AANNNNUUAALL RREEVVIIEEWW 22OO TTEENN YYEEAARRSS OOFF DDEELLIIVVEERRIINNGG VVAALLUUEE AANNDD GGRROOWWTTHH Online Annual Review and Annual Report This document and further information about APA’s financial performance, including details contained in the Annual Report, are available at www.apa.com.au Our vision Our goals Our profile To be Australia’s number one • Provide a safe, stimulating APA Group (APA) is energy infrastructure business. and rewarding workplace Australia’s largest natural Our success will be founded where our employees can gas infrastructure business, upon the strengthening of our learn and grow owning and/or operating more asset footprint. • Deliver value to our than $8 billion of natural gas customers and create transmission and distribution responsive solutions to assets. APA’s pipelines and their needs assets span every state and territory on mainland • Continue to deliver an Australia, delivering more than environmentally responsible, half the nation’s gas usage. safe and essential service to APA has direct management the communities we serve and operational control • Continue to be a reliable and over its assets. APA holds attractive investment which minority interests in energy delivers superior returns for infrastructure enterprises. securityholders APA is listed on the Australian • Positively engaging the Securities Exchange (ASX) . communities within which we operate CONTENT 2 Performance highlights 4 APA Group profile 6 APA history 8 Chairman’s report 10 Managing Director’s report 12 Business report 21 Sustainability report 32 Board of directors 34 Executive management team Front cover: APA Group’s delivery 35 Five year summary point for gas into the Uranquinty Power Station, New South Wales 36 Securityholder information Inside cover: Culcairn compressor Inside cover: Culcairn compressor station and New South Wales to station and New South Wales to Victoria interconnect Victoria interconnect APA has been delivering energy across Australia for 10 years. Since listing in 2000, we have expanded our asset footprint and today we are delivering more than half the natural gas used across the country. For 10 years we have been delivering value to our investors with sustainable and growing distributions. APA has a strong position in the Australian energy infrastructure industry, the people with the skills and know-how to manage and operate the business profitably, and the platform for sustainable and profitable growth. We celebrate 10 years of APA’s successful operation and performance. With APA’s assets, people and financial strength, together with a growing demand for gas, I believe the best days for APA are ahead of us. Mick McCormack Managing Director APA Group Online Annual Review and Annual Report This document and further information about APA’s financial performance, including details contained in the Annual Report, are available at www .apa. com. au APA annual Review 2010 1 PERFORMANCE HIGHLIGHTS 2010 2009 $million $million Change % Financial results Revenue 989.5 944.4 4.8 Revenue excluding pass-through 659.5 673.0 (2.0) EBITDA 460.0 444.4 3.5 Profit 100.4 78.8 27.4 Operating cash flow 267.8 233.6 14.6 Financial position Total assets 4,982.4 4,747.3 5.0 Net debt 3,156.8 3,056.7 3.3 Securityholders’ equity 1,395.1 1,278.5 9.1 Financial ratios Operating cash flow per security (cents) 51.9 48.2 7.7 Earnings per security (cents) 19.4 22.7 (14.5) Distribution per security (cents) 32.75 31.0 5.6 Distribution payout ratio 64.4% 65.6% Gearing (net debt to net debt plus equity) 69.8% 70.3% Interest cover 2.11 2.13 Strategic objectives Achievements Enhancing our gas • Continued expansion of the Moomba Sydney Pipeline infrastructure portfolio • Commenced expansion of the southern lateral of the Moomba Sydney Pipeline (Young to Wagga Wagga looping) • Commenced augmentation of the northern section of the Victorian Transmission System • Acquired the Berwyndale Wallumbilla Pipeline • Commenced construction of a lateral on the Roma Brisbane Pipeline • Extended the APA Gas Network, Queensland • Invested in Hastings Diversified Utilities Fund Utilising our skills • Increased strategic energy investment management, with services to and knowledge Energy Infrastructure Investments Capturing revenue and • Contracted gas transportation and storage services across assets and operating synergies state borders (New South Wales and Victoria) • Implemented major national initiatives including customer interface, finance systems, operational excellence across transmission and network operations Leveraging our • Invested in North Brown Hill Wind Farm through EII2 partnership with Marubeni infrastructure portfolio Corporation and Osaka Gas Strengthening our • Refinanced $1 billion of debt financial capability • Obtained a Baa2 credit rating from Moody’s to sit alongside the BBB investment grade credit rating from Standard & Poor’s • Raised new equity from securityholders through DRP and SPP 2 APA annual Review 2010 Meter runs at Watson Regulator station, Australian Capital Territory. 2010 EBITDA $460m 2001 2002 up 3.5% 2003 2004 2005 2006 2007 2008 2009 2010 Operating cash flow $268m 2001 up 14.6% 2002 2003 2004 2005 2006 2007 2008 2009 2010 Distribution per security 32.75c 2001 2002 up 5.6% 2003 2004 2005 2006 2007 2008 2009 2010 Operating cash flow per security 51.9c 2001 2002 up 7.7% 2003 2004 2005 2006 2007 2008 2009 2010 APA annual Review 2010 3 APA GROuP PROFIlE Today, APA has a strong position in the Australian energy infrastructure industry, the people with the skills and know-how to manage and operate the business profitably, and the platform for sustainable growth. Our strengths Unrivalled natural gas Attractive growth opportunities Internally managed and asset footprint APA’s existing pipelines serve major operated business APA is the largest transporter of growth markets across Australia. Our APA employs more than 1,100 highly natural gas across Australia, owning assets are uniquely positioned to grow skilled and experienced people and/or operating over 12,700 km of as Australia’s demand for natural who are extracting greater value gas pipelines and transporting more gas increases. from the business and responding than half the natural gas used in to the requirements of a dynamic Stable and secure revenue the country. energy market. In excess of 90% of APA’s revenue is Integrated portfolio of natural derived from regulated assets and gas pipeline assets from long-term contracts with large Many of APA’s gas infrastructure creditworthy customers. assets and investments are connected to each other, providing revenue and operating synergies. Business Segments Gas transmission and distribution Assets Queensland New South Wales Victoria and Western Australia and and Roma Brisbane Pipeline 1 Moomba Sydney Pipeline 5 South Australia Northern Territory operations Carpentaria Gas Pipeline 2 Central West Pipeline 6 Victorian Transmission Goldfields Gas Pipeline (88.2%) 12 APA Gas Network 3 Central Ranges Pipeline 7 System 9 Mid West Pipeline (50%) 13 Berwyndale Wallumbilla New South Wales – Victoria Dandenong LNG facility 10 Parmelia Gas Pipeline 14 Pipeline 4 Interconnect 8 SESA Pipeline 11 Mondarra Gas Storage facility 15 Kalgoorlie Kambalda Pipeline 16 Amadeus Gas Pipeline (96%) 17 Transmission 1,707 km 2,578 km 2,037 km 4,111 km pipelines Distribution 2,800 km 40 km networks 82,000 connections 1,000 connections Contribution 23% 21% 23% 22% to 2010 EBITDA EBITDA $103m $97m $106m $103m 0 20 40 60 80 100 120 0 20 40 60 80 100 120 0 20 40 60 80 100 120 0 20 40 60 80 100 120 2010 2009 2010 2009 2010 2009 2010 2009 4 APA annual Review 2010 APA GROUP ASSETS AND INVESTMENTS 20 Asset map 17 20 NORTHERN TERRITORY 20 QUEENSLAND 2 18 WESTERN 18 12 AUSTRALIA 4 20 1 18 13 20 3 SOUTH AUSTRALIA 20 15 NEW SOUTH 5 WALES 14 16 21 18 22 6 7 18 20 18 8 19 9 18 APA Assets 11 VICTORIA 10 APA Investments TASMANIA Asset management Energy Investments Assets Commercial and operational services to: Envestra Limited (32%) 18 and • Energy Infrastructure Investments • Gas distribution networks and pipelines operations • Envestra limited • Ethane Pipeline Income Fund SEA Gas Pipeline (33.3%) 19 Operational services to: Energy Infrastructure Investments (19.9%) 20 • Gas pipelines, electricity transmission, gas-fired power • SEA Gas Pipeline stations and gas processing plants • other third parties Ethane Pipeline Income Fund (6%) 21 Transmission EII2 (20.2%) 22 Services to: pipelines 2,330 km (natural gas) and 1,375 km (ethane) • North Brown Hill Wind Farm Distribution 20,440 km network Hastings Diversified Utilities Fund (17%) networks 1,040,000 connections Contribution 7% 4% to 2010 EBITDA EBITDA $32m $19m 0 20 40 60 80 100 120 0 20 40 60 80 100 120 2010 2009 2010 2009 APA annual Review 2010 5 June 2OOO APA was created when AGl floated its gas transmission assets. 2OO1 - 2OO3 On 13 June 2000, APA was listed on the Australian Acquired the minority interests Securities Exchange of major APA pipelines: • Roma Brisbane Pipeline • Goldfields Gas Pipeline • Carpentaria Gas Pipeline 2OO4 - 2OO7 Consolidated APA’s asset footprint by means of acquisitions and developments: • Parmelia Gas Pipeline and Mondarra Gas Storage facility • APA Gas Network (Allgas) • Victorian Transmission OuR JOURNEY System and Telfer/Nifty Pipeline (GasNet) Ten years of profitable growth • Murraylink and Directlink Compared to the long life of its assets, APA is a • SEA Gas (33%) and SESA relatively young organisation. Ten years ago, in pipelines June 2000, APA was formed when AGl listed its gas • Envestra asset management transmission assets in a separate company, Australian agreement Pipeline Trust (as APA was called at the time). • Kogan North and Tipton West As we have grown, we have also evolved – from an gas processing facilities infrastructure owner and manager with six employees in • Daandine and X41 power a city office and an external asset operator, to an stations integrated operating business with more than 1,100 people working in over 50 locations across the country. The assets we own and operate have been expanded over the 10 years. In June 2000, APA had interests in 7,000 km of gas transmission pipelines – today we have an interest in, and operate over 12,700 km of pipelines and 23,000 km of gas distribution networks. From its inception APA’s objective was to maximise the value of these assets and hence the value to our securityholders. This has been achieved and is demonstrated by consistent, growing returns to securityholders. 6 APA annual Review 2010 Total Securityholder Returns 500 400 300 200 100 0 0 1 2 3 4 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 1 - - - - - - - - - - - n n n n n n n n n n n u u u u u u u u u u u J J J J J J J J J J J APA total securityholder returns All Ordinaries accumulation index Source: based on IRESS data Indexed to 100 from 13 June 2000 2OO8 - 2O10 Internalised asset management and operation: • Termination of agreement with external operator Enhanced APA’s asset footprint by means of capacity expansion, pipeline development and acquisitions: • Expansion of Goldfields, Carpentaria, Moomba Sydney pipelines and Victorian Transmission System • Development of Bonaparte Gas Pipeline and Wickham Point Pipeline • Acquisition of Central Ranges and Berwyndale Wallumbilla pipelines • Investment in Ethane Pipeline Income Fund, Hastings Diversified Utilities Fund and Envestra Strengthened financial capability: • Funds released through the sale of assets to Energy Infrastructure Investments (EII) • Obtained investment grade credit ratings Pipe stringing for the Young to Wagga Wagga looping project, New South Wales. APA annual Review 2010 7 ChAIRMAN’S REPORT APA has just celebrated Tenth year of record its distribution, and an average 16% 10 years of operations since financial performance per annum total securityholder return listing in June 2000, and has which was well ahead of the broader continued to deliver value to APA continues to be a strong and market and our peers. secure cash generating business, its securityholders each year. Strengthening achieving a 14.6% increase in Our success is due to the fact that operating cash flow to $268 million financial capability we transport an essential fuel, and a 3.5% increase in earnings natural gas, across the country in Throughout the year, we maintained before interest, tax, depreciation and a market where both supply and our focus on further strengthening our amortisation (EBITDA) to $460 million, demand are increasing. We have balance sheet. Having successfully despite the loss of earnings from secure revenue streams due to completed the refinancing of $1 billion assets sold to Energy Infrastructure our long- term contracts and the of debt in August 2009, and with two Investments in the 2009 financial regulatory regimes in which we credit rating agencies confirming year. After removing the contribution operate, and we have the internal APA’s investment grade status, we of these divested assets, the EBITDA skills and knowledge to manage have focused on our next refinancing of APA’s current business increased and operate our assets and obligations, with the aim of reducing by 8.7%. investments. our debt costs, extending the maturity of our debt, and diversifying our source In 2010, APA maintained its reliable Increasing securityholder of funds. An example of this was the performance in the midst of challenging returns strong interest and attractive pricing times. We maintained our strategy Based on APA’s performance, we achieved for the 10 year $300 million of growing the business sustainably declared a final distribution for the of Australian dollar bonds we issued in and profitably and strengthening our year of 17.0 cents per security taking July 2010. This issue is the first by financial capability. As a result, APA is the total distribution for the year to a BBB/Baa2 rated corporate in now in a stronger position to continue 32.75 cents, an increase of 5.6% on Australia and has been described by its steady growth. last year. This represents APA’s sixth market commentators as both It is pleasing to report that APA consecutive year of increasing “historic” and “ground breaking”. delivered another record financial distributions. Funding for APA’s growth projects was result in 2010. This represents our Distributions continued to be well sourced primarily from cash remaining tenth successive year of record covered by operating cash flow with a in the business after payment performance. In light of these results, payout ratio of 64.4% for the year. of distributions along with $142 million we have again increased distributions Since listing in 2000, APA has delivered of new capital raised through the in line with the guidance provided a 5% compound annual growth rate on Distribution Reinvestment Plan and by APA in late 2009. 8 APA annual Review 2010