Go to top of page

Notes to the financial statements for the year ended 30 June 2020

Overview

Coal LSL is a not-for-profit corporate Commonwealth entity established under the Coal Mining Industry (Long Service Leave) Administration Act 1992 to regulate and manage long service leave entitlements on behalf of eligible employees of the black coal mining industry.

Basis of preparation

The financial statements are general purpose financial statements and are required by section 42 of the Public Governance, Performance and Accountability Act 2013.

The financial statements have been prepared in accordance with:

  • Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR); and
  • Australian Accounting Standards and Interpretations - Reduced Disclosure Requirements issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.

Coal LSL is not a General Government Sector entity and is not required to report budgetary numbers to parliament. As such, the entity does not fall within the scope of AASB 1055.

The financial statements have been prepared on an accrual basis in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

The financial statements are presented in Australian dollars and values are rounded to the nearest thousand dollars unless disclosure of the full amount is specifically required.

Coronavirus (COVID-19) impact

In March 2020 the World Health Organization declared a pandemic because of the viral respiratory illness, COVID-19. The health implications and measures to slow the spread of the virus have had, and continue to have, significant impacts on both domestic and global economies.

For the year ended 30 June 2020, Coal LSL’s revenue from investments was lower than the previous financial year as a result of impacts that included COVID-19. These impacts resulted in a reduction in the fair value of investments held at balance date as detailed in notes 1.2 (a) and 2.4 (a). There was no impact on revenue from government (levy collections from employers) to 30 June 2020 as a result of COVID-19.

The impact of COVID-19 has been considered in determining the assumptions used in the calculation of the provision for reimbursements. There was no material impact on the assumptions as detailed in note 5.1.

Coal LSL will continue to monitor the valuation of its investment portfolio, as well as investment performance, in accordance with agreed protocols. Given uncertainty in global markets, and the susceptibility of certain asset classes to fluctuations in valuation going forward, Coal LSL maintains a diversified portfolio. Portfolio composition is, and will be, regularly assessed in alignment with the long-term strategy and liquidity requirements of the organisation. In addition, Coal LSL will continue to manage risks in relation to the portfolio in accordance with the methods outlined in note 2.5.

New accounting standards

No accounting standard has been adopted earlier than the application date as stated in the standard. The impact on initial application of AASB 16 Leases is disclosed below and in the relevant notes to the financial statements. The impact of AASB 1058 Income of Not-for-Profit Entities is disclosed in note 1.2(b) and 2.3. All other accounting standards, amendments to standards and interpretations that were issued prior to the sign-off date and are applicable to the current reporting period did not have a material effect and are not expected to have a future material effect on the entity’s financial statements.

Coal LSL adopted AASB 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Accordingly, the comparative information presented for 2019 is not restated, that is, it is presented as previously reported under AASB 117 and related interpretations. On adoption of AASB 16, right-of-use assets and lease liabilities were recognised in relation to the lease of the head office premises and printer/copier which were previously recognised as operating leases. The accounting policy for leases is disclosed in note 2.8 with right-of-use assets being disclosed in note 3.1. The cumulative effect of initial application was immaterial and is detailed in the statement of changes in equity.

The impact on lease transition is summarised below:

Note

1 July 2019

$'000

Minimum lease commitments

1.1 (c)

6,778

Effect of discounting using the incremental borrowing rate as at 1 July 2019

(449)

Lease liabilities recognised at 1 July 2019

6,329

Right-of use assets recognised at 1 July 2019

5,766

Decrease in other payables (lease incentive received)

944

(Decrease) in leasehold improvements (buildings)

(392)

Cumulative impact recognised in retained surplus

11

6,329

Funding

During the period 1 July 2019 until 30 June 2020 levies payable by employers under the provisions of the Coal Mining Industry (Long Service Leave) Payroll Levy Collection Act 1992 were calculated at 2.0% of "eligible wages" as defined by the Act (period 1 July 2018 until 30 June 2019: 2.0%).

Taxation

Coal LSL is exempt from all forms of income taxation.

Economic dependency

Coal LSL is economically dependent upon continued funding by the special (standing) appropriation of monies out of the Consolidated Revenue Fund of the Commonwealth of Australia derived from levies made in accordance with the Coal Mining Industry (Long Service Leave) Payroll Levy Collection Act 1992. The accounting policy for revenue from government is disclosed in note 1.2(b).

Events after the reporting period

There were no specific events subsequent to 30 June 2020 that had the potential to significantly affect the ongoing structure and financial activities of the entity.

Note 1 - Statement of comprehensive income

1.1 Expenses

(a) Employee benefits

2020

$'000

2019

$'000

Wages and salaries

9,281

6,540

Superannuation

898

620

Leave and other entitlements

503

285

Total employee benefits

10,682

7,445

Accounting policy

Accounting policies for employee related expenses are contained in the 'People and relationships' section at note 4.

(b) Directors' remuneration and expenses

The remuneration of directors is by way of a daily fee for part-time holders of public office as determined under Part 6 of the determination of the (Commonwealth) Remuneration Tribunal. Directors are also entitled to reimbursement for expenses incurred in travelling to/from meetings and in the conduct of business directly related to the affairs of Coal LSL.

2020

$'000

2019

$'000

Remuneration paid or payable to directors

97

113

Directors' expenses

55

61

Total directors’ remuneration and expenses

152

174

The total number of directors that are included in the above table is 7 (2019: 6).

(c) Operating leases

2020

$'000

2019

$'000

Operating lease costs

0

518

Minimum lease commitments

Not later than one year

0

608

Later than one year and not later than five (5) years

0

2,625

Greater than five (5) years

0

3,545

Total minimum lease commitments

0

6,778

AASB 16 has been applied using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under AASB 117. The above lease disclosures should be read in conjunction with the accompanying notes 2.8 and 3.1.

(d) Other expenses

2020

$'000

2019

$'000

Technology costs

1,484

951

Employment-related costs

1,147

781

Operating expenses

1,046

775

Total other expenses

3,677

2,507

1.2 Revenue

(a) Investment revenue

2020

$'000

2019

$'000

Unit trust distributions

64,719

63,444

Deposit interest

1,167

2,202

Investment manager fee rebates

2,591

2,012

Changes in fair value of investments held at balance date

(56,050)

59,572

Net realised gains on sale of investments

2,647

0

Total investment revenue

15,074

127,230

Investment revenue was lower than the previous financial year as a result of impacts that included COVID-19. These impacts resulted in a reduction in the fair value of investments held at balance date as outlined in the Overview to the notes.

Accounting policy

Dividend and distribution income is recognised when the right to receive a dividend/distribution has been established. Interest income is recognised as it accrues using the effective interest method. Investment manager fee rebates are received through the issue of additional units and are recognised as income when the right to receive the additional units has been established. Fair value gains and losses are recognised as unrealised when the investment is still held at balance date or as realised when the investment has been disposed of during the financial year.

(b) Revenue from government

Coal LSL collects a levy from employers in a levy collection account. The levy is transferred to the Attorney-General's Department via Consolidated Revenue and is transferred back from Consolidated Revenue on a monthly basis under a special (standing) appropriation. In accordance with the Coal Mining Industry (Long Service Leave) Payroll Levy Collection Act 1992, Coal LSL has a right to receive the associated cash flows at the time an employer pays an amount of payroll levy. As such, Coal LSL recognises revenue from government and a corresponding receivable at the time payroll levy is deposited into the levy collection bank account by the employer. At 30 June 2020 the balance in this levy account was $13,085,876 (2019: $11,734,572). This amount was remitted to Consolidated Revenue on 1 July 2020 and has been recognised as a receivable which is disclosed in note 2.3.

2020

$'000

2019

$'000

Levy collections from employers

147,349

134,531

Total revenue from government

147,349

134,531

Coal LSL adopted AASB 1058 Income of Not-for-Profit Entities using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings. Prior to 1 July 2019, revenues from government were recognised when Coal LSL obtained control over the revenue, that is, to the extent revenue had been received into Coal LSL’s bank account. From 1 July 2019, revenue received from the government is recognised when Coal LSL has a right to receive the associated cash flows. As a result, retained earnings increased by $11.7m (being the amount held in the levy collection account at 30 June 2019) and appropriations receivable increased by the same amount at 1 July 2019. Comparative information presented for 2019 has not been restated and the impact on revenue for the year ended 30 June 2020 was immaterial. No material impacts are expected for future periods due to the adoption of this standard.

Accounting policy

Revenues from government are recognised when Coal LSL has a right to receive the associated cash flows.

Note 2 - Financial assets and liabilities

2.1 Categories of financial instruments

Financial assets

2020

$'000

2019

$'000

Amortised cost

Cash and cash equivalents

36,287

179,568

Trade and other receivables

16,005

4,116

Total at amortised cost

52,292

183,684

Fair value through profit or loss

Unit trusts

1,799,665

1,649,635

Total financial assets

1,851,957

1,833,319

Financial liabilities

Amortised cost

Trade and other payables

2,142

2,197

Total financial liabilities

2,142

2,197

Net gains on financial assets and financial liabilities are disclosed in note 1.2(a) while net losses are disclosed in the statement of comprehensive income.

Accounting policy

Financial assets are recognised when Coal LSL becomes a party to the contract and, as a consequence, has a legal right to receive or a legal obligation to pay cash and derecognised when the contractual rights to the cash flows from the financial asset expire or are transferred upon trade date.

The classification depends on Coal LSL’s business model for managing the financial assets and the contractual cash flow characteristics at the time of initial recognition.

Impairment of financial assets

Financial assets are assessed for impairment at the end of each reporting period based on expected credit losses, using the general approach which measures the loss allowance based on an amount equal to lifetime expected credit losses where risk has significantly increased, or an amount equal to 12-month expected credit losses if risk has not increased.

The simplified approach for trade, contract and lease receivables is used. This approach always measures the loss allowance as the amount equal to the lifetime expected credit losses.

A write-off constitutes a derecognition event where the write-off directly reduces the gross carrying amount of the financial asset.

2.2 Cash and cash equivalents

2020

$'000

2019

$'000

Cash at bank

36,281

172,974

Deposits at custodian

6

6,594

Total cash and cash equivalents shown in statement of cash flows

36,287

179,568

Accounting policy

Cash and cash equivalents include cash on hand and demand deposits in bank accounts with an original maturity of three months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Cash is recognised at its nominal amount.

2.3 Trade and other receivables

2020

$'000

2019

$'000

Receivable from Attorney-General's Department

13,086

0

Accrued income from investments

2,373

3,444

Accrued bank interest

18

135

GST paid and claimable

87

97

Prepayments

441

439

Other assets

0

1

Total trade and other receivables

16,005

4,116

At 30 June 2020, no trade or other receivables were overdue or impaired (2019: nil).

The adoption of AASB 1058 Income of Not-for-Profit Entities from 1 July 2019 resulted in the recognition of a receivable from government of $13.1m at 30 June 2020. There would have been no government receivable recognised at balance date if AASB 1058 was not adopted during the reporting period. Under the modified retrospective approach, comparative information presented for 2019 has not been restated. See note 1.2(b) for disclosures relating to revenue from government.

Accounting policy

Trade and other receivables that are held for the purpose of collecting contractual cash flows which are solely payments of principal and interest and are not provided at below-market interest rates are measured at amortised cost using the effective interest method adjusted for any loss allowance.

2.4 Financial instruments at fair value through profit or loss

(a) Investments

2020

$'000

2019

$'000

As at 1 July

1,649,635

1,684,804

Purchases

629,495

59,801

Sales

(426,062)

(154,474)

Realised and unrealised gains/(losses)

(53,403)

59,504

Total as at 30 June

1,799,665

1,649,635

Unrealised losses for the year ended 30 June 2020 relate to changes in the fair value of investments held at balance date due to impacts that included COVID-19 as outlined in the Overview to the notes. An explanation of valuation techniques used to derive the fair value of investments is included in note 2.5 (b).

(b) As at 30 June 2020, a total of $1,799.7m (2019: $1,649.6m) from the assets of the Coal Mining Industry Long Service Leave Fund were invested by Coal LSL with the appointed fund managers in accordance with the approved investment policy as follows:

2020

$'000

2019

$'000

AMP Capital Shopping Centre Fund

26,943

33,818

AMP Capital Wholesale Office Fund

60,031

55,329

Barings

50,198

0

Bridgewater

90,996

82,775

Challenger

53,886

0

First Sentier

11,718

0

GQG Partners

49,637

0

IFP

49,212

0

Hyperion

103,757

87,691

Lazard

54,138

63,907

Macquarie True Index

50,104

0

Macquarie Pure Index

66,774

72,075

MFS

97,161

78,934

Palisade

82,912

79,097

Pimco

117,256

68,643

QIC Cash Fund

132,516

0

QIC Fixed Interest

169,770

240,987

QIC Inflation Plus

0

133,843

Resolution Capital

95,014

103,490

Schroder

70,209

67,869

State Street Global Advisors

0

136,440

Stone Harbor

74,992

63,592

Vanguard International Shares Hedged

97,384

95,958

Vanguard International Shares Unhedged

195,057

185,187

Total unit trusts

1,799,665

1,649,635

JPMorgan Chase Bank N.A. Cash Account

6

6,594

Cash held directly by Coal LSL

36,281

172,974

Total investments

1,835,952

1,829,203

All investments in unit trusts were held on behalf of Coal LSL by the Master Custodian, JPMorgan Chase Bank N.A. For the year ended 30 June 2020, the return on the investment of funds was 0.7% (2019: 7.4%).

Sector exposure

2020

$'000

2019

$'000

Australian fixed interest

219,874

374,830

Overseas fixed interest

187,465

136,512

Australian equities

224,669

223,673

Overseas equities

488,451

496,519

Alternatives

270,072

146,367

Infrastructure

94,630

79,097

Property

181,988

192,637

Cash and cash equivalents

168,803

179,568

Total investments

1,835,952

1,829,203

Coal LSL’s sector exposure to underlying assets through its investments in unit trusts are as follows:

  • Fixed income: Australian and overseas government bonds, semi-government bonds, supranationals and corporate bonds as well as fixed income and currency derivatives.
  • Equities: Australian and overseas equities listed on respective stock exchanges including developed and emerging markets. Derivatives can be used for exposure management.
  • Alternatives: alternative credit includes bank loans and corporate debt positioned at various levels in the capital stack ranging between mezzanine and high yield debt, emerging markets sovereign and corporate debt issued in both hard and local currencies and multi-asset exposure to equities, commodities, inflation-linked bonds, government and corporate nominal bonds, cash and currency pairs.
  • Infrastructure: includes exposure to domestic and international airports, roads, ports, utilities and renewables.
  • Property: exposure to global real estate and Australian property including shopping centres and office space primarily in Sydney and Melbourne.

Accounting policy

Financial assets are classified at fair value through profit or loss (FVTPL) where the financial assets either do not meet the criteria of financial assets held at amortised cost or at fair value through other comprehensive income (i.e. mandatorily held at FVTPL) or may be designated.

Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest earned on the financial asset.

Fair value measurement principles

The fair value of financial instruments is based on their quoted market prices at balance date without any deduction for estimated future selling costs. Financial assets are priced at current bid prices, while financial liabilities are priced at current asking prices.

If a quoted market price is not available on a recognised stock exchange or from a broker/dealer for non- exchange-traded financial instruments, the fair value of the instrument is estimated using valuation techniques, including use of recent arm’s length market transactions, references to the current fair value of other instruments that has substantially the same characteristics, discounted cash flow techniques, option pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions.

Investments in unlisted unit trusts are recorded at the exit price as reported by the managers of such trusts.

It is a requirement of all managers that if derivatives are utilised, any such derivatives are fully cash backed.

2.5 Financial risk management

Coal LSL’s investment strategies expose it to a variety of financial risks: market risk (including currency risk, interest rate risk, and other price risk), credit risk and liquidity risk. The overall risk management program focuses on managing the financial risks by having a well-diversified portfolio. Diversification occurs across asset classes and within asset classes across managers/strategies, which in turn are diversified across geographies, sectors, size and investment styles.

Coal LSL’s investment portfolio is invested in line with the approved strategic asset allocation (SAA). The SAA is calibrated to manage both the risk and return objectives for the portfolio. The SAA is reviewed at least once a year. As part of such review the SAA is stress tested under a range of historical and forward-looking crises, to ensure that potential adverse outcomes are within tolerance.

The SAA outlines the target allocation to each asset class, which can move in a range of +/-5% around the target allocation. Should the allocation to an asset class exceed its upper or lower limit, the asset class will be rebalanced within the approved range.

Risk management is conducted by Coal LSL’s investment team in conjunction with Coal LSL’s asset consultant, Frontier. The portfolio is regularly monitored by both parties and the monitoring is presented and discussed with the Investment Committee quarterly. The trigger action response plan (TARP), which currently consists of six different triggers relating to liquidity and diversification across the portfolio represent important control measures in managing the market risks.

a) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices and includes interest rate risk, foreign currency risk and other price risks. Other price risks are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. As outlined in the Overview to the notes, COVID-19 continues to present a risk to the financial environment.

Coal LSL's overall market positions are monitored monthly using the performance report from the Master Custodian, JPMorgan to evaluate the performances at the total portfolio level, asset class level and individual manager/strategy level relative to benchmark over different time horizons such as rolling one, three, five, and eight-year period.

Risk is controlled relative to Coal LSL’s approved SAA.

Currency risk

Coal LSL is exposed to the effects of exchange rate fluctuations as part of the strategic allocation to international equities invested in trusts managed on an unhedged basis. Strategically, approximately 25% of funds invested in international equities are managed on a hedged basis. Coal LSL’s other international investments, which are held across the remaining asset classes (fixed income, property, infrastructure, and alternatives), are 100% hedged. The hedging occurs within the unit trusts. Coal LSL’s overall policy in foreign currency risk management remains unchanged from the previous reporting period.

Interest rate risk

At 30 June 2020, Coal LSL had no long-term borrowings, it is only subject to cash flow and interest rate risk on its cash and cash equivalents. With all other variables held constant, a 1.0% decrease in interest rates would decrease the operating result and equity by $0.4m (2019: $1.8m). An increase of 1.0% would have an equal but opposite effect on the result and equity position.

Other price risks

The following table demonstrates the sensitivity to a reasonably possible change in market prices of the underlying asset classes, with all other variables held constant as at 30 June 2020:

%

$’000

%

$’000

Australian fixed interest

2.0

4,397

(2.0)

(4,397)

Overseas fixed interest

2.0

3,749

(2.0)

(3,749)

Australian equities

17.0

38,194

(17.0)

(38,194)

Overseas equities

17.0

83,037

(17.0)

(83,037)

Alternatives

12.0

32,409

(12.0)

(32,409)

Infrastructure

10.0

9,463

(10.0)

(9,463)

Property

13.5

24,568

(13.5)

(24,568)

A general fall in market prices of 5% and 15% spread equally across total investments held would have led to a decrease in the operating result of $91.8m and $275.4m respectively (2019: $91.5m and $274.4m).

Return and volatility factors have been determined after considering long-term historical data series. Data is obtained from various sources including the Reserve Bank of Australia (RBA), Bloomberg, Thomson Reuters and MSCI IPD.

(b) Credit risk

Apart from a small transactional bank account with CBA containing approximately 3 months of estimated reimbursements to employers, all other assets are invested in unit trusts. Coal LSL does not assess any potential counter party risk associated with the underlying assets in the trusts in which it invests. Such assessment is part of the active management that has been outsourced to investment managers.

(c) Liquidity risk

Liquidity risk is the risk that Coal LSL will not be able to settle or meet its obligations as they fall due. Coal LSL adopts an active cash management strategy.

Coal LSL’s investment portfolio allocation profile is determined by the Board in conjunction with advice from external professional investment consultants and the Investment Committee. It is structured to ensure sufficient funds are held in investments that can be converted to cash to meet its obligations as they fall due. Equities, other listed securities, cash, and short-term debt securities constitute the significant component of Coal LSL’s financial instruments. The liquidity risk of unlisted securities is managed through holding a diversified portfolio of assets with known investment horizons, different expected exit dates, and ensuring the total exposure of this class is maintained at a level whereby forced sales will not be required. At balance date, $1,395.3m of Coal LSL’s total investments could be converted to cash within 10 days.

The Investment Committee is charged with the monitoring of liquidity and the Board with the overall responsibility for liquidity funding.

2.6 Fair value measurements

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

(a) Fair value hierarchy

Coal LSL categorises assets and liabilities measured at fair value into a hierarchy based on the level of inputs used in measurement:

  • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
  • Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
  • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Fair value measurements recognised in the statement of financial position are categorised into the following levels at 30 June 2020. The remaining assets and liabilities disclosed in the statement of financial position do not apply the fair value hierarchy. Coal LSL had no assets classified as level 1.

Financial asset

Fair value

hierarchy

2020

$’000

2019

$’000

Unit trusts

2

1,564,175

1,481,391

Unit trusts

3

235,490

168,244

Total unit trusts

1,799,665

1,649,635

There were no transfers from level 2 to level 3 for any investments measured at fair value through profit or loss during the period.

(b) Valuation techniques used to derive level 2 and level 3 fair values

Recurring fair value measurements

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for investments held in unlisted property and infrastructure unit trusts.

All investments in unit trusts are recorded at the redemption value per unit as reported by the investment managers of the trusts. The unit price is derived from the value of the underlying investments. For level 2 investments, the most recent available prices in the market are used while level 3 investments are valued based on estimated future cash flows and discount rates. An increase in the future cash flows related to the underlying assets held by the unit trusts would increase the fair value of the investment. An increase in the discount rate would decrease the fair value of the investment.

As a result of ongoing market uncertainty due to the COVID-19 pandemic, unlisted unit trusts categorised as level 3 revised their valuation policies to increase the frequency of valuations from March 2020 onwards to ensure that valuations fairly reflect the changes in the operating environment of each asset as they come to hand. Despite the increased frequency of valuations, investment balances are inherently subjective as they are based on valuer assumptions which are considered their best estimate as at 30 June 2020. The likely key inputs to these valuations may include discount rate, net cash flow projections and terminal value. Taking into account the information available at 30 June 2020, the directors consider these assumptions reasonable however, by their nature, accept the assumptions may prove to be inaccurate. Sensitivity tables are included within note 2.5 (a).

2.7 Trade and other payables

2020

$'000

2019

$'000

Trade creditors and accruals

1,363

749

Other payables

779

1,448

Total trade and other payables

2,142

2,197

Amounts are unsecured and are usually paid within 30 days of recognition.

Accounting policy

Trade and other payables are recognised at amortised cost. Liabilities are recognised to the extent that goods and services have been received (and irrespective of having been invoiced).

2.8 Leases

Coal LSL signed an operating lease for its head office premises in Newcastle which commenced 1 March 2019 for an initial lease period of ten (10) years with a five (5) year plus five (5) year renewal option. Included in this lease is an annual fixed increase of 3.5% over the initial lease period, with a market review should the option be exercised. Given it is uncertain if Coal LSL will exercise the option periods, these have been excluded from the calculation of lease liabilities.

Lease liabilities

2020

$’000

2019

$’000

Buildings

5,798

0

Plant and equipment

6

0

Total lease liabilities

5,804

0

As a lessee, Coal LSL previously classified leases as operating or finance leases based on an assessment of whether the lease transferred substantially all of the risks and rewards of ownership. On adoption of AASB 16, right-of-use assets and lease liabilities were recognised in relation to the lease of the head office premises and printer/copier which were previously recognised as operating leases. As AASB 16 has been applied using the modified retrospective approach, comparative information has not been restated and continues to be reported under AASB 117. The above lease disclosures should be read in conjunction with the accompanying notes 1.1(c) and 3.1.

Accounting policy

Lease liabilities are measured at the present value of the remaining lease payments, discounted using Coal LSL's incremental borrowing rate as at 1 July 2019. The incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. The weighted-average rate applied was 1.35%.

Note 3 - Non-financial assets

3. Non-financial assets

3.1 Property, plant and equipment and software

Reconciliation of opening and closing balances

Buildings1

Plant and equipment

Software

Total

As at 1 July 2019

$’000

$’000

$’000

$’000

Gross book value

1,881

1,034

1,202

4,117

Accumulated depreciation, amortisation and impairment

(160)

(326)

(99)

(585)

Total as at 1 July 2019

1,721

708

1,103

3,532

Recognition of right-of-use asset on application of AASB 16

5,754

12

0

5,766

Adjusted total as at 1 July 2019

7,475

720

1,103

9,298

Purchases

183

240

2,890

3,313

Depreciation and amortisation

(732)

(230)

(429)

(1,391)

Disposals

(400)

(14)

(41)

(455)

Total as at 30 June 2020

6,526

716

3,523

10,765

Total as at 30 June represented by

Gross book value

7,484

1,137

4,047

12,668

Accumulated depreciation, amortisation and impairment

(958)

(421)

(524)

(1,903)

Total as at 30 June 2020

6,526

716

3,523

10,765

Carrying amount of right-of-use assets

5,159

5

0

5,164

1. Buildings include a right-of-use asset and leasehold improvements for the head office premises.

Accounting policy

Assets are recorded at cost on acquisition. The cost of acquisition includes the fair value of assets transferred in exchange of liabilities undertaken.

Asset recognition threshold
Purchases of property, plant and equipment are recognised at cost in the statement of financial position except for purchases costing less than $1,000 which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to ‘make good’ provisions taken up by the entity where there exists an obligation to restore leased premises. As at 30 June 2020, it was the opinion of the directors that Coal LSL did have a future obligation for the make good of leased premises as it is uncertain if Coal LSL will exercise the option periods and therefore the ability to waive the obligation to make good the site under the lease contract.

Lease right-of-use assets
Leased right-of-use assets are capitalised at the commencement date of the lease and comprise the initial lease liability amount, initial direct costs incurred when entering into the lease less any lease incentives received. These assets are accounted for by Commonwealth lessees as separate asset classes to corresponding assets owned outright but included in the same column as where the corresponding underlying assets would be presented if they were owned. Following initial application, an impairment review is undertaken for any right-of-use lease asset that shows indicators of impairment and an impairment loss is recognised against any right-of-use lease asset that is impaired. Leased right-of-use assets continue to be measured at cost after initial recognition.

Revaluations
Following initial recognition at cost, property, plant and equipment (excluding right-of-use assets) are carried at fair value (or an amount not materially different from fair value) less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets did not differ materially from the assets’ fair values as at the reporting date. The regularity of independent valuations depended upon the volatility of movements in market values for the relevant assets. Immaterial property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reversed a previous revaluation decrement of the same asset class that was previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly in the surplus/deficit except to the extent that they reversed a previous revaluation increment for that class.

It is the opinion of Coal LSL that as at 30 June 2020, the cost less accumulated depreciation of all property, plant and equipment did not differ materially to the fair value of those assets. As such, no assets were revalued as at 30 June 2020.

Depreciation
Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the entity using the straight-line method of depreciation.

Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate.

Depreciation rates applying to each class of depreciable asset are based on the following useful lives:

  • Buildings: term of lease
  • Plant and equipment: 2-10 years
  • Right-of-use: term of lease.

Impairment
All assets were assessed for impairment at 30 June 2020. Where indications of impairment exist, the asset's recoverable amount is estimated and an impairment adjustment made if the asset’s recoverable amount is less than its carrying amount.

The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if the entity were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Derecognition
An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

Net realised gains or losses on sale of assets
Gains and losses arising from the sale of assets during the year are recognised in the statement of comprehensive income when the asset has been disposed.

Intangibles
Coal LSL’s intangibles comprise software that has been purchased, internally developed or significantly modified for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses.

Software is amortised on a straight-line basis over its anticipated useful life. The useful lives range from 3 to 5 years (depending on assessment of the individual asset’s useful life). All software assets were assessed for indications of impairment at 30 June 2020.

Note 4 - People and relationships

4. People and relationships

4.1 Employee provisions

2020

2019

$’000

$’000

Leave

1,197

763

Superannuation

0

0

Total employee provisions

1,197

763

Accounting policy

Leave
Liabilities for annual leave and accumulating sick leave are calculated on the basis of employees' remuneration at the estimated salary rates that will be applied at the time the leave is taken, including the entity's employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination.

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting dates. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

Superannuation
The liability for superannuation recognised as at 30 June represents outstanding contributions.

4.2 Key management personnel remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. The entity has determined the key management personnel to be the Executive Leadership Team and Board of Directors. As a result of Coal LSL's annual reassessment of key management personnel, in the context of the entity's structure and key decision making, there has been an increase in the number of executives disclosed as key management personnel. Remuneration of key management personnel (excluding the Board of Directors which is disclosed in note 1.1(b)) is reported in the table below:

2020

2019

$’000

$’000

Short-term employee benefits

1,174

629

Post-employment benefits

108

61

Other long-term employee benefits

23

13

Termination benefits

78

0

Total key management personnel remuneration expenses1

1,383

703

  1. The above key management personnel remuneration excludes the remuneration and other benefits of the Portfolio Minister. The Portfolio Minister's remuneration and other benefits are set by the Remuneration Tribunal and are not paid by the entity.

The total number of key management personnel that are included in the above table is 7 (2019: 2).

4.3 Related party disclosures

(a) Related party relationships

Coal LSL is a corporate Commonwealth entity. Related parties to this entity are the directors, key management personnel and the Portfolio Minister. Directors have associations with entities that are involved in the coal mining industry pursuant to their appointment to the Board under the Coal Mining Industry (Long Service Leave) Administration Act 1992.

The directors of Coal LSL during the year were:

  • Ms Christina Langby, Chair (appointed as Chair from 1 January 2020)
  • Mr Bradley Neven, Chair (resigned 31 December 2019)
  • Mr Grahame Kelly, Deputy Chair
  • Mr Mark Klasen
  • Ms Anne Donnellan
  • Ms Jennifer Short
  • Mr Scott Faragher (appointed 27 February 2020).

Directors held their positions to the end of the financial year unless indicated otherwise.

Key management personnel employed by Coal LSL during the year were:

  • Ms Darlene Perks, Chief Executive Officer
  • Ms Lisbeth Rasmussen, Chief Investment Officer
  • Ms Suzanne Jenkins, Chief Governance Officer (KMP from 1 October 2019)
  • Mr Phillip Berner, Chief Operating Officer (appointed 20 January 2020)
  • Mr Chris Radvan, General Manager People & Culture (appointed 28 January 2020)
  • Mr Charles Dowsett, Chief Commercial Officer (appointed 20 January 2020, resigned 1 May 2020)
  • Ms Marie Hanson-Kentwell, General Manager People & Culture (appointed 24 September 2019, resigned 21 November 2019).

(b) Transactions with related parties

Given the breadth of government activities, related parties transact with the government sector in the same capacity as ordinary citizens. In addition, Coal LSL may transact with related parties through the collection of levies, payment of reimbursements and recognition of eligible employment service in the same manner as other registered employers and eligible employees. These transactions have not been disclosed in this note.

Apart from items disclosed at notes 1.1(b) Directors' remuneration and expenses, 1.2(b) Revenue from government and 4.2 Key management personnel remuneration, there were no further related party transactions.

Note 5 - Provisions

5. Provisions

5.1 Provision for reimbursements

2020

2019

$’000

$’000

Current

1,412,591

1,195,459

Non-current

298,431

330,490

Total provision for reimbursements

1,711,022

1,525,949

As at 1 July

1,525,949

1,300,773

Reimbursements paid

(135,664)

(124,889)

Additional provisions recognised

266,003

229,238

Increase (decrease) in provision due to change in discount rate

54,734

120,827

As at 30 June

1,711,022

1,525,949

The current portion of the provision includes unconditional entitlements where employees have met the eligibility requirements for long service leave. However, based on past experience, current leave obligations expected to be reimbursed to employers in the next 12 months is $137.1m (2019: $136.6m).

Accounting policy

This provision represents the expected liability for the reimbursement of employers for the long service leave entitlements of eligible employees under the Coal Mining Industry (Long Service Leave) Administration Act 1992 as at 30 June.

The provision for reimbursement is recalculated annually by multiplying the individual employee’s total number of hours of long service leave accrued by their average hourly rate of pay. The liability for each eligible employee is reviewed in terms of probability factors of the employee reaching the qualifying service period, estimates of future salary growth and then discounted to its present value using market yields at the reporting date on government bonds with terms to maturity and currency that match, as closely as possible, the average, estimated duration of the liability.

Coal LSL recognises that the present value of the provision for reimbursements is sensitive to changes in assumptions used in determining its value. These assumptions were reassessed at 30 June 2020. There were no material changes to these assumptions as a result of COVID-19.

Salary growth

At 30 June 2020 the actuarial salary growth rate assumptions were 2.25% for long service leave balances with an expected payment date of within 2 years (2019: 2.25%), 2.25% for 3 years (2019: 2.5%), 2.75% for 4 years (2019: 3.0%) and 3.0% for all other payments periods (2019: 3.5%). With all other variables held constant a 1.0% increase in salary growth rates used in the calculation would increase the present value of the provision for reimbursements by $90.4m (2019: $80.2m). A 1.0% decrease would decrease the present value by $86.2m (2019: $76.5m).

Probability factors

At 30 June 2020 the probability factors utilised ranges from 49.0% to 100.0% depending on the type and category of long service leave (2019: 47.2% to 100.0%). An increase in the probability factors used in the calculation would increase the present value of the provision for reimbursements. A decrease in probability factors would decrease the present value.

Discount rates
At 30 June 2020 the discount rate utilised was 0.41% for all categories of long service leave (2019: 1.03%). With all other variables held constant, a 1.0% increase in discount rates used in the calculation would decrease the present value of the provision for reimbursements by $87.2m (2019: $77.0m). A 1.0% decrease would increase the present value by $93.3m (2019: $82.4m).

Note 6 - Contingencies and commitments

6. Contingencies and commitments

6.1 Contingent assets and liabilities

Quantifiable contingencies
In accordance with the Coal Mining Industry (Long Service Leave) Legislation Amendment Act 2011, “Eligible Employees” can make application to Coal LSL for recognition of periods of eligible employment service that may not be presently recognised and recorded by Coal LSL. A contingent liability will arise at reporting date where applications have been received but not yet approved by the Board of Directors. At 30 June 2020 Coal LSL has an estimated contingent liability of $2.2m (2019: $2.6m).

Coal LSL has an estimated contingent asset of $6.1m at 30 June 2020 (2019: $6.1m) arising in respect of levies attributable to those employers of “Eligible Employees” and “Former Eligible Employees” in relation to applications received.

Unquantifiable contingencies
Unknown claims
Coal LSL has not raised a liability for unknown claims by employees for recognition of period(s) of employment service as, at balance date, these amounts are unknown and are not reliably measurable. A contingent asset will also arise in respect of levies attributable to those employers of “Eligible Employees” and “Former Eligible Employees” that previously did not contribute to the fund for unrecognised service. No asset will be raised for unknown claims as these amounts are unknown and are not reliably measurable.

Disputes and legal actions
At any point in time, Coal LSL is involved in a range of dispute resolution processes, which may include litigation, relating to long service leave disputes. Details of the outcome of dispute resolution processes are uncertain until an agreement is reached, or a court ruling is made at some future date. In most cases it is not possible to estimate with any reliability the likely financial impact of current disputes. As at the date of this report no legal proceedings have been commenced against Coal LSL.

Accounting policy

Contingent liabilities and assets are not recognised in the statement of financial position but are reported in the notes. They may arise from uncertainty as to the existence of a liability or asset or represent an asset or liability in respect of which the amount cannot be reliably measured. Contingent assets are disclosed when settlement is probable but not virtually certain and contingent liabilities are disclosed when settlement is greater than remote.

6.2 Commitments

At 30 June, Coal LSL had the following capital commitments arising from investments. These commitments can be called upon at any time but are expected to be called as outlined below. The commitments are not subject to an expiry period.

2020

2019

Investment commitments

$’000

$’000

Not later than one year

90,834

7,593

Later than one year and not later than five (5) years

0

0

Total investment commitments

90,834

7,593

Commitments in relation to operating lease costs are disclosed in note 1.1(c).

Note 7 - Aggregate assets and liabilities

7. Aggregate assets and liabilities

2020

2019

Assets expected to be recovered in

$’000

$’000

No more than 12 months

52,292

103,684

More than 12 months

1,810,430

1,733,167

Total assets

1,862,722

1,836,851

Liabilities expected to be settled in

No more than 12 months

140,005

137,858

More than 12 months

1,580,160

1,391,051

Total liabilities

1,720,165

1,528,909

Independent auditor’s report

Independent Auditor Report
Independent Auditor Report