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YARRA VALLEY ANNUAL REPORT WATER

2018-19

OUR PURPOSE

TO PROVIDE EXEMPLARY WATER AND SANITATION SERVICES THAT CONTRIBUTE TO THE HEALTH AND WELLBEING OF CURRENT AND FUTURE GENERATIONS ACKNOWLEDGEMENT OF TRADITIONAL OWNERS Yarra Valley Water proudly acknowledges Aboriginal and Torres Strait Islander peoples as Australiaâ€™s first peoples and the people of the Kulin Nations as the original custodians of the land and water on which we rely and operate. We pay our deepest respects to their Elders past, present and future. We acknowledge the continued cultural, social and spiritual connections that Aboriginal and Torres Strait Islander peoples

have with the lands and waters, and recognise and value that the Traditional Owner groups have cared for and protected them for thousands of generations. We also recognise and value the continuing rich cultures and contribution of Aboriginal and Torres Strait Islander peoples and communities to the Victorian community.

OUR ASSETS

137

CLASS A RECYCLED WATER PLANTS

WATER PRESSURE REDUCINGÂ STATIONS

105

WASTE TO ENERGY FACILITY

SEWAGE PUMPING STATIONS

$5.1B

INFRASTRUCTURE AND OTHER ASSETS

10,057 KM OF WATER MAINS

WATER SERVICE RESERVOIRS

9,807 KM OF SEWER MAINS

SEWAGE TREATMENT PLANTS

532

WATER PUMPING STATIONS

KM OF RECYCLED WATER MAINS

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

KEY STATISTICS

POPULATION SERVED

764,589 RESIDENTIAL PROPERTIES

57,145 BUSINESS CUSTOMERS

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

CONTENTS

1 2 3 4 5

INTRODUCTION 4 About us

A message from the Chair and the Managing Director 8 Our strategic context

2018-19 HIGHLIGHTS 14 Key initiatives

Overview of 2018-19 performance

DELIVERING VALUE 40 OUR LEADERSHIP

OUR PEOPLE AND CULTURE

LIVEABILITY OUTCOMES

Resilient and liveable cities and towns

Customer and community outcomes

Water for Aboriginal cultural, spiritual and economic values

ENVIRONMENTAL OUTCOMES

Climate adaptation and variability

Bulk entitlements report

Greenhouse gas emissions and net energy consumption

Other statutory obligations

OUR PERFORMANCE

FINANCIAL REPORT 82

DISCLOSURE INDEX 134

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

1 4

YARRA VALLEY WATER ANNUAL REPORT 2018-19

INTRODUCTION

YARRA VALLEY WATER ANNUAL REPORT 2018-19

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

ABOUT US

We manage an extensive network of approximately $5 billion worth of assets across more than 4,000 square kilometres. Our service area covers most of Melbourne’s northern and eastern suburbs, extending to Wallan in the north and Warburton in the east. With Melbourne’s north comprising some of Australia’s fastest growing suburbs, we anticipate serving an additional 600,000 people by 2036. Accordingly, we are a futurefocused organisation, working to anticipate the future needs of our customers and taking a restorative approach to the environment we rely on to provide our services. We buy bulk water from Melbourne Water which we provide to our customers. We also take their sewage away, most of which we send to Melbourne Water’s Eastern or Western Treatment plants. The rest we treat at our ten regional treatment plants, several of which produce recycled water for use in homes, sports fields and public spaces. Recycled water is a key initiative to help save precious drinking water and maintain a secure water supply for the future – and we will continue to focus on expanding its use in the community. In a Victorian first, we generate our own renewable energy from food waste at our waste to energy plant - ReWaste - in Wollert. We also create our own solar energy at our staff carpark in Mitcham and at three of our sewage treatment

INTRODUCTION

Yarra Valley Water delivers essential water and sanitation services to two million people. We are one of Australia’s largest water utilities with more than 30% of Victoria’s population relying on us 24 hours a day, seven days a week.

plants. We plan to build on these energy generation activities to meet our target of using 100% renewable energy by 2025. We have a globally recognised culture and a highly engaged workforce. In 2018-19 our staff maintained their focus on our purpose: to provide exemplary water and sanitation services that contribute to the health and wellbeing of current and future generations. As we get closer to the final year of our 2020 Strategy, work is underway on our next strategy to address the challenges and opportunities of the next decade. We are a statutory corporation, incorporated under the Water Act 1989 and our activities are overseen by an independent Board of Directors appointed by the State Government of Victoria. Our obligations regarding the performance of our functions and the exercise of our statutory powers are defined in the Statement of Obligations, issued by the Minister for Water in accordance with Section 4I (2) of the Water Industry Act 1994. We are required to monitor compliance with the obligations set out in the Statement, report on non-compliance and take remedial action in relation to non-compliance. During the 2018-19 financial year, we were accountable to the Minister for Water, the Hon Lisa Neville MP. The Essential Services Commission (ESC) is our economic regulator. The ESC’s role includes regulating prices, service standards and market conduct across the Victorian water industry.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

A MESSAGE FROM THE CHAIR AND THE MANAGING DIRECTOR We are pleased to present Yarra Valley Waterâ€™s Annual Report for the financial year ending 30 June 2019, in accordance with the Financial Management Act 1994.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

We recognise the challenge of striving towards our breakthrough targets, and have identified where we need to sharpen our focus:

The targets we pursue are guided by our Statement of Obligations, the policy directions set out in the State Government’s Water for Victoria policy and Letter of Expectations, and our 2020 Strategy.

›› Contractor safety performance – while we’re pleased with Yarra Valley Water’s safety performance results, we are focused on working with our contractors to further improve their performance across the board

Our priority areas in 2018-19 included addressing the impacts of climate change, improving customer and community outcomes, delivering flat bills, providing water for Aboriginal cultural, spiritual and economic value, contributing to resilient and liveable towns and cities, and demonstrating leadership and financial sustainability. These priorities strongly align with Yarra Valley Water’s 2020 Strategy, which targets breakthrough performance across a range of areas. Highlights for the year included: ›› $250M invested in water and sewerage infrastructure to improve services and support growth ›› Significant improvement in service response with a 39% and 9% improvement in response times for water and sewerage faults respectively and a satisfaction rating of 94% for customers experiencing emergency works ›› Delivering a plan to keep bills flat with a long-term price path below the inflation rate ›› Launching our Community Rebate Scheme, a world-leading innovation to voluntarily return funds to customers where we don’t meet any of our stretch commitments on an annual basis ›› Expanding our renewable energy production through food waste to energy and investment in solar installations, keeping us on track to achieve our aspiration of generating all of our own energy from renewables by 2025. 2018-19 was the first year of our current Price Submission customer commitments and we focused on meeting the seven key outcomes customers told us they expect and value. We’re proud of our efforts to meet ambitious targets associated with these outcomes and pleased to have achieved five out of seven targets (our Price Submission commitments are measured from April 2018 to March 2019), especially against the backdrop of a hotter and drier year which put extra strain on delivering water and sewerage services. Planning for the future amidst rapid change and uncertainty has become our new normal. Our city is experiencing significant population growth, the community we serve is growing and becoming more diverse, and our climate continues to be hotter and drier. This year saw Melbourne’s largest desalinated water order to date as a direct result of reduced rainfall and increased demand due to population growth. We were pleased that our price path reflecting real reductions in bills has helped offset the cost to customers associated with the desalination water order. In the face of change and growth, strategic investment is required now. We’re investing to ensure the Northern Growth Corridor expands with the requisite water and sanitation services to contribute to a healthy, liveable and sustainable city. We are running an innovative trial to test the viability of digital water meters – saving water in our network and identifying leaks early for customers are both paramount as part of our wider water conservation efforts. We’re also acutely aware of the persistent cost of living challenges our customers face and we continue to increase investment in our WaterCare programs to reach customers needing support, and to focus on productivity to keep pressure off bills.

›› Keeping up with customer expectations around modern, flexible service – we are close to achieving our target and are working on a range of activities to improve it

1 INTRODUCTION

In a year shaped by climate-related challenges for the water industry, we have made very good progress against our performance targets.

›› Water conservation – water use increased this year arising from hotter and drier weather. We are working to ensure alternative water sources are available for non-drinking purposes and prioritising early detection and resolution of leakage in our network. While Melburnians have retained sensible water use behaviours since the Millennium Drought, we are partnering with the other Melbourne water authorities to deliver a strategic customer behaviour change plan to help save more water. Our 2020 Strategy comes to an end next year after seven years guiding the business. We are committed to finishing the strategy powerfully and setting Yarra Valley Water up well for our next era. Our new strategy will further embed our focus on customers and expanding the business to add value for the communities we serve. It needs to carefully reflect the ongoing societal and environmental change we continue to face and anticipate the challenges and opportunities of the future. Making efficiencies where we can and upholding the United Nations Sustainable Development Goals (SDGs) will also underpin our future direction. We exceeded our financial target this year: net profit after tax of $111.7 million was $40.5 million above budget and a $23.2 million increase since last year. This was driven primarily by developer related revenue growth, and higher customer demand due to hot and dry weather leading to increased water sales. This has flowed through as an increased community dividend back to the State. Wholesale charges were above budget in line with the growth in customer demand, and we achieved our operating expenditure target while managing increased emergency maintenance volumes driven by weather conditions. Lower than budgeted finance charges were realised through strong management of our debt portfolio, taking advantage of the low interest rates available in the market and reducing our costs in the short and long term. More detail on the significant outcomes we’ve achieved this year is presented in the 2018-19 Highlights section of this report. A high-performing culture is the key to accomplishing great outcomes. Our achievements in 2018-19 were made possible thanks to our committed employees who reflect the diverse community we serve, and our partners who help us deliver our services. The governance, oversight and leadership our Board provides is also critical to our success. We thank our Board members for the insight and diligence they have brought to their roles and their important contribution over the last year.

Sue T O’Connor Chair

Patrick J McCafferty Managing Director

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR STRATEGIC CONTEXT 2020 STRATEGY OUR PURPOSE IS TO PROVIDE EXEMPLARY WATER AND SANITATION SERVICES THAT CONTRIBUTE TO THE HEALTH AND WELLBEING OF CURRENT AND FUTURE GENERATIONS

EXTRAORDINARY PERFORMANCE

WE ARE SAFE

EXEMPLARY SERVICE

HARMONY WITH THE THRIVING ENVIRONMENT COMMUNITIES

We make a unique contribution to society, articulated in our statement of purpose. Our purpose keeps us focused on what is important: providing exemplary water and sanitation services that contribute to the health and wellbeing of current and future generations. Six strategic commitments, discussed in the 2018-19 Highlights section, and our seven Price Submission customer service commitments, further underpin our purpose. These commitments, when achieved collectively, are aimed at delivering extraordinary results for our customers, stakeholders, owners and staff, and for the community. In recent years, we have examined the way we contribute to society in positive and negative ways. We measured that contribution not only in financial terms but using the 10

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

EVERY CENT COUNTS

principles of integrated reporting – our Planet, People and Prosperity Report assesses our impact in terms of human, social and environmental capital. We are further guided by the Victorian Government’s Letter of Expectations, which focuses on: ›› climate change ›› customer and community outcomes ›› water for Aboriginal cultural, spiritual and economic values ›› resilient and liveable cities and towns ›› leadership and culture ›› financial sustainability ›› recognising recreational values. These values and outcomes align well with our strategic commitments.

MINISTERâ€™S LETTER OF EXPECTATIONS

OUR PURPOSE & 2020 STRATEGY

INTRODUCTION

SUSTAINABLE DEVELOPMENT GOALS

SEE NEXT PAGE FOR OVERVIEW OF SUSTAINABLE DEVELOPMENT GOALS

PRICE SUBMISSION CUSTOMER COMMITMENTS

CLIMATE CHANGE

CUSTOMER & COMMUNITY OUTCOMES

WATER FOR ABORIGINAL CULTURAL, SPIRITUAL & ECONOMIC VALUES

CUSTOMERS EXPECT

RESILIENT & LIVEABLE CITIES AND TOWNS

LEADERSHIP & CULTURE

FINANCIAL SUSTAINABILITY

RECREATIONAL VALUES

THE SUSTAINABLE DEVELOPMENT GOALS The Sustainable Development Goals (SDGs) have been agreed to by the member states of the United Nations, as a universal call to action and a pathway to end poverty, protect the planet and ensure all people enjoy peace and prosperity. Yarra Valley Water was an inaugural signatory to the SDGs in the water industry, and they provide a lens for us to look at how we can ensure our contribution is making the greatest impact. Our activities interact with the priority areas identified by the SDGs in a range of important ways. We play a fundamental role in the liveability and prosperity of Melbourne, through

CUSTOMERS VALUE

SAFE DRINKING WATER

FAIR ACCESS & ASSISTANCE FOR ALL

RELIABLE WATER & SEWERAGE SERVICES

WATER AVAILABILITY & CONSERVATION

TIMELY RESPONSE & RESTORATION

MODERN FLEXIBLE SERVICE

CARE FOR & PROTECT THE ENVIRONMENT

the provision of safe, reliable drinking water and sanitation services, and by making investment decisions that optimise value and resilience for the community, including future generations. Our roles and responsibilities also extend into other realms, including the impact on the environment from our operations, our impacts on household affordability, and our contribution to addressing inequality. We are also impacted by the areas raised by the SDGs; for example SDG13, where the significant changes in weather patterns affect water supply reliability.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

2020 STRATEGY

PRICE SUBMISSION CUSTOMER COMMITMENTS

LETTER OF EXPECTATIONS

›› Safe drinking water

EXEMPLARY SERVICE

›› Reliable water and sanitation

›› Water quality complaints

›› Timely response and restoration

›› Billing payment issues

›› Customer satisfaction

›› Modern flexible service ›› Emission reductions ›› Care for and protect the environment

HARMONY WITH THE ENVIRONMENT

›› Water availability and conservation

›› Adaptation to climate change and variability ›› Integrated water management ›› Water efficiency

›› Customer community engagement ›› Payment management and hardship ›› Fair access and assistance for all

THRIVING COMMUNITIES

›› Engagement of Aboriginal communities ›› Engagement of Traditional Owners ›› Aboriginal inclusion plan

›› Diversity and inclusion ›› Board performance review

EXTRAORDINARY PERFORMANCE

›› Water bills ›› Financial indicators

EVERY CENT COUNTS

›› Health and safety

WE ARE SAFE

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

SUSTAINABLE DEVELOPMENT GOALS

1 INTRODUCTION

LISTENING TO OUR CUSTOMERS AND UNDERSTANDING THEIR NEEDS IS THE FOUNDATION FOR PROVIDING EXEMPLARY SERVICE YARRA VALLEY WATER ANNUAL REPORT 2018 -19

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YARRA VALLEY WATER ANNUAL REPORT 2018-19

2018-19 HIGHLIGHTS

YARRA VALLEY WATER ANNUAL REPORT 2018-19

WE PROVIDE EXEMPLARY SERVICE

YARRA VALLEY WATER ANNUAL REPORT 2018-19

OUR APPROACH We strive to resolve faults and service interruptions quickly and simply, and focus on ensuring all interactions with our customers are positive, consistent and constructive. We can’t provide exemplary service without listening to our customers and understanding their needs, so we involve customers and communities in planning at an early stage, and continually gauge their views, feedback and expectations. Our long-term planning addresses the dual challenges of a hotter, drier climate and significant population growth. We are proactively navigating these challenges to ensure our assets and systems are adaptable and resilient. We are also working with the water industry to reduce costs and select the best solutions for the whole of Melbourne as well as our customers. Our focus on the future and our commitment to continuous improvement make a positive contribution to our customers’ lives.

KEY INITIATIVES SAFE DRINKING WATER Providing safe drinking water to our customers is our most important deliverable. It is also our customers’ most fundamental expectation of us. We achieved 100% compliance with the Safe Drinking Water Regulations 2015 and delivered on our commitment to provide safe and pleasant drinking water. In 2018-19 we focused on installing an additional three chlorinators to ensure we continue to maintain a multi-barrier approach to water quality. We also installed real-time monitoring equipment across our network to further understand chlorine penetration.

2 2018-19 HIGHLIGHTS

We put our customers and community at the centre of everything we do, from sustaining high quality drinking water and sanitation services to the long-term planning required for the rapid population growth we’re experiencing.

More information about the quality of our drinking water, and what we do to ensure the quality and meet customer needs, is contained in our Water Quality Annual Report. RELIABLE WATER AND SEWERAGE SERVICES Our intention is to significantly reduce service failures year on year so customers can enjoy continuity of supply. During 2018-19 we met our target of less than 0.96% of customers experiencing three or more unplanned water or sewerage service interruptions. To help us achieve this goal, we targeted high failure areas of the network and: ›› renewed 68km of aging and poor performing water mains ›› renewed 59km of aging and poor performing sewerage pipes ›› inserted 560 water valves to reduce the potential number of customers impacted by a supply interruption ›› inspected 217km of sewerage pipes to assess their condition and identify potential blockages ›› inspected 539 house connection sewer branches to check the integrity of the pipes ›› renewed 1,843 house connection sewer branches ›› developed a new approach for fixing leaking hydrants. We anticipate the next few years will continue to be challenging in this space as a changing climate means hotter and drier conditions which lead to increased bursts and leaks. TIMELY RESPONSE AND RESTORATION Customers have told us they expect a fast response and effective restoration of their service when it is interrupted – dissatisfaction sets in when the interruption goes beyond four hours. We exceeded our target of 91.1%, restoring water and sewerage services within four hours for 93.9% of customers.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

WE PROVIDE EXEMPLARY SERVICE CONTINUED The seasonal challenge of attending to and fixing emergency bursts and leaks remains as prevalent as ever, against a backdrop of ongoing climate change, and we actively worked across our supply chain to ensure we had a dynamic and protective approach to responding to increasing maintenance volumes that met customer expectations. We changed contract conditions, changed processes and procedures, increased training, established a jeopardy management function and finalised our centralised approach to fault management by establishing the Service Response division. Since October 2018, our Service Response division has enabled a more customer driven and bespoke approach to service response. The division is the result of a cross functional working group charged with reimagining the service faults process and followed extensive customer journey mapping to meet the challenges posed by sustained dry conditions, which led to increased service failures. In a short amount of time, the division has demonstrated a significant improvement in our customers’ experience of water and sewerage faults. In 2018-19 we: ›› shifted all fault calls to our Service Response division, moving from the former model where our Customer Care centre handled both account and fault calls. The Service Response division is located alongside our operations and maintenance staff which enables far greater context and visibility of issues within our network and translates into better information for our customers ›› evolved our online faults map to provide greater detail and clarity for customers around different fault types, clearer descriptions and expected resolution times ›› established a proactive escalation plan with our maintenance contractor for more complex faults ›› transitioned the management of fault related social media to our Service Response division – putting the customer at the centre means we can respond instantly with the right information. These improvements have been further bolstered by working closely with our maintenance contractor to improve their KPI performance. As part of this, we implemented a ‘beyond induction’ onboarding process, where our staff work closely with new contractors on significant projects for the first few months to enrol them in the Yarra Valley Water way – our customer experience vision, safety and efficiency values. By the end of the 2018-19 year, customer satisfaction with our response to service faults had reached 94%.

PROACTIVE FAULT SMS COMMUNICATION Our research tells us that customers expect to receive relevant and up to date information if their water or sewerage services are impacted. We launched proactive SMS communications to: ›› update customers who report a fault so they know when it will be investigated, when we’ve repaired it, and when their local area will be reinstated ›› notify or remind residential customers when their water has been turned off due to an emergency or when we need to repair an issue. The solution was developed using human-centred design principles and delivered collaboratively by a dedicated team from across the business including our maintenance service provider. Before launching, it was prototyped with customers using an innovative online focus group and will continue to be refined based on customer feedback. MODERN FLEXIBLE SERVICE Providing a modern, flexible service is highly valued by our customers and is a key service outcome outlined in our Price Submission. To support this, we introduced a discount for customers receiving email bills and paying by direct debit from their bank account, started investigating the viability of digital water meters, and continued our customer centred approach to improve the way we deal with customer contacts and enquiries. Our success measure is that more than 86% of customers are satisfied with their most recent interaction. While the target was not met – 82% of customers are satisfied with their most recent interaction – we expect to see improvements as we build on the work done this year, and work to better understand and resolve customers’ issues across all touchpoints by following through on our promises. To help us improve, we: ›› commenced journey mapping satisfaction and pain points at various touchpoints throughout the customer lifecycle to identify priority areas for improvement ›› focused on the significance of complaints as a driver for continuous improvement ›› introduced a post call survey in our Customer Care centre to capture and address immediate customer feedback ›› developed a Complaint Handling Framework with the goal of elevating it to a national benchmark for the water industry. As part of our world-leading commitment to voluntarily return funds to customers via our Community Rebate Scheme if we don’t meet our stretch commitments, we will return $1.5 million to customers in 2019-20.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

TRIALLING DIGITAL WATER METERS

We are installing approximately 1,000 digital water meters at properties in Vermont South in mid 2019. The objectives of the year-long trial are to fine tune the roll out procedure, confirm the benefits and value for customers, and assess the capabilities of the technology. Overlaying this is the need for a consistent approach across Melbourne in order to benefit from potential economies of scale, share learnings and ensure a broadly consistent approach across the city. SERVICING COMMERCIAL CUSTOMERS Aligning with customer needs Historically, our approach to servicing business customers has been transactional and product based. Adopting customer at the centre principles, we aligned around the customer to provide a holistic, end-to-end service to commercial and high value residential customers. Our newly created Commercial Customer Care team considers all facets of customer needs to add value to their business operations. The team has been skilled up in water efficiency to further help businesses identify possible issues and pinpoint where savings can be made. Our customer research findings show that businesses value and increasingly want face to face service from us and this year we expanded our customer service channels accordingly â€“ as well as the traditional phone, email and live chat options, we increased face to face contact.

We also actively participated in events delivered by the Australian Industry Group to engage on urban water issues.

2 2018-19 HIGHLIGHTS

To find new efficiencies in our water supply network and use technology to reduce leaks, we are trialling digital water meters across Melbourne in partnership with City West Water and South East Water.

We hosted 40 Chamber members on a Best Practice tour of our waste to energy plant in Wollert in April and held a business breakfast for 80 high-value commercial customers in June. This event provided the opportunity to update key customers on our strategy, pricing, major projects and future direction.

National grease trap standards for plumbing industry In 2018-19, we headed up the Water Services Association of Australia (WSAA) Committee for grease trap/interceptor sizing for commercial premises. Historically each water utility had their own grease trap specifications which created an extra layer of complexity for business owners, plumbers and installers. This work led to a uniform grease trap standard across Australia making it easier for customers, plumbers and installers. Commercial plumbing referral service trialled Guided by customer at the centre principles, we reassessed the merit of providing customers with recommendations for licensed plumbers to assist with complex plumbing needs. Many of our customers have specialist trade waste and backflow prevention plumbing needs, and in order to meet our requirements, have increasingly sought referrals for licensed plumbers from us. To address this gap, we are currently trialling a commercial plumbing referral service to provide cost effective and timely trade waste and backflow prevention plumbing solutions. Early responses indicate a successful trial and satisfiedÂ customers.

Engagement with business customers In 2018-19, we worked closely with businesses through the Victorian and Melbourne Chambers of Commerce (CC), which brings together Victoria's most influential companies, business leaders and government representatives. Our CC memberships gives us access to events supporting growth through networking and professional development.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

WE WORK IN HARMONY WITH THE ENVIRONMENT

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR APPROACH We are committed to doing more than just minimising our impact on our natural ecosystems – the quality of the water we supply, and the sustainability of our business, depend on it. Our approach to environmentally-sound business practices includes ambitious approaches to ensuring environmental water flows, reducing greenhouse gas emissions and nutrient discharge, and operating resilience in the face of climate change. Our 2020 Strategy commits us to ensuring that our environmental impact never exceeds the carrying capacity of nature; pursuing a restorative approach where the planetary or local carrying capacity of nature is exceeded; and redefining the possibilities in sustainable water and sanitation services. Our customers support our commitment to working in harmony with the environment, with 85% indicating that they have concerns about the environment and climate change. Aboriginal and Torres Strait Islander communities consider Yarra Valley Water’s work with the environment to be of critical importance. Our long-term goals are to use 100% renewable energy, have no net impact on the streams that we discharge into, and to always meet environmental flows in the streams we extract water from. For further detail, refer to Environmental Outcomes and Our Performance sections.

KEY INITIATIVES ENERGY Our core services are energy intensive which has significant environmental and financial implications. To mitigate these impacts, we pledged to reduce our greenhouse gas (GHG) emissions by 64% by 1 July 2025 – our Emissions Reduction Pledge – as well as adopting an aspiration of generating 100% of our energy needs from renewable sources by 2025.

2 2018-19 HIGHLIGHTS

The water we supply is harvested from the environment and the treated wastewater we discharge goes back into it, meaning working in harmony with nature is at the very core of our business.

Achieving these goals requires cumulative effort on many fronts and this year we: ›› installed 100kW solar panel systems at each of our Healesville, Upper Yarra and Whittlesea sewage treatment plants – each plant consumes in excess of 95% of the solar energy produced by the panels with the excess returned to the grid ›› installed 1,080 solar panels at our Mitcham head office staff car park which will generate close to 30% of our onsite energy needs ›› formed Zero Emissions Water Ltd (ZEW) with 13 other water corporations, to source 25% of our future energy needs at a cheaper wholesale rate from a large-scale solar farm under construction in north west Victoria. WASTE TO ENERGY Our waste to energy facility, ReWaste, was successful in its second year of operations. It ran at full operational capacity, powered itself as well as the adjacent sewage treatment plant, diverted 33,000 tonnes of food waste from landfill and significantly reduced greenhouse gas emissions. The plant generated the equivalent of 25% of Yarra Valley Water's entire energy needs and saved $60,000 per month on power bills. We also export excess electricity back into the grid and in January alone, we were able to transfer 4.5MWh of electricity to the power grid, with a market value of $62,400. Following the success of our first ReWaste facility, we plan to construct a second larger facility in Melbourne's east to process food waste to create electricity, transforming up to 150 tonnes of waste per day into 33,000 kWh of renewable energy. When fully operational, the second facility will generate a further 30% of our energy needs. This means that our two ReWaste facilities will ultimately generate more than half of our overall energy requirements.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

WE WORK IN HARMONY WITH THE ENVIRONMENT CONTINUED CLIMATE RESILIENCE PLAN COMPLETED In 2018-19 we completed our Climate Resilience Plan which sets out key actions that build our capacity, reduce our vulnerabilities and support long-term planning for an uncertain future. The plan focuses on adaptation to build our resilience to climate change and complements our mitigation activities to reduce our emissions. We are currently piloting adaptive planning in three projects to gain learnings before rolling the approach into business planning right across the organisation. COMMUNITY SEWERAGE Many homes in Melbourne’s north and east were built before sewerage infrastructure was available. We are working with local councils to provide new sustainable sewerage services to more than 10,000 properties with septic tanks that don't adequately manage wastewater. Many of these septic systems don’t meet current environmental standards and pose a potential risk to public health and local waterways. We invested $23.7 million in new sewerage services to service these properties in 2018-19. We worked closely with the Donvale community to deliver sewerage services to 333 properties with poor-performing septic systems this year. This year we also: ›› commenced construction works in Park Orchards, Yarra Junction, Kallista and The Patch ›› continued to plan for new sewerage services in Wesburn, Don Valley, Launching Place, Eltham South, Lower Plenty, Lilydale and in the Dandenong Ranges at Sherbrooke and Monbulk. WATER CONSERVATION Ongoing climate change and variability, low inflows, declining water storage levels, increased water use from a growing population and the increased need for larger desalinated water orders have all led to a sharpened focus on water conservation. Our customers have also told us that they value saving water now so it’s available in the future. This year we continued to work towards providing recycled water to over 26,000 properties as part of our program to bring recycled water to 100,000 homes in Melbourne’s north, continued to work on bringing recycled water to around 5,500 new high-rise properties in Doncaster Hill and nearby communities, undertook active leak detection, district metering and renewed nearly 70 kilometres of water mains.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

On behalf of the metropolitan water industry, Yarra Valley Water led extensive research into community attitudes towards water to help design an effective customer centric approach to water conservation. These insights informed a brand platform co-created with the other water retailers and Melbourne Water as part of a strategic customer behaviour change program that will be implemented in 2019-20. This year we introduced numerous community activations to raise awareness and encourage sensible water use, including: ›› implementing a digital marketing campaign during summer to promote easy to action seasonal tips for saving water ›› giving away 1,000 water efficient showerheads to customers as a key feature of the summer digital marketing campaign ›› trialling the ‘Yarra Valley Water Hub’ at shopping centres in Broadmeadows, Preston and Greensborough to raise awareness about saving water for a growing Melbourne, and provide support for customers facing financial difficulty ›› in partnership with Melbourne Museum, City West Water and South East Water, we offered a fun, karaoke inspired activity hub at the museum called Shower Superstars, to help young children and their families have shorter showers ›› installing 29 network flow and pressure monitoring devices in our water supply network to identify leaks which aren’t visible from the surface as part of our continued efforts to reduce non-revenue water. We set an ambitious target of achieving 221 litres per person per day in 2018-19 – a holistic measure comprising the water we purchase from Melbourne Water, customer consumption, non-revenue water such as that used for firefighting and water lost due to system leakage, bursts and leaks. 2018-19 consumption measured at 233 litres per day. This higher than forecast water use is due to the hotter, drier weather this year. As our self-imposed target was not achieved, we will return $1.5 million to customers via our Community Rebate Scheme.

MELBOURNE SEWERAGE STRATEGY

The strategy recognises that, beyond protecting public health and the environment, we need to plan adaptively, use resources wisely, enhance liveability and support the economy while ensuring the system protects intergenerational equity and remains affordable to the broader community. We must do all this against an increasingly complex background of population growth, technological development, changing customer expectations, urban densification and the need to safeguard the environment. In 2018-19 we were part of an industry-wide working group to act on its key areas of focus: ›› human health and wellbeing ›› enhancing the environment ›› leveraging resources ›› community stewardship ›› an enabling policy and regulatory environment. INTEGRATED WATER MANAGEMENT (IWM) FORUMS A collaborative and integrated approach is a fundamental tenet of our planning for exemplary water services that contribute to the health and wellbeing of current and future generations. We take a leading role in Department of Environment, Land, Water and Planning (DELWP) Integrated Water Management (IWM) forums in the Yarra River, Dandenong Creek and Maribyrnong River catchments.

2 2018-19 HIGHLIGHTS

We completed an important piece of planning for the next half-century, the Melbourne Sewerage Strategy, in conjunction with the Victorian Government and the water industry. The strategy sets the direction for managing Melbourne’s sewerage system and goes hand-in-hand with our planning for growth and change. This strategy mirrors our Urban Water Strategy in terms of its importance for our service planning.

The majority of our service area is included in the Yarra Catchment forum. Each forum has developed a draft Strategic Directions Statement, containing a jointly agreed vision and strategic outcomes, a schedule of priority policies and frameworks to enable IWM outcomes, and a schedule of priority IWM projects, in many of which we play a lead or supporting role. The Strategic Directions Statements have been finalised and endorsed by IWM forum. INTEGRATED WATER MANAGEMENT – UPPER MERRI CREEK The Upper Merri Creek Integrated Water Management (IWM) planning pilot highlighted the wide-ranging benefits of working collaboratively with our project partners: Traditional Custodians the Wurundjeri Woi-wurrung Cultural Heritage Aboriginal Corporation; local governments - Mitchell Shire Council, City of Whittlesea and Hume City Council; Melbourne Water and the Victorian Planning Authority. By taking the time to gain insights into the collective issues and opportunities associated with managing water resources in this sub-catchment area, which will experience significant population growth and climate change impacts, we were able to have in-depth conversations with key stakeholders such as land developers, the Merri Creek Management Committee and the community. This approach helped us to understand their preferences for how water resources can shape the future in existing and emerging communities. The transparent process provided an evidence base for the commitments made, a collective vision for building assets and providing services in line with community expectations, and ways to measure our success. Visit uppermerricreek.com.au for more details. This highly effective process of working collaboratively with partnering organisations and creating thriving communities will be applied to other sub-catchments.

These bring key agencies – including planners and local councils – together to identify, prioritise and oversee shared value projects with liveability benefits. IWM forum participants each identify opportunities to collaborate and form partnerships to deliver integrated servicing solutions and bring these to the IWM forums for consideration. The IWM forums then prioritise these opportunities using an opportunity/riskbased approach.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

WE SUPPORT THRIVING COMMUNITIES

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR APPROACH We are committed to enhancing our diverse communities’ health and wellbeing as a part of providing water and sanitation services. We take a long-term view of our business and plan decades in advance. We contribute to making Melbourne one of the world’s most liveable cities. We support local sport and recreation, and contribute to clean, green urban environments that encourage community connection. We value the many contributions that Aboriginal and Torres Strait Islanders make to our community, and recognise that their cultural values and connection to Country can make us a better water utility. We make sure our services are inclusive and look after the most vulnerable members of our society, reducing the stigma around financial hardship while working with others to tackle the root causes of socioeconomic disadvantage.

KEY INITIATIVES INAUGURAL SUSTAINABLE DEVELOPMENT GOALS REPORT PUBLISHED We are committed to embedding the 17 Sustainable Development Goals (SDGs) into our business planning and to meaningfully measure the impacts our operations have on the community and the planet, both positive and negative. Our inaugural SDG Report - Planet, People, Prosperity 2018 - took a SDG lens to our business and describes our performance and aspirations in the context of the goals. It captured the ways we create and deplete value and reported against the Global Reporting Initiative Standards, International Integrated Reporting Framework and the United Nations Global Compact. We are proud that our inaugural SDG report received a bronze award at the 2019 Australasian Reporting Awards, for presenting quality disclosures and balanced reporting.

2 2018-19 HIGHLIGHTS

We are committed to helping our community thrive. We have pledged to advance the UN's Sustainable Development Goals (SDGs), and are measuring our impact against these goals wherever we can.

INCREASING SOCIAL CAPITAL Our commitment to increasing social value stems from our purpose, to contribute to the health and wellbeing of current and future generations, and this year we continued exploring how we’re delivering social capital to our customers. A key outcome from our research was the realisation that projects identified by our citizens’ jury as important to pursue, achieved the largest social return on investment (SROI). The SROI records the multiplying value delivered to society for every dollar we spend. We found that our programs which do more to help customers conserve water and help vulnerable customers are returning SROI ratios of 30:1 and 10:1 respectively. This means, for each dollar we invested, we are returning a multiplying benefit to society. Accordingly, we have increased our activity in these two programs. WATERCARE Our WaterCare program continued to provide holistic support for customers experiencing financial difficulty and vulnerability. Through our Price Submission engagement process, customers told us they expected us to improve awareness of, and access to, our services among disadvantaged customer segments. To achieve this, our customers supported us receiving an additional investment of $1.2 million a year to reach 150,000 customers over five years. In 2018-19, we engaged over 35,000 customers through our WaterCare programs and campaigns and met our primary target – that 89% of customers who have accessed our services believe we help customers experiencing difficulty paying for their water and sewerage services. We support new customers every year and saw a steady increase in the number of customers entering and transitioning out of the program. Overall this year: ›› we supported almost 11,793 customers - 5.5% more than the same time last year ›› we worked with more than 6,900 new customers experiencing difficulty ›› 91% of customers met their agreed payment plans ›› we successfully transitioned over 4,628 customers to mainstream payments which is a 9% increase on last year.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

WE SUPPORT THRIVING COMMUNITIES CONTINUED Key initiatives this year included: ›› formalising a partnership with AFL Outer East, Eastern Health and Sports and Life Training (SALT) to deliver Leading the Change training sessions around respectful relationships and mental health to local communities ›› rolling out 23 programs and campaigns to identified areas of need including family violence, culturally and linguistically diverse communities, access to government grants and concessions, Aboriginal and Torres Strait Islander communities, council and community engagement ›› working with the Department of Health and Human Services to improve the state-wide utility relief grant application process for customers. To build trust, we need to be visible. And with around two million people in our service area, we recognised the need to increase our presence in the community. To do this, we piloted an engagement program in local shopping centres in the north and north east with our purpose-built Yarra Valley Water Hub. The Hub is led by specialist customer care staff who assisted customers with concessions, payment arrangements, queries around bills and water use, and saving water. We spent a week each at Broadmeadows Shopping Centre, Northland Shopping Centre and Greensborough Plaza in May, providing an easily accessible and comfortable space for customers to liaise with us. Learnings from the pilot will determine the future potential for extending this local form of community engagement, but the initial response has been overwhelmingly positive. RECONCILIATION ACTION PLAN In 2018-19 we commenced the process of developing our second Reconciliation Action Plan (RAP). We will embed the learnings from our first RAP into the business, which involved reflecting on our progress to date, the lessons we have learnt and the feedback we sought from Community. Our first RAP provided the foundation for a meaningful contribution to Reconciliation and to Aboriginal and Torres Strait Islander affairs. For our second RAP, we reviewed our vision for Reconciliation, and where we should focus to work towards that vision. We are collaborating with Aboriginal and Torres Strait Islander Victorians and Traditional Owners to ensure it is meaningful and responsive to their needs and aspirations. In 2019-20 our focus will be implementing our second RAP. THRIVING COMMUNITIES PARTNERSHIP 2018-19 saw the successful expansion of the Thriving Communities Partnership (TCP) across Australia. A voluntary, cross-sector collaboration founded by Yarra Valley Water, the TCP brings together diverse organisations to ensure everyone has access to the modern essential services they need to thrive in contemporary Australia. TCP partnerships span organisations in the water, energy, banking and

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

telecommunications industries, and increased to over 170 members this year. The TCP released the following support tools to assist businesses and Australians alike: ›› Family Violence Roundtable Report: based on the Family Violence Roundtable held this year, TCP members heard from advocates with lived experience, to understand how business can better support people impacted by family violence. The report comprises tools and tips for businesses and for people looking to act and make positive changes to ensure we move to a society where all people are free from family violence, where everyone feels safe, respected and heard and where all people are valued equally, systems are just, and everyone is able to thrive ›› Improving Access and Support for Consumers with Cognitive Disabilities – A guide for retailers: this research report includes a series of tailored recommendations, co-designed with people who have lived experience. By bringing together the diverse thinking of service providers, academia, people with lived experience and the community sector the research provides solutions that can be effective at scale. The TCP has transitioned to an independent entity, with Yarra Valley Water continuing to provide ongoing support. CHOOSE TAP

Supported by 15 Victorian partners, and six domestic and international partners, our vision for Choose Tap is to become the national vehicle for advocating tap over bottled water. Having founded Choose Tap, this year we assumed a stewardship role as the program expands and welcomes new water industry partners around the country. The Water Services Association of Australia (WSAA) formed a Choose Tap coalition, and with our new Yarra Valley Water Choose Tap coordinator, we worked collaboratively at a national level to reinforce positive perceptions of drinking water and undertook market research to inform a national campaign for roll-out next year. Choose Tap sponsored community sporting events with an increased emphasis on women’s sport. To spread the message about the health, environmental and hip-pocket benefits of drinking water with the younger generation, we ran incursions in primary schools and supplied early learning centres with kits for younger children.

SOCIAL PROCUREMENT

As an essential service provider, we have an important role supporting and protecting customers who are experiencing family violence.

Our Supplier Code of Practice replaced our Supplier Code of Conduct in 2018-19, evolving to further require tendering suppliers to self-assess against more comprehensive sustainability criteria. It is intended that the Supplier Code of Practice will be adopted across the Victorian water sector to ensure the industry’s expectations of suppliers are consistent – it has already been adopted by Melbourne Water.

We responded to industry concerns around better practices for customers experiencing family violence and worked with the leading men’s behavioural change organisation, No To Violence, to upskill our organisation and customer facing staff on working with those who perpetrate violence. We collaborated with other organisations to strengthen and evolve our collective responses to family violence. Our community presence was strong this year as we attended development events run by Women’s Health in the East, Eastern Health and the Together for Equality and Respect partnership. We participated in:

2 2018-19 HIGHLIGHTS

FAMILY VIOLENCE POLICY

This year we became a member of both Social Traders, an organisation that identifies and certifies social enterprises, and Kinaway, a Victorian Aboriginal Chamber of Commerce. These memberships advance our understanding of social enterprises and Aboriginal-owned businesses we can do business with, and the broader social outcomes we can achieve through our procurement. This also supports the current development of our sustainable procurement strategy, and associated changes to our procurement processes and requirements.

›› the Thriving Communities Partnership and Women’s Information Referral Exchange (WIRE) national roundtable on organisational responses to family violence ›› a range of activities during the 16 Days of Activism against Gender-Based Violence, supporting action against family violence including the Walk Against Family Violence ›› OurWatch training resulting in two staff being endorsed and qualified to deliver industry leading OurWatch training materials. This year we further embedded our family violence policy throughout the organisation. All new staff, regardless of role, receive training in family violence and managers now undergo additional, tailored training. The cultural shift we are working towards internally was heightened by family violence survivor and advocate Lisa McAdams delivering a keynote speech to the organisation, encouraging the women of Yarra Valley Water to mark International Women’s Day and reiterating the availability of support for staff.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

THE WAY WE WORK ENABLES EXTRAORDINARY PERFORMANCE

We believe that a positive workplace culture focused on staff engagement, satisfaction and effective workplace practices also delivers high performance. 28

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR APPROACH

KEY INITIATIVES ORGANISATIONAL CULTURE INVENTORY RESULTS In 2018 we continued to use the Human Synergistics’ Organisational Culture Inventory (OCI) to determine our organisation’s prevalent behavioural styles and cultural norms. In addition to the OCI, we also undertook an Organisational Effectiveness Inventory to explore the key factors that contribute to the overall culture within Yarra Valley Water. Our results in both surveys demonstrated highly constructive cultural norms, particularly the people-oriented norms. As part of our ongoing journey and challenge to sustain and maintain our highly constructive culture, key programs were deployed. These programs included bespoke team-based actions, a review and relaunch of our Performance Effectiveness Process and a review of the rewards program that generated localised changes and proposed future changes to coincide with our next strategy. These programs will continue to support and nurture our culture, develop our people and ensure the way we work enables extraordinary performance. DIVERSITY AND INCLUSION STRATEGY In 2018-19 we launched our new Diversity and Inclusion Strategy, which moves beyond diversity as a process of demographic measurement and recognises that diversity drives business performance. We understand we must embrace a ‘whole of person’ and ‘whole of organisation’ attitude to truly benefit from and embrace diversity and inclusion. Our vision for diversity and inclusion at Yarra Valley Water sums up our aspiration:

We stand for a fair and equitable society. We embrace diversity and inclusion in everything we do, as we strive to reflect the community we serve. This vision sets the tone for the proactive roadmap of programs, practices, measures and, for the first time, targets we need to attract and retain a diverse workforce. To achieve our goals and encourage a positive and safe culture for staff, we focused on reflecting the community, gender balance, Aboriginal and Torres Strait Islander participation and workforce flexibility. Our employees are passionate about advocacy and support for staff and we have active Employee Diversity Working Groups in each core area plus dedicated Cultural, Disability and LGBTIQ+ Working Groups.

As part of our Diversity and Inclusion Strategy, we partnered with Jesuit Social Services to develop Career Connect. Career Connect is an employment program designed to provide meaningful employment opportunities for those in need within our community. It also provides an opportunity to tap into talent we may not normally have considered. Two highly skilled migrant engineers from Zimbabwe joined Yarra Valley Water under the program this year.

2 2018-19 HIGHLIGHTS

We have trained our leaders to inspire and support staff and implemented policies that reflect fairness and diversity. We remain committed to growing our supportive, innovative workplace to ensure the best possible outcomes for our customers, the community and our business.

CAREER CONNECT

AFL SPORTSREADY TRAINEESHIPS Our newly created Career Connect program further evolved this year by partnering with AFL SportsReady. AFL SportsReady looks to place disadvantaged youth in meaningful employment while encouraging them to further their educational qualifications. We welcomed a new Aboriginal trainee this year who is being trained as a Customer Care Consultant while completing tertiary studies. GRADUATE DEVELOPMENT PROGRAM In development for the last two years, our Graduate Development Program commenced in January 2019. Designed to attract and develop a diverse and highly capable talent pipeline for Yarra Valley Water and the wider water industry, we welcomed seven graduates from engineering, business, IT and human centred design disciplines. Graduates participating in the two-year program rotate every 12 months and are supported by a mentor, the Graduate Coordinator and their direct manager, who is trained to assist and embed their learning. Attracting and retaining the best talent is a collaborative effort and we worked closely with City West Water, South East Water and Melbourne Water to design an industry-wide development program for our respective graduates that gives them greater exposure to the water industry and the opportunity to network and learn from their counterparts across Melbourne. Our next intake of graduates has been recruited and will start in early 2020. In support of gender diversity in STEM (science, technology, engineering and maths), four out of five of our 2020 engineering graduates are female. WATERAID WINNOVATORS A group of passionate and dedicated Yarra Valley Water staff formed a WaterAid Winnovators team to help solve real-world water, sanitation and hygiene challenges this year. In a global competition for water industry employees, our team developed a solution for empowering Delhi communities to monitor and understand the quality of their water supply, and to lobby for improved water services. The team raised $24,372 in seven short months and placed second in the global competition. A testament to our strong culture, these efforts contributed to WaterAid’s Winnovators program raising over $300,000 around the world in 2018 to fund water and sanitation projects for poorer communities.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

WE MAKE EVERY CENT COUNT

By optimising operating and capital expenditure and identifying new revenue streams, we continue to deliver high-quality, affordable services now and into the future. 30

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

Through improving business processes, eliminating waste, managing risk and utilising innovation and technology, we focus on delivering the best community outcomes at a lower cost each year. Keeping customer bills as low as possible is balanced with generating a return for our owner – the Victorian Government, and our ultimate shareholders – the people of Victoria. We pay annual dividend and tax equivalent payments to the government which is returned to the community through government-funded services. Our prices are approved by the Essential Services Commission, which provides us with sufficient funds to deliver quality products and services to our customers. We plan our investments well in advance, considering the impact of our capital investment projects on customer prices, while ensuring they optimise community value and intergenerational equity.

KEY INITIATIVES NO CHANGE TO CUSTOMER BILLS Through our citizens’ jury process, our customers told us they did not want bill fluctuations. Armed with this insight, we devised an underlying price path that resulted in no bill increase in 2018-19. Bills are projected to increase less than inflation for the subsequent four years of the pricing period, meaning household budgets can go further. In parallel with returning savings to customers, this approach underpins a price path that mitigates the impacts of price increases associated with increased desalinated water orders. CONTINUED PRODUCTIVITY In 2018-19 we maintained a strong focus on our operating expenditure and achieved some strong outcomes including cost savings from optimising our asset operations. However, we did experience some cost pressures associated with higher emergency maintenance volumes due to increased temperatures and reduced rainfall as a result of climate change. We continue to focus on improving productivity as a way of ensuring our services remain affordable for customers and keep bills flat. CYBER SECURITY

This year we met our obligations under the Victorian Protective Data Security Framework (VPDSF), the overall scheme for managing data security risks in Victoria’s public sector. To meet these requirements, we undertook an external review and self-assessment, and developed an extensive program of works to meet our obligations under the Privacy and Data Protection Act 2014.

2 2018-19 HIGHLIGHTS

OUR APPROACH

In an ever-evolving threat landscape, our stance is to continually improve our cyber security posture and mature our approach. In 2018-19: ›› we appointed a dedicated Head of Cyber Security to the business ›› we were audited by the Victorian Auditor General’s Office (VAGO) where our cyber security direction was validated, and the findings will inform the next iteration of our cyber security strategy ›› our operational responsiveness and recovery plans were successfully tested in a water industry-wide cyber security role play ›› Microsoft security experts reviewed our IT environment for flaws and vulnerabilities in an invitation only review ›› we continued to collaborate with the Department of Premier and Cabinet and other water authorities on joint cyber security initiatives ›› we commenced an internal awareness and education program via a mock phishing campaign with staff ›› we continued to execute our multi-year cyber security strengthening plan to ensure we stay at the forefront of protecting our data and infrastructure assets. CAPITAL EXPENDITURE Capital expenditure in 2018-19 totalled $312.8 million, driven largely by servicing residential and commercial growth in the Northern Growth Corridor and renewing aging infrastructure. This represents a $40.5 million increase over the prior year, reflecting our improved capacity for delivering the services we promised our customers. We renewed over 125 kilometres of water and sewerage mains, completed the Craigieburn Transfer Hub, constructed the Epping branch sewer to the Merri Creek main tunnel and extended our recycled water, drinking water and sewerage network by over 300 kilometres to provide essential services to new customers. To improve our capital works forecasting, scheduling and reporting, we established a Capital Works Portfolio Management Office (PMO) this year. The PMO will increase delivery certainty and prioritise capital works that deliver the most benefits to customers.

We take the threat of cyber security seriously and protecting our customers’ data, our water and sewerage assets and operations are key priorities.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

WE ARE SAFE

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

We believe nothing is more important than returning home safely after work, that all accidents are preventable, and that individuals can make a difference. We focus on leadership, systems and capability, and empower and involve our staff in their own safety and wellbeing. Collaborating with our contractors and influencing the industry to shift performance is also paramount. We continued our broad approach to health and safety including both physical and mental wellbeing, which demonstrates our multi-faceted commitment to the health of our staff and contractors. This is underpinned by our organisational purpose which prioritises the health and wellbeing of current and future generations – including staff, contractors and members of our community.

KEY INITIATIVES

our commitment to occupational health and safety (OH&S) improvement, will help ensure we meet our OH&S requirements and drives business performance. A gap analysis indicates 73% alignment to our existing Occupational Health and Safety Management System, which will inform our roadmap for achieving full compliance by November 2020, well before the effective date of March 2021.

2018-19 HIGHLIGHTS

OUR APPROACH

INDUSTRY INITIATIVES In partnership with Melbourne’s water authorities, we established the Urban Water Authorities’ safety working group which shares and explores learnings from the water sector and other industries, and collectively engages with contractors and peak bodies to help shift safety performance. We are also collaborating nationally with interstate water utilities through the Water Services Association of Australia, to seek a step change in safety performance across our industry.

SAFETY PERFORMANCE There was one lost time injury (LTI) for our Mitcham site this year. The corresponding significant injury frequency rate (SIFR) for the same cohort of staff and contractors increased to 1.6. Despite the progressive reduction in injuries over the years, our SIFR for contractors working on self-managed sites increased to 15.6 in June 2019. To address this, we commenced a 12-month pilot selecting lead performance indicators including hazard reporting, contractor safety inspections and a more focused analysis on reported high consequence near miss and hazards, to help shift the safety performance of our principal contractors. NEW SAFETY STANDARD

SAFETY INITIATIVES This year we developed and implemented a user-friendly safety app for staff working offsite, created a single asbestos management framework and a single plant safety framework, and also rolled out a business partnering model ensuring dedicated support and advice across the organisation. GLOBAL SAFETY INDEX SURVEY RESULTS We maintained a strong result in our Global Safety Index (GSI) Survey this year achieving 76.6 overall. We aspire to achieve benchmarks of 80 across all nine GSI dimensions as our 2020 Strategy ends, and will strengthen our internal engagement to fulfil this goal.

This year we proactively worked to transition to the new ISO 45001:2018 standard. Migrating to ISO 45001 demonstrates

SAFETY PERFORMANCE RESULTS 2013 - 2019

Number of Lost Time Injury (LTI)

7 20

6 5

4 10

3 2

1 0

2013-14

2014-15

LTI-YVW & Managed

2015-16 LTI-Contractor

2016-17

2017-18

SIFR-YVW & Managed

2018-19

Significant Injury Frequency Rate (SIFR)

SIFR-Contractor

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

WE ARE SAFE CONTINUED OTHER KEY SAFETY PERFORMANCE INDICATORS

2016-17

2017-18

2018-19

Number of reported hazards/incidents for the year per 100 full time equivalent staff members

10.83

5.10

10.71

Number of ‘lost time’ standard claims for the year per 100 full time equivalent staff members

$4,807

$275,951

$28,361

$275,951

Average cost per claim for the year Outstanding claim cost

WELLBEING PROGRAM We continued to offer a broad wellbeing program in 2018-19 ranging from flu shots, mental health support through our Employee Assistance Program, peer interest groups such as gardening, healthy eating and bike riding, to various ‘lunchtime learning’ seminars. Importantly, we identified the need to normalise mental health issues, and to tailor our wellbeing program to the diverse community that makes up our organisation. These insights will inform how we expand the mental health support programs offered, and how we educate staff and managers on supporting each other if wellbeing issues arise individually or collectively.

GSI / SCI RESULTS 2012-18

Work Environment

100

Management Commitment

Communication

60 40

Personal Appreciation of Risk

Safety as a Priority

20 0

Safety Rules and Procedures

Personal Priorities

Supportive Environment

Involvement

2018

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

2016

2014

2012

Benchmark

2 2018-19 HIGHLIGHTS

WE MAINTAINED A STRONG RESULT IN OUR GLOBAL SAFETY INDEX (GSI) SURVEY THIS YEAR ACHIEVING 76.6 OVERALL YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OVERVIEW OF 2018-19 PERFORMANCE

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

PRICE SUBMISSION CUSTOMER COMMITMENTS OUTCOME

MEASURE

TARGET

RESULT

1 APRIL 2018 – 31 MARCH 2019 Compliance with Safe Drinking Water Regulations 2015

100%

RELIABLE WATER AND SEWERAGE SERVICES

Customers who experience three or more unplanned water interruptions or three or more sewerage service interruptions in 12 months (five-year rolling average)

<0.96%

0.94%

TIMELY RESPONSE AND RESTORATION

Customers whose interrupted service (water and sewerage) has been restored within four hours

>91.1%

93.9%

FAIR ACCESS AND ASSISTANCE FOR ALL

Customers who, having accessed its support programs, believe Yarra Valley Water helps customers experiencing difficulty paying for their water and sewerage services

89%

WATER AVAILABILITY AND CONSERVATION

Total water usage (litres/per person/per day)

221

233

MODERN FLEXIBLE SERVICE

Customers who are satisfied with their most recent interaction

86%

82%

CARE FOR AND PROTECT THE ENVIRONMENT

Reduction in carbon emissions (cumulative) (baseline is 34,083 tonnes CO2e in 2016-17)

4.0%

4.1%

2018-19 HIGHLIGHTS

SAFE DRINKING WATER

FINANCIAL SUMMARY Yarra Valley Water recorded a net profit after tax of $111.7 million in 2018-19. The net profit after tax result is $23.2 million higher than the 2017-18 result and $40.5 million higher than budgeted. The additional profit above budget was generated primarily as a result of:

Capital expenditure of $312.8 million was incurred during 2018-19 primarily to renew, augment and upgrade water and sewer infrastructure. We focused on the efficient and effective use of capital expenditure to deliver planned outcomes in accordance with our Price Determination.

›› Higher water sales as consumption exceeded budget by 5,091ML or 3.7%

A final dividend of $44.1 million for the 2017-18 financial year was paid during the year. The amount of the final dividend for the year ending 30 June 2019 will be determined after consultation between the Board, the Minister for Water and the Treasurer of Victoria.

›› Additional revenue from developer contributed assets due to revenue recognition process changes. The changes implemented improve the accuracy of the value of assets being provided by developers with more precise data available on the length of water and sewerage assets transferred to us. The book rates were also updated (increased) to better reflect asset value. These changes resulted in a significant increase in the revenue brought to account in 2018-19 ›› Savings in finance charges due to lower-than-budgeted Financial Accommodation Levy rate, deferring the 201819 interim dividend payment to 2019-20 and savings in interest payments by holding higher-than-budgeted short term borrowings due to the low cash rate, and low interest rates achieved on new fixed rate loans.

During 2018-19 total assets increased by $154.7 million as a result of the growth in infrastructure, property, plant and equipment. Total liabilities increased by $194.8 million in 2018-19 largely as a result of additional borrowings of $215.4 million which were primarily used to fund capital investments for our water and sewerage infrastructure.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

FIVE-YEAR FINANCIAL SUMMARY 2019 $’000

2018 $’000

2017 $’000

2016 $’000

2015 $’000

Service and usage revenue

957,613

936,265

886,081

907,953

844,346

Other revenue

166,440

110,532

103,262

114,414

89,992

Total revenue

1,124,053

1,046,797

989,343

1,022,367

934,338

Operating and other expenses

724,304

684,073

676,265

715,774

643,780

Depreciation and amortisation

107,486

107,843

96,872

97,490

94,294

Finance costs

132,207

130,127

127,440

123,942

121,373

Total expenses

963,997

922,043

900,577

937,206

859,447

Profit before income tax

160,056

124,754

88,766

85,161

74,891

Income tax

(48,356)

(36,252)

(27,202)

(26,247)

(22,804)

NET PROFIT AFTER TAX

111,700

88,502

61,564

58,914

52,087

2019 $’000

2018 $’000

2017 $’000

2016 $’000

2015 $’000

171,358

196,849

184,292

188,616

170,982

Non-current assets

4,949,698

4,769,483

4,546,209

4,350,521

4,182,941

Total assets

5,121,056

4,966,332

4,730,501

4,539,137

4,353,923

505,272

477,154

424,582

370,903

372,117

2,981,543

2,814,871

2,681,759

2,612,419

2,462,634

Total liabilities

3,486,815

3,292,025

3,106,341

2,983,322

2,834,751

NET ASSETS

1,634,241

1,674,307

1,624,160

1,555,815

1,519,172

STATEMENT OF COMPREHENSIVE INCOME

BALANCE SHEET Current assets

Current liabilities Non-current liabilities

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

RETURN ON EQUITY (%)

RETURN ON AVERAGE ASSETS (%) 7

2015-16

2016-17

5.79

4.66

2014-15

5.26

4.70

3.87

3.83

3.41

5 4

4.52

5.37

6.75

2018-19 HIGHLIGHTS

2 1

2014-15

2015-16

2016-17

2017-18

2018-19

2017-18

2018-19

Return on equity increased in 2018-19 due to increased developer contributed assets revenue. Average equity also decreased as a result of the capital repatriation payment, and a reduction in the asset revaluation reserve as at 30 June 2019.

Return on assets increased in 2018-19 primarily due to higher profit after tax resulting from increased developer contributed asset revenue due to increases in the book rates used to better reflect the actual value of the assets. The average asset value was impacted by a $127.6 million reduction as part of the 30 June 2019 infrastructure valuation.

GEARING RATIO (%) INTEREST BEARING DEBT TO ASSETS

NET PROFIT AFTER TAX ($M) Net profit after tax %

100 80

2014-15

2015-16

2016-17

2017-18

2018-19

2014-15

61.56

58.91

52.09

2015-16

2016-17

88.50

51.35

48.61

47.84

47.83

46.14

2017-18

111.70

120

2018-19

2.61

2.62

150

1.0

100

0.5 0

250 200

50 2014-15

2015-16

2016-17

2017-18

Interest cover ratio in 2018-19 has been maintained.

2018-19

173.72

1.5

2.50

2.5 2.0

2.19

350 300

2.40

3.0

2014-15

2015-16

2016-17

2017-18

312.77

CAPITAL EXPENDITURE ($M)

Interest Cover (times)

282.26

INTEREST COVER TIMES

233.88

Net profit after tax increased in 2018-19 primarily due to additional revenue generated from higher developer contributed asset revenue arising from increased book rates used to better reflect the actual value of the assets.

261.58

Gearing ratio increased in 2018-19 due to increased borrowing levels to fund capital, operating, dividend and capital repatriation payments.

2018-19

Capital expenditure increased in 2018-19 to meet our price submission commitments and also reflected an improved delivery capacity. We increased capital expenditure in a range of programs including water and sewer growth works, water main renewals and water reliability programs to ensure we meet customer service level targets.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

3 40

YARRA VALLEY WATER ANNUAL REPORT 2018-19

DELIVERING VALUE

YARRA VALLEY WATER ANNUAL REPORT 2018-19

OUR LEADERSHIP

ORGANISATIONAL CHART

BOARD OF DIRECTORS

MANAGING DIRECTOR Pat McCafferty

EXTERNAL SERVICES Anne Farquhar

CIO

SERVICE FUTURES

GROWTH FUTURES

PEOPLE, PERFORMANCE & CULTURE

Cameron McLean

Glenn Wilson

Chris Brace

Kylie Row

DISTRIBUTION SERVICES

RETAIL SERVICES

STRATEGY & COMMUNITY

Dona Tantirimudalige

Steve Lennox

David Snadden

FINANCIAL & CORPORATE SERVICES

CORPORATE SECRETARY

Natalie Foeng

Lisa Anelli

A HIGH STANDARD OF CORPORATE GOVERNANCE The Yarra Valley Water Board has overall responsibility for corporate governance including: ›› setting the strategic direction ›› establishing goals for management and monitoring the achievement of these goals ›› monitoring the business' performance.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

We are committed to ensuring a robust Corporate Governance Framework is in place and reviewing the framework regularly to ensure it aligns with best practice. This section sets out the main Corporate Governance practices in place during the 2018-19 financial year.

The Yarra Valley Water Board comprises eight independent non-executive Directors and one executive Director, with the non-executive Chair and non-executive Directors appointed by the Minister for Water.

3 The Managing Director is appointed by the Board in accordance with the Water Act 1989. Our Directors have a wide range of backgrounds and bring an appropriate mix of skills and experience to the Board. SUE O’CONNOR – CHAIR BAppSc, GDipBus Mgt, FAICD Sue became a Director and Chair of Yarra Valley Water on 1 October 2015. She has been a non-executive Director and Chair for over 10 years. Sue is a Director of Mercer Superannuation, ClimateWorks Australia, Treasury Corporation of Victoria, Kordia Group Limited and Bush Heritage Australia. Sue is also a member of the Leadership Oversight Committee for the Women in Water Leadership Program (a Water for Victoria initiative) and an advisory committee member of the Monash Sustainable Development Institute. She was previously Chair of YMCA Victoria and a Director and Deputy Chair of Goulburn Valley Water (2008-2015). Sue brings to the board table over 25 years of senior leadership experience of successfully growing and transforming customer focused, technology dependent businesses operating in disrupted markets. This includes 13 years at Telstra Corporation where she successfully led the establishment of a number of new businesses and completion of major cross-company transformation programs.

ROB SKINNER AM – DEPUTY CHAIR BE (Hons), MSc, FIEAust, MAICD Rob Skinner became a Director on 1 October 2015 and was appointed Deputy Chair of Yarra Valley Water on 16 December 2016.

DELIVERING VALUE

BOARD

He is a Professorial Fellow and Director at Monash Water Sensitive Cities Centre, Chair of WaterAid Australia and WaterAid International, Deputy Chair of the Co-operative Research Centre for Water Sensitive Cities and Board member of the International Centre of Excellence for Water Resources Management. He is a Distinguished Fellow of the International Water Association (IWA) and Chair of the IWA’s Cities of the Future Program. Rob was Managing Director at Melbourne Water from 2005 to 2011, and Chief Executive Officer of the City of Kingston from 1996 to 2005. He was appointed to the Australian Water Partnership Committee in October 2015. Over the past 20 years, Rob has been on a number of boards and involved in numerous advisory panels and reviews related to water policy and strategy in Victoria and elsewhere. Committee membership: ›› Service, Community, Assets and Regulation Committee – Chair ›› Risk Management and Audit Committee (from October 2018) ›› Hazelwynde Steering Committee ›› Leadership, Culture and Diversity Committee (July 2018 to October 2018).

Committee membership: ›› Hazelwynde Steering Committee - Chair ›› Service, Community, Assets and Regulation Committee ›› Risk Management and Audit Committee ›› Leadership, Culture and Diversity Committee.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR LEADERSHIP CONTINUED VICTOR PERTON BEc, LLB, LLM, Dip Chinese Law, GAICD

ERIC SJERP BSc (Geol. Geog.), MEIANZ, MAICD

Victor Perton became a Director of Yarra Valley Water on 1 October 2015.

Eric became a Director of Yarra Valley Water on 1 October 2015.

Victor is the founder of The Australian Leadership Project and the author of “The Case for Optimism: The Optimists’ Voices.”

Eric is an Environmental Scientist with over 25 years' professional experience throughout Australia and Malaysia. He is currently Managing Director and Principal Consultant of Ethos NRM, specialising in ecological impact assessment, environmental approvals and strategic natural resource management.

His experience in governance includes service on boards including the Transport Accident Commission, the Federal Government’s Council on Australia Latin American Relations, the Global Integrity Summit, the Australian Centre for Financial Studies and patron of the Digital Leadership Institute. He has chaired public sector inquiries and committees on technology, justice, equal opportunity, regulatory efficiency, subordinate legislation and several other topics. His current work includes advice on optimistic leadership, Australian leadership, integrity and strategy. Victor brings 18 years’ experience as a Parliamentarian, practice as a barrister, mediator, arbitrator, businessman, private sector board service and mentor. He is a former Commissioner to the Americas promoting foreign direct investment in Victoria, supporting Victorian exporters, building global supply chains and expatriate and alumni networks. Committee membership: ›› Risk Management and Audit Committee (July 2018 to October 2018) ›› Service, Community, Assets and Regulation Committee ›› Hazelwynde Steering Committee ›› Leadership, Culture and Diversity Committee (from October 2018). ANITA ROPER FAIM, GAICD Anita Roper became a Director of Yarra Valley Water on 1 October 2015. Anita is currently a Director of the Stroke Association of Victoria. She previously served as a member of the Board of Inquiry into the Hazelwood Coal Mine Fire and has served on numerous boards, councils and working groups including as a Non-Executive Director of Pacific Hydro, Director of the Fitzroy Football Club, member of the Victorian Public Sector Commission Advisory Board, member of AngloGold Ashanti’s Global Panel on Sustainability and board member of the Women’s Network for a Sustainable Future. Anita has over 30 years’ experience in senior management roles working with business, government, communities and multilateral agencies in Australia, Canada, UK and the USA. Her executive career spans the private and public sectors, including Chief Executive Officer at Sustainability Victoria and Global Director of Sustainability with Alcoa in New York. Committee membership: ›› Leadership, Culture and Diversity Committee – Chair ›› Service, Community, Assets and Regulation Committee.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

Eric brings considerable governance experience having served on numerous other boards, including East Gippsland Water, Southern Rural Water, East Gippsland Environmental Sustainability Advisory Board, East Gippsland Catchment Management Authority Lands Advisory Committee, Within Australia and the East Gippsland TAFE Industry Advisory Committee. Eric has also previously served as Executive Officer of the Gippsland Lakes Management Council. Committee membership: ›› Risk Management and Audit Committee ›› Service, Community, Assets and Regulation Committee. HELEN THORNTON BEc, ICA, GAICD Helen has more than 30 years’ experience in finance roles across a wide range of industries. Helen is currently a non-executive director and Deputy Chair of the Treasury Corporation of Victoria. She is also a Director of ISPT Pty Ltd, Ansvar Insurance, Austin Health and Legal Practitioners Liability Committee. Helen was previously Deputy Chair of Zoos Victoria and a non-executive director of Big Sky Building Society and Rural Finance Corporation. A Chartered Accountant, Helen has extensive experience in finance, governance, audit and risk management. She has held senior roles at Deloitte, KPMG, BHP Ltd and BlueScope Steel Ltd where she was responsible for the global risk management function. Committee membership: ›› Risk Management and Audit Committee – Chair ›› Hazelwynde Steering Committee ›› Service, Community, Assets and Regulation Committee.

KAREN MILWARD GAICD

PAT MCCAFFERTY – MANAGING DIRECTOR BBus (Acc), Exec. MBA, GAICD, FWCLP, FIWA

Karen Milward became a Director on 1 October 2017.

Pat McCafferty was appointed Managing Director of Yarra Valley Water on 1 July 2014, and reappointed in February 2018.

Karen was formerly the Deputy Chair of First Nations Foundation, the Co-Chair of the Victorian Aboriginal Economic Board, a Director of Aboriginal Housing Victoria, and was a member of the Visitor Economy Ministerial Advisory Committee and Small Business Ministerial Council. Karen brings to the Board extensive experience in working with Aboriginal and Torres Strait Islander communities, having worked on complex projects commissioned by public sector agencies responsible for policies, programs and services impacting on Aboriginal communities. Karen has also served on numerous committees and reference groups, including the Premier’s Aboriginal Advisory Council. Committee membership: ›› Leadership, Culture and Diversity Committee ›› Service, Community, Assets and Regulation Committee. VICTORIA MARLES BA, Dip Ed, Dip Arts (Dramatic Arts), LLB (Hons), LLM, FAICD

In a career spanning over 30 years in the water industry, Pat has extensive experience across the water sector and held General Manager roles at Yarra Valley Water from 2001. These roles covered a wide range of strategic leadership positions including planning, regulation, finance and operations. He has also worked in the USA water sector and advised the Australian Federal Government as part of the National Water Initiative.

3 DELIVERING VALUE

Karen is the owner of Karen Milward Consultancy Services and is currently the Chair of Mullum Mullum Indigenous Gathering Place, Chair of Kinaway Chamber of Commerce Victoria Ltd, Co-Chair Indigenous Community Volunteers, Deputy Chair of Ganbina Ltd and the Major Transport Infrastructure Authority - Aboriginal Advisory Council.

Pat is also Chair of the Water Services Association of Australia (Australia’s peak body for major urban water utilities) and the Thriving Communities Partnership (a cross-sector collaboration to improve support for vulnerable customers of essential services); a member of the Monash Infrastructure Advisory Council and a member of the Leadership Oversight Committee for the Women in Water Leadership Program (a Water for Victoria initiative). Committee membership: ›› Leadership, Culture and Diversity Committee ›› Hazelwynde Steering Committee ›› Service, Community, Assets and Regulation.

Victoria Marles became a Director on 1 October 2017. Victoria is the Chief Executive Officer of Trust for Nature (Victorian Conservation Trust) and is currently the Chair of the Abbotsford Convent Foundation, and the Consumer Action Law Centre. She has practised as a lawyer in the private, not-for-profit and public sectors in media/communications and consumer complaints law. Victoria has held the positions of Chief Executive Officer of the Legal Services Board (Victoria), Legal Services Commissioner (Victoria), Deputy Telecommunications Industry Ombudsman and has been a trustee of the Victorian Arts Centre Trust. Victoria brings to the Board extensive knowledge in the areas of natural resource management, climate change adaptation, biodiversity conservation/offsets and consumer law. Committee membership: ›› Risk Management and Audit Committee ›› Service, Community, Assets and Regulation Committee.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR LEADERSHIP CONTINUED BOARD CHARTER The Board Charter sets out clearly the role, responsibilities and powers of the Board and incorporates all aspects of Board governance, along with referencing the source of the items included in the Charter. CODE OF CONDUCT The Board has adopted a Directors’ Code of Conduct based on the Code of Conduct issued by the Public Sector Standards Commissioner. DECLARATION OF PRIVATE INTERESTS

The Board has adopted a training and development policy for Directors. This policy facilitates appropriate training and development opportunities for Directors to enable them to fulfil their role, broaden their knowledge and share this knowledge with the rest of the Board. All newly appointed Directors are required to undertake an induction program to help them understand their role and encourage fulfilment of their Board responsibilities. The induction program includes an overview of the Yarra Valley Water business, the water industry and the linkages with Government. Directors also attend seminars and other events to broaden their exposure to water industry issues and initiatives.

All Directors have completed a declaration of private interests.

LEARNING AND DEVELOPMENT

All executives, senior managers, officers and contractors/ consultants with delegation to approve expenditure in excess of $20,000 have completed a declaration of private interests.

In 2018-19 the Directors undertook a number of activities to support their ongoing learning and development, including exposure to senior management presentations and external presentations from water and non-water representatives. These presentations focused on learning about various operations of the business, topics that informed the strategic direction of the business and to ensure the Directors are continually mindful of their obligations regarding key safety risks.

INDEPENDENT PROFESSIONAL ADVICE The Board has adopted a number of measures to ensure that independent judgement is achieved and maintained. Directors are entitled to seek independent professional advice on matters relating to the business of Yarra Valley Water at Yarra Valley Water's expense, subject to the prior approval of the Chair. No Director exercised this right during the year. BOARD PERFORMANCE REVIEW In accordance with the Board Policy, an internally facilitated Performance Review of the Board was conducted in January/ February 2019. The purpose of the review is continuous governance improvement – identifying board performance improvement opportunities and governance framework gaps. The review process involved each Director completing a questionnaire followed by a round table discussion on the findings and improvement opportunities drawn from the questionnaire. Overall the results were very positive requiring few areas for discussion. The Board has further elevated its performance over the last 12 months, successfully transitioning a change in Board membership, and with the recent changes in Committee/Board structures and the addition of a new Committee focusing on the Hazelwynde Project, this has provided space for the Board to balance its role of insight, oversight and foresight. The review identified some potential improvements for the Board to explore, to further elevate the Board’s performance.

INDUCTION AND TRAINING

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

In 2018-19 two reports were released: the Australian Prudential Regulation Authority's (APRA) Report - Prudential Inquiry into the Commonwealth Bank of Australia; and the Victorian Ombudsman Report - Investigation into allegations of improper conduct by Officers at Goulburn-Murray Water. The performance of the Board and the organisation, and relevant policies and procedures of the organisation were mapped against the recommendations in both reports to identify any improvement opportunities. The findings of both reviews were discussed by the Board during 2018-19 to reflect on the learnings and how they could relate to both the Yarra Valley Water Board and management. The actions identified have been implemented during the 2018-19 financial year. In addition, to continue Yarra Valley Water’s cultural journey and further enable extraordinary performance, the Board took part in the Organisational Culture Inventory (OCI) survey in 2018-19. This marked a significant milestone for the organisation, with the current Board being the first to embark on this journey. The survey found the Board demonstrates strong constructive behaviours and identified opportunities to use these strengths to take the Board to another level in the next strategic era for the organisation.

BOARD COMMITTEES The Board has established four Committees of Directors to assist with carrying out its responsibilities and to allow detailed consideration of complex issues. Each Board Committee has its own terms of reference, which set out the Committee’s objectives, duties and responsibilities, composition, meetings, authority and reporting responsibilities. The Committees are as follows:

The Risk Management and Audit Committee assists the Board in fulfilling its duties and responsibilities relating to risk management, the effectiveness of internal controls and the accounting and reporting practices of the business, reviewing financial reports and overseeing the audits conducted by the internal and external auditors.

LEADERSHIP, CULTURE AND DIVERSITY COMMITTEE

The Leadership, Culture and Diversity Committee assists the Board in reviewing strategies and policies to ensure critical actions and plans are in place to implement and develop the business’ people and culture, the adequacy of the Executive Remuneration Framework, the Management Succession Plan and the business' Diversity Policy, Strategy and Action Plans.

SERVICE, COMMUNITY, ASSETS AND REGULATION COMMITTEE

The Service, Community, Assets and Regulation Committee assists the Board with oversight to ensure the business is currently meeting customer needs, community expectations and regulatory obligations. It also provides insight and has oversight of the business' future plans to meet customer needs, engage with community and address regulatory requirements.

HAZELWYNDE STEERING COMMITTEE

The Hazelwynde Steering Committee assists the Board with strategic oversight and expert input into progressing the Hazelwynde Project including independent advice in relation to greenfield development, stakeholder management and best practice project governance.

3 DELIVERING VALUE

RISK MANAGEMENT AND AUDIT COMMITTEE

Directors' attendance at Board and Committee meetings - 1 July 2018 to 30 June 2019

BOARD MEETINGS

RISK MANAGEMENT & AUDIT COMMITTEE

PEOPLE & CULTURE COMMITTEE MEETINGS1

SUSTAINABILITY, PLANNING, INFRASTRUCTURE AND REGULATION COMMITTEE MEETINGS1

SERVICE, COMMUNITY, ASSETS AND REGULATION COMMITTEE MEETINGS

LEADERSHIP, CULTURE AND DIVERSITY COMMITTEE MEETINGS

HAZELWYNDE STEERING COMMITTEE 2

S O’Connor

7 of 7

4 of 4

1 of 1

3 of 3

2 of 2

3 of 3

R Skinner

7 of 7

2 of 3

1 of 1

2 of 3

V Marles

7 of 7

4 of 4

1 of 1

3 of 3

K Milward

6 of 7

1 of 1

2 of 3

2 of 2

V Perton

6 of 7

2 of 2

1 of 1

3 of 3

2 of 2

2 of 3

A Roper

7 of 7

1 of 1

3 of 3

2 of 2

E Sjerp

7 of 7

4 of 4

1 of 1

1 of 3

H Thornton

6 of 7

4 of 4

1 of 1

2 of 3

3 of 3

P McCafferty3

7 of 7

4 of 4

1 of 1

3 of 3

2 of 2

3 of 3

s part of a review of Board Committees during 2018-19, the People and Culture Committee was replaced by the Leadership, Culture and Diversity Committee, A and the Sustainability, Planning, Infrastructure and Regulation Committee was replaced by the Service, Community, Assets and Regulation Committee.

The Hazelwynde Steering Committee was established in December 2018.

P McCafferty is not a member of the Risk Management and Audit Committee however attends in his capacity as Managing Director.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR LEADERSHIP CONTINUED OUR LEADERSHIP TEAM PAT MCCAFFERTY Managing Director BBus (Acc), Exec. MBA, GAICD, FWCLP, FIWA As Managing Director, Pat is also a member of the Board. Refer to details in the Board section. CHRIS BRACE General Manager Growth Futures BE (Chem), BS, GCert (Man) Chris is responsible for providing water and sewerage services to new customers. A key focus of his function is partnering with the community to develop new urban water futures that generate greater shared benefits for all stakeholders. He is accountable for delivering new infrastructure to service growth as well as major upgrade projects for existing infrastructure. NATALIE FOENG Chief Financial Officer BCom (Acc), CA Natalie is responsible for Financial and Corporate Services. Her role supports seamless operations and delivers insights to help everyone make great decisions, through providing world class financial planning, risk management, governance and corporate secretarial services. Natalie is also responsible for core finance functions such as statutory reporting, treasury, procurement, property and payroll. A key focus is partnering with the organisation to provide critical decision support, to deliver on productivity commitments, and to support strategy execution. STEVE LENNOX General Manager Retail Services BBus (Acc), CPA, ACIS, AGIA Steve is responsible for customer operations functions. He leads a group that delivers meter reading, billing management, debt collection, Customer Care centre operations and commercial and development services, along with developing and implementing support programs for customers in financial difficulty. KYLIE ROW General Manager People, Performance and Culture BA, DipBus Kylie is responsible for developing and implementing the human resources strategy for the business, including workforce planning, organisational culture, capability development and diversity. Kylie is also responsible for developing and maintaining systems for recruitment, onboarding, succession planning and performance management.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

DAVID SNADDEN General Manager Strategy and Community BE (Civil), MBA David is responsible for providing strategy leadership and programs that achieve greater customer and community connection and value, and represents the business in water industry policy and reform activities. His role includes long-term strategy development, business planning, pricing and economic regulatory affairs, corporate sustainability, strategic research, marketing and customer programs, community inclusion and engagement, communication and stakeholder engagement. DONA TANTIRIMUDALIGE General Manager Distribution Services BEng (Hons), M. Public Policy and Management, GAICD, MIWA Dona is responsible for managing our water, recycled water and sewerage infrastructure to ensure it delivers our desired customer service levels and meets applicable environmental performance standards. She is primarily responsible for optimising existing infrastructure networks, infrastructure maintenance and renewal, and safety and quality for Yarra Valley Water. Dona is currently the chair of Springvale Monash Legal Services, and the 2018-19 President of the IWA. GLENN WILSON General Manager Service Futures BE (Civil), BBus (Admin) Glenn is responsible for enabling the transformation of our core services (both retail and distribution) to improve productivity and the overall customer experience. This includes the implementation of process improvements, new technologies and innovations. He is also responsible for our long-term asset management planning. CAMERON MCLEAN Chief Information Officer BBus (Admin), GCert Change Management Cameron is responsible for the strategic direction of information technology to achieve the business objectives of Yarra Valley Water. This includes developing and delivering the digital strategy, enterprise architecture and IT projects. He is also responsible for the operation, maintenance and support of IT systems, sourcing and procurement of IT products and services and the management of IT vendors.

LISA ANELLI Corporate Secretary BCom (Acc), CA, GAICD Lisa is responsible for ensuring compliance with statutory and regulatory requirements and governance related administrative tasks of the Board and the organisation. This includes supporting the effective and efficient operation of the Board and providing advice and support on governance issues to the Board and the organisation.

3 DELIVERING VALUE

RETIREMENT OF LEADERSHIP TEAM MEMBERS ANNE FARQUHAR General Manager, External Services: Culture and Capability Cert Bus Mgt, GAICD On 30 June 2019 Anne retired from the business. Prior to her retirement, Anne worked with a number of regional water utilities and other government agencies and departments providing strategic human resources services and advice. The primary aim of this work was to strengthen culture and capability across the Victorian water sector, ultimately delivering new efficiencies and improving customer and staff satisfaction.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR PEOPLE AND CULTURE

We believe that a great culture delivers great outcomes. Over the last decade, we have developed a high performance culture, high levels of employee engagement and effective workplace practices. 50

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

ORGANISATIONAL CULTURE

Creating this constructive workplace culture requires a holistic approach, encompassing all aspects of the employment life cycle, such as recruitment, communication, role clarity, recognition, development, equity and leadership. Our focus on culture ensures we employ the right staff, provide them with clear direction and challenging work, enable performance through strong leadership and honest feedback, and provide ongoing development through targeted learning opportunities. We are committed to further developing our achievement oriented culture to create the best possible outcomes for our community. We use several internationally recognised benchmarking tools to track our progress and develop targeted strategies to improve our culture and engagement including:

RECRUITMENT Yarra Valley Water is committed to applying merit and equity principles when appointing staff. The selection processes ensure that applicants are assessed and evaluated fairly and equitably on the basis of the key selection criteria and other accountabilities without discrimination.

3 DELIVERING VALUE

Our culture provides the foundation for a high-performing workplace where we collaborate with partners and stakeholders to deliver exceptional outcomes for our customers and the environment.

We do not tolerate discrimination and take a proactive approach to ensure reasonable and proportionate measures are in place to monitor and improve practices and behaviours. All employees are required to comply with relevant federal and state legislation that establishes grounds on which discrimination is illegal including but not limited to the Acts relating to Occupational Health and Safety, Equal Employment Opportunity, Discrimination and Human Rights. Employees are required to complete discrimination awareness training which is renewed every two years.

DIVERSITY AND INCLUSION The diversity of our people is fundamental to extraordinary performance. Our Diversity and Inclusion Strategy aims to build an inclusive workplace that reflects the community it serves.

›› The Human Synergistics Organisational Culture Inventory that measures the organisation’s prevalent behavioural styles by exploring expected behaviours and norms that manifest into the organisation’s culture. Our culture has been identified as highly constructive since 2013 which was again endorsed by the 2018 OCI results

In December 2018, our Board reviewed and endorsed our second Diversity and Inclusion Strategy. The Diversity to Inclusion Strategy 2019-22 is the next phase in the continuous journey of diversity to inclusion with a roadmap of programs, policies, measures and targets that reflect the community we serve. This strategy will see us continue to develop, expand and embrace our diverse workforce and broader community through the Board endorsed vision:

›› Human Synergistics’ Leadership Impact (LI) and Life Styles Inventory (LSI) are 360-degree feedback tools that measure managers’ overall effectiveness and the ways their managerial approaches affect the behaviours and performance of those around them. These tools help us align our management and leadership practices with the organisation’s overall vision, strategy and values

We stand for a fair and equitable society. We embrace diversity and inclusion in everything we do, as we strive to reflect the community we serve.

›› The Aon Hewitt Best Employer Engagement Survey measures staff engagement levels and the perceived effectiveness of workplace practices. The survey gives us key information to inform human resources strategies and improvement plans. In 2017 we were recognised by Aon Hewitt as a Best Employer. We had a very high response rate, with 87% of staff completing the survey and an overall company engagement score of 83%.

The next phase of our Diversity and Inclusion Strategy identifies key focus areas: ›› Reflecting our community – embracing diversity of ethnicity, identities, abilities, lifestyles and needs ›› Gender balance, including women in leadership ›› Aboriginal and Torres Strait Islander participation ›› Workforce flexibility.

FAIR TREATMENT AT WORK At Yarra Valley Water, it is our strategic intent to create a vibrant culture achieving exceptional business outcomes and successful partnerships through highly capable and engaged people. We are committed to providing fair and equitable treatment for all employees in the workplace including partners, contractors, work experience students, suppliers and agents, both on and off site, when they are working for us.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR PEOPLE AND CULTURE CONTINUED AS OF JUNE 2019, THE PROPORTION OF WOMEN IN SENIOR LEADERSHIP POSITIONS AT YARRA VALLEY WATER IS:

55.6% 50% 40.6% 50% FEMALE DIRECTORS

FEMALE LEADERSHIP TEAM

FEMALE DIVISIONAL MANAGERS

FEMALE OVERALL WORKFORCE

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

We continue to observe a significant increase in the number of women shortlisted for positions over the past six months.

›› Directors – 55.6% female ›› Leadership team – 50% female ›› Divisional management – 40.6% female ›› Overall workforce – 50% female. Strategic initiatives have been implemented to ensure cultural diversity is a core component of our employee base to ensure we truly reflect our community. At Yarra Valley Water: ›› 28% of employees weren't born in Australia ›› 52% of employees have one or both parents who weren't born in Australia ›› 27% of employees speak another language other than English conversationally. We have programs in place to support minority groups within our community who may struggle to work in their chosen profession. Career Connect, our partnership with Jesuit Social Services, has adjusted recruitment processes to ensure exposure of roles and candidates within minority groups is ongoing allowing us to source quality applicants who may find it difficult to break through standard application processes. Through our Reconciliation Action Plan (2017 to 2019), we are also committed to providing employment opportunities for Aboriginal peoples and will take action to ensure we have a culturally safe environment, and promote the attraction and retention of Aboriginal and Torres Strait Islander staff.

Our Reconciliation Leadership Committee is a key element of our governance for delivering our RAP actions. It includes Aboriginal and Torres Strait Islander staff and external representatives. The Committee’s purpose is to ensure ongoing collaboration, capacity and relationship building at a senior level within the organisation with representatives from Victorian Aboriginal communities, and their active involvement in assessing the overall direction and effectiveness of outcomes being achieved.

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50.5% of candidates shortlisted for technical and leadership roles are now women, compared with 46% previously. This is due to managers and the recruitment team adjusting their approach to shortlisting, as well as changes to our job advertisement and careers' website. The proportion of women in senior leadership positions at Yarra Valley Water include:

Karen Milward continues to serve on our Board, after her appointment in 2017-18. She is a Yorta Yorta woman and a strong advocate for developing culturally appropriate solutions to the issues facing Aboriginal and Torres Strait Islander peoples.

Results from the diversity module of the Victorian Public Sector Commission's (VPSC) 2017 People Matter Survey indicate above average positive perception in most areas. In June 2019, our staff once again participated in the VPSC People Matter Survey achieving a 53% response rate. This is a significant increase from the previous response rate of 32%. We continue to drive change through training, working groups and awareness campaigns to achieve increases to targeted areas. WE ARE SAFE We are committed to the safety and wellbeing of our staff, partner organisations and members of the public. Our safety commitment, We are Safe, is embedded in everything we do. Our 2020 Strategy safety outcomes are: ›› Safety exists as each person’s responsibility ›› We make our workplaces safe ›› We carry out our work without harming ourselves or others. These safety outcomes are supported by our We are Safe behaviour statement, compliance with occupational health and safety legislation and using our accredited Safety Management System.

Currently, approximately 1% of our workforce identifies as Aboriginal or Torres Strait Islander, based on our Diversity Census. Within our first RAP, we identified the opportunity to discuss the inclusion of criteria for director appointments that takes account of the diverse community we serve, including Aboriginal and Torres Strait Islander peoples.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR PEOPLE AND CULTURE CONTINUED EMPLOYMENT DATA The following table discloses the head count and full-time equivalent (FTE) staff of all active Yarra Valley Water employees employed in the last full pay period in June 2019.

FULL TIME

PART TIME

CASUAL

TOTAL

FTE 2018-19

FULL TIME

PART TIME

CASUAL

TOTAL

FTE 2017-18

GENDER Male

329

352

340.6

307

336

324.2

Female

235

102

351

312.5

199

308

271.0

TOTAL

564

115

703

653.1

506

106

644

595.2

15-24

25.4

21.7

AGE 25-34

184

208

200.1

152

177

167.4

35-44

158

205

190.9

143

187

171.9

45-54

122

151

141.3

113

145

134.4

55-64

78.4

83.0

65+

17.0

16.8

564

115

703

653.1

506

106

644

595.2

Executive

9.0

Senior manager

31.0

29.0

Administration and field staff

524

115

663

613.1

468

106

606

557.2

TOTAL

564

115

703

653.1

506

106

644

595.2

TOTAL

CLASSIFICATION

Staff levels changed over the course of the year with roles insourced from external contractors to lower overall costs, additional customer service staff recruited to service growing work volumes and vacancies filled from the previous year.

INCOME BAND (SALARY EXCLUDING SUPERANNUATION)

EXECUTIVE

SENIOR MANAGER

$140,000 - $159,999

Bonuses were phased out of remuneration packages in 201819 and incorporated into senior employee salaries.

$160,000 - $179,999

$180,000 - $199,999

The following table discloses the annualised total salary (excluding super) for senior employees, categorised by classification. The salary amount is reported as the full-time annualised salary.

$200,000 - $219,999

$220,000 - $239,999

$240,000 - $259,999

$260,000 - $279,999

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

$280,000 - $299,999

$380,000 - $399,999

TOTALS

CORPORATE INFORMATION INFORMATION AND COMMUNICATION TECHNOLOGY (ICT) EXPENDITURE For the 2018-19 reporting period, Yarra Valley Water had a total ICT expenditure of $54.534 million (with the majority being depreciation), details shown below:

BUSINESS AS USUAL (BAU)

NON BAU TOTAL NON BAU ICT EXPENDITURE $’000

OPERATIONAL EXPENDITURE $’000

CAPITAL EXPENDITURE $’000

ICT DEPRECIATION $'000

14,939

39,595

316

18,480

20,799

CONSULTANCY EXPENDITURE The following is a summary of consultancy expenditure incurred by Yarra Valley Water during 2018-19. Details of consultancies (valued at less than $10,000) In 2018-19 Yarra Valley Water engaged four consultancies where the total fees payable to the consultants were less than $10,000. Total expenditure incurred during the reporting period in relation to these consultants was $20,910 (GST exclusive). Details of consultancies (valued at $10,000 or greater) In 2018-19 Yarra Valley Water engaged 24 consultancies where the total fees payable to the consultants were $10,000 or greater. Total expenditure incurred during the reporting period in relation to these consultants was $1,707,641 (GST exclusive). Details of individual consultancies are outlined on Yarra Valley Water’s website. GOVERNMENT ADVERTISING EXPENDITURE Yarra Valley Water’s expenditure on government campaign expenditure did not exceed $100,000 in the 2018-19 reporting period. LEGISLATIVE COMPLIANCE Privacy and Data Protection Act 2014 Yarra Valley Water falls into the definition of a Victorian Public Sector agency under section 13 of the Privacy and Data Protection Act 2014 (Vic), and consequently complies with the Act. As the holder of our customers’ confidential and personal information, we are conscious of the need to ensure that this information is protected, and to prevent any unauthorised access to, and improper use of, that information.

DELIVERING VALUE

BAU ICT EXPENDITURE $'000

Protected Disclosure Act 2012 Yarra Valley Water has procedures in place to help employees and contractors understand the requirements and obligations under the Protected Disclosure Act 2012, and to facilitate making and handling disclosures and notifying such disclosures to the Independent Broad-based Anti-corruption Commission. These procedures are available to the public at Yarra Valley Water’s website. Freedom of Information Act 1982 The Freedom of Information Act 1982 (the Act) allows the public a right of access to documents held by Yarra Valley Water. The purpose of the Act is to extend as far as possible the right of the community to access information held by government departments, local councils, Ministers and other bodies subject to the Act. An applicant has a right to apply for access to documents held by Yarra Valley Water. This comprises documents both created by Yarra Valley Water or supplied to Yarra Valley Water by an external organisation or individual, and may also include maps, films, microfiche, photographs, computer printouts, computer discs, tape recordings and videotapes. The Act allows Yarra Valley Water to refuse access, either fully or partially, to certain documents or information. Examples of documents that may not be accessed include: cabinet documents; some internal working documents; law enforcement documents; documents covered by legal professional privilege, such as legal advice; personal information about other people; and information provided to Yarra Valley Water in-confidence. From 1 September 2017, the Act was amended to reduce the Freedom of Information (FOI) processing time for requests received from 45 to 30 days. In some cases, this time may be extended.

In respect to the Notifiable Data Breach Scheme, Yarra Valley Water is legally obliged to disclose privacy breaches related to Tax File Numbers (TFN). A Privacy Policy and Code of Practice are in place for our employees, contractors and agency staff to ensure customer information is protected. YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR PEOPLE AND CULTURE CONTINUED If an applicant is not satisfied by a decision made by Yarra Valley Water, under section 49A of the Act, they have the right to seek a review by the Office of the Victorian Information Commissioner (OVIC) within 28 days of receiving a decision letter.

Making a request FOI requests can be lodged online at foi.vic.gov.au. An application fee of $29.62 applies. Access charges may also be payable if the document pool is large, and the search for material is time consuming. Access to documents can also be obtained through a written request to Yarra Valley Water’s Freedom of Information team, as detailed in s17 of the Freedom of Information Act 1982. When making a FOI request, applicants should ensure requests are in writing, and clearly identify what types of material/documents are being sought. Requests for documents in the possession of Yarra Valley Water should be addressed to: Frank Portelli Manager, Risk and Corporate Services Yarra Valley Water Private Bag 1 Mitcham, Victoria, 3132 General enquiries relating to Freedom of Information can be made by calling us on (03) 9872 2634 between 8.30am and 4.30pm, Monday to Friday.

Freedom of Information statistics During 2018-19, Yarra Valley Water received 35 applications. All requests were received from the general public. Yarra Valley Water made 35 FOI decisions during the 12 months ending 30 June 2019. Full access to all documents was provided in response to 35 requests. The average time taken to finalise requests in 2018-19 was 30 days. During 2018-19, nil requests were subject to a complaint/internal review by OVIC and nil progressed to VCAT.

Further information Further information regarding the operation and scope of FOI can be obtained from the Act; regulations made under the Act; and foi.vic.gov.au. Building Act 1993 Yarra Valley Water owns government buildings located at Lucknow Street, Mitcham and is consequently required to include a statement on its compliance with the building and maintenance provisions of the Building Act 1993 in relation to its buildings. Yarra Valley Water requires that appropriately qualified consultants and contractors are engaged for all proposed works on land controlled by Yarra Valley Water and that their work and services comply with current building standards. All such consultants and contractors are expected to have appropriate mechanisms in place to ensure compliance with the building and maintenance provisions of the Building Act 1993, Building Regulations 2018 and the National Construction Code.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

In relation to existing buildings, our Facilities Department is responsible for mandatory testing of emergency and exit lighting and lift equipment in accordance with relevant standards, monthly, quarterly and bi-annual inspection and preventative maintenance routine of mechanical services and monthly and annual fire service audits. These inspections then inform the works program which is delivered annually through existing maintenance.

In 2018-19: Number of major works projects undertaken by Yarra Valley Water (greater than $50,000) Number of building permits, occupancy permits or certificates of final inspection issued in relation to buildings owned by the entity

3 building permits 1 occupancy permit Nil certificates of occupancy

Number of emergency orders and building orders issued in relation to buildings

Nil emergency orders Nil building orders

Number of buildings that have been brought into conformity with building standards during the reporting period

Nil buildings brought into conformity

Local Jobs First Policy Disclosures Yarra Valley Water implements the Local Jobs First Policy in accordance with the Local Jobs First Act 2003. During 2018-19, we commenced eight Local Jobs First Standard projects where either a Victorian Industry Participation Policy (VIPP) Plan or a Local Industry Development Plan (LIDP) was required. The value of these projects totalled $69.7 million and they were all located in metropolitan Melbourne. The outcomes expected from implementing the Local Jobs First -VIPP to these projects are: ›› an average of 92.9% local content commitment ›› a total of 137 jobs (annualised employee equivalent [AEE]) were committed, including creating 10 new jobs and retaining 127 jobs (AEE) ›› a total of three positions for apprenticeships/trainees were committed. During 2018-19, we completed five Local Jobs First Standard projects that required VIPP plans totalling $35.5 million, all located in metropolitan Melbourne. The outcomes from implementing the Local Jobs First -VIPP to these projects were: ›› an average of 90.3% local content commitment was achieved

›› a total of 95 jobs (AEE) were achieved, including creating 18 new jobs and retaining 77 jobs (AEE) ›› a total of 33 positions for apprenticeships/trainees were achieved including creating 25 new apprentices /trainees and retaining eight apprentices/trainees. For these commenced and completed projects, there were 54 small to medium sized businesses engaged as either the principal contractor or as part of the supply chain. Competitive neutrality seeks to enable fair competition between government and private sector business. Any advantages or disadvantages that a government business may experience, simply as a result of government ownership should be neutralised.

I, Sue T O’Connor, on behalf of the Responsible Body, certify that Yarra Valley Water has complied with the applicable Standing Directions 2018 under the Financial Management Act 1994 and Instructions.

3 DELIVERING VALUE

Competitive Neutrality Policy

FINANCIAL MANAGEMENT COMPLIANCE ATTESTATION STATEMENT

Sue T O’Connor Chair

Yarra Valley Water continues to comply with the requirements of the Competitive Neutrality Policy. Other information The following information is available from Yarra Valley Water on request, subject to the Freedom of Information Act 1982: ›› a statement that declarations of pecuniary interests have been duly completed by all relevant officers ›› details of shares held by any senior officer as nominee or held beneficially in a statutory authority or authority ›› details of publications produced by the entity about itself, and how these can be obtained ›› details of changes in process, fees, charges, rates and levies charged by the entity ›› details of any major external reviews carried out on the entity ›› details of major research and development activities undertaken by the entity ›› details of overseas visits undertaken including a summary of the objectives and outcomes of each visit ›› details of major promotional, public relations and marketing activities undertaken by the entity to develop community awareness of the entity and its services ›› details of assessments and measures undertaken to improve the occupational health and safety of employees ›› a general statement on industrial relations within the entity and details of time lost through industrial accidents and disputes ›› a list of major committees sponsored by the entity, the purposes of each committee and the extent to which the purposes have been achieved ›› details of all consultancies and contractors including: – consultants/contractors engaged – services provided – expenditure committed to for each engagement.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

LIVEABILITY OUTCOMES Yarra Valley Water exists to enhance the liveability of our community, now and in the future. RESILIENT AND LIVEABLE CITIES AND TOWNS Our core purpose is to provide exemplary water and sanitation services that contribute to the health and wellbeing of current and future generations. We are proud of the role we play in making Melbourne one of the world’s most liveable cities.

We are working with our IWM forum partners in the Yarra, Maribrynong and Dandenong Creek catchments to deliver a number of initiatives including: ›› Merri Creek Upper IWM sub-catchment plan ›› Progressing plans for supplying recycled water to around 5,500 properties in Doncaster ›› Improving sanitation through on-site wastewater management – Park Orchards trial

INTEGRATED WATER MANAGEMENT (IWM)

›› Wallan restorative project

We believe that strong collaboration between the water industry and the community in relation to water cycle management and planning is crucial and will enable us to continue to enhance Melbourne’s liveability amid the challenges of population growth, climate change and weather variability.

›› Whittlesea community farm

During 2018-19, we worked on a range of sustainable and resilient services for our customers, including:

›› Taralla Creek naturalisation ›› LaTrobe and Monash National Employment and Innovation Clusters ›› Developing a trial to revegetate landscapes to capture carbon and improve social and environmental outcomes such as biodiversity

›› Collaborating with other metropolitan water corporations to complete and commence implementing a new Melbourne Metropolitan Sewerage Strategy. This takes a 50-year strategic view for developing Melbourne's bulk sewerage system to protect public health and enhance the liveability, productivity, prosperity and environment of the metropolitan region

›› Continuing to roll out recycled water infrastructure in the Northern Growth Corridor and Chirnside Park area to ultimately service about 165,000 properties

›› Collaborating with DELWP, metropolitan water corporations and Catchment Management Authorities to manage water supply security for consumptive and environmental water users in the southern region of the state through various processes including the LongTerm Water Resource Assessment, a Review of the Central Region Sustainable Water Strategy and the Water Grid Partnership

WATER USE, CONSERVATION AND EFFICIENCY

›› Partnering with DELWP, Port Phillip and Westernport Catchment Management Authority, local government and other water corporations in the IWM forums established to support the implementation of Water for Victoria. In October 2018, the Minister for Water released the Strategic Directions Statements (SDSs) for the five Metropolitan IWM

forums across Melbourne. This was the culmination of many months of collaboration through the IWM forums and working groups, with our inputs primarily relating to the Yarra and, to a lesser extent, Maribyrnong and Dandenong catchments.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

›› Collaborating with farmers and Yarra Ranges Council to develop a proposal to irrigate peri urban agriculture at Coldstream with recycled water.

We are operating in a drying climate, with the challenge of significant population growth, so water efficiency is more important than ever. We have had a relatively stable level of per capita usage over the past five years which is comparable with the metropolitan average. We continue to promote sensible and efficient use of water through the Target 155 program, our schools’ education programs where we help schools and early learning centres integrate water as a topic into the curriculum for educators and students, by implementing the Schools Water Efficiency Program, and continuing to assist businesses and councils to become more water efficient and explore alternative sources. We support our customers and the community to use water sensibly for the things that they value.

The water industry in Melbourne is working together to secure water supplies for the next 50 years. This approach is captured in the ‘Water for a Future–Thriving Melbourne’ document that provides the common elements of the Urban Water Strategies of Yarra Valley Water, City West Water and South East Water, Melbourne Water’s Melbourne Water System Strategy and the joint action of supporting the efficient use of water across the community. In 2018-19 we worked with DELWP and Victorian water corporations to continue to communicate the Target 155 message and implement the overarching state-wide Water Efficiency Strategy. We remain focused on efficient water use behaviours to ensure we make the most of our state’s precious water supplies. We continue to promote the efficient and sensible use of water through:

›› our schools’ education program which integrates water into the curriculum for schools and early learning centres – this includes free classroom presentations, games and puzzles, competitions and educational resources ›› encouraging schools to participate in the Schools Water Efficiency Program (SWEP), a Victorian Government initiative that enables schools to track and manage their water consumption ›› assisting businesses and local councils to become more water efficient and explore alternative water sources – this includes promoting a water efficiency benchmarking website for businesses

The CHRP program has a similar objective, however targets emergency and community housing across the Melbourne metropolitan areas (serviced by Yarra Valley Water, City West Water and South East Water) that are owned or managed by community welfare agencies. The objective is to support their ability to effectively support vulnerable customers via their core business rather than unnecessarily high bills. The program has been very well received by the community sector. Beyond water efficiency, these programs also enable customers experiencing vulnerability and hardship to take action to reduce their water use, and in turn, have greater control of their bill.

WATER CONSUMPTION REPORT 2018-19 NUMBER OF CUSTOMERS (AS AT 30 JUNE 2019) Residential customers

›› engaging customers around water efficiency through bills, social media, local media and website content, including the Target 155 program

Non-residential customers

›› encouraging the use of water efficient appliances, products and services.

DRINKING WATER VOLUME (ML)1

During 2018-19 we developed with the other metropolitan water utilities, a segmented approach to residential behaviour change to encourage water conservation. This segmented approach was based on customer research which uncovered six residential customer segments to focus water conservation campaigns on. It also identified shower use and millennials as an initial focus for water conservation campaigns.

3 DELIVERING VALUE

›› water efficiency programs such as Target 155, a voluntary program that encourages Melbourne households to use a maximum of 155 litres of water per person per day

The objective of the CRP program is to support customers to gain greater control over their bills by addressing leaks or inefficient appliances. We organise the plumber on behalf of the customer (with their agreement) where they are unable to afford the cost of a plumber, and pay the plumber directly, to avoid out of pocket costs for the customer. There is strong demand for this program, with the allocated funding spent each year it has run. The number of customers assisted depends on the level of funding. The program has been very well received by the community sector with 448 customers assisted in 2018-19.

764,589 57,145

TOTAL

821,734

Residential customers

118,332

Non-residential customers

31,736

(1) TOTAL

150,068

Average annual drinking water consumption

141,188

RECYCLED WASTEWATER VOLUME (ML) Residential customers

139

Besides water conservation, extensive customer research has told us that our customers want us to focus our efforts on improving and innovating when it comes to alternative sources of water, such as stormwater and recycled water. We have a continued focus on alternative water sources and are actively participating in the government’s Integrated Water Management forums.

Non-residential customers

Leakage

7,426

Under the WaterCare support program, we offer water audits – directly to residential customers experiencing vulnerability or hardship (Community Rebate Program – CRP) and via not-for-profit community housing (the Community Housing Retrofit Program – CHRP). Both these programs are funded by DELWP on an annually reviewed basis, and we also contribute an additional $100,000 funding to the CRP program each year.

Bursts

3,641

1,397

(2) Total

1,536

(1)+(2) TOTAL CONSUMPTION (ML)

151,604

NON-REVENUE WATER (ML)

Other

3,776

(3) Total

14,843

(1)+(2)+(3) TOTAL WATER ALL SOURCES (ML)

166,447

I ncludes a small amount of unchlorinated water supplied directly from aqueducts.

Average customer usage calculated over five years from 2014-15 to 2018-19.

Total consumption does not include water sourced from rainwater tanks or from greywater reuse. 3

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

LIVEABILITY OUTCOMES CONTINUED 250

246

244

230

237

207

200

210

217

200

186 161

166

160

168

161

164

166 153

147

151

157

164

150

16/17

17/18

100

0 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11

12/13

13/14 14/15

15/16

18/19

DROUGHT RESPONSE REPORT

CORPORATE WATER CONSUMPTION

The metropolitan water retailers have prepared common Drought Preparedness Plans (incorporating a Drought Response Plan) based around an adaptive framework to manage water shortages and potential use of four levels of water restrictions to control the use of drinking waterÂ outdoors.

The amounts in the table below represent consumption at our Lucknow Street, Mitcham office excluding any treatment plants or other work sites.

During 2018-19, there was no requirement for drought preparedness measures. In February 2019, the Minister for Water announced a 125GL desalinated water order. Permanent Water Use Rules continued to apply for the whole of 2018-19.

11/12

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

Total water consumption for 2018-19 Number of FTE staff on site Average water use per employee (kL per employee) Total office space Average water use per m2

7,131.31kL 653.1 10.92kL 10,000m2 0.71kL

ANNUAL REPORTING OF MAJOR NON-RESIDENTIAL WATER USE

REQUIREMENT 2: NAMING OF MAJOR WATER USERS AND WHETHER OR NOT THEY PARTICIPATE IN WATER EFFICIENCY PROGRAMS (Section 122ZJ of the Water Act 1989)

REQUIREMENT 1: NUMBER OF CUSTOMERS WHO FALL WITHIN EACH RANGE

Table 2: Names of major customers and their participation in water efficiency programs

(Section 122ZJ of the Water Act 1989) Table 1: Customer by volume range

Equal to or greater than 100ML and less than 200ML Equal to or greater than 200ML and less than 300ML Equal to or greater than 300ML and less than 400ML

NUMBER OF CUSTOMERS 9 3 -

Austin Hospital

Yes

Bega Cheese

Yes

Bertocchi Smallgoods

Yes

Chadstone Shopping Centre

Yes

Chiquita Mushrooms Pty Ltd

Yes

Continental Poultry Pty Ltd

Yes

CSL Behring Pty Ltd

Yes

Eastland Shopping Centre

Yes

Huhtamaki Australia Pty Ltd

Yes

Lang Tech Bottling Pty Ltd

Yes

Latrobe University

Yes

Monash University

Yes

Peters Ice Cream

Yes

Equal to or greater than 400ML and less than 500ML

Equal to or greater than 500ML and less than 750ML

Equal to or greater than 750ML and less than 1,000ML

Greater than 1,000ML

Sorbent Paper Company Pty Ltd

Yes

Visy Packaging Properties Pty Ltd

Yes

Visy Paper Coolaroo

Yes

Westfield Doncaster

Yes

TOTAL NUMBER OF CUSTOMERS

3 DELIVERING VALUE

NAME OF CUSTOMER VOLUMETRIC RANGE – ML PER YEAR

STATUS OF CUSTOMERS’ PARTICIPATION IN WATER EFFICIENCY PROGRAM

To build business knowledge and support large water users to adopt local water solutions, we coordinate and facilitate seminars, undertake site visits at various businesses (exploring process and procedural improvements), and document case studies that share the learnings of others’ achievements in this area. Furthermore, all large water users have access to a national benchmarking website to compare their water consumption with others in similar industries.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

LIVEABILITY OUTCOMES CONTINUED WATER RECYCLING This year we produced 11,071ML of recycled water at our sewage treatment plants of which 3,721ML or 33.6% was reused. We constructed 87km of recycled water mains and connected 11,787 properties to Class A recycled water. This brings the total number of connected properties to 26,325 – almost double the 14,538 properties connected before June 2018. We continued to lead a recycled water industry working group, allowing for collaboration and alignment between Victorian water utilities. We also worked hand-in-hand with our regulators to revise the existing recycled water guidelines, to reduce barriers to recycled water use, while continuing to protect public health and the environment to the highest possible standard. Water recycling continues to be a key component of our integrated water cycle management servicing strategy for the Northern Growth Corridor, and new estates in the eastern suburbs. Public open space irrigation, and providing recycled water to all homes via a third pipe system for toilet flushing, garden watering and laundry use, provides significant efficiency and environmental benefits to the entire community. WATER QUALITY During 2018-19, we maintained our commitment to provide safe, high-quality drinking water. This year we received 4.9 complaints for every 1,000 customers, against our target of 3.2 complaints. This was due to three significant water supply network issues and a change in how we report complaints. We continue to actively invest in reducing the impact of water quality changes on our customers, including increasing customer communication about operational changes to their water supply, targeted cleaning of 400km of water mains using a combination of cleaning methods, and installing additional chlorinators around our network. We achieved 90% customer satisfaction with the overall quality of drinking water provided.

CUSTOMER AND COMMUNITY OUTCOMES CUSTOMER AND COMMUNITY ENGAGEMENT Acting with transparency and openness is central to our engagement approaches as well as ensuring timely communication. We place a high priority on creating mutually beneficial relationships with our customers and stakeholders. This provides important feedback to assist us in our decision making and planning and builds confidence and trust in the work we do.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

In 2018-19 our Community Engagement team supported more than 60 significant infrastructure projects, frequently in challenging locations or environmentally sensitive areas. As we deliver more projects with greater complexity, the team ensures key stakeholders, nearby residents, businesses and communities know exactly what we are doing and when, as well as quickly responding to any concerns. AFFORDABILITY AND ASSISTANCE PROGRAMS Melbourne’s water bills are currently the lowest in Australia for all capital cities. We have an important role in sustaining Victoria’s productivity and a responsibility to deliver our services as efficiently as possible. In doing this we strive to relieve the pressure on household budgets and to ensure that the cost of water and sanitation services does not impact the competitiveness of our business customers. Because most of our investment decisions are long term we have an obligation to make financial decisions that optimise community value and intergenerational equity. There was strong feedback from customers during our Price Submission process that they didn't want water bills to increase, though they valued increased service levels over a bill decrease. Nearly all customers told us that small annual bill changes are better than a single large change. As a result, we devised a price path for the five-year period of flat or below inflation annual bill increases. In 2018-19, the typical annual residential bill (based on 150kL consumption per annum) was $1,056 – the same as in 2017-18. For the residential household with 200kL consumption per annum, the 2018-19 bill is $1,249 – a decrease from 2017-18 of $33 or 2.6%. Despite this, keeping on top of bills remains a challenge for many Victorians. We continue to evolve our programs to support customers who are experiencing vulnerability and who find it difficult to pay their water bill. In 2018-19: ›› 48,218 customers were on instalment plans, an increase from 46,392 in 2017-18 ›› 8,052 hardship customers were assisted through our WaterCare program, an increase of 10% from the 7,305 customers assisted during 2017-18. We are also committed to improving awareness of our programs among groups with a higher risk of vulnerability (such as Victorians from culturally and linguistically diverse backgrounds, concession card holders and those accessing emergency relief) and offer tailored support for these people.

3 DELIVERING VALUE

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

LIVEABILITY OUTCOMES CONTINUED Community inclusion

Family violence

We are developing a holistic, integrated approach to ensure all areas of our business operate with common principles of community inclusion.

Following changes to the customer service code, we improved our internal customer support systems by including a ‘safety flag’ to identify and provide greater safety assistance to people at risk of family violence. In addition, members of our customer support team received professional training to help them assist customers who may be affected by family violence.

Our Community Inclusion division aims to embed better inclusion practice across the business, including customers, staff and our supply chain. This builds on our strong foundation of supporting customers experiencing vulnerability, by looking at all areas of the business through the lens of community and financial inclusion. This includes: ›› building strong relationships with community stakeholders to support the evolution of our programs ›› promoting community inclusion principles within the business to strengthen, influence and guide our policy and practices ›› co-creating programs and action plans that enable pathways for inclusion and addressing socioeconomic and inclusion barriers to the way we work and our services ›› developing an approach for measurement, evaluation and reporting. Thriving Community Partnership The Thriving Communities Partnership (TCP) grew out of Yarra Valley Water’s vulnerability roundtable, where we hosted 130 representatives from business, government agencies and the community sector to address some of the complex issues within our community – by moving from talk to action on tackling vulnerability. The TCP transitioned to a separate not-for-profit company limited by guarantee in 2018, and is a cross-sector collaboration with the goal that everybody has fair access to the modern essential services they need to thrive in contemporary Australia: including utilities, financial services, telecommunications and transport. The TCP has over 170 organisations participating in the program across Australia and is currently hosted by Yarra Valley Water.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

We delivered company-wide awareness training for all staff, including our Board and Executive teams. In addition, all people managers at Yarra Valley Water were trained in responding to suspected or disclosed family violence among employees. This training supports our Family Violence Guidelines and we continue to run training sessions for new staff. During 2019-20, we will continue to develop, enhance and promote our policies, protocol and support programs to ensure we can address family violence as a trigger for financial exclusion and ensure customers are aware of the support available. We also continue to strengthen our processes and capabilities to ensure we protect private and confidential information and consider appropriate responses for perpetrators. We continue to be actively involved in raising awareness and collaborating with other organisations to strengthen and evolve our collective responses to family violence. Some examples from 2018-19 include: ›› participating in workshops run by the Essential Services Commission as part of their work program on family violence for the retail energy sector – sharing our experiences and learnings in developing and implementing responses to address family violence within our workplaces ›› participating in a range of activities supporting action against family violence, including the Walk against Family Violence and other events during the 16 Days of Activism against Gender-Based Violence ›› the TCP and Women’s Information Referral Exchange (WIRE) held a national roundtable on organisational responses to family violence, considering new research on teachable moments from WIRE. This brought together representatives from corporate, government and community sectors to discuss challenges and crucially to hear from victim-survivor advocates, including Rosie Batty who was the keynote speaker.

COMMUNITY SERVICE OBLIGATIONS In addition to our own assistance programs, many customers are eligible for support via government initiatives and programs. In 2018-19, the amount of assistance provided to customers in these programs slightly decreased.

2017-18 $’000

2016-17 $’000

49,228

49,563

49,111

Rebates paid to not-for-profit organisations under the Water and Sewerage Rebate Scheme

1,235

1,295

1,249

Utility relief grant payments

1,377

1,128

1,073

51,856

52,004

51,453

Provision of concessions to pensioners

Water concessions for life support machines – haemodialysis TOTAL

PROVISION OF CONCESSIONS TO PENSIONERS Customers who hold either a Pension Concession Card, a Gold Repatriation Health Care Card for All Conditions or a Health Care Card are entitled to pay a concessionary amount instead of the full balance outstanding on their accounts. When a customer pays this lesser amount, the difference is billed to and paid by the Department of Human and Health Services(DHHS). REBATES PAID TO NOT-FOR-PROFIT ORGANISATIONS UNDER THE WATER AND SEWERAGE REBATE SCHEME Customers who are not-for-profit entities are entitled to pay a concessionary amount instead of the full balance outstanding on their accounts. When a customer pays this lesser amount, the difference is billed to and paid by the State Revenue Office.

3 DELIVERING VALUE

2018-19 $'000

COMMUNITY SERVICE OBLIGATIONS

WATER CONCESSIONS FOR LIFE SUPPORT MACHINES – HAEMODIALYSIS The State Government of Victoria provides a rebate for customers required to use a dialysis/life support machine at home, to compensate these customers for water use and sewage disposal charges relating to the use of such a machine. The rebate amount is determined by the DHHS based on the estimated annual water usage of a dialysis machine (168kL). This rebate is in addition to any other pension or concession entitlements.

UTILITY RELIEF GRANT SCHEME The utility relief grant scheme provides assistance for residential customers unable to pay their utility accounts due to a temporary financial crisis. Customers need to demonstrate that unexpected hardship has left them seriously short of money so that they cannot pay their utility account without assistance.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

LIVEABILITY OUTCOMES CONTINUED WATER FOR ABORIGINAL CULTURAL, SPIRITUAL AND ECONOMIC VALUES We proudly acknowledge the Traditional Owners of the land and waterways on which we work and live, and pay respects to the Elders past, present and emerging. We recognise and value their traditional responsibility for the water and land. We also recognise and value the continuing rich cultures and the contribution of Aboriginal and Torres Strait Islander peoples and communities to the Victorian community. ABORIGINAL INCLUSION PLAN/RECONCILIATION ACTION PLAN We launched our first Reconciliation Action Plan (RAP) in April 2017. Since then, the RAP has provided the cornerstone of our commitment to make a meaningful contribution to Reconciliation and Aboriginal and Torres Strait Islander affairs. It outlines the overall, holistic approach that we committed to, to strengthen how we engage and work with Aboriginal and Torres Strait Islander peoples, organisations and Traditional Owner groups. The focus of our current plan has been on foundational measures of building relationships and capability and deepening our understanding of how we can meaningfully contribute to Reconciliation. Our second RAP is considered a 'stretch' RAP and will have more tangible outcomes than our first 'innovate' RAP that was built around relationships and inclusion. In 2018-19 we made significant progress in developing our 'stretch' RAP. This involved reflecting on our progress to date and the lessons we have learnt, and seeking feedback from Community. We developed a new vision for reconciliation to guide our next RAP:

Our vision for Reconciliation is that all who live on this land acknowledge our shared history and move forward, together, in a respectful way. CROSS-CULTURAL TRAINING A key part of our RAP is to engage employees in cultural learning opportunities to increase understanding and appreciation of Aboriginal and Torres Strait Islander cultures, histories and achievements. We have developed a cultural learning strategy that outlines our approach to build cross-cultural awareness and capability. It identifies the different training needs for specific parts of the business – including formal and informal training opportunities. Wurundjeri’s water team met with our Reconciliation Leadership Committee and our Board, to share their water journey and for us both to deepen our understanding of each other. Both sessions have provided excellent opportunities to strengthen the connections between the two organisations,

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

and are important steps forward in building our understanding of their objectives and how we can best support them. As we have begun to work more closely with Wurundjeri and Bunurong, there have been a range of opportunities for informal learning opportunities including developing our understanding of their aspirations for involvement in water management and planning (including Wurundjeri’s water policy), the suitability of the National Cultural Flows research methodology to their needs and attending the ceremony marking the handover of full control for three Galeena Beek properties in Healesville to Wurundjeri. As we continue to build how we work together, these opportunities enable us to develop our understanding of their histories, current focus and aspirations. Ensuring each of our Traditional Owners have the resources and capacity to effectively work with us as well as Yarra Valley Water staff understanding when and how to incorporate Traditional Owner objectives into business decisions are key considerations. A range of approaches are currently in development with each Traditional Owner group which include (but are not limited to) secondments – the Wurundjeri OH&S officer completed a work placement with us during 2018-19, to support his development in this new role. This was highly successful, and a good model for future opportunities, regular meetings, site visits, engagement of Aboriginal water professionals, and appropriate remuneration of Elders. In addition, 145 staff to date have completed full-day cultural awareness training with Karen Milward since 2015-16. This covers history from an Aboriginal perspective, Aboriginal people and communities today and mechanisms to support engagement. This training has been extremely well received, and provides a good basis for our staff to build their awareness and capability to engage further and understand broader issues related to Reconciliation. This training is supported by a short cultural induction delivered to our Customer Care centre staff and a broader internal communications program relating to the RAP, sharing stories and information about Aboriginal peoples, culture and histories. Our internal communications include regular stories relating to Aboriginal and Torres Strait Islander culture, history, achievements and current issues. As we go forward our focus is on building our understanding of shared history, and the impact on the present. ENGAGEMENT OF ABORIGINAL COMMUNITIES Our RAP includes a commitment to support procurement opportunities that will effectively engage with Aboriginal and Torres Strait Islander businesses. We have existing relationships with various Aboriginal enterprises – including for cultural awareness training, stationery suppliers (with a Supply Nation certified supplier), photography, graphic design and other consultancy services. We have also engaged Wurundjeri Woi wurrung's Narrap

Team to undertake land management work, and the MullumÂ Mullum Indigenous Gathering Place social enterprise for our National Reconciliation Week event.

Reconciliation and providing economic opportunity are key areas where we will engage with our broader supply chain, both to understand what they currently do and identify opportunities to do more. We are an active part of the VicWater Social Value in Procurement working group, which provides a useful platform to work collaboratively to address barriers for Aboriginal enterprises supplying goods and services and share learnings. Through our current RAP, we committed to identifying and supporting Aboriginal and Torres Strait Islander training and employment opportunities at Yarra Valley Water. Through AFL SportsReady, a Registered Training Organisation, we engaged a trainee who started with us in early 2019. The trainee is gaining work experience in different areas across our business, coupled with gaining a registered qualification. Our sponsorship of a Cultural Flows breakfast featuring Aboriginal presenters who work in the National Cultural Flows Project was well supported in its attendance and the level of engagement with Traditional Owners. We also support the broader Aboriginal and Torres Strait Islander community through our Choose Tap initiative, providing water stations at events such as Survival Day and participating in other community events.

During 2018-19 we significantly increased the number of times we engaged and our level of engagement with Traditional Owners across Melbourne. We appointed an Aboriginal Partnership and Business Development Manager, whose role is to work with Traditional Owners in our service area, building capacity of all parties involved and enabling participation in water planning and management. This role reflects the embedding of Traditional Owner engagement in the business as business as usual and is a significant step forward in integrating Traditional Owner inclusion within our planning and management frameworks. The role will be instrumental in developing joint business plans and potentially identifying other partners to collaborate with.

3 DELIVERING VALUE

Awareness among staff about Aboriginal enterprises is a key barrier to engaging them. To address this and to help build our knowledge of Aboriginal businesses, we have joined the Kinaway Chamber of Commerce who support us through connecting with relevant businesses. During 2018-19 we implemented a new procurement system which identifies Aboriginal enterprises and incorporates flags for the relevant procurement categories to help make staff aware of opportunities to engage an Aboriginal enterprise. During 2018-19 we began developing a social procurement strategy that will incorporate how we will realise opportunities for Aboriginal enterprises to supply goods and services to us. This will be in line with our Reconciliation Action Plan actions and will refer to the Victorian Governmentâ€™s Aboriginal Procurement Strategy.

ENGAGEMENT OF TRADITIONAL OWNERS

Wurundjeri Woi wurrung's water officer joined our Reconciliation Leadership Committee, a forum to ensure the active involvement of leaders from the Aboriginal community. The Committee assesses the overall direction and effectiveness of outcomes being achieved and guiding the delivery of actions within our RAP. We have capacity-built water knowledge within Wurundjeri Woi wurrung through supporting eminent Aboriginal water experts. This included funding key Aboriginal water experts to work independently with Elders and staff to develop water related strategies and understand the resourcing requirements necessary to deliver on current policy and new legislation as it relates to water and Traditional Owner engagement. Cultural flows assessments are being facilitated with Traditional Owners in two sub-catchment areas. This trial project will become mandatory in future sub-catchment Integrated Water Management planning. The Cultural Flow methodologies, released by the National Cultural Flows Research Project in June 2018, provide tools and support resources for Traditional Owners and water authorities. This pilot program will enable inclusion of Traditional Owners in the water industry and collaboration with the aim of creating a future where Aboriginal water allocations are embedded within Australia's water planning and management framework, delivering cultural, social, spiritual, environmental and economic benefit to communities across Australia.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

ENVIRONMENTAL OUTCOMES CLIMATE ADAPTATION AND VARIABILITY

›› analysing our current and future service vulnerabilities to climate change in a high priority region

We have embraced the Victorian Government’s vision for longterm water management in developing our 50-year Urban Water Strategy: We will manage water to support a healthy environment, a prosperous economy and thriving communities, now and in the future. Our Urban Water Strategy and Drought Preparedness Plan apply DELWP’s guidelines for forecasting the impacts of climate change on water supplies, and we have monitored progress against these. Consideration of climate change impacts has also been embedded in the recently completed Melbourne Sewerage Strategy. Our Climate Resilience Plan outlines our approach to further integrate climate change adaptation into our decision making across the business. In 2018-19 we implemented key actions from this plan, including: ›› trialling long-term adaptive planning techniques in a high priority region

›› benchmarking our resilience to ensure we meet best practice standards across the organisation ›› supporting actions arising from DELWP's Pilot Water Sector Climate Change Adaptation Action Plan, such as developing the sewerage guidelines, considering climate risks in IWM forums, reviewing emergency management plans and industry knowledge sharing forums about impacts on our water supply and sewerage networks. Through these actions we have embedded climate change considerations more deeply into our decision making processes across our asset planning, water and sewerage resource planning and product delivery functions. We have also worked closely with industry colleagues to ensure our actions are aligned with broader adaptation actions undertaken across the industry. The following table outlines how each of the key actions in our Climate Resilience Plan relates to core functional areas.

CORE FUNCTIONAL AREAS CUSTOMER & PRODUCT DELIVERY

NATURAL ENVIRONMENT

INTERDEPENDENCIES

BUILT ASSETS

Medium term

Pilot adaptive planning

Short term

Embed adaptive planning

Long term

ACTION TIMEFRAME

PEOPLE & WORKPLACE

SOURCE WATERS & DEMANDS

Scenario based modelling

ACTIONS

Enhance adaptive pumping

Reduce service vulnerabilities Asset vulnerability assessment

Medium term

Contingency planning support

Short term

Emergency management responses

Short term

X X X

X X

Foster collaborative partnerships

Climate change resilience benchmarking

Short term

Partner with DELWP

Ongoing

Develop industry and customer partnerships

Ongoing

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

BULK ENTITLEMENTS REPORT Yarra Valley Water holds Bulk Entitlements to the water resources of the Greater Yarra River — Thomson Basin and to the Victorian Desalination Project. In addition, we hold Bulk Entitlements in the River Murray and Goulburn System of up to 25,000ML annually of water savings, as a result of investment in Goulburn-Murray Water's (GMW) Connections Project.

3 VICTORIAN DESALINATION PROJECT 4

GOULBURN SYSTEM 7, 8

RIVER MURRAY 12, 13

The volume of water taken by Yarra Valley Water in 2018-19

Clause 16.1 (a) 164,910ML

Clause 13.1 (a) 0ML

Clause 14.1 (b) 0ML 9

0ML

Annual water allocation made available to Yarra Valley Water

Clause 16.1 (b) 111,771ML

Clause 13.1 (a) 8,196ML 5

Clause 14.1 (c) 8,042ML

Clause 11.1 (a) 5,898ML

Share of storage volume at 30 June 2019 for carryover

Clause 16.1 (b) 127,891ML

Clause 13.1 (a) 8,185ML

7,369ML 10

5,385ML 14

Compliance with the entitlement volume

Clause 16.1 (c) Yes

N/A

Any assignment of water allocation or temporary/permanent transfers of the bulk entitlement

Clause 16.1 (d) Nil

Clause 13.1 (b) Nil

Clause 14.1 (d)11 Net 7,300ML Clause 14.1 (e) Nil

Clause 11.1 (b) Net 3,800ML 15, 16 Clause 11.1 (c) Nil

Approval, amendment and implementation of approved metering program

Clause 16.1 (e) Continued implementation 3

N/A

Any amendment to the bulk entitlement

Clause 16.1 (f) Nil

Clause 13.1 (c) Nil

Clause 14.1 (f) Nil

Clause 11.1 (d) Nil

Any new bulk entitlement granted to Yarra Valley Water

Clause 16.1 (g) Nil

Clause 13.1 (d) Nil

Nil

Compliance with the bulk entitlement

N/A

Clause 13.1 (e) Continued compliance 6

N/A

Any failures to comply with any provision of the bulk entitlement

Clause 16.1 (h) Nil

Clause 13.1 (f) Nil

Clause 14.1 (g) Nil

Clause 11.1 (e) Nil

Any difficulty experienced in complying with the bulk entitlement and if so, any remedial action taken or proposed

Clause 16.1 (i) Nil

Clause 13.1 (g) Nil

Clause 14.1 (h) Nil

Clause 11.1 (f) Nil

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

DELIVERING VALUE

REPORTING OBLIGATION

GREATER YARRA SYSTEM – THOMSON RIVER POOL 1, 2

ENVIRONMENTAL OUTCOMES CONTINUED NOTES FOR COMPLIANCE WITH BULK ENTITLEMENTS GREATER YARRA SYSTEM – THOMSON RIVER POOL 1.

Yarra Valley Water holds the following Bulk Entitlement to the Greater Yarra System – Thomson River Pool. Bulk Entitlement (Greater Yarra System – Thomson River Pool – Yarra Valley Water) Order 2014 – WSE000081 (previously BEE072377). The metropolitan retailers make water available in Tarago Reservoir to Gippsland Water under a Bulk Water Supply Agreement. This is used by Gippsland Water to supplement their Tarago Bulk Entitlement during periods of high demand. Yarra Valley Water provided 179.36ML under the Agreement in 2018-19. Yarra Valley Water also made available water to Goulburn Valley Water, under a Water Supply Agreement, to help secure water supplies for Kilmore. In 2018-19 Yarra Valley Water provided 97.6ML. Continued compliance with approved metering program through Bulk Water Supply Agreement between Melbourne Water and Yarra Valley Water and Melbourne Water’s System Management Rules.

VICTORIAN DESALINATION PROJECT 4. Yarra Valley Water holds the following Bulk Entitlement to the Victorian Desalination Project. Bulk Entitlement (Desalinated Water – Yarra Valley Water) Order 2014 – WSE000054 (previously BEE050816). 5.

The Hon Lisa Neville MP, Minister for Water, announced a 15GL desalinated water order for the 2018-19 year, of which Yarra Valley Water’s share is 5,695ML. We received this order in September and October 2018, delivered into the Melbourne water supply system. The Minister for Water has also announced a further water order of 125GL to be delivered during 2019-20. 6,587 ML was delivered in June 2019 to the Melbourne headworks system, of which Yarra Valley Water’s share is 2501 ML. Compliance with our Desalinated Water long term average diversion limit of 56,951ML is assessed using a 5-year rolling average diversion.

GOULBURN SYSTEM 7.

Yarra Valley Water holds the following Bulk Entitlement to the Goulburn System. Bulk Entitlement (Goulburn System – Yarra Valley Water) Order 2012 – WSE000010 (previously BEE072239). Yarra Valley Water’s Bulk Entitlements in the Goulburn System provide for the progressive annual assignment of entitlement volumes as water saving works and measures from GMW's Connections Project are completed. The 2018-19 entitlement volume was 11,699.2ML.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

9. Compliance with the combined annual diversion limit of 75,000ML for the holders of Bulk Entitlement (Goulburn System – City West Water) Order 2012, Bulk Entitlement (Goulburn System – South East Water) Order 2012 and Bulk Entitlement (Goulburn System – Yarra Valley Water) Order 2012 is assessed using the actual measured annual diversion. Diversions are subject to clause 6.1 of Yarra Valley Water’s Statement of Obligations (System Management). 10. Yarra Valley Water’s commencement volume on 1 July 2018 was 6,627ML. At 30 June 2019, Yarra Valley Water held 7,639ML. 11. Yarra Valley Water has in place water management strategies to manage water allocation holdings in the River Murray and Goulburn System to maximise the value of the resources held to their customers and minimise the risk of spilling water allocation. These strategies include the transfer of allocations between Bulk Entitlement Allocation Accounts and trading water allocations. Net total trade out was 7,300ML. RIVER MURRAY 12. Yarra Valley Water holds the following Bulk Entitlements to the River Murray. Bulk Entitlement (River Murray – Yarra Valley Water) Order 2012 – WSE000145 (previously BEE072242). 13. Yarra Valley Water’s Bulk Entitlements in the River Murray provide for the progressive annual assignment of entitlement volumes as water saving works and measures from GMW's Connections Project are completed. The 2018-19 entitlement volume was 8,601ML (4,247ML in Zone 6 (Vic Murray – Dartmouth to Barmah) and 4,354ML in Zone 7 (Vic Murray – Barmah to SA Border). 14. Yarra Valley Water’s commencement volume on 1 July 2018 was 3,287ML (1,514ML in Zone 6 and 1,773ML in Zone 7). At 30 June 2019, Yarra Valley Water held 5,385ML (2,731ML in Zone 6 and 2,655ML in Zone 7). 15. Yarra Valley Water has in place water management strategies to manage water allocation holdings in the River Murray and Goulburn System to maximise the value of the resources held to their customers and minimise the risk of spilling water allocation. These strategies include the transfer of allocations between Bulk Entitlement Allocation Accounts and trading water allocations. 16. Net total trade out for River Murray system was 3,800ML (1,800ML in Zone 6 and 2,000ML in Zone 7).

GREENHOUSE GAS EMISSIONS AND NET ENERGY CONSUMPTION

performance, we set a target of emitting no more than 32,727 tCO2-e (tonnes of carbon dioxide equivalents) in 2018-19. We achieved the target through a combination of energy efficiency measures and increased renewable energy use - reporting 32,684 tCO2-e for the financial year. To achieve net zero emissions for the tenth year in a row, we offset the reported emissions through a voluntary surrender of Certified Emission Reduction credits. Further, we are working with our partners and suppliers to encourage them to reduce their emissions year on year.

3 DELIVERING VALUE

We pledged to reduce our greenhouse gas (GHG) emissions by 64% by 1 July 2025. This commitment is necessary as we operate against a backdrop of a rapidly growing population and increased demand for our services. This would lead to higher emissions if we didn't have an active plan to reduce them. To address this, we developed and commenced implementing a business-wide emissions reduction strategy. To measure our

PROGRESS TOWARD 2025 GREENHOUSE GAS EMISSIONS TARGET 40000 35000 30000 25000 20000 15000 10000 5000 0 2011-16

2016-17

2017-18

2018-19

2019-20

2020-21

2021-22

2022-23

2023-24

2024-25

Baseline

Target Actual GHG emissions

Projected GHG emissions

We rely on electricity to pump and treat water and wastewater as well as power our head office. We currently operate close to 400 network connection points that use electricity and this carbon-intensive consumption is the largest source of our emissions. We continue to look for additional ways to GREENHOUSE GAS EMISSIONS

be more efficient and reduce electricity consumption. This year we reduced electricity consumption by almost 21% at Brushy Creek, our largest sewage treatment plant, through operational efficiencies driven by treatment plant operators.

PERFORMANCE INDICATOR

2018-19 TARGET (t CO2e)

2018-19 RESULT (t CO2e)

VARIANCE

NOTES

Water treatment and supply

8,500

9,090

6.94%

21,500

20,851

-3.02%

Transport

1,130

1,136

0.53%

Other (eg. office)

1,597

1,607

06.3%

32,727

32,684

-0.13%

32,727

32,684

-0.13%

Sewage collection, treatment and recycling

TOTAL GHG EMISSIONS Offsets retired â€“ self generated NET EMISSIONS

NOTES 1 - Emissions greater to target due to water pumping to meet increased water demand. 2 - Energy efficiency initiatives at sewage treatment plants resulted in reduced emissions.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

ENVIRONMENTAL OUTCOMES CONTINUED TOTAL ENERGY USE

PERFORMANCE INDICATOR

2017-18 RESULT (MWH)

2018-19 RESULT (MWH)

NOTES

Water treatment and supply

8,039

8,496

19,149

17,753

1,243

1,485

28,431

27,734

Sewage collection, treatment and recycling Transport Other (eg. office, workshops, depots etc) TOTAL NOTES 1 - Increased energy associated with water pumping to meet increased customer demand. 2 - Implementation of energy efficiency initiatives at sewage treatment plants reduced energy needs.

3 - The mix of energy sources for our Mitcham head office site varies from year to year. In June 2019 we commissioned our solar carpark decreasing our reliance on traditional energy sources.

RENEWABLE ENERGY We aspire to generate 100% of our energy needs from renewable sources by 2025. This year, almost 26% of our electricity needs were supplied from renewable sources. 21% came from our Waste to Energy (W2E) facility, which generated 5,885MWh of renewable energy. 41% of this was used to run the W2E facility and the adjacent sewage treatment plant leading to a 2,349 tCO2-e reduction in emissions than if we sourced this electricity from the grid. In December 2018, we commissioned 100kW ground mounted

solar systems at three sewage treatment plants which have produced 251MWh of renewable energy. 91% of the energy produced was used to run the treatment plants, with the remaining 9% exported to the grid. In June 2019, a 324kW solar carpark was commissioned at our Mitcham head office. We expect this system to produce 408MWh each year, with over 90% consumed onsite and the excess exported to the grid.

TOTAL RENEWABLE ELECTRICITY USE

2017-18 RENEWABLE ELECTRICITY USED (MWh)

2018-19 RENEWABLE ELECTRICITY USED (MWh)

NOTES

Solar

227

Hydroelectric

Wind

2,172

2,542

Other

3,975

2,396

TOTAL

6,147

7,165

21.62%

25.83%

PERFORMANCE INDICATOR

Biogas Greenpower

Percentage renewable electricity % NOTES 1 - Solar systems at three sewage treatment plants 2 - ReWaste facility 3 - Large-scale Renewable Energy Target (LRET)

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OTHER STATUTORY OBLIGATIONS VICTORIAN BIODIVERSITY STRATEGY Yarra Valley Water follows the directive of ‘Victoria’s Native Vegetation Management: A Framework for Action’, which was developed as an offset measure to support the Victorian Biodiversity Strategy. We work with multidisciplinary companies and involve ecologists early in the preliminary design phase of projects to complete them in a more sustainable manner. This includes conducting complete risk assessments, life-cycle analyses, net-gain assessments and offset management plans, and preliminary flora and fauna options assessments.

During the past year we delivered the following projects to reduce the impacts of sewer overflows and to align our practices with the Sewerage Management Guidelines: ›› Detailed design of Roycroft Avenue emergency relief structures (ERS) installation ›› Detailed design of Great Ryrie Street ERS installation ›› Functional design of three ERS screens ›› Concept design of monitoring critical locations within the sewer network ›› Functional design of monitoring for high risk gas check manholes. We progressed hydraulic options assessment for the following projects: ›› Burwood East sewer duplication and ERS installation

VICTORIAN WATERWAY MANAGEMENT STRATEGY

›› Brunswick catchment upgrade and inflow reduction.

Yarra Valley Water strives to deliver our services within the carrying capacity of nature and reducing our environmental footprint is a priority.

We worked with Melbourne Water to reduce the barriers to taking an integrated water management approach to the Merri Creek waterway. We started the process to co-design and co-deliver projects to reduce the environmental risks from sewage overflows and improve the waterway quality in the Merri Creek catchment.

To improve waterway health, we continued to manage our nitrogen discharges to Port Phillip Bay in accordance with our self-imposed nitrogen cap of 87 tonnes. In 2018-19, our discharge was 44.9 tonnes. To comply with river and aquifer health requirements as per our Statement of Obligations, we undertook regular (weekly, monthly) sampling at each of our sewage treatment plants to ensure they comply with our Environment Protection Authority Victoria (EPA) Corporate Licence Requirements. In 2018-19 we also prepared to transition to the new Environment Protection Authority Victoria legislation and corresponding license reform that is occurring by: ›› completing desktop risk assessments of all waterway discharges ›› commencing detailed Ecological Risk Assessments (ERAs) for those deemed to be high risk discharges. The findings from these ERAs will form the basis for compliance criteria for our new license. A summary of our sewage treatment plants’ performance is reported to the EPA on an annual basis. Additionally, water quality and flow data relating to waterways is reported to the Essential Services Commission, the National Pollutant Inventory and the Bureau of Meteorology. STATE ENVIRONMENT PROTECTION POLICY (WATERS) During 2018-19 we played an active role influencing the development of the new State Environmental Protection Policy (Waters) and a significant role developing related industry guidance, the EPA Sewerage Management Guidelines. The new policy takes a new risk based approach to minimising harm to the environment, and along with the guidelines, allows for alternate non-sewerage infrastructure based options to manage the risk of sewer impacts to the environment.

3 DELIVERING VALUE

We liaise with stakeholders such as the Department of Environment, Land, Water and Planning (DELWP) local councils and other water utilities on a project by project basis to determine how best to conserve Victoria’s biodiversity. We liaise directly with DELWP on ongoing growth and development of all native offset areas established as part of these projects.

In line with the new legislation and guidance, we developed a new risk assessment framework for our sewerage network and a detailed gap analysis on the Sewerage Management Guidelines.

While the new regulations focus predominantly on a risk-based approach to environmental harm, the regulations still maintain a wet weather compliance standard (18.1% Annual Exceedance Probability). Work has progressed on a number of projects to minimise or eliminate non-compliant spills. We have: ›› Commenced concept design of the Darebin Creek branch sewer ›› Undertaken planning to reduce the amount of rainfall inflow into our sewers in Blackburn, Donnybrook and Coldstream. We also continued to construct new sewerage infrastructure for previously unsewered areas as part of the Community Sewerage Program. The Community Sewerage Program provides wastewater services to areas local councils refer to us, that are deemed to have a high risk of environmental impact to waterways and public health. The areas contain a large number of failing septic systems and properties unable to contain wastewater within property boundaries. During 2018-19, we continued to provide reticulated sewerage services to parts of Donvale while also commencing construction works for similar reticulation projects in Park Orchards, Yarra Junction, Kallista and The Patch. We also continued to plan for new sewerage services in Wesburn, Don Valley, Launching Place, Eltham South, Lower Plenty, Lilydale and in the Dandenong Ranges at Sherbrooke and Monbulk.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

3 DELIVERING VALUE

WE WILL MANAGE WATER TO SUPPORT A HEALTHY ENVIRONMENT, A PROSPEROUS ECONOMY AND THRIVING COMMUNITIES, NOW AND IN THE FUTURE YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR PERFORMANCE FINANCIAL PERFORMANCE INDICATORS

FINANCIAL PERFORMANCE INDICATORS PERFORMANCE INDICATOR

2018-19 TARGET

2017-18 RESULT

2018-19 RESULT

VARIANCE TO PRIOR YEAR

NOTES

VARIANCE TO TARGET

NOTES

19.7%

2.18 times

2.62 times

2.61 times

-0.4%

Gearing ratio Total debt (including finance leases) / total assets *100

51.57%

48.61%

51.35%

5.6%

-0.4%

Internal financing ratio (Net operating cash flow – dividends) / capital expenditure *100

31.88%

52.00%

39.29%

-24.4%

23.2%

Current ratio (Current assets / current liabilities) excluding longterm employee provisions and revenue in advance

0.48

0.44

0.40

-9.1%

-16.7%

Return on assets Earnings before net interest and tax / average total assets *100

4.84%

5.26%

5.79%

10.1%

19.6%

Return on equity Net profit after tax / average total equity *100

4.31%

5.37%

6.75%

25.7%

56.6%

Earnings before interest, tax, depreciation and amortisation Earnings before interest, tax, depreciation and amortisation / total revenue *100

33.58%

34.65%

35.56%

2.6%

5.9%

Cash interest cover Cashflow from operations before net interest and tax payments / net interest payments

VARIANCE EXPLANATIONS 1b Higher net operating cash flows due to additional receipts generated primarily from increased customer demand compared to budget. Savings were achieved in interest payments due to prevailing market conditions resulting in achieving low interest rates on new borrowings. 2a The difference between this year's result and last year's result is primarily due to higher capital payments in 2018-19 due to required growth in the capital program to meet our price submission commitments. 2b Higher net operating cash flows from additional water sales and savings achieved in finance charges due to low interest rates on new borrowings, and lower than budgeted financial accommodation levy rate on new borrowings. These factors were partially offset by higher capital payments associated with delivering a higher volume of priority works for water main renewals, carryover from 2017-18 for some projects and additional works to service growth.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

3b Current assets lower than budgeted due to a GST refund from the ATO, lower trade debtors from improved debt collection activity, and hardship customer deferred debt written off. Current liabilities were higher than budgeted due to additional accrued expenses and higher borrowings as a result of lower interest rates. 4a The difference between this year's result and last year's, is primarily due to higher developer contributed asset revenue due to increased book rates used to better reflect actual asset value. The average asset value was impacted by a $127.6 million reduction as part of the 30 June 2019 infrastructure valuation. 4b Additional water sales and developer contributed asset revenue due to increased book rates used to better reflect actual asset value. The average asset value reduced by $127.6 million as part of the 30 June 2019 infrastructure valuation.

5a The difference between this year's result and last year's result is primarily due to higher developer contributed asset revenue due to increased book rates used to better reflect actual asset value. Average equity also decreased as a result of the capital repatriation payment to the Government in June 2019, and a reduction in the asset revaluation reserve as at 30 June 2019. 5b Higher profit after tax from additional water sales generated from customer demand and developer contributed asset revenue due to increased book rates used to better reflect actual asset value. We also achieved savings in finance charges due to market conditions resulting in low interest rates on new borrowings, and a lower than budgeted financial accommodation levy rate on new borrowings.

3 DELIVERING VALUE

WATER AND SEWERAGE SERVICE PERFORMANCE INDICATORS PERFORMANCE INDICATOR

2018-19 TARGET

2017-18 RESULT

2018-19 RESULT

VARIANCE TO PRIOR YEAR

NOTES

VARIANCE TO TARGET

NOTES

SS1

Containment of sewer spills Sewer spills from reticulation and branch sewers (priority 1 and 2) contained within 5 hours / total sewer spills from reticulation and branch sewers

97.7%

98.1%

97.0%

-1.1%

-0.7%

SS2

Sewer spill interruptions Number of residential sewage customers affected by sewerage interruptions restored within 4 hours

83.8%

86.0%

84.8%

-1.4%

1.2%

WS1

Unplanned water supply interruptions Number of customers receiving > 5 unplanned interruptions in the year / total number of water (residential and business) customers *100

0.015%

0.021%

0.036%

71.4%

140.0%

WS2

Interruption time Average duration of unplanned water supply interruptions

104.4 minutes

102.9 minutes

95.0 minutes

-7.7%

-9.0%

WS3

Restoration of unplanned water supply Unplanned water supply interruptions restored within 5 hours / total unplanned water supply interruptions * 100

96.0%

96.5%

97.9%

1.5%

2.0%

VARIANCE EXPLANATIONS 6a and 6b

7a and 7b

We experienced an increase in the number of customers experiencing > 5 water supply interruptions. The customers affected were within five separate, large water supply isolation areas. We developed a tactical plan to significantly reduce the number of customers with > 5 interruptions including proactively case managing for customers with > 4 interruptions and implementing high priority initiatives to improve future performance.

We significantly improved performance by achieving a > 50% reduction in backlog volumes and improved the maintenance contractor's resource management.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

OUR PERFORMANCE CONTINUED CUSTOMER RESPONSIVENESS PERFORMANCE INDICATORS PERFORMANCE INDICATOR

2018-19 TARGET

2017-18 RESULT

2018-19 RESULT

VARIANCE TO PRIOR YEAR

VARIANCE NOTES TO TARGET

NOTES

CR1

Water quality complaints Number of complaints per 1,000 customers

3.20

3.23

4.95

53.3%

54.7%

CR2

Sewerage service qualityÂ complaints Number of complaints per 1,000 customers

0.90

0.84

0.70

-16.7%

-22.2%

CR3

Sewerage odour complaints Number of complaints per 1,000 customers

0.22

0.17

0.18

5.9%

10a

-18.2%

10b

CR4

Billing and account complaints Number of complaints per 1,000 customers

3.40

2.83

3.20

13.1%

11a

-5.9%

11b

VARIANCE EXPLANATIONS 8a and 8b

10b

We experienced three significant network issues this year. A change in source supply from Winneke to Silvan Reservoir created increased water quality complaints in August 2018. We experienced a water quality issue at Melbourne Waterâ€™s Greenvale Reservoir in March, April and early May 2019. In May 2019, a distribution main failed, resulting in increased localised water quality complaints in Craigieburn. We also continued to improve the accuracy of our complaints reporting which contributed to the increase in complaint volumes.

The continuation of our odour management strategy including proactively monitoring and treating problem areas resulted in a better performance level than targeted. 11a Implementing an enhanced complaint management framework focusing on capturing of complaints from across the business, resulted in an increased volume of reported complaints compared to last year.

9a and 9b

11b

Sewerage service quality complaint numbers continued to trend downward as a result of the improved field response times achieved by the maintenance contractor.

A focus on the importance of resolving customer enquiries before they become complaints, resulted in a performance level that was better than target.

10a We experienced an increase in sewerage odour complaints due to the higher volume of sewer pipe blockages from tree roots infiltrating pipes due to the hot and dry weather conditions.

ENVIRONMENTAL PERFORMANCE INDICATORS PERFORMANCE INDICATOR E1

Effluent re-use volume (end use)

Total net CO2 emissions Net tonnes CO2 equivalent

2018-19 TARGET

2017-18 RESULT

2018-19 RESULT

VARIANCE TO PRIOR YEAR

28.8%

33.3%

33.6%

0.9%

16.7%

12b

VARIANCE EXPLANATIONS 12b There was an increase in recycled water re-use for onsite irrigation, greater opportunities identified for recycled water used within the sewage treatment plant processes and additional volume of Class A production. These factors resulted in a performance level that was better than targeted.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

VARIANCE NOTES TO TARGET

NOTES

CERTIFICATION OF PERFORMANCE REPORT FOR 2018-19 We certify that the accompanying Performance Report of Yarra Valley Water Corporation in respect of the 2018-19 financial year is presented fairly in accordance with the Financial Management Act 1994.

3 DELIVERING VALUE

The Performance Report outlines the relevant performance indicators for the financial year as determined by the Minister for Water and as set out in the 2018-19 Corporate Plan, the actual and comparative results achieved for the financial year against predetermined performance targets and these indicators, and an explanation of any significant variance between the actual results and performance targets and/ or between the actual results in the current year and the previous year. As at the 21st day of August 2019, we are not aware of any circumstances that would render any particulars in the Performance Report to be misleading or inaccurate.

Sue T Oâ€™Connor Chair

Patrick J McCafferty Managing Director

Natalie Foeng Chief Financial Officer

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

AUDITOR-GENERAL’S AUDIT REPORT

Independent Auditor’s Report To the Board of the Yarra Valley Water Corporation Opinion

I have audited the accompanying performance report of the Yarra Valley Water Corporation (the corporation) for the year ended 30 June 2019, which comprises the: • • • • •

financial performance indicators water and sewerage service performance indicators customer responsiveness performance indicators environmental performance indicators the certification of performance report.

In my opinion, the performance report of the Yarra Valley Water Corporation in respect of the year ended 30 June 2019 presents fairly, in all material respects, in accordance with the performance reporting requirements of Part 7 of the Financial Management Act 1994.

Basis for Opinion

I have conducted my audit in accordance with the Audit Act 1994 which incorporates the Australian Standards on Assurance Engagements. I further describe my responsibilities under that Act and those standards in the Auditor’s Responsibilities for the Audit of the performance report section of my report. My independence is established by the Constitution Act 1975. My staff and I are independent of the corporation in accordance with the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to my audit of the performance report in Victoria and have also fulfilled our other ethical responsibilities in accordance with the Code. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Board's responsibilities for the performance report

The Board is responsible for the preparation and fair presentation of the performance report in accordance with the performance reporting requirements of the Financial Management Act 1994, and for such internal control as the Board determines is necessary to enable the preparation and fair presentation of the statement of performance that is free from material misstatement, whether due to fraud or error.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

Auditor’s responsibilities for the audit of the performance report

3 DELIVERING VALUE

As required by the Audit Act 1994, my responsibility is to express an opinion on the performance report based on the audit. My objectives for the audit are to obtain reasonable assurance about whether the performance report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Standards on Assurance Engagements will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of users taken on the basis of this performance report. As part of an audit in accordance with the Australian Standards on Assurance Engagements, I exercise professional judgement and maintain professional scepticism throughout the audit. I also: •

•

identify and assess the risks of material misstatement of performance report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the corporation’s internal control evaluate the overall presentation, structure and content of the performance report, including the disclosures, and whether performance report represents the underlying events and results in a manner that achieves fair presentation.

I communicate with the Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

MELBOURNE 28 August 2019

Paul Martin as delegate for the Auditor-General of Victoria

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

4 82

YARRA VALLEY WATER ANNUAL REPORT 2018-19

FINANCIAL REPORT

YARRA VALLEY WATER ANNUAL REPORT 2018-19

DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 The Directors of Yarra Valley Water Corporation present their report for the financial year ended 30 June 2019.

A capital repatriation of $23.87 million for the year ended 30 June 2019 was paid on 28 June 2019 and a capital repatriation of $23.87 million for the year ended 30 June 2018 was paid on 29 June 2018.

DIRECTORS

REVIEW OF OPERATIONS

Directors in office during the financial year were as follows. Directors were in office for the entire period, unless otherwise stated.

A review of Yarra Valley Water's operations during the year ended 30 June 2019 and the results of those operations are contained in this Annual Report.

Sue Therese O’Connor Robert Clive Skinner Patrick John McCafferty Victor John Perton Anita Michele Roper Eric Sjerp Helen Lynette Thornton Karen Milward Victoria Fay Marles

Chair Deputy Chair Managing Director Director Director Director Director Director Director

Particulars of the Directors’ and Corporate Secretary’s qualifications, experience and special responsibilities (if any) are set out in the Our Leadership section of this Annual Report. DIRECTORS’ ATTENDANCE AT MEETINGS The number of Directors’ meetings and Board Committee meetings held, and the number of meetings attended by each of the Directors during the financial year is set out in the Our Leadership section of this Annual Report.

STATE OF AFFAIRS There were no significant changes in the state of affairs of Yarra Valley Water during the year ended 30 June 2019. For a discussion of the program and initiatives we rolled out this year, refer to the 2018-19 Highlights section in this Annual Report. EVENTS SUBSEQUENT TO BALANCE SHEET DATE Except as provided above, no matter or circumstance has arisen that, in the opinion of the Directors, has significantly affected or may significantly affect the operations of Yarra Valley Water, the results of those operations, or Yarra Valley Water’s state of affairs in future financial years. ENVIRONMENTAL REGULATION Yarra Valley Water’s operations are subject to environmental regulation.

The principal activities during the course of the financial year were providing retail water supply and sewerage services and collecting trade waste within the Yarra Valley Water district.

We hold a Corporate Licence issued by the Environment Protection Authority Victoria (EPA) under the Environment Protection Act 1970 (Vic). The licence imposes conditions relating to discharges, reporting obligations and other matters concerning the operation of seven sewage treatment plants.

There were no significant changes in the nature of these activities during the year.

During the 2018-19 financial year, Yarra Valley Water complied with all conditions of the EPA’s Corporate Licence.

DIVIDENDS

Yarra Valley Water maintains an Environment Management System certified to ISO 14001: (2015).

PRINCIPAL ACTIVITIES

The amount of the final dividend for the year ended 30 June 2019 will be determined after consultation between the Board, the Minister for Water and the Treasurer of Victoria. An interim dividend of $10.2 million for the year ended 30 June 2018 was paid on 29 June 2018. A final dividend of $44.1 million for the year ended 30 June 2018 was paid on 30 October 2018.

CAPITAL REPATRIATION

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

On 12 December 2017, the EPA issued charges to Yarra Valley Water Corporation under the Environmental Protection Act 1970 (Vic) relating to an alleged water pollution event; a sewage spill in Chirnside Park on 5 July 2016. Yarra Valley Water identified that the discharge of sewage and industrial effluent was caused by a blockage in a sewer maintenance hole due to a build-up of non-degradable materials such as wet wipes. We completed all clean-up activities around the spill site, carried out remedial works and implemented a proactive well cleaning program targeting our pumped sewage facilities.

On 12 December 2018, Yarra Valley Water was found guilty without conviction. In accordance with the court order, we contributed $80,000 towards local community groups and $20,000 towards implementing a local community wet wipe education campaign. Further particulars of specific environmental performance measures are set out in the Environmental Outcomes and Our Performance sections of this Annual Report. DIRECTORS’ DEEDS Yarra Valley Water has entered into a Deed with each Director under which it is required to provide access to its books and to maintain insurance coverage for at least seven years after the Director ceases to be a Director.

INSURANCE OF OFFICERS

FINANCIAL REPORT

During the financial year, Yarra Valley Water paid premiums in respect of contracts to insure Directors, former Directors and Officers of Yarra Valley Water against certain liabilities. Some of the contracts of insurance prohibit disclosure of the nature of the liabilities insured and the amount of the premium. ROUNDING OF AMOUNTS TO NEAREST THOUSAND DOLLARS The amounts in this Report and the Annual Financial Report have been rounded to the nearest thousand dollars, unless otherwise stated. This Report is made in accordance with a resolution of the Directors of Yarra Valley Water on 21 August 2019.

Sue T O’Connor Chair

Patrick J McCafferty Managing Director

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019 NOTE

2019 $’000

2018 $’000

Service and usage revenue

2.2

957,613

936,265

New customer contributions by developers

2.2

32,204

32,101

Developer contributed assets

2.2

83,603

23,272

Other revenue

2.2

46,592

50,718

Other income

2.2

Total revenue

4,041

4,441

1,124,053

1,046,797

Bulk water and sewerage expenses

3.1

(522,119)

(503,305)

Contract expenses

3.1

(58,718)

(57,270)

3.2.1

(50,884)

(48,447)

Environmental contribution

8.2

(42,855)

(29,880)

Depreciation

4.2

(87,755)

(87,051)

Amortisation

4.3

(19,731)

(20,792)

Finance costs

6.1.2

(132,207)

(130,127)

3.1

(49,728)

(45,171)

(963,997)

(922,043)

160,056

124,754

(48,356)

(36,252)

111,700

88,502

Salary and employee benefits expense

Other expenses Total expenses Profit before income tax Income tax expense

8.1

NET PROFIT AFTER TAX

OTHER COMPREHENSIVE INCOME Decrease from revaluation of infrastructure assets

4.2

(127,587)

(32,745)

Increase from revaluation of land

4.2

57,749

Defined benefit superannuation plan actuarial gain / (loss)

9.2

(2,098)

2,213

Deferred income tax on items of other comprehensive income

8.1

39,073

173

(90,612)

27,390

21,088

115,892

Other comprehensive income, net of tax TOTAL COMPREHENSIVE INCOME The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

BALANCE SHEET AS AT 30 JUNE 2019 NOTE

2019 $’000

2018 $’000

Cash

6.2

1,036

986

Receivables

5.2

165,777

191,431

Other non-financial assets

5.3

4,545

4,432

171,358

196,849

ASSETS Current assets

Total current assets Non-current assets 4.2

4,772,209

4,578,102

Intangible assets

4.3

171,818

180,125

3.2.3.2c

5,671

8,317

5.2

2,939

Total non-current assets

4,949,698

4,769,483

TOTAL ASSETS

5,121,056

4,966,332

Defined benefit superannuation asset Receivables

LIABILITIES Current liabilities Contract liabilities

5.5

56,208

20,293

Current tax payable

8.1

22,614

11,239

3.2.2

20,268

17,014

Provisions - employee benefits Other provisions

5.6

4,629

4,737

Payables

5.4

113,446

134,306

Borrowings

6.1

288,107

289,565

505,272

477,154

1,882

1,785

Total current liabilities

4 FINANCIAL REPORT

Infrastructure, property, plant and equipment

Non-current liabilities Provisions - employee benefits

3.2.2

Contract liabilities

5.5

8,184

Deferred tax liabilities

8.1

638,261

680,302

Borrowings

6.1

2,341,400

2,124,600

Total non-current liabilities

2,981,543

2,814,871

Total liabilities

3,486,815

3,292,025

NET ASSETS

1,634,241

1,674,307

EQUITY Contributed equity

9.1

420,967

444,832

Retained earnings

9.2

398,284

325,174

Asset revaluation surplus

9.3

814,990

904,301

1,634,241

1,674,307

TOTAL EQUITY The above Balance Sheet should be read in conjunction with the accompanying notes.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 CONTRIBUTED EQUITY $’000

RETAINED EARNINGS $’000

ASSET REVALUATION SURPLUS $’000

TOTAL $’000

468,697

276,722

878,741

1,624,160

88,502

9.2, 9.3

1,550

25,560

27,110

Capital repatriation

9.1

(23,865)

Dividends paid

9.2

(41,600)

444,832

325,174

904,301

1,674,307

6,978

444,832

332,152

904,301

1,681,285

111,700

9.2, 9.3

(1,468)

(89,311)

(90,779)

Capital repatriation

9.1

(23,865)

Dividends paid

9.2

(44,100)

420,967

398,284

814,990

1,634,241

NOTE Balance as at 1 July 2017 Net profit after tax Other comprehensive income, net of tax

BALANCE AS AT 30 JUNE 2018 Adjustments due to changes in accounting standards after tax

2.1.1, 5.1

Restated balance as at 1 July 2018 Net profit after tax Other comprehensive income, net of tax

BALANCE AS AT 30 JUNE 2019

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

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2019 2019 $’000

2018 $’000

Receipts from customers

1,050,775

1,004,622

Payments to suppliers and employees

(750,216)

(693,979)

Goods and services tax refunded (net)

42,021

24,224

(43,109)

(26,705)

(131,153)

(127,669)

168,331

180,502

992

1,069

(301,550)

(251,445)

Payments for acquisition of intangible assets

(15,654)

(16,768)

Net cash outflow from investing activities

(316,212)

(267,144)

367,642

344,148

(152,300)

(193,200)

554

1,034

NOTE Cash flow from operating activities

Income tax paid Interest and other costs of finance paid Interest received Net cash inflow from operating activities

6.2.1

Cash flows from investing activities Proceeds from sale of intangibles, infrastructure, property, plant and equipment

FINANCIAL REPORT

Payments for acquisition of infrastructure, property, plant and equipment

Cash flows from financing activities Refinancing of borrowings - inflow Refinancing of borrowings - outflow Developer security deposits Dividends paid

9.2

(44,100)

(41,600)

Capital repatriation

9.1

(23,865)

147,931

86,517

(125)

986

1,111

1,036

986

Net cash inflow from financing activities Net increase / (decrease) in cash held Cash at beginning of year CASH AT END OF YEAR

6.2

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

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 1. ABOUT THIS REPORT Basis of accounting This financial report is a general purpose financial report, consisting of Statement of Comprehensive Income, Balance Sheet, Statement of Changes in Equity and Cash Flow Statement and notes accompanying these statements for the period ending 30 June 2019. The general purpose financial report has been prepared in accordance with Australian Accounting Standards, Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board, the requirements of the Financial Management Act 1994 and applicable Ministerial Directions. The financial report has been prepared on an accrual and going concern basis and is prepared on a historical cost convention, except for infrastructure, property, plant and equipment, and the defined superannuation asset which have been measured at fair value. The financial report of Yarra Valley Water Corporation, as an individual reporting entity for the year ended 30 June 2019, was authorised for issue in accordance with a resolution of the Directors on 21 August 2019. Accounting policies Accounting policies are applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. The accounting policies have been consistently applied, unless otherwise stated. Refer to notes 2.1 and 5.1 for the transition to AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments. Functional and presentation currency All amounts are presented in Australian dollars, unless otherwise stated, and have been rounded to the nearest thousand dollars or, in other cases, to the nearest dollar. Classification between current and non-current In the determination of whether an asset or liability is current or non-current, consideration is given to the time when each asset or liability is expected to be realised or paid. The asset or liability is classified as current if it is expected to be turned over within the next 12 months.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

Accounting estimates Yarra Valley Water evaluates estimates and makes judgements which are incorporated in the financial report based on historical knowledge and the best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data obtained both externally and within Yarra Valley Water. The significant judgements made in preparing these financial statements are disclosed in the notes where amounts affected by those judgements are disclosed. Actual results may differ from these estimates. The most significant accounting estimates undertaken in preparing this financial report relate to: ›› Water usage and sewage disposal charge accruals – note 2.2 ›› New customer contributions – note 2.2 ›› Developer contributed assets – note 2.2 ›› Other revenue – note 2.2 ›› Employee benefit provisions and other provisions – note 3.2.2 and note 5.6 ›› Defined benefit superannuation fund – note 3.2.3.2 ›› Asset residual values and useful lives – note 4.2 ›› Asset impairment – note 4.2 ›› Trade receivables - accrued revenue – note 5.2 ›› Unearned income – note 5.5 ›› Contingent assets and liabilities – note 7.3 ›› Fair value of infrastructure, property, plant and equipment – note 7.4 ›› Deferred tax – note 8.1

2. FUNDING DELIVERY OF OUR SERVICES Introduction This section provides additional information about how Yarra Valley Water is funded and the accounting policies that are relevant for understanding the items recognised in the financial statements. Structure 2.1 Change in accounting standard – AASB 15 Revenue from Contracts with Customers 2.1.1 The effect of adopting AASB 15 as at 1 July 2018 2.1.2 The effect of adopting AASB 15 as at 30 June 2019 2.2 Summary of income that funds the delivery of our services 2.3 Commitments for lease receivables

2.1. CHANGE IN ACCOUNTING STANDARD – AASB 15 REVENUE FROM CONTRACTS WITH CUSTOMERS AASB 15 Revenue from Contracts with Customers came into effect for Yarra Valley Water from 1 July 2018. Under AASB 15 we recognise revenue as performance obligations are satisfied. Consideration received in advance of completing performance obligations is recorded as a contract liability, refer note 5.5. Revenue from contracts with customers is recognised when control of the goods or services has transferred to the customer at an amount that reflects the consideration to which we expect to be entitled in exchange of those goods or services.

2.1.1. THE EFFECT OF ADOPTING AASB 15 AS AT 1 JULY 2018

NOTE

2018 INCREASE/ (DECREASE) $'000

24,328

4 FINANCIAL REPORT

A modified retrospective approach has been applied in applying the new standard. In implementing AASB 15 under the modified retrospective approach, an adjustment has been applied to the opening balance of retained earnings as at 1 July 2018 (refer note 9.2) for contracts that were not completed at 1 July 2018. The following tables show the adjustments recognised for each individual line item as a result of adopting AASB 15. Line items that were not affected by the changes have not been included.

Assets Infrastructure, property, plant and equipment TOTAL ADJUSTMENT ON ASSETS

24,328

Liabilities Contract liabilities Current tax payable Deferred tax liabilities

i-iii

14,506

7,286

i-iii

(4,339)

TOTAL ADJUSTMENT ON LIABILITIES

17,453

TOTAL ADJUSTMENT ON NET ASSETS

6,875

Equity Retained earnings TOTAL ADJUSTMENT ON EQUITY

i-iii

6,875 6,875

i. Refer to note 2.2 for our accounting policies in respect of revenue from developer contributed assets. Under AASB 15 revenue from developer contributed assets is recognised at the point in time that the Statement of Compliance or Acceptance of Works is issued. This has predominately brought forward revenue recognition and increased the assets recognised during the year. ii. Refer to note 2.2 for our accounting policies in respect of revenue from new customer contributions. Under AASB 15 revenue from new customer contributions is typically recognised at the point in time when the Statement of Compliance is issued or connection to services occurs. This has deferred revenue previously recognised to contract liabilities, to be recognised in future periods. iii. Refer to note 2.2 for our accounting policies in respect of revenue from other products and services. Under AASB 15 revenue from other products and services is recognised at the point in time when Yarra Valley Water has met the performance obligations associated with the products and services, for example the issue of Statement of Compliance or installation of a new water meter. This has deferred revenue previously recognised to contract liabilities to be recognised in future periods.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED 2.1.2. THE EFFECT OF ADOPTING AASB 15 AS AT 30 JUNE 2019

2019 $'000 IMPACT ON STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019

NOTE

PREVIOUS AS REPORTED STANDARD - AASB 15

INCREASE / (DECREASE)

Revenue New customer contributions by developers

44,328

32,204

(12,124)

Developer contributed assets

81,034

83,603

2,569

iii

52,959

46,592

(6,367)

1,139,975

1,124,053

(15,922)

175,978

160,056

(15,922)

Other revenue Total revenue Profit before income tax

(53,133)

(48,356)

4,777

122,845

111,700

(11,145)

32,233

21,088

(11,145)

4,744,557

4,772,209

27,652

Total non-current assets

4,922,046

4,949,698

27,652

Total assets

5,093,404

5,121,056

27,652

Income tax expense

i-iii

Net profit after tax TOTAL COMPREHENSIVE INCOME

IMPACT ON BALANCE SHEET AS AT 30 JUNE 2019 Assets Infrastructure, property, plant and equipment

Liabilities Contract liabilities

i-iii

22,435

56,208

33,773

Current tax payable

i-iii

22,663

22,614

(49)

471,548

505,272

33,724

640,063

638,261

(1,802)

Total non-current liabilities

2,983,345

2,981,543

(1,802)

Total liabilities

3,454,893

3,486,815

31,922

Net assets

1,638,511

1,634,241

(4,270)

402,554

398,284

(4,270)

1,638,511

1,634,241

(4,270)

Total current liabilities

Deferred tax liabilities

i-iii

Equity Retained earnings TOTAL EQUITY

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

i-iii

2.2. S UMMARY OF INCOME THAT FUNDS THE DELIVERY OF OUR SERVICES 2019 $’000

2018 $’000

Fixed service charges

396,359

390,168

Water usage charges

416,016

400,652

Sewage disposal charges

120,598

190,767

24,642

24,745

(2)

(70,067)

957,613

936,265

SERVICE AND USAGE REVENUE

Trade waste charges Government water rebate provided to customers TOTAL SERVICE AND USAGE REVENUE

New customer contributions (NCC)

Water and sewerage service charges (fixed service charges) are billed quarterly in advance and recognised as revenue over time as the customer receives access to our services. Service charges represent charges for access to the water supply and sewerage systems.

New customer contributions represent charges applicable when a customer builds or develops a property and connects to Yarra Valley Water’s water supply and sewerage infrastructure. The contributions collected contribute towards the cost of providing shared infrastructure and are recognised as revenue at the point in time when Yarra Valley Water has met the performance obligations associated with the contribution. Performance obligations are typically recognised as being met by issuing of a Statement of Compliance (Yarra Valley Water’s consent to Council for the Council to continue processing a developer’s application) or connection to services.

Water usage charges and sewage disposal charges are recognised as revenue over time as the customer simultaneously receives and consumes the services provided. As meter reading is cyclical, an estimate is made at the end of the accounting period for water usage and sewage disposal by customers, refer note 5.2. This estimate is determined based on bulk water purchases from Melbourne Water less the estimated non-revenue, including bursts and leaks, water required for operational use, firefighting, unauthorised consumption/theft and meter inaccuracies. Trade waste charges are recognised as revenue at a point in time when the service delivery period ends. Volume meters are read, and appropriate charges levied per trade waste agreements. Meters are read on a cyclical basis with accounts sent on a quarterly basis. The payment in advance by customers of accounts is classified as contract liabilities, refer note 5.5. Government water rebate The Government water rebate is recognised as a rebate against revenue when the associated revenue is billed. It represents a rebate back to residential customers provided by Yarra Valley Water on behalf of the State Government. It was first issued in 2014-15 on the first quarterly bill (July, August, September), and provided each year until 30 September 2017. There was no rebate in the financial year ended 2019.

4 FINANCIAL REPORT

Service and usage charges

Developer contributed assets (DCA) Revenue from developer contributed assets arise where developers pay for the cost of constructing new assets and subsequently gift these assets to Yarra Valley Water. We maintain these assets in perpetuity. Revenue is recognised at the point in time when Yarra Valley Water has met the performance obligations associated with the asset. Performance obligations are recognised as being met by issuing of a Statement of Compliance or Acceptance of Works (Yarra Valley Water’s acknowledgement that the assets are operational) depending upon the developer’s application and specific performance obligations. This non-cash revenue is recorded as developer contributed assets. We measure the income by assessing the value of the works using a schedule of rates.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED OTHER REVENUE Other products and services

2019 $’000

2018 $’000

15,287

23,375

Park and drainage fees

7,768

7,678

Information statements and applications

4,817

5,929

18,720

13,736

46,592

50,718

Other TOTAL OTHER REVENUE

Other revenue Other revenue items are recognised on an accrual basis. Other products and services relate to various plumbing services revenue including new meter connections and recycled water inspection fees. Revenue is recognised at the point in time when Yarra Valley Water has met the performance obligations associated with the products and services, for example, issue of Statement of Compliance or installing a new water meter.

Other revenue includes fees for information statements, water trading, billing and collection administration fees from both Melbourne Water and the Department of Environment, Land, Water and Planning, and land development application fees which are recognised at the point in time when the service has been provided.

2019 $’000

2018 $’000

Total revenue recognised over-time

932,973

981,587

Total revenue recognised at a point in time

187,039

60,769

1,120,012

1,042,356

2,882

1,712

REVENUE FROM CONTRACTS WITH CUSTOMERS

TOTAL REVENUE FROM CONTRACTS WITH CUSTOMERS

OTHER INCOME Operating lease income Interest income Impairment writeback

1,146

2,720

TOTAL OTHER INCOME

4,041

4,441

Other income Other income is not revenue from contracts with customers. It is recognised on an accrual basis. Income from operating leases is recognised in net profit in the Statement of Comprehensive Income on a straight-line basis over the lease term.

2.3. COMMITMENTS FOR LEASE RECEIVABLES The following table summarises the non-cancellable operating lease receivables contracted for at balance date but not provided in the financial statements. Revenue for operating leases, where substantially all risks and benefits remain with the lessor, are recognised as revenue in the periods in which they are incurred. The commitments recorded below are at their nominal value and are inclusive of GST. Yarra Valley Water has non-cancellable agreements with various telecommunication bodies who use Yarra Valley Water land and buildings to house their telecommunication infrastructure.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

NON-CANCELLABLE LEASE RECEIVABLES

2019 $’000

2018 $’000

No later than one year

2,050

425

Later than one year and no later than five years

3,290

1,216

Later than five years

4,797

2,363

10,137

4,004

TOTAL (GST INCLUSIVE)

3. THE COST OF DELIVERING OUR SERVICES Introduction This section provides additional information about how Yarra Valley Water’s funding is applied and the accounting policies that are relevant for understanding the items recognised in the financial statements. Structure

3.1. SUMMARY OF OTHER EXPENSES INCURRED IN THE DELIVERY OF OUR SERVICES Bulk water and sewerage charges Bulk water and sewerage charges are levied by Melbourne Water for the cost of water Yarra Valley Water purchases, and for sewerage treated at Melbourne Water’s treatment plants.

BULK WATER AND SEWERAGE EXPENSES

2019 $’000

2018 $’000

72,964

68,924

Fixed bulk water and sewerage expenses

449,155

434,381

TOTAL BULK WATER AND SEWERAGE EXPENSES

522,119

503,305

Variable bulk water and sewerage expenses

Contract expenses Contract expenses include costs such as maintenance contracts, software licences and various other contracts which are expensed in the reporting period in which they are incurred. Billing and revenue collection costs Billing and revenue collection costs include printing, postage and collection fees which are expensed in the reporting period in which they are incurred. Other expenses Other expenses includes legal, insurance, materials, transport and other expenses.

2019 $’000

2018 $’000

Billing and revenue collection costs

9,026

9,198

Information technology costs

5,400

3,271

Electricity

5,501

4,880

Consulting services

3,853

3,165

Government taxes, fees and contributions

3,070

3,777

1,104

2,417

3,066

5.2.1

3,985

4.2

2,076

2,944

3.2.3.2.c

548

688

173

111

OTHER EXPENSES

NOTE

Impairment write down of assets to recoverable amount Bad and doubtful debts Deferred property debt forgiveness Write off / disposal of assets Superannuation defined benefit expense Rental expenses relating to operating leases

4 FINANCIAL REPORT

3.1 Summary of other expenses incurred in the delivery of our services 3.2 Our People 3.2.1 Employee benefits – Statement of Comprehensive Income 3.2.2 Employee benefits – Balance Sheet 3.2.3 Superannuation 3.3 Commitments for operating leases expenditure 3.4 Remuneration of auditors

Variable charges are levied in arrears and are payable on a weekly basis. Fixed charges are levied once a month and are payable on the fifteenth of the month to which they refer. Any variable charges that remain outstanding at the end of the period are accrued.

Other expenses

13,594

12,967

TOTAL OTHER EXPENSES

49,728

45,171

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED 3.2. OUR PEOPLE 3.2.1. EMPLOYEE BENEFITS – STATEMENT OF COMPREHENSIVE INCOME Employee expenses include all costs related to employment including wages and salaries, superannuation, fringe benefits tax, leave entitlements, termination payments and WorkCover premiums. 3.2.2. EMPLOYEE BENEFITS – BALANCE SHEET A provision is recognised for benefits accruing to employees in respect of annual leave and long service leave when it is probable that settlement will be required and the liability is capable of being reliably measured. Wages and salaries, annual leave and sick leave Liabilities for wages and salaries (including non-monetary benefits, annual leave and on-costs) are recognised as part of the employee benefit provision as current liabilities, because Yarra Valley Water does not have an unconditional right to defer settlements of these liabilities. The liability for salaries and wages are recognised in the balance sheet at remuneration rates which are current at the reporting date. As Yarra Valley Water expects the liabilities to be wholly settled within 12 months of the reporting date, they are measured at an undiscounted amount. The annual leave liability is classified as a current liability and measured at an undiscounted amount for those entitlements expected to be wholly settled within 12 months. Annual leave that is expected to be settled after 12 months is measured as the present value of estimated future cash flows. No provision has been made for sick leave as all sick leave is non-vesting and it is not considered probable that the average sick leave taken in the future will be greater than the benefits accrued in the future. As sick leave is non-vesting, an expense is recognised in the Statement of Comprehensive Income as it is taken. Employment on-costs such as payroll tax, workers’ compensation and superannuation are not employee benefits however contribute to the cost of employment provisions. They are disclosed separately as a component of the provision for employee benefits when the employment to which they relate has occurred.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

Unconditional long service leave Unconditional long service leave (LSL) is disclosed as a current liability - even where Yarra Valley Water does not expect to settle the liability within 12 months because we don't have the unconditional right to defer the settlement of the entitlement should an employee elect to take leave within 12 months. The components of this current LSL liability are measured at: ›› Undiscounted value – if Yarra Valley Water expects to wholly settle within 12 months ›› Present value – if Yarra Valley Water does not expect to wholly settle within 12 months. Conditional long service leave Conditional LSL is disclosed as a non-current liability. There is an unconditional right to defer the settlement of the entitlement until the employee has completed seven years of service. This non-current long service leave is measured at present value.

2019 $’000

2018 $’000

Unconditional and expected to settle within 12 months

1,557

1,672

Unconditional and expected to settle after 12 months

3,477

2,933

12,749

10,145

CURRENT LIABILITIES - PROVISIONS Annual leave

Long service leave Unconditional and expected to settle within 12 months Unconditional and expected to settle after 12 months Provisions for on-costs Unconditional and expected to settle within 12 months Unconditional and expected to settle after 12 months

234

254

20,268

17,014

1,663

1,553

219

232

1,882

1,785

Opening balance

2,429

2,283

Additional provision

1,435

972

Amounts utilised during year

(935)

(863)

TOTAL CURRENT LIABILITIES - PROVISIONS

NON-CURRENT LIABILITIES - PROVISIONS Employee benefits - long service leave On-costs TOTAL NON-CURRENT LIABILITIES - PROVISIONS

4 FINANCIAL REPORT

2,182

1,943

Reconciliation of movement in on-cost provision

Effect of changes in discount rate and remeasurement CARRYING AMOUNT AT YEAR END

(294)

2,635

2,429

Reconciliation of on-cost provision relates to the sum of current $2,416,000 (2018: $2,197,000) and non-current $219,000 (2018: $232,000) on-costs.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED 3.2.3. SUPERANNUATION 3.2.3.1. Accumulation plans Contributions to the accumulation plans are expensed as the contributions are paid or become payable. 3.2.3.2. Defined benefit superannuation asset A liability or asset in respect of the defined benefit superannuation plan is recognised in the Balance Sheet and is measured as the present value of the defined benefit obligation at the reporting date, plus unrecognised actuarial gains (less unrecognised actuarial losses) less the fair value of the superannuation fund’s assets at that date. The present value of the defined benefit obligation is based on expected future payments to the reporting date, calculated annually by independent actuaries using the projected unit credit method. Consideration is given to the expected future wage and salary levels, experience of employee departures and periods of service. Actuarial gains and losses are recognised immediately in other comprehensive income. a. Superannuation plan information For employees who are members of the Equipsuper Superannuation Fund defined benefit plan, an agreed percentage of salaries is contributed to the fund by Yarra Valley Water as recommended by an actuary. Defined benefit members receive lump sum benefits on retirement, death, disablement and withdrawal. Some defined benefit members are also eligible for pension benefits in certain circumstances. The defined benefit plan is closed to new members. All new members of the fund receive accumulation only benefits. The Superannuation Industry (Supervision) Act 1993 (SIS) governs the superannuation industry and provides the framework within which superannuation plans operate. The SIS Regulations require an actuarial valuation to be performed for each defined benefit superannuation plan every three years, or every year if the plan pays defined benefit pensions unless an exemption has been obtained. Yarra Valley Water values its plan annually.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

The plan's Trustee is responsible for the governance of the plan and has a legal obligation to act solely in the best interest of plan beneficiaries. The Trustee has the following roles: ›› Administration of the plan and payment to the beneficiaries from plan assets when required in accordance with the plan rules ›› Management and investment of the plan assets ›› Compliance with superannuation law and other applicable regulations. The prudential regulator, the Australian Prudential Regulation Authority, licences and supervises regulated superannuation plans. There were no plan amendments affecting the defined benefits payable, curtailments or settlements during the year. b. Description of risks There are a number of risks to which the plan exposes Yarra Valley Water. The more significant risks relating to the defined benefits are: ›› Investment risk – The risk that investment returns will be lower than assumed and Yarra Valley Water will need to increase contributions to offset the shortfall. ›› Salary growth risk – The risk that wages or salaries (on which future benefit amounts will be based) will rise more rapidly than assumed, increasing defined benefit amounts and thereby requiring additional employer contributions. ›› Legislative risk – The risk that legislative changes could be made which increase the cost of providing the defined benefits. ›› Pension risk – The risk that a greater proportion of eligible members will elect to take a pension benefit, which is generally more valuable than the corresponding lump sum benefit. The plan assets are invested by the Trustee in the Defined Benefit and Cash investment options. The assets are diversified within these investment options and therefore the plan has no significant concentration of investment risk.

DEFINED BENEFIT OBLIGATION $’000

NET DEFINED BENEFIT ASSET $’000

36,125

(29,333)

6,792

(822)

782

(648)

134

1,763

211

(211)

Actuarial gains arising from changes in financial assumptions

708

Actuarial losses arising from liability experience

(258)

(1,256)

1,256

(129)

129

37,496

(29,179)

8,317

(733)

Interest income / (expense)

918

(733)

185

Actuarial return on plan assets less interest income

925

Contributions by plan participants

197

(197)

Actuarial losses arising from changes in financial assumptions

(2,998)

Actuarial losses arising from liability experience

(25)

(3,652)

3,652

(148)

148

35,736

(30,065)

5,671

c. Reconciliation of assets and obligations Opening balance at 1 July 2017 Current service cost Interest income / (expense) Actuarial return on plan assets less interest income Contributions by plan participants

Benefits paid Taxes, premiums and expenses paid CLOSING BALANCE AT 30 JUNE 2018 Current service cost

Benefits paid Taxes, premiums and expenses paid CLOSING BALANCE AT 30 JUNE 2019

4 FINANCIAL REPORT

FAIR VALUE OF PLAN ASSETS $’000

Superannuation defined benefit expense (note 3.1) is represented by the sum of current service cost, interest income and interest expense $548,000 (2018: $688,000).

The asset ceiling has no impact on the net defined benefit liability / (asset). d. Fair value plan assets as at 30 June 2019 Investment funds are measured using significant observable inputs – Level 2.

2019 %

2018 %

Australian equity

International equity

Fixed income

100

e. Plan assets

Property Growth alternatives Defensive alternatives Cash TOTAL Asset allocation as at 30 June 2019 is currently unavailable. Asset allocation at 31 May 2019 has been used.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED f. Fair value of Yarra Valley Water’s own financial instruments The fair value of plan assets includes no amounts relating to: ›› Any of Yarra Valley Water’s own financial instruments ›› Any property occupied by, or other assets used by Yarra Valley Water.

g. Actuarial assumptions to determine defined benefit cost and obligation

DEFINED BENEFIT COST 2019 2018 % %

Actuarial assumptions to determine

DEFINED BENEFIT OBLIGATION 2019 2018 % %

Discount rate

2.6%

2.3%

1.3%

2.6%

Salary increase rate

4.6%

h. Sensitivity analysis The defined benefit obligation as at 30 June 2019 under several scenarios is presented below.

DISCOUNT RATE 0.5% PA 0.5% PA LOWER HIGHER

BASE CASE

SALARY RATE 0.5% PA 0.5% PA LOWER HIGHER

Discount rate - per annum

1.3%

0.8%

1.8%

1.3%

Salary increase rate - per annum

4.6%

4.1%

5.1%

30,065

31,340

28,861

28,883

31,302

Defined benefit obligation ($’000) 1 1

Includes contribution tax provision.

The defined benefit obligation has been recalculated by changing the assumptions as outlined above, whilst retaining all other assumptions. No asset and liability matching strategies have been adopted by the plan. i. Funding arrangements The Equipsuper Contribution and Funding Policy provides for a review of the financial position of the plan each six months, as at 30 June and 31 December, with Yarra Valley Water’s contribution rate comprising a long-term contribution rate and an adjustment to meet the financial objective of a Funding Ratio of 104 per cent. The Target Funding Ratio reflects the proportion of salary related benefits and the allocation to ‘growth’ assets for the plan. The Funding Ratio is the ratio of assets to accrued liabilities, being the greater of vested benefits and the present value of past membership benefits.

100

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

Where the Funding Ratio is greater than 100 per cent, the financing objective is to achieve the Target Funding Ratio over five years. Where the Funding Ratio is less than 100 per cent the primary financing objective is to achieve 100 per cent over three years and the Target Funding Ratio over five years. In the most recent review of the financial position as at 31 December 2018, the actuary recommended continuing Yarra Valley Water’s contribution rate of nil. The next review of the plan’s financial position and Yarra Valley Water’s contribution rate is due at 30 June 2019. This review will occur post 30 June once the required information becomes available. Yarra Valley Water continues to contribute salary sacrifice contributions at the required rates for accumulation members.

j. Expected contributions Employer contributions for the financial year ending 30 June 2020 are expected to be nil. k. Maturity profile of defined benefit obligations The weighted average duration of the defined benefit obligation as at 30 June 2019 is seven years (2018: seven years).

$’000 30 June 2020

2,036

30 June 2021

2,308

30 June 2022

2,369

30 June 2023

2,527

30 June 2024

2,829

Following five years

13,245

FINANCIAL REPORT

3.3. COMMITMENTS FOR OPERATING LEASE EXPENDITURE Payments for operating leases, where substantially all the risks and benefits remain with the lessor – are charged as expenses in the periods in which they are incurred and are disclosed in note 3.1. Yarra Valley Water, has an immaterial number of leases. Refer note 9.10 for changes in accounting standards in 2019-20. Refer notes 4.5 and 8.2 for details on contractual and environmental commitments, respectively.

3.4. REMUNERATION OF AUDITORS

2019 $’000

2018 $’000

Financial statements - Victorian Auditor-General’s Office

145

142

Internal audit - Pitcher Partners

279

296

TOTAL REMUNERATION OF AUDITORS

424

438

REMUNERATION OF AUDITORS

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

101

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED 4. KEY ASSETS AVAILABLE TO SUPPORT OUTPUT DELIVERY Introduction Yarra Valley Water controls infrastructure and other assets that are utilised in fulfilling its objectives and conducting its activities. They represent the key resources that have been entrusted to Yarra Valley Water to be utilised for delivery of those outputs. Structure 4.1 Total infrastructure, property, plant and equipment: carrying amount 4.2 Reconciliation of movements in carrying values of infrastructure, property, plant and equipment 4.3 Intangible assets 4.4 Net gain / loss on disposal of non-current physical assets 4.5 Contractual commitments

4.1. TOTAL INFRASTRUCTURE, PROPERTY, PLANT AND EQUIPMENT: CARRYING AMOUNT GROSS CARRYING AMOUNT

ACCUMULATED DEPRECIATION

NET CARRYING AMOUNT

2019 $’000

2018 $’000

2019 $’000

2018 $’000

2019 $’000

2018 $’000

3,890,500

3,817,200

3,890,500

3,817,200

410,871

408,968

410,871

408,968

Buildings

36,599

35,028

(3,848)

(2,455)

32,751

32,573

Plant and equipment

52,891

44,588

(26,809)

(24,858)

26,082

19,730

412,005

299,631

412,005

299,631

4,802,866

4,605,415

(30,657)

(27,313)

4,772,209

4,578,102

At fair value Infrastructure Land

At cost Capital works in progress TOTAL

102

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

4.2. RECONCILIATION OF MOVEMENTS IN CARRYING VALUES OF INFRASTRUCTURE, PROPERTY, PLANT AND EQUIPMENT

Balance at 1 July 2017

INFRASTRUCTURE $’000

LAND $’000

BUILDINGS $’000

PLANT AND EQUIPMENT $’000

CAPITAL WORKS IN PROGRESS $’000

TOTAL $’000

348,074

33,851

20,932

178,541

4,353,098

288,379

Transfers

160,382

1,529

113

5,265

(167,289)

(618)

(2,326)

(2,944)

Depreciation

(81,519)

(1,391)

(4,141)

(87,051)

Revaluation increase / (decrease) recognised in equity

(32,745)

57,749

25,004

1,616

3,817,200

408,968

32,573

19,730

299,631

4,578,102

Additions

411,525

Transfers

284,773

1,903

1,570

10,905

(299,151)

(1,156)

(920)

(2,076)

(82,730)

(1,392)

(3,633)

(87,755)

(127,587)

3,890,500

410,871

32,751

26,082

412,005

4,772,209

Write off / disposal of assets

Impairment writeback of assets to recoverable amount CARRYING AMOUNT AT 30 JUNE 2018

Write off / disposal of assets Depreciation Revaluation decrease recognised in equity CARRYING AMOUNT AT 30 JUNE 2019

Initial recognition Infrastructure, property, plant and equipment are measured initially at cost and subsequently revalued at fair value less accumulated depreciation and impairment losses, where applicable. Where an asset is acquired for no or nominal cost, the cost is its fair value at the date of acquisition. The cost of constructed non-financial physical assets includes the cost of all materials used in construction, direct labour on the project and appropriate proportion of variable and fixed overheads. Subsequent measurement Infrastructure, property, plant and equipment are subsequently measured at fair value less accumulated depreciation and impairment. Fair value is determined with regard to the asset’s highest and best use (considering legal or physical restrictions imposed on the asset, public announcements or commitments made in relation to the intended use of the asset) and is summarised by asset category on the next page. Refer note 7.4 for fair value disclosures. Revaluations In measuring the fair values of non-financial assets, we engage independent valuers for scheduled valuations every five years or earlier if interim indices suggest there has been a material movement. Infrastructure assets are measured at fair value every year.

4 FINANCIAL REPORT

3,771,700

Additions

Revaluations are performed with sufficient regularity so that the carrying amounts do not differ materially from those that would be determined using fair values at the end of the reporting period. Revaluation increments are credited directly to equity in the asset revaluation surplus, except where a revaluation decrement for that class of asset was previously recognised as an expense. The increment is recognised as revenue up to the value of the previous expense. Any excess is recognised in the assets’ revaluation surplus. Revaluation decrements are recognised immediately as an expense, except where a revaluation increment for that class of asset was previously recognised in the asset revaluation reserve. The decrement is recognised as a debit in the asset revaluation surplus up to the value of the previous decrement. Any excess is recognised as an expense. Revaluation increases and revaluation decreases relating to individual assets within a class of infrastructure, property, plant and equipment are offset against one another within that class but are not offset in respect of assets in different classes. Assumptions in respect of revaluations can be found in note 7.4.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

103

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED Depreciation

Impairment of non-financial assets

The depreciable amount of all non-current physical assets, excluding freehold land and Crown land, is depreciated on a straight-line basis over their useful lives, commencing from the time the asset is held ready for use. The useful lives, which are consistent with the prior period, used for each class of depreciable assets are:

Infrastructure, property, plant and equipment and intangible assets with finite useful lives are assessed annually for indications of impairment. Whenever there is an indication of impairment, the assets concerned are tested as to whether their carrying value exceeds their recoverable amount.

CLASS OF FIXED ASSET

USEFUL LIFE

Buildings

5 to 100 years

Infrastructure:

– Main structure

50 to 100 years

– Other

3 to 30 years

Plant and equipment

2 to 25 years

The assets' residual values and useful lives are reviewed and adjusted if appropriate, at each Balance Sheet date. There have been no changes to asset category useful lives as at 30 June 2019.

104

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

Where an asset’s carrying value exceeds its recoverable amount, an impairment loss is recognised in net profit in the Statement of Comprehensive Income for the excess amount, except to the extent that the write-down reverses an asset revaluation reserve amount applicable to that asset. The recoverable amount of assets held primarily to generate net cash inflows is measured at the higher of the present value of future cash flows expected to be obtained from the asset and fair value less costs to sell. There are no material indicators of impairment at the time financial statements were authorised for issue.

4.3. INTANGIBLE ASSETS

Balance at 1 July 2017

WATER ENTITLEMENTS $’000

SOFTWARE $’000

INTANGIBLE WORKS IN PROGRESS $’000

TOTAL $’000

96,917

78,235

8,997

184,149

Additions

16,768

Transfers

7,290

(7,290)

Amortisation expense

(20,792)

96,917

64,733

18,475

180,125

CARRYING AMOUNT AT 30 JUNE 2018 Additions

11,424

Transfers

15,654

(15,654)

Amortisation expense

(19,731)

96,917

60,656

14,245

171,818

CARRYING AMOUNT AT 30 JUNE 2019

Yarra Valley Water contributed $100 million towards the cost of the Goulburn-Murray Water Connections Project. In exchange for this contribution, Yarra Valley Water is entitled to a one-ninth share of the progressive water savings generated by Stage 1 of the Connections Project (estimated to be 225 gigalitres of long-term water savings in total when complete in 2020) on an ongoing basis. In exchange for access to the three Melbourne metropolitan water retailers’ water entitlements from the Melbourne water supply system, four regional urban water businesses (Barwon Water, South Gippsland Water, Western Water and Westernport Water) made contributions of $9.3 million to the retailers, with Yarra Valley Water’s share being $3.1 million. The investment has therefore been recognised at its net value ($100 million less $3.1 million). Water entitlements are recognised at cost and have an infinite life and are not amortised. Intangible assets acquired separately (software and intangible works in progress) Intangible assets acquired separately are initially recognised at cost. Subsequently, intangible assets with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets with indefinite useful lives are carried at cost less impairment losses, where applicable. Costs incurred subsequent to initial acquisition are capitalised when it is expected that additional future economic benefits will flow to Yarra Valley Water. Internally generated intangible assets (software and intangible works in progress) Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally generated intangible asset arising from a development project is recognised only if all the following are demonstrated:

›› The intention to complete the intangible asset and use or sell it ›› The ability to use or sell the intangible asset ›› How the intangible asset will generate probable future economic benefits

FINANCIAL REPORT

Water entitlements

›› The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset ›› The ability to measure reliably the expenditure attributable to the intangible asset during its development. Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and impairment losses on the same basis as intangible assets that are acquired separately. Amortisation Intangible assets with finite useful lives are amortised on a straight-line basis over the asset’s useful life. Amortisation begins when the asset is available for use. That is, when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each annual reporting period. Intangible assets with indefinite useful lives are not amortised. There has been no change to useful lives during 2018-19 or 2017-18.

CLASS OF FIXED ASSET Software

USEFUL LIFE 3 to 10 years

Water entitlements

indefinite

›› The technical feasibility of completing the intangible asset so that it will be available for use or sale

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

105

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED Impairment Intangible assets that have an indefinite useful life and intangible assets not yet available for use are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are included in net profit in the Statement of Comprehensive Income. When significant revalued assets are sold, amounts included in the asset revaluation surplus relating to that asset are transferred to retained earnings. The surplus / deficit from ordinary activities includes the following specific net gains and expenses:

2019 $’000

2018 $’000

Infrastructure, property, plant and equipment

(16)

218

TOTAL NET (GAIN) / LOSS ON DISPOSAL OF ASSETS

(16)

218

4.5. CONTRACTUAL COMMITMENTS Significant contractual expenditure arising from contracts are disclosed at their nominal value and inclusive of goods and services tax. Yarra Valley Water commitments include growth works and mains renewals for both water and sewer. Total expenditure contracted for at balance date but not provided for in the financial statements:

CONTRACTUAL COMMITMENTS PAYABLE

2019 $’000

2018 $’000

Not later than one year

232,555

213,449

Later than one year and not later than five years

156,765

168,101

5,500

1,214

394,820

382,764

Greater than five years TOTAL CONTRACTUAL COMMITMENTS PAYABLE (GST INCLUSIVE)

106

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

Introduction This section sets out any other assets and liabilities that arose from Yarra Valley Water’s controlled operations.

4.4. NET GAIN / LOSS ON DISPOSAL OF NON-CURRENT PHYSICAL ASSETS

NET (GAIN) / LOSS ON DISPOSAL OF ASSETS

5. O THER ASSETS AND LIABILITIES

Structure 5.1 Change in accounting standard – AASB 9 Financial Instruments 5.2 Receivables 5.2.1 Ageing analysis and impairment of contractual receivables 5.2.2 Reconciliation of the expected credit loss allowance 5.3 Other non-financial assets 5.4 Payables 5.4.1 Ageing analysis of contractual payables 5.5 Contract liabilities 5.6 Other provisions

5.1. C HANGE IN ACCOUNTING STANDARD – AASB 9 FINANCIAL INSTRUMENTS AASB 9 Financial Instruments, which replaces AASB 139 Financial Instruments: Recognition and Measurement, introduces new requirements for recognition, classification and measurement, a new impairment model for financial assets based on expected credit losses, and simplified hedge accounting. Yarra Valley Water adopted AASB 9 as at 1 July 2018 and has applied the new rules on a modified retrospective basis. As a result, comparatives for 2017-18 account have not been restated. AASB 9 has not significantly impacted the classification and measurement of financial assets and liabilities in the financial statements of Yarra Valley Water. Yarra Valley Water does not apply hedge accounting. The financial statements have been impacted by a change in the calculation methodology applied to the provision for impairment of contractual receivables. Yarra Valley Water has applied the simplified approach for measuring expected credit losses under AASB 9 which uses a lifetime expected loss allowance for contractual receivables.

To measure the expected credit losses, receivables have been grouped based on shared credit risk characteristics and the days past due and then Yarra Valley Water has reviewed receivables at points in time to determine the percentage that have historical credit losses. This calculation has been performed over three years at three points in time. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors

affecting the ability of customers to settle the receivables and then applied to current contractual receivable balances to determine the impairment amount. This resulted in a decrease of the loss allowance on 1 July 2018 by $147,000 for trade receivables which was adjusted against retained earnings at 1 July 2018.

2018 RE-MEASUREMENT $'000

EXPECTED CREDIT LOSS UNDER AASB 9 AS AT 1 JULY 2018 $'000

Trade receivables - debtors - current

87,419

Less: allowance for expected credit losses - current

(2,191)

147

(2,044)

85,228

147

85,375

5.2. RECEIVABLES 2019 $’000

2018 $’000

Trade receivables - debtors

80,715

87,419

Trade receivables - accrued revenue

80,258

88,313

3,830

4,486

(2,063)

(2,191)

3,037

13,404

165,777

191,431

CURRENT RECEIVABLES

NOTE

Contractual receivables

Other receivables Less: allowance for expected credit losses

5.2.1

Statutory receivables GST receivables TOTAL CURRENT RECEIVABLES

NON-CURRENT RECEIVABLES

2019 $’000

2018 $’000

Trade receivables - debtors

3,954

Less: allowance for expected credit losses

(1,015)

2,939

Contractual receivables

TOTAL NON-CURRENT RECEIVABLES

Receivables Contractual receivables such as debtors and accrued revenue in relation to goods and services, are classified as financial instruments and categorised as ‘loans and receivables’. They are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial measurement they are measured at amortised cost using the effective interest method, less any impairment.

4 FINANCIAL REPORT

ALLOWANCE FOR IMPAIRMENT UNDER AASB 139 AS AT 30 JUNE 2018 $'000

Bad debts are written off when determined uncollectable, in accordance with delegation authorities. Statutory receivables, such as amounts owing from the Victorian Government and goods and services tax (GST) input tax credit recoverable are recognised and measured similarly to contractual receivables (except for impairment), but are not classified as financial instruments because they do not arise from a contract. Accrued revenue is recognised for water usage and sewage disposal as well as other works and services that have been rendered to balance date but not yet invoiced. Water usage charges, sewage disposal charges, trade waste charges, recycled water charges and water trading revenue are all recognised as income when the service has been provided. An accrual is recognised to account for water and sewage services not billed at the end of the period. This is calculated using the volume of water purchased from Melbourne Water to the end of the period less the estimated non-revenue water.

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107

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED 5.2.1. AGEING ANALYSIS AND IMPAIRMENT OF CONTRACTUAL RECEIVABLES

NOT AGED $’000

2019 Expected credit loss rate

1 TO 21 DAYS1 $’000

22 TO 60 DAYS $’000

61 TO 90 DAYS $’000

91 TO 180 DAYS $’000

OVER 180 DAYS $’000

1.37%

0.78%

4.06%

10.37%

13.25%

TOTAL $’000

Trade debtors Not past due

49,034

Past due

19,317

3,127

3,737

5,500

31,681

Allowance for expected credit losses

(669)

(150)

(127)

(387)

(730)

(2,063)

NET TRADE RECEIVABLES - DEBTORS

48,365

19,167

3,000

3,350

4,770

78,652

80,258

6,867

87,125

48,365

19,167

3,000

3,350

4,770

165,777

Not past due and not impaired

54,709

Past due but not impaired

19,839

3,186

4,191

5,494

32,710

Impaired

(180)

(473)

(94)

(504)

(940)

(2,191)

NET TRADE RECEIVABLES - DEBTORS

54,529

19,366

3,092

3,687

4,554

85,228

88,313

Accrued revenue Other receivables 2 TOTAL RECEIVABLES

2018 Trade debtors

Accrued revenue Other receivables

TOTAL RECEIVABLES

20,829

109,142

54,529

19,366

3,092

3,687

4,554

194,370

The 0 to 21 days category includes customers who have renegotiated arrangements and payment terms as a consequence of entering hardship programs.

Includes non current receivables (net of impairment).

All contractual receivables are recognised at the amounts receivable less any provision for impairment of receivables. Credit is generally allowed for a period of 20 days. The collectability of debt is assessed each accounting period for usage and other charges.

Following a review of the deferred debt arrangement in 2019, a decision was made to withdraw the arrangement and write off any outstanding deferred debt. Property owners will now be eligible for the same Arrange and Save scheme available to tenants under our affordability and assistance programs.

Non-current trade receivables (deferred debt) relate to property owner customers, who had outstanding fees that would be recovered when their property was sold or when the customers' circumstances permitted payment.

Loans and receivables are measured at amortised cost using the effective interest rate method less any impairment.

5.2.2. RECONCILIATION OF THE EXPECTED CREDIT LOSS ALLOWANCE

EXPECTED CREDIT LOSS ALLOWANCE

NOTE

Balance at beginning of year

2018 $’000

(3,206)

(2,514)

Changes in accounting standards before tax

5.1

147

Reversal of provision and write offs recognised as an expense

3.1

6,402

3,066

Increase in provision

(5,406)

(3,758)

TOTAL EXPECTED CREDIT LOSS ALLOWANCE

(2,063)

(3,206)

Movements relate to current and non-current receivables. Refer note 5.2.

108

2019 $’000

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

5.3. OTHER NON-FINANCIAL ASSETS Other non-financial assets are predominantly made up of prepayments which represent payments in advance of receipt of goods or services or where part of the expenditure is made in one accounting period covering a term extending beyond that period. This includes insurances, IT subscription and maintenance agreements and other various subscriptions.

5.4. PAYABLES 2019 $’000

2018 $’000

Trade payables

26,714

28,907

Accruals

80,017

99,268

6,692

6,138

(7)

113,446

134,306

CURRENT LIABILITIES - PAYABLES Contractual payables

Security deposits Statutory payables Fringe benefits tax payables

Payables and accruals Trade payables and accruals are recognised for future amounts to be paid in respect of goods and services received. The amounts are unsecured and are usually paid 30 days after invoice date. Payables consist of:

›› Statutory payables relate to goods and services tax and fringe benefits tax payables. Statutory payables are recognised and measured similarly to contractual payables, but are not classified as financial instruments and not included in the category of financial liabilities at amortised cost, because they do not arise from a contract.

FINANCIAL REPORT

TOTAL CURRENT LIABILITIES - PAYABLES

›› Contractual payables represent liabilities for goods and services provided to Yarra Valley Water prior to the end of the financial year that are unpaid, and arise when Yarra Valley Water becomes obligated to make future payments in respect of the purchase of those goods and services. Contractual payables are classified as financial instruments and categorised as financial liabilities at amortised cost 5.4.1. AGEING ANALYSIS OF CONTRACTUAL PAYABLES

2019 Trade payables Accruals Other payables TOTAL PAYABLES

NOT AGED $’000

LESS THAN 1 MONTH $’000

1 TO 3 MONTHS $’000

3 TO 12 MONTHS $’000

OVER 12 MONTHS $’000

TOTAL $’000

26,269

445

26,714

80,040

6,692

86,732

26,269

445

113,446

28,350

472

28,907

99,261

6,138

105,399

28,350

472

134,306

2018 Trade payables Accruals Other payables TOTAL PAYABLES

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

109

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED 5.5. CONTRACT LIABILITIES CONTRACT LIABILITIES

NOTE

Grant income Customers paid in advance

2019 $â€™000

2018 $â€™000

896

787

18,206

16,188

36,556

2,769

550

549

56,208

20,293

Developer contributions

8,184

TOTAL NON-CURRENT CONTRACT LIABILITIES

8,184

Unearned income

2.2

Developer contributions TOTAL CURRENT CONTRACT LIABILITIES

Government grants Government grants are recognised once reasonable assurance has been reached that Yarra Valley Water will comply with the conditions attached to them and that the grants will be received. Government grants of a revenue nature are recognised as income over the periods necessary to match them with related costs. Government grants related to assets are recognised in the Balance Sheet by deducting the grant in arriving at the carrying amount of the asset, thereby incurring a reduced depreciation charge. Customers paid in advance Customers paid in advance represent payments received from customers in advance of the provision of goods or services or any legal or constructive obligation required to be performed by Yarra Valley Water to settle the terms of receipt of income. Yarra Valley Water will recognise these advance payments once it has performed the performance obligations associated with the payments. Unearned Income Unearned income represents payments received for developer contributed assets, new customer contributions, application fees and rental where performance obligations associated with the payment are outstanding, refer note 2.2.

5.6. OTHER PROVISIONS Provisions are recognised when Yarra Valley Water has a present legal or constructive obligation because of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows, using a discount rate that reflects the time value of money and the risks specific to the provision. When some or all of the economic benefits required to settle a provision are expected to be received from a third party, the receivable is recognised if it is virtually certain that economic benefits will be received and their amount can be measured reliably.

6. FINANCING OUR OPERATIONS

Developer contributions

Introduction

Unearned developer contributions represent amounts received from developers for the reimbursement of costs that will be incurred by Yarra Valley Water constructing assets to service new urban growth. These payments will be recognised as revenue at the point in time that Yarra Valley Water has completed the performance obligations agreed with the developer.

This section provides information on the sources of finance utilised by Yarra Valley Water during its operations, along with interest expenses (the cost of borrowings and other information related to financing activities of Yarra Valley Water). This section includes disclosures of balances that are financial instruments (such as borrowings and cash balances). Structure 6.1 Borrowings and finance costs 6.1.1 Maturities of financial liabilities 6.1.2 Finance costs 6.2 Cash flow information and balances 6.2.1 Reconciliation of net result for the period to cash flow from operating activities

110

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

6.1. BORROWINGS AND FINANCE COSTS

CARRYING AMOUNT

INTEREST-BEARING FINANCIAL LIABILITIES Borrowings - current liabilities Borrowings - non-current liabilities TOTAL INTEREST-BEARING FINANCIAL LIABILITIES

Borrowings are classified as financial instruments. All interest-bearing borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. The measurement basis subsequent to initial recognition is based on the classification of interestbearing liabilities as financial liabilities at ‘amortised cost’. Amortised cost is measured using the effective interest rate method. This classification is determined at initial recognition.

2019 $’000

2018 $’000

2019 $’000

2018 $’000

288,107

289,565

292,380

293,895

2,341,400

2,124,600

2,644,673

2,291,589

2,629,507

2,414,165

2,937,053

2,585,484

The fair value of the interest-bearing financial liabilities is determined by discounting the expected future cash flows at current interest rates. 6.1.1. MATURITIES OF FINANCIAL LIABILITIES The following table allocates Yarra Valley Water’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

WEIGHTED AVERAGE EFFECTIVE INTEREST RATE %

LESS THAN 12 MONTHS $’000

1 TO 3 YEARS $’000

3 TO 5 YEARS $’000

OVER 5 YEARS $’000

TOTAL $’000

Fixed interest rate

3.88

153,200

332,300

464,100

1,445,000

2,394,600

Floating interest rate

1.42

134,907

100,000

234,907

288,107

432,300

464,100

1,445,000

2,629,507

2019 BORROWINGS

TOTAL

4 FINANCIAL REPORT

Interest is payable semi-annually and is accrued over the period it becomes due. Accrued interest is recorded as part of accruals.

NET FAIR VALUE

2018 BORROWINGS Fixed interest rate

4.29

132,300

231,400

338,200

1,415,000

2,116,900

Floating interest rate

2.01

157,265

90,000

50,000

297,265

289,565

321,400

388,200

1,415,000

2,414,165

TOTAL

6.1.2. FINANCE COSTS

FINANCE COSTS

2019 $’000

2018 $’000

Interest on borrowings

96,811

96,211

Financial accommodation levy

35,182

33,255

214

661

132,207

130,127

Other interest expense TOTAL FINANCE COSTS

Finance costs are recognised as expenses in the period in which they are incurred. All qualifying assets (being assets that necessarily take a substantial period of time to get ready for their intended use or sale) are measured at fair value. Therefore, any finance costs directly attributable to the acquisition, construction or production of these qualifying assets are not required to be capitalised and will continue to be expensed in the period in which they are incurred.

The financial accommodation levy is paid by Yarra Valley Water into the consolidated fund in accordance with section 40N of the Financial Management Act 1994 in respect of financial accommodation provided to Yarra Valley Water by the State Government of Victoria.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

111

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED 6.2. CASH FLOW INFORMATION AND BALANCES Cash and cash equivalents include cash at bank and cash on hand with original maturities of three months or less, and bank overdrafts.

CASH

2019 $’000

2018 $’000

Cash at bank

1,035

985

Cash on hand

1,036

986

2019 $’000

2018 $’000

111,700

88,502

TOTAL CASH

6.2.1. RECONCILIATION OF NET RESULT FOR THE PERIOD TO CASH FLOW FROM OPERATING ACTIVITIES Net profit after tax Adjustments for non-cash items Depreciation / amortisation

107,486

107,843

Bad and doubtful debts

6,402

3,066

Write off/ disposal of assets

2,076

2,944

Defined benefit superannuation plan expense

548

688

Net loss on disposal of non-current physical assets

(16)

(218)

(1,146)

(2,720)

1,104

(84,503)

(23,272)

(113)

(269)

(Increase) / decrease in GST receivable

10,367

(7,660)

(Increase) / decrease in trade receivables

17,265

(5,717)

840

463

(108)

2,565

35,915

(4,551)

(45,764)

2,056

7,297

15,678

168,331

180,502

Impairment writeback (land and land related provisions) Impairment write-down Developer contributed assets and other authority works Changes in operating assets and liabilities Increase in other current assets

Increase in accrued interest Increase / (decrease) in provisions Increase / (decrease) in contract liabilities Increase / (decrease) in net deferred tax liabilities Increase in payables NET CASH INFLOW FROM OPERATING ACTIVITIES

112

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

7. RISKS, CONTINGENCIES AND VALUATION JUDGEMENT Introduction Yarra Valley Water is exposed to risk from its activities and outside factors. In addition, it is often necessary to make judgements and estimates associated with recognising and measuring items in the financial statements. This section sets out financial instrument specific information (including exposures to financial risks) as well as those items that are contingent in nature or require a higher level of judgement to be applied, which relate mainly to fair value determination. Structure

7.1. FINANCIAL INSTRUMENTS SPECIFIC DISCLOSURES Introduction Financial instruments arise out of contractual agreements that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity meeting the definition of assets and liabilities under AASB 9 Financial Instruments. Due to the nature of Yarra Valley Water’s activities, certain financial assets and financial liabilities arise under statute rather than a contract (for example taxes, fines and penalties). Statutory assets and liabilities do not meet the definition of financial instruments in AASB 9 Financial Instruments. Categories of financial instruments Loans, receivables and cash are financial instrument assets with fixed and determinable payments that are not quoted on an active market. These assets and liabilities are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial measurement, loans and receivables (net of impairment) are measured at amortised cost using the effective interest method. Yarra Valley Water recognised the following assets in this category:

›› payables (excluding statutory payables) – refer note 5.4 ›› contract liabilities – refer note 5.5 ›› borrowings – refer note 6.1.

7.2. F INANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Capital risk management Yarra Valley Water controls its capital structure in order to provide the State Government of Victoria with adequate returns and to ensure that it can fund its operations as a going concern.

4 FINANCIAL REPORT

7.1 Financial instruments specific disclosures 7.2 Financial risk management objectives and policies 7.3 Contingent assets and liabilities 7.4 Fair value 7.4.1 Fair value - Determination of non-financial physical assets 7.4.2 Fair value - Reconciliation of changes in level 3 items 7.4.3 Fair value - Valuation techniques and significant unobservable inputs in level 3 items

Financial liabilities at amortised cost are initially recognised on the date they are originated. They are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial instruments are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in the Statement of Comprehensive Income over the period of the interest-bearing liability, using the effective interest rate method. Yarra Valley Water recognised the following liabilities in this category:

The capital structure of Yarra Valley Water consists of net debt (borrowings as detailed in table below and offset by cash and bank balances - refer note 6.2) and equity of Yarra Valley Water (comprising contributed equity, asset revaluation surplus and retained earnings detailed in notes 9.1 to 9.3). The only externally imposed capital requirements are that: ›› Financial accommodation does not exceed the approval limits set by the Treasurer of Victoria pursuant to the Borrowing and Investment Powers Act 1987 ›› Yarra Valley Water, with the exception of an operating account with overdraft facilities, is required to borrow exclusively with the Treasury Corporation of Victoria (TCV). These external capital requirements are incorporated into the management of capital through the Board approved Corporate Plan.

›› cash and deposits – refer note 6.2 ›› receivables (excluding statutory receivables) – refer note 5.2.

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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED Yarra Valley Water effectively manages its capital by assessing its financial risks and adjusting its capital structure in response to changes in these risks and the market. These responses include the management of debt levels. There have been no changes to the strategy adopted by Yarra Valley Water to control its capital during the year. The gearing ratios for the years ended 30 June 2019 and 30 June 2018 were as follows:

Liquidity risk is the risk of not being able to meet the specific financial commitments including short term working capital needs and financing new and maturing loans as they are required. Yarra Valley Water manages liquidity risk by actively maintaining efficient banking practices, regularly monitoring forecast and actual cash flows and ensuring adequate borrowing facilities are maintained.

2019 $’000

2018 $’000

288,107

289,565

Borrowings - non-current

2,341,400

2,124,600

Total borrowings

2,629,507

2,414,165

Annual approval is received from the Treasurer of Victoria for new borrowings, borrowings to refinance maturing and non-maturing loans and temporary purpose borrowing facilities.

Total assets

5,121,056

4,966,332

Financing arrangements

51%

49%

Borrowings - current

GEARING RATIO

Financial risks The main risks Yarra Valley Water is exposed to through its financial instruments are interest rate risk, liquidity risk and credit risk. The Board reviews and approves policies for managing these risks. i. Interest rate risk Interest rate risk is the risk to earnings or capital arising from movements in interest rates. Yarra Valley Water is exposed to interest rate risk through its borrowing activities and changes in the market in comparison to the assumptions of the Essential Services Commission’s regulatory pricing determination in relation to the underlying cost of debt. Interest rate exposures are also recognised in terms of the change in the market value of the debt portfolio which arise as a consequence of changes in market interest rates. Yarra Valley Water effectively manages interest rate risk by maintaining the debt portfolio within the strategic targets and policy bands that have been approved by the Board. Strategic and tactical debt portfolio options are assessed in consultation with TCV, with borrowing decisions based on future borrowing requirements, treasury management policy compliance and TCV’s market interest rate outlook. Refer section 6.1.1 for maturity analysis of contractual financial liabilities.

INTEREST RATE SENSITIVITY ANALYSIS

114

ii. Liquidity risk

2019 $’000

2018 $’000

+ 50 basis points

(1,011)

(1,015)

- 50 basis points

1,011

1,015

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

Yarra Valley Water had access to a total of $60.76 million (2018: $153.6 million) of unused borrowings approved by the Treasurer of Victoria as at 30 June 2019. Yarra Valley Water has a formal bank overdraft facility with Westpac Banking Corporation. iii. Credit risk Credit risk is the risk that a counterparty or customer will fail to meet contractual obligations. For Yarra Valley Water credit risk arises mainly from outstanding customer receivables as it is legally obliged to service all customers in its district without regard to their credit quality, refer note 5.2.1. Yarra Valley Water has in place extensive debt collection strategies to minimise customer credit risk and recover outstanding receivables. The credit risk attributable to Yarra Valley Water’s deposits with the TCV and other financial institutions is considered to be very low due to the minor amounts involved and the contractual arrangements in place for counterparties. The maximum exposure to credit risk at the reporting date is the carrying amount of items in the Balance Sheet. For receivables, the maximum exposure is the gross amount of receivables before allowing for doubtful debts.

7.3. CONTINGENT ASSETS AND LIABILITIES

7.4. FAIR VALUE

Contingent assets and contingent liabilities are not recognised in the Balance Sheet, but are disclosed by way of a note and, if quantifiable, are measured at nominal value. Contingent assets and contingent liabilities are presented inclusive of goods and services tax receivable or payable respectively.

Fair value determination requires judgement and the use of assumptions. This section discloses the most significant assumptions used in determining fair values. Changes to assumptions could have a material impact on the results and financial position of Yarra Valley Water.

a. Contingent assets

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Yarra Valley Water enters into agreements with land developers whereby assets are transferred to Yarra Valley Water at no cost. These assets are brought to account as revenue (refer note 2.2) and capitalised.

2018 $’000

Water supply assets under construction

32,735

39,322

Water supply assets committed to

11,946

13,799

30,042

38,230

8,451

14,592

Sewerage supply assets under construction Sewerage supply assets committed to

Yarra Valley Water is unaware of any other material contingent assets.

›› Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities ›› Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable ›› Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

b. Contingent liabilities

4 FINANCIAL REPORT

2019 $’000

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, and based on the lowest level inputs that are significant to the fair value measurement as a whole:

Contingent on the completion of the contingent assets transferred from developers, Yarra Valley Water has a liability to reimburse developers for additional works constructed at Yarra Valley Water’s request.

Water supply assets Sewerage supply assets

2019 $’000

2018 $’000

8,405

8,998

18,451

19,487

These reimbursements will occur upon request by the developer following the issuing of the certificate of completion as agreed in accordance with the conditions of the agreement between Yarra Valley Water and the developer. Yarra Valley Water has legal claims and hearings pending as a result of a small number of contractual and pricing disputes. Due to the uncertainty inherent in litigation, an accurate assessment of any outcome is not possible. Yarra Valley Water is of the view that further disclosure of these disputes may prejudice its position. Yarra Valley Water is unaware of any other material contingent liability. Claims to which we are aware and which may result in a liability being incurred have been provided for as other provisions, refer note 5.6.

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115

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED 7.4.1. FAIR VALUE – DETERMINATION OF NON-FINANCIAL PHYSICAL ASSETS Yarra Valley Water’s land, buildings, plant and equipment and infrastructure are stated at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and impairment losses. This note explains the judgements and estimates made in determining the fair values of non-financial assets. In accordance with AASB 13 Fair Value Measurement, Yarra Valley Water’s non-financial assets have been categorised into the three levels of the fair value hierarchy depending on the degree to which inputs into the fair value measurements are observable, and the significance of the inputs to the fair value measurement.

Infrastructure

LEVEL 2 $’000

LEVEL 3 $’000

FAIR VALUE AS AT 30 JUNE $’000

3,817,200

Land (specialised)

241,202

Land (non-specialised)

167,766

Buildings (market approach)

2,189

Buildings (depreciated replacement cost)

30,384

Plant and equipment

19,730

CARRYING AMOUNT AT 30 JUNE 2018

169,955

4,108,516

4,278,471

Infrastructure

3,890,500

Land (specialised)

243,105

Land (non-specialised)

167,766

Buildings (market approach)

2,128

Buildings (depreciated replacement cost)

30,623

Plant and equipment

26,082

CARRYING AMOUNT AT 30 JUNE 2019

169,894

4,190,310

4,360,204

Infrastructure The 30 June 2019 valuation of infrastructure assets has been independently provided by KPMG, using a discounted cash flow methodology to determine the fair value of infrastructure. This involved discounting the forecast stream of cash flows of the entire business to both debt and equity investors at a weighted average cost of capital (WACC), which represents an estimate of a hypothetical market participant’s discount rate. The valuation model: ›› Calculates forecast cash flows to debt and equity investors over a 10-year forecast period. Cash flows to debt and equity investors are those cash flows available after all operating expenses (including taxes) have been paid and necessary investments in working and fixed capital have been made ›› Calculates a terminal value at the end of the forecast period adopting the Gordon Growth methodology by applying the mid-point of the WACC, terminal growth rate and terminal cash flows. A single terminal value has been adopted due to the sensitive nature of the terminal value in the model

116

LEVEL 1 $’000

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

›› Arrives at an enterprise valuation by discounting the cash flows to the valuation date using the selected high ($4.05 billion) and low ($3.73 billion) WACC estimates and adopts a mid-point ($3.89 billion) ›› Deducts non-infrastructure related assets and liabilities to derive the implied water infrastructure asset valuation ›› Includes a tax amortisation benefit (TAB) on water infrastructure assets, being an estimate of the present value of future tax amortisation benefits that may be received. In including a TAB, a delay of five years is overlayed to reflect the likely timing of secondary infrastructure asset sales, the impact being to reduce the calculated TAB by approximately 25 per cent. The calculated TAB is added to the implied water infrastructure assets’ valuation to arrive at the total value of water infrastructure assets. Infrastructure assets are classified as level 3. There is no active market which has a significant impact on the fair value.

Land – specialised / non-specialised and crown

Buildings – specialised / non-specialised

The most recent valuation of land was independently determined by the Victorian Valuer-General's Office using fair value as at 30 June 2016. In undertaking the valuation of land, the Victorian Valuer-General's Office adopted the market based direct comparison approach, whereby the properties were valued by analysing land sales in comparable proximity to the subject sites and allowing for shape, size, topography, location and other relevant factors specific to the land being valued.

The most recent valuation was performed on 30 June 2016 and valuation was independently determined by the Victorian Valuer-General’s Office using market value or depreciated replacement cost method. The depreciated replacement cost method is based on the replacement of buildings to a ‘modern equivalent’ standard after applying an appropriate depreciation rate, useful life and adjusting for condition. As depreciation adjustments are considered as significant, unobservable inputs in nature, buildings are classified as level 3 fair value.

Where applicable specialised land is adjusted for the community service obligation (CSO) to reflect the specialised nature of the land being valued. As adjustments to CSO are considered as significant unobservable inputs, specialised land would be classified as level 3 assets.

As at 30 June 2019 the fair value of land was checked against indices provided by the Victorian Valuer-General’s Office to determine any material or exceptionally material movements. Land was not revalued at 30 June 2019 (2018: revalued upwards by $60.4 million). If land was measured at historical cost, the carrying amount would be $58.4 million (2018: $56.5 million).

7.4.2. FAIR VALUE – RECONCILIATION OF CHANGES IN LEVEL 3 ITEMS

Balance at 1 July 2017 Acquisitions

As at 30 June 2019, buildings were checked against indices provided by the Victorian Valuer-General’s Office to determine any material or exceptionally material movements. No material movements have occurred. If buildings were measured at historical cost, the carrying amount would be $40.3 million (2018: $38.7 million). Plant and equipment Plant and equipment are held at carrying value (depreciated cost) which approximates fair value. Unless there is market evidence that current replacement costs are significantly different from the original acquisition cost, it is considered unlikely that depreciated cost will be materially different from the existing carrying value. As at 30 June 2019 no material movements have occurred other than as disclosed in note 4.2.

PLANT AND EQUIPMENT $’000

LAND (SPECIALISED) $’000

20,932

197,840

31,511

3,771,700

4,021,983

BUILDINGS INFRASTRUCTURE $'000 $’000

TOTAL $’000

5,265

425

113

160,382

166,185

Disposals / write off

(2,326)

(618)

(2,944)

Depreciation

(4,141)

(1,240)

(81,519)

(86,900)

42,937

(32,745)

10,192

CARRYING AMOUNT AT 30 JUNE 2018

19,730

241,202

30,384

3,817,200

4,108,516

Acquisitions

10,905

1,903

1,570

284,773

299,151

(920)

(1,156)

(2,076)

(3,633)

(1,331)

(82,730)

(87,694)

(127,587)

26,082

243,105

30,623

3,890,500

4,190,310

Revaluation gains / (loss) recognised in other comprehensive income

Disposals / write off Depreciation Revaluation loss recognised in other comprehensive income CARRYING AMOUNT AT 30 JUNE 2019

4 FINANCIAL REPORT

To the extent that non-specialised land does not contain significant, unobservable adjustments, the assets are classified as level 2 under the market approach.

To the extent that non-specialised buildings do not contain significant, unobservable adjustments, these asset are classified as level 2 under the market approach.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

117

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED 7.4.3. FAIR VALUE – VALUATION TECHNIQUES AND SIGNIFICANT UNOBSERVABLE INPUTS IN LEVEL 3 ITEMS

VALUATION TECHNIQUE LAND (SPECIALISED)

INFRASTRUCTURE

PLANT AND EQUIPMENT

BUILDINGS

118

Market approach

Income approach using a discounted cash flow model

Depreciated cost (deemed fair value)

Depreciated replacement cost approach

SIGNIFICANT UNOBSERVABLE INPUTS

RANGE (AVERAGE)

SENSITIVITY OF THE INPUT TO FAIR VALUE

Community service obligation (CSO) adjustment

1% to 92% (21%)

A significant increase or decrease in the community service obligations (allowance for restrictions placed on land) adjustment would result in a higher or lower land valuation

Weighted average cost of capital (WACC)

5% to 5.6%

If the WACC had changed by +/- 0.25% from the year end valuation, the impact to the valuation would have been a decrease of $895.4 million and an increase by $791.8 million

Terminal value growth rate (inclusive of inflation)

3.50%

If the terminal growth rate had changed by +/- 0.25% from the year end valuation, the impact to the valuation would have been a decrease of $654.1 million and increase by $865.0 million

Terminal value capex

$226.4 million

If the terminal value capex changed by +/10% the impact would be $687.5 million

Original useful life

2 to 25 years (4.78 years)

A significant increase or decrease in the useful life impacts the fair value of plant and equipment

Cost per unit

$100 to $1,600,000 ($11,718)

A significant increase or decrease in cost per unit impacts the fair value of plant and equipment

Cost per square metre

$100 to $4,200 ($2,165)

A significant increase or decrease in cost per square metre impacts the fair value of buildings

Useful life (remaining)

1 to 60 years (22.67 years)

A significant increase or decrease in useful life impacts the fair value of buildings

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

$1,000 to $17,568,000 ($254,495)

8. STATUTORY OBLIGATIONS Introduction This section includes disclosures in relation to Yarra Valley Water’s statutory obligations. Structure 8.1 Income tax 8.2 Environmental contributions 8.3 Goods and services tax

8.1. INCOME TAX Yarra Valley Water is subject to the National Tax Equivalent Regime (NTER), which is administered by the Australian Taxation Office (ATO).The income tax expense for the period is the expected tax payable on the current period’s taxable income based on the national corporate income tax rate of 30 per cent, adjusted by 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, and to unused tax losses. The income tax expense for the financial year differs from the amount calculated on the net result. The differences are reconciled as follows:

2018 $’000

54,044

32,461

315

(1,372)

Temporary differences1

(6,003)

5,163

INCOME TAX EXPENSE REPORTED IN THE STATEMENT OF COMPREHENSIVE INCOME

48,356

36,252

39,073

173

Net result before income tax expense

160,056

124,754

Tax at the Australian tax rate of 30%

48,017

37,426

315

(1,372)

Non-deductible expenses

Non-deductible depreciation

121

48,356

36,252

22,614

11,239

Statement of comprehensive income Current income tax expense (paid or payable) Adjustments for prior years Deferred income tax expense

4 FINANCIAL REPORT

2019 $’000

INCOME TAX

Statement of changes in equity INCOME TAX REPORTED IN EQUITY

Tax reconciliation

Adjustments for income tax of previous years

Assessable income INCOME TAX ON PROFIT BEFORE TAX

Income tax payable CURRENT TAX PAYABLE 1

Included in 2019 deferred income tax expense, is $4.8 million due to transitional impacts of AASB 15 Revenue from Contracts with Customers.

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, based on those tax rates which are enacted or substantially enacted. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or 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 profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

119

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED DEFERRED TAX ASSETS

2019 $’000

2018 $’000

Amounts recognised in comprehensive operating statement Provisions

8,652

8,024

Buildings future deductible amounts

2,141

2,100

Contract liability

1,802

12,595

10,124

9,477

2,471

647

12,595

10,124

(373,731)

(374,228)

(220,126)

(258,405)

(54,709)

(588)

(1,702)

(2,496)

(650,856)

(690,426)

(684,967)

497

(5,632)

39,073

173

CLOSING BALANCE AT 30 JUNE

(650,856)

(690,426)

NET DEFERRED TAX LIABILITIES

(638,261)

(680,302)

TOTAL DEFERRED TAX ASSETS

Movements Opening balance 1 July Credited to the comprehensive operating statements CLOSING BALANCE AT 30 JUNE

DEFERRED TAX LIABILITIES Amounts recognised in comprehensive operating statement Accelerated depreciation for tax purposes Amounts recognised directly in equity Revaluation of infrastructure to fair value Revaluation of land to fair value Revaluation of buildings to fair value Defined benefit superannuation asset TOTAL DEFERRED TAX LIABILITIES

Movements Opening balance 1 July Credited / (debited) to the comprehensive operating statements Credited to the comprehensive income

Contract liability deferred tax asset arising from transitional impacts of AASB 15 Revenue from Contracts with Customers.

8.2. ENVIRONMENTAL CONTRIBUTIONS The Water Industry (Environmental Contributions) Act 2004 (the Act) amended the Water Industry Act 1994 to provide for environmental contributions to be paid by water authorities. The Act establishes an obligation for authorities to pay into a consolidated fund, annual contributions for the first period, from 1 October 2004 to 30 June 2008 in accordance with the pre-established schedule of payments, which sets out the amounts payable by each corporation. The contribution period has been extended until 30 June 2020. The purpose of the environmental contribution is set out in the Act, and the funding may be used for financing initiatives that

120

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

seek to promote the sustainable management of water or address water-related initiatives. Yarra Valley Water has a statutory obligation to pay an environmental contribution to the Department of Environment, Land, Water and Planning. This contribution is recognised as an expense during the reporting period as incurred. Yarra Valley Water has a commitment to pay an environmental contribution to the Department of Environment, Land, Water and Planning of $42.86 million each year until 30 June 2020.

ENVIRONMENTAL CONTRIBUTION COMMITMENTS AT BALANCE DATE NOT PROVIDED FOR IN THE FINANCIAL STATEMENTS

2019 $’000

2018 $’000

42,855

85,710

Payable Not later than one year Later than one year but not later than five years TOTAL ENVIRONMENTAL CONTRIBUTION

8.3. GOODS AND SERVICES TAX (GST)

Cash flows are presented in the Cash Flow Statement on a gross basis except for the GST component of investing and financing activities which are disclosed as operating cash flows.

9. OTHER DISCLOSURES Introduction This section includes additional material disclosure required by accounting standards or otherwise, for the understanding of this financial report. Structure 9.1 Contributed equity 9.2 Retained earnings 9.3 Asset revaluation surplus 9.4 Responsible persons 9.4.1 Remuneration of responsible persons 9.5 Remuneration of executive officers 9.6 Related party 9.6.1 Significant transactions with government-related entities 9.6.2 Key management personnel 9.6.3 Transactions with key management personnel and other related parties 9.7 Ex-gratia expenditure 9.8 Economic dependency 9.9 Events subsequent to balance sheet date 9.10 A ustralian accounting standards issues that are not yet effective

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

4 FINANCIAL REPORT

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the ATO. In these circumstances, GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the Balance Sheet are shown inclusive of GST. The net amount of GST receivable from or payable to the ATO is included in the Balance Sheet as part of receivables or payables, refer note 5.2.

121

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED 9.1. CONTRIBUTED EQUITY Additions to net assets which have been designated as contributions by owners are recognised as contributed equity. Other transfers that are in the nature of contributions or distributions (capital repatriation) have been recognised in contributed equity.

2019 $’000

2018 $’000

Opening balance at 1 July

444,832

468,697

Less capital repatriation

(23,865)

CLOSING BALANCE AT 30 JUNE

420,967

444,832

2019 $’000

2018 $’000

CONTRIBUTED EQUITY

9.2. RETAINED EARNINGS NOTE Opening balance at 1 July Changes in accounting standards after tax - AASB 15 Changes in accounting standards after tax - AASB 9

325,174

276,722

2.1.1

6,875

5.1

103

Net profit after tax

111,700

88,502

(2,098)

2,213

630

(663)

Dividend paid

(44,100)

(41,600)

CLOSING BALANCE AT 30 JUNE

398,284

325,174

Defined benefit superannuation plan actuarial gain / (loss)

3.2.3.2

Net deferred tax assets recognised through retained earnings

Defined benefit superannuation plan actuarial loss net of tax effect $1,468,000 (2018: $1,550,000 gain).

Dividend An obligation to pay a final dividend only arises after a formal determination is made by the Treasurer following consultation between the Board, the relevant portfolio Minister and the Treasurer.

9.3. ASSET REVALUATION SURPLUS The asset revaluation surplus is used to record changes in the carrying amount of fixed assets arising on revaluation. Any revaluation increment is credited to the asset revaluation surplus. A decrement would be debited to the surplus to the extent of the balance of prior increments. Any further decrements would be taken to the Statement of Comprehensive Income.

INFRASTRUCTURE $’000

LAND $’000

BUILDINGS $’000

TOTAL $’000

Balance at 1 July 2017

625,862

251,318

1,561

878,741

Revaluation, net of tax effect

(22,922)

48,482

25,560

602,940

299,800

1,561

904,301

Revaluation, net of tax effect

(89,311)

BALANCE AT 30 JUNE 2019

513,629

299,800

1,561

814,990

BALANCE AT 30 JUNE 2018

122

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

9.4. RESPONSIBLE PERSONS

9.5. REMUNERATION OF EXECUTIVE OFFICERS

The relevant Minister and directors of Yarra Valley Water are deemed to be responsible persons by Ministerial Direction pursuant to the provisions of the Financial Management Act 1994.

The number of executive officers, other than the Minister and accountable officer, and their total remuneration during the period are shown in the table below. Total annualised employee equivalents provide a measure of full time equivalent executive officers over the reporting period.

The responsible persons of Yarra Valley Water at any time during the financial year ended 30 June 2019 were: Minister for Water Chair of the Board Deputy Chair of the Board Managing Director Director Director Director Director Director Director

›› Short-term employee benefits include amounts such as wages, salaries, annual leave or sick leave that are usually paid or payable on a regular basis, as well as allowances ›› Post-employment benefits include pensions and other retirement benefits paid or payable on a discrete basis when employment has ceased ›› Other long-term benefits include long service leave, other long service benefit or deferred compensation

9.4.1. REMUNERATION OF RESPONSIBLE PERSONS

›› Termination benefits include termination of employment payments, such as a severance packages.

The Minister’s remuneration and allowance are set by the Parliamentary Salaries and Superannuation Act 1968 and is reported within the Department of Parliamentary Services’ Financial Report. Other relevant interests are declared in the Register of Members’ Interest which each member of the Parliament completes.

NO.

$10,000 to $19,999

$30,000 to $39,999

$50,000 to $59,999

$90,000 to $99,999

922

908

$450,000 to $459,999 Total number

TOTAL AMOUNT ($’000) 1

onuses were phased out of remuneration packages in 2018-19 B and the above disclosure reflects current remuneration plus final bonus relating to the previous financial year.

2,471

2,150

195

170

2,724

2,372

Total number

TOTAL ANNUALISED EMPLOYEE EQUIVALENT (AEE)2

Post-employment benefits

NO.

2018 $’000

Short-term employee benefits

The number of responsible persons from Yarra Valley Water whose remuneration was within the specified bands were as follows: 2019 2018

$430,000 to $439,999

2019 $’000

Other long-term employment benefits Total amount ($’000)

Bonuses were phased out of remuneration packages in 2018-19 and the above disclosure reflects current remuneration plus final bonus relating to the previous financial year.

AEE is based on the time fraction worked over the reporting period.

4 FINANCIAL REPORT

Hon Lisa Neville MP Sue Therese O’Connor Robert Clive Skinner Patrick John McCafferty Victor John Perton Anita Michele Roper Eric Sjerp Helen Lynette Thornton Karen Milward Victoria Fay Marles

Remuneration comprises employee benefits in all forms of consideration paid, payable or provided by the entity, or on behalf of the entity in exchange for services rendered, and is disclosed in the following categories:

9.6. RELATED PARTY Related parties of Yarra Valley Water include: ›› All key management personnel and their close family members, and personal business interests (controlled entities, joint ventures and entities they have significant influence over) ›› All cabinet ministers and their close family members ›› All department and public sector entities that are controlled and consolidated into the whole of state consolidated financial statements ›› Controlled business interests. All related party transactions have been entered into on an arm’s length basis.

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

123

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED 9.6.1. SIGNIFICANT TRANSACTIONS WITH GOVERNMENT-RELATED ENTITIES

Amounts recognised as revenue in the Statement of Comprehensive Income

2019 $’000

2018 $’000

i. Department of Environment, Land, Water and Planning

Administration fees for billing and collecting drainage rates and reimbursement of costs of supplementary council valuations

5,416

5,378

522,119

503,305

Yarra Valley Water, under a normal commercial agency arrangement, bills and collects rates on behalf of the Minister for Water relating to Parks Victoria services. Yarra Valley Water charges the Department of Environment, Land, Water and Planning for the services it provides in billing and collecting rates, and on charges costs incurred regarding supplementary council valuations. Yarra Valley Water is required to pay an environmental contribution to the department.

Amounts recognised as an expense in the Statement of Comprehensive Income Bulk water and sewage wholesaler charges expense (note 3.1) Cash amounts paid during the year Drainage billed to customer

Amounts recognised as revenue in the Statement of Comprehensive Income

2019 $’000

2018 $’000

Administration fees for billing and collecting rates and reimbursement of costs of supplementary council valuations

3,506

3,472

Water efficiency program funding

539

468

AMOUNTS PAYABLE AT 30 JUNE

85,758

9,377

11,098

42,855

29,880

66,356

64,803

Yarra Valley Water borrows from and invests with the Treasury Corporation of Victoria, refer note 6.1. The aggregate amount of borrowings payable at reporting date and the amounts of interest expense included in the determination of profit before income tax is:

2019 $’000

2018 $’000

2,629,507

2,414,165

96,811

96,211

28,064

27,677

Cash amounts paid during the year Parks Victoria levy billed to customers

86,704

iii. Treasury Corporation of Victoria

Amounts recognised as an expense in the Statement of Comprehensive Income Environmental contributions

AMOUNTS PAYABLE AT 30 JUNE

1,445

1,605

Aggregate amount of borrowings Interest expense AMOUNTS PAYABLE AT 30 JUNE

ii. Melbourne Water Corporation Yarra Valley Water transacts solely with the Melbourne Water Corporation for the purchase of drinking water and disposal of sewage. Yarra Valley Water, under a normal commercial agency arrangement, bills and collects drainage rates and charges on behalf of the Melbourne Water Corporation. Yarra Valley Water charges the Melbourne Water Corporation for the services it provides in billing and collecting drainage fees on behalf of the Melbourne Water Corporation, and on charges costs incurred regarding supplementary council valuations.

iv. Department of Treasury and Finance Yarra Valley Water pays amounts to the State Government of Victoria, via the Department of Treasury and Finance. Amounts incurred were as follows:

2019 $’000

2018 $’000

Dividend paid

44,100

41,600

Capital repatriation

23,865

Financial accommodation levy

35,182

33,255

Income tax equivalent

48,356

36,252

AMOUNTS PAYABLE AT 30 JUNE

31,602

19,774

Cash payments

Amounts recognised as revenue in the Statement of Comprehensive Income

124

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

v. Department of Health and Human Services Customers of Yarra Valley Water who hold either a Pension Concession Card, a Gold Repatriation Health Care Card for All Conditions or a Health Care Card are entitled to pay a concessionary amount instead of the full balance outstanding on their accounts. When a customer pays this lesser amount, the difference is billed to and paid by the Department of Health and Human Services.

Concession amounts billed during the year AMOUNTS PAYABLE AT 30 JUNE

2019 $’000

2018 $’000

49,229

49,581

3,533

4,111

vi. Power Purchase Agreement

On 30 October 2018, ZEW and the water corporations entered into a members’ agreement to regulate their rights and obligations as members of ZEW and as participants in the project. The members’ agreement establishes the operating activities of ZEW and the decision-making responsibilities of ZEW’s directors. Under the members' agreement, Yarra Valley Water's liability as a member is limited to $10 in the event of a winding up. As required by Australian accounting standards, Yarra Valley Water has assessed the nature of its relationship with ZEW, and concluded that it does not have control, joint control or significant influence over ZEW. Yarra Valley Water will account for its investment in ZEW as a financial instrument within the scope of AASB 9 Financial Instruments. ZEW is a related party of Yarra Valley Water.

Upon satisfying the conditions precedent, the CFD derivative will be recognised as a financial liability and measured at its fair value. Subsequent changes in the derivate’s fair value will be recognised in profit and loss. The members’ agreement specifies that Yarra Valley Water must make a loan available to ZEW amounting to $124,726.37. The loan provided to ZEW meets the definition of a financial asset as it gives rise to a contractual right for Yarra Valley Water to receive cash from ZEW at the end of the loan term. Once the facility is operational, the financial impact of the members’ agreement with ZEW is expected to increase revenue, expenses, and recognition of LGCs as intangible assets or assets held for sale. vii. Other State Government of Victoria related parties During the year Yarra Valley Water supported Thriving Communities Partnership (TCP), a cross-sector collaboration with the goal that everybody has fair access to the modern essential services they need to thrive in contemporary Australia. Pat McCafferty acts as a director and Yarra Valley Water has supported TCP with their set up and administration. At 30 June 2018, Yarra Valley Water had a liability to TCP amounting to $358,040.

4 FINANCIAL REPORT

Yarra Valley Water is one of 13 water corporation members of Zero Emissions Water (ZEW) Limited, a public company limited by guarantee. ZEW’s objectives are to acquire electricity, contracts for difference and other derivative products in relation to electricity, and/or green products from an energy and emissions reduction facility in Victoria and in turn supply these products to its members. This vehicle provides the opportunity for water corporation members to collaboratively promote energy and emissions reduction initiatives in Victoria and to reduce emissions.

certificates (LGCs) from the facility. The PPA contains certain conditions precedent with the targeted commercial operation date of 1 October 2019. At 30 June 2019, the conditions precedent in the PPA are not complete, and ZEW does not have a contractual obligation for the CFD derivative. Therefore, there are no transactions to recognise as at 30 June 2019.

Water and sewerage services were provided to wholly owned State Government of Victoria entities for properties within Yarra Valley Water’s district under normal commercial terms and conditions. All other transactions with State Government of Victoria related parties were made on normal commercial terms and conditions and have not been considered material for disclosure.

On 30 October 2018, ZEW entered into an 11-year power purchasing agreement (PPA) with a solar farm energy generator. In relation to the PPA, ZEW will act as a central intermediary between the energy generator and the water corporations. The PPA contains a contract for difference (CFD) payment mechanism in respect of electricity generated by the facility and the sale and supply of large-scale generation

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

125

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUED 9.6.2. KEY MANAGEMENT PERSONNEL

9.7. EX-GRATIA EXPENSES

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of Yarra Valley Water, directly or indirectly, comprising independent Directors and the Managing Director. Key management personnel (as defined in AASB 124 Related Party Disclosures) includes the Portfolio Minister and all directors listed under responsible persons in note 9.4 who have the authority and responsibility for planning, directing and controlling the activities of Yarra Valley Water directly or indirectly, during the financial year. The compensation detailed below excludes the salaries and benefits the Portfolio Minister receives. The Minister’s remuneration and allowances are set by the Parliamentary Salaries and Superannuation Act 1968 and is reported within the Department of Parliamentary Services’ financial report.

2019 $’000

2018 $’000

833

821

Post-employment benefits

Other long-term employment benefits

922

908

Total number

TOTAL ANNUALISED EMPLOYEE EQUIVALENT (AEE)2

Short-term employee benefits

TOTAL AMOUNT ($’000)

Bonuses were phased out of remuneration packages in 2018-19 and the above disclosure reflects current remuneration plus final bonus relating to the previous financial year.

Annualised employee equivalent (AEE) is based on the time fraction worked over the reporting period.

9.6.3.Transactions with key management personnel and other related parties All key management personnel and other related party transactions have been considered immaterial for disclosure. In this context, transactions are only disclosed when they are considered necessary to draw attention to the possibility that Yarra Valley Water’s Balance Sheet and Statement of Comprehensive Income may have been affected by the existence of related parties, and by transactions and outstanding balances, including commitment, with such parties.

126

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

2019 $’000

2018 $’000

Hardship write offs for customers in the Arrange and Save Program

1,680

1,615

Write offs for disconnected customer accounts greater than 180 days

2,055

2,598

Bankruptcies and liquidations

Minimum account write offs

123

102

Deferred property debt forgiveness

5,000

TOTAL EX-GRATIA EXPENDITURE

8,915

4,351

EX-GRATIA EXPENDITURE

All ex-gratia expenses above form part of bad and doubtful debts expense, refer note 3.1.

9.8. ECONOMIC DEPENDENCY The normal trading activities of Yarra Valley Water are significantly dependent on the provision of finance from the Treasury Corporation of Victoria.

9.9. E VENTS SUBSEQUENT TO BALANCE SHEET DATE Since 30 June 2019 to the date of this report, no matter or circumstance has arisen that, in the opinion of the directors, has significantly affected or may significantly affect the operations of Yarra Valley Water, the results of those operations, or the state of affairs of Yarra Valley Water in future financial years.

9.10.AUSTRALIAN ACCOUNTING STANDARDS ISSUED THAT ARE NOT YET EFFECTIVE STANDARD / INTERPRETATION

SUMMARY

APPLICABLE FOR ANNUAL REPORTING PERIODS BEGINNING ON OR AFTER

IMPACT ON YARRA VALLEY WATE'SR FINANCIALÂ REPORT

AASB 16 Leases

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

1 January 2019

The assessment has indicated that most operating leases, except for short-term and low-value leases will come on to the balance sheet and will be recognised as right of use assets with a corresponding lease liability. In the operating statement, the operating lease expense will be replaced by depreciation expenses of the asset and an interest charge. There will be no change for lessors as the classification of operating and finance leases remains unchanged.

We anticipate that the change will result in an increase in assets and liabilities of less than $100,000 with the difference recognised in equity at 1 July 2019. There will be no impact on our cash flow statement in future periods as interest is treated as an operating activity.

4 FINANCIAL REPORT

The impact will be immaterial given the small number of leases and their value currently held by Yarra Valley Water (refer to note 3.3).

The statement of comprehensive income will be impacted by the increase in depreciation expense for future periods of less than $100,000.

In addition to the new standard above, the Australian Accounting Standards Board has issued a list of amending standards. In general, these amending standards include editorial and reference changes that are expected to have insignificant impacts on Yarra Valley Waterâ€™s financial report. There are no other standards that are not yet effective that are expected to have a material impact on the entity in the current or future reporting periods or on foreseeable future transactions.

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STATUTORY CERTIFICATION We certify that the attached Financial Statements of Yarra Valley Water Corporation have been prepared in accordance with Standing Directions 5.2 of the Assistant Treasurerâ€™s Standing Directions issued pursuant to the Financial Management Act 1994, applicable Financial Reporting Directions, Australian Accounting Standards including Interpretations, and other mandatory professional reporting requirements. In our opinion, the information set out in the Statement of Comprehensive Income, Balance Sheet, Statement of Changes in Equity, Cash Flow Statement and accompanying notes presents fairly the financial transactions during the year ended 30 June 2019 and financial position of Yarra Valley Water at 30 June 2019. At the time of signing, we are not aware of any circumstance which would render any particulars included in the Financial Statements to be misleading or inaccurate. We authorise the attached Financial Statements for issue dated at Melbourne on 21 August 2019.

Sue T Oâ€™Connor Chair

Patrick J McCafferty Managing Director

Natalie Foeng Chief Financial Officer

128

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

4 FINANCIAL REPORT

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129

AUDITOR-GENERAL'S AUDIT REPORT

Independent Auditor’s Report To the Board of the Yarra Valley Water Corporation Opinion

I have audited the financial report of the Yarra Valley Water Corporation (the corporation) which comprises the: • • • • • •

balance sheet as at 30 June 2019 statement of comprehensive income for the year then ended statement of changes in equity for the year then ended cash flow statement for the year then ended notes to the financial statements, including significant accounting policies statutory certification.

In my opinion, the financial report presents fairly, in all material respects, the financial position of the corporation as at 30 June 2019 and their financial performance and cash flows for the year then ended in accordance with the financial reporting requirements of Part 7 of the Financial Management Act 1994 and applicable Australian Accounting Standards. Basis for Opinion

I have conducted my audit in accordance with the Audit Act 1994 which incorporates the Australian Auditing Standards. I further describe my responsibilities under that Act and those standards in the Auditor’s Responsibilities for the Audit of the Financial Report section of my report. My independence is established by the Constitution Act 1975. My staff and I are independent of the corporation in accordance with the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to my audit of the financial report in Victoria. My staff and I have also fulfilled our other ethical responsibilities in accordance with the Code. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Key audit matters

130

Key audit matters are those matters that, in my professional judgement, were of most significance in my audit of the financial report of the current period. These matters were addressed in the context of my audit of the financial report as a whole, and in forming my opinion thereon, and I do not provide a separate opinion on these matters.

YARRA VALLEY WATER ANNUAL REPORT 2018-19

Key audit matter

How I addressed the matter

4 FINANCIAL REPORT

Revenues from service and usage charges are derived from a complex IT billing system with several inputs, including external service providers Note 2.1.1 – Revenue from service and usage charges Revenue from service and usage charges: My key procedures included: $958 million.  testing the operating effectiveness of key application I considered this to be a key audit matter because: controls and key manual controls in the billing system  revenue recognised is financially significant to the  obtaining an understanding of management's corporation approach to estimating the value of unbilled water and sewerage services revenue at year end and  revenue is generated by a complex IT system that assessing the reasonableness of key assumptions and uses several inputs and business rules inputs  revenue includes a significant accrual for unbilled  substantive analytical procedures water and sewerage services at year end that involves a higher degree of estimation  reviewing the adequacy of the revenue recognition uncertainty and measurement policies  a key input, customer water volume  assessing the adequacy of financial statement consumption, relies on external service providers disclosures against the requirements of Australian to conduct meter readings. Accounting Standards. The fair value estimate of infrastructure assets is derived from an income-based valuation approach that uses a complex discounted cashflow model ('DCF model') Note 4 – Key assets available to support output delivery Fair value estimate of infrastructure assets: My key procedures included: $3.890 billion  obtaining an understanding of management's I considered this to be a key audit matter because: approach to estimating the fair value of infrastructure  the infrastructure assets are financially significant  assessing the competence and capability of to the corporation management's expert engaged to assist with the valuation process  the fair value estimate relies on management’s use of an external valuation expert  engaging a subject matter expert to assist us in obtaining sufficient appropriate audit evidence,  the DCF model is highly complex and involves including: significant management judgements, underpinned by various subjective assumptions - the appropriateness of using an income-based valuation approach  the calculated value is sensitive to small changes in key assumptions used in the DCF model - the reasonableness and consistency of all the assumptions used in the DCF model  the model's forecast period is long, and includes a terminal value, which increases the difficulty in - identify any changes to the DCF model and/or accurately estimating the fair value assumptions.  applicable accounting standard AASB 13 Fair - the reasonableness of all inputs used in the model, Value Measurement (AASB 13) and the Assistant with specific reference to underlying data and Treasurer issued Financial Reporting Direction supporting documentation 103H Non-financial physical assets (FRD 103H) - the DCF model’s computational accuracy both require extensive financial report - the appropriateness of all infrastructure asset disclosures. related financial report disclosures with regard to AASB 13 and FRD 103H, including the significant observable and unobservable inputs utilised in the model and the sensitivity analysis  evaluating our subject matter expert's workings and concluding the work was adequate for the purposes of our audit.

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Board’s responsibilities for the financial report

The Board of the corporation is responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards and the Financial Management Act 1994, and for such internal control as the Board determines is necessary to enable the preparation and fair presentation of a financial report that is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Board is responsible for assessing the corporation’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless it is inappropriate to do so.

Auditor’s responsibilities for the audit of the financial report

As required by the Audit Act 1994, my responsibility is to express an opinion on the financial report based on the audit. My objectives for the audit are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, I exercise professional judgement and maintain professional scepticism throughout the audit. I also: •

•

• •

•

identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the corporation’s internal control evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board conclude on the appropriateness of the Board’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the corporation’s ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor’s report. However, future events or conditions may cause the corporation to cease to continue as a going concern. evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.

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Auditorâ€™s responsibilities for the audit of the financial report (continued)

From the matters communicated with the Board, I determine those matters that were of most significance in the audit of the financial report of the current period and are therefore key audit matters. I describe these matters in the auditorâ€™s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, I determine that a matter should not be communicated in the auditorâ€™s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Paul Martin as delegate for the Auditor-General of Victoria

4 FINANCIAL REPORT

MELBOURNE 28 August 2019

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DISCLOSURE INDEX

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DISCLOSURE INDEX Yarra Valley Waterâ€™s 2018-19 Annual Report is prepared in accordance with all relevant Victorian legislation and pronouncements. This index has been prepared to facilitate identification of Yarra Valley Waterâ€™s compliance with statutory disclosure requirements. LEGISLATION

DISCLOSURE REQUIREMENT

PAGE

Report of Operations and Additional Information Charter and purpose FRD 22H

Manner of establishment and the relevant Ministers

FRD 22H

Purpose, functions, powers and duties

FRD 22H

Key initiatives and projects

FRD 22H

Nature and range of services provided

7 cover, 1-2 & 4-39 16-35 cover, 1-2 & 10-13

Management and structure FRD 22H

Organisational structure

Financial and other information

136

FRD 10A

Disclosure index

FRD 22H

Five year summary of financial results

FRD 22H

Employment and conduct principles

FRD 22H

Occupational health and safety policy

FRD 22H

Summary of the financial results for the year

134-135 38-39 28-29 & 50-53 32-35 & 53 36-39

FRD 22H

Current financial year review

FRD 22H

Significant changes in financial position during the year

FRD 22H

Major changes or factors affecting performance

FRD 22H

Subsequent events

FRD 22H

Application and operation of Freedom of Information Act 1982

FRD 22H

Compliance with building and maintenance provisions of Building Act 1993 56

FRD 22H

Statement on Competitive Neutrality Policy

FRD 22H

Application and operation of the Protected Disclosure Act 2012 55

FRD 22H

Details of consultancies over $10 000

FRD 22H

Details of consultancies under $10 000

FRD 22H

Disclosure of government advertising expenditure

FRD 22H

Disclosure of ICT expenditure

FRD 22H

Statement of availability of other information

FRD 22H

Operational and budgetary objectives and performance against objectives

37 & 76-77

FRD 22H

Environmental performance

68-73 & 78

FRD 22H

Workforce inclusion policy

29 & 51-53

FRD 25D

Local Jobs First

FRD 27C

Presentation and reporting of performance information

FRD 29C

Workforce data disclosures

FRD 30D

Standard requirements for the publication of annual reports

YARRA VALLEY WATER ANNUAL REPORT 2018 -19

16-35 84 55-56 57

56 76-78 54 entire report

LEGISLATION

DISCLOSURE REQUIREMENT

PAGE

Ministerial reporting directions MRD 01

Performance reporting

76-78

MRD 02

Water consumption and drought response

59-60

MRD 03

Environmental and social sustainability reporting

MRD 04

Disclosure of information on bulk entitlement

MRD 05

Annual reporting of major non-residential water users

MRD 06

Greenhouse gas and energy reporting

MRD 07

Disclosure of information

58-59, 62-65 & 73-74 69-70 61 71-72

Climate change

Customer and community outcomes

62-65

Water for aboriginal cultural, spiritual and economic values

66-67

Resilient and liveable cities and towns

Leadership and culture

Financial sustainability

58-59 46, 48-53 & 66-67 63

Compliance attestation and declaration SD 5.1.4

Attestation for compliance with Ministerial standing direction

SD 5.2.3

Declaration in report of operations

Financial statements Declaration SD 5.2.2

Declaration in financial statements

128

Other requirements under Standing Directions 5.2 SD 5.2.1(a)

Compliance with Australian Accounting Standards and other authoritative pronouncements

128

SD 5.2.1(a)

Compliance with Ministerial directions

128

Other disclosures as required by FRDs in notes to the financial statements Accounting for dividends

84 & 122

FRD 07B

Early adoption of authoritative accounting pronouncements

FRD 11A

Disclosure of ex gratia expenses

FRD 17B

Wage inflation and discount rates for employee benefits

FRD 21C

Disclosures of responsible persons, executive officers in the financial report

FRD 100A

Financial reporting directions – framework

FRD 103H

Non financial physical assets

FRD 105B

Borrowings costs

FRD 106A

Impairment of assets

103-106

FRD 109A

Intangible assets

105-106

FRD 110A

Cash flow statements

89 & 112

FRD 112D

Defined benefit superannuation obligations

FRD 114C

Financial instruments

113

FRD 119A

Transfers through contributed capital

112

FRD 120M

Accounting and reporting pronouncements

127

90 126 96-97 123

5 DISCLOSURE INDEX

FRD 03A

entire report 109 111

Legislation Water Act 1989 Water Industry Act 1994 Freedom of Information Act 1982 Building Act 1993 Protected Disclosure Act 2012 Local Jobs First Act 2003 Financial Management Act 1994 Public Administration Act 2004 Environment Protection Act 1970 (Vic)

UN GLOBAL COMPACT INDEX Please refer to our report, Planet, People, Prosperity, for information on how our policies, programs and actions align with the 10 principles of the UN Global Compact and the Sustainable Development Goals (SDGs).

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