AUSTRALIAN INDUSTRY DEVELOPMENT CORPORATION

ANNUAL REPORT 30 JUNE 2010

Contents

Chairman and Chief Executive’s Report / 2
Report of Operations / 3
Scope of Report / 3
Powers, Functions and Objectives / 3
Overview of Operations / 3
Commonwealth Guarantee / 4
Financial result / 4
Dividends / 4
Likely Developments and Expected Results of Operations / 4
Report on National Interest Projects / 4
Corporate Governance / 5
Enabling Legislation / 5
The Minister / 5
The Staff / 5
The Organisational Structure / 5
The Board / 5
Audit Committee / 5
Auditors / 5
Other Statutory Requirements / 6
Board Membership and Other Information / 7
Risk Management / 8
Indemnity and Insurance / 9
Significant Changes in the State of Affairs and Financial Structure / 9
Matters Subsequent to the End of the Financial Period / 9
Other Matters / 9
Financial Statements / 10
Statement by Board Members / 31
Independent Audit Reports / 32
Offices / 36

Chairman and Chief Executive’s Report

The members of the Board of the Australian Industry Development Corporation are responsible under Section 9 of the Commonwealth Authorities and Companies Act 1997 for the preparation and content of a Report of Operations and Financial Statements in accordance with the Finance Minister’s Orders.

The Report of Operations, Financial Statements and the Statement by Board Members submitted in respect of the year ended 30 June 2010 are set out on pages 3 to 31.

Signed for and on behalf of Members’ of the Board in accordance with a resolution of the Board.

D J Yarra
Chairman

Canberra, 16 August 2010

© Australian Industry Development Corporation 2010

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from Australian Industry Development Corporation. Requests and enquiries concerning reproduction and rights should be addressed to:

Australian Industry Development Corporation, c/- Level 11, 30 Convention Centre Place, South Wharf Vic 3006

ISSN 1835–7660

REPORT OF OPERATIONS

SCOPE OF REPORT

This Report covers the activities of the Australian Industry Development Corporation (the ‘Corporation’). These activities are confined to the winding down of the operations of the Corporation. This process is expected to be completed in2010-11 after the sole remaining commercial financing arrangement, a fee earning guarantee of certain third party obligations in relation to a Bond issue, terminates with the redemption of the Bonds in September 2010.

POWERS, FUNCTIONS AND OBJECTIVES

The functions and objectives of the Corporation are set out in Section 6 of the Australian Industry DevelopmentCorporation Act 1970 (the ‘Act’). In summary, they are to facilitate the establishment, development and advancement of Australian industries, and the participation in those industries by Australian residents, by providing finance to those engaged in the industries and by participating in enterprises or projects.

Until the sale of the majority of the subsidiaries comprising the AIDC Ltd Group on 15 September 1997, the Corporation and its subsidiaries were an investment and development house to Australian industry, including resource companies and infrastructure projects. The sale of the bulk of the AIDC Ltd Group was completed on 3 February 1998.

The sale involved a defeasance of the Corporation’s treasury debt by a portfolio of Commonwealth securities, to be managed by UBS Australia Ltd under a Cashflow Matching Deed to ensure the repayment of the treasury debt interest and capital through to maturity. The Corporation’s obligations under the matching deed matured in December 2008 when the outstanding Treasury liabilities were reduced to zero. At the time of reporting the Corporation had no borrowings and its assets largely comprised short term deposits.

In accordance with Section 9 of the Act, the Minister has the power to direct the Corporation on the performance of its functions or the exercise of its powers. With effect from 3 May 2002, the Minister directed that the Corporation, in carrying out its functions and powers under Section 6 of the Act, should only do those things necessary in order to wind down to finality the residual financial and other obligations of the Corporation.

OVERVIEW OF OPERATIONS

Treasury Borrowings

At the time of reporting, the Corporation had no treasury borrowings.

As noted earlier, the operations of the Corporation for the reporting period have been confined to preparing for wind-down, including the payment during the year of $3 million of surplus funds to the Commonwealth as a return of capital. The remaining liquid assets are held in interest bearing deposits.

The processes to complete the wind-down of the Corporation will not commence until the sole remaining commercial financing arrangement, a fee earning guarantee of third party obligations in relation to a Bond issue in 1995, terminates with the redemption of the Bonds in September 2010.

There have been no other business or other operational activities, outputs or outcomes.

REPORT OF OPERATIONS

Fee Earning Guarantee

For the year ended 30 June 2010 the Corporation earned approximately $307,500 (2009: $307,500) from an arrangement where it has guaranteed certain third party obligationsin relation to a Bond issue. Given the Corporation’s liability arises only in the event of a default by the borrower, and by a major interposed Australian Bank, the Corporation’s risk and exposure are considered to be minimal. On 29 June 2010 the Corporation received formal notice from the one remaining Bond holder that it will redeem all its Bonds on 30 September 2010. This action will conclude the Guarantee facility for the Corporation.

COMMONWEALTH GUARANTEE

The Commonwealth Guarantee, which is embodied in the Act, applied to all the Corporation’s borrowings and other obligations on behalf of the consolidated entity entered into on or before 30 June 1998, including the guarantee related to the Bond facility that will expire in September 2010. From 1 July 1998, the Commonwealth Guarantee ceased in respect of new commitments.

Following the sale of AIDC Ltd, the Corporation has been winding down its ongoing liabilities, including all of its borrowings to which guarantees apply, and since 1 July 1998has not entered into any material financial commitments (other than in respect to its day to day operations) without the consent or direction of the Commonwealth.

FINANCIAL RESULT

The Corporation’s financial result for the year was a net profit after income tax of$410,865 (2009: profit of $402,622).

During the year, the Corporation received fees from a fee earning guarantee totalling $307,500 (2009: $307,500).

DIVIDENDS

The Corporation has declared an unfranked dividend of $410,685 on 16 August 2010, which is payable in the new financial year (2009: $402,622).

likely developments and expected results of operations

In accordance with the Direction of the then Minister for Finance & Administration dated 3 May 2002, the Corporation continues to manage down its residual obligations and undertakings with a view to a complete shut-down during 2010 - 2011. At the time of writing this report, there are no other significant likely developments that impact on the operations of the Corporation.

Report on National Interest Projects

There were no National Interest Projects undertaken during or since the end of the financial year.

REPORT OF OPERATIONS

corporate governance

Enabling Legislation

The Corporation’s enabling legislation is the Australian Industry Development Corporation Act 1970 (the ‘Act’).

The Act was amended on 5 June 1997 by the AIDC Sale Act 1997 (Sale Act), to facilitate the sale of AIDC Ltd and the winding down of the Corporation’s residual activities. The Corporation will be abolished when Schedule 2 of the Sale Act is proclaimed after the Minister gives the Governor-General a written certificate stating that the Minister is satisfied that the Corporation has no assets and no liabilities.

The Minister

At reporting date the Minister responsible for the Corporation was the Hon Lindsay Tanner MP, Minister for Finance and Deregulation.

The Staff

At financial year end, the Corporation’s only staff member was the Chief Executive engaged on a part-time, unpaid basis. The Chief Executive is not employed by the Corporation under the Public Service Act 1922. The Corporation has engaged ANL Container Line Pty Ltd to provide routine financial and accounting services and retained PricewaterhouseCoopers to provide taxation advice.

Organisational Structure

The Corporation has one employee and no office. It is not engaged in any business activities except for necessary actions to effect the wind down of the entity.

The Board

The members of the Board are responsible for the corporate governance of the Corporation. They directly and jointly oversee activities of the Corporation, including the performance of service providers. The Board meets quarterly or more regularly as required.

On 29 October 2009 Mr Mark Heazlett resigned as Chief Executive Officer of the Corporation due to other work commitments. On 2 November 2009 the Board resolved to appoint Ms Stacie Hall as the Chief Executive Officer of the Corporation as from 29 October 2009

Audit Committee

The Audit Committee comprises all Non-Executive Board members. For the reporting period the Audit Committee was chaired by a member of the Corporation, Mr Colin Plowman.

Auditors

The Commonwealth Authorities and Companies Act 1997 requires the Corporation’s financial statements to be audited by the Auditor-General. In addition, Ernst & Young provide an audit opinion to the Board in order to satisfy the terms of the current treasury portfolio instruments.

REPORT OF OPERATIONS

Other Statutory Requirements

Occupational Health and Safety

The Occupational Health and Safety(Commonwealth Employment) Act 1991 applies to the Corporation. No health and safety incidents occurred during the year ended 30 June 2010 (2009: Nil).

Freedom of Information
Commonwealth Freedom of Information Act 1982 – AIDC Section 8 Statement

Details of the Corporation’s establishment, organisation, functions and powers are detailed elsewhere in the Report of Operations section of this Report. As the Corporation is in its final wind down phase, and is not engaged in any business activities except for necessary actions to effect the wind down of the entity, there are no decision-making powers of the Corporation and/or other powers of the Corporation that affect members of the public as they relate to the functions of the Corporation in its final wind down.

FOI procedures and facilities for access

Requests under the Commonwealth Freedom of Information Act 1982 (“FOI Act”) for access to documents in the possession of the Corporation should be addressed to:

Company Secretary

AIDC

Level 11

30 Convention Centre Place

South Wharf Vic 3006

All requests to the Corporation under the FOI Act are processed centrally. Enquiries regarding access may be directed to the Company Secretary by telephoning (03) 8842 5618 during business hours. The Chief Executive Officer of the Corporation is the Principal Officer for the purposes of the Act and is responsible for internal review decisions. The Corporation can provide facilities for inspection of documents at its registered offices.

Categories of documents

Some records of the Corporation are located at its registered offices, however, given that the Corporation has been in wind down for a number of years the majority of documents are retained for administrative or legal purposes in off-site archival storage.

Categories of documents are: minutes and business papers, annual reports, and correspondence and business files which comprise financial and accounting records. The Corporation’s Annual Reports are also available through the Government’s Library Deposit Scheme.

REPORT OF OPERATIONS

Ecologically Sustainable Development

The Environment Protection and Biodiversity Conservation Act 1999 applies to the Corporation. As the Corporation’s function is only to wind down to finality its residual assets and liabilities, and it is not involved in any other activities that are affected by the principles of ecologically sustainable development, the Corporation considers that it has complied with these principles. (2009: Nil).

Commonwealth Disability Strategy

The Disability Discrimination Act 1992 applies to the Corporation. As the Corporation’s function is only to wind down to finality its residual assets and liabilities, it had only one employee (part time Chief Executive) and the provision of office facilities for the Corporation are outsourced, the Corporation believes it has complied with the requirements of the strategy.

board membership and other information

Members of the Board and Terms of Appointment

The names of the members of the Board, and their terms of appointment, are set out in the table below.

In regard to qualifications and experience, all the members at reporting date are currently serving Senior Executive Service officers in the Department of Finance and Deregulation whose extensive experience equips them to deal with the governance and other matters associated with the winding down of a statutory corporation.

Mr Yarra has over 33 years of experience in the Commonwealth public sector in a number of Departments and agencies. He has held senior management positions in the sales and restructuring of major Commonwealth business enterprises and assets, Budget Policy, and Evaluation and Audit.

Mr Plowman has long experience in senior management in the State and Commonwealth public sectors, including Evaluation and Audit,Director of the Governance Unit of the NSW Aboriginal Land Council, a senior Executive of the NSW Police, and a Program Manager in the Aboriginal and Torres Strait Islander Commission.

Mr Heazlett has over 25 years experience in the Commonwealth public sector and has undertaken senior management roles in relation to the Defence property disposal program, the Telstra 2 and 3 sales, and the sale of AIDC Ltd.

Ms Hall has senior management experience in relation to the governance framework for Government Business Enterprises and Insurance and risk management for the Commonwealth, combined with extensive commercial experience in the private sector.

Members of the Board / Special responsibilities / Terms of Appointment*
D J Yarra / Chairman / 18/04/08 to 17/04/11
S N Hall / Chief Executive / 29/10/09 to 28/10/12
C J Plowman / Chairman of Audit Committee / 01/07/08 to 30/06/11
M H Heazlett / Chief Executive / Resigned on 29/10/09

* Pursuant to the Act, the Chairman and Board members, other than the Chief Executive, are appointed by the Minister and hold office during the Minister’s pleasure. The Chief Executive is appointed by the Board.

REPORT OF OPERATIONS

Secretary:Nicholas Slingsby

Chief Financial Officer:Kamlesh Devchand

Information Officer:Nicholas Slingsby

Telephone:(03) 8842 5618

Facsimile:(03) 8842 5609

Email:

Meetings of Members of the Board

The number of meetings of the Board members held during the year ended 30 June 2010, and the numbers of meetings attended by each member were:

Full meeting of
Board members / Meetings of Audit
Committees
Number of meetings held: / 4 / 1
Number of meetings attended by:
­D J Yarra / 4 / 1
­M J Heazlett / 0 / 0
­C J Plowman / 4 / 1
- S N Hall / 3 / 0

Benefits and interests in contracts with members of the Board

Members of the Board declare that none of them have interest in contracts, transactions, arrangements or agreements with the Corporation, other than contracts entered into, or to be entered into, in the ordinary course of the Corporation’s business. Note 20 to the Financial Statements sets out the remuneration received, or due and receivable, by Members of the Board during the year ended 30 June 2010.

Risk Management

The Corporation has no significant risk exposures.

Insurances maintained relate to run-off cover for the prior activities of the Corporation and its subsidiaries prior to the sale of AIDC Ltd in 1997.

The risks associated with the third party guarantee of the 1995 Bond issue are considered minimal given the Corporation’s liability arises only in the event of a default by the borrower, and by a major interposed Australian Bank, The final Bond holder formally advised the Corporation on 29 June 2010of its intention to redeem all Bonds on 30 September 2010, terminating the contingent liability.

REPORT OF OPERATIONS

INDEMNITY AND INSURANCE

The Corporation has entered into an agreement with the Board members and the Secretary of the Corporation which indemnifies them against any liability (including reasonable fees and costs) for any act or omission by the officer in their capacity as an officer of the Corporation. The Corporation has obtained a Directors and Officers’ Insurance policy which provides benefits in respect of liabilities incurred for the acts or omissions of Corporation officers. A premium of $20,788 (2009: $18,776) was paid in respect of this policy of insurance.

The indemnity provided by the Corporation will not apply in respect of any liability to the Corporation, nor for conduct involving a lack of good faith or for costs and expenses incurred in proceedings where judgment is given against the officer. No liability has arisen in respect of the proposed indemnity and no claims have been made against the Directors and Officers Indemnity Insurance policy as at the date of this report.

Significant Changes in the State of Affairs and Financial Structure

There were no significant changes in the state of affairs of the Corporation during the financial year.

Matters Subsequent to the End of the Financial Period

No matter or circumstance has arisen since 30 June 2010 and before the date of this report that has significantly affected or may significantly affect:

  • the Corporation’s operations in future financial years, or
  • the results of those operations in future financial years, or
  • the Corporation’s state of affairs in future financial years.

Other matters

Judicial Decisions

There are no judicial decisions, decisions of administrative tribunals or reviews of the Auditor-General, a Parliamentary committee or the Commonwealth Ombudsman that will have a significant impact on the operations of the Corporation.

Ministerial Directions

No Ministerial Directions were given to the Corporation under the Australian Industry Development Corporation Act 1970 during the year, or since the end of the year.

Community Service Obligations

The Corporation does not have any specific community service obligations.

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010

2010 / 2009
Note / $000 / $000
INCOME
Revenue
Interest revenue / 2 / 227 / 652
Other revenue / 308 / 308
Total revenue / 535 / 960
Gains
Realised gain onsettlement of Cashflow Matching Portfolio / 5 / -
Total gains / - / -
TOTAL INCOME / 540 / 960
EXPENSES
Employees / 3 / - / (18)
Suppliers / (129) / (140)
Finance costs / 3 / - / (294)
Net write-down from fair value revaluation of the
Cashflow Matching Portfolio / - / (105)
Total expenses / (129) / (557)
Profit before income tax expense / 411 / 403
Incometax expense / 4 / - / -
Net profit for the year / 411 / 403
Other comprehensive income / - / -
Total comprehensive income for the year / 411 / 403
The accompanying notes form an integral part of this financial report.

BALANCE SHEET AS AT 30 JUNE 2010