Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Australian Industry Development Corporation Act - Australian Industry Development Corporation - Report and financial statements, together with auditor's report - Year - 1973-74 (4th)


Download PDF Download PDF

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

1974— Parliamentary Paper No. 222

AUSTRALIAN INDUSTRY DEVELOPMENT CORPORATION

FOURTH ANNUAL REPORT

FOR YEAR 1 9 7 3 - 7 4

Presented pursuant to Statute 2 October 1974

Ordered to be printed 3 October 1974

THE GOVERNMENT PRINTER OF AUSTRALIA

CANBERRA 1975

m e Australian Industry Development Corporation 218 Northbourne Avenue, Canberra A CT 2601

Executive Chairman Sir Alan W estcrm an. C.B.E.

Directors R I). G. Agncw Ci. M. Running J . K. Cam pbell

Sir John D unlop, K.B.E. D H. H ains W. M. Leonard Sir C harles M cG rath, O.B.E.

P J. Redlich Sir Colin Syme Secretary B J. Doyle

Contents Directors’ Report 3 Main Features 4 The Year’s Operations i 4 Balance Sheet 16 Profit and Loss Statement 17 Funds Statement 18 Notes 22 Statement by the

Chairman and Secretary 22 Auditors’ Report

3 Directors’ Report

Main Features

During the year AIDC undertook new financial commitments of $42 million to 28 industrial projects. This brings the cumulative total of project commitments undertaken, since operations commenced in April 1971, to $ 157 million.

During 1973/74 the Corporation also applied $15 million of its capital funds to five substantial industrial investments. Including the project investments, substantial industrial investments entered into during the year therefore amounted to $57 million.

Some of the projects into which AIDC has injected funds encountered difficulties involving the Corporation in loss. Other losses arc likely to occur.

$1.0 million in loss was written off during the year against the provision existing at 30th June, 1973.

Operating profit prior to providing for the losses likely to occur was $3,232,777, From this operating profit, an amount of $3 m illion-or $1.575 million net of deferred income tax (last year $0,750 million unadjusted)-has been provided for losses on project investments and loans.

Profit after tax for the year amounted to $0,813 million compared with $1,664 million in 1 9 7 2 /7 3 -b o th these figures being before exchange surplus (or deficit) and before any extraordinary item.

Surplus from exchange movement and an extraordinary item together, amounting to $2,188 million (last year deficit $0,662 million), made the total net profit for the period $3,001 million (last year $ 1.002 million). Capital and reserves at 30th June stood at $55.5 million.

Net borrowings increased during 1973/74 by $22.5 million to total $65 million. Of this, as at 30th June, 1974, $36 million was debt outside Australia.

Six of the seven Directors were reappointed for a further three-year term. In addition, four new Directors were appointed for a similar term. The new Directors are Mr. R. D. G. Agnew, Mr. J. K. Campbell, Mr. D. H. Hains and Mr. P. J. Redlich.

The Year’s Operations 4

The Current Investment Climate Australian industry generally experienced strong demand during the year. However, like industry in most other countries, it had to contend with increasingly severe conditions in

the form of cost pressures, shortages of materials and other supplies, tightening monetary conditions, and interest rates rising to levels not hitherto experienced. After a period of sluggish industrial investment new capital expenditure by the private manufacturing

sector showed signs of recovery in the first nine months of the year but, thereafter, the climate for new industrial investment became more uncertain.

Plans for some new mining and mineral processing ventures that have been under study for some time have been affected by rapid cost escalation, currency adjustments and high interest rates. These things have necessitated a review of the feasibility of some resource development projects, and a re-appraisal of financial arrangements for others.

In the environment of high and rising interest rates prevailing through 1973/74, companies have been reluctant to undertake longer-term borrowings and, indeed, lenders have been unwilling to commit funds at fixed rates for long periods. In Australia, for example, debt securities with maturities of under twelve months accounted for about 35% of all new money raised by listed public companies in the nine months to M arch 1974. In the same period a year earlier they comprised less than 10% of the total. A relatively high proportion of manufacturing investment during the year was financed out of internal cash flow or calls on shareholders. New fixed-interest money raised by listed manufacturing companies (through debentures, notes, loans and deposits) was less than half that of the corresponding period of the previous year.

Effect on AIDC Operations The Corporation, faced like other financial intermediaries with the problems of unsettled capital and money markets, found it increasingly difficult to obtain funds at reasonable cost on sufficiently long maturities to meet the needs of development projects - existing or new. U nder the financial conditions now prevailing some of the Corporation’s

borrowings have to be refinanced at higher interest rates and the net return from a number of the Corporation’s longer-term project investments will fall short of borrowing costs.

(See Project Borrowings, pp. 9-10). Several AIDC customers have experienced difficulties. Some have resulted in losses to the Corporation and others may do so. These are risks which the Corporation must take in providing venture capital for development,

though aiming by careful selectivity to keep losses to a minimum. As reported earlier, adequate provision and treatment has been effected to provide for known risks.

The Longer View Looking ahead, past the present inflationary crises and monetary disturbances that are troubling practically every country in the industrial world, Australia’s economy is fundamentally strong by comparison with many other industrialised countries, because of its abundance of natural resources in a resource-hungry world. In a mixed economy Government policies will, as always, need to be especially sensitive to the state of confidence in private industry. It is reasonable, however, on any realistic assessment of short-term economic uncertainties and of political realities, and on any balanced long-term view of Australia’s industrial future, to expect a high level of new capital expenditure in the industrial sector in the years ahead. AIDC would expect to play a significant role in financing this expansion- and in so doing to serve its underlying objectives of fostering a sound industrial structure with increased Australian participation in the ownership and control.

5

During 1973/74 plans have been advanced for a variety of mining, energy and resource processing projects-centred mainly on bauxite, alumina, uranium, oil, natural gas, iron ore

and coal, but also, to a lesser extent, on nickel, copper, tin, lead and zinc. Even if only a relatively small proportion of these potential developments come to fruition the capital

requirements would run into many hundreds of millions of dollars over the next few years. AIDC has been consulted on many of these projects and in a number of cases has

participated in the initial financial planning. AIDC’s role is to help finance industrial and mineral development, firstly by making overseas funds available to sound Australian companies that are themselves unable to borrow at prime rates in overseas markets;

secondly, by acting as catalyst or co-ordinator in helping to put together significant Australian participations in ventures with foreign companies; and thirdly by undertaking

investments which, although measured against commercial criteria, take also a broader economic and social view than private financial institutions are normally able to take.

The Board believes that AIDC should continue to provide finance and guidance to smaller Australian companies looking for venture capital for nationally worthwhile enterprises,

as well as working with other financial institutions to assemble the large-scale capital requirements of major development projects.

Industry Proposals An analysis of the year’s activities in financing industry development is set out below. The statistical tables and accompanying brief

explanatory comments are designed to give as complete an account of AIDC’s industry operations as is possible whilst respecting the privacy of clients’ own business affairs. Of the many hundreds of inquiries received

during the year from companies, 116 proposals

were judged to warrant detailed investigation by virtue of their appearing on preliminary examination to be within the Corporation's charter, to be capable of making a significant

contribution towards industrial development and Australian ownership, and to have good prospects of commercial success. The 116 cases include 22 proposals which are still under

development or investigation, and on which final decisions have yet to be taken.

Outcome of Proposals Examined 1973/74: Industry Group

Industry A

1-1 %

0

\ \

\ \ % l

Light Engineering and Metal Fabrication 13 3 5 4 1

Heavy Engineering 4 3 1 _ -

Chemicals and Plastics 10 2 2 5 1

Building Materials 15 6 5 1 3

Electrical and Electronic 9 2 2 5 -

Food and Beverages 24 6 7 4 7

Textiles 2 1 - - 1

Other Manufacturing 10 2 5 2 1

Mining 29 3 11 7 8

Total 116 28 38 28 22

In a year marked by uncertainty in many areas of industry, the number of proposals accepted for detailed examination was approximately the same as in the previous year, but new

commitments undertaken declined from 34 amounting to $61 million in 1972/73, to 28 aggregating $42 million in 1973/74.

6

Of the proposals examined and dealt with during the year, almost one in four was accepted for AIDC investment. One-third were declined as unsuitable, either because of doubts

about commercial viability or because they were judged not to be of sufficient development importance. A quarter of the proposals were either withdrawn by their sponsor, or had lapsed in the sense that they seemed unlikely to be proceeded with.

In a number of instances where proposals were withdrawn, especially in the case of smaller companies, AIDC was able to assist with financial and management advice and some­

times by introducing the company concerned to suitable partners with complementary skills and strengths. By such counselling and assistance, AIDC has been able to contribute to the development of stronger and more efficient Australian-owned and controlled industrial enterprises even where it has not itself participated in the financing. As in previous years, proposals were widely dispersed throughout industry. Mining and mineral processing accounted for 25% of total proposals, a similar proportion to that in

1972/73 but smaller than the one-third in 1971/72. The pattern in manufacturing last year, where approaches from the food and beverages, building materials and light engineering sectors predominated, was repeated in 1973/74. The high proportion of proposals emanating

from the building materials and food industries no doubt reflects the strong growth experienced by both these industries during the past two years, and the consequent pressures on available productive capacity. Similarly the decline in proposals from the heavy engineering sector - from 11 in 1972/73 to 4 in 1 9 7 3 /7 4 -isin lin e with the slowing of investment activity in this sector as revealed in Bureau of Statistics figures.

Project Commitments: Distribution by Size

Value Number of Projects

1973/74 1972/73

$0.5m. and under 8 11

Over $0.5m. and up to $1.0m. 8 8

Over $1.0m. and up to $2.0m. 6 6

Over $2.0m. and up to $5.0m. 5 6

Over $5.0m. 1 3

Total 28 34

In respect of the 28 projects approved during the year, the Corporation undertook financial commitments of various kinds totalling $42.5 million. Individual commitments have ranged from $70,000 to more than $7 million. Although there are no set rules on the scale of finance available from AIDC, the costs involved in detailed investigation of proposals limit the size of financing which the

Corporation can economically consider. The table, Project Commitments: Distribution by Size, illustrates the Corporation’s role in providing capital for the more promising smaller Australian companies as well as for larger enterprises. As far as practicable, A ID C tries to match the form and the terms and conditions of its financings to the particular characteristics and needs of individual projects. By subscribing to equity, for example, A ID C has been able to avoid burdening new enterprises with unduly high debt costs in the crucial early years of their development. Of course, the extent to which the Corporation can take up equity and

await dividend returns is limited in practice by its capital fu n d s-an d by its capacity to earn income therefrom to meet its own costs of borrowings for project fundings. Where the Corporation assists in providing loan capital this is normally advanced direct to projects. On occasion, however, guarantees have been given or standby facilities provided.

7

Equity participation is normally effected through direct subscriptions to ordinary or preference shares at the invitation of the company concerned, in some instances it has

occurred through taking up options to acquire shares or convert loans into shares, or as a result of underwriting or sub-underwriting activities undertaken primarily to help

strengthen or preserve the Australian ownership of a venture.

Type of Commitment Undertaken 1973/74

Type of Commitment Value ($m.) Percentage

Loan 39.85 94

Equity -Ordinary Shares 1.54 4

-Preference Shares 0.57 1

-Underwriting 0.56 1

Total Commitments 42.52 100%

While share subscriptions accounted for only 5 % of the amount of new financial commit­ ments, it is significant that almost half of all the projects assisted involved some contribution

by AIDC of equity capital-either alone or in a mix of loan and equity. This occurred primarily because projects seeking AIDC funds have frequently needed some augmentation of their

equity for a sound financial structure.

Project Commitments 1973/74: Form of Participation

Number of Projects

Loan and Equity 12

Loan only 15

Equity only 1

Total 28

In line with the pattern of the past two years, the average term of AIDC commitment to development projects has become increasingly concentrated in the four to seven-year range. The following table analyses AIDC’s loan and redeemable equity subscriptions according to term. In a number of cases, however, it is expected that the initial term will be extended or the venture re-financed on maturity.

Duration of Loan and Equity Commitments

Term Percentage

1973/74 1972/73

Under 2 years 4 16

2 years and up to 4 years 28 27

4 years and up to 7 years 68 50

Over 7 years - 7

Total 100% 100%

As in previous years, AIDC project commit­ ments have been undertaken in all six States. The relative decline of Western Australia, and to a lesser extent Queensland, as a source of projects is consistent with the slow-down in

new investment by the mining and mineral processing industries.

Commitments: Distribution by State

State in which Located Percentage (Value) 1973/74 1972/73

New South Wales 39 27

Victoria 20 23

Queensland 3 9

South Australia 9 8

Western Australia 12 23

Tasmania 17 4

Australian Capital Territory - 4

Northern Territory - 2

Total 100% 100%

8

Continuing the trend established from the start of A lD C ’s operations, well over half the finance provided for development projects this year has been away from metropolitan areas, liven excluding mineral developments, normally Unrated in remoter areas, just under half of the C 'orporation’s commitments were to non­ metropolitan ventures.

Distribution: Metropolitan and Regional Areas

Percentage (Value) 1973/74 1972/73

All Projects: Metropolitan 44 37

Regional 56 63

Total 100% 100%

Non-mining Projects: Metropolitan 56 56

Regional 44 44

Total 100% 100%

Current Commitments Of the $42.5 million committed to projects during 1973/74, $16.7 million had been retired or was no longer required by 30th

June. Net current commitments arising from the year's operations are therefore $25.8 million. Since operations began in 1971, A ID C has undertaken cumulative total commitments of

$157 million. Of this amount, approximately $70 million has been retired (either repaid, or cancelled before actual drawdown), $63 million has been actually drawn down and $24 million

is yet undrawn. The net amount currently invested in or committed to projects stood at year end at $87 million. Following are brief comments on the Corporation’s activities during the year within

various industry groups.

Light Engineering and Metal Fabrication The Corporation examined in detail thirteen proposals from the light engineering and metal fabrication sector, ranging from process engineering to the manufacture of pumps and agricultural machinery. Approximately

$3.4 million, including some equity, was committed to three projects during the year.

Heavy Engineering There was a significant decline in the num ber of proposals received from the heavy engineering sector. Of four proposals investigated, three

commitments were made for financial participation totalling $4.2 million, including a small equity subscription in one case.

Chemicals and Plastics The Corporation investigated ten investment proposals, ranging from pharmaceuticals to

synthetic fibres and petrochemicals, and com­ mitted over $1 million in loan and equity funds to two projects. Several relatively large-scale projects discussed with AIDC in this sector,

although unlikely to proceed far at this time, may mature in the longer term.

Building Materials Of fifteen proposals examined, commitments were undertaken in respect of six projects concerned with brickmaking, timber products

and the production of other building supplies. Over $7 million was committed to this sector, including more than $0.6 million in equity

funds.

Electrical and Electronics The Corporation has looked into the details of nine proposals from the electrical and electronics industry, and commitments were

entered into on two occasions during the year. H alf the proposals from this sector were either withdrawn or allowed to lapse by the principals concerned.

Food and Beverages Twenty-four firm proposals were investigated and commitments to six projects totalling almost $5 million were made during 1973/74. The strong showing of project proposals from

these industries continues the trend that became discernible in last year’s operations. It is consistent with the strong growth

experienced in the demand for food and beverage products over the last two years.

Other Manufacturing Detailed project proposals were received during the year from a wide range of other

manufacturing industries, including textiles, rubber, paper, cardboard, woodchips and other primary product processing. Financial commitments were made in respect of three

such proposals for just over $5 million, including more than $0.5 million in equity.

Mining and Mineral Processing As in past years the largest number of proposals was received from mining companies. This year, however, with the general hesitancy in commissioning new projects and expanding existing ones, only three project commitments were entered into. Over $8 million was committed to this sector,

including just over $0.5 million in equity funds.

Other Industrial Investments During the year AIDC had before it a number of important industrial proposals which, although not relevant to normal project

operations were considered desirable investments for inclusion in the Corporation’s own capital portfolio to earn income for the Corporation, as well as having merit in terms of the development of Australian industry and the objective of maximising Australian participation.

Each of these proposals called for equity investment only. In all, five such proposals were accepted, involving a total investment of more than $15 million. The largest of these was a participation in a joint venture with

Ampol Petroleum Ltd. and a U.S. company, ODECO, to construct, own, and operate offshore drilling rigs.

Project Borrowings In 1973/74, funds for projects were drawn from both local and overseas sources. In conformity with Government monetary policies, AIDC borrowed in Australia within the limits permitted by the requirement of the AIDC Act that the Corporation shall seek to borrow principally overseas.

The Corporation’s net borrowing rose during the year by $22.5 million to $65 million as at 30th June, 1974. Of the outstanding borrowings $36 million, or somewhat more than half,

consisted of debt repayable overseas. A development of long-term significance for the Corporation has been the decision of the

Reserve Bank during the year to allow the official money market to hold AIDC securities maturing within 5 years up to a maximum of 5 per cent of each Authorised Dealer’s gearing limit. The Board welcomes this decision which

should give AIDC short-term securities a wider acceptance and marketability, more comparable with that accorded in the official market to securities of banking companies. Both within Australia and overseas AIDC, like other borrowers, was faced with an exceptionally difficult borrowing climate in

1973/74. Rarely if ever before have world capital markets been exposed simultaneously to changes in interest rates and exchange rates of the range and magnitude experienced during the past financial year.

10

Domestically, yields on long-term Government securities and prime corporate debentures rose by 2 i to 3 percentage points while short and medium-term rates on commercial bills rose much more dramatically. Overseas a similar trend occurred. U.S. prime

rates, for example, rose from 7.75% in June 1073 to 11.75% in June 1974. In order to minimise exposure to changing interest rates the Corporation has sought to borrow on a maturity spread which matches as closely as possible the maturity pattern of

project loans. But market conditions made it difficult to realise this objective to the desired degree during 1973/74.

More recently, in the light of trends overseas, the Corporation has adopted a policy of matching borrowing and lending rates of interest, including borrowing and lending at variable rates. In the Board's view this policy, in existing conditions, is not only prudent for the Corporation but is also likely to be of benefit to the borrower. The Corporation’s borrowing programme had

also to contend in 1973/74 with frequent and sharp fluctuations in exchange rate relativities with various overseas currencies. By way of illustration, in the twelve months between

\pril 1973 and April 1974 the weighted average value of the Australian dollar in terms of eight major currencies fell by 4% in the first three months, then rose by 16% in the

following six months, and then fell again by 7 % in the final three months. The variations were much greater in relation to individual currencies. In on-lending funds raised overseas it has hitherto been the usual practice for AIDC to bear fully the exchange risks, although making some allowance for this in its lending margin.

While this practice has up to now involved the Corporation in no significant cost, and indeed has generally operated to its advantage, the new era of fluctuating exchange rates has raised the need for a fresh assessment of the nature and dimension of the risks inherent in foreign currency transactions. The Board has reviewed its policy on this matter, with the intention of achieving a more equitable sharing of exchange risks between the Corporation and its customers.

AIDC Capital Investments The Corporation has a paid-up capital of $50 million, contributed by the Australian Government in accordance with the AIDC Act. The balance of $50 million of statutory capital can be drawn upon when the Corporation’s borrowings reach the sum of four times the existing paid capital and reserves (or earlier if required to meet obligations). In the main, the Corporation’s capital funds

are invested in a portfolio of Australian industrial company shares and debentures, notes, mortgages, bills of exchange and deposits on the short-term money market. Some $15 million of capital has been placed in five substantial investments as described on page 9. The Corporation’s capital funds form a base for its borrowings which are limited by statute to a gearing of five times the paid capital and reserves. Income earned on these funds is used to help meet costs incurred in the operations of the Corporation, including costs of borrowings for project investments from which there may be no early cash return. Accordingly, the criteria in investing capital funds are income and security combined with

adequate liquidity. A dissection of the Corporation’s capital investments is given in the Financial Statements and Explanatory Notes.

11

Proposed New Legislation Last year, two Parliamentary Bills in relation to A ID C -o n e providing for amendments to the AIDC Act and the other for establishment of a National Investment Fund— were passed

by the House of Representatives and later, in the Senate, referred for examination to a Senate Select Committee on Foreign Ownership and Control. A t the express invitation of the Committee the Executive Chairman of the Corporation, Sir Alan Westerman, and a Director, Sir John Dunlop

(acting in his private capacity), each presented a submission and appeared as a witness at public hearings to assist the Committee in its inquiry. The submissions and oral evidence given are incorporated in the Hansard record. Opinions expressed were, of course, personal views. The

Board of the Corporation recognises that its function is to administer the AIDC A ct and it does not consider it appropriate for it, as a

Board, to form or express any view on proposed legislation which is a m atter of national policy for the Australian Parliament

to determine. Following its return at the recent elections the Government announced its intention to proceed with its proposals for expanding the functions and capacities of AIDC, with the object of securing greater participation by Australians in the ownership and control of important national enterprises. In July 1974 the Bills were re-introduced, with some

modifications, to the Parliament. However the legislation was not passed by the Senate. It is understood that the Government plans to re-introduce both Bills again as soon as

is practicable.

Review of Shareholdings in Projects Section 8(5) of the AIDC Act provides that the Corporation shall review its shareholdings in projects at least once in each period of twelve months, and endeavour to dispose of shares where the Board is satisfied that their retention is not necessary for the proper performance of the functions of the Corporation. A t year end negotiations were in hand for the

disposal of the Corporation's equity holdings in one company which expected to repay its project loans and no longer to need AIDC participation. A review of project shareholdings was made in June 1974 and it was decided that, with the above exception, it was not

appropriate to dispose of AIDC shareholdings in project companies under the terms of Section 8(5) of the Act.

Financial Results The Corporation’s operating profit in 1971/74, i.e. profit after tax but before foreign exchange

surplus and extraordinary items, was $812,834, being $851,182 less than the figure of $1,664,016 for 1972/73. After adding the surpluses to this result, the after-tax net profit was $3,000,761 compared with $1,002,102 in 1972/73. The existing Provision for Loss on Project

Investments was fully utilised in 1971/74 by writing-off $1 million from the Corporation's investments in projects. A Provision for Loss on Project Investments amounting to $1 million has been established out of this year's profits. The Corporation has changed its method of tax treatment in respect to the provision for losses on project investments through the introduction of a deferred tax expense item, currently taking into account the future tax benefit of

anticipated losses. The deferred amount in 1973/74 is $1,425,000. The transfer of a net profit for 1973/74 of $3,000,761 (1973 $1,002,302) to General

Reserve increases Capital and Reserves to $55,456,003 at 30th June, 1974 (1973 $52,455,242).

12

Retirement of Sir George Fisher On 31st M arch, 1974, Sir George Fisher, C.M.G., retired from the AIDC Board on completion of his three-year term of office. Sir George, who is President of M ount Isa Mines Ltd. and has long been a prominent identity in Australia’s mining industry, was one of the original Directors of AIDC. The Corporation greatly values the benefits it has had from Sir George’s practical experience and guidance during its formative years. The Directors extend to Sir George their appreciation of his im portant contribution to AIDC, and their best wishes to him on his retirement.

Staff The Corporation’s staff at 30th June, 1974, numbered forty-four, including twenty-five executive and professional officers. This represented a net increase of one during the year. There was no expansion of investigational staff, the existing complement being sufficient for AID C’s current scale of operations.

13 Project Proposals and Commitments

Outcome of Proposals to 30th June, 1974

Total Approved Declined Withdrawn In Progreu

1971/72 90 26 25 13 26

1972/73 133 34 30 41 28

1973/74 116 28 38 28 22

Cumulative 339 88 93 82 76

Progress of Project Commitments: Value ($m) 30th June, 1974

1 Commitments Undertaken during 1971/72

Undertaken Retired Current Undrawn Drawn

Manufacturing 23.14 7.04 16.10 - 16 10

Mining and Mineral Processing 30.58 27.08 3.50 - 3.50

Total 53.72 34.12 19.60 - 19.60

2 Commitments Undertaken during 1 972/73 Undertaken Retired Current Undrawn Drawn

Manufacturing 39.64 12.84 26.80 0.66 26.14

Mining and Mineral Processing 21.32 7.00 14.32 6.95 7.37

Total 60.96 19.84 41.12 7.61 33.51

Commitments Undertaken during 1 973/74

Undertaken Retired Current Undrawn Drawn

Manufacturing 33.31 7.97 25.34 15.88 9.46

Mining and Mineral Processing 9.21 8.75 0.46 0.31 0.15

Total 42.52 16.72 25.80 16.19 9.61

4 Progress of all AIDC Commitments at 30th June, 1974

Undertaken Retired Current Undrawn Drawn

Manufacturing Mining and Mineral Processing

96.09 61.11

27.85 42.83

68.24 18.28

16.54 7.26

51.70 11.02

Total 157.20 70.68 86.52 23.80

Balance Sheet 30th June 1974 14

The Australian Industry Development Corporation

1974 $

1973 $

Capital (Note 2) Statutory Capital I.css Instalments not yet Called

100,000,000

50,000,000

100,000,000

50,000,000

Instalments Received 50,000,000 50,000,000

Reserves-General 5,456,003

5,456,003

2,455,242

2,455,242

Total Capital and Reserves 55,456,003 52,455,242

Borrowings (Note 3) Overseas Borrowings -Bank (Unsecured) -O ther (Unsecured) Australian Borrowings-Bank Overdraft

(Unsecured) -Other (Unsecured)

22,748,818 13,304,950

17,275,676 12,000,000

14,826,403 14,388,489

13,570,000

65,329,444 42,784,892

Deferred Income Tax Provision 1,379,037 963,880

Current Liabilities Investments Contracted but not Settled Trade Creditors Provision for Long Service Leave Provision for Major Repairs-Joint Ventures Accrued Interest Payable Income Tax Payable (Note 10)

26,384 172,700 44,625

15,300 1,128,494 73,536

1,461,039

99,687 101,285 20,000

892,388 126,265

1,239,625

Total $123,625,523 $97,443,639

15

1974 $

1973 $

Fixed Assets Office Equipment, Furniture and Vehicles at Cost Less

Provision for Depreciation

296,391

91,561

204,830

239,878

55,913

183,965

Investments General (Note 4) Project (Note 5) Less

Provision for Loss (Note 6)

61,581,541

3,000,000

58,402,035 39,464,312

1,000,000

54.626,536

58,581,541 38.464.312

Deferred Income Tax Expense (Note 10) 1,425,000 356.250

Current Assets Cash in Hand and at Bank Deposits at Call Accrued Interest, Dividends and

Other Income Receivable Other Current Assets

500

637,623

2,929,888 63,026 3,631,037

3,205 306,859

1,383,574 30,266

1,723,904

Intangible and Other Assets (Note 7) 1,381,080 2,088,672

Total $123,625,523 $97,443,639

The accompanying Notes form part of the Financial Statements.

Profit and Loss Statement for Year Ended 30th June 1974 ie

The Australian Industry Development Corporation 1974 $ 1973

$

Income from Investments Interest Dividends Net Return from Joint Ventures Surplus on Realisation of Project Investments Other Income

6,594,233 1,486,991 198,416

278,004

8,557,644

5,052,039 969,472

49,547 282,224

6,353,282

Less Interest Payable Discount and Other Borrowing Costs Administrative Expenses (Note 9)

3,032,019 974,675 1,318,173

5,324,867

1,704,531 600,273 977,102

3,281,906

3,232,777 3,071,376

Less Provision for Loss on Project Investments Less Transferred to Deferred Income Tax Expense 3,000,000

1,425,000

750,000

1,575,000 750,000

1,657,777 2,321,376

Income Tax Expense 844,943 657,360

Profit After Tax, Before Exchange Surplus (Deficit) and Before Extraordinary Item 812,834 1,664,016

Add Net Surplus (Deficit) arising out of Movements in Foreign Exchange Rates (Note 1) Extraordinary Item-Surplus on Realisation

of General Investments

1,972,432

215,495

(829,022)

167,308

Net Profit for period transferred to General Reserve $3,000,761 $1,002,302

The accompanying Notes form part of the Financial Statements.

17 Funds Statement Year Ended 30th June 1974

1974 1971

$ $

Sources of Funds Net Profit Before Tax 3,845,704 1.659.662

Depreciation and Provisions Charged 1,888,923 797.576

Intangible and Other Assets Charged 974,675 -

6,709,302 2,457.238

Capital Instalments - 12.500.000

Increase in Borrowings 22,544,552 25.958.503

Proceeds from sale of Fixed Assets 6,796 882

Total Funds Available $29,260,650 $40,916,623

Application of these Funds Increases in: General Investments 4,013,849 10,590,750

Project Investments 22,117,229 28,176,341

Fixed Assets 63,309

267,083

12,526

Intangible and Other Assets 2,088,672

Net Current Assets and Deferred Tax 1,672,915 (486,545)

Taxation Payments (Note 10) 126,265

1,000,000

534,879

Project Investment Written Off (Note 6)

Total Funds Applied $29,260,650 $40,916,623

The accompanying Notes form part of the Financial Statements.

Notes to and forming part o f the Financial Statements

30th June 1974

18

The Australian Industry Development Corporation

1 Summary of Accounting Policies No consolidated accounts are prepared. However, a note to the Accounts (Note 11) refers to the accounts for the subsidiary company, A1DC Securities Ltd., and discloses the results of operations and their effect on the Corporation’s overall accounts. Commission, Discount and Other Expenses incurred in the issue of Bonds, borrowing of overseas currencies and the discounting of Commercial Bills of Exchange are being charged against profits over the periods of the borrowings. That portion of expense carried forward to future accounting periods is shown as “Intangible and Other Assets”. The Corporation recognises income tax as an expense which should be matched against operating profit. Deferred taxation results from certain income and expenditure brought to account in arriving at net profit, and costs incurred during the year which will be charged against profits in future periods, being subject to taxation in different periods. The future tax benefit of anticipated losses on project investments is disclosed in the Corporation’s Balance Sheet. Transactions included in the Financial Statements which have been contracted in Foreign Currencies relate to monetary assets and liabilities, and are included at exchange rates at

30th June, 1974.

2 Capital Instalments of capital are paid in accordance with the provisions of Section 24 of the Australian Industry Development Corporation Act 1970-1973. The Corporation’s capital increased to $50,000,000 on 31st July, 1972.

3 Borrowings Overseas Borrowings-Bank Loans of $22,748,818 (1973 $10,983,887) are outstanding under facilities which assure funds for periods varying from two to five years. These loans are currently repayable in U.S. Dollars and Swiss Francs. Overseas Borrowings-Other These borrowings are from a Public Issue of Deutsche Mark Bearer Bonds which will be redeemed in this currency by ten equal annual instalments commencing 1978. Australian Borrowings-Other Commercial Bills of Exchange with Face Values totalling $12,000,000 remain current until financial years 1974/75 and 1975/76.

19

1974 $

1971 $

General Investments-at cost Interest Bearing Deposits and other Securities -u p to 2 years 23,906,988 32.941,939

-within 2 to 5 years 3,750,000 2,500,000

-beyond 5 years 559,056 476,287

Shares in the wholly-owned subsidiary - AIDC Securities Ltd. (Note 11) 1,000 1,000

Shares in Companies -unlisted 100,025 34.500

-listed on prescribed Stock Exchanges 22,683,572 16,822,810

Market Value 1974 $18,093,667 Market Value 1973 $19,689,459 Debentures in Companies listed on prescribed Stock Exchanges 1,850,000 1,850,000 Market Value 1974 $1,509,875

Market Value 1973 $1,768,139 Investment in Joint Ventures Less Provision for Depreciation $5,789,744

$238,350 5,551,394

Total $58,402,035 $54,626,536

5 Project Investments-at cost Less amount written oft $1,000,000 Secured Loans -u p to 2 years 14,758,331 7,156,197

-beyond 2 years 36,567,041 23.049.449

Shares in Companies unlisted 5,961,188 4,913,666

listed on prescribed Stock Exchanges 869,981 1,620,000

Market Value 1974 $645,521 Market Value 1973 $1,000,000 Debentures in Companies -unlisted 3,425,000 2,725,000

Total $61,581,541 $39,464,312

6 Provision for Loss on Project Investments The loss of $1 million of the Corporation’s investments has been written off, against the Provision for Loss which stood at $1 million at 30th June, 1973.

In reviewing current performance and future expectations of the remaining project investments the Board has considered it prudent to transfer $3 million from the current year’s profits to the Provision for Loss on Project Investments.

20

The Australian Industry Development Corporation

1974 $

1973 $

7 Intangible and Other Assets Commission, Discount and Other Expenses amounting to $954,780 (1973 $572,458) have been included in discount and other borrowing costs in the Profit and Loss Account for the current year, leaving $1,381,080 (1973 $2,088,672) to be charged against future years’ profits.

8 Contingent Liabilities and Commitments At 30th June, 1974, the Corporation had Contingent Liabilities of $100,000 (1973 $678,460) in the form of guarantees of advances to Projects by banks and other financial institutions. The Corporation had outstanding commitments to Projects at

30th June, 1974-under an underwriting agreement for $310,000 (1973 $510,000) and in respect of amounts totalling $13.2 million (1973 $19.44 million) undrawn under Project Agreements. In addition, $10.5 million (1973 $13.9 million) had been

committed to Projects in respect of which financial agreements had not been finalised at 30th June. The Corporation also had an outstanding commitment of $1.5 million (1973 Nil) in respect of General Investments.

9 Administrative Expenses Administrative Expenses include: Part-time Directors’ Emoluments Auditors’ Remuneration:

29,667 26,000

Auditing of accounts 9,500 6,675

Other Services — _

(The Auditors receive no benefits other than those listed) Gain (Loss) on Sale of Fixed Assets 1,536 (557)

Depreciation of Fixed Assets and Joint Venture Investments 273,999 33,189

Provision for Long Service Leave 26,335 14,387

Provision for Major Repairs-Joint Ventures 15,300 -

10a Income Tax Deferred Income Tax brought forward 607,630 76,535

Income Tax Expense 844,943 657,360

Total Provision at 30th June 1,452,573 733,895

Deferred Taxation carried forward 1,379,037 607,630

Tax Payable 73,536 126,265

The Balance Sheet item of deferred income tax expense, amounting to $ 1,425,000, has been created this year, having been determined by applying the current rate of tax to the Provision for Loss on Project Investments.

$ $

10b Reconciliation of the net profit from all sources in 1973/74 (before income tax) and taxable income is as follows: Net Profit 3,000,761 1,002,302

Adjusted for Income Tax Expense 844,943 657,360

Deferred Income Tax Expense (1,425,000)

2,420,704 1,659,662

Add Prepaid borrowing costs 707,590 (2,026,834)

Provisions 2,059,175 786,387

5,187,469 419,215

Less Depreciation (167,497) 7,730

Net Interest due/payable (1,223,285) 114,622

Net Dividends rebateable under Section 46 of the Income Tax Assessment Act (1,453,950) (937.462)

Surplus (Deficit) on -Sale of General Investments (215,495) (167,307)

-Foreign Exchange Movements (1,972,432) 829,022

Taxable Income $154,810 $265,820

Tax Payable at current tax rate of 47.5 % $73,536

11 Subsidiary Investment in wholly-owned subsidiary. The financial position of AIDC Securities Ltd. at 30th June, 1974, is - Issued Capital $1,000 (1973 $1,000)

Cash at Bank $1,000 (1973 $1,000) The company did not trade or incur any expenses for the period to 30th June, 1974.___________________________________ ______________ _____

Schedule of Maturity of Estimated Amounts Payable to and by the Corporation Due to the Corporation Not later than 2 years 42,898,000

Later than 2 years but not later than 5 years 36,719,000

Later than 5 years 11,867,000

Due by the Corporation Not later than 2 years 32,009,000

Later than 2 years but not later than 5 years 23,079,000

Later than 5 years 12,974,000

$126,265

42.222.000 25.521.000 8.388.000

9.417.000 20.827.000 14.388.000

22

Statement by the Chairman and Secretary Auditors’Report

The undersigned, the Executive Chairman and the Secretary respectively of the Australian Industry Development Corporation, hereby state that to the best of their knowledge the accompanying Profit and Loss Statement is drawn up so as to give a true and fair view of the financial operations of the Corporation for the period 1st July, 1973 to 30th June, 1974 and that the accompanying Balance Sheet is drawn up so as to exhibit a true and fair view of the affairs of the Corporation at 30th June,

1974.

Executive Chairman

Secretary

Canberra 29th August, 1974

The Board of Directors, The Australian Industry Development Corporation In accordance with the provisions of Section 37 Sub-sections (3) and (4) of the Australian Industry Development Corporation Act 1970-73 we report that in our opinion—

(a) the accompanying balance sheet as at 30th June, 1974 and Profit and Loss Statement for the period 1st July, 1973 to 30th June, 1974 are:

(i) based on proper accounts and records; (ii) in agreement with the accounts and records and show fairly the financial operations and state of the affairs of the Corporation;

(b) the receipt, expenditure and investment of moneys, and the acquisition and disposal of assets, by the Corporation during the period 1st July, 1973 to 30th June, 1974 have been in accordance with the Act.

Edwin V. Nixon & Partners Arthur Young & Company

Chartered Accountants

Melbourne 29 th August, 1974

!