Airservices is Australia's air navigation service provider - we provide air traffic control, aviation rescue and fire fighting and air navigation services.

Annual Report 2017-18: 04 Financial statements

Signed reports

Audit report

auditorreport2018-1 auditorreport2018-2

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Statement by Directors, Chief Executive Officer and Chief Financial Officer

In our opinion, the attached financial statements for the year ended 30 June 2018 comply with subsection 42(2) of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), and are based on properly maintained financial records as per subsection 41(2) of the PGPA Act.

In our opinion, at the date of this statement, there are reasonable grounds to believe that Airservices Australia will be able to pay its debts as and when they fall due.

This statement is made in accordance with a resolution of the directors.

John Weber
Chairman
Jason Harfield
Chief Executive Officer
Paul Logan
Chief Financial Officer

Canberra, 27 September 2018

Financial statements

Statement of Comprehensive Income

For the year ended 30 June 2018

Notes 2018
$’000
2017
$’000
CONTINUING OPERATIONS
INCOME
Airways revenues 1.1 1,080,897 1,044,927
Finance income 1.1 2,150 3,485
Reversal of previous asset write-down 1,580 2,347
Miscellaneous income 3,647 3,040
Other business revenue 22,273 22,863
TOTAL INCOME 1,110,547 1,076,662
EXPENSES
Employee benefits 1.2 618,143 664,507
Suppliers 205,532 172,500
Depreciation and amortisation 2.3 147,250 148,510
Finance costs 1.2 21,791 33,389
Write-down and impairment of assets 1.2 9,059 8,197
Net loss on disposal of non-current assets 1.2 1,901 497
TOTAL EXPENSES 1,003,676 1,027,600
PROFIT BEFORE INCOME TAX 106,871 49,062
Income tax expense 1.3 32,377 15,090
PROFIT AFTER INCOME TAX 74,494 33,972
OTHER COMPREHENSIVE INCOME  
Items that will not be reclassified to profit or loss  
Changes in asset revaluation reserve 4,166 8,444
Actuarial gain on defined benefit fund 4.2 23,111 101,619
Income tax on items that will not be reclassified to profit or loss (8,183) (33,019)
Items that may be reclassified subsequently to profit or loss  
Loss on foreign exchange hedges (1,277) (369)
Income tax on items that may be reclassified to profit or loss 383 111
TOTAL OTHER COMPREHENSIVE INCOME NET OF TAX 18,200 76,786
TOTAL COMPREHENSIVE INCOME 92,694 110,758

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


Statement of Financial Position

As at 30 June 2018

Notes 2018
$’000
2017
$’000
CURRENT ASSETS
Cash and cash equivalents 3.1 198,792 79,844
Trade and other receivables 2.1 122,436 122,486
Prepayments 33,359 9,328
Inventories 1,827 1,792
Assets classified as held for sale 2.2 100
Other current financial assets 2.6 1,076 1,133
TOTAL CURRENT ASSETS 357,490 214,683
NON-CURRENT ASSETS
Property, plant and equipment 2.3 1,188,185 1,178,913
Intangible assets 2.3 91,168 111,808
Defined benefit fund asset 4.2 262,839 231,371
Other non-current financial assets 2.6 10,461 13,732
TOTAL NON-CURRENT ASSETS 1,552,653 1,535,824
TOTAL ASSETS 1,910,143 1,750,507
CURRENT LIABILITIES
Trade and other payables 2.5 91,491 77,019
Employee provisions 4.1 216,322 231,884
Income tax payable 1,133
Other provisions 2.5 30,434 21,003
Borrowings 3.3 9,974 29,864
Other current financial liabilities 2.6 348 579
Other current liabilities 2.7 299 1,401
TOTAL CURRENT LIABILITIES 350,001 361,750
NON-CURRENT LIABILITIES
Deferred tax liability 1.3 41,246 3,894
Employee provisions 4.1 41,120 46,929
Other provisions 2.5 51,134 20,655
Borrowings 3.3 671,340 670,326
Other non-current financial liabilities 2.6 6,669 7,347
Other non-current liabilities 2.7 37,446 3,931
TOTAL NON-CURRENT LIABILITIES 848,955 753,082
TOTAL LIABILITIES 1,198,956 1,114,832
NET ASSETS 711,187 635,675
EQUITY
Retained earnings 367,313 289,594
Reserves 121,684 123,891
Contributed equity 222,190 222,190
TOTAL EQUITY 711,187 635,675

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


Statement of Changes in Equity

For the year ended 30 June 2018

Retained earnings Asset revaluation reserve Foreign exchange
hedge reserve
Total reserves Contributed equity Total equity
2018
$’000
2017
$’000
2018
$’000
2017
$’000
2018
$’000
2017
$’000
2018
$’000
2017
$’000
2018
$’000
2017
$’000
2018
$’000
2017
$’000
Opening balance 289,594 182,647 123,795 119,403 96 354 123,891 119,757 222,190 222,190 635,675 524,594
Comprehensive income            
Defined benefits actuarial gains – gross 23,111 101,619  –  –  –  –  – 23,111 101,619
Defined benefits actuarial gains – income tax effect (6,933) (30,486)  –  –  –  –  – (6,933) (30,486)
Net revaluation – gross  –  – 4,166 8,444 (1,277) (369) 2,889 8,075  –  – 2,889 8,075
Net revaluation – income tax effect  –  – (1,250) (2,533) 383 111 (867) (2,422)  –  – (867) (2,422)
Profit/(loss) for the period 74,494 33,972  –  –  –  –  – 74,494 33,972
Total comprehensive income 90,672 105,105 2,916 5,911 (894) (258) 2,022 5,653 92,694 110,758
Transactions with owners            
Returns on capital            
Dividends (18,900)  –  –  –  –  – (18,900)
Transfers between equity components            
Revaluation reserve – disposals 5,947 1,842  –  –  –  –  –  – 5,947 1,842
Revaluation reserve – disposals (net of tax)  –  – (4,163) (1,289)  –  – (4,163) (1,289)  –  – (4,163) (1,289)
Revaluation reserve – impairments (net of tax)  –  – (66) (230)  –  – (66) (230)  –  – (66) (230)
Closing balance 367,313 289,594 122,482 123,795 (798) 96 121,684 123,891 222,190 222,190 711,187 635,675

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


Cash Flow Statement

For the year ended 30 June 2018

Notes 2018
$’000
2017
$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received
Receipts from customers (inclusive of GST) 1,223,688 1,173,486
Income tax refund 3,099
Interest received 2,012 4,298
Total cash received 1,225,700 1,180,883
Cash used
Payments to employees (632,773) (781,519)
Payments to suppliers (inclusive of GST) (287,781) (307,587)
Borrowing costs (20,021) (24,200)
Income tax paid  –
Total cash used (940,575) (1,113,306)
Net cash flows from operating activities 3.2 285,125 67,577
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received
Proceeds from sales of property, plant, equipment and intangibles 1,856 2,007
Total cash received 1,856 2,007
Cash used
Purchase of property, plant, equipment and intangibles (129,133) (160,691)
Total cash used (129,133) (160,691)
Net cash flows used in investing activities (127,277) (158,684)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received
Proceeds from borrowings 20,000
Total cash received 20,000
Cash used
Dividends paid (18,900)  –
Repayments of borrowings (20,000) (220,000)
Total cash used (38,900) (220,000)
Net cash flows from/(used in) financing activities (38,900) (200,000)
Net increase/(decrease) in cash and cash equivalents 118,948 (291,107)
Cash and cash equivalents at the beginning of the reporting period 79,844 370,951
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD 3.1 198,792 79,844

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

Notes to and forming part of the Financial Statements

Overview

Basis of preparation

Airservices is an Australian Government owned for‑profit entity. The financial statements are required by section 42 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and are general purpose financial statements for the year ended 30 June 2018.

The financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and Financial Reporting Rules (FRR) made under the PGPA Act.

The financial statements were authorised for issue in accordance with a resolution of the Board of Directors on 27 September 2018.

Historical cost convention

These financial statements have been prepared on an accrual basis and under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit and loss, and certain classes of property, plant and equipment.

Critical accounting estimates

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

  • Recoverable amount of other financial assets – Note 2.6
  • AvSuper defined benefits – Note 4.2
  • Long Service Leave & Early Retirement Benefits – Note 4.1

Compliance with IFRS

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

New Accounting Standards

Adoption of new Australian Accounting Standard requirements

No accounting standard has been adopted earlier than the application date as stated in the standard. No new or revised pronouncements were issued prior to finalisation of the financial statements that were applicable to the current reporting period and had a material impact on the entity.

Future Australian Accounting Standard requirements

The following new standards, revised standards, interpretations and amending standards were issued prior to the signing of the statements by the Chairman, Chief Executive Officer and Chief Financial Officer and could have a material impact on Airservices for future reporting periods.

 

Reference Title Summary Application date of standard Application date for Airservices
AASB 9 Financial Instruments The final version of AASB 9 was issued in December 2014 and comprises three parts.

AASB 9 Financial Instruments results in changes to accounting policies for financial assets and financial liabilities covering Classification and Measurement, Hedge Accounting and Impairment. Airservices will first apply AASB 9 in the financial year beginning 1 July 2018 and it will be applied retrospectively in respect of Classification and Measurement and Impairment, with no requirement to restate comparatives. The cumulative effect of initially applying the standard is recognised as an adjustment to the opening balance sheet for the period beginning 1 July 2018.

1) Classification and measurement

The new requirements address the categorisation of financial assets and liabilities.

Financial assets

AASB 9 has three classification categories for financial assets; amortised cost, fair value through other comprehensive income (FVTOCI) and fair value through profit or loss (FVTPL). The classification is based on the business model under which the financial instrument is managed and its contractual cash flows.

Airservices will apply the following policies for the newly adopted classification categories under AASB 9.

Amortised cost

A financial asset will be measured at amortised cost if both of the following conditions are met:

i.
the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

ii.
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.

1 Jan 2018 1 Jul 2018
AASB 9 Financial Instruments FVTOCI

A financial asset will be measured at FVTOCI if both of the following conditions are met:

i.
the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

ii.
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.

FVTPL

All financial assets that are not measured at amortised cost or FVTOCI will be measured at FVTPL. All financial assets that are equity instruments will be measured at FVTPL unless Airservices irrevocably elects to present subsequent changes in the fair value in other comprehensive income. Airservices does not expect to make this election.

Airservices has undertaken a detailed assessment of the classification and measurement of the new standard and has determined that there will be no significant impact on Airservices financial assets and liabilities.

2) Hedge accounting

The new requirements introduce a new hedge accounting model to simplify hedge accounting outcomes and more closely align hedge accounting with risk management objectives.

Airservices has undertaken a detailed review of the potential impacts of the new standard and has determined that existing hedge relationships will continue to qualify for hedge accounting under AASB 9.

3) Impairment

The new requirements introduce a new impairment model to financial assets and move provisioning from an incurred to an expected loss model. The new model will be applied to the Airservices financial assets held at amortised cost and fair value through OCI (predominantly trade receivables).

1 Jan 2018 1 Jul 2018
AASB 9 Financial Instruments Airservices has undertaken a detailed review of the potential impacts of the new standard and, while the impact on the provision will not be materially different, it will result in earlier recognition of credit loss provisions and allowances will be recognised by assessing each receivable balance for collectability based on an analysis of historical, current and forecast credit conditions.

AASB 7 has been amended to reflect the requirements of AASB 9 and also introduces a number of new disclosure requirements across all three phases. These new disclosures will impact future statutory reporting.

1 Jan 2018 1 Jul 2018
AASB 15 Revenue from Contracts with Customers The final version of AASB 15 was issued in December 2015.

Application of AASB 15 will result in alignment of revenue recognition with the satisfaction of performance obligations in contracts with customers. Transitional provisions require retrospective application with the cumulative impact recognised as an adjustment to equity.

Airservices has completed an assessment of existing contracts and has determined that there will not be a significant impact on revenue recognition as current practice is generally aligned with the requirements of the new Standard.

1 Jan 2018 1 July 2018
AASB 16 Leases The final version of AASB 16 was issued in February 2016 and it will replace AASB 117 Leases.

AASB 16 removes the lease classification test for lessees and requires all leases (including those classified as operating leases) to be accounted for under a single on-balance sheet model similar to the accounting for finance leases under AASB 117. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. There is also new guidance on when an arrangement would meet the definition of a lease.

The application of the new standard will result in a significant increase in both the gross assets and the liabilities of Airservices. It will also significantly change the presentation of lease expenses in the income statement and impact profit.

1 Jan 2019 1 July 2019
AASB 16 Leases Transition options

On transition to the new standard, an entity can apply AASB 16 under two broad approaches: the full retrospective or the modified retrospective approach. Airservices will be required to apply the elected application approach consistently to all leases in which it is the lessee.

To ensure consistency for Whole of Government reporting, Airservices will adopt the Department of Finance’s position and will apply AASB 16 on 1 July 2019 using the modified retrospective approach. Under this approach the cumulative effect of adopting AASB 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 July 2019, with no restatement of comparative information.

Under the modified retrospective approach the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. Airservices is assessing the potential impact of using these practical expedients.

Estimated impact of the adoption of AASB 16

Airservices has done an initial assessment of the impact of transitioning to the new standard and prepared an estimate of the potential impact on the statements of comprehensive income and financial performance. The table below sets out the line items that will be impacted as well as the estimated impact.

estimated-impact-table

Airservices will continue to assess the potential impacts of AASB 16 on its financial statements during the 2018/19 financial year.

1 Jan 2019 1 July 2019

All other new or revised standards and/or interpretations that were issued prior to the sign-off date and are applicable to future reporting periods are not expected to have a future material effect on the entity’s financial statements.

Foreign currency translation

Functional and presentation currency

Items included in the financial statements of Airservices are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statements are presented in Australian dollars, which is Airservices functional and presentation currency.

Transactions and balances

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 the Statement of Comprehensive Income, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. Translation differences on financial assets and liabilities carried at fair value, and non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are reported as part of the fair value gain or loss.

Taxation

Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST) is applicable to Airservices. Refer to Note 1.3 Taxation for further information relating to income tax.

1. Our Financial Performance

This section analyses the financial performance of Airservices Australia for the year ended 2018.


1.1  Revenue

  2018
$’000
2017
$’000
Airways revenue
Airways revenue 1,080,897 1,044,927

 

Economic dependency

Airservices is dependent on airline activity in the Australian aviation industry, of which the Qantas and Virgin Groups are the dominant operators. Of the airways revenue earned during the year, 25% (2017: 27%) related to the Qantas Group excluding the Jetstar Group, 11% (2017: 11%) related to the Jetstar Group, and 18% (2017: 20%) related to the Virgin Group (including Tiger Airways Australia).

Accounting policy

Airways revenues

Revenue is recognised when services are rendered for both airways and other business revenue. The prices charged for regulated services are in accordance with the agreements negotiated with customers and endorsed by the Australian Competition and Consumer Commission (ACCC). Underpinning this agreement are risk-sharing provisions which compensate parties where either airways activity volumes exceed or do not achieve agreed levels, costs vary due to regulatory change, or capital expenditure levels vary substantially from agreed investment levels.

Finance income

  2018
$’000
2017
$’000
Deposits 1,462 2,835
Cash at bank 456 457
Other 232 193
Total finance income 2,150 3,485

 

Accounting policy

Finance income

Finance income is recognised using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability.

 


1.2  Expenses

  2018
$’000
2017
$’000
Employee benefits  
Wages and salaries 441,806 447,690
Superannuation (defined contribution funds) 48,485 49,940
Leave and other entitlements 112,538 118,644
Separation and redundancies – restructuring costs  – 28,171
Separation and redundancies – other 851 1,324
Employee benefits
(excluding defined benefit superannuation expense)
603,680 645,769
Net defined benefit superannuation expense recognised in employee benefits
Current service cost 25,154 25,864
Net interest expense (10,691) (5,031)
Loss/(gain) on curtailments and settlements (2,095)
Defined benefit superannuation expense 14,463 18,738
Total employee benefits 618,143 664,507
Finance costs
Borrowing costs 20,982 24,395
Interest rate swap fair value loss 809 8,994
Total finance costs 21,791 33,389
Write-down and impairment of assets  
Impairment of property, plant and equipment 3,260 8,197
Revaluation decrements 5,799
Total write-down and impairment of assets 9,059 8,197
Impaired loss on trade and other receivables  
Movement in allowance for impairment (receivables) 1,458 371
Bad debts written off 304 335
Total bad and doubtful debt expense 1,762 706
Gain/(loss) from sales/(write-off) of assets      
Proceeds from disposal of non-current assets 1,856 2,008
Written-down value of disposed non-current assets (3,657) (1,412)
Proceeds from disposal of assets held for sale  –
Written-down value of disposed assets held for sale (100)
Net gain/(loss) from sale of assets (1,901) 596
Written down value of scrapped assets (1,093)
Net loss from disposal of non-current assets (1,901) (497)
Operating lease charges 18,018 22,931
Leasing commitments

Operating leases are effectively non-cancellable and comprise:

Leases for computer equipment

A number of operating leases for the provision of computer equipment are in place. The majority of these items have a lease term of two to three years, with some printers having a lease term up to five years. It is Airservices general practice that at the completion of these lease terms, these items are returned to the lessor.

Leases for office accommodation

Airservices leases are subject to differing review mechanisms which can include fixed increases,
CPI or market review.

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:
Within 1 year 11,802 20,989
Between 1 and 5 years 46,068 47,252
More than 5 years 101,499 77,433
Total operating lease commitments 159,369 145,674

 

Commitments are GST inclusive where relevant.

Accounting policy

Employee benefits

Accounting policies for employee-related expenses is contained in the Our People section (refer to Section 4).

Leases

Airservices does not have any finance leases. Operating lease payments are expensed on a straight-line basis which is representative of the pattern of benefits derived from the leased assets.


1.3  Taxation

  2018
$’000
2017
$’000
Income tax
Current tax 35,669 (19,949)
Deferred tax (3,292) 35,039
Income tax attributable to profit from continuing operations 32,377 15,090

 

Reconciliation of income tax to prima facie tax payable
Profit from continuing operations before income tax expense 106,871 49,062
Prima facie income tax expense at 30% 32,061 14,719
Tax effect of amounts that are not deductible/assessable in calculating taxable income:
Non-deductible legal costs 11 45
Prior year over provision of tax (251) (25)
Unrealised losses on revaluation of assets to fair value
Other permanent adjustments 289
Other non-deductible/(assessable) expenditure 556 62
Income tax 32,377 15,090

 

Accounting policy

Income tax

The income tax expense for the year is the tax payable on the current year’s taxable income based on the notional income tax rate. It is then adjusted for any changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

Income taxes relating to items recognised directly in equity are recognised in equity and not in the Statement of Comprehensive Income.

  2018
$’000
2017
$’000
Deferred tax liability  
The balance comprises temporary differences attributable to:  
Amounts recognised in the statement of comprehensive income  
Depreciation for accounting purposes (17,259) (17,061)
Allowance for impairment 1,025 587
Employee benefits 52,079 60,581
Provision for revenue to be returned to customers 152 112
Provision for legal costs 253 118
Other provisions 23,235 12,506
Accruals 2,908 2,258
Movement in booked losses 34,534
  62,393 93,635
Amounts recognised directly in equity  
Foreign exchange hedge reserve 209 (51)
Revaluation of land, buildings, plant and equipment (52,495) (53,058)
Defined benefit (asset)/liability (51,353) (44,420)
  (103,639) (97,529)
Net deferred tax (liability)/assets (41,246) (3,894)
Movements:  
Opening balance at 1 July (3,894) 43,456
Charged to the statement of comprehensive income 3,292 (35,039)
Credited to equity (6,110) (32,257)
Movement in booked losses/tax offsets (34,534) 19,946
Closing balance at 30 June (41,246) (3,894)
Tax losses

Airservices has capital losses of $5.0 million (2017: $7.2 million) that are available indefinitely for offset against future capital gains. Deferred tax assets have not been recognised in respect of these losses as management has evaluated and concluded that it is not probable future capital gains will be available against which Airservices can utilise these losses in the foreseeable future.

 

Accounting policy

Deferred tax assets and liabilities

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction that at the time of the transaction did not affect either accounting or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences only if it is probable that future taxable amounts will be available to utilise those temporary differences.

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


1.4  Dividends

Dividends paid

An interim dividend for the year ending 30 June 2018 of $8.9 million (2017: $nil) was paid on 15 June 2018. A final dividend of $10.0 million for the year ended 30 June 2017 was paid on 28 February 2018 (2017: $nil final dividend for the year ending 30 June 2016).

Franking credits

Franking credits available for subsequent financial years based on a tax rate of 30% (30 June 2017: 30%) are $293.1 million (30 June 2017: $293.1 million).

The above amounts represent the balance of the franking account as at the end of the financial year.

Accounting policy

Dividends

A provision is made for the amount of any dividend approved by the Board but unpaid, prior to the end of the year.

2. Our asset base

  1. Our asset base

This section analyses Airservices Australia’s assets used to generate financial performance and the operating liabilities incurred as a result. Employee-related information is disclosed in the Our People section.


2.1  Receivables

  2018
$’000
2017
$’000
Trade and other receivables
Trade receivables (a) 122,701 115,613
Provision for impairment of receivables (b) (3,416) (1,958)
119,285 113,655
Accrued revenue and interest 2,689 754
Other receivables 462 8,077
Total current receivables 122,436 122,486
(a) Ageing analysis of trade receivables
Current 98,851 92,370
Overdue by:
1 to 30 days 20,177 20,368
31 to 60 days 790 884
61 to 90 days 603 498
90+ days 2,280 1,493
Total trade receivables 122,701 115,613
(b) Reconciliation for the provision for impairment of receivables
Opening balance 1,958 1,587
Increase recognised in net profit 1,458 371
Closing balance 3,416 1,958
The provision for impairment of receivables is aged as follows:
Current 163 129
Overdue by:
1 to 30 days 149 102
31 to 60 days 182 59
61 to 90 days 247 104
90+ days 2,675 1,564
Total provision for impairment of receivables 3,416 1,958

 

Credit terms for goods and services are 28 days.


2.2  Assets classified as held for sale

One land asset has been identified as surplus to the requirements of Airservices and has been classified
as assets held for sale. Its disposal is expected to be completed within the 2018–19 financial year.
The carrying amount of the asset amounts is $nil (30 June 2017: $0.1 million).


2.3  Property, plant and equipment and intangibles

Non-current assets – property, plant and equipment and intangibles
 

 

Land
$’000
Buildings
$’000
Plant and equipment
$’000
Assets under construction
$’000
Total property, plant and equipment
$’000
Internally developed software
$’000
Other intangible assets
$’000
Total intangibles
$’000
Total
$’000
As at 1 July 2017
Gross book value 51,127 358,257 713,481 209,097 1,331,962 316,511 85,559 402,070 1,734,032
Accumulated depreciation and impairment (16,619) (136,430) (153,049) (212,754) (77,508) (290,262) (443,311)
Net book value at 1 July 2017 51,127 341,638 577,051 209,097 1,178,913 103,757 8,051 111,808 1,290,721
Additions  –  – 14,031 128,916 142,947  –  – 142,947
Revaluations (505) 2,521 (2,069)  – (53)  –  – (53)
Impairments – recognised in profit and loss  –  –  – (3,260) (3,260)  –  – (3,260)
Impairments – recognised in other comprehensive income (95)  –  –  – (95)  –  – (95)
Commissioned assets under construction  – 60,194 49,003 (115,692) (6,495) 4,761 1,734 6,495
Depreciation/amortisation expense  – (30,334) (89,910)  – (120,244) (22,951) (4,055) (27,006) (147,250)
Transfers  – (85) 85  –  –  –  –
Disposals (980) (410) (2,138)  – (3,528)  – (129) (129) (3,657)
Net book value at 30 June 2018 49,547 373,524 546,053 219,061 1,188,185 85,567 5,601 91,168 1,279,353
Net book value as at 30 June 2018 represented by:                  
Gross book value 49,547 399,040 761,112 219,061 1,428,760 321,254 86,594 407,848 1,836,608
Accumulated depreciation and impairment (25,516) (215,059) (240,575) (235,687) (80,993) (316,680) (557,255)
49,547 373,524 546,053 219,061 1,188,185 85,567 5,601 91,168 1,279,353
Non-current assets—property, plant and equipment and intangibles
 

 

Land
$’000
Buildings
$’000
Plant and equipment
$’000
Assets under construction
$’000
Total property, plant and equipment
$’000
Internally developed software
$’000
Other intangible assets
$’000
Total intangibles
$’000
Total
$’000
As at 1 July 2016
Gross book value 50,245 377,333 693,329 181,450 1,302,357 289,534 85,335 374,869 1,677,226
Accumulated depreciation and impairment  – (13,135) (118,316)  – (131,451) (190,301) (72,375) (262,676) (394,127)
Net book value as at 1 July 2016 50,245 364,198 575,013 181,450 1,170,906 99,233 12,960 112,193 1,283,099
Additions  –  – 835 155,537 156,372  –  – 156,372
Revaluations 1,912 2,046 6,833  – 10,791  –  – 10,791
Impairments – recognised in profit and loss  – (3,567) (135) (4,495) (8,197)  –  – (8,197)
Impairments – recognised in other comprehensive income (245) (72) (12)  – (329)  –  – (329)
Commissioned assets under construction  – 10,921 84,748 (123,395) (27,726) 26,979 747 27,726
Depreciation/amortisation expense  – (31,789) (88,580)  – (120,369) (22,485) (5,656) (28,141) (148,510)
Transfers  – 47 (77)  – (30) 30  – 30
Disposals (785) (146) (1,574)  – (2,505)  –  – (2,505)
Net book value as at 30 June 2017 51,127 341,638 577,051 209,097 1,178,913 103,757 8,051 111,808 1,290,721
Net book value as of 30 June 2017 represented by:
Gross book value 51,127 358,257 713,481 209,097 1,331,962 316,511 85,559 402,070 1,734,032
Accumulated depreciation and impairment  – (16,619) (136,430)  – (153,049) (212,754) (77,508) (290,262) (443,311)
51,127 341,638 577,051 209,097 1,178,913 103,757 8,051 111,808 1,290,721

 

 

 

(a) Revaluation of land, buildings, plant and equipment

The valuation basis for land, buildings, plant and equipment is fair value as outlined in Note 2.4.

Airservices engaged accredited valuers Jones Lang LaSalle (JLL) Australia to value its land and buildings (Aon Valuation Services were used for the previous year). The effective date of the revaluation was 30 June 2018.

(b) Contractual commitments for the acquisition of property, plant, equipment and intangible assets

Capital commitments for property, plant, equipment and intangibles was $24.8 million (2017: $57.6 million). Capital commitments include GST where relevant.

In addition, Airservices entered into a contract during the year with Thales for the provision of CMATS – the Civil Military Air Traffic Control System which will integrate civil and military air traffic management into one harmonised system. The total cost is expected to be in the order of $1.2 billion, with capital commitments at 30 June of $1.1 billion.

(c) Impairment

In line with accounting standards, management has performed an impairment review of both existing assets and assets under construction. Principally, the review has focused on future use of existing assets, and changes in technology and business system requirements.

(d) Carrying amounts that would have been recognised if land, plant and equipment were measured using the cost model:

  2018
$’000
2017
$’000
Land
At cost 2,271 2,271
2,271 2,271
Buildings  
At cost 556,792 507,922
Accumulated depreciation (229,986) (214,772)
Net book amount 326,806 293,150
Plant and Equipment  
At cost 1,309,050 1,306,831
Accumulated depreciation (719,180) (686,791)
Net book amount 589,871 620,040

 

(e) Borrowing costs

The amount of borrowing costs capitalised during the year ended 30 June 2018 was $4.5 million (2017: $5.0 million). As Airservices borrows money generally to fund both operating and capital expenditure, the weighted average cost of borrowings of 3.73% (2017: 3.86%) was used as the capitalisation rate.

Accounting policy

Asset recognition threshold

Purchases of property, plant and equipment are recognised initially at cost in the Statement of Financial Position, except for purchases less than $5,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

Cost and valuation

Property, plant and equipment are measured at cost or at fair value, less, where applicable, accumulated depreciation and any accumulated impairment losses.

Assets purchased by Airservices are initially recorded at cost and represent costs directly attributable to the acquisition. Labour and direct overheads incurred in installation are capitalised and added to the cost. Assets constructed by Airservices are initially recognised at the cost of materials, labour, direct overheads and borrowing costs incurred on qualifying assets.

All costs associated with repairs and maintenance are charged to the Statement of Comprehensive Income during the financial period in which they are incurred.

Revaluations

Following initial recognition at cost, property, plant and equipment are carried at a re-valued amount which is the fair value at the date of the revaluation. Independent valuations are performed with sufficient regularity to ensure that the carrying amount does not differ materially from the asset’s fair value at the reporting date. Revaluations are conducted by an independent qualified valuer.

Any revaluation surplus is credited to the asset revaluation reserve included in the equity section of the Statement of Financial Position unless it reverses a revaluation decrease of the same asset previously recognised in the Statement of Comprehensive Income, in which case the increase is recognised in profit or loss. Any revaluation deficit is recognised in the Statement of Comprehensive Income, except that a decrease offsetting a previous surplus for the same asset is debited directly to the asset revaluation reserve to the extent of the credit balance existing in the revaluation reserve for that asset. Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the re-valued amount of the asset. The revaluation surplus is accounted for net of deferred tax in the asset revaluation reserve.

Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.

Derecognition and disposal

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising from de-recognition, calculated as the difference between net disposal proceeds and carrying value, is included in the Statement of Comprehensive Income in the year the asset is derecognised.

Impairment of non-financial assets

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable, and, as a minimum, at least annually. All assets were assessed for impairment as at 30 June 2018.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which it belongs. If any impairment indication exists, and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

Recoverable amount of non-current assets

All assets are subjected to impairment tests at each reporting date. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made. Where the carrying amount exceeds the recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

The recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for each asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash flows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a market‑determined risk adjusted discount rate.

Depreciation

Depreciable property, plant and equipment are written-off to their estimated residual values over their estimated useful lives to Airservices, using in all cases, the straight-line method of depreciation.

Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate.

Depreciation rates applying to each class of depreciable asset are based on the following useful lives.

2018 2017
Buildings (e.g. control towers, fire stations, commercial property) 10–40 years 10–40 years
Infrastructure, plant and equipment
(e.g. airways technical equipment, fire vehicles)
3–20 years 3–20 years

 

Spares

Asset-specific spare parts (repairable spares) have been treated as plant and equipment and depreciated over the useful life of the parent asset to which they are related.

Decommissioning and site rehabilitation

Where Airservices has an obligation to incur site rehabilitation costs and the requirements outlined below in Section 2.5 other provisions and payables, have been met, the estimated cost to ‘make good’ the site has been recorded as a provision.

The net present value of the obligation is measured using the 10 year corporate bond rate at 30 June each year.

Intangible assets

Intangible assets acquired separately are initially measured at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and impairment losses. Where amortisation is charged on assets with finite lives, this expense is taken to the Statement of Comprehensive Income. Software is amortised on a straight‑line basis over 3–10 years.

Research costs associated with in-house developed intangible assets are expensed as incurred. Costs incurred on development projects (relating to the design and testing of new improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technical feasibility and its cost can be measured reliably. The carrying value of development costs is reviewed for impairment annually, or more frequently if there is evidence to suggest that the carrying value may not be recoverable. All intangibles were assessed for indicators of impairment as at 30 June 2018.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying value of the asset as at the date of derecognition and are recognised in the Statement of Comprehensive Income.

Borrowing costs

Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed.


2.4  Fair value disclosure

The following tables provide an analysis of assets and liabilities that are measured at fair value. The remaining assets and liabilities disclosed in the Statement of Financial Position do not apply the fair value hierarchy.

The different levels of the fair value hierarchy are defined below.

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at measurement date.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability.

Fair value measurements

Fair value measurements at 30 June 2018 by hierarchy for assets and liabilities

 

 

 

Fair value measurements at the end of the reporting period Valuation technique Inputs used
2018
$’000
2017
$’000
Category (Level 1, 2, or 3)
Non-financial assets
Land 990 51,127 2 DC [1]
48,557 3 DC [2]
Buildings 373,524 341,638 3 DRC [3]; [4]; [5]
Plant and equipment 546,053 577,051 3 DRC [6]
Assets held for sale 100
Total non-financial assets at fair value 969,124 969,916
Financial assets
Forward exchange contracts 591 222 2 ADCF [7]
Foreign currency receivable 366 700 2 ADCF [7]
Interest rate swaps 9,170 12,411 2 ADCF [8]
Other financial assets 1,410 1,532 3 DCF [9]
Total financial assets at fair value 11,537 14,865
Total fair value measurements of assets 980,661 984,781
Financial liabilities
Forward exchange contracts 1,288 51 2 ADCF [7]
Interest rate swaps 5,729 7,875 2 ADCF [8]
Total financial liabilities at fair value 7,017 7,926
Total fair value measurements of liabilities 7,017 7,926

Notes:
DC – direct comparison
DRC – depreciated replacement cost
DCF – discounted cash flows
ADCF – adjusted discounted cash flows
WA – weighted average
[1] Direct comparison with similar land on a rate per square metre basis.
[2] Direct comparison with a wide range of land sales on a rate per square metre basis. Professional judgement has been utilised to determine fair value, taking into account tenure, encumbrances, town planning, location, size and shape.
[3] Control towers – construction cost per metre rise (range used: $189,000 – $552,000 [WA: $338,749])
[4] Fire stations – category (total reinstatement value range used $68,000 – $12,200,000 [WA: $2,865,000]).
[5] Other buildings – construction cost (total reinstatement value range used $20,000 – $31,200,000 [WA: $940,000]).
[6] Historical capitalised costs, future planning costs estimates (range used 0–3% [WA 0.04%]).
[7] Current foreign exchange market rates.
[8] Current market interest rates.
[9] Discount rate; USD foreign exchange rate (18%; $0.77).

Airservices engages external, independent and qualified valuers to assess the fair value of Airservices property plant and equipment on an annual basis. Highest and best use is the same as current use.

Valuation techniques used to determine Level 2 and Level 3 fair values

Land

The fair value of freehold land assets has been derived using the direct comparison approach whereby the evidence derived from the analysis of recent sales of similar properties is used to establish the value of the subject property (Level 2 inputs). In this regard, sales evidence has been collected as close to the date of valuation as possible and compared to the subject property on the basis of zoning, location, land area and shape. The sales were then analysed on a sales price per square metre of land area and adjusted accordingly to reflect any differences in characteristics between the subject and the comparable sales data.

Where the land is of a restrictive zoning and no directly comparable sales evidence could be obtained, the valuer has assessed a probable land value based on surrounding land uses, to which a discount is then applied to account for the restrictive zoning (Level 3 input).

Buildings

All buildings and site improvements are considered to be specialised and have been valued using the Depreciated Replacement Cost approach. This has been determined by first establishing the estimated cost to replace with an equivalent new asset, less physical depreciation and any obsolescence.

The building assets are being utilised to meet Airservices role. Despite the nature of these uses, it is considered that the current use of the buildings is the highest and best use. The nature and circumstances of each building have been assessed by an independent valuer in arriving at this conclusion. Alternative uses were not considered.

 

Plant and equipment

All plant and equipment assets are considered to be specialised and are valued based on Depreciated Replacement Cost approach. Generally, the plant and equipment assets are typical at each airport and only vary subject to the operational capacity of each airport. Airservices assets include navigational aids, en-route surveillance systems, airport infrastructure and rescue vehicles. These represent a specialised group of assets integrated to perform the control, monitoring and safety requirement of air and ground movement of commercial aircraft and airport support vehicles within Australia.

Financial assets and liabilities

The fair values of foreign currency Forward Exchange Contracts (FECs) and Interest Rate Swaps (IRSs) are calculated using a credit adjusted discounted cash‑flow methodology. FEC and IRS contracted rates are compared to current market rates to calculate future cash flows which are then discounted to arrive at a present value.

Other financial assets

Financial assets represent the royalty stream which Airservices is entitled to receive from the sale and use of airways navigation systems. The asset is valued at fair value through profit and loss by applying a discounted cash flow methodology. The significant Level 3 inputs to this valuation are the sales forecast, discount rate and foreign exchange rate.

 

Reconciliation for recurring Level 3 fair value measurements

Recurring Level 3 fair value measurements – reconciliation for assets

Non-financial assets
Land

2018
$’000

Buildings

2018
$’000

Plant and equipment
2018
$’000
Total

2018
$’000

Opening balance  – 341,638 577,051 918,689
Total gains/(losses) recognised in
Statement of Comprehensive Income
 –  – 1,580 1,580
Total gains/(losses) recognised in
Other Comprehensive Income
 – 2,521 (3,649) (1,128)
Purchases  –  – 14,031 14,031
Commissioned  – 60,194 49,003 109,197
Disposals  – (410) (2,138) (2,548)
Depreciation  – (30,334) (89,910) (120,244)
Transfers  – (85) 85  –
Transfers into Level 3(1) 48,557  –  – 48,557
Closing balance 48,557 373,524 546,053 968,134
Financial assets
Other financial assets
2018
$’000
Total

2018
$’000

Opening balance 1,532 1,532
Movement in discounted cash flow terms (122) (122)
Closing balance 1,410 1,410

 

(1) A transfer from Level 2 to Level 3 occurred as the subject property has restricted use zoning, and comparable sales evidence is not generally available, requiring the valuation to be determined using a significant level of professional judgement.


2.5  Other provisions and payables

  2018
$’000
2017
$’000
Current payables and other provisions  
Current payables
Trade payables 15,081 14,020
Employees  
Salaries and wages 10,867 9,715
Superannuation 1,211 764
Tax payables
Accrued payroll tax 2,844 4,019
Net goods and services tax payable 14,554 12,544
Group tax payable 5,842 6,140
Revenue received in advance 879 1,148
Interest payable 2,848 2,799
Other accrued expenses 37,365 25,870
Total current payables 91,491 77,019
Current other provisions  
Revenue to be returned to customers 505 373
ARFFS decontamination 23,875 8,482
Litigation and legal costs 844 394
Makegood on leasehold assets 3,797 2,920
Restructuring costs 7,260
Other 1,413 1,574
Total current provisions 30,434 21,003
Total current provisions and payables 121,925 98,022
Non-current other provisions
ARFFS decontamination 32,302 14,760
Makegood on leasehold assets 18,832 5,895
Total non-current provisions 51,134 20,655

 

 

Description of provisions

ARFFS decontamination

The provision relates to the assessment, management and containment of possible contaminated ARFFS training sites as outlined in the Environmental Management Plan (EMP) as discussed in Note 5.1 Contingent liabilities.

Accounting policy

Provisions

Provisions are recognised when Airservices has a present obligation (legal or constructive) as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

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. Where the effect of the time value of money is material, the obligation is measured using a discount rate which reflects current market assessments and the risks specific to the liability. Increases in the provision due to the passage of time (unwinding of the discount) are then recognised as expense.

Accounting judgements and estimates

Other provisions

An estimate of expected future costs has been used to establish the provision for the assessment, management and containment of possible contaminated Aviation Rescue and Fire Fighting Services (ARFFS) training sites and the remediation and restoration of leased property sites.

  2018
$’000
2017
$’000
Movements in provisions
(i) Revenue to be returned to customers (current)
    Carrying amount at start of period 373 256
        Additional provisions made 132 117
    Carrying amount at end of period 505 373
(ii) ARFFS decontamination (current/non-current)
    Carrying amount at start of period 23,242 26,241
        Additional provisions made 36,842
        Payments (3,907) (2,999)
    Carrying amount at end of period 56,177 23,242
(iii)   Litigation and legal costs (current)
    Carrying amount at start of period 394 250
        Additional provisions made 775 394
        Payments (325) (250)
    Carrying amount at end of period 844 394
(iv)Makegood on leasehold assets (current/non-current)
    Carrying amount at start of period 8,815 8,463
        Additional provisions made 14,031 775
        Payments (217) (423)
    Carrying amount at end of period 22,629 8,815
(v)    Restructuring costs (current)
    Carrying amount at start of period 7,260 15,000
        Amounts reversed (5,200) (1,248)
        Payments (2,060) (6,492)
    Carrying amount at end of period 7,260
(vi) Other (current)
    Carrying amount at start of period 1,574 2,683
        Adjustment to provision 1,391
        Payments (161) (2,500)
Carrying amount at end of period 1,413 1,574

 


2.6  Other financial assets and liabilities

  2018
$’000
2017
$’000
Other current financial assets
Interest rate swaps 3
Forward exchange contracts 414 140
Foreign currency receivable 366 700
Navigation and augmentation systems receivable 293 293
Total other current financial assets 1,076 1,133

 

Other non-current financial assets
Interest rate swaps 9,167 12,411
Forward exchange contracts 177 82
Navigation and augmentation systems receivable 1,117 1,239
Total non-current assets – other financial assets 10,461 13,732
Refer to Note 2.4 for basis of fair value measurement.


Accounting judgements and estimates

Recoverable amount of other financial assets

Navigation and augmentation systems receivable, which is designated at Fair Value through Profit and Loss in accordance with the requirements of AASB 139, consists primarily of the contractual right to receive royalties from Ground Based Augmentation System (GBAS) technology sales, under an agreement with Honeywell International. The maximum credit risk exposure has been calculated to be US$1.40 million and is based on expected royalties to be received from GBAS sales over the next seven years. The following assumptions have been applied to determine the fair value of these future cash flows:

an assumed discount rate of 18.0%, which reflects the risks associated with the specific asset, and in particular the risks associated with future GBAS technology sales. A 1% movement in the discount rate has a $0.03 million impact on the discounted receivable; and

an average AUD/USD exchange rate of $0.77, which is based on the 12 month forecast for the AUD/USD exchange rate. A $0.05 movement in the exchange rate has a $0.07 million impact on the value of the discounted receivable.

Other current financial liabilities
Interest rate swaps 184 528
Forward exchange contracts 164 51
Total other current financial liabilities 348 579

 

Other non-current financial liabilities
Interest rate swaps 5,545 7,347
Forward exchange contracts 1,124
Total other non-current financial liabilities 6,669 7,347

2.7  Other assets and other liabilities

  2018
$’000
2017
$’000
Other current liabilities
Lease liability(1) 299 1,401
Total other current liabilities 299 1,401
Other non-current liabilities
Lease liability(1) 375 3,931
Other(2) 37,071
Total other non-current liabilities 37,446 3,931

(1) This represents the straight-lining of a lease incentive over the term of the lease period as well as the straight-lining of any fixed increases within the lease over the term of the lease period. The total of future minimum sublease payments expected to be received under non-cancellable subleases at the end of the reporting period is $13.4 million (2017: $28.6 million).

(2) This represents the excess of amounts received from the Department of Defence under the On-Supply Agreement, over Defence’s share of work conducted by Thales under the Civil-Military Air Traffic Management System (CMATS) acquisition contract.

 

3. Our funds management

This section identifies Airservices Australia’s funding structure.


3.1  Cash and cash equivalents

  2018
$’000
2017
$’000
Cash and cash equivalents
Cash at bank and in hand 33,792 19,544
Deposit at call 140,000 60,300
Term deposits 25,000
Total cash and cash equivalents 198,792 79,844

 

(a) Cash at bank and in hand

Cash at bank has a floating interest rate of 1.70% (30 June 2017: 1.70%) for balances up to $25 million. For balances greater than $25 million, the interest rate is 1.50% (30 June 2017: 1.50%). Cash in hand is non‑interest bearing.

(b) Deposits at call

The deposits at call have a floating interest rate of 1.50% (30 June 2017: 1.50%). These 11am cash deposits
are rolled over on a daily basis.

(c) Term deposits

This represents $5 million maturing on each of the following days in 2018: 15 August 2018, $5 million maturing on 21 August 2018, $5 million maturing on 29 August 2018, $5 million maturing on 20 September 2018 and $5 million maturing on 10 October 2018. These term deposits have a weighted average interest rate of 2.56%.

Accounting policy

Cash and cash equivalents

Cash is recognised at its nominal amount. Cash in the Statement of Financial Position comprises cash at bank and in hand and deposits at call which are readily convertible to cash on hand. For the purposes of the cash flow statement, cash includes cash and cash equivalents net of outstanding bank overdrafts.


3.2  Reconciliation of cash and cash equivalents

  2018
$’000
2017
$’000
Reconciliation of net profit after income tax to net cash flows from operations
Net profit after income tax 74,494 33,972
Adjustments for:
Depreciation expense 147,250 148,510
Impairment recognised 3,260 8,197
Reversal of previous asset write-downs (1,580) (2,347)
Net loss on sale/write-down of non-current assets 8,735 497
AvSuper defined benefit contributions movement (after tax) 16,178 71,133
Change in assets
(Increase)/decrease in gross receivables (952) (4,772)
(Increase)/decrease in inventories (35) (118)
(Increase)/decrease in prepayments (24,031) 1,377
(Increase)/decrease in income tax receivable 3,099
(Increase)/decrease in other assets 2,872 8,161
(Increase)/decrease in deferred tax 36,969 47,461
Change in liabilities
Increase/(decrease) in employee benefits (51,240) (221,275)
Increase/(decrease) in allowance for impairment 1,458 371
Increase/(decrease) in legal provisions 450 144
Increase/(decrease) in other liabilities 32,068 (2,975)
Increase/(decrease) in other provisions 25,514 (8,996)
Increase/(decrease) in creditors and accruals 13,583 (14,979)
Increase/(decrease) in revenue to be returned to customers provision 132 117
Net cash flow from operating activities 285,125 67,577

3.3  Borrowings

  2018
$’000
2017
$’000
Unsecured borrowings
Current(1) 9,974 29,864
Non-current(2) 671,340 670,326
Total borrowings 681,314 700,190

 

(1) This represents amounts issued under a $300 million commercial paper program in two separate tranches on 15 May 2018 and 21 May 2018.

(2)
This represents amounts issued under a $975 million medium term note program and includes a $275 million tranche that was issued on 28 November 2013 and will mature on 19 November 2020, a $200 million tranche that was issued on 19 May 2016 and will mature on 15 May 2023 and a $200 million tranche that was issued on 19 May 2016 and will mature on 15 May 2026.

 


3.4  Standby arrangements and unused credit facilities

  2018
$’000
2017
$’000
Unused credit facilities – bank overdraft 5,000 5,000
Borrowing facilities
Commercial paper (only expires if cancelled) 300,000 300,000
Medium term note program 975,000 975,000
Committed standby facilities 200,000 230,000
Uncommitted 11am borrowing 60,000 60,000
Total borrowing facilities 1,535,000 1,565,000
Amount utilised (685,000) (705,000)
Unused borrowing facilities 850,000 860,000

3.5  Financial instruments

Airservices has exposure to credit risk, liquidity risk, market risk (comprising of interest rate and foreign exchange risk) arising from its operations and use of financial instruments. Airservices uses financial instruments to manage these risks within a framework consisting of a comprehensive set of risk management policies. These risks are managed centrally and speculative trading is strictly prohibited.

Fair value measurements

The fair values of foreign currency Forward Exchange Contracts (FECs) and Interest Rate Swaps (IRSs) are calculated using a credit adjusted discounted cash‑flow methodology. FEC and IRS contracted rates are compared to current market rates to calculate future cash flows which are then discounted to arrive at a present value.

Airservices presents the fair value of its derivative assets and liabilities on a net basis. As at 30 June 2018, when netting is applied to the FEC portfolio, currency derivative liabilities of $1,287,955 are reduced by currency derivative assets of $591,027 to the net amount of $696,928 (30 June 2017: currency derivative assets of $222,213 were reduced by currency derivative liabilities of $51,220 to the net amount of $170,993). When netting is applied to the IRS portfolio, interest rate swap assets of $9,169,616 are reduced by interest rate swap liabilities of $5,729,034 to the net amount of $3,440,582 (30 June 2017: interest rate swap assets of $12,411,486 were reduced by interest rate swap liabilities of $7,875,026 to the net amount of $4,536,460).

Medium Term Note and Commercial Paper fair values reflect the price that an existing investor is prepared to receive if they were to sell their investment in the secondary market. These prices are provided by independent secondary market traders.

Other financial assets represent the royalty stream which Airservices is entitled to receive from the sale and use of airways navigation systems. The asset is valued at fair value through profit and loss by applying a discounted cash flow methodology. The significant level 3 inputs to this valuation are the sales forecast, discount rate and foreign exchange rate.

Refer to Note 2.4 for fair value measurement basis of these instruments.

  AASB 139
accounting
classification
Carrying
amount
2018
$’000
Fair
value
2018
$’000
Carrying
amount
2017
$’000
Fair
value
2017
$’000
Assets
Forward exchange contracts FVTPL  –  – 171 171
Cash and cash equivalents AC 198,792 198,792 79,844 79,844
Receivables AC 122,436 122,436 122,486 122,486
Interest rate swaps FVTPL 3,441 3,441 4,536 4,536
Other financial assets FVTPL 1,410 1,410 1,532 1,532
Total assets 326,079 326,079 208,569 208,569
Liabilities
Forward exchange contracts FVTPL 697 697  –  –
Medium Term Notes AC 671,340 686,245 670,326 686,393
Trade and other payables AC 91,491 91,491 77,019 77,019
Commercial Paper AC 9,974 9,951 29,864 29,890
Total liabilities 773,502 788,384 777,209 793,302

 

Notes:
AC – Amortised Cost
FVTPL – Fair Value Through Profit and Loss

Accounting policy

Financial assets

Investments and other financial assets

Airservices classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at the end of the reporting period.

Financial assets at fair value through profit or loss

Financial assets are classified as financial assets at fair value through profit or loss where the financial assets:

  1. have been acquired principally for the purpose of selling in the near future;
  2. are derivatives that are not designated and effective as a hedging instrument; or
  3. are parts of an identified portfolio of financial instruments that the entity manages together and has a recent actual pattern of short-term profit-taking.

Assets in this category are classified as current and non-current assets. Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest earned on the financial asset.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date (i.e. the date that Airservices commits to purchase or sell the asset).

Loans and receivables

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. Interest is recognised by applying the effective interest rate.

Financial assets are assessed for impairment at the end of each reporting period.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity dates that Airservices has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost using the effective interest method less impairment, with revenue recognised on an effective yield basis.

Financial liabilities

Financial liabilities within the scope of AASB 139 are classified as financial liabilities at fair value through profit or loss, derivatives designated as hedging instruments in an effective hedge, or other financial liabilities, as appropriate.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are initially measured at fair value. Subsequent fair value adjustments are recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.

Derivative financial instruments and hedge accounting

Airservices uses derivative financial instruments, such as forward exchange contracts and interest rate swaps to hedge its foreign currency risks and interest rate risks, respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of foreign currency cash flow hedges, which are recognised in other comprehensive income.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the Statement of Financial Position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

 

Financial risk

Airservices financial risk management policy identifies the risks faced by the organisation. It sets the risk limits, identifies the controls and determines the process for monitoring and adhering to limits. The policy is designed to add value without adding to the overall risks of the organisation.

The financial risk management policy and systems are reviewed regularly to reflect changes in market practices and Airservices activities. Internal audit undertakes ad hoc reviews of financial risk management policy, controls and procedures, the results of which are reported to the Board Audit and Risk Committee.

Airservices uses financial instruments to manage its financial risks. The central Treasury unit identifies and evaluates the financial risks in close co‑operation with other Airservices units and seeks to minimise potential adverse effects on the financial performance.

As a result of the nature of Airservices business and internal policies dealing with the management of financial risk, Airservices exposure to credit, liquidity and market risk is considered to be low.

 

Credit risk

Credit risk represents the risk that one party to a transaction will fail to discharge an obligation and cause the other party to suffer a financial loss. Airservices invests money and enters into financial derivative contracts with authorised counterparties whose long term credit rating is at, or above, A- (Standard and Poor’s) or A3 (Moody’s). There are currently only four approved counterparties. The maximum credit limit for each approved counterparty is currently $120 million. Counterparty credit exposure is assessed using the principles of the ‘Current Exposure Method’. As at 30 June 2018, the maximum risk exposure to all authorised counterparties after applying the Current Exposure Method was $264.6 million (30 June 2017: $84.6 million).

Airservices is exposed to credit risk arising from potential default of debtors. This is equal to the total amount of trade and other receivables (2018: $122.436 million and 2017: $122.486 million). Airservices has assessed the risk of default on payment and has allocated $3.416 million in 2018 (2017: $1.958 million) as an allowance for impairment.

Airservices trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it Airservices policy to securitise its trade and other receivables.

 

Credit risk of financial instruments not past due or individually determined as impaired

Not past due nor impaired
2018
$’000
Not past due nor impaired
2017
$’000
Past due or impaired
2018
$’000
Past due or impaired
2017
$’000
Loans and receivables 98,688 92,241 24,013 23,372
Total 98,688 92,241 24,013 23,372

 

Airservices is exposed to concentration of risk with respect to trade receivables. 60% of revenues earned are from the following dominant operators: Qantas Group, Virgin Group (including Tiger Airways Australia) and Jetstar.

Airservices is also exposed to credit risk arising from the cross-border financing arrangement as detailed in Note 6.3.

 

Liquidity risk

Liquidity risk management is concerned with ensuring there are sufficient funds available to meet financial commitments in a timely manner whilst also planning for unforeseen events which may reduce cash inflows and cause pressure on liquidity.

The primary objectives of short-term liquidity risk management are to ensure sufficient funds are available to meet daily cash requirements, whilst ensuring that cash surpluses in low interest bearing accounts are minimised.

The primary objective of long-term liquidity risk management is to ensure that funding (i.e. debt) facilities are in place to meet future long term funding requirements.

2018 Average interest rate
%
Floating interest rate
$’000
1 year or less

$’000

1 to 5 years

$’000

More than 5 years
$’000
Non- interest bearing
$’000
Total

$’000

Financial liabilities
Non-derivative
Trade and other payables  –  –  –  –  – 91,491 91,491
Commercial paper 1.97 10,000  –  –  –  – 10,000
Medium term notes 3.89  – 25,063 542,594 219,500  – 787,157
Derivative
Interest rate swaps1  –  – (4,023) (4,201) 879  – (7,345)
Interest rate swaps2  –  – 1,818 1,645 727  – 4,190
Net financial liabilities   10,000 22,858 540,038 221,106 91,491 885,493
(1) weighted average interest rates at 30 June were pay float at 2.04% and receive fixed at 3.33%.
(2) weighted average interest rates at 30 June were pay fixed at 2.75% and receive float at 2.03%.
2017 Average interest rate
%
Floating interest rate
$’000
1 year or less

$’000

1 to 5 years

$’000

More than 5 years
$’000
Non- interest bearing
$’000
Total

$’000

Financial liabilities
Non-derivative
Trade and other payables  –  –  –  –  – 77,019 77,019
Commercial paper 1.79 30,000  –  –  –  – 30,000
Medium term notes 3.89  – 25,063 567,656 219,500  – 812,219
Derivative
Interest rate swaps3  –  – (4,777) (6,513) 3,447  – (7,843)
Interest rate swaps4  –  – 2,528 1,664 (442)  – 3,750
Net financial liabilities 30,000 22,814 562,807 222,505 77,019 915,145
(3) weighted average interest rates at 30 June were pay float at 1.90% and receive fixed at 3.33%.
(4) weighted average interest rates at 30 June were pay fixed at 3.00% and receive float at 1.90%.

 

 

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates. The following table is a sensitivity analysis of the market risk that Airservices is exposed to through the use of foreign exchange and interest rate derivatives as well as investments and borrowings.

Interest rate sensitivity analysis is calculated on a ‘reasonably possible’ basis with reference to the key drivers of interest rates, market expectations and historical data. In analysing interest rate sensitivities Airservices has adopted to vary actual interest rates by +/- 0.20% (2017: +/- 0.30%).

Airservices has adopted a simplified approach to calculate market risk sensitivities for foreign exchange contracts. A standard sensitivity variable of 9.2% (2017: 10.2%) has been applied to all currencies. Airservices acknowledges that it is necessary to monitor annual movements in currencies to ensure the relevance of using a single constant rate.

2018 Effect of positive
movement
Effect of negative
movement
Carrying amount

$’000

Change in risk variable
+/-%
Profit and loss

$’000

Equity

$’000

Profit and loss

$’000

Equity

$’000

Currency risk
Buy USD 296 9.20  – (758)  – 911
Buy EUR (993) 9.20  – (5,476)  – 6,586
Interest rate risk
Cash and cash equivalents 198,792 0.20 385  – (385)  –
Medium term notes 671,340  –  –  –  –  –
Interest rate swaps 3,441 0.20 (735)  – 747  –
Commercial paper 9,974 0.20 (20)  – 20  –
2017 Effect of positive
movement
Effect of negative movement
Carrying amount

$’000

Change in risk variable
+/–%
Profit and loss

$’000

Equity

$’000

Profit and loss

$’000

Equity

$’000

Currency risk
Buy USD 21 10.20  – (376)  – 459
Buy EUR 150 10.20  – (1,167)  – 1,352
Interest rate risk
Cash and cash equivalents 79,844 0.30 240  – (240)  –
Medium term notes 670,326  –  –  –  –  –
Interest rate swaps 4,536 0.30 (2,116)  – 2,168  –
Commercial paper 29,864 0.30 (90)  – 90  –

 

Forward exchange contracts

Airservices uses Forward Exchange Contracts (FECs) to hedge foreign currency exchange rate risk arising from committed transactions primarily relating to capital expenditure program undertakings. Airservices accounts for all of its FECs as Cash Flow Hedges. Airservices policy is to achieve 100% hedge effectiveness. All foreign currency exposures have a greater than 95% certainty of occurring, as all exposures are committed.

 

The effectiveness test is on a FEC rate to market rate comparison. Prospective testing is on a critical terms basis with the retrospective test based on an effectiveness ratio of 80–125%. Gains or losses are recognised on the hedging instrument (i.e. the FEC) and hedged item (i.e. the committed foreign exchange exposure) with any ineffectiveness recognised in the statement of comprehensive income.

At balance date, the details of outstanding contracts are (Australian dollar equivalents):

Buy EUROs Sell Australian Dollars Average Exchange Rate
2018
$’000
2017
$’000
2018
EURO/$1
2017
EURO/$1
Maturity
3 months or less 7,994 1,856 0.6375 0.6839
Greater than 3 months but less than 1 year 11,568 3,309 0.6288 0.6692
Greater than 1 year 50,924 7,127 0.5714 0.6605
Buy US Dollars Sell Australian Dollars Average Exchange Rate
2018
$’000
2017
$’000
2018
US/$1
2017
US/$1
Maturity
3 months or less 352 4,039 0.7699 0.7721
Greater than 3 months but less than 1 year 3,299  – 0.7589  –
Greater than 1 year 5,387  – 0.7737  –

 

Capital management

Airservices is a price regulated government-owned corporate Commonwealth entity providing air navigation services. Pricing for Airservices core airways services is subject to the price notification provisions of the Competition and Consumer Act 2010 and any increase in prices must be notified to the Australian Competition and Consumer Commission (ACCC) for its review.

Airservices sets its prices with airlines and other customers using a five-year Long Term Pricing Agreement (LTPA). Endorsed by the ACCC the agreement allows pricing to recover all reasonably incurred costs (including a return on capital employed) relating to the delivery of services. The current Long Term Pricing Agreement was established in October 2011. It provides price certainty for customers through to 30 June 2016 and a price path with annual changes on 1 July each year, incorporating nominal price increases of 3.3% for the five-year period, translating to real price reductions of 11.4% over the five-year period. Whilst this agreement notionally expired on 30 June 2016, the current arrangements will remain in place until a future LTPA is established with industry.

Airservices target was to achieve a return on equity after tax for 2018 of 10.3%; during the year ended 30 June 2018 there was a return of 11.1% (30 June 2017: 5.9%).

There were no changes to Airservices approach to capital management during the year.

4. Our people

This section describes a range of employment and post-employment benefits provided to our people and our relationships with other key people.


4.1  Employee provisions

2018
$’000
2017
$’000
Current employee provisions
Employee benefits
Recreation leave 60,808 61,134
Long service leave 128,146 126,141
Separations and redundancies 16,011 33,201
On-costs associated with employee benefits 11,024 11,032
Workers compensation 333 376
Total current employee provisions and payables 216,322 231,884
Non-current employee provisions
Employee benefits
Long service leave 34,911 35,448
Separations and redundancies 2,116 7,251
On-costs associated with employee benefits 2,074 2,143
Workers compensation 2,019 2,087
Total non-current employee provisions 41,120 46,929

 

Description of provision

Employee benefits:

Workers compensation

These provisions represent Airservices self-insured liability for workers compensation prior to 1 July 1989, which is calculated annually by an independent actuary.

Separations and redundancies

This includes $7.6 million (30 June 2017: $9.2 million) in early retirement benefits which have been elected to be taken by employees as a lump sum on retirement, and $10.3 million (30 June 2017: $29.1 million) for redundancy provisions in relation to the restructuring of the organisation.

The provision for early retirement benefits includes $7.0 million (30 June 2017: $8.3 million) for ATC employees who were employed by Airservices on 1 July 1998 and continue to meet the eligibility requirements under the relevant enterprise agreement.

 

Accounting policy

Employee benefits

Salaries, wages and termination benefits

Liabilities for short-term employee benefits and termination benefits expected to be wholly settled within 12 months of the end of the reporting period are measured at their nominal amounts. Liabilities for salary and wages are recognised, and are measured as the amount unpaid at the reporting date at pay rates which will be applicable when paid, in respect of employees’ services up to that date.

Recreation leave

The provision for recreation leave is not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. Accordingly, the employee benefit provision is measured as a long‑term benefit by calculating the present value of expected future payments to be made in respect of services provided by employees up to the reporting date.

Long service leave and early retirement benefit

Employee benefit provisions for long service leave and early retirement benefits are assessed by qualified actuaries on an annual basis. Various actuarial assumptions are required when determining Airservices obligations and these are discussed below.

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date, using the projected unit credit method. A liability for early retirement benefit is recognised within the provision for separations and redundancies in accordance with the applicable Group Collective Agreement and is measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date.

Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds (AA and AAA rated bonds only) with terms to maturity that match, as closely as possible, the estimated future cash outflows.

On-costs associated with recreation leave and long service leave are classified as separate provisions from employee benefits, in accordance with section 24 of the FRR.


4.2  Defined benefit fund asset

Superannuation plan

Airservices is the principal sponsor of the superannuation fund, AvSuper. The plan has a defined benefit scheme and a defined contribution section. The defined benefit section provides benefits based on the length of service and final average salary. The defined contribution section receives fixed contributions and Airservices Australia’s legal or constructive obligation is limited to these contributions.

The following sections set out details relating only to the defined benefits section of the Plan. Note that the defined benefits section has been closed to new membership since 2002.

2018
$’000
2017
$’000
Benefit asset
The amounts recognised in the statement of financial position are determined as follows:
Present value of the defined benefit obligation (659,384) (652,962)
Fair value of defined benefit plan assets 922,223 884,333
Net benefit asset – non-current 262,839 231,371
Categories of plan assets
The major categories of plan assets are as follows:
Cash 209,531 212,549
Equity instruments 384,510 270,928
Debt instruments 166,493 271,803
Other assets 161,689 129,053
922,223 884,333
Reconciliations
Reconciliation of the present value of defined benefit obligation:
Balance at the beginning of the year 652,962 865,163
Current service cost 25,154 25,864
Contribution by members 9,746 10,634
Interest cost 26,913 29,330
Remeasurements
Effect of changes in financial assumptions 15,198 (65,113)
Effect of experience adjustments (16,480) (15,176)
Benefits paid (54,109) (195,645)
Past service cost/losses (gains) on curtailments (2,095)
Balance at the end of the year 659,384 652,962
Reconciliation of the fair value of plan assets:
Balance at the beginning of the year 884,333 989,162
Interest Income 37,604 34,361
Remeasurements
Return on plan assets (excluding interest income) 21,829 21,330
Contribution by Airservices 22,820 24,491
Contribution by members 9,746 10,634
Benefits paid (54,109) (195,645)
Balance at the end of the year 922,223 884,333
Net amount recognised in the Statement of Comprehensive Income
The amounts recognised in the Statement of Comprehensive Income are as follows:
i.  Defined benefit cost recognised in profit or loss
Current service cost 25,154 25,864
Interest on the net defined benefit asset (10,691) (5,031)
Loss/(gain) on curtailments and settlements (2,095)
Total included in employee benefits expense 14,463 18,738
ii. Remeasurements (recognised in Other Comprehensive Income)
Effect of changes in financial assumptions 15,198 (65,113)
Effect of experience adjustments (16,480) (15,176)
Return on plan assets (excluding interest income) (21,829) (21,330)
Total remeasurements included in Other Comprehensive Income (23,111) (101,619)
iii.
Total defined benefit income recognised in the Statement of Comprehensive Income
(8,648) (82,881)
Actual return on plan assets 56,002 68,979

 

Principal actuarial assumptions

The principal actuarial assumptions used (expressed
as weighted averages) were as follows:

2018 2017
Discount rate 4.10% 4.30%
Future salary increases 4.00% 4.00%

 

The economic assumptions used by the actuary to make the funding arrangements were:

a discount rate of 4.1% p.a. derived by interpolation between the yield on 13 year and 14 year bonds at 30 June 2018 where the interpolation is based on the estimated mean term of each bond.

the salary increase rate is the long-term expected rate including a full allowance for promotional increases.

Sensitivity analysis
A sensitivity analysis for the key actuarial assumptions, holding other assumptions constant, and their potential impact on the defined benefit obligation are shown below.
2018 Increase
$’000
Decrease
$’000
Discount rate (0.5% movement) 38,442 (38,604)
Future salary increases (0.5% movement) (36,462) 36,828
2017 Increase
$’000
Decrease
$’000
Discount rate (0.5% movement) 39,238 (38,172)
Future salary increases (0.5% movement) (36,137) 37,726

 

Maturity profile

The following payments are expected to be made in future years out of the defined benefit plan obligation.

2018
$’000
2017
$’000
Undiscounted benefit payments
1 year or less 41,496 39,697
2 to 5 years 207,133 198,039
5 to 10 years 267,615 265,133
Greater than 10 years 1,038,137 1,116,065
Total expected payments 1,554,381 1,618,934

 

The average duration of the defined benefit plan obligation at the end of the reporting period is 10 years (2017: 10 years).

Employer contributions

Employer contribution rates are reviewed by the Employer as required under the Trust Deed. The Trustee receives advice on contribution rates with each actuarial investigation of the Plan undertaken for the Trustee. The Employer also reviews contributions rates as required if the financial position of the plan deteriorates. An actuarial investigation of the Plan is made each year (current practice), and the last such assessment was made as at 30 June 2017. This disclosed a surplus of $230 million.

For the year ended 30 June 2018 the employer contribution rate was:

3% of gross salary for those employees who remain members of the Commonwealth Superannuation Scheme (CSS category)
(2016–17: 3%);

16.5% of gross salary for other Airservices employees (FULL category) (2016–17: 16.5%). From 1 July 2018 contributions will cease for these members under a contribution holiday.

The Employer and Trustee have in place an agreement on the contributions required should the Fund’s financial position become unsatisfactory.

The objectives in setting the contribution rate are to ensure:

  1. the benefit entitlements of members and other beneficiaries are fully funded by the time they become payable; and
  2. there is a low probability that the assets are insufficient to meet the minimum benefit liabilities of the Fund should it terminate.

 

To achieve the first objective, the actuary has adopted a method of funding benefits known as the Attained Age Normal funding method. This funding method seeks to have benefits funded by means of a total contribution which is expected to be a constant percentage of members’ salaries over their remaining working lifetimes. To achieve the second objective, the actuary undertakes scenario testing of the short‑term financial position of the Plan.

Employer contributions expected to be paid by Airservices for the year ending 30 June 2019 are $0.4 million due to the contribution holiday for FULL members, not including any additional contributions required.

Net financial position of the plan

In accordance with AAS 25 Financial Reporting by Superannuation Plans, the Plan’s net financial position is determined as the difference between the present value of the accrued benefits and the net market value of Plan assets. This was determined as at the date of the most recent financial report of AvSuper (30 June 2017), when a surplus of $229.6 million was reported. Last year in these financial statements Airservices recognised a defined benefit asset of $231.4 million at 30 June 2017. The difference between the amounts is due to the different accounting treatment of the net financial position for the employer under AASB 119, and the Plan under AAS 25.

At 30 June 2018 these financial statements disclose a defined benefit asset of $262.8 million (30 June 2017: $231.4 million). AvSuper’s net financial position for the Plan under AAS 25 will not be available until after these financial statements have been signed.

 

Accounting policy

Superannuation

Contributions are made predominantly to AvSuper (sponsored by Airservices) and Commonwealth Superannuation Corporation (ComSuper) which administers the Commonwealth Superannuation Scheme (CSS) and Public Sector Superannuation (PSS) funds. AvSuper has a defined benefit section and an accumulation section within its fund. Contributions to the AvSuper defined benefit fund are made in accordance with advice received from the fund’s actuary. Contributions to accumulation funds are in accordance with the organisation’s Collective Agreement(s) and other employee contracts, having regard to legislative requirements. Contributions to ComSuper for the PSS and CSS funds are in accordance with actuarial reports as notified by the Department of Finance.

Contributions to all funds except the AvSuper defined benefit fund are recognised as an expense as they become payable. With respect to the AvSuper defined benefit fund, the net interest on the net defined benefit asset is recognised in the profit before income tax, whereas actuarial gains and losses are recorded in other comprehensive income.

A liability or asset in respect of the AvSuper defined benefit superannuation plan is recognised in the Statement of Financial Position, and is measured as the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets as outlined above. The defined benefit obligation is calculated annually by an independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using the interpolation between the yield on high quality corporate bonds (AA and AAA rated bonds only) that have terms approximating to the terms of the related obligation. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service.

Accounting judgements and estimates

AvSuper defined benefit plan

Various actuarial assumptions are required when determining Airservices obligations under the AvSuper defined benefit plan. The assumptions relied on for the period to 30 June 2018 are discussed above.

Long service leave and early retirement benefits

Various actuarial assumptions are required when determining Airservices obligations for long service leave and the early retirement benefit scheme. The assumptions relied on for the period to 30 June 2018 are based on collective agreements that were applicable during the year. These include a 4.0% annual salary increase, staff turnover rates ranging from 7% to 19% (depending on period of service), and average long service leave taken of 0.21 months per annum. The discount rate is derived from a yield curve based on interpolation of high quality corporate bonds (AA and AAA rated bonds only) based on the durations to reflect the estimated mean term of the liabilities, they are as follows:

Liability Mean term Corporate bonds Discount rate
Defined benefits 10.0 years Discount rate derived by applying Milliman’s yield curve to expected cashflows of AvSuper and equating this to a single rate 4.1% p.a.
Long service leave 6.7 years 7 year and 8 year 3.6% p.a.
Early retirement benefit 5.0 years 5 year and 6 year 3.3% p.a.

4.3  Key management personnel remuneration

  2018
$’000
2017
$’000
Key executive remuneration expense for the reporting period
Board of Directors
Short-term employee benefits:
Salary 537 491
Allowances and other benefits 77 76
Total short-term employee benefits 614 567
Post-employment benefits:
Superannuation (post-employment benefits) 56 51
Total post-employment benefits 56 51
Total 670 618
The information about non-executive directors included in the table
above relates to 9 individuals (2017: 8 individuals)
Key executive management
Short-term employee benefits:
Salary 2,562 2,622
Allowances and other benefits 99 155
At risk component(1) 182 234
Total short-term employee benefits 2,843 3,011
Post-employment benefits:
Superannuation (post-employment benefits) 315 286
Total post-employment benefits 315 286
Other long-term benefits:
Recreation leave accrued 220 215
Long service leave(2) 70 67
Total other long-term benefits 290 282
Termination benefits  –  –
Total executive remuneration 3,448 3,579
Total key management personnel remuneration(3) 4,118 4,197

 

The information about executives included in the above table relates
to 8.0 Full Time Equivalents (FTEs) (2017: 7.0 FTEs).

(1) Executive remuneration packages include an at risk element that is awarded based on executives meeting or exceeding objectives and key performance measures, which are linked to specific annual business objectives.

(2) 2016–17 long service leave has been restated to correct a prior period misstatement.

(3) The above key management personnel remuneration excludes the remuneration and other benefits of the Portfolio Minister. The Portfolio Minister’s remuneration and other benefits are set by the Remuneration Tribunal and are not paid by the entity.


4.4  Related party transactions

(a) Directors

The names of persons who were Directors of Airservices during the financial year and up to the date of signing these financial statements are as follows:

Status Commenced Finished
Chair
Angus Houston Ceased 6 December 2011 3 June 2018
John Weber On-going 3 June 2018 Current
Deputy Chair
John Weber On-going 6 April 2017 3 June 2018
Mark Binskin On-going 13 September 2018 Current
Directors
Fiona Balfour On-going 3 June 2013 Current
Samantha Betzien On-going 4 June 2012 Current
David Marchant On-going 21 July 2014 Current
John McGee On-going 4 September 2015 Current
Tim Rothwell On-going 21 July 2014 Current
Marlene Kanga On-going 4 September 2017 Current
Chief Executive Officer
Jason Harfield On-going 11 August 2015 Current

 

(b) Executives

The names of persons who were Executives of Airservices during the financial year (excluding the CEO, included above) and up to the date of signing these financial statements are as follows:

Executives Title Commenced Finished
Stephen Angus Executive GM Air Navigation Services 1 July 2016 Current
Michelle Bennetts Executive GM Aviation Rescue Fire Fighting Services 25 January 2013 16 April 2018
Michelle Bennetts Executive GM Customer Service Enhancement 16 April 2018 Current
Paul Logan Chief Financial Officer 2 July 2015 Current
Chris Seller Chief Information Officer 1 July 2016 Current
Robert Weaver* Executive GM Safety & Assurance 25 January 2013 Current
Craig Oakley A/g Executive GM Aviation Rescue Fire Fighting Services 16 April 2018 Current

*    Resigned effective from 2 November 2018

(c) Transactions with related parties

Certain director-related entities have transactions with Airservices that occur within normal customer or supplier relationships on terms and conditions no more favourable than those which it is reasonable to expect Airservices would have adopted if dealing with the director-related entity at arm’s length in similar circumstances. These transactions include the following entities and have been described below where the transactions are considered likely to be of interest to users of these financial statements:

Airservices received legal services from MinterEllison under a standing panel arrangement amounting to $380,591 for the period 1 July 2017 to 30 June 2018. During this time Samantha Betzien was both a Board member of Airservices and a partner with MinterEllison.

Airservices received professional services from Ernst & Young under a standing panel arrangement amounting to $527,412 for the period 1 July 2017 to 30 June 2018 during which time Sir Angus Houston was both Chair of the Airservices Board and Senior Advisor, Global Government and Public Sector Practice for Ernst & Young.

Airservices received professional services from PricewaterhouseCoopers under a standing panel arrangement amounting to $2,243,793 for the period 1 July 2017 to 30 June 2018, during which time John Weber was both Deputy Chair of the Airservices Board (1 July 2018 – 3 June 2018) and subsequently Chair of the Airservices Board (3 June 2018 – current) and Advisor for PricewaterhouseCoopers.

Airservices provided rent payments to Sydney Water Corporation amounting to $19,570 for the period 1 July 2017 to 30 June 2018. During this time Dr Marlene Kanga was both a Board member of Airservices Australia and a Board member of the Sydney Water Corporation.

To the extent permitted by law, Airservices provides indemnities to its Board members and officers to complement the insurance arrangements that it has in place.

The Board adheres to a strict Conflict of Interest Protocol which includes a review of Board members’ personal interests at each Board meeting. The management of any conflict is dependent on its nature and severity and may include the exclusion of Board members from receiving related material or withdrawal from discussion or decision making.

5. Managing uncertainties

This section analyses how Airservices Australia manages financial risks within its operating environment.


5.1  Contingent liabilities

Airservices had contingent liabilities at 30 June 2018 in respect of:

Aviation Rescue & Fire Fighting Services (ARFFS) potential contaminated site management

Airservices has identified a number of sites around the country that have been potentially contaminated with chemicals that were contained in fire fighting foams. Airservices has been managing issues arising from the use of these foams, now known to have contained Per- and Poly-Fluorinated Alkyl Substances (PFAS), since it became aware of concerns about PFAS in the early 2000s. These foams were widely used around the world because of their superior performance and regulatory requirements, and Airservices and its predecessors used them from 1978 until 2010.

Significant investment has been made to enable site investigations, site specific management actions including research and development and stakeholder engagement activities. The focus of the 2018 financial year has been to continue to progress site investigations to understand the extent of Airservices potential PFAS contamination, research and development activities to identify practicable solutions to manage existing contamination and working with Commonwealth and State/Territory agencies and regulators to consistently manage PFAS contamination within Australia.

To facilitate this and continued PFAS related activity, a sum of $56.2 million has been provided at 30 June 2018 (2017: $23.2 million).

As site investigations progress and jurisdictional requirements mature, further investigations and site specific management actions will be required to quantify and mitigate specific risks. Whilst uncertainty remains in relation to the regulatory environment, these actions may include implementation of containment/remediation strategies and stakeholder communications and engagement activities.

Legal claims

A representative action has been commenced against Airservices in the Federal Court of Australia, alleging underpayment of employment benefits to managerial level employees. Airservices is defending the claims. The proceedings are still at an early stage, and Airservices is not in a position to quantify any potential liability at this stage.

Brisbane Airport Corporation (BAC) has commenced proceedings against Airservices in the Queensland Supreme Court seeking compensation for alleged Per And Poly-Fluorinated Alkyl Substances (PFAS) contamination by Airservices at Brisbane Airport. Airservices disputes BAC’s claim and has filed its defence. The matter is in its early stages, with discovery activities still underway, and Airservices is not in a position to quantify any potential liability at this stage.

 

Accounting policy

Contingent liabilities and contingent assets

Contingent liabilities and contingent assets are not recognised in the Statement of Financial Position but are reported in the notes. They may arise from uncertainty as to the existence of a liability or asset or represent an asset or liability in respect of which the amount cannot be reliably measured. Contingent assets are disclosed when settlement is probable but not virtually certain and contingent liabilities are disclosed when settlement is greater than remote.

6. Other information

6.1  Remuneration of auditors

2018
$
2017
$
Remuneration of auditors  
Auditing services provided by the Australian National Audit Office 337,000 270,000

6.2  Monies held on behalf of third parties

Airservices has been contracted by the Solomon Islands Civil Aviation Authority and the Republic of Nauru to provide airspace management and accounts receivable services. The contracts require Airservices to retain cash received and to remit funds at a later date to the Solomon Islands and Nauru Governments as required under the respective agreements. At balance date, the money held on behalf of third parties totalled $0.550 million (2017: $0.683 million) for the Solomon Islands and $0.071 million (2017: $0.122 million) for Nauru.

 


6.3  Cross-border financing arrangement

During 2003 and 2004, Airservices completed cross-border financing arrangements (Transactions) in relation to certain assets (Transaction Assets) associated with The Australian Advanced Air Traffic System (TAAATS) and radar systems. The extant Transactions were initially for periods up to 2022, but on 30 May 2017 Airservices irrevocably exercised its right to terminate those Transactions with effect on 16 January 2018.

The original Transaction documents included certain post-termination guarantees and indemnities by Airservices in favour of various Transaction participants. If certain events occur, Airservices could be liable to make payments under the guarantees and indemnities. The underlying exposure against which these guarantees and indemnities have been provided was US$45 million as at 30 June 2018, which is expected to decline to zero by 17 December 2018 (the exposure as at 30 June 2017 was US$223 million). Expert external advisors consider that, unless exceptional circumstances arise, Airservices would not be required to make a significant payment under these guarantees and indemnities.

Airservices actively monitors and manages its exposures under the Transactions in order to mitigate any material risk factors affecting the Transactions on an ongoing basis.

 


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