The Board of Directors of the Australian Rail Track Corporation Ltd (ARTC) has pleasure in submitting the Directors' Report together with the Financial Report of the Group (the Group comprises Australian Rail Track Corporation Ltd, ARTC Services Company Pty Ltd and the Standard Gauge Company Pty Ltd) for the financial year ended 30 June 2019. This Directors’ Report has been prepared in accordance with the requirements of Division 1 of Part 2M.3 of the Corporations Act 2001.

Directors

The following persons were Directors of Australian Rail Track Corporation Ltd during the whole of the financial year and up to the date of this report unless otherwise stated:

W Truss

C Barlow

G Brown

J Fullerton

R Garnon (appointed 21 November 2018)

V Graham

D Saxelby

J Seabrook

Qualifications, experience and special responsibilities

The Hon Warren Truss AC (Non-Executive Director)

The Hon Warren Truss was appointed to the ARTC Board as Chairman on 21 April 2018. Previously,

Warren served as a Member of the Federal Parliament for 26 years including 8 years as the Federal Leader of the National Party. As the 16th Deputy Prime Minister and Minister for Infrastructure and Regional Development,

Warren was responsible for the delivery of several significant Australian Government investments including the early funding for Inland Rail. Prior to entering federal politics, Warren served in local government for 14 years, holding various roles including Chairman and Councillor of the Kingaroy Shire Council. Previously,

Warren was Chair of the Sugar Coast Burnett Regional Tourism Board, Deputy Chair of Bulk Grains Queensland and President of the Australian Council of Rural Youth.

Chris Barlow BSc (Hons), CE (Non-Executive Director)

Mr Chris Barlow was appointed to the ARTC Board as a Non-Executive Director on 2 May 2016. Chris is a Chartered Civil Engineer. Chris has held a variety of senior leadership roles in the transport and infrastructure industries, serving as Managing Director for a number of UK Airports. Chris was previously CEO & Managing Director of the Australian Pacific Airports Corporation, running Melbourne and Launceston airports. Additionally, Chris has had the experience of a number of Board positions. He was on the Board of Asciano (Patrick Stevedoring and Pacific National Rail). He is presently Chair of Airport Development Group, (Darwin and Alice Springs Airports) and Melbourne Convention Bureau.

Gillian Brown LLB (Hons), Grad Dip App Fin & Invest, MAICD (Non-Executive Director)

Ms Gillian Brown joined the Board as a Non-Executive Director in June 2010. Gillian is a highly regarded Consultant at Minter Ellison Lawyers, with significant experience in finance, infrastructure, energy and resources, and debt capital markets transactions. She is a leading corporate and project finance lawyer and has been recognised with numerous accolades including individual Best Lawyer rankings for structured finance and project finance. Gillian is a Non-Executive Director of QIC Limited, a former Chairman of Minter Ellison Lawyers and a former board member of Queensland Treasury Corporation and DBCT Holdings Pty Ltd.

Rosheen Garnon BEc/LLB, FCA, CTA, GAICD (Non-Executive Director)

Ms Rosheen Garnon was appointed to the ARTC Board as Non-Executive Director on 21 November 2018. Rosheen is a seasoned professional services expert with over 29 years’ experience in the accounting industry. Until recently, she was the Australian National Managing Partner for Taxation at KPMG. She was also a member of KPMG’s International Tax Steering Group and she has worked internationally with the firm as Chair of one of KPMG Global Tax Service Groups. Rosheen's qualifications include a Bachelor of Economics (Accounting Major) and Bachelor of Laws from the Australian National University. She is a Fellow of Chartered Accountants in Australia and New Zealand, a Chartered Tax Advisor and a Graduate of the Australian Institute of Company Directors. Rosheen is a Non-Executive Director of Alexium International Group Limited; a Non-Executive Director of The Smith Family; a Non-Executive Director of Creative Partnerships Australia; and a Non-Executive Director of Women Corporate Directors. She is also a Member of the Board of Taxation, an independent advisory board, that advises the Federal Treasurer and the Assistant Treasurer on Australia’s taxation policy, as well as a Member of the Australia Council for the Arts’ Major Performing Arts Panel.

Vince Graham AM, KCSG, BEng (Civil), Grad Dip Mgmt, FAICD, (Non-Executive Director)

Mr Vince Graham was appointed to the Board as a Non-Executive Director on 8 March 2016. Vince has had extensive experience in executive roles at both a federal and state level. Prior to his appointment, Vince was the Chief Executive Officer of Ausgrid, Endeavour Energy and Essential Energy in NSW. In his role as Managing Director of the National Rail Corporation over a decade, Vince was involved in the development of the national rail freight network. He was the Chief Executive Officer of RailCorp NSW, the Chief Operating Officer of State Rail Authority, and the Managing Director of NSW Grain Handling Authority. Presently, Vince is a Non-Executive Director of the Western Sydney Airport Corporation, the Western City Aerotropolis Authority and Catholic Schools NSW Ltd.

David Saxelby BEng (Civil), MAICD (Non-Executive Director)

Mr David Saxelby was appointed to the Board as Non-Executive Director on 1 December 2016. David has had a highly successful 30-year career in construction, infrastructure contracting and major projects. He was previously the Managing Director of Thiess and most recently the Chief Executive Officer of Lendlease’s Construction and Infrastructure Business. David has been responsible for delivering many of Australia’s iconic major projects, including the ANZAC Bridge, Darling Harbour Convention Centre, Lane Cove Tunnel, Epping to Chatswood Underground Rail Link and NorthConnex. David has held a number of senior industry positions as President and Board member of Australian Constructors Association, Board member of Roads Australia, Board member of Infrastructure Partnership Association and Board member of the Mineral Council of Australia. David was listed in the Top 100 Engineers in Australia for four consecutive years and is a Non-Executive Director of the Office of Projects Victoria Advisory Board and Decmil Group.

Jennifer Seabrook BCom, FCA, FAICD (Non-Executive Director)

Ms Jennifer Seabrook was appointed to the ARTC Board as Non-Executive Director on 1 December 2016. Jennifer is a chartered accountant and has had an executive career in mergers and acquisitions, equity and debt capital markets, and financial advisory. She is a Special Advisor to Gresham Partners Limited and holds directorships at MMG Limited, IRESS Limited, Iluka Resources Limited, BGC Australia and Esther Investments. Previous Non-Executive Director roles include West Australian Newspapers, Bank of Western Australia, Western Power Corporation, AlintaGas and Western Australian Treasury Corporation. Jennifer’s former advisory panel memberships include ASIC’s External Advisory Group, the Takeovers Panel, Corporations Law Simplification Task Force and WA Pearling Industry Advisory Panel.

John Fullerton BTech (EEng), FIE Aust, FAICD, CMILT (CEO and Executive Director)

Mr John Fullerton is Managing Director and Chief Executive Officer of Australian Rail Track Corporation Ltd and was appointed to the position in February 2011. Mr Fullerton has over 35 years’ experience in the rail industry across Australia and currently holds the position as Non-Executive Director of the Australasian Railway Association and is the Alternate Non-Executive Director of Hunter Valley Coal Chain Coordinator Ltd. Mr Fullerton is also a member of the Freight on Rail Group having served as its inaugural Chairman from 2015 to 2018. Mr Fullerton was previously Chief Executive Officer of Freight Link Pty Ltd and Asia Pacific Transport Pty Ltd, Chairman of Rail CRC Ltd, Non-Executive Director of Tasmanian Railway Pty Ltd, Non-Executive Director Rail Industry Safety and Standards Board Ltd and inaugural Board Member for South Australian Young Entrepreneur Scheme. Mr Fullerton has held other senior executive roles in the rail industry including Chief Operating Officer at National Rail Corporation and Divisional General Manager (Operations) at Pacific National. Mr Fullerton has been listed in the Top 100 Influential Engineers in Australia for four consecutive years from 2011 to 2014.

Company Secretary

Mr Gavin Carney BA, LLB, LLM, GradDip ACG, MAICD, FGIA was appointed Company Secretary in 2009. Mr Carney joined ARTC in 2007 and is also the General Counsel. Mr Carney is a Fellow of the Governance Institute of Australia and a Member of the Australian Institute of Company Directors. As Company Secretary of ARTC, Mr Carney is responsible for monitoring the Company’s corporate governance framework and for managing all matters relating to the Company’s Board of Directors, Board Committees and Executive Team.

Meetings of Directors

The number of meetings of the Group's Board of Directors and of each Board Committee held during the year ended 30 June 2019, and the numbers of meetings attended by each Director were:

Meeting of Directors

A = Number of meetings attended

B = Number of meetings held during the time the Director held office or was a member of the committee during the year

(1) Whole Board for Succession Planning Committee is incorporated into the People & Performance Committee.

(2) Mr Truss attended five Audit & Compliance Committee meetings as an invitee, three Environment Health & Safety Committee meetings as an ex officio member, and three People & Performance Committee meetings as an invitee.

(3) Mr Barlow attended one Audit & Compliance Committee meeting and one Environment, Health & Safety Committee meeting as an invitee.

(4) Ms Brown attended seven Inland Rail Committee meetings as an ex officio member.

(5) Ms Garnon was appointed as Director of the ARTC Board on 21 November 2018. By agreement with the Board, Ms Garnon commenced her term at the February 2019 Board meeting. Ms Garnon attended two Environment, Health & Safety Committee meetings and three Inland Rail Committee meetings as an invitee.

(6) Mr Graham attended one People & Performance Committee meeting as an invitee and seven Inland Rail Committee meetings as an ex officio member.

(7) Mr Saxelby attended two Audit & Compliance Committee meetings as an ex officio member and one People & Performance Committee meeting as an invitee.

(8) Ms Seabrook attended two Environment, Health & Safety Committee meetings as an ex officio member.

(9) Mr Fullerton attended the Audit & Compliance Committee and the People & Performance Committee meetings by invitation.

Members of the Board Committees during the year:

Audit & Compliance

Member	Membership period (if other than full year)
G Brown	Chair
R Garnon	Appointed 21 November 2018
V Graham
J Seabrook

Environment Health & Safety

Member	Membership period (if other than full year)
V Graham	Chair
G Brown
J Fullerton
D Saxelby

People & Performance

Member	Membership period (if other than full year)
J Seabrook	Appointed Chair 3 May 2018
C Barlow
G Brown
R Garnon	Appointed 21 November 2018

Risk Committee

Member	Membership period (if other than full year)
C Barlow	Chair
G Brown
J Fullerton
R Garnon	Appointed 21 November 2018
V Graham
D Saxelby
J Seabrook
W Truss

Inland Rail Committee

Member	Membership period (if other than full year)
D Saxelby	Chair
C Barlow
J Fullerton
J Seabrook
W Truss

Principal activities

The principal activities of the Group during the year were the provision of rail access and infrastructure management of rail networks, either owned or leased by ARTC and the delivery of the Inland Rail Project.

Significant changes in the state of affairs

Significant changes in the state of affairs of the Group during the financial year were as follows:

1. Inland Rail Activities: -

ARTC continues to make good progress on Inland Rail’s construction program since construction commenced in February 2019. Of particular note this year:

• In New South Wales, the commencement of construction on the Parkes to Narromine section of Inland Rail in February 2019;
• In Queensland, Expressions of Interest (EOI) were opened in March 2019 to design, build, finance and maintain the Gowrie to Kagaru segment through a Public Private Partnership (PPP), marking the commencement of the formal procurement process for the PPP. Responses to the EOI were received in May 2019 and work is progressing to prepare for issue of formal Requests for Proposal to successful respondents;
• In Victoria, works are being packaged together with passenger upgrades to the North East Rail Line to minimise impacts on the community;
• Across the States, the Inland Rail team has been actively engaging and listening to landowners and other stakeholders. A total of ten Community Consultation Committees (CCCs) and sub-committees have now been established along the route as part of our commitment to addressing local community and environmental concern;
• Furthermore, Inland Rail continues to work with various state governments to achieve ‘Coordinate Projects’ and ‘State Significant Infrastructure’ status;
• Negotiation of Network construction lease agreements with the relevant states is progressing, noting however that delays in finalising negotiation of the Queensland Inter-Governmental Agreement (IGA) are adversely impacting program delivery, timing and costs;
• Further strengthening the Inland Rail Leadership and delivery teams including significant recruitment and organisational initiatives.

The increased activity has as expected, increased operating expenses by $82.7m on prior year across a number of expense categories due to the requirement to expense certain project costs. In addition Inland Rail Impairment charges increased to $158.4m (2018: $10.0m). Notwithstanding all of the above it is noted that the Inland Rail project is primarily funded by the Commonwealth Government grant and equity contributions to ARTC in accordance with the pre-existing project agreements.

2. ACCC Hunter Valley Compliance Assessment: -

In March 2019, the ACCC announced the draft 2015 calendar year determination for the Hunter Valley Coal Assessment including the impact of the operating expenditure review. The 2015 calendar year assessment was concluded and finalised by June 2019, with subsequent Compliance Assessments now being progressively reviewed by the ACCC. The Group continues to carry a financial liability on the balance sheet for the remaining estimated compliance assessment outcomes.

3. Non-Coal Market Conditions and Impairment:-

2018/19 has seen a continuation of challenging economic conditions compounded by the exit of a key rail operator from the intermodal market, resulting in consolidation of services across ARTC’s Interstate Business Units’ customer base which has adversely impacted revenue mix and volumes compared to prior expectations.

As a result there has been a reduction in the Interstate Business Unit’s long term cash flow forecasts which has been the key reason for a downward revaluation of the Interstate Business Unit’s assets of $504.5 million, of which $287.9 million (2018: $9.5 million) was recorded in the Income Statement and $216.6 million (2018: $34.9 million) in the Asset Revaluation Reserve.

There was a partial offset to the fair valuation outcome noted above due to a 0.2% reduction in ARTC’s Weighted Average Cost of Capital (refer to Note 11(d) of the financial statements for further detail) reflecting ARTC’s view, based on the work of an external expert, that there has been a reduction in the long term risk free rate since the previous assessment was undertaken in June 2018.

There were no other significant changes in the state of affairs of the Group during the year.

Significant events after the balance date

It is the opinion of the Directors of the Group that no event has arisen that would significantly affect the operation of the Group, the result of those operations, or the state of affairs of the Group in future financial years.

Likely developments and expected results of operations

Likely developments and the expected results of operations of ARTC are contained in the Chairman and Chief Executive Officer's Reports.

Dividends

On 31 October 2018 the Group made a payment of $42,497,000 to the shareholder as the final dividend for the 2017/18 financial year.

On 17 April 2019, the Group made a payment of $25,815,000 to the shareholder as an interim dividend.

The final dividend for the 2018/19 year is expected to be paid in October 2019.

Review of operations

The review of operations of the Group is contained in the Chairman’s and the Chief Executive Officer's Reports.

Environmental regulation

ARTC is committed to managing its operational activities and services in an environmentally responsible manner to meet its legal, social and ethical obligations. ARTC holds operational licences from both the Environment Protection Authority of South Australia and the Environment Protection Authority of NSW. In South Australia, the licence is held under Part 6 of the Environment Protection Act 1993 to undertake the activity of "Railway Operations". The licence is due to expire on 31 January 2024. In New South Wales, the licence is held under Section 55 of the Protection of the Environment Operations Act 1997 to undertake "Railway Systems Activities". The licence has an anniversary date of September 5 and subject to payment of the fee and provision of annual returns, continues until the parties agree to change or withdraw it. Other than in South Australia and New South Wales, ARTC is not required to be licensed.

Indemnification of officers

During the reporting period, ARTC had in place insurance cover in respect of liabilities arising from the performance of the Directors and Officers of the Group.

The disclosure of the premium paid under section 300(8) (b) of the Corporations Act 2001 is not shown as the insurance contract between ARTC and the insurer prohibits ARTC from disclosing such information.

No known liability has arisen under the insurance contract as at the date of this report.

Non - audit services from External Auditors

The External Auditors provided non-audit services during 2018/19 of $159,478 (2017/18 - $133,162). The Directors are satisfied that the non-audit services provided are compatible and do not compromise the general standard of independence for auditors imposed by the Corporations Act 2001.

Auditor's independence declaration

A copy of the auditor's independence declaration as received by the Directors as required under section 307C of the Corporations Act 2001 is set out on the next page.

Remuneration Report

This report outlines the approach to setting remuneration and the outcomes for ARTC’s Key Management Personnel (KMP) for the year ended 30 June 2019.

The personnel covered in this report include Non-Executive Directors of ARTC, its Chief Executive Officer and Managing Director (CEO & MD) and all senior executives appointed to roles that report directly to the CEO & MD.

(1) Rosheen Garnon was appointed a Director of the ARTC Board on 21 November 2018 and by agreement with the Board, she commenced her term at the February 2019 Board meeting.

KMP Remuneration Policies and Practices

Non-Executive Directors

All Non-Executive Directors of ARTC are appointed by the Commonwealth of Australia through the Shareholding Ministers. Fees for Non-Executive Directors are set by the Commonwealth Remuneration Tribunal (the Tribunal). The Tribunal reviewed the Non-Executive Directors’ remuneration in 2018 and consented to increases from 1 July 2018 commensurate with the increase in Company accountabilities attributable to the delivery of Inland Rail.

Chief Executive Officer and Managing Director (CEO & MD)

The Total Remuneration Reference Rate (TRRR) for ARTC’s CEO & MD is independently determined by the Tribunal. In recognition of the substantial increase in accountability resulting from the Inland Rail project, the role was determined a Principal Executive Officer (PEO) B and E under the Principal Executive Office - Classification Structure and Terms and Conditions. The Determination took effect from 30 September 2018. The Tribunal also consented to a combined short and longer term ‘at risk’ incentive opportunity of up to 60% of the total remuneration as determined by the Board.

Senior Executives

The achievement of the Company strategy relies on ARTC’s ability to attract and retain senior executives who can lead the business to deliver the safety, people and commercial objectives and do so in a way that strengthens the business and builds the culture defined by the Company values.

All ARTC senior executives are employed under individual contracts of service specifying the terms, conditions and performance requirements specific to each role.

ARTC’s remuneration policy aims to ensure senior executives (KMP) are remunerated corresponding to respective role accountabilities taking account of market and internal relativities and the interests of key stakeholders.

The table below shows the structure, composition and considerations in the determination of Senior Executive reward.

Reward practice is formally reviewed on an annual basis by the Chairman with the support of the People and Performance Committee. Any changes are subject to Board approval.

Remuneration Policies and Practices

Competitiveness is critical, given the calibre of talent required to lead ARTC in an environment where significant infrastructure investment (in rail, energy, airports, etc) results in strong market competition for experienced executives with the capability to execute complex, high profile projects that deliver value over the longer term.

Changes to remuneration in 2018/19

In 2018, the ARTC Board approved the adjustment of senior executive remuneration to reflect the expansion of accountabilities resulting from increases in business size, scale, risk and complexity driven by the Inland Rail program as well as the significant portfolio of capital projects within the Interstate business.

This decision was informed by the Remuneration Tribunal determination regarding the CEO & MD’s remuneration and a comprehensive review of the relevant market data comparators comprising of Government Business Enterprises (GBE’s) and Australian Stock Exchange (ASX) listed companies.

This review confirmed:

• All senior executive roles had taken on additional responsibility, complexity and accountability.
• ARTC’s senior executive Fixed Remuneration and STI was at the far lower end of the market (comparison of similar roles in similar sized GBE and private sector companies).
• In order to deliver the company’s Corporate Plan objectives over the next 5 years and beyond, it will be required to attract high quality talent, often with international and/or listed company experience.

Following the Remuneration Tribunal determination regarding the CEO & MD remuneration, effective from 30 September 2018, FAR was increased to $787,500 and the STI increased from 30% to a maximum of up to 60%, incorporating longer term incentives associated with the Inland Rail program.

For KMP reporting to the CEO & MD, the review led to adjustments of between 5 and 10 per cent to the FAR of most positions and the STI was increased from 20% of FAR to a maximum of up to 30% of FAR. There was no increase to the FAR or STI for the Inland Rail CEO which remained at a maximum of up to 50% FAR.

Short Term Incentive (STI) Performance Program

The Corporate Measures used to assess Company performance are set by the Board and aligned to the measures in the Corporate Plan, approved annually by the Shareholders.

The three critical objectives are:

• Building Inland Rail on time, to budget and scope;
• Exceeding our Customers' needs and promoting better rail industry outcomes; and
• An uncompromising commitment to safety.

To achieve its strategic objectives, it needs to develop its people and have the right capabilities and systems including:

• Company-wide commitment to its core values;
• Respect and create value for its stakeholders and communities;
• Strengthen its leadership and maintain strong governance;
• Enhance and transform its procurement;
• Expand and increase maturity of its risk management systems;
• Protect the safety, security, reliability and performance of systems, and confidentiality of our data and our customers’ data.

Linking Company and Individual Performance to STI Payments

Payment of STI is an outcome of the assessment of each KMP’s performance against the objectives set out in ARTC’s 2018/19 Corporate Plan.

A Performance Plan is created for each KMP based on the accountabilities specific to their role, and the part that they play in leading the delivery of Corporate Plan objectives. Each plan contains stretch targets aligned to each of the objectives which are designed to incentivise high performance to deliver the Corporate Plan outcomes and greater value to the Shareholder.

Specific emphasis is also placed on ARTC’s Values, cultural objectives and the leadership behaviours expected of all KMP.

The CEO & MD ’s Performance Plan (the Plan) is determined by the Board and sets out the five critical Performance Measures and stretch targets.

Performance is assessed against targets that align with Shareholder interests as detailed in the ARTC Corporate Plan. To achieve the maximum award, the relevant targets must be significantly exceeded.

KMP Performance for FY19

In assessing performance, the Board considered:

• Corporate Performance Measures were exceeded for operating profit excluding fair value adjustments, safety and customer satisfaction. There was an improvement in the employee engagement measure and it remains above industry average, but did not achieve target.
• Despite the above mentioned operating profit outcome, there was a reduction in operating revenue owing to the challenges within our Interstate business driven by the withdrawal of a major intermodal customer and a general slowdown in the intermodal sector.
• Ongoing concerns by a number of communities and landowners relating to Inland Rail alignment and future impact of train operations that has required the company to improve its consultation and engagement activities by strengthening capability, deploying more resources and opening additional regional offices along the alignment.
• A major Inland Rail milestone was achieved with the commencement of construction between Parkes and Narromine together with the establishment of an experienced leadership team to deliver the project.
• A major Inland Rail milestone was achieved with the commencement of construction between Parkes and Narromine together with the establishment of an experienced leadership team to deliver the project.

The outcome of this assessment resulted in the Board awarding the CEO & MD a rating outcome of 77.6% and awarding the KMP a range of outcomes between 61.9% and 77%. The payments are specified in Table Executive Remuneration on page 17.

The ARTC Board retains at its absolute discretion, the ability to adjust the STI result for any KMP.

Remuneration Governance Arrangements

The Board

ARTC’s Board monitors performance and reward practice against its corporate governance objectives. The Board responsibilities include and are not limited to:

• Determining the business strategy;
• Appointment and monitoring of the CEO & MD’s performance;
• Monitoring and oversight of the senior executive performance of objectives;
• Oversight of ARTC including Inland Rail corporate governance, control and accountability;
• Approval of senior executive appointments reporting to the CEO & MD and the related remuneration policies and practices;
• Approving remuneration adjustments for KMP; and
• Determining the STI outcome for KMP who participate in the program.

The People and Performance Committee (The Committee)

The Committee Charter was revised with a number of improvements made to strengthen its oversight and governance of the people, performance and remuneration policies and practices in response to the increasing complexity of the business and the critical role people, performance and culture plays in delivering the company’s Corporate Plan.

The Charter outlines the Committee’s duties and responsibilities to assist the Board to fulfil its corporate governance responsibilities in relation to any significant matters requiring policy change or decision.

The relevant excerpts from the Charter include:

Culture and Capability

• Encourage the Board to lead by example, setting the cultural tone from the top.
• Assist management to develop a high performing, purpose led and values-based work culture.
• Review the People Strategy and its implementation to ensure the Company attracts, develops, retains and motivates people to deliver its objectives.

Diversity

• Review the effectiveness of the company’s framework to develop a diverse and inclusive workforce which is rich in skills, experience and thinking styles.

Policies

• Evaluate any relevant potential exposure to the Company pursuant to its accountabilities and responsibilities under the Governance Arrangements for Commonwealth Government Business Enterprises.
• Monitor and provide guidance on the Company’s workplace agreements, enterprise bargaining agreements and industrial agreements and instruments.
• Oversee compliance with all relevant people and workplace policy legislation and regulations in all of the legal jurisdictions in which the Company operates.

Remuneration & Performance

Chief Executive Officer and Managing Director

• Formulate and administer the contract of employment for the CEO & MD.
• Monitor and review CEO & MD performance on an annual basis.

Senior Executive Staff

• Assist the CEO & MD in annual review of the contracts of employment for senior executive staff, including recommendations for fixed and variable remuneration components.
• Review with the CEO & MD the succession of key executive and specialist staff to provide for the orderly development and succession of key management personnel.

Remuneration Report

• Review and recommend to the Board for approval the Remuneration Report to be adopted within the Annual Report.

As at 30 June 2019 the Committee comprised Jenny Seabrook (Chair), Chris Barlow, Gillian Brown and Rosheen Garnon.

The effectiveness of the Committee is assessed as part of the comprehensive annual Board Evaluation process, to ensure the Committee structure and capabilities are aligned to the overall business strategy.

Non-Executive Director Remuneration

The following table details the fees paid to Non-Executive Directors.

Executive Remuneration

The following table represents the remuneration receivable by KMP executives applicable to the relevant year. E.g. The short term incentives for financial year 2019 represent the amounts awarded to KMP for performance outcomes associated with FY2019 and are to be paid in October 2019.

(i) Kylie Gallasch was appointed as a KMP on 15 January 2018.

(ii) Jane Lavender-Baker was appointed as Group Executive Corporate Affairs and People on 2 September 2017.

(iii) Richard Wankmuller was appointed as a KMP on 23 April 2018

Corporate Governance Statement

The ARTC Board currently comprises eight members. The Board is chaired by an Independent Non-Executive Director and the roles of the Chairman and Managing Director are separate. The Managing Director is the only Executive Director on the Board and is also the Chief Executive Officer. All of the other Directors are Independent Non-Executive Directors.

ASX Principles of Good Corporate Governance

ARTC’s system of corporate governance reflects the eight principles enunciated in the ASX “Corporate Governance Principles and Recommendations”. The following table indicates where specific ASX Principles are dealt with in this statement:

ASX Principle	Reference
Principle 1: Lay solid foundations for management and oversight	The Board, Board Committees, Accountability and Audit
Principle 2: Structure the Board to be effective and add value	The Board, Board Committees
Principle 3: Instil a culture of acting lawfully, ethically and responsibly	Governance Policies
Principle 4: Safeguard the integrity of corporate reports	The Board, Accountability and Audit, Board Committees
Principle 5: Make timely and balanced disclosure	Our Shareholder
Principle 6: Respect the rights of security holders	Our Shareholder
Principle 7: Recognise and manage risk	Accountability and Audit
Principle 8: Remunerate fairly and responsibly	Board Committees

The Board

Board role and responsibilities

ARTC recognises the respective roles and responsibilities of the Board and Management through its system of formal delegations and a schedule of matters reserved to the Board. This enables the Board to provide strategic guidance for the company and effective oversight of Management. It also clarifies the respective roles and responsibilities of Board members and senior executives to facilitate Board and Management accountability to both the Group and its shareholders.

The major powers the Board has reserved for itself are approval of:

(a) Strategic plan for the Group;

(b) Significant business initiatives that require notification to Shareholder Ministers;

(c) Access agreements that do not comply with the Board agreed pricing and Access principles and policies;

(d) Long term price paths for train operators;

(e) The framework for the Wholesale Sales Agreement;

(f) The framework for the Rail Access Agreement;

(g) All expenditure and property transaction contracts greater than $5 million not subject to a specific Board approval;

(h) Lease expenditure commitments in excess of $5 million (net present value) or in excess of 5 years duration;

(i) Employment contract for the Chief Executive Officer and the organisational structure for direct reports;

(j) Parameters for Workplace Enterprise Agreements;

(k) Senior Executive variable reward scheme; and

(l) Annual business plan and budget.

Board composition and membership

The Board’s size and composition is subject to limits imposed by ARTC’s constitution, which provides for a minimum of three Directors and a maximum of eight Directors. The Board currently comprises seven Non-Executive Directors and one Executive Director. The Directors of ARTC are listed with a brief description of their qualifications and experience on pages 1 to 3 of this Annual Report. Directors are appointed by the Shareholder Ministers in accordance with the Company’s Constitution and GBE Guidelines.

Government policy (Section 115(c), Cabinet Handbook 2018, 12th Edition) requires that due regard be paid to gender balance in appointments. The GBE Guidelines refer to the Cabinet Handbook as per section 2.14. Currently, the Board comprises three women and five men.

Conflicts of interest

The Directors of ARTC are requested to disclose to the Company any interests or directorships which they hold with other organisations and to update this information if it changes during the course of the directorship. Directors and senior management are also required to identify any conflicts of interest they may have in dealing with ARTC’s affairs and refrain, where required, from participating in any discussion or voting on these matters.

Where a Director has declared material personal interest and/or may be presented with a potential material conflict of interest in a matter presented to the Board or Committee, the Director does not receive copies of Board or Committee reports relating to the matter and recuse themselves from the Board meeting at the time the matter is considered. Disclosures are recorded in the minutes and recorded on the Statement of Interests Register.

Chairman

Warren Truss, an Independent Non-Executive Director, has been Chairman of the Company since 21 April 2018. The Chairman of the Board is responsible for the leadership of the Board and for the efficient and proper functioning of the Board, including maintaining relationships with the Shareholder.

Board evaluation

In line with the GBE requirements, ARTC conducts an annual review of the Board’s performance.

The Board determines the actions to be taken in relation to the recommendations arising from the assessments and regularly reviews progress against the action plans.

The Chairman provides the Shareholder Ministers with written confirmation that this review process has been followed and raises any areas of concern at the Annual Shareholder Strategic Meeting.

Director induction and education

On appointment, each Director receives a formal letter of appointment from the Shareholder Ministers. ARTC has an induction program for new Directors which includes individual meetings with Executive Members; Directors and visiting ARTC’s operational locations. Directors are provided with a detailed manual with information on the Company’s corporate strategy, company policies, meeting arrangements, rail industry and general company matters. The Board has regular discussions with the CEO and Management and attends site tours of ARTC’s operational sites.

Board access to information and independent advice

The Board has direct access to Management and any company information Management possess in order to make informed decisions and discharge its responsibility.

The Company Secretary in that capacity, is accountable to the Chairman of the Board. The Board must approve the appointment and removal of the Company Secretary.

Any Director can seek independent professional advice in the discharge of their responsibilities, with the agreement of the Chairman, which cannot unreasonably be withheld.

Board Committees

To assist in the discharge of its responsibilities, the Board has established the following Board Committees:

• Audit and Compliance
• People and Performance
• Environment, Health and Safety
• Risk
• Inland Rail

Each Committee is chaired by a Non-Executive Director and comprises a majority of Independent Non-Executive Directors. Membership of the Committees is based on Director’s qualifications, skills and experience. Each Committee is governed by its own Charter, detailing the Committee’s role, membership requirements and duties. Each Charter is reviewed periodically and revised when appropriate.

Committee	Composition	Main Areas of Responsibility
Audit & Compliance	At least 3 Non-Executive Directors appointed by the Board   The Chair cannot be the Chair of the Company	The primary responsibility of the Committee is to assist the Board fulfil its responsibilities for corporate governance, probity, due diligence, effectiveness of internal control, management of financial risks and financial reporting.
People and Performance	At least 2 Non-Executive Directors appointed by the Board  CEO plus any other company executive or advisor attend by invitation	The primary responsibility of the Committee is to assist the Board fulfil its responsibilities for providing oversight at Board level of the company’s policies, procedures and practices as they affect employees, contractors or others performing work for the company, and to make recommendations to the Board regarding remuneration of the CEO and Directors.
Environment Health & Safety	At least 2 Non-Executive Directors appointed by the Board  CEO plus any other company executive or advisor attend by invitation	The primary responsibility of the Committee is to assist the Board fulfil its responsibilities for the company’s management of risks associated with its environment, public and work health and safety functions and to monitor processes and programs adopted by Management to ensure compliance with relevant policies and procedures.
Risk Committee	All Non-Executive members of the Board of Directors  The CEO and other company executives attend by invitation	The primary responsibility of the Committee is to assist the company fulfil its responsibilities for corporate governance, by overseeing the way the company manages risk in accordance with its Risk Management Policy.
Inland Rail Committee	* At least 3 Non-Executive Directors appointed by the Board and the CEO & Managing Director * CEO Inland Rail attends other than by agreement with the Committee Chairman	The primary responsibility is to assist the Board in the effective discharge of its governance and oversight responsibilities relating to the delivery of Inland Rail, in more depth than time permits at regular Board meetings.

Accountability and Audit

Risk Management

ARTC continues to build a risk management framework and has developed a comprehensive risk register that captures the material business risks facing the Company. The Risk Committee comprises the whole Board and Executive Management team who review the identified risks and monitor ARTC’s overall risk management.

Insurance

ARTC maintains appropriate insurance policies to ensure that its financial interests and liabilities are fully protected and that it complies with its various contractual obligations. ARTC’s insurance portfolio provides cover for damage or destruction of its rail network infrastructure assets, liability protection for its general, professional and statutory liabilities and protection for its board members and employees whilst such persons are engaged on ARTC related business and activities.

Internal audit

In December 2018, ARTC extended its contract with KPMG for the provision of internal audit services by a further two years. ARTC Internal Audit maintains a three year Internal Audit Plan which is updated and agreed annually. KPMG assisted Internal Audit to review and update the FY20 - FY22 Non-Safety Internal Audit Plan (Plan).

In May 2019, the Audit and Compliance Committee approved the revised FY20 - FY22 Plan. A progress report which provides an update on Internal Audit’s progress on delivering the annual Plan is presented to each Audit and Compliance Committee meeting.

External Audit

Under section 98 of the PGPA Act, the Auditor-General is responsible for auditing the financial statements. In addition, ARTC’s Annual Report is tabled in Parliament and financial accounts are lodged with ASIC.

ANAO has contracted with EY to audit the ARTC on behalf of the Auditor-General. The Audit and Compliance Committee invite the external auditors to each Committee meeting and the papers for each meeting are provided to both ANAO and EY. The external auditors are also invited to ARTC’s Annual General Meeting.

Our Shareholder

The Commonwealth of Australia holds all the shares in the Group. The responsible Shareholder Ministers are the Senator the Hon Mathias Cormann, Minister for Finance and Special Minister of State, and Deputy Prime Minister Michael McCormack, Minister for Infrastructure, Transport and Regional Development. ARTC recognises, upholds and facilitates the effective exercise of the rights of the single shareholder, the Commonwealth of Australia. In this regard, the company is subject to the PGPA legislation and the Commonwealth Government Business Enterprise Governance and Oversight Guidelines in addition to the Corporations Act. ARTC has also negotiated a Commercial Freedoms Framework with the Shareholder which agrees ARTC’s mandate.

Shareholder communication

ARTC complies with the Commonwealth Government Business Enterprise Governance and Oversight Guidelines, including the development of an annual Corporate Plan, the publication of an annual Statement of Corporate Intent and regular Shareholder liaison, including formal quarterly Shareholder meetings, regular Inland Rail Sponsor group meetings and related reports.

Governance Policies

Code of Conduct

ARTC recognises the importance of integrity and ethical behaviour. This commitment is demonstrated in the Company’s Code of Conduct which sets out the principles of conduct and behaviour ARTC requires from its employees.

Public Interest Disclosure Procedure

In accordance with the Public Interest Disclosure Act, ARTC has a framework for the disclosure of suspected wrongdoing and for the protection of whistle blowers. The framework applies to disclosures made by ARTC staff.

Conflicts of Interest

Under the ARTC Code of Conduct and the ARTC Conflict of Interest Policy, all staff are required to disclose any actual, perceived or potential conflicts of interest to the General Counsel and Company for subsequent evaluation and advice.

Equal Opportunity

The ARTC Corporate Plan recognises the importance of providing ARTC employees with a work environment that is both engaging and fulfilling.

ARTC’s Diversity Policy outlines the Company’s commitment to value diversity, treating all job applicants and employees in the same way, regardless of their sex, sexual orientation, age, race, ethnic origin or disability.