ltd (PoMO)

On 1 July 2016, certain specific assets, rights and liabilities of PoMC were transferred to Port Lessor and Port Manager. The transfers were accounted for in accordance with FRD 119A - Transfers through Contributed Capital as designated by the Minister for Ports on 27 June 2016.

Property, plant and equipment (excluding land)

Port Lessor is the custodian of all assets that have been designated to form part of the Port of Melbourne Lease Package that are to be leased from the State to a private operator (the Lonsdale Consortium).

ReceivablesOther assets

Port of Melbourne Unit Trust was established in order to facilitate the proposed PoMC business separation (effective 1 July 2016) of the relevant assets, functions and responsibilities of PoMC into those that are to be offered for lease to a private operator and those that will be retained by the Victorian Government.

The sole purpose of PoMO is to act as trustee for the Port of Melbourne Unit Trust which commenced operations on 1 July 2016. PoMO does not engage in any operating activities other than its role as trustee of the Port of Melbourne Unit Trust. No assets, rights and liabilities of PoMC were transferred by PoMC to PoMO effective 1 July 2016. As at the date of this report, PoMO remains a dormant entity with its sole purpose to act as trustee for PoMUT.

The following balances were transferred from PoMC to Port Manager on 1 July 2016:

The following balances were transferred from PoMC to Port Lessor on 1 July 2016:



2016 2015Notes $'000 $'000

32 Related party transactions

Operating revenue 895 831 Operating expenses 10,010 (14,773) Finance charges - (30,115) Port Licence Fee 4(i) (79,758) (77,882) Dividend paid 21(b) (29,908) (33,043) Income tax instalments refund/(paid) 6 17,311 (24,421) Assets 27,214 36,439 Liabilities 3,687 18 Capital contribution from the Department of Treasury and Finance 28 10,002 652,300

33

Profit for the year 21(b) 95,814 45,878

Depreciation and amortisation 4 103,232 80,648 Loss on sale of non-current assets 4 1,627 3,882

4 230 548

Change in operating assets and liabilitiesDecrease in receivables 68,323 69,838 Decrease/(increase) in deferred tax assets 7 3,690 (222) Decrease in other operating assets 419 134 (Decrease) in payables (61,876) (75,349) Increase/(decrease) in provision for income taxes payable 6 39,155 (42,596) Increase in deferred tax liabilities 8 13,493 23,788 Increase in current provisions 18 1,191 497 Increase/(decrease) in non current provisions 18 66 (207) (Increase)/(decrease) in other liabilities 19 (6,683) (1,154)

Net cash inflow from operating activities 258,681 105,685

The Victorian State Government prepares consolidated financial statements relating to its controlled entities. For the purpose of preparing the State Government's Annual Financial Report (AFR), transactions which PoMC has undertaken with other State Government controlled entities will be eliminated in the State Government's AFR.

The aggregate amounts of PoMC's transactions conducted during the year and its assets and liabilities at the end of the year which relate to State Government controlled entities are as follows:

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

Non-cash movements in income and expense

Revaluation (gain)/loss on Property, plant and equipment


Port of Melbourne CorporationCertification of Financial Statements30 June 2016

We certify that the attached financial statements for Port of Melbourne Corporation has been prepared in accordance with the Standing Direction 4.2 of the Financial Management Act 1994 (Vic), applicable Financial Reporting Directions, Australian Accounting Standards, including Interpretations and other mandatory professional reporting requirements.

We further state that, in our opinion, the information set out in the Comprehensive Operating Statement, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows and notes to and forming part of the financial statements, presents fairly the financial transactions during the year ended 30 June 2016 and financial position of the Port of Melbourne Corporation as at 30 June 2016.

The financial statements comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

At the time of signing, we are not aware of any circumstances which would render any particulars included in the financial statements to be misleading or inaccurate.

We authorise the attached financial statements for issue on 24 October 2016.

Mr M BirrellChairman24 October 2016

Mr N EasyChief Executive Officer24 October 2016

Mr M O'MearaChief Finance and Accounting Officer24 October 2016


Auditor-General’s Report



Disclosure index

Charter and purpose Page

FRD 22F Manner of establishment and the relevant Ministers 8FRD 22F Objectives, functions, powers and duties 38-39FRD 22F Nature and range of services provided 7

Management and structure

FRD 22F Organisational structure 19

Financial and other information

FRD 10 Disclosure index 122-123FRD 10 Application and operation of the Privacy and Data Protection Act 2014 (Vic) 42FRD 10 Ministerial Directions pursuant to Sections 163 and 141H of the Transport

Integration Act 2010 (Vic)8

FRD 10 Statement of Corporate Intent pursuant to Section 79Q of the Transport Integration Act 2010 (Vic)

29-37

FRD 22F Occupational health and safety policy 18FRD 22F Employment and conduct principles and workforce data 18FRD 22F Summary of the financial results for the year 24FRD 22F Significant changes in financial position during the year 22-23FRD 22F Operational and budgetary objectives and performance against objectives 34-36FRD 22F Subsequent events 116FRD 22F Details of consultancies over $10,000 43FRD 22F Details of consultancies under $10,000 43FRD 22F Advertising expenditure disclosure 43FRD 22F Analysis of operating results and financial position 22-23FRD 22F Application and operation of the Freedom of Information Act 1982 (Vic) 42FRD 22F Compliance with the building and maintenance provisions of the Building Act

1993 (Vic)41

FRD 22F Application and operation of the Protected Disclosure Act 2012 (Vic) 41FRD 22F Statement on compliance with National Competition Policy 40FRD 22F Statement of availability of other information 43FRD 25B Victorian Industry Participation Policy disclosures 40FRD 30B Standard Requirements for the design and print of annual reports 1-123

Standing Directions of the Minister for Finance under the Financial Management Act 1994 (Vic) – other information

SD 2.2 (f) Audit Committee - independence of committee members 14SD 4.5.5 Victorian Government Risk Management Framework Attestation 41

Financial Report

Standing Direction 4.2 of the Minister for Finance under the Financial Management Act 1994 (Vic) (FMA) – Reporting Requirements under Part 7 of the FMA

Financial statements

SD4.2(b) Comprehensive Operating Statement 45SD4.2(b) Statement of Financial Position 46SD4.2(b) Statement of Changes in Equity 47SD4.2(b) Statement of Cash Flows 48


Other requirements Page

SD4.2(b) Notes to financial statements 49-118

SD4.2(a) Compliance with Financial Reporting Directions 49-118

SD4.2(a) Compliance with Australian accounting standards and other authoritative pronouncements

49-118

SD4.2(c) Accountable officer’s declaration 119

SD4.2(d) Rounding of amounts 63

Other disclosures as required by Financial Reporting Directions in the notes to the financial statements

FRD 03A Accounting for Dividends 63

FRD 17B Long Service Leave, Wage Inflation and Discount Rates 60-61

FRD 21B Responsible persons, Executive officers and other Personnel in the Financial Report

99-104

FRD 100 Financial Reporting Directions - Framework 119

FRD 103F Non-Current Physical Assets 56-57

FRD 104 Foreign Currency 53

FRD 105A Borrowing Costs 60

FRD 106 Impairment of Assets 55

FRD 108A Classification of Entities as For-Profit 49

FRD 109 Intangible Assets 59

FRD 110 Statement of Cash Flows 48

FRD 112D Defined Benefit Superannuation Obligation 93-98

FRD 114A Financial Instruments 105-112

FRD 119A Contribution by Owners 62

FRD 120I Accounting and Reporting Pronouncements applicable to the 2015-16 Reporting Period

64-65

Legislation

Building Act 1993 (Vic) 41

Financial Management Act 1994 (Vic) 1, 14, 41 49 & 119

Freedom of Information Act 1982 (Vic) 42

Marine Safety Act 2010 (Vic) 37-38

Port Management Act 1995 (Vic) 7, 26, 37-39 & 49

Protected Disclosure Act 2012 (Vic) 41

Transport Integration Act 2010 (Vic) 1, 7, 8, 37-39 & 63

Victorian Industry Participation Policy Act 2003 (Vic) 40

Borrowing and Investment Ports Act 1987 (Vic) 89

Emergency Management Act 2013 (Vic) 39

Emergency Management Amendment (Critical Infrastructure Resilience) Act 2014 (Vic) 39

Privacy and Data Protection Act 2014 (Vic) 42

Port Management Amendment (Port of Melbourne Corporation Licence Fee) Act 2012 (Vic) 47, 69-70

Income Tax Assessment Act 1997 (Cwlth) 54

Income Tax Assessment Act 1936 (Cwlth) 54

Superannuation Guarantee (Administration) Act 1992 (Cwlth) 62

Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016 (Vic) 7-9, 18, 25, 33, 39, 50-52, 73, 75-76 & 116

Corporations Act 2001 (Cth) 8

National Employment Standards and Fair Work Act 2009 (Cwlth) 18


Melbourne office

Street AddressLevel 5 530 Collins Street | Melbourne Victoria 3000 | Australia

Postal AddressGPO Box 261 | Melbourne VIC 3001 | Australia

Tel: +61 3 8347 8300 | Fax: +61 3 8347 8301Email: [email protected] | Website: www.vicports.vic.gov.au

Authorised by the Victorian GovernmentThis publication is produced by Port of Melbourne Corporation.