ANNUAL REPORT 2004–05 - V/Line

ANNUAL REPORT 2004–05

SERVINGREGIONAL COMMUNITIESV/LINE ANNUALV/LINE IS VICTORIA'S LARGEST REGIONAL PASSENGERtransport operator, with a long history of serving its communitiesthrough rail and coach services.In July 2003, V/Line began a new chapter in its operationswith the establishment of V/Line Passenger Corporation (VLPC)and V/Line Passenger Pty Ltd (V/Line).See Corporate Governance section page 37.V/Line has a franchise agreement with the Director of PublicTransport, representing the State Government of Victoria, tooperate regional rail and rail replacement coach services.OUR MISSIONV/Line connects people and places.OUR VISIONVictoria’s communities choose V/Line as their preferred way ofgetting from place to place.OUR VALUESRespectEmpowermentCustomer focusExcellenceHonestyABOUT THIS REPORTThis report provides a summary of V/Line's key activities andfinancial performance for the period 1 July 2004 to 30 June 2005.

REPORT 04-05 CONTENTSLETTER TO THE MINISTER 3CHAIRMAN’S REPORT 4CHIEF EXECUTIVE OFFICER’S REPORT 6V/LINE OVERVIEW 9THE YEAR IN REVIEW 11MAJOR PROJECTS 12OUR CUSTOMERS 14OUR OPERATIONS 20OUR EMPLOYEES 30FINANCE 36CORPORATE GOVERNANCE 37FINANCIAL AND STATUTORY STATEMENTS 41DISCLOSURE INDEX 71

2 | V/LINE ANNUAL REPORT 2004–05V/LINE’S NEW BOOKING OFFICE AT SPENCER STREET STATION

LETTER TO THE MINISTEROctober 2005The Hon. Peter Batchelor MPMinister for TransportLevel 26 Nauru House80 Collins StreetMelbourne 3000Dear MinisterI have pleasure in submitting the annual report for V/Line Passenger Corporation, including theactivities of V/Line Passenger Pty Ltd (V/Line), for the financial year 1 July 2004 to 30 June 2005.V/Line's focus this year has been to ensure that the Victorian community has access to the bestpossible regional rail and coach services while significant progress is being made on the rebuilding ofthe State's rail infrastructure and operations. At the same time, we have continued to expand thebusiness and offer services to more and more Victorians.While at times disruptions have been inevitable, our customers have shown great understanding andhave continued to support our business strongly. Importantly, staff have continued to demonstrate theircommitment to V/Line and customers during this period. I am confident that our customers will be wellrewarded for their patience in the year ahead as the major projects are completed.I am pleased to report that V/Line's financial performance with respect to its subsidies and expenditurewas in line with budget expectations.V/Line's board and management look forward to reporting even stronger performance in the yearahead.Yours faithfullyFrank Tait, ChairmanV/LINE ANNUAL REPORT 2004–05|3

BUILDING FOR THE FUTUREThe Victorian rail network of the future began totake real shape in 2004–05.Best symbolised by the spectacular ‘wave’ roofthat is emerging at the redeveloped SpencerStreet Station, the rebuilding of Victorianregional rail will see V/Line emerge as a worldclasscustomer-driven passenger transportbusiness.The importance of the State Government's investment in therevitalisation of Victoria's rail infrastructure and operationsthrough the Regional Fast Rail Project, Spencer StreetStation, V/Line's new VLocity trains and the new ticketingsolution cannot be overstated.Without these programs of renewal, V/Line's capacity toserve Victorian regional communities would have beenseriously restricted. Now, however, we are in a position toensure that regional rail customers gain maximum benefitfrom this multi-million dollar investment.In its most practical sense, the infrastructure renewalincreases both the capacity and the flexibility of V/Line'snetwork to meet the current and future regional transportneeds of customers. This, in turn, will help strengthen theeconomic development of regional and rural communities,providing increased opportunities for labour, skills andmarkets beyond Melbourne.A key step in confirming this commitment to regionalVictorian communities was the Government's initiative thispast year in bringing all regional rail operations underV/Line's control.Incorporation of the Warrnambool and Shepparton services,along with extensions to existing lines to Bairnsdale andArarat, represent significant growth for V/Line.4 | V/LINE ANNUAL REPORT 2004–05At the same time, it must be acknowledged that the pastyear has been frustrating at times for our customers. Therehave been a number of major disruptions to services due toworks associated with the major construction programs.However, with the completion of these activities in sight,V/Line is confident that customers will soon be rewarded fortheir patience.2004–05 year has been one for listening and responding toour customers.Development of the new V/Line timetable has involved oneof the most comprehensive customer consultation programsever undertaken by V/Line. Around 10,000 existing andpotential customers and other stakeholders have taken partin Government and V/Line research and consultationprograms designed to help identify the type and frequencyof future services.These discussions have greatly informed the development ofour new timetable, which will be the key mechanism fordelivering the tangible benefits of the revitalised rail networkto customers. The draft timetable has already undergonesubstantial revision and this process of refinement willcontinue.

CHAIRMAN’S REPORTWhile we know that we will not be able to please everycustomer, we have listened very closely to what has beensaid, particularly about frequency of services. We areconfident that the vast majority of our regular customers willbe satisfied with the final timetable.V/Line has also been an active participant in thedevelopment of Victoria's new ticketing solution, which isbeing managed by the Transport Ticketing Authority. As amember of the working party, V/Line is contributing to thesolution's design and implementation and will play animportant role in trials of smartcard ticketing. This is one ofthe most important initiatives in Victorian public transportand will dramatically change the way people access bothmetropolitan and regional travel.BOARD STRUCTUREWhile managing the impact of the infrastructure revitalisationhas been at the forefront of our activity, V/Line’s board ofdirectors has continued to focus its attention on the issuesof safety and security. Safety has always been our numberone priority. Given the increased emphasis on securitynationwide, we have established a separate Safety, Securityand Environment Sub-Committee to examine these issues ingreater detail.In April 2005, V/Line's managing director, Andrew Neal,resigned.The board also welcomes V/Line's new chief executiveofficer, Rob Barnett, who joined the organisation in April2005. Rob brings broad business experience to the role andleads a strong executive team which is committed tomeeting the challenges that lie ahead.We wish especially to thank all V/Line staff for theircontribution and loyalty during a difficult period. Theirwillingness to step up to the numerous challenges of thispast year and to keep effective services operating for ourcustomers deserves recognition.The board is confident that 2005–06 will see the realbenefits of Victoria's revitalised rail network starting to flowto customers. We look forward to reporting on thesuccessful implementation of these programs.Frank Tait, ChairmanV/LINE ANNUAL REPORT 2004–05|5

By any measure, 2004–05 was a demandingyear for V/Line and its customers. Despite dailyoperational challenges, we recorded a numberof significant achievements.With our business effectively operating in areconstruction environment, we were able tomaintain the key performance indicators ofpatronage and customer satisfaction at similarlevels to 2003–04. At the same time, we alsoexpanded our service network to Ararat,Shepparton and Warrnambool and introduceda new 'commuter hub' for the future at Marshallnear Geelong.These achievements reflect the efforts of our staff who,although often operating in a difficult environment, continuedto deliver our services to Victorian regional communities.I wish to sincerely thank our customers too for theirpatience and loyalty throughout the year. They will soonstart to see the benefits of Victoria's major rail revitalisationprojects, including:• new 2006 timetable• new rolling stock – 38 new VLocity trains• reliable and modern infrastructure – tracks, signallingand safety systems• a new home for V/Line operations – Southern CrossStation• a new ticketing system.6Each is a major project in its own right and will deliversubstantial long-term benefits to V/Line's customers. Thisbright future for regional rail helps to offset the disruption toservices which has occurred across our network this year asthe program of infrastructure upgrades has progressed.| V/LINE ANNUAL REPORT 2004–05Once this rebuilding is complete, V/Line will be well placedto continue to expand our services, grow patronage andrevenues and make an even stronger contribution tocommuter travel and tourism throughout Victoria.SAFETY AND SECURITYThe safety of our customers and staff is the cornerstone ofthe V/Line business. Both board and executive managementcontinually monitor the network's operational safety,assessing where improvements can be made and lessonslearned.Reflecting this focus on safety and security, the V/Lineboard endorsed the establishment of a new senior positionwithin the organisation: General Manager – Safety, Securityand Environment.Responsible for safety compliance, policy and processesacross V/Line, this new role will ensure the delivery ofcontinuous improvement in safety culture and performance,and environmental management.Safety training continues to be a critical activity, at bothoperational and management levels. At the same time wehave begun to benchmark our performance against other,similar organisations and there have been significantimprovements in the way we record and analyse incidentdata.

CEO’S REPORTDespite this focus on safety within the organisation, thereare external factors which affect the organisation's overallsafety performance. Over the past year V/Line trains wereinvolved in four collisions with motor vehicles at levelcrossings. Tragically, two of these incidents resulted in thedeaths of four occupants of the motor vehicles. V/Lineextends its sympathy to the affected families and friends.V/Line is working closely with the Department ofInfrastructure and track access providers to identify andsolve problems associated with safety at level crossings, sothat tragic incidents of this kind are prevented whereverpossible. Similarly V/Line examines closely all incidents thatcause injuries to customers or staff to ensure that action istaken to minimise any reoccurrence.V/Line's enhanced security plan is also in its final stages ofrefinement. It will strengthen the level of vigilance andsecurity scrutiny at stations and on trains and coaches.There will be greater investments in CCTV, for example, andsecurity resources will be more visible across the V/Linenetwork.CUSTOMERSThroughout the year, we have sought to help our customersthrough the service disruptions. Clear and effectivecommunication with customers and, most importantly,listening to what they have to say have been our priorities.There has been a strong focus on providing timely notice ofchanges to normal scheduling through a variety of media,sufficient and well-placed signage and notification instations, as well as regular 'on-seat' reminders. Our aim hasbeen to ensure that customers are not only aware ofdisruptions but also understand why they are happeningand the benefits that will result.A prime example of V/Line listening is the consultationprocess surrounding the new timetable for 2006. Beforeissuing the draft timetable in December 2004, V/Line talkedto significant numbers of customers and interest groupsabout its plans and asked for their opinions.Since the release of the draft timetable, an extensiveinformation and consultation process has taken place, with2,483 formal responses received. This proactive engagementwith customers on issues that matter to them will be afeature of V/Line's business operations into the future.The final timetable will reflect as much as possible thewishes and expectations of existing and potential customers.This means more regular services, later services and asignificant increase in the frequency of weekend services.We will also improve our services for counter-commuters,particularly those travelling to Ballarat and Bendigo.The timetable will be rolled out progressively, with some newnon-peak services expected to be introduced in early 2006.V/LINE ANNUAL REPORT 2004–05|7

CEO’S REPORT (CONTINUED)PERFORMANCEFINANCEEMPLOYEES8V/Line achieved its target of 96 per cent reliability at alltimes and across all five corridors throughout 2004–05. Wewere unable to match this in punctuality, falling short of ourtarget of 92 per cent largely due to the flow-on effects ofthe major infrastructure works.While some improvement was recorded during the lastquarter of 2004–05, fluctuations in V/Line's punctualitylevels are likely to continue until the projects are completed.In the meantime, we will continue to focus on learning fromexperience and improving our performance whereverpossible. A key factor in learning to do things better hasbeen our close working relationship with our partners in railrevitalisation: the Regional Fast Rail Project, Pacific National,Connex and Leightons. In particular, a tighter teamapproach to planning has led to a more effective schedulingof work, which has helped to minimise disruptions toservices.The progressive introduction of our 38 new VLocity trainswill be crucial to improving V/Line's performance. Testing ofthe new trains and training of staff in their operationcontinued during the year.The addition of these modern trains in the year ahead willprovide a significant boost to overall fleet availability and toour ability to deliver new and improved services.V/Line's financial performance for the year was consistentwith budget expectations. Operating revenues were$206.7 million, comprising fare collections of $47.6 million,government subsidies of $155.5 million and other income of$3.5 million. Non-operating revenues were $8.2 million.Expenditure totalled $215.5 million, resulting in an operatingdeficit of $0.65 million.The variation between the 2004–05 and 2003–04 operatingresults reflects the arrangements made when V/LinePassenger Pty Ltd was purchased. The corporation'srecorded profit in 2003–04 of $126.1 million resulted fromthe accounting process applied to the purchase of theV/Line business, with a nominal $1 paid for assets valued at$136.8 million.The key to V/Line's ability to deliver on major projects will beour staff. During 2004–05, our focus has been on attractingnew staff with specific skills, as well as ensuring thatappropriate training structures and programs are in place tosupport and develop existing staff.| V/LINE ANNUAL REPORT 2004–05Significantly, during the year we were able to recruit 33experienced locomotive drivers who will be crucial to theintroduction of the new VLocity trains and the newtimetable. We have also addressed the career paths ofdrivers and conductors with the roll-out of a newsupervisory level.We have recognised that our front-line staff must have thetools and strategies to communicate effectively withcustomers and manage issues as they arise. Trainingprograms in customer service, cultural awareness andconflict resolution have been implemented.COMMONWEALTH GAMESThe 2006 Commonwealth Games in Melbourne will alsopresent opportunities and challenges for V/Line. We areworking closely with the Government, Games organisersand other transport operators to ensure successful deliveryof V/Line passenger train and coach services to and fromGames venues, in Melbourne and in regional centres.LOOKING AHEADWhile there is still much work to be done, V/Line in 2005–06will be well placed to deliver to the Victorian community thebenefits of the major rail rebuilding projects.Over the next 12 months we expect to see:• our new VLocity trains in service across the network• completion of the upgrade of our four major linesthrough the Regional Fast Rail Project• the completion of our new home at Southern CrossStation• the new timetable in operationWith this generational upgrade, V/Line will be in a positionto offer new and improved services, to increase ourpatronage and to enhance the return on the Government'smulti-million dollar investment.Rob BarnettChief Executive Officer

AN OVERVIEWTHE V/LINE RAIL AND COACH NETWORKV/LINE ANNUAL REPORT 2004–05|9

V/Line is the major provider of passenger railand coach services to regional Victoria. It isresponsible for the operation of transportservices, the staffing of stations and the sale oftickets through its own staff and agents. Somecoach services are provided under contractswith private coach operators.RAIL FLEET• 42 locomotives• 142 carriages• 21 Sprinters (motorised rail cars)Thirty-eight new two-carriage VLocity trains are to beprogressively introduced to the fleet.COACHESThere are two types of coach services in the V/Line network:• rail replacement coach services provided by privateoperators under contract to V/LinePATRONAGEV/Line transported approximately 6.9 million passengersaround Victoria in 2004–05 – 6.4 million rail and 0.5 millioncoach passengers.10• coach services contracted by the Department ofInfrastructure (often with V/Line livery) – which comprisethe majority of coach services.| V/LINE ANNUAL REPORT 2004–05SERVICESV/Line’s timetable comprises 1,248 rail services and 592coach services. At 30 June 2005, there was a network of81 stations across Victoria.REVENUEV/Line generated $47.6 million in farebox revenue in2004–05. Approximately 60 per cent of this revenue camefrom full fares and 40 per cent came from concession fares.An average of 6,100 tickets are sold each day – 80 per centthrough V/Line's ticket system, V/Net. The remaining 20 percent of tickets are sold through agents, at metropolitanstations or as onboard sales. V/Line has a network ofapproximately 400 agents across Victoria.Most tickets are 'ordinary' one-way or return tickets, usuallyunreserved. Periodical tickets (weekly, monthly, annual anddate-to-date) are also available.EMPLOYEESAt 30 June 2005, V/Line employed 738 people (727.5 fulltimeequivalent employees).THE YEAR IN REVIEWV/Line has key performance indicators (KPIs) in fivecategories. The results for 2004–05 are summarisedopposite against the relevant KPIs. They are also compared,where applicable, with the results in 2003–04. They showthat V/Line's performance has been largely steady, withsome small fluctuations, throughout 2004–05.

AN OVERVIEW (CONTINUED)THE YEAR IN REVIEWCATEGORY KEY PERFORMANCE INDICATOR 2004–05 2003–04 COMMENTSSAFETY Lost-time injuries (LTIs) 58 Not available 2004–05 was the first year in which LTIs were recordedSignals passed at danger (SPADs) 8 5Customer Incidents 23 32Staff incidents 72 32 Reflects increased focus on reporting as well as overallincrease in employee numbersCUSTOMERS Customer Satisfaction Index 75.7% trains 79.2% trains Slight decrease as a result of major shut-down on Bendigo(DOI target 68%) 79.1% coaches 81.8% coaches corridor and disruptions on other corridors due toinfrastructure worksPatronage (rail and coach) 6.912 million 6.945 million Minor decrease as a result of infrastructure works, particularlythe extended Bendigo line closure. Offset by addition ofWarrnambool servicesNo. customer information enquiries 739,660 765,532No. customer feedback calls 7,126 4,600 Increase due to level of disruptions; also due to promotionof feedback lineCompensation paid to customers $31,298 $5,419 Increase due to fluctuations in train punctuality(complimentary ticket value)levels as a result of infrastructure worksNo. stakeholder briefings held on 30 Not applicable Key goal of 2004–05 was to ensure appropriatenew timetableconsultation with stakeholders and customers on theNo. customer consultation 2,483 Not applicable new timetableresponses on new timetableOPERATIONS Reliability (average monthly performance) 99.14% 99.54% Slight decrease due to major infrastructure works and(DOI target 96%)maintenance programsPunctuality – On time to 5 minutes 84.94% 91.26% Drop in performance due to focus on running services(average monthly performance)despite disruptions(DOI target 92%)Rolling stock availability 95% carriages, Sprinters 94% carriages, Sprinters Rolling stock performance was in line with expectations(% of fleet available) 87% locomotives 86% locomotivesRolling stock reliability Sprinter: 23,555 Sprinter: 22,857(Mean km between faults) Carriage: 156,877 Carriage: 146,480Locomotive: 22,981 Locomotive: 25,994FINANCE Revenue (from operating activities) $206.7 million $125.6 million Financial performance for 2004–05 and 2003–04Farebox – $47.6 millionwas in line with budget expectationsGovernment subsidies – $155.5 millionNote: Financial reporting in 2003–04 was only for nine-monthsOther – $3.5 millionof operation. The 2003–04 operating profit included a gain of$136.8 million resulting from the purchase of V/LineOperating (deficit)/profit ($0.65 million) $126.1 million Passenger Pty Ltd. The transaction involved the acquisition ofnet assets of $136.8 million for a consideration of $1.EMPLOYEES Full-time equivalent staff 727.5 622 Increase includes 33 new drivers plus 6 staff transferred fromHoys Pty Ltd and 20 staff from West Coast RailTraining attendance nos.1,502 attendees(154 training sessions)Medical examinations completed 434 211Workcover claims 115 claims 101 claimsV/LINE ANNUAL REPORT 2004–05|11

THE VICTORIAN GOVERNMENT’S ‘REVITALISINGVICTORIAN RAIL’ PROGRAM BRINGS TOGETHER ARANGE OF PROJECTS DESIGNED TO DELIVER AMODERN, SAFE RAIL SYSTEM, WITH NEW TRAINS,MORE STAFF AND BETTER SERVICES.FOUR OF THE PROJECTS – REGIONAL FAST RAIL,SPENCER STREET STATION REDEVELOPMENT, THENEW VLOCITY TRAINS, AND VICTORIA'S SMARTCARD-BASED NEW TICKETING SOLUTION – WILL DELIVERMAJOR BENEFITS TO V/LINE AND OUR CUSTOMERS.V/LINE IS SUPPORTING KEY GOVERNMENT AGENCIESIN DELIVERING THESE PROJECTS.REGIONAL FAST RAIL PROJECTThe Regional Fast Rail Project is the largest upgrade ofVictorian regional rail in 120 years, ensuring thatcommunities will have access to regular, modern andefficient train services into the future.Managed by the Department of Infrastructure’s RegionalFast Rail Group, the project involves major infrastructureimprovements along the Ballarat, Bendigo, Geelong and theLatrobe Valley corridors. When completed, it will providecustomers with more frequent, flexible, reliable andcomfortable rail services.Most of the major construction work was completed during2004–05, with significant progress made on the installationof a new, modern signalling system.V/Line managed major coach replacement programs duringline closures to enable construction work to proceed.By 30 June 2005, more than 350 kilometres of high-quality,heavier rail had been installed, along with approximately430,000 new concrete sleepers.More than 100 level crossings on the country sections ofthe four lines have been upgraded and by the end of theproject this number will have increased to 170.A fibre-optic network has been installed adjacent to the raillines to support the new signalling system as well as provideadditional broadband capacity for regional areas.The new signalling system is now in operation on sectionsof the Bendigo and Geelong lines.12 | V/LINE ANNUAL REPORT 2004–05SPENCER STREET STATION REDEVELOPMENTThe metropolitan hub of V/Line's regional rail operations,Spencer Street Station is set to re-emerge as the iconicSouthern Cross Station.The redevelopment of the station as a new, world-classtransport interchange facility is a public/private partnershipbetween the Victorian Government and the Civic Nexusconsortium. Spencer Street Station Authority is overseeingthe project on behalf of the Government. Construction isbeing undertaken by Leighton Contractors.The new station will create a customer-friendly facility. It willbe comfortable, convenient and safe, and able to handle30,000 passengers an hour in peak periods.The redevelopment of the station made solid progressduring 2004–05, with key milestones including:• major progress on the distinctive 'wave' roof, withnearly all the roof panels installed and the waterprooflayer over the ceiling panels complete• opening the new Collins Street passenger concourse• closing the 80-year-old station subway.V/Line services continued to operate at the station, althoughwith significantly reduced platform access.V/Line and the Spencer Street Station Authority allocatedadditional staff to help customers at the station. Easilydistinguishable on the platforms in their bright green vests,V/Line staff helped direct customers to their trains, monitoredoperations and responded to issues as they emerged.A number of initiatives were undertaken, including:• establishment of a multi-disciplinary Spencer StreetStation Steering Group to oversee the change initiatives• implementation of a staff engagement strategy• staff coaching on customer service skills.

MAJOR PROJECTSVLOCITY TRAINSThe introduction of the new VLocity trains is one of the mostimportant projects ever undertaken by V/Line.The 38 two-carriage trains represent the single largestexpansion of V/Line's fleet in its history, equipping theorganisation to deliver its new and enhanced timetablealong with a new era of greater reliability and comfort forcustomers.Manufacture of the distinctive purple-and-green trains byBombardier continued throughout 2004–05, with extensivetrack testing on metropolitan and regional lines.By 30 June 2005, V/Line had provisionally accepted 11 trains.Capable of service speeds up to 160 km/h, each VLocityconsists of two semi-permanently attached carriages.Staff training for the new trains is on schedule, with 104drivers, 154 conductors and 24 emergency conductorscompleting their training.Features of the new trains will include:• seating for 140 passengers• wider 4-across (2x2) seating• chilled-water drinking fountains• new passenger information systems to announce stops• storage for bicycles and surfboards• toilets and other amenities• climate control.A $22 million upgrade of the West Melbourne Depot whichwill provide maintenance facilities for the VLocity trains isunder way. Works will also be carried out at South Dynon,Geelong, Ballarat, and Bendigo to provide minormaintenance, stabling and refuelling facilities.FROM LEFT: REGIONAL FAST RAIL SLEEPER REPLACEMENT;THE NEW ‘WAVE’ ROOF AT SPENCER STREET STATION;THE NEW VLOCITY TRAIN UNDERGOING TESTING; AND THESMARTCARD FOR THE FUTURENEW TICKETING SOLUTIONV/Line is preparing to enter the world of smartcard ticketing.In one of the most significant changes to Victoria's publictransport system, from 2007 passengers on metropolitantrains, trams and buses, as well as V/Line trains andcoaches and major regional bus services, will be able to usea durable plastic card – a smartcard – as their ticket totravel.Smartcards will store a money value which will be reducedevery time a fare is recorded and reinstated. They will alsostore travel data, so the smartcard is also a ticket, able tobe checked if required.At stations, or on trams and buses, passengers will simplypass the card across the face of a reader device. When theyswipe it again at the end of their journey, the best value farewill be automatically calculated and travel data recorded.V/Line continued to work closely with the TransportTicketing Authority (TTA) throughout the year on thedevelopment of the new ticketing solution.The smartcard ticketing tender attracted 10 bids from sixinternational consortia. After a rigorous nine-month tenderevaluation process, on 12 July 2005 the VictorianGovernment awarded a $495 million contract to the Kamcoconsortium.V/LINE ANNUAL REPORT 2004–05|13

14 | V/LINE ANNUAL REPORT 2004–05

OUR CUSTOMERS“GRENVILLE DAWSONOUR CUSTOMER RELATIONS CENTRE HANDLES ANAVERAGE OF 150 CUSTOMER CASES EVERY WEEK,RANGING FROM COMPLAINTS ABOUT DELAYS ANDDISRUPTIONS, TO REQUESTS FROM PEOPLE WITHSPECIAL NEEDS, TO GENERAL FEEDBACK ON TRAINAND COACH SERVICES. THE CENTRE HAS PLAYED ACRUCIAL ROLE OVER THE PAST YEAR IN SUPPORTINGCUSTOMERS AFFECTED BY THE MAJOR REBUILDINGPROJECTS. FEEDBACK IS SO IMPORTANT. WHILE WETRY TO ANTICIPATE THEIR EXPECTATIONS ANDNEEDS, ACTIVELY LISTENING TO CUSTOMER VIEWSAND CONCERNS HELPS US TO GET BETTER AT WHATWE DO. OUR CUSTOMERS HAVE BEEN INCREDIBLYLOYAL AND WE TRY TO MAKE SURE THAT WHEN THEYNEED TO CONTACT US, THE WAY WE RESPOND WILLHELP MAINTAIN THEIR CONFIDENCE IN THE SERVICESWE PROVIDE.Above: The customer relations team and some of the communicationsmaterial used to keep customers informed about changes to rail servicesV/LINE ANNUAL REPORT 2004–05|15

KEY STATISTICSIn 2004–05, V/Line transported 6.9 millioncustomers. Of this number, 6.4 million were railpassengers and 0.5 million were passengers onthe V/Line coach network.The total number of customers transported was very similarto the 2003–04 total. A small reduction resulting from lineclosures for major infrastructure upgrades was offset bygrowth on other lines and by the success of the re-openingof the Bairnsdale and Ararat lines.V/Line has two types of customer: commuters anddiscretionary travellers. Commuters use V/Line for work,study and regular appointments; discretionary travellers useV/Line to get to events, to visit friends, for leisure andtourism activities.During 2004–05, V/Line started analysing in greater detail itscommuter and discretionary traveller markets in order tobuild a market-oriented business with increased levels ofpatronage and revenue as well as improved service levelsand products.RAIL PATRONAGE BY LINEGEELONG 29.4%BALLARAT 21.2%BENDIGO 20.8%SEYMOUR 15.8%LATROBE 12.8%COACH PATRONAGE BY ROUTEWEST 19.3%SOUTH EAST 18.4%NORTH 17.8%GOULBURN 13.2%NORTH EAST 9.4%EAST 8.8%SOUTH WEST 5.4%TRANS REG. 4.5%NORTH WEST 3.2%16 | V/LINE ANNUAL REPORT 2004–05CUSTOMER SATISFACTIONRegular monthly surveys, commissioned by the Director ofPublic Transport, show that, despite V/Line's networkchallenges, customer satisfaction with its train servicesdeclined only slightly during the year, while its coach servicesaw a small fluctuation in the September 2004 to March2005 period that was quickly recovered in the fourth quarter.All results were above the satisfaction index threshold of 68per cent set by the Department of Infrastructure.In 2004–05, the average level of customer satisfaction withV/Line's train service was 75.7 per cent, compared with79.2 per cent in 2003–04. The average level of customersatisfaction with the coach service was 79.1 per cent,slightly below the 81.7 per cent recorded the previous year.These relatively small reductions in customer satisfactionwere well within expectations given the scale ofinfrastructure renewal taking place. The results reflect theefforts by V/Line, particularly its front-line staff, to assistcustomers through the disruptions that were a regular partof their experience during 2004–05.THE CUSTOMER EXPERIENCEThe engineering, track and signalling works associated withthe Regional Fast Rail Project continued from 2003–04.Major sections of the Bendigo line were closed for thesecond half of the year and there were disruptions toservices on the Geelong, Latrobe Valley and Ballarat lines.As in 2003–04, V/Line operated coach replacement serviceson closed sections of the network and sought to minimiseservice impacts wherever possible on other lines.SURVEYS ASK CUSTOMERS TO NOMINATE THEIR LEVEL OFSATISFACTION WITH SPECIFIC ASPECTS OF PUBLIC TRANSPORT,SUCH AS SERVICE DELIVERY, INFORMATION DELIVERY, STAFFPERFORMANCE AND VALUE FOR MONEY, AS WELL AS WITH THESERVICE OVERALL. RESULTS ARE PUBLISHED QUARTERLY.DOI CUSTOMER SATISFACTION TRACKING90 %85807570SEPT 03TRAINSDEC 03MAR 04COACHESJUN 04SEPT 04DEC 04MAR 05JUN 05

OUR CUSTOMERS (CONTINUED)The redevelopment program at Spencer Street Station was afurther cause of disruption to customers. Construction worksat the site restricted V/Line's access to platforms by up to 50per cent, requiring frequent changes to normal operations.Turnaround times for trains were affected as well and thiscontributed to fluctuations in performance on some lines.V/Line staff strove to help customers through thesedifficulties by implementing a program of engagement andregular communication to inform them of changes toservices and, where closures occurred, provide timelyinformation about V/Line's coach replacement services.At Spencer Street Station, additional customer relations andplatform staff were also placed on site to assist passengerswith their travel arrangements. Through this interaction,V/Line increasingly learned how and where to improve itsreplacement services and communications to customers.NEW TIMETABLEIn December 2004, V/Line released its draft 2006 timetable(weekdays) for the Geelong, Bendigo, Ballarat and LatrobeValley lines and over the next five months asked customersfor their feedback. The resulting strong response is currentlyassisting the refinement process.The draft timetable reflects the new capacity and flexibility ofV/Line's network due to the Regional Fast Rail Project andthe planned introduction of VLocity trains. Its principal aim isto support the way people live and work by having servicesavailable when people want to travel. It is also structured toencourage more people to travel across Victoria by train.The draft timetable provides 28 new services each day. Thisincludes:• nine new services for the Ballarat and Bendigo lines• eight new services for the Latrobe Valley line• two new services for the Geelong line• a range of additional express, early morning and latenight services according to the needs of each line.Consultation on the draft timetable took place from Januaryto May 2005. It included an extensive program ofworkshops with stakeholder groups, such as Members ofParliament, local councils and interest groups. There werealso 'drops' of draft timetables and feedback forms atstations and on train seats throughout the network. On-trainconsultations with passengers and extensive media briefingsfurther supported the program.Almost 2,500 responses were received from customers,including comments via V/Line's website and 1800telephone line.In June 2005, V/Line began to analyse of the customerfeedback. Train stopping patterns, frequency and arrivaltimes were the areas attracting most comment. Followingthis comment, work began to refine the draft timetable,balancing the range of community needs and expectations.Further discussions were also planned with track accessproviders Connex and Pacific National to ensure that thefinal result is an integrated timetable for Victoria.The final version of the 2006 timetable, including bothweekday and weekend services on the four corridors, isexpected to be released early in 2006.V/LINE ANNUAL REPORT 2004–05|17

COMMITMENT TO CUSTOMERSCUSTOMER CHARTERCUSTOMER FEEDBACK18V/Line's major commitments to its customers are outlined inits Customer Charter. These include its service standards,how they are measured and the process by whichcustomers can seek compensation should the service fallshort of these standards.The Charter enables customers with valid periodical ticketsof four weeks or more to apply for compensation in the formof complimentary travel tickets if fewer than 96 per cent oftrain and coach services run or fewer than 92 per cent oftrains arrive within five minutes of their scheduled time.In 2003–04, compensation paid to customers ascomplimentary tickets was valued at $5,419. In 2004–05,the compensation was valued at $31,298. This significantincrease was due to performance fluctuations associatedwith the infrastructure works on major lines.V/Line's Customer Call Centre operates seven days a week.It comprises two services, with a dedicated telephonenumber for each: 136 196 for information, reservations andsales; and 1800 800 120 for feedback from customers ontheir travelling experience.During 2004–05, there were 739,660 calls to the 136 196number, compared with 765,532 calls in 2003–04, while thefeedback line 1800 800 120 handled 7,126 customer calls,comprising compliments, complaints, suggestions andclaims, compared with 4,600 calls in 2003–04.V/Line actively promotes its customer feedback line and actsupon the information received. Customer comments havebeen particularly helpful in the development of timetables, aswell as alternative travel arrangements during the period ofRegional Fast Rail works.PUBLIC TRANSPORT INDUSTRY OMBUDSMANThe Office of the Public Transport Industry Ombudsman wasestablished in April 2004 to give public transportpassengers the opportunity to have their public transportrelatedcomplaints independently examined if they are notsatisfied with the response of the relevant transportoperator. This year, 49 V/Line customers elected to havetheir cases reviewed by the Ombudsman. All weresatisfactorily resolved.The Public Transport Industry Ombudsman, Metlink and allpublic transport operators participate in quarterly CustomerFeedback Industry Roundtable forums to review customerfeedback trends and identify any systemic issues. V/Lineand Metlink's customer feedback handling procedures, which| V/LINE ANNUAL REPORT 2004–05V/LINE OFFERED A SPECIAL RETURN TICKET TO THE AVALONAIRSHOW, COMPRISING TRAIN AND SHUTTLE BUS TRAVEL. ON THEPEAK PUBLIC DAYS OF 18–20 MARCH 2005are sanctioned by the Public Transport Industry Ombudsman,have been adopted by all public transport operators.Throughout the year, V/Line responded to 90 per cent ofcustomer feedback within the time required by its ServiceLevel Agreement.ENSURING EQUAL ACCESSV/Line has continued to review and assess its operations tosupport its commitment to providing equal access to travelfor all Victorians and to enhance its service for people withspecial needs.All stations and trains have been audited to determine thework and funding required to ensure they meet DisabilityStandards for Accessible Public Transport milestones setunder the Disability Discrimination Act (DDA).The audit revealed that most V/Line infrastructure alreadymeets the milestone set for 2007 (25 per cent compliance)and all trains meet or exceed the 2012 milestone (55 percent compliance).While the audit did not identify any major problems, areaswhere action will be taken include tactile ground surfaceindicators, lighting, access paths, provision of information,ramps and handrails.V/Line is a member of the Public Transport AccessCommittee, which aims to identify and resolve DDA issues.

OUR CUSTOMERS (CONTINUED)V/LINE IN THE COMMUNITY: REGIONAL MANAGER PETER GIBSONSHOWS THE WAY; FRIENDLY SERVICE IS A PRIORITY FORFRONTLINE STAFF; THE V/LINE UNDER 15 FOOTBALLCHAMPIONSHIPS; THE SPENCER STREET STATION OPEN DAYMARKETING INITIATIVES'REASONS TO GO' PROGRAMV/Line this year launched its Reasons to Go marketingprogram which features a range of travel packages andpromotions linked to special events.The inaugural 2005 Reasons to Go calendar included:• the Avalon International Airshow• the Mummies Exhibition at the Melbourne Museum• Sovereign Hill at Ballarat• Gippsland Lakes• festive season packages for regional customerstravelling to Melbourne• a range of major Melbourne events (Australian Opentennis, Spring Racing Carnival, Royal Melbourne Showand international cricket).V/Line extended its Country Racing travel packagesstatewide in 2005. The Rock Trifecta for the Australia DayCup Races at Hanging Rock generated unprecedentedinterest, with more than 90 per cent of V/Line's racegoingcustomers taking advantage of the offer.V/Line's first Grand Annual Race Train to the final day of theWarrnambool racing carnival in May attracted more than360 racegoers.During the football season, V/Line operates up to 14 extratrains on major lines to take football fans to and fromgames. Approximately 125,000 customers used the FootyTrains during the 2004 AFL season.The V/Line Snow Coach to Mount Buller which operatesseven days a week during the ski season, this yeartransported 6,648 people, compared with 6,613 theprevious year.COMMUNITY INVOLVEMENTSPONSORSHIPSThis was the second year in which V/Line was a majorsponsor and official transport provider for the VictorianCountry Football League (VCFL). The V/Line Under 15s VCFLChampionships were held in Melbourne in April 2005.The VCFL has approximately 80 leagues, 800 clubs and70,000 footballers from the age of 10 upwards. The VCFLalso supports women in sport through netball competition.V/Line's financial and practical support enables the Leagueto continue to develop and coordinate football at club andleague level.SUPPORTThrough its My Train program, V/Line enables regionalschools to travel free of charge to Melbourne for educationalexcursions. The program helps introduce students to thepublic transport system and its benefits. During 2004–05,V/Line approved approximately 40 My Train applicationsfrom schools, comprising 1,100 passengers.Seniors' card holders were offered free travel on days whenspecial country and metropolitan events were taking placeduring Seniors' Week in March 2005.V/LINE ANNUAL REPORT 2004–05|19

20 | V/LINE ANNUAL REPORT 2004–05

OUR OPERATIONS“GRAEME CLEAKTHE NETWORK PLANNING GROUP MANAGESV/LINE'S TRAIN AND COACH MOVEMENTS. IT'S BEENA PARTICULARLY CHALLENGING YEAR FOR THETEAM, WITH THE NEED FOR CONTINUAL CHANGESTO THE OPERATIONS PLAN AS A RESULT OF THEREBUILDING WORKS. ALONG THE WAY, WE’VEDEVELOPED OVER 100 DIFFERENT DAILY PROGRAMS,WHICH IS NO SMALL FEAT. OUR TEAM HASCHEERFULLY COPED WITH THESE VARIATIONS,OFTEN AT VERY SHORT NOTICE. WHILE THERE HAVEBEEN INEVITABLE FRUSTRATIONS, WE HAVEMAINTAINED A VERY HIGH STANDARD OF OUTPUT,THANKS TO THE GROUP’S TREMENDOUSKNOWLEDGE AND EXPERIENCE. CUSTOMERS ANDFRONT-LINE STAFF HAVE ALSO PROVIDED VALUABLEINSIGHT AND WE'VE LISTENED CAREFULLY TO THEM.IT'S BEEN A REAL TEAM EFFORT.Above: The network planning group at work developing the rail servicechanges during major upgrade programs involving line shutdownsV/LINE ANNUAL REPORT 2004–05|21

OPERATING PERFORMANCEV/Line operates 1,248 rail services and 592coach services every week across regionalVictoria.The regional rail network comprises 81 stationsand the operating fleet is made up of 42locomotives, 142 carriages and 21 Sprinters.Rail operational performance is measuredmonthly by two key parameters: reliability andpunctuality.Reliability is the percentage of scheduled trains that operateduring a given month, with a performance target of 96 percent. Punctuality is defined as the percentage of trains thatarrive within five minutes of the scheduled time, with aminimum performance set at 92 per cent.Throughout the year, V/Line's reliability was well above the96 per cent target set by the Director of Transport, withperformance on all corridors measured at around 99 per cent.Travel times – and therefore punctuality – on all five corridorswere affected by a range of factors, including infrastructurefailures (mainly signalling), speed restrictions due toinfrastructure upgrade work and maintenance activities, anddelays caused by loss of access to platforms duringredevelopment works at Spencer Street and Flinders Streetstations. Punctuality on the Latrobe Valley line in particularwas reduced by these factors during 2004–05.Throughout 2004–05, the major rail revitalisation projectsaffected V/Line's operational performance.The four main corridors – Geelong, Ballarat, Bendigo andLatrobe Valley – all experienced extended shutdowns duringthe year for Regional Fast Rail Project works. Major coachreplacement programs were implemented during these lineclosures.Construction work at Spencer Street Station resulted in theclosure of a number of platforms, impacting V/Line'sservices. Platforms 4, 5, 6 and 7 (southern) were closedfrom 29 September 2004 to 26 February 2005. Platforms 2and 3 (south) were closed from 30 March 2005.As the redevelopment work at the station is completed,V/Line's platform access will return to normal and this isexpected to help improve network performance.EXPANDING THE BUSINESSDuring the year, V/Line welcomed new customers to itsservices through the re-opening of the train line to Ararat inJuly 2004 and through the extension of its operationalnetwork to Shepparton in the same month. V/Line alsoassumed responsibility for services to Warrnambool inSeptember 2004.The re-commencement of train services to Ararat this year,together with those to Bairnsdale last year, generated stronggrowth in patronage on both lines. During the first ninemonths of operation, the service between Ararat and Ballaratgrew in patronage by almost 29 per cent, demonstrating thatit meets a community need and is attracting sustained publicsupport. Bairnsdale's first full year of train services sawpatronage grow by 35.9 per cent.V/Line also took over operation of the Shepparton railservice on 1 July 2004 and carried more than 137,000passengers during the year.MEASURES ON-TIME PERFORMANCE TO FIVE MINUTES FORREGULARLY SCHEDULED SERVICES DELIVERED DURING THE YEAR.PUNCTUALITY100 %806040200TARGET 92%22 | V/LINE ANNUAL REPORT 2004–0574.08 82.10 89.44 87.15 89.26EASTERN NORTH NORTHERN SOUTHERN WESTERNEASTERN

OUR OPERATIONS (CONTINUED)THE PERCENTAGE OF REGULARLY SCHEDULED SERVICESDELIVERED DURING THE YEAR (PLANNED CANCELLATIONS DUETO MAJOR RAIL UPGRADE WORKS ARE EXCLUDED IN THECALCULATION OF THE FIGURES BELOW).RELIABILITY100 %806040200TARGET 96%98.99 99.47 99.29 98.94 99.3EASTERN NORTH NORTHERN SOUTHERN WESTERNEASTERNV/Line acquired the coach services from Shepparton toCobram and Griffith, previously operated by Hoys Pty Ltd.Patronage on these services totalled more than 25,000.In September 2004 three return train services a day werere-instituted to the Warrnambool line and in January 2005 abuffet car was re-introduced on selected weekday services.In the first nine months of operation, V/Line carried morethan 237,000 passengers, an increase of 8.3 per centcompared with the corresponding period in 2003–04 whenthe service was operated by West Coast Rail.The new Marshall station south of Geelong began operationon 26 April 2005. The new station services the growingpopulations of the South Geelong area, bringing Melbourne,Geelong and the south-west coast within easy reach. Thereis also a bus interchange with service to the Surf Coast andBellarine Peninsula.2006 COMMONWEALTH GAMES PLANNINGThe Commonwealth Games to be staged in Melbourne inMarch 2006 presents significant challenges for all Victorianpublic transport operators, including V/Line.V/Line is working closely with the Government, Gamesorganisers and other transport operators to ensure thatspectators have access to the most appropriate V/Linepassenger train and coach services to and from eventvenues, in Melbourne and in regional centres.A special Games service plan will make sure Gamesspectators can get to the right place at the right time, withminimal disruption to our regular customers.A driver workforce plan for the Games has been developedin conjunction with the Rail, Tram and Bus Union (LocomotiveDivision), Connex and the Department of Infrastructure.V/Line is also developing a specific marketing plan so thatwe can capitalise on tourism opportunities presented by thearrival of an expected 90,000 visitors for the Games.SERIOUS INCIDENTSThere were four collisions with motor vehicles at levelcrossings during 2004–05. Tragically two of these seriousincidents resulted in the deaths of four occupants of motorvehicles. The incidents have been investigated and V/Linecontinues to work with the Department of Infrastructure andtrack access providers to improve safety at level crossings.The incidents occurred on:5 AUGUST 2004A train and a car collided at Furlong Road, Ginifer.Three occupants of the car died.16 NOVEMBER 2004A train and a car collided at the Sampson–Ford Roadcrossing at Terang. No serious injuries.21 MARCH 2005A train and a car collided at Settlement Road, Kilmany,resulting in the death of the driver of the car.25 MAY 2005A train and a car collided at the closed Patullos Lanecrossing in Somerton. No serious injuries.V/LINE ANNUAL REPORT 2004–05|23

REBUILDING VICTORIAN RAIL: REGIONAL FAST RAIL EARTHWORKS;SPENCER STREET STATION REDEVELOPMENT; AND NEWSIGNALLING AT SUNBURY24 | V/LINE ANNUAL REPORT 2004–05

OUR OPERATIONS (CONTINUED)THE MAJOR UPGRADE PROGRAM TO V/LINE’S REGIONAL NETWORK 2004–05BALLARAT LINELine closures/coach replacements1 to 7 July 200417 to 15 April 2005GEELONG LINELine closures/coach replacements10 to 23 January 200411 to 30 June 2005BENDIGO LINELine closures/coach replacements17 January to 30 June 2005LATROBE VALLEY LINELine closures/coach replacements9 to 26 October 2004SPENCER STREET STATIONPlatform closures29 September 2004 to30 June 2005LINE/PLATFORM OPENLINE CLOSED(COACH REPLACEMENT)PLATFORM CLOSURESJULY 04AUG 04SEPT 04OCT 04NOV 04DEC 04JAN 05FEB 05MAR 05APR 05MAY 05JUN 05V/Line is also acutely aware of the effect such tragicincidents have on all those involved – family, friends, localcommunities and staff members, particularly train driversand conductors. A Critical Incident Management Planensures that professional assistance and support areimmediately provided to employees involved in any criticalincident (see Our Employees, page 31).INFRASTRUCTURE MANAGEMENTV/line has continued to upgrade and enhance stationfacilities at 81 locations across the regional passenger railnetwork.Initiatives during 2004–05 included:• management, transfer and updating of station assets• occupational health and safety improvements atstabling yards• upgrade of Geelong Station toilets• expansion of customer information and closed circuittelevision networks to some regional stations• significant improvements to the Lara Station platformand yard• repainting of Ballan, Wallan, Geelong, Woodend, KilmoreEast, Benalla, Wodonga and Wangaratta stations• improvement to lighting at stations• establishment of a ticket agency at Ararat Station• upgrade of drivers' facilities at Bacchus Marsh andKyneton• demolition of disused buildings at Geelong to create 50new car parking spaces• maintenance and replacement of various station airconditioningsystems.In addition, V/Line managed a range of projects directlyassociated with the Regional Fast Rail and Spencer StreetStation redevelopment projects.V/LINE ANNUAL REPORT 2004–05|25

There has been an increased focus on preventativemaintenance of the network, with improvements also madeto the process for responding to faults and maintenancerequests.FLEET PERFORMANCEFleet operating performance is a key factor in V/Line's abilityto deliver services to customers.V/Line manages the maintenance and refurbishment of itsfleet of locomotives, carriages and Sprinters by closelymonitoring measures such as availability, operationalperformance regime and mean distance between in-servicefaultsDuring the first half of 2004–05, fleet operating performance– particularly reliability – fell below expectations. This waslargely a result of V/Line taking responsibility for theWarrnambool line, where the ageing vehicles purchasedfrom West Coast Rail had inherent reliability problems andSPRINTER RELIABILITY35,00030,000TARGET 25,00020,00015,00026 | V/LINE ANNUAL REPORT 2004–05JULY 04AUG 04SEPT 04OCT 04NOV 04DEC 04JAN 05FEB 05MAR 05APR 05MAY 05JUN 05required extensive refurbishment. Significant improvement infleet operating performance was recorded in the second halfof the year, but that does not lessen the importance of thearrival of V/Line's new VLocity trains, which will progressivelytransform the fleet.The average fleet availability during the year for carriagesand Sprinters was 95 per cent, while locomotive averageavailability was 87 per cent. This compared with 94 per centfleet availability for carriages and Sprinters and 86 per centaverage availability for locomotives in 2003–04.FLEET MAINTENANCEV/Line's major fleet maintenance projects over the past yearincluded:• upgrade of rolling stock for the Warrnambool line• installation of new head end power units in threelocomotives• completion of the Sprinter sanding project.CARRIAGE RELIABILITY250,000200,000TARGET 150,000100,000JULY 04AUG 04SEPT 04OCT 04NOV 04DEC 04JAN 05FEB 05MAR 05APR 05MAY 05JUN 05

OUR OPERATIONS (CONTINUED)Since 2000, V/Line has outsourced its maintenance andrefurbishment activities to EDI Rail, which has also providedreactive 'out of course' fault rectification services. Thepreventative maintenance program is designed to ensurethat required standards of safety, reliability and passengercomfort are achieved.During the year, 16,322 routine preventative maintenanceexams took place. The fleet refurbishment programcomprised 35 major overhauls.SAFETY MANAGEMENTV/Line has in place a range of management systems,training programs and work practices to ensure a safeenvironment for all customers and staff.LOCOMOTIVE RELIABILITY IMPROVED OVER THE YEAR.CARRIAGE AND SPRINTER RELIABILITY WERE MAINTAINED ATSTEADY LEVELS.LOCOMOTIVE RELIABILITY30,000TARGET 26,25025,00020,000V/LINE WORKS CLOSELY WITH REGIONAL COMMUNITIES: EASTERNREGIONAL MANAGER TIM PIANTA; NORTH AND NORTH EASTREGIONAL MANAGER CHRIS ROSSI; GEELONG WATERFRONT;REPLACEMENT COACH SERVICES FOR CUSTOMERSFollowing a comprehensive safety climate survey in 2004, anumber of safety initiatives were undertaken during the year.These included:• selection and implementation of SafetyMAP as theorganisation's occupation health and safety audit tool• refinement of V/Line's Incident Response Plan• introduction of a Fatigue Management Program (seeOur Employees section, page 31)• development of a safety audit schedule for the entireorganisation• improved workforce communication on safety issues• ongoing review and refinement of an organisation-widesafety action plan.SAFETYMAP AUDITSThis detailed audit process has ensured that safety remainstop of mind across V/Line.During 2004–05, locations involved in SafetyMAP auditsincluded Spencer Street Station, Spencer Street drivers,Spencer Street yardmasters/shunters, Traralgon, Geelong,Ballarat, Bendigo, Seymour and Melbourne head office.15,000JULY 04AUG 04SEPT 04OCT 04NOV 04DEC 04JAN 05FEB 05MAR 05APR 05MAY 05JUN 05Audits will continue as a key tool in maintaining a focus onsafety at all levels of the organisation and as a preventativetool to identify and address any issues that may arise.V/LINE ANNUAL REPORT 2004–05|27

LOST TIME INJURY FREQUENCY RATE*100806040200JULY 04AUG 04SEPT 04OCT 04NOV 04DEC 04JAN 05FEB 05MAR 05APR 05MAY 05JUN 05* The number of work-related injuries or illnesses resulting in at least onefull shift or work day lost per million work hours.ANNUAL DOI AUDITThe Department of Infrastructure's annual Rail SafetyAccreditation Compliance Audit conducted in November2004 confirmed V/Line's compliance with all safety standards.An action plan has been developed and implemented toaddress a number of observations made as part of the audit.WORKCOVER CLAIMS200SECURITY PLAN150Following an independent review of its security profile,100V/Line has begun the process of updating and extending itssecurity plan for the organisation. The revisions to the plan50will ensure that V/Line not only provides safe public0transport throughout regional Victoria but also complies withThe Terrorism (Community Protection) Act 2003.When completed this plan will identify any actions required SAFETY INCIDENTSto ensure the safety of passengers, staff and the broadercommunity.10075SAFETY EDUCATION FOR SCHOOLS50V/Line is committed to the promotion of safety awareness25with its customers.0In May 2005, V/Line piloted a safety education presentationfor school students. Its aim is to raise awareness of safetyon and around trains and to help students understand theirpersonal safety responsibilities in this regard.The main message for students is that everyone has aresponsibility for safety around trains.The pilot safety presentation was successfully trialled atTrafalgar High School in Gippsland by regional staff andon-train supervisors. The presentation is now being refinedfor the formal roll-out of the education program, which isscheduled for October 2005. Further expansion of theprogram will take place across V/Line's network in 2005–06.28 | V/LINE ANNUAL REPORT 2004–05127 101 1152002–03 2003–04 2004–0532 232003–04 2004-05CUSTOMERS32 722003–04 2004–05STAFFNote: Increase in staff incidents reflects increased focus onreporting as well as an overall increase in employee numbers.On-train supervisors will be the main safety presenters toschool groups. Supporting educational materials includesafety information sheets, posters and a short video.

OUR OPERATIONS (CONTINUED)SAFETY CHECK: V/LINE’S ONGOING SAFETY AND MAINTENANCEMONITORING AND AUDIT PROGRAM COVERS ALL AREAS OF ITSOPERATIONSV/LINE ANNUAL REPORT 2004–05|29

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OUR EMPLOYEES“JOHN MITCHELLOUR MAIN ROLE AS LOCOMOTIVE DRIVERSUPERVISORS IS TO ENSURE THAT DRIVERSTANDARDS ARE OF THE HIGHEST ORDER. TRAININGAND TROUBLESHOOTING ARE ALSO AT THEFOREFRONT AS WE TRY TO IDENTIFY POTENTIALPROBLEMS AND WORK WITH DRIVERS ANDMANAGEMENT ON SOLUTIONS. WE ACT AS A LINKBETWEEN THE DRIVING GRADE AND MANAGEMENTAND I THINK THAT'S BEEN WELL RECEIVED ON BOTHSIDES. DRIVERS RESPOND TO US BECAUSE WE ALLHAVE LONG EXPERIENCE AS DRIVERS OURSELVES.WE'RE ON THEIR WAVE-LENGTH. MANAGEMENTWELCOMES OUR INPUT TOO; IT MAKES THEMOPERATIONALLY STRONGER. WE CONTRIBUTE TOCOMMITTEES AND HAVE INPUT TO ISSUES, SUCHAS OCCUPATIONAL HEALTH AND SAFETY. IT'SREWARDING – AND A CAREER OPPORTUNITY FORDRIVERS OF THE FUTURE.From left: V/Line’s crew concept – drivers and conductors workingtogether; the on–train supervisor team at Spencer Street Station;locomotive driver supervisor John Mitchell; on–train supervisors checkstandards in trainsV/LINE ANNUAL REPORT 2004–05|31

KEY STATISTICSHuman resource strategies in 2004–05focussed on the continued development ofV/Line's workforce for the future. The aim is tobuild a skilled workforce that is representativeof the communities that V/Line serves, in termsof age, gender and cultural background.Throughout the year, V/Line sought to attract new staff andenhance the skills and confidence of existing staff to meetthe regional rail network's current and future requirements.Staff numbers (total headcount) increased from 640 to 738over the period. Thirty-three train drivers were recruited toensure delivery of V/Line's new timetable and theintroduction of the new VLocity trains. The growth in totalheadcount also reflects the addition of six staff memberswho transferred from Hoys Pty Ltd in July 2004 and 20 fromWest Coast Rail in September 2004.At 30 June 2005, V/Line had a total of 727.5 full-timeequivalent staff members.PROVIDING SUPPORT TO OUR STAFFEMPLOYEE ASSISTANCE PROGRAMV/Line's Employee Assistance Program offers a comprehensiveand confidential, 24-hour/7-day counselling and assistanceprogram for employees. V/Line has engaged an independent,fully accredited support service to run the program.Launched in May 2004, the program has been well receivedand utilised by staff over the first 12 months of its operation.WORKPLACE AWARENESS PROGRAMThe Workplace Awareness Program is an ongoing programto support V/Line's efforts to ensure a secure and enjoyableworkplace. Its aim is to make certain that all employees areaware of V/Line's policies and of their own responsibilitieswith regard to issues in the workplace, such as equalopportunity, bullying, sexual harassment, drug and alcoholawareness and post-traumatic stress.In 2004–05, 154 employees completed the WorkplaceAwareness Program. All staff will complete this program, inline with operational demands.CRITICAL INCIDENT MANAGEMENTAs part of its responsibility of care to employees, V/Lineprovides professional assistance and support to its drivers,conductors and other staff members when there is a criticalincident, or accident, involving injury or death.32 | V/LINE ANNUAL REPORT 2004–05SKILL GROUP AT 30 JUNE 2005Skill Group Full Part Actuals FTEs Male FemaleTime TimeExecutive 9 0 9 9 6 3Non-exe/professionals 31 0 31 31 23 8Administration 39 4 46 41.8 23 23Operations 274 10 284 281 235 49Station staff 112 11 123 119.7 107 16Train drivers 245 0 245 245 245 0Total 710 25 738 727.5 639 99AGE PROFILEDuring 2004–05, 53 staff members were involved in criticalincidents. All were contacted by V/Line's fully accreditedcounselling services provider, The Barrington Centre, toensure that they received the necessary care and support tohelp them cope afterwards.V/Line's Critical Incident Management Plan complementsthis activity. Developed in 2003–04, the plan seeks toimprove management of occupational health and safetyrisks to employees involved in critical incidents through aproactive monitoring of their wellbeing, particularly withregard to post-traumatic stress.FATIGUE MANAGEMENTUnder 30 30–44 45–49 50–54 55+Number 59 265 133 146 135Percentage 8.0% 35.9% 18.0% 19.8% 18.3%V/Line continued to develop its approach to the complexissue of fatigue management for shiftwork employees.A training program based on work undertaken by the Centreof Sleep Research in South Australia has been introduced towork groups including drivers, shunters, conductors andoffice staff. So far, 472 employees have completed thetraining program.Fatigue management is now included in the locomotivedrivers' continuation training and eight leading driversupervisors have been trained to present UnderstandingShiftwork and Fatigue sessions.V/Line has also acquired the fatigue management softwareFAID, which is currently being used to manage train crewrosters. It has also been used during incident investigationsto help determine whether fatigue has been a contributingfactor.

OUR EMPLOYEES (CONTINUED)Early results from use of the software indicate that V/Line iseffectively managing the time worked in operational areas.DRIVER RECRUITMENTDuring the year, V/Line developed a Driver Workforce Planto prepare for the implementation of its new service planand the introduction of its VLocity trains. This wasundertaken in conjunction with the Department ofInfrastructure and negotiated with Connex and the Rail Tramand Bus Union (Locomotive Division).Between August 2004 and June 2005, 33 experienceddrivers were recruited. Further such recruitments areplanned for 2005–06.DEVELOPING CAREER PATHS WITHIN V/LINEA new supervisory level for conductors was introducedduring the year. It extends their career path, providesimproved consistency in customer service and enhances theworking relationship with drivers.During the year, eight on-train supervisor positions werecreated – one on each V/Line corridor and two at SpencerStreet Station. To support the new supervisors in theirleadership role, an innovative development program wasconducted in early 2005.The on-train supervisor position has a locomotive drivercounterpart. Currently there are eight locomotive driversupervisors who assist with the verification of driverprocedures and driver training.LOCOMOTIVE DRIVER, KEVIN JOHNS (SECOND FROM RIGHT) PICTUREDWITH (FROM LEFT) TRAIN CREW MANAGER DON ARMSTRONG,DIRECTOR OF PUBLIC TRANSPORT JIM BETTS AND CEO ROB BARNETTAT A CEREMONY RECOGNISING HIS 50 YEARS OF SERVICETRAINING AND DEVELOPMENTLEARNING AND DEVELOPMENT MODELDuring 2004–05, Certificates III and Certificates IV inBusiness Studies were designed as part of V/Line'sLearning and Development Model. Their implementation intokey operational roles is currently under way. Certificates IIIand Certificates IV in Rail Operations are also in development.The design of these certificate programs will provide studypathways to tertiary education for employees who may wishto take on further studies.BUILDING LEADERSHIP AND MANAGEMENT SKILLSThis year a significant amount of work was undertaken tosupport the development of V/Line's leadership andmanagement framework, which is also aligned to theAustralian Qualification Framework.Organisational competencies were identified, as well as aflexible range of leadership/management skill developmentoptions – from short courses to formal education. These arenow available to staff.SKILL DEVELOPMENT AND LEARNING PROGRAMSDuring 2004–05, V/Line employees attended more than 150training programs, with a total of 1,502 individual trainingsessions.V/LINE ANNUAL REPORT 2004–05|33

BALLARAT-BASED CONDUCTOR DALLAS MARTIN AND HISCOLLEAGUES SUPPORT V/LINE’S SERVICE AND SAFETY CULTURE34 | V/LINE ANNUAL REPORT 2004–05

OUR EMPLOYEES (CONTINUED)New training programs were also introduced to bring amultidisciplinary focus to training and development activitiesand to ensure that such activities are always closely alignedwith V/Line's mission, vision and values. The programsincluded:• IT training, particularly refresher training to support theroll-out of IT upgrades• Data Logger Training, covering the three monitoringsystems for data logging of Sprinters, locomotives andVLocity trains• advanced project management.PERFORMANCE REVIEWSPerformance reviews help to identify development needsand ensure that there is a balance of appropriate skills andcapabilities within V/Line.The review process has been revised to support efforts toenhance V/Line's working environment. In particular, itreflects the need for staff to demonstrate that their day-todayworkplace conduct embodies V/Line's values.Career development plans and talent management havebeen incorporated into the performance review process.BUILDING A SUPPORTIVE AND INNOVATIVE WORKENVIRONMENTFostering a high-performance, customer-centred workenvironment is a V/Line priority as the organisation preparesto operate a revitalised regional rail network. To achieve this,an employee engagement strategy is under way which isdesigned to motivate staff, particularly in the area ofcustomer service.V/Line's Spencer Street Station staff have played a majorrole in the development of new customer service standardsto be applied across the organisation.The customer service initiatives have included three newtraining programs to assist all V/Line staff in their interactionswith customers:• The Customer Contact Program focuses on theresolution of customer conflict situations. Between Apriland June 2005, 70 staff from Spencer Street Stationcompleted the course.• The Drug and Alcohol Awareness Program helps staffto deal with customers who are affected by drugs oralcohol. It is expected that more than 200 staff willattend this program over the next 12 months.• The Cultural Awareness Program ensures that staff areaware of and understand the sensitivities of culturaldifferences so that they can respond appropriatelywhen dealing with customers from different cultural orethnic backgrounds.EMPLOYEE OPINION SURVEYAn organisation-wide Employee Opinion Survey wasconducted as part of V/Line's employee engagementinitiative. Its purpose is to assist in identifying not only keyareas where V/Line can pro-actively develop its people butalso ways to improve business operations.V/Line engaged the services of a specialist company todevelop and implement the paper-based survey and toassure staff anonymity and confidence.Results of the survey are expected in September 2005.SERVICE MILESTONESA celebratory event to recognise staff members' significantservice milestones was introduced this year.On Friday 17 June 2005, the first service dinner was held tocelebrate the achievements of 48 staff members who hadreached significant milestones of 25, 40 and 50 years'service. Director of Public Transport Jim Betts was theguest speaker and presentations were made to each staffmember to mark the occasion.EMPLOYEE WELLBEINGIMPLEMENTATION OF NEW MEDICAL STANDARDSAs required by the new Code of Practice for Rail Workers,V/Line achieved the target of 100 per cent Category 1 RailSafety Critical Workers completing their medicalexaminations by 30 June 2005. This means that more than200 staff completed their medical examinations within an18-month period.Overall, 89 per cent of total staff medical examinations havebeen completed, with those outstanding to be completedby 30 December 2005.WORK, FAMILY AND LIFESTYLE INITIATIVESAs part of V/Line's on-going employee attraction andretention strategy, job sharing has been introduced, with apilot program currently under way at the Geelong Station.Initial feedback is positive.V/LINE ANNUAL REPORT 2004–05|35

FINANCEKEY STATISTICSV/Line's aim is to increase its patronage andfarebox revenue while controlling expenditure inorder to meet its budget targets.Similar to 2003–04, V/Line's financial performance for theyear ending 30 June 2005 was in line with budget expectations.Total revenues were $214.9 million, including fareboxrevenue of $47.6 million and the Government's subsidy of$155.5 million. Total expenses were $215.5 million, resultingin an operating deficit for the year of $0.65 million.The variation between the 2003–04 and 2004–05 operatingresults reflects arrangements made when V/Line PassengerPty Ltd was purchased. In 2003–04, V/Line Corporationrecorded a net profit of $126.1 million. This result included again of $136.8 million from the purchase of V/LinePassenger Pty Ltd. The transaction involved the acquisitionof net assets of $136.8 million for a consideration of $1.'GOING CONCERN' BASIS OF ACCOUNTINGV/Line's financial statements have been prepared on a'going concern' basis. The directors consider this basis tobe appropriate as a result of the Victorian Government'scommitment to fund V/Line's operations pursuant to thefranchise agreement, and to meet employee liabilities in theevent that V/Line is unable to do so.36 | V/LINE ANNUAL REPORT 2004–052004–05 FINANCIAL SUMMARYNOTESNOTERevenue – Operational $206.7m 1 $214.9m– Non-operational $8.2mExpenditure 2 $215.5mOperating deficitNet cash inflow from operating activities$0.65m$20.5mTotal assets 3 $183.5mTotal liabilities 4 $58.0mNet assetsTotal staff$125.5m727.5 (FTE)1 Operational revenue includes fares, government subsidy andrevenue from other operators.2 Expenditure includes track access charges, labour costs,rolling stock maintenance, depreciation and fuel.3 Total assets include rolling stock with a fair value of $160.3 million.4 Total liabilities include employee entitlements of $33.6 millionand creditors and other liabilities of $24.4 million.

CORPORATE GOVERNANCEFROM LEFT: MEREDITH DOIG, CATHERINE SCOTT, COLIN NICOLAND FRANK TAITV/LINE PASSENGER CORPORATION ANDV/LINE PASSENGER PTY LTDV/Line Passenger Corporation (VLPC) wasestablished on 15 July 2003 as a statutory railcorporation under the Rail Corporation Act 1966.The Corporation was set up to acquire NationalExpress Group Australia (V/Line Passenger) PtyLtd (NXVLP) from the National Express Groupfollowing that group's decision to withdraw fromthe operation of its rail transport franchises.V/Line Passenger Corporation's acquisition of NXVLP tookplace on 1 October 2003 when the name of NXVLP waschanged to V/Line Passenger Pty Ltd (‘V/Line’).V/Line has a franchise agreement with the Director of PublicTransport, representing the State Government of Victoria, tooperate regional rail and rail replacement coach services.It remains subject to a deed of company arrangement andhas been operating as a stand-alone organisation since1 October 2003 when it came out of receivership.In July 2004, in response to a direction from the Director ofPublic Transport, V/Line established a small, wholly ownedsubsidiary company, Victorian Rail Heritage Operations PtyLtd, to operate certain heritage (steam) rail services in Victoria.BOARD OF DIRECTORSThe boards of V/Line Passenger Corporation and V/LinePassenger Pty Ltd consist of the same four non-executivedirectors, with the board of the parent entity, V/Line PassengerCorporation, reporting to the Minister for Transport.Each board has established protocols and procedures toensure that corporate governance is maintained at thehighest levels and the strategic direction and overallperformance of the business can be developed andmonitored diligently.Victorian Rail Heritage Operations Pty Ltd is a one-directorentity.BOARD COMPOSITIONFRANK TAITMr Tait is the Chair of both V/Line boards and also runs aconsultancy business advising boards, executivemanagements and entrepreneurs on business strategy,organisational development and recruitment strategies. MrTait's distinguished career spans government and the railtransport and defence industries. Along with his role on theV/Line boards, Mr Tait is also executive director of theRegional Fast Rail Project.MEREDITH DOIGDr Doig is the deputy Chair of both V/Line boards. She isalso on the board of a number of organisations, includingthe Port of Melbourne Corporation and Bakers Delight, andis a member of the Council of the University of Melbourne.Dr Doig has held senior executive positions in ANZ, CRAand Ford and is currently the managing director of PotentiaAustralia.V/LINE ANNUAL REPORT 2004–05|37

V/LINE MANAGEMENT STRUCTUREFROM LEFT: GEOFF ARTHUR,URSULA MCGINNES, DAVID CHAPMAN-KELLY,JENNY KELMAN AND JOHN LEE.CEOROB BARNETTGENERALGENERALGENERALGENERALEXECUTIVEGENERAL38MANAGERSTAKEHOLDERMANAGERHUMANMANAGEROPERATIONSGENERALMANAGERMANAGERSAFETY,MANAGERINFRASTRUCTURERELATIONSRESOURCES GEOFF ARTHUR CORPORATESECURITY & & ENGINEERINGURSULAJENNY KELMANAND FINANCE ENVIRONMENT MAL ROBERTSMCGINNESJOHN LEELAURIE FOLEYCOMPANYSECRETARY ANDCORPORATECOUNSELDAVIDCHAPMAN-KELLY| V/LINE ANNUAL REPORT 2004–05

CORPORATE GOVERNANCE (CONTINUED)COLIN NICOLMr Nicol is a charted accountant who is a founding partnerof McGrath Nicol and Partners, before which he wasnational managing partner of KPMG's Corporate Recoverypractice. Mr Nicol was one of two receivers and managersappointed following the withdrawal of National ExpressGroup from its Victorian transport franchises. He hasextensive experience in the financial advisory, corporaterestructure and insolvency fields.CATHERINE SCOTTMs Scott is an experienced board member and has heldsenior executive positions in the investment banking andairline industries. In addition to finance expertise, she bringsa thorough understanding of infrastructure projects andregional development. Ms Scott is the deputy Chair of theGoulburn Broken Catchment Management Authority(GBCMA) and also serves on the boards of Goulburn ValleyWater (GVW) and VicForests. She chairs the audit and riskmanagement committees of GBCMA and Vicforests.ANDREW NEALMr Neal was managing director and a member of the boardsof V/Line Passenger Corporation and V/Line Passenger PtyLtd from January 2003. Before joining V/Line, Mr Neal wasmanaging director of Australian National in the mid-1990sand chief executive of the Victorian Public TransportCorporation. He resigned in April 2005.BOARD MEETINGSThe board of V/Line Passenger Corporation meets as requiredand the board of V/Line Passenger Pty Ltd holds scheduledmonthly meetings and additional meetings as required.ACCESS TO INFORMATIONDirectors are entitled to full access to information required todischarge their responsibilities. Directors may obtainindependent professional advice on matters arising in thecourse of board duties. They also have access to seniormanagers and, on request, to documents held by theorganisation.INDEMNIFICATION OF OFFICERSV/Line Passenger Pty Ltd, V/Line Passenger Corporationand Victorian Rail Heritage Operations Pty Ltd have enteredinto deeds of indemnity and access with each director andthe secretary, Mr David Chapman-Kelly. These deeds providefor indemnification against liabilities arising from the conductof the business or from the discharge of directors' duties(other than any liability relating to a wilful breach of duty ortrust) and the maintenance of directors' and officers'insurance.BOARD COMMITTEESMatters relating to remuneration and audit are considered bythe board of V/Line Passenger Pty Ltd as part of regularmeetings of committees of the board held during the year.The board has a Remuneration and People Committeechaired by Dr Meredith Doig, and a Finance, Audit and RiskCommittee chaired by Mr Colin Nicol. In line with theincreasing complexity of safety and security issues, theboard established a new Safety, Security and EnvironmentCommittee chaired by Mr Frank Tait.MINISTERIAL DIRECTIONSV/Line Passenger Corporation received no Ministerialdirections for the period ending 30 June 2005.BOARD MEETINGS OF V/LINE PASSENGER CORPORATIONDIRECTOR ELIGIBLE NUMBERTO ATTEND ATTENDEDFrank Tait (Chair) 2 2Meredith Doig (Deputy Chair) 2 2Colin Nicol 2 2Catherine Scott 2 2Andrew Neal 1 1BOARD MEETINGS OF V/LINE PASSENGER PTY LTDDIRECTOR ELIGIBLE NUMBERTO ATTEND ATTENDEDFrank Tait (Chair) 14 13Meredith Doig (Deputy Chair) 14 14Colin Nicol 14 12Catherine Scott 14 13Andrew Neal 11 9V/LINE ANNUAL REPORT 2004–05|39

CORPORATE GOVERNANCE (CONTINUED)40 | V/LINE ANNUAL REPORT 2004–05FREEDOM OF INFORMATIONV/Line Passenger Corporation (VLPC) is subject to theFreedom of Information Act 1982 (Vic.) and complies withthe provisions of the Act. During the reporting year, fourrequests for information were received. VLPC has compliedwith the Act and responded to all requests.BUILDING ACTVLPC complies with the provisions of the Building Act 1993(Vic.).WHISTLEBLOWERS PROTECTION ACTVLPC is subject to the provisions of the WhistleblowersProtection Act 2001 (Vic.).There have been no disclosures or investigations during thereporting period. No disclosures have been referred to theOmbudsman nor has the Ombudsman referred anydisclosures or made any recommendations to V/Line.COMPETITIVE NEUTRALITYVLPC complies with Victorian Government policy oncompetitive neutrality.ADDITIONAL INFORMATIONVLPC has complied with its annual report statutoryobligations. In addition, information relating to the followingactvities has been compiled and is available on request:• declarations of pecuniary interest• publications produced by V/Line• changes in fares• overseas visits• industrial accidents and disputes.ENGAGEMENT OF CONSULTANTS (OVER $100,000)Corrs Chambers Westgarth Legal advice $641,980Twenty 20 Communication Group Advertising and marketing services $447,430Transnet Logistics Service planning – Technical advice $307,690Mannix Services Consulting Engineers TPWS Project $264,470Australian Heavy Haul Consultants New service plan consulting services $238,070Ernst & Young Accounting, tax and technical consultancy services $170,700Bluefield Consulting Pty Ltd Safety Case for TPWS Project $151,240Richard Oliver Workcover advice & case management $136,180Trevor Rowe & Associates Communication services $118,270URS Australia Engineering consulting services $103,010Under $100,000 = 28 consultancies with a total value of $649,406

FINANCIAL AND STATUTORY STATEMENTSSTATUTORY STATEMENT 42STATEMENT OF FINANCIAL PERFORMANCE 43STATEMENT OF FINANCIAL POSITION 44STATEMENT OF CASH FLOWS 45NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 47AUDITOR GENERAL'S STATEMENT 70DISCLOSURE INDEX 72V/LINE ANNUAL REPORT 2004-05|41

STATUTORY STATEMENTWe certify that the attached financial statements for V/Line Passenger Corporation andsubsidiaries have been prepared in accordance with Standing Direction 4.2 of the FinancialManagement Act 1994, applicable financial reporting directions, Australian AccountingStandards and other mandatory professional reporting requirements.We further state that, in our opinion, the information set out in the statement of financialperformance, statement of financial position, statement of cash flows and notes to and formingpart of the financial statements, presents fairly the financial transactions during the year ended30 June 2005 and the financial position of the Consolidated Entity at this date.We are not aware of any circumstance that would render any particulars included in the financialstatements to be misleading or inaccurate.Frank Tait, ChairmanRob Barnett, Chief Executive OfficerJohn D. Lee, Executive General Manager - Corporate and FinanceMelbourne, 19 August 200542| V/LINE ANNUAL REPORT 2004-05

STATEMENT OF FINANCIAL PERFORMANCEFOR THE YEAR ENDING 30 JUNE 2005NOTES CONSOLIDATED PARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSRevenue from ordinary activitiesRevenues from operating activities 2 206,665 125,648 - -Revenues from non-operating activities 2 8,225 137,890 - 136,769214,890 263,538 - 136,769Expenses from ordinary activities 3Operational expenses 175,694 110,821 - -Administrative expenses 27,318 19,140 - -Selling expenses 2,695 1,690 - -Marketing and communication expenses 2,780 989 - -Customer service expenses 1,911 1,604 - -Diminution of Investment - - 955 10,697Other expenses 5,142 3,157 - -215,540 137,401 (955) 10,697Result from ordinary activities (650) 126,137 (955) 126,072Tax equivalent expense 4 - - - -Net result for the reporting period 13 (a) (650) 126,137 (955) 126,072Total changes in equity (650) 126,137 (955) 126,072THE ABOVE STATEMENT OF FINANCIAL PERFORMANCE SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTESV/LINE ANNUAL REPORT 2004-05|43

STATEMENT OF FINANCIAL POSITIONFOR THE YEAR ENDING 30 JUNE 2005NOTES CONSOLIDATED PARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSCurrent assetsCash assets 5 2,582 2,306 - -Receivables 6 8,426 7,061 - -Inventories 7 85 62 - -Other 8 365 186 - -Total current assets 11,458 9,615 - -Non-current assetsInvestments 1(k), 9 - - 125,116 126,072Property, plant and equipment 10 172,024 167,899 - -Total non-current assets 172,024 167,899 125,116 126,072Total assets 183,482 177,514 125,116 126,072Current liabilitiesPayables 1(c), 11 23,088 20,334 - -Provisions 1(c), 12 8,580 8,382 - -Total current liabilities 31,668 28,716 - -Non-current liabilitiesProvisions 1(c) 12 26,327 22,661 - -Total non-current liabilities 26,327 22,661 - -Total liabilities 57,995 51,377 - -Net assets 125,487 126,137 125,116 126,072EquityAccumulated Profits 13(a) 125,487 126,137 125,116 126,072Total equity 125,487 126,137 125,116 126,07244| V/LINE ANNUAL REPORT 2004-05THE ABOVE STATEMENT OF FINANCIAL POSITION SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTES

STATEMENT OF CASH FLOWSFOR THE YEAR ENDING 30 JUNE 2005NOTES CONSOLIDATED PARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSCash flows from operating activitiesReceipts from customers (inclusive of GST) 234,417 142,201 - -Payments to suppliers (inclusive of GST) and employees (214,510) (132,786) - -Interest received 545 244 - -Net cash flows from operating activities 27 20,452 9,659 - -Cash flows from investing activitiesPurchase of plant and equipment (20,176) (11,096) - -Cash acquired in acquisition of controlled entities - 3,743 - -Net cash flows used in investing activities (20,176) (7,353) - -Net increase in cash held 276 2,306 - -Add opening cash brought forward 2,306 - -Closing cash carried forward 5 2,582 2,306 - -THE ABOVE STATEMENT OF CASH FLOWS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTESV/LINE ANNUAL REPORT 2004-05|45

46| V/LINE ANNUAL REPORT 2004-05

TABLE OF CONTENTS NOTES TO THE FINANCIAL STATEMENTSNote 1 Summary of significant accounting policies 48Note 2 Revenues 52Note 3 Expenses and losses from ordinary activities 52Note 4 Income Tax 53Note 5 Cash assets 53Note 6 Receivables 54Note 7 Inventories 54Note 8 Other assets 54Note 9 Investments 54Note 10 Property, plant and equipment 55Note 11 Payables 57Note 12 Provisions 57Note 13 Equity and movements in equity 57Note 14 Financial instruments 58Note 15 Controlled Entities 60Note 16 Minister and accountable officers 60Note 17 Remuneration of executives 61Note 18 Remuneration of directors 62Note 19 Remuneration of auditors 62Note 20 Disclosures - directors 62Note 21 Related party disclosures 63Note 22 Contingent liabilities and contingent assets 64Note 23 Commitments for expenditure 64Note 24 Employee benefits and superannuation commitments 65Note 25 Events occurring after reporting date 65Note 26 Segment information 65Note 27Reconciliation of result from ordinary activities to net cashinflow from operating activities 66Note 28 Economic dependency 66Note 29 Dividends 66Note 30 Adoption of International Financial Reporting Standards 67V/LINE ANNUAL REPORT 2004-05|47

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Basis of AccountingThis general purpose financial report of the Corporation has been prepared in accordance with the Financial Management Act 1994,Australian Accounting Standards, Statements of Accounting Concepts and other authoritative pronouncements of the AustralianAccounting Standards Board, and Urgent Issues Group Consensus Views. The financial report has been prepared using the historicalcost convention, except where stated otherwise.The financial report has been prepared on a going concern basis. Refer to note 1(c) for further discussion.The Corporation through V/Line Passenger Pty Ltd took over the train service operations of Hoys Roadlines Pty Ltd on July 1, 2004 andtook over the train service operations of The Victorian Railway Company Pty Ltd (trading as West Coast Railway) on September 1, 2004.(b) Not for profitThe Directors are of the view that the consolidated entity qualifies as a not for profit entity since the primary obligation is the delivery ofpublic transportation services to regional Victoria. The Franchise Agreement with the Director of Public Transport determines the servicesthat are run and the payments received for those services which are budgeted to achieve a break even EBITDA result or a small loss.Neither the Corporation mission nor corporate strategy includes the achievement of profit as one of the consolidated entity's goals. Assuch, it has been deemed to be a not for profit entity and accordingly complies with accounting standards set for not for profit entities.(c) Going ConcernThis financial report has been prepared on a going concern basis. The consolidated entity is subsidised by its ultimate parent entity, theState Government of Victoria, pursuant to the Franchise Agreement with the Director of Public Transport.The funding requirements for the year ending 30 June 2006 have been agreed under an approved budget allocation. The FranchiseAgreement contains provisions for the funding requirements to be met by the State Government of Victoria throughout the franchiseperiod.The Director of Public Transport has also agreed that, while the consolidated entity is under state ownership, the Department ofInfrastructure will meet all of the consolidated entity's employee entitlements as and when those amounts fall due in the event theconsolidated entity is not able to meet these financial obligations. The Director of Public Transport has further assured that any paymentsmade by the Department of Infrastructure in relation to employee entitlements will not require reimbursement by the consolidated entity.The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts, nor tothe amounts and classification of liabilities that might be necessary should the consolidated entity not continue as a going concern.Refer to Note 28 for further details of the consolidated entity's Economic Dependency on the State Government of Victoria.(d) Prior year comparativesThe Corporation came into inception on 15 July 2003. Furthermore, on 1 October 2003, it purchased V/Line Passenger Pty Ltd for $1and commenced operations. As a result the comparative numbers for 2004 are for 11.5 months rather than a full year.(e) Revenue RecognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliablymeasured.Government subsidies are recognised when they are controlled by the consolidated entity, which is generally upon receipt of the subsidy.Fare-box Revenue (or Ticket Sales) is recognised on an accrual basis. Sales of tickets that relate to passenger trips to be taken after thereporting date are not recognised as income but as Payables.(f) CashFor the purpose of the Statement of Cash Flows, cash includes cash on hand and in banks.(g) Trade receivablesTrade receivables represent passenger and inter-operator revenues receivable and are carried at nominal amounts due less any provisionfor doubtful debts. A provision for doubtful debts is recognised when collection of the full amount is no longer probable. For tradereceivables normal terms are 30 days and 7 days for agency accounts.(h) Receivables - related partiesReceivables from related parties are recognised and carried at the nominal amount due. There is no interest charged on related partyreceivables.48| V/LINE ANNUAL REPORT 2004-05

NOTES TO THE FINANCIAL STATEMENTS(i) InventoriesInventory consists of fuel used in rolling stock. It is valued at the monthly average cost.(j) Revaluations of non-current assetsRolling stock is measured at fair value and all other non-current assets are measured at cost.Revaluations are made with sufficient regularity to ensure that the carrying amount of each asset does not differ materially from its fairvalue at the reporting date.Revaluations are assessed annually and supplemented by independent assessments, at least every three-years. Revaluations areconducted in accordance with the Victorian Government Policy - FRD 6A Application of Victorian Government Policy “Revaluation ofNon-Current Physical Assets”.(k) Investment in SubsidiariesInvestment in subsidiaries are carried at fair value. Where these investments exceed the net asset position of the subsidiary, the carryingvalue is written down to the net asset position.(l) Cost and valuation of property, plant and equipmentValuation of Rolling StockIn the prior year, V/Line Passenger Pty. Ltd revised its accounting policy in relation to the valuation of rolling stock. The prior yearvaluation was performed by rolling stock specialists and reviewed by a qualified valuer. Although valuation of assets is typically based onthe net recoverable value as per AASB 1010, the company has used depreciable replacement cost as a valuation basis. This valuation isin keeping with FRD 6A, which clarifies that a net recoverable test does not apply to a not-for-profit entity, since there is no dependenceon its assets abilities to generate net cash inflows, consequently the carrying amount should reflect the remaining ability to provideservices.(m) Depreciation of property, plant and equipmentDepreciation is provided on a straight-line basis on all plant and equipment, including rolling stock. It is calculated at rates to allocate thecost less estimated residual value at the end of the useful lives of the assets against revenue over the shorter of the estimated usefullives, or alternatively the remaining lives of the relevant asset to the consolidated entity.Rolling stock comprises locomotives, carriages, diesel multiple units (known as Sprinters) and vans. Any refurbishments or conversionsare depreciated over the remaining life of the original asset.Major depreciation periods are (unchanged from 2004):Leasehold improvementsPlant and equipmentRolling Stock(including components)(n) Leasehold improvements3 to 10 years3 to 10 years2 to 40 yearsThe cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated useful life ofthe improvement to the consolidated entity whichever is the shorter. Leasehold improvements held at the reporting date are beingamortised over 3 to 10 years (2004 - 3 to 10 years).(o) Leased non-current assetsLeases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as toreflect the risks and benefits incidental to ownership where appropriate.Operating LeasesThe minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits ofownership of the leased item, are recognised as an expense on a straight-line basis.Operating lease payments are charged to the statement of financial performance in the periods in which they are incurred, as thisrepresents the pattern of benefits derived from the leased assets.V/LINE ANNUAL REPORT 2004-05|49

Lease IncentivesIncentives received on entering into operating leases are recognised as liabilities. The incentive of the lease is amortised over theremaining life of the lease.(p) Trade and other payablesLiabilities for trade creditors and other amounts are carried at cost, which is the fair value of the consideration to be paid in the future forgoods and services received, whether or not billed to the consolidated entity.The majority of payments are settled at the end of the month following the month of the invoice date.(q) Related party payablesPayables to related parties are carried at the principal amount. No interest is charged by the lender.(r) Maintenance and repairsRepairs and maintenance work on rolling stock are scheduled in accordance with V/Line's Rolling Stock Management Plan and the RailSafety Management Standards. Scheduled maintenance examinations on rolling stock are determined at set intervals depending on thetype of rolling stock.The Refurbishment program included in the Rolling Stock Management plan includes major examinations and overhauls of rolling stock.The consolidated entity treats these examinations as significant upgrades, which extend the useful life of the rolling stock. Included in theRefurbishment program is the replacement of major units such as traction and locomotive motors, generators, wheel sets and bogies.These items are capitalised and amortised over their useful life.All other maintenance examinations and minor work are treated as repairs and maintenance and expensed to the profit and loss whenincurred.(s) Goods and Services TaxRevenues, expenses and assets are recognised net of GST except where the amount of GST incurred is not recoverable, in which caseit is recognised as part of the cost of acquisition of an asset or part of an item of expense. The net amount of GST recoverable from, orpayable to, the Australian Taxation Office (ATO) is included as part of receivables or payables in the statement of financial position.(t) National Tax Equivalent Regime (NTER)By direction of the Treasurer of Victoria, under the State Owned Enterprise Act 1992, the consolidated entity entered into the NTER on 1October 2003. Any NTER expense payable is calculated on operating profit or loss adjusted for permanent and timing differencesbetween NTER income and accounting income.Tax-effect accounting is applied using the liability method whereby income tax is regarded as an expense and is calculated on theaccounting profit after allowing for permanent differences.To the extent timing difference occur between the time items are recognised in the financial statements and when items are taken intoaccount in determining taxable income, the net related taxation benefit or liability, calculated at current rates, is disclosed as a futureincome tax benefit or a provision for deferred income tax. The net future income tax benefit relating to tax losses and timing differencesis not carried forward as an asset unless the benefit is virtually certain of being realised.Future income tax benefits arising from tax losses are not brought to account at balance date, as realisation of the benefit is notregarded as virtually certain.(u) Employee benefitsProvision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. Thesebenefits include annual leave and long service leave.Per AASB 1028, liabilities arising in respect of wages and salaries, annual leave, sick leave and any other employee benefits expected tobe settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which areexpected to be paid when the liability is settled including related on-costs.All other employee benefit liabilities are measured at the present value of the estimated future cash outflows to be made in respect ofservices provided by employees up to the reporting date.In determining the present value of future cash outflows, the interest rates attaching to government guaranteed securities are used,which have terms to maturity approximating the terms of the related liability.50| V/LINE ANNUAL REPORT 2004-05

NOTES TO THE FINANCIAL STATEMENTSThe determination of the current and non-current portion of the employee benefits liabilities is based upon management's expectationand analysis of when employees are likely to take leave.Employee benefit expenses and revenues arising in respect of the following categories:• wages and salaries, annual leave, long service leave, sick leave and other leave benefits• other types of employee benefitsare charged against profits in their respective categories.The contributions made to superannuation funds by the consolidated entity are charged against profits when due.(v) Rounding of amountsAmounts in the financial report have been rounded to the nearest thousand dollars, or in other cases, to the nearest dollar.(w) Principles of ConsolidationThe consolidated financial statements incorporate the assets and liabilities of all entities controlled by V/Line Passenger Corporation(Parent entity) as at 30 June 2005 and the results of all controlled entities for the year then ended. V/Line Passenger Corporation and itscontrolled entities together are referred to in this financial report as the Consolidated entity. The effects of all transactions between entitieswithin the Consolidated entity are eliminated in full.Where control of an entity is obtained during a financial year, its results are included in the consolidated statement of financialperformance from the date on which control commences. Where control of an entity ceases during a financial year its results areincluded for that part of the year during which control existed.V/LINE ANNUAL REPORT 2004-05|51

CONSOLIDATED PARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSNOTE 2 REVENUESRevenue by sourceRevenue from Operating activitiesFare-box revenue 47,611 35,008 - -Inter-operator income 2,100 3,997 - -Government subsidy 155,538 84,411 - -Other income 1,416 2,232 - -Total revenue from Operating activities 206,665 125,648 - -Revenue from Non-Operating activitiesGain on purchase of investment (a) - 136,769 - 136,769Interest-other persons/corporations 544 244 - -Other non-operating income 7,681 877 - -Total revenue from Non-Operating activities 8,225 137,890 - 136,769Total revenue 214,890 263,538 - 136,769(a) Significant itemThe gain on purchase of the investment in V/Line Passenger Pty Ltd in 2004 resulted from acquiring net assets of $137 million including the fair valueof rolling stock of $168 million. The consideration paid for the net assets by the consolidated entity was $1. In accordance with Acquisition of Assets(AAS 21) this was a non-reciprocal transfer. As a result, it was appropriate to recognise this gain as revenue in the statement of financial performance,rather than treating it as a discount on acquisition and applying it proportionately against the non-monetary assets as per Accounting for Goodwill (AAS 18)NOTE 3 EXPENSES AND LOSSES FROM ORDINARY ACTIVITIESEmployee benefitsSalaries and wages 49,756 30,970 - -Superannuation 4,644 2,690 - -Annual leave and long service leave expense 2,376 2,467 - -Other on-costs (fringe benefits tax, payroll tax and work cover levy) 5,327 3,730 - -Total employee benefits 62,103 39,857 - -Depreciation of non-current assetsPlant and equipment 843 989 - -Leasehold improvements 100 25 - -Rolling stock 11,996 10,713 - -Rolling stock - capitalised improvements 3,208 2,284 - -Total depreciation 16,147 14,011 - -Other charges against assetsBad and doubtful debts - trade debtors (63) 64 - -Total rental expense relating to operating leases 48,164 28,949 - -Provision for diminution of investment - - 650 10,697

NOTES TO THE FINANCIAL STATEMENTSCONSOLIDATEDPARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSNOTE 4INCOME TAXThe prima facie tax on operating profit differs from the income taxprovided in the financial statements as follows: (195) 37,841 (195) 37,821Tax effect of permanent differences– Depreciation of rolling stock 1,681 48 - -– Unrealised gain on purchase of investment - (41,031) - (41,031)– Other 1 1 - -Total income tax expense on operating activities after permanent differences 1,487 (3,141) (195) (3,210)Restatement of opening tax balances - (9,037) - -Losses not recognised (147) 4,770 (195) 3,210Future Income Tax Benefit (FITB) not recognised (1,340) 7,408 195 -Total income tax expense attributable to operating activities - - - -Unbooked deferred tax assets and liabilitiesFITB arising to offset future assessable income has not been broughtto account at balance date, as realisation of the benefit is uncertain.Prima facie FITB - non-current - 9,388 - 3,210Provision for Deferred income tax - non-current - (1,980) - -Income tax expense effect on FITB (7,408) - (3,210)FITB - non-current - - - -Tax loss detailsFuture income tax benefit arising from current year tax losses not brought to accountat balance date as realisation of the benefit is not regarded as virtually certain. (147) 4,770 (195) 3,210This future income tax benefit will only be obtained if:• Future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised• The conditions for deductibility imposed by tax legislation continue to be compiled with• No changes in tax legislation adversely affect the entity realising the benefitNOTE 5CASH ASSETSCash balance comprises:Cash at bank 2,516 2,241 - -Cash on hand 66 65 - -The above figures are reconciled to cash at the end of the financial year asshown in the statement of cash flows as follows:2,582 2,306 - -Balances as above 2,582 2,306 - -Balances per statement of cash flows 2,582 2,306 - -V/LINE ANNUAL REPORT 2004-05|53

CONSOLIDATED PARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSNOTE 6 RECEIVABLESTrade debtors 6,512 4,250 - -Less: Provision for doubtful debts (185) (248) - -6,327 4002 - -Fuel rebate receivables 841 1,461 - -Insurance Refund - 936 - -Other receivables 1,258 662 - -8,426 7,061 - -Related party receivableTrade debtors include the following receivables from related partiesDepartment of Infrastructure receivables 4,593 380 - -Other related parties 418 170 - -5,011 550 - -(a) Terms and conditionsTerms and conditions relating to the above financial instruments:I. Credit sales are on 30 day termsII. Details of the terms and conditions of related parties.Receivables are set out in Note 21 - Related PartyNOTE 7 INVENTORIESDiesel Fuel 85 62 - -NOTE 8 OTHER ASSETSPrepayments 365 186 - -NOTE 9 INVESTMENTSUnlisted shares in the following companiesName Country of Percentageincorporation of equityinterest heldin entityV/Line Passenger Pty. Ltd. Australia 100% - - 136,769 136,769Provision for diminution - - (11,653) (10,697)- - 125,116 126,072Victorian Railway Heritage Operation Pty. Ltd. Australia 100% - - - -

NOTES TO THE FINANCIAL STATEMENTSCONSOLIDATEDPARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSNOTE 9 INVESTMENTS (CONTINUED)On 1 October 2003, the Corporation purchased one ordinary share in V/Line Passenger Pty Ltd (subject to Deed of Company Arrangement) for $1.This represents 100% of the company's issued and paid up capital.The Corporation has consolidated the V/Line Passenger Pty. Ltd. investment as it has control.On 7 July 2004, to give effect to a Direction by the Director of Public Transport pursuant to section 4.3 of the Franchise Agreement, Victorian RailHeritage Operations Pty. Limited (VRHO) was registered. V/Line Passenger Pty. Limited has 100% ownership of VRHO. The principal activities of VRHOare the provision of labour requirements to operate a Passenger Train Network in accordance with the requirements of Division 3, Part VI of the TransportAct. The labour requirement enables the operation of three Heritage Train Operator Incorporated bodies.NOTE 10 PROPERTY, PLANT AND EQUIPMENTPlant and equipmentAt cost 9,300 8,895 - -Provision for depreciation (6,972) (6,136) - -2,328 2,759 - -Rolling stockAt cost 503 108 - -Provision for depreciation (30) (5) - -473 103 - -Rolling stockAt independent valuation - 1 October 2003 167,743 167,743 - -Provision for depreciation (22,720) (10,708) - -145,023 157,035 - -Leasehold improvementsAt cost 1,041 301 - -Provision for amortisation (158) (58) - -883 243 -Rolling stock - capital improvementsCost 20,300 7,770 - -Provision for depreciation (5,491) (2,284) - -14,809 5,486 - -Capital works in progress 8,508 2,273 - -Total property, plant and equipment net book value 172,024 167,899 - -V/LINE ANNUAL REPORT 2004-05|55

CONSOLIDATED PARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSNOTE 10 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)ReconciliationsReconciliations of the carrying amount of property, plant and equipment are set out below:Plant and EquipmentOpening written down value 2,759 2,885 - -Additions 444 140 - -Disposals (32) - - -Transfers from work in progress - 723 - -Depreciation expense (843) (989) - -2,328 2,759 - -Leasehold improvementsOpening written down value 243 267 - -Additions 740 - - -Depreciation expense (100) (24) - -883 243 - -Rolling stockOpening written down value 157,138 167,743 - -Additions 354 108 - -Depreciation expense (11,996) (10,713) - -145,496 157,138 - -Capital works in progressOpening written down value 2,273 1,048 - -Additions 6,234 1,961 - -Transfers to property, plant and equipment - (723) - -Write off of fixed assets - (13) -8,507 2,273 - -Rolling Stock Capital ImprovementsOpening Written Down Value 5,486 - - -Additions 12,531 7,770 - -Depreciation expense (3,208) (2,284) - -14,809 5,486 - -

NOTES TO THE FINANCIAL STATEMENTSCONSOLIDATEDPARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSNOTE 11 PAYABLESTrade creditors 3,778 3,166 - -Accruals 15,356 13,792 - -Deferred income 492 518 - -Other creditors 3,462 2,858 - -23,088 20,334 - -Total payables include the following related party payables:Entities in the wholly owned group 1,433 3,116 - -Other related parties 1,744 130 - -3,177 3,246 - -NOTE 12 PROVISIONSa) CurrentEmployee benefits 7,310 6,967 - -Other provisions 1,270 1,415 - -8,580 8,382 - -b) Non-currentEmployee benefits (note 24) 26,327 22,661 - -c) Movement in Other ProvisionsOpening balance as at 1 July 2004 1,415 2,677 - -Additional provisions made 79 500 - -Transfer to accruals - (193) - -Settlement of provisions (223) (1,570) - -Closing balance 30 June 2005. 1,271 1.415 - -NOTE 13 EQUITY AND MOVEMENTS IN EQUITYa) Accumulated profitsBalance at the beginning of the period 126,137 - 126,072 -Net profit/(Loss) (650) 126,137 (955) 126,072Balance at the end of the year 125,487 126,137 125,117 126,072V/LINE ANNUAL REPORT 2004-05|57

NOTE 14a) Interest rate riskFINANCIAL INSTRUMENTSThe consolidated entity's exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities at the balance date are asfollows:2005 Fixed interest rate maturing in:Financial Instruments Floating 1 year Over 1 to 5 More than Non-interest Weightedinterest rate or less years 5 years bearing averageeffectiveinterest rateI. Financial assets30 June 30 June 30 June2005 2005 2005Cash 2,582 - - - - 5.22%Trade and other receivables - - - - 8,426 -II. Financial liabilitiesTrade and other creditors - - - - 23,089 -2004 Fixed interest rate maturing in:Financial Instruments Floating 1 year Over 1 to 5 More than Non-interest Weightedinterest rate or less years 5 years bearing averageeffectiveinterest rateIII. Financial assets30 June 30 June 30 June2004 2004 2004Cash 2,306 - - - - 5.18%Trade and other receivables - - - - 7,052 -IV. Financial liabilitiesTrade and other creditors - - - - 20,334 -All other financial assets and financial liabilities, both recognised and unrecognised, are non-interest bearing.b) Net fair valuesThe carrying amounts of financial assets and financial liabilities, both recognised and unrecognised, at balance date, approximate their fair values.The aggregate net fair values of financial assets and liabilities, both recognised and unrecognised, at the balance date, are equal to their carrying amountas per the statement of financial position.58| V/LINE ANNUAL REPORT 2004-05

NOTES TO THE FINANCIAL STATEMENTSNOTE 14FINANCIAL INSTRUMENTS (CONTINUED)30 June 2005 30 June 2004$000 $000Financial AssetsCash assets 2,582 2,306Receivables 8,426 7,05211,008 9,358Financial LiabilitiesPayables 23,089 20,334Interest bearing liabilities - -Net Financial Assets (12,081) (10,976)The following methods and assumptions are used to determine the net fair values of financial assets and liabilities.Recognised financial instrumentsCash and cash equivalents: The carrying amount approximates fair value because of their short-term to maturity.Trade Receivables and payables: The carrying amount approximates fair value.c) Credit risk exposuresThe Company's maximum exposures to credit risk at balance date in relation to each class of recognised financial asset is the carrying amount of thoseassets as indicated in the statement of financial position.Concentrations of credit riskThe main exposure to credit risk arises as it operates in the public transport field and relies on the credit worthiness of the State Government of Victoria.Other credit risk in trade receivables is managed in the following ways:• Enforcing disclosed payment terms• Debt collection policies and proceduresThe maximum credit risk exposure does not take into account the value of any collateral or other security held, in the event other entities/parties fail toperform their obligations under the financial instruments in question.V/LINE ANNUAL REPORT 2004-05|59

CONSOLIDATED PARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSNOTE 15 CONTROLLED ENTITIESIn 2005 V/Line Corporation made no purchases of another entity. In 2004 V/Line Corporation purchased100% of the shares of V/Line Passenger Pty. Ltdfor $1. Details of the acquisition are as follows.ConsiderationCash acquired - 3,743 - -Inflow of cash - 3,743 - -Fair value of net assets of entity acquired:Property, plant and equipment - 170,891 - -Cash asset - 3,743 - -Inventories - 44 - -Trade receivables - 3,835 - -Other receivables - 6,314 - -Prepayments - 2,154 - -Payables - (19,855) - -Employee provisions - (27,883) - -Other provisions - (2,474) - -Total net assets acquired - 136,769 - -Consideration (paid cash $1) - - -Gain on purchase - 136,769 - -The following entities are controlled by V/Line Passenger Corporation as at 30 June 2005:• V/Line Passenger Pty. Ltd.• Victorian Railway Heritage Operations Pty. Ltd.NOTE 16 MINISTERS AND ACCOUNTABLE OFFICERSIn accordance with the Ministerial Directions issued by the Minister for Finance under the Financial Management Act 1994, the following disclosures aremade regarding responsible persons for the reporting period.The names of persons who were Responsible Persons of the Consolidated entity at any time during the financial year were:Responsible Minister:The Hon. Peter Bachelor MLA, Minister for TransportDirectors of the Board:Mr Frank A. TaitDr Meredith A. DoigMr Colin M. NicolMs Catherine L. ScottMr Andrew L. Neal (resigned 11 April 2005)Accountable Officer:Mr Andrew L. Neal (resigned 5 April 2005)Mr Rob Barnett (appointed 6 April 2005)

NOTES TO THE FINANCIAL STATEMENTSNOTE 17REMUNERATION OF EXECUTIVESThe number of executive officers, other than the Accountable Officer, and their total and base remuneration during the reporting period are shown in thetable below in their relevant income bands. Base remuneration is exclusive of bonus payments, long-service leave payments, redundancy payments,retirement benefits and fringe benefits tax.Income Band Total Total Base Base(Annualised) Remuneration Remuneration Remuneration Remuneration2005 2004 2005 2004No. No. No. No.12 Months 11.5 Months 12 Months 11.5 Months$100,000 - $109,999 5 - 7 -$110,000 - $119,999 2 5 2 5$120,000 - $129,999 1 4 3 4$130,000 - $139,999 4 1 2 1$140,000 - $149,999 2 1 2 1$150,000 - $159,999 1 1 - 2$160,000 - $169,999 1 4 - 3$170,000 - $179,999 1 - 1 -$180,000 - $189,999 - - 3 -$190,000 - $199,999 - - - -$200,000 - $209,999 1 - - -$210,000 - $219,999 2 - - -$220,000 - $229,999 1 - - -Total numbers 21 16 20 16Total Actual amount $3,043,119 $599,014 $2,641,096 $564,353In the prior year, the executive remuneration table denoting the income bands contains the annualised remuneration amounts, whereas the total amountreflects the amounts paid since acquisition of the V/Line business.V/LINE ANNUAL REPORT 2004-05|61

CONSOLIDATED PARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSNOTE 18 REMUNERATION OF DIRECTORSIncome paid or payable, or otherwise made available in respect of the period,to all directors (including the Accountable Officer) of the Company,directly or indirectly, from the entity or any related party: $450 $258 - -The number of directors or the parent entity whose 2005 annualised income(including superannuation contribution) falls within thefollowing bands is:$10,000 - $19,999 - 3 - -$20,000 - $29,999 3 1 - -$40,000 - $49,999 1 - - -$100,000 - $109,999 1 - - -$220,000 - $229,999 - 1 - -$230,000 - $239,999 1 - - -The Accountable Officer changed in April 2005 with the resignation 6 5 - -of Director & Accountable Officer Andrew L. Neal and the appointmentof Rob Barnett. Mr Rob Barnett is the Accountable OfficerNOTE 19 REMUNERATION OF AUDITORSAudit fees paid or payable to the Victorian Auditor-General's Office for auditof the consolidated entity's financial reports:Payable as at year end 56 55 10 10NOTE 20 DISCLOSURES - DIRECTORSa) The directors of the parent entity during the year ending 30 June 2005:Frank A. Tait (Appointed 15 July 2003)Meredith A. Doig (Appointed 15 July 2003)Colin M. Nicol (Appointed 1 October 2003)Andrew L. Neal (Appointed 15 July 2003, resigned 11 April 2005)Catherine L. Scott (Appointed 23 September 2003)

NOTES TO THE FINANCIAL STATEMENTSNOTE 21RELATED PARTY DISCLOSURESI. Wholly-owned group transactionsRelated Party Nature of Transactions Terms and Conditions Consolidated 2005 Consolidated 2004Payments to related party (for period entity related)Victorian Rail Services Pty Ltd Provision of information The Company was charged - $2,222,282technology services and services on a cost basis onlyrental of premises .Victorian Rail Track Corporation Provision of communication Normal commercial terms $2,177,173 $767,130servicesand conditionsSpencer Street Station Authority Rental payments Normal commercial terms $863,641 $1,263,980and conditionsDepartment of Infrastructure Miscellaneous payments In accordance with the $10,564,416 $38,593made under the franchise franchise agreement and theagreement and the new new Franchise AgreementFranchise AgreementReceipts from related party (for period entity related)Spencer Street Station Authority Reimbursement of site Normal commercial terms $748,005 $671,912allowances and other and conditionschargesDepartment of Infrastructure Provides funding to the In accordance with the new $164,623,811 $97,136,836Company franchise agreement and (a)as required since1 October 2003Victorian Rail Track Corporation Management Fee for In accordance with $95,672 -rent collectionagreement(a) This represents the funding received from the Department of Infrastructure and is GST inclusive.The parent company did not have any related party transactions within the wholly-owned group in 2005 and 2004.II. Other related party transactionsDeloitteFrom 23 December 2002 until 14 July 2003, Simon A Wallace-Smith & Robert W Whitton (“Deloitte”) of Deloitte Touche Tohmatsu was the appointedAdministrators of V/Line Passenger Pty Ltd prior to the acquisition of the company by the parent entity. On 14 July 2003 a Deed of CompanyArrangement (“DOCA”) was entered into with creditors of V/Line Passenger Pty Ltd and from that date Deloitte ceased to be Administrators of theCompany and Simon A Wallace-Smith & Peter G Yates (“DTT”) also of Deloitte Touche Tohmatsu were appointed Administrators of the DOCA. Deloittecontinues to be a related party as V/Line Passenger Pty Ltd remains subject to the DOCA and will not be released from this arrangement until it issettled. In the role of DOCA Administrators, DTT corresponded with creditors to determine valid proof of debt claims. DTT will be paid out of the pool offunds available for distribution to the creditors.III. Transactions with the DirectorsRefer to Note 18 for details of Directors Remuneration for the year ending 30 June 2005.IV. Transactions with director-related entitiesAll directors named in this Annual Report are directors of V/Line Passenger Pty Ltd which forms part of the consolidated entity.V/LINE ANNUAL REPORT 2004-05|63

NOTE 22 CONTINGENT LIABILITIES AND CONTINGENT ASSETSAs a consequence of the Franchise Agreement, the Company has entered into a Deed of Amendment of Charge. All primary franchise assets will besubject to the fixed charge and all other assets to a floating charge in favour of the Director of Public Transport. The maximum prospective liabilitysecured by the Deed of Charge is one billion dollars.V/Line Passenger Pty Ltd has entered into an agreement for the supply and manufacture of new rolling stock. The agreement provides that the supplierprocure the issue of a Lessee's Refund Amount Letter of Credit (“LRLC”). The LRLC is currently with Dresdner Bank AG with a face value of $6.08million.V/Line has been notified of potential claims from Bombardier Transportation Pty Ltd (Bombardier) arising from delays to the testing and commissioning ofnew rolling stock. Bombardier has advised that it may seek to hold V/Line liable for costs of any delay. No legal proceedings are currently underway. Thelegal costs associated with resolution of this matter are estimated to be no more than $100,000.On January 25, 2003 bushfires occurred at or near Gisborne and Woodend in the Macedon Ranges. V/Line, along with a large range of other parties isan interested party in a coronial inquest due for hearing in November 2005. The legal costs associated with this inquiry are estimated to be no more than$150,000.V/Line has Rolling Stock Manufacture and Supply Agreements (the Agreements) with Bombardier for the provision of a number of new rolling stock units.Several units were delivered by Bombardier after the due dates as specified in the Agreements. Under the Franchise Agreement between the Director ofPublic Transport (the Director) and V/Line there is provision for the Director to, on a discretionary basis, apply liquidated damages in the event that unitsof rolling stock are not delivered by the due dates. Accordingly V/Line has recorded a contingent liability which has been estimated at $1.2 million.Under the Agreements there is provision that, in the event that liquidated damages are levied on V/Line by the Director pursuant to the FranchiseAgreement and, to the extent the cause of the late delivery of units is as a result of the breach of Agreements by Bombardier, then Bombardier is liable topay to V/Line an amount equal to the amount of liquidated damages payable by V/Line to the Director. Accordingly V/Line has recorded a contingentasset at balance date which has been estimated at $1.2 million.Prior to 30 June 2005 there had been a number of incidents involving rolling stock and motor vehicles at level crossings throughout Victoria. In all suchincidents the motor vehicle had been impacted by V/Line rolling stock and the motor vehicle was legally at fault for failing to observe either signals orsignage giving trains a right of way. As a result of these incidents damage has been sustained to V/Line rolling stock necessitating repairs as well as otheroperational costs incurred from the incidents in question. V/Line is pursuing the owners of the vehicles in question from these incidents (either in personor through their insurers) for the costs to V/Line of the repairs and other expenses incurred. On the basis of these anticipated potential recoveries anamount of $400,000 is reported as a contingent asset.On the 13 July 2005, V/Line's Chief Executive Officer wrote to the Director of Public Transport in relation to the significantly increased occupational healthand safety obligations on V/Line, and on its subsidiary company Victorian Rail Heritage Operations Pty Ltd, arising from the provisions of theOccupational Health and Safety Act 2004. Any liability that may arise in relation to these increased occupational health and safety obligations cannot bereliably quantified at this time.CONSOLIDATEDPARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSNOTE 23COMMITMENTS FOR EXPENDITUREContractual commitmentsCommitments for minimum contractual payments in relation to non-cancellableoperating commitments are payable as follows:Within one year 26,833 49,514 - -Later than one year but not later than 5 years 3,483 303,428 - -Later than 5 years 1,784 383,797 - -32,100 736,739 - -On June 28 2005 the Minister of Transport signed an allocation statement which transferred operating lease responsibility of the VLocity rolling stock toRolling Stock (Victoria - VL) Pty Ltd. These lease payments have therefore been excluded from the Contractual Commitments note as at 30 June 2005.64| V/LINE ANNUAL REPORT 2004-05

NOTES TO THE FINANCIAL STATEMENTSCONSOLIDATEDPARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSNOTE 24(a) Employee benefitsEMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTSThe aggregate employee benefit liability is comprised of:Accrued wages, salaries and on costs 1,403 1,059 - -Provisions (current) 7,310 6,968 - -Provisions (non-current) 26,327 22,661 - -(b) Superannuation commitments35,040 30,688 - -Prior to the original Franchise Agreement, the majority of the consolidated entity's staff were members of Government Superannuation funds that wereopen to members prior to the award of the original franchise in 1999 to the V/Line Passenger Pty Ltd.The State organised funds include the Revised Scheme, New Scheme and the Transport Superannuation Fund, which are all defined benefits schemes.These schemes are 'master funds' comprising a large number of participating companies and are, therefore, not controlled by the consolidated entity.With effect from 29 August 1999, employees were given the opportunity to remain in the State organised superannuation funds or to change to a privatesuperannuation fund. The private funds joined by employees of the consolidated entity since 29 August 1999 are VicSuper or Superannuation Trust ofAustralia. These funds are both accumulation funds.The consolidated entity has not recognised any unfunded superannuation liabilities as the State has guaranteed to undertake this liability from thecommencement of the original franchise in 1999. Any unfunded liabilities that may arise subsequent to the new franchise are calculated annually by theGovernment Superannuation Office and paid by V/Line at the end of the financial year.(c) Superannuation schemes contributions and liabilitiesA. VicSuper SchemeI. contributions for the year - 2005 $921,452 (2004: $433,000)II. contributions outstanding at year-end - 2005 Nil (2004: $47,000)III. contributions are made in accordance with the Commonwealth Superannuation Guarantee Legislation.B. Superannuation Trust AustraliaI. contributions for the year - 2005 $526,236 (2004: $460,000)II. contributions outstanding at year-end - 2005 Nil (2004: Nil)III. contributions are made in accordance with the actuarial calculations, as advised by the Government Superannuation OfficeC. Individual Employee SchemesI. Contributions for the year - 2005 $88,125 (2004: - $44,000).II. Contributions outstanding at year-end - Nil (2004: Nil)III. Contributions are made in accordance with the Commonwealth Superannuation Guarantee Legislation.NOTE 25EVENTS OCCURRING AFTER REPORTING DATEIn July 2004, V/Line was directed to take over operations for a range of heritage rail groups. Following the introduction of more stringent occupationalhealth and safety (OH&S) legislation in July 2005, V/Line has obtained the Director of Public Transport's consent to temporarily suspend operations (from11 August 2005 to 4 September 2005) while an assessment of its ability to comply with the new requirements is conducted. It is anticipated thatmodified OH&S procedures will be developed and implemented by 4 September 2005.NOTE 26SEGMENT INFORMATIONThe consolidated entity operates in the passenger transportation industry in Victoria only and therefore only operates in one segment. As a consequence,additional segment disclosure is not relevant.V/LINE ANNUAL REPORT 2004-05|65

CONSOLIDATED PARENT2005 $’000 2004 $’000 2005 $’000 2004 $’00012 MONTHS 11.5 MONTHS 12 MONTHS 11.5 MONTHSNOTE 27 RECONCILIATION OF RESULT FROM ORDINARY ACTIVITIES TO NET CASH INFLOW FROM OPERATING ACTIVITIESResults from ordinary activities (650) 126,137 (650) 126,072Government funding for asset purchases - - - -Depreciation and amortisation 16,147 14,011 - -Unrealised gain on purchase of investment - (136,769) - (136,769)Provision of diminution of investments - - 650 10,697Provision for doubtful debts (63) 64 - -Decrement in value of non-current assets - 13 - -Change in operating assets and liabilities - - - -Decrease in receivables (1,365) 3,087 - -(Increase) in inventories (23) (18) - -Decrease in other operating assets (179) 1,968 - -Increase in trade creditors 2,755 479 - -Increase in other provisions 3,864 687 - -Net cash inflow from operating activities 20,486 9,659 - -NOTE 28 ECONOMIC DEPENDENCYThe consolidated entity provides public transport services to rural and regional Victoria. The provision of these services is subsidised by the StateGovernment of Victoria. Without the provision of that subsidy the consolidated entity could not continue as a going concern. The subsidy requirementsfor the year ending 30 June 2006 have been approved by the State. The consolidated entity's three year Business Plan has also been approved,pursuant to the Franchise Agreement.NOTE 29 DIVIDENDSNo dividends were paid, declared or recommended during the period, or subsequent to the period end.

NOTES TO THE FINANCIAL STATEMENTSNOTE 30 ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDSFollowing the adoption of Australian equivalents to International Financial Reporting Standards (A-IFRS), the corporation will report for the first time incompliance with A-IFRS when results for the financial year ended 30 June 2006 are released.It should be noted that under A-IFRS, there are requirements that apply specifically to not-for-profit entities that are not consistent with IFRSrequirements. The corporation is established to achieve the objectives of government in providing services at prices significantly below their cost ofproduction for the collective consumption by the community, which is incompatible with generating profit as a principal objective. Consequently, whereappropriate, the corporation applies those paragraphs in accounting standards applicable to not-for-profit entities.An A-IFRS compliant financial report will comprise a new statement of changes in equity in addition to the three existing financial statements, which willall be renamed. The Statement of Financial Performance will be renamed as the Operating Statement, the Statement of Financial Position will revert to itsprevious title as the Balance Sheet and the Statement of Cash Flows will be simplified as the Cash Flow Statement. However, for the purpose ofdisclosing the impact of adopting A-IFRS in the 2004 05 financial report, which is prepared under existing accounting standards, existing titles andterminologies, will be retained.With certain exceptions, an entity that has adopted A-IFRS must record transactions that are reported in the financial report as though A-IFRS hadalways applied. This requirement also extends to any comparative information included within the financial report. Most accounting policy adjustments toapply A-IFRS retrospectively will be made against accumulated funds at the 1 July 2004 opening balance sheet date for the comparative period. Theexceptions include deferral until 1 July 2005 of the application and adjustments for:• AASB 132 Financial Instruments: Disclosure and Presentation;• AASB 139 Financial Instruments: Recognition and Measurement;The comparative information for transactions affected by these standards will be accounted for in accordance with existing accounting standards.V/Line has taken the following steps in managing the transition to A-IFRS and has achieved the following scheduled milestones:• established a steering committee to oversee the transition to and implementation of the A-IFRS;• established an A-IFRS project team to review the new accounting standards to identify key issues and the likely impacts resulting from the adoptionof A-IFRS and any relevant Financial Reporting Directions as issued by the Minister for Finance;• participated in an education and training process to raise awareness of the changes in reporting requirements and the processes to be undertaken;and• initiated reconfiguration and testing of user systems and processes to meet new requirements.This financial report has been prepared in accordance with current Australian accounting standards and other financial reporting requirements (AustralianGAAP). A number of differences between Australian GAAP and A-IFRS have been identified as potentially having a material impact on V/Line's financialposition and financial performance following the adoption of A-IFRS. The following tables outline the estimated significant impacts on the financialposition of V/Line as at 30 June 2005 and the likely impact on the current year result had the financial statements been prepared using A-IFRS.The estimates disclosed below are the corporation's best estimates of the significant quantitative impact of the changes as at the date of preparing the30 June 2005 financial report. The actual effects of transition to A-IFRS may differ from the estimates disclosed due to:a) change in facts and circumstances;b) ongoing work being undertaken by the A-IFRS project team;c) potential amendments to A-IFRS and Interpretations; andd) emerging accepted practice in the interpretation and application of A-IFRS and UIG Interpretations.V/LINE ANNUAL REPORT 2004-05|67

Table 1: Reconciliation of net result as presented under Australian GAAP and that under A-IFRSNoteYear ended 30 June 2005 ($'000)Net result as reported under Australian GAAP (650)Estimated A-IFRS impact on revenueRevenue itemsEstimated A-IFRS impact on expensesEmployee benefits (89)Total estimated A-IFRS impact on net result (89)Net result under A-IFRS (561)Table 2: Reconciliation of total assets and total liabilities as presented under Australian GAAP and that under A-IFRSNote30 June 2005 ($'000)Total assets under Australian GAAP 183,483Estimated A-IFRS impact on assetsInventoriesInventories held for distributionProperty, plant and equipmentIntangible assetsInvestment propertiesNon-current assets held for saleOther differences [describe]Total estimated A-IFRS impact on assetsTotal assets under A-IFRS 183,483Total liabilities under Australian GAAP 57,996Estimated A-IFRS impact on liabilitiesProvisions 89Total estimated A-IFRS impact on liabilities 89Total liabilities under A-IFRS 57,907Table 3: Reconciliation of equity as presented under Australian GAAP and that under A-IFRSNote30 June 2005 ($'000)Total equity under Australian GAAP 125,487Estimated A-IFRS impact on equityContributed capitalReservesAccumulated fundTotal estimated A-IFRS impact on equity -Total equity under A-IFRS 125,48768| V/LINE ANNUAL REPORT 2004-05

NOTES TO THE FINANCIAL STATEMENTS1. Impairment of assets. AASB 136 Impairment of Assets requires assets to be assessed for indicators of impairment each year. This standardapplies to all assets, other than inventories, financial assets and assets arising from construction contracts, regardless of whether they are measured ona cost or fair value basis. If indicators of impairment exist, the carrying value of an asset will need to be tested to ensure that the carrying value does notexceed its recoverable amount, which is the higher of its value-in-use and fair value less costs to sell. For not-for-profit entities, value-in-use of an assetis generally its depreciated replacement cost.An impairment test was conducted on transition date, 1 July 2004, which indicated no impairment loss. It is not practicable to determine the impact ofthe change in accounting policy for future financial reports, as any impairment or reversal thereof will be affected by future conditions.2. Property, plant and equipment. When an asset is initially recognised, AASB 116 Property, Plant and Equipment requires the capitalisation ofcosts of dismantling and removing an asset and restoring the site on which the asset was created, together with the recognition of a provision at presentvalue in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets. These assets (and the related provisions) are notrecognised under Australian GAAP and any expenditure would be expensed as it was incurred. It is the Company's view that, due to the nature of theassets held, expenditure on dismantling and removing assets and restoring the site is unlikely to be incurred. As a consequence, there is not expected tobe an increase in depreciation expense as a result of any increase in the carrying amounts of assets and also no interest expense will be incurred as thepresent value discount on the dismantling provision unwinds.The impact of this change is expected to result in no change to the carrying amounts of assets and no recognition of a provision as at 30 June 2005.Accordingly, depreciation expense and interest expense are not expected to change for the year ended 30 June 2005.3. Employee Benefits. Under existing Australian accounting standards, employee benefits such as wages and salaries, annual leave and sick leaveare required to be measured at their nominal amount regardless of whether they are expected to be settled within 12 months of the reporting date. Onadoption of A-IFRS, a distinction is made between short-term and long-term employee benefits and AASB 119 Employee Benefits requires liabilities forshort-term employee benefits to be measured at nominal amounts and liabilities for long-term employee benefits to be measured at present value. AASB119 defines short-term employee benefits as employee that fall due wholly within twelve months after the end of the period in which the employeesrender the related service. Therefore, liabilities for employee benefits such as wages and salaries, annual leave and sick leave are required to bemeasured at present value where they are not expected to be settled within 12 months of the reporting date.For the year ended 30 June 2005, employee benefits expense is expected to decrease by $89K as the present value discount on the liabilities for longtermemployee benefits unwinds.4. Deemed Cost of Rolling Stock. AASB 16 (paragraph 15) states that an item of property, plant and equipment that qualifies for recognition as anasset shall be measured as its cost. Since the true historical cost of rollingstock is not ascertainable, the company/corporation has made an election, inaccordance with AASB 1, to use the fair value of rollingstock at 1 July 2004 as the deemed cost at that date.5. Financial Instruments. V/Line has elected to apply the first-time adoption exemption available under AASB 1 First-time adoption of AustralianEquivalent to International Financial Reporting Standard to defer the date of transition of AASB 139 Financial Instruments: Recognition and Measurementuntil 1 July 2005. Accordingly, there will be no quantitative impacts on the financial positions as at 1 July 2004 and 30 June 2005 and the financialperformance for the year ended 30 June 2005V/LINE ANNUAL REPORT 2004-05|69

70| V/LINE ANNUAL REPORT 2004-05

AUDITOR GENERAL’S STATEMENTV/LINE ANNUAL REPORT 2004-05|71

DISCLOSURE INDEXThis annual report of V/Line Passenger Corporation is prepared in accordance with all relevant Victorian legislation.This index has been prepared to identify compliance with statutory disclosure requirements.LEGISLATION REQUIREMENT PAGEReport of OperationsCharter and purposeFRD 22 Manner of establishment and the relevant Ministers 37, 3FRD 22 Objectives, functions, powers and duties inside cover, 6FRD 22 Nature and range of services provided 10Management and structureFRD 22 Organisational structure 38Financial and other informationFRD 22 Statement of workforce data and merit and equity 31FRD 22 Summary of the financial results for the year 36FRD 22 Significant changes in financial position during the year 36FRD 22 Operational and budgetary objectives and performance against objectives 20, 36FRD 22 Major changes or factors affecting performance 6FRD 22 Subsequent events 65FRD 22 Application and operation of Freedom of Information Act 1982 40FRD 22 Compliance with building and maintenance provisions of Building Act 1993 40FRD 22 Statement on National Competition Policy 40FRD 22 Application and operation of the Whistleblowers Protection Act 2001 40FRD 22 Details of consultancies over $100,000 40FRD 22 Details of consultancies under $100,000 40FRD 22 Statement of availability of other information 40FRD 22 Occupational health and safety 27FRD15 Executive officer disclosures 61FRD 17 Inflation and discount rates for employee benefits 50FRD 25 Victorian Industry Participation Policy disclosures N/AFinancial StatementsFinancial statements required under Part 7 of the FMA (Financial Management Act)SD 4.2 (c) Compliance with Australian accounting standards and other authoritative pronouncements 48SD 4.2 (c) Compliance with Ministerial Directions 39SD 4.2 (d) Rounding of amounts 51SD 4.2 (c) Accountable officer’s declaration 42SD 4.2 (b) Statement of financial performance 43SD 4.2 (b) Statement of Financial Position 44SD 4.2 (b) Statement of cash flows during the year 45Other disclosures in notes to the financial statementsFRD 21 Responsible person and executive officer disclosures 60, 61FRD 23 Superannuation liabilities and disclosure 65FRD 28 Accounting and reporting pronouncements 4872| V/LINE ANNUAL REPORT 2004-05

CONTACT DETAILSV/LINE PASSENGER PTY LTDHEAD OFFICE/ADMINISTRATION(Subject to Deed of Company arrangement)ACN 087 425 269Level 23, 570 Bourke Street,Melbourne Vic 3000Telephone (03) 9619 5900Facsimile (03) 9619 5000www.vline.com.auCUSTOMER INFORMATION,RESERVATION, SALES Telephone 136 196CUSTOMER FEEDBACK Freecall 1800 800 120Design by Christine Knight and Associates. Principal photography by James Lauritz