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SBA Communications2010
ANNUAL REPORT
TPG Telecom Limited ABN 46 093 058 069
TPG Telecom Limited
and its controlled entities
ABN 46 093 058 069
Annual Report
31 July 2010
TPG Telecom Limited and its controlled entities
2
Annual Report
For the year ended 31 July 2010
Contents
• Chairman’s Report
• Directors’ Report
(including corporate governance statement and remuneration report)
• Consolidated Income Statement
• Consolidated Statement of Comprehensive Income
• Consolidated Statement of Financial Position
• Consolidated Statement of Changes in Equity
• Consolidated Statement of Cash Flows
•
• Notes to the Consolidated Financial Statements
• Directors’ declaration
•
• Lead auditor’s independence declaration
• ASX additional information
Independent auditor’s report
Index to notes to the Consolidated Financial Statements
Page
3
5
23
24
25
26
27
28
29
88
89
91
92
3
TPG Telecom Limited and its controlled entities
Chairman’s report
For the year ended 31 July 2010
Our Group has had another very good year of strong growth in profitability and customer acquisition resulting in
a customer base at September comprising 500,000 broadband subscribers, 245,000 mobile and fixed phone
subscribers and an important base of corporate government and wholesale customers.
Group FY10 earnings before interest, tax, depreciation
and amortisation (EBITDA) were $171.1m and net profit
after tax (NPAT) was $55.7m, representing increases of
42% and 216% respectively compared to the prior year.
These results, which incorporate 4.5 months’ post
acquisition contribution from the operations of PIPE
Networks (PIPE), include one-off charges for acquisition
costs relating to PIPE and other due diligence fees
incurred during the year totalling $5.7m.
Earnings per share (EPS) for the year of 7.6 cents
represent a 192% increase on the 2.6 cents per share
last year.
After adding back amortisation of intangibles of $44.6m
and adjusting for its associated tax effect of $13.4m,
adjusted NPAT is $86.9m. The Group generated free
cash of $92.5m (cash from operations less interest, tax
and capital expenditure), resulting in a cash EPS of
12.6 cents per share.
TPG has continued to lead the broadband consumer
marketplace in providing high speed services of
excellent value with the result today that Australian
internet users are increasingly expecting unlimited
broadband access. The Group added more than
100,000 net new broadband subscribers in the year,
with the 2nd half representing a record 6 months of on-
net growth of over 54,000 subscribers. This was
supported strongly by TPG’s broadband and home
phone bundle offering with 22,000 active home phone
subscribers being added since launch in April 2010
through to September 2010.
Pipe Networks
In March 2010 we also made a strategic acquisition in Pipe Networks which provides the Group with additional
infrastructure both in Australia and internationally. Pipe currently owns over 1,500km of domestic fibre optic cable
covering key strategic IT infrastructure locations and the current utilisation of this network at 32% allows for
significant growth. The PPC-1 submarine fibre optic cable system has a current maximum capacity of 2.56Tbps
and travels ~6,900km in length to connect Sydney into Guam and provides onward reach to the USA, Japan and
Asia. This significant asset is already in use by a number of our customers and importantly is providing TPG with
its own capacity to meet the ever-growing demand for world-wide connectivity of internet, voice and data.
4
TPG Telecom Limited and its controlled entities
Chairman’s report (continued)
For the year ended 31 July 2010
PIPE’s domestic backhaul and metropolitan fibre when combined with TPG’s data and voice services is presenting
excellent corporate revenue and margin growth opportunities for the Group. In the period since its acquisition by
the Group PIPE’s domestic business has also continued to grow very strongly in its own right.
Cash Flow
The Group’s excellent cash generation has continued with net cash inflow from operations before interest, tax and
capex during the year of $189.1m, $18.0m in excess of its EBITDA result.
The capital expenditure incurred by the Group for the year of $68.2m includes the final instalment payments for
the construction of the PPC-1 submarine cable to Guam.
The Group established a new $360m syndicated debt facility during the year. $354m was initially drawn down, the
funds being used to finance, together with cash raised through a share placement, the acquisition of PIPE, and to
pay back TPG’s and PIPE’s existing debt facilities totalling $98m. By 31 July $22m of the new facility had also
been repaid such that the total debt balance at year end was $332m. $28m of the debt facility remains available
for drawdown, and the Group will commence making permanent repayments against the facility of $20m per
quarter from October 2010.
Final Dividend
The directors have declared a fully franked final dividend of 2.0 cents per share, payable on 17 November 2010 to
shareholders on the register at 20 October 2010, bringing total FY10 dividends to 4.0 cents. For the final dividend,
the directors again invite shareholders to reinvest in the Company through its DRP (Dividend Reinvestment Plan)
for which the discount will be 2.5%.
David Teoh
Executive Chairman
14 October 2010
5
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2010
The directors present their report together with the financial report of TPG Telecom Limited (‘the Company’) and of
the Group, being the Company and its controlled entities, for the financial year ended 31 July 2010 and the
auditor’s report thereon.
Contents of directors’ report
Page
1.
2.
3.
4.
5.
Directors
Company Secretary
Directors’ meetings
Company and subsidiary name change
Corporate governance statement
Principle 1 - Lay solid foundations and oversight
Principle 2 - Structure the Board to add value
Principle 3 - Promote ethical and responsible decision-making
Principle 4 - Safeguarding integrity in financial reporting
Principle 5 - Make timely and balanced disclosure
Principle 6 - Respect the rights of shareholders
Principle 7 - Recognise and manage risk
Principle 8 - Remunerate fairly and responsibly
Remuneration report – audited
Principles of compensation – audited
Directors’ and executive officers’ remuneration – audited
Equity instruments – audited
Shares, options and rights over equity instruments granted as compensation –
audited
Modification of terms of equity-settled share-based payment transactions –
audited
Exercise of options granted as compensation – audited
Principal activities
Operating and financial review
Dividends
Events subsequent to reporting date
Likely developments
Directors’ interests
Share options
Indemnification and insurance of officers and auditors
Non-audit services
Lead auditor’s independence declaration
Rounding off
5.1
5.1.1
5.1.2
5.1.3
5.1.3.1
5.1.3.2
5.1.3.3
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
6
7
7
7
7
7
8
9
10
11
11
11
12
12
12
14
17
17
18
18
19
19
19
19
19
20
20
20
21
22
22
6
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
1. Directors
Details of the directors of the Company who held office at any time during or since the end of the financial
year are as follows:
Name, qualifications
and independence
status
Current Directors
David Teoh
Chairman
Executive Director
Chief Executive Officer
Robert D Millner
Non-Executive Director
F.A.I.C.D.
Denis Ledbury
Independent
Non-Executive Director
B.Bus.
A.I.C.D.
Alan J Latimer
Executive Director
B.Com
CA
G.A.I.C.D
Joseph Pang
Independent
Non-Executive Director
FCA
Age
Experience, special responsibilities and other directorships
55
59
60
56
57
David was the founder and Managing Director of the TPG group of
companies, one of the largest privately owned internet businesses in
Australia.
TPG Telecom Ltd (2008-current).
TPG Telecom Ltd (2000-current), Washington H Soul Pattinson and
Company Ltd (1984-current), New Hope Corporation Ltd (1995-current),
Souls Private Equity Ltd (2004-current), Brickworks Ltd (1997-current),
Brickworks Investment Company Ltd (2003-current), Australian
Pharmaceutical Industries Ltd (2000-current), Milton Corporation Ltd (1998-
current), Choiseul Investments Ltd (1995-current).
Former Chairman, resigned position in 2008. Member of Audit & Risk
Committee.
Denis was the Managing Director of TPG Telecom between 2000 and 2005,
and was associated with the NBN group of companies for over 24 years (the
last 14 as Chief Executive Officer).
TPG Telecom Ltd (2000-current).
Chairman of Audit & Risk, and Remuneration Committees.
Prior to becoming an Executive Director of TPG Telecom Alan was the Chief
Financial Officer of the TPG group of companies. He has also previously
worked with a number of large international IT and financial companies.
TPG Telecom Ltd (2008-current), Chariot Ltd (2007-2008).
Member of Remuneration Committee.
Joseph has worked in financial roles in the UK, Canada and Hong Kong
prior to starting his own Management and Financial Consulting Service in
Australia.
TPG Telecom Ltd (2008-current).
Member of Audit & Risk, and Remuneration Committees.
7
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
2.
Company secretary
Mr Stephen Banfield was appointed Company Secretary on 24 October 2007. Mr Banfield holds a
BA(Hons) degree and is a member of the Institute of Chartered Accountants in England and Wales.
3.
Directors’ meetings
The number of directors’ meetings held during the financial year (including meetings of committees of
directors) and the number of meetings attended by each of the directors of the Company were as follows:
Director
Board Meetings
Audit & Risk Committee
Meetings
Remuneration Committee
Meetings
D Teoh
RD Millner
D Ledbury
AJ Latimer
J Pang
A
19
18
19
19
18
B
19
19
19
19
19
A
-
2
2
-
2
B
-
2
2
-
2
A
-
-
2
2
2
B
-
-
2
2
2
A – Number of meetings attended.
B – Number of meetings held during the time the director held office during the year.
4.
Company and subsidiary name change
During the financial year, following approval from shareholders at the November 2009 AGM, the Company
changed its name from SP Telemedia Limited to TPG Telecom Limited.
Also during the year, following its acquisition by the Company, the subsidiary company formerly known as
PIPE Networks Limited, changed its name to PIPE Networks Pty Ltd.
5. Corporate governance statement
The Board of TPG Telecom Limited (‘the Company’) determines the most appropriate corporate
governance arrangements having regard to the best interests of the Company and its shareholders, and
consistent with its responsibilities to other stakeholders.
This statement outlines the Company’s main corporate governance practices, which comply with the
Australian Securities Exchange (“ASX”) Corporate Governance Principles and Recommendations (“ASX
Recommendations”), unless otherwise stated.
Principle 1
Lay solid foundations for management and oversight
The Board’s primary role is the protection and enhancement of long-term shareholder value.To fulfil this
role the Board is responsible for the overall corporate governance of the Group including formulating its
strategic direction, setting remuneration, appointing, removing and creating succession policies for directors
and senior executives, establishing and monitoring the achievement of management’s goals, ensuring the
integrity of risk management, internal control, legal compliance and management information systems, and
approving and monitoring capital expenditure.
8
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
5. Corporate governance statement (continued)
Principle 1
Lay solid foundations for management and oversight (continued)
The Board delegates to senior management responsibility for the implementation of the strategic direction
of the Company.
The Board Charter, which defines the functions reserved for the Board as is required by ASX
Recommendation 1.1., can be found on the Company’s website at http://www.tpg.com.au under Investor
Relations.
The performance of the executive directors is reviewed by the non-executive directors on the Board. The
performance of other senior executives is reviewed by the Chief Executive Officer (ASX Recommendations
1.2 and 1.3).
Principle 2
Structure the Board to add value
The Board considers that the number of directors and the composition of the Board are important for the
success of the Company.
The Board considers that the appropriate number of directors in the current circumstances is five, with three
being non-executive directors including two independent.
Details of the experience and background of all directors are also set out in full on page 6 of this Annual
Report.
Independence of directors
The Board believes that maximum value for shareholders is best served with the current Board
composition. The Board currently comprises five directors, two of whom are independent.
The executive directors are David Teoh and Alan Latimer. The Board is of the view that the benefit of the
depth of experience and understanding that both directors have of the industry in which the Company
operates, outweighs the requirement for independent non-executive directors.
Robert Millner, a non-executive director, is not independent as he is a director of a major shareholder,
Washington H Soul Pattinson and Company Limited. Robert has specific historical, financial and business
knowledge of the Company, the benefit of which in the opinion of the Board, outweighs the requirement for
independence at this time.
The Board is of the view that another non-executive director, Denis Ledbury, is independent, even though
he was Managing Director of the Company until his retirement on 1 August 2005, due to the changes in the
operations and senior management of the Company that have occurred since his retirement. These
changes mean that Denis is free from interests and influences that could present a potential conflict of
interest.
The Board believes that each director brings an independent mind and judgement to bear on all Board
decisions, notwithstanding that the Chairman and a majority of the Board are not independent (which is not
in line with ASX Recommendation 2.1). All directors are able to and do review and challenge the
assumptions and performance of management to ensure decisions taken are in the best interest of the
Company.
9
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
5. Corporate governance statement (continued)
Principle 2
Structure the Board to add value (continued)
Chairman of the Board
The Chairman is an executive director and Chief Executive Officer of the Company. Nevertheless, the
Board believes that David Teoh, in this dual role, does bring the quality and independent judgement to all
relevant issues that are required of the Chairman and, as Chief Executive Officer, he consults the Board on
matters that are sensitive, extraordinary or of a strategic nature.
Nominations Committee
The Board acts as a Nominations Committee and as such has responsibility for the selection and
appointment of directors, undertaking evaluation of the Board’s performance and developing and
implementing a plan for identifying, assessing and enhancing directors’ competencies (ASX
Recommendation 2.4).
The process for evaluating the performance of the Board, its committees and individual directors involves
the Chairman conducting individual interviews with each of the directors at which time they are able to
make any comment or raise issues they have in relation to the Board’s operations (ASX Recommendation
2.5).
Access to Company information and independent professional advice
Directors may request additional information as and when they consider it appropriate or necessary to
discharge their obligation as a director of the Company. This includes access to internal senior executives
or external advisors as and when appropriate. A director must consult the Chairman first before accessing
external independent advice and provide a copy of the advice received to other members of the Board
(ASX Recommendation 2.6).
Principle 3
Promote ethical and responsible decision-making
The Company is committed to maintaining the highest standards in dealing with all of its stakeholders, both
internally and externally. The Company has adopted a written Code of Conduct to assist directors and staff
in understanding their responsibilities to ensure the Company conducts its business in accordance with all
applicable laws and regulations and in a way that enhances the Company’s reputation (ASX
Recommendation 3.1 and 3.3). The Code of Conduct is also reflected in internal policies and procedures
which reinforce the Company’s commitment to complying with all applicable laws and regulations.
A copy of the Code of Conduct can be found on the Company’s website at http://www.tpg.com.au under
Investor Relations (ASX Recommendation 3.3).
Policy regarding trading in securities
The Company has established a written Securities Trading Policy which identifies the principles by which
the Company balances the investment interests of directors, senior executives and employees with the
requirements for ensuring such trades only take place when all information relevant to making such
investment decisions is fully disclosed to the market (ASX Recommendation 3.2).
Directors and senior executives are only permitted to deal in Company shares during a six week period
following the release of the Company’s half-year and annual results to the ASX, the annual general meeting
or any major announcement. Notwithstanding this, the Board may in certain circumstances permit dealings
during other periods.
10
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
5. Corporate governance statement (continued)
Principle 3
Promote ethical and responsible decision-making (continued)
The acquisition of shares or options acquired pursuant to an employee share or option plan and the
acquisition of securities through exercising rights to securities or through conversion of convertible
securities is specifically excluded from this policy. This exclusion applies only to the acquisition, exercise or
conversion of securities. Subsequent dealing in the underlying securities is restricted as outlined in the
policy.
Directors must notify the Company Secretary in writing of all transactions in accordance with the
requirements of Sections 205F and 205G of the Corporations Act 2002. The Company will notify the ASX
of the details of any transaction, on behalf of the directors.
A copy of the Securities Trading Policy can be found on the Company’s website at http://www.tpg.com.au
under Investor Relations (ASX Recommendation 3.3).
Principle 4
Safeguarding integrity in financial reporting
The Board has responsibility for ensuring the integrity of the financial statements and related notes and that
the financial statements provide a true and fair view of the Company’s financial position. To assist the
Board in fulfilling this responsibility, the Board has established an Audit & Risk Committee which has the
responsibility for providing assurance that the financial statements and related notes are complete, are in
accordance with the applicable accounting standards, and provide a true and fair view.
Audit & Risk Committee
The Audit & Risk Committee is comprised of three non-executive directors, two of whom are independent,
and is chaired by Mr Denis Ledbury. Details of all members of the Audit & Risk Committee during the year
and their qualifications are set out on page 6 of this Annual Report (ASX Recommendation 4.1, 4.2 & 4.4).
The Board has adopted a formal charter which details the function and responsibility of the Audit & Risk
Committee to ensure the integrity of the financial statements and independence of the external auditor
(ASX Recommendation 4.3). A copy of the charter can be found on the Company’s website at
http://www.tpg.com.au under Investor Relations.
The Audit & Risk Committee’s responsibilities include ensuring the integrity of the financial reporting
process, the risk management system, internal reporting and controls, management of strategic and major
financial and operational risks and the external audit process, based on sound principles of accountability,
transparency and responsibility.
The external auditors, other directors, the Chief Executive Officer and the Chief Financial Officer are invited
to Audit & Risk Committee meetings at the discretion of the Committee. The Committee meets at least
twice a year. It met twice during the year and Committee members’ attendance record is disclosed in the
table of directors’ meetings on page 7 of this Annual Report (ASX Recommendation 4.4).
Auditor selection and appointment
The Audit & Risk Committee will annually review the audit process including assessment of auditor
independence. Any non-audit work requires the prior approval of the Committee, which approval will only
be given where it can be established that it will not compromise the independence of the audit.
11
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
5. Corporate governance statement (continued)
Principle 5
Make timely and balanced disclosure
Continuous disclosure
The Company believes that shareholders and the wider business community should be informed of all
material information concerning the Company in a timely and accurate manner.
Accordingly, the Company has established a Continuous Disclosure Policy to ensure that the share market
is properly informed of matters that may have a material impact on the price at which the Company’s
securities are traded. This policy is designed to ensure compliance with the ASX Listing Rules Chapter 3
(ASX Recommendation 5.1 and 5.2).
A copy of the Continuous Disclosure Policy can be found on the Company’s website at
http://www.tpg.com.au under Investor Relations.
Principle 6
Respect the rights of shareholders
The Board aims to ensure that shareholders are informed of all major developments affecting the
Company.
The Company posts its annual report and major announcements on its website under the investor section
(http://www.tpg.com.au) and provides a link via the website to the ASX website so that all ASX releases can
be accessed (ASX Recommendation 6.1.).
Historical information is also available to shareholders on the Company’s website including prior years’
Annual Reports.
Shareholders are encouraged to participate at general meetings, either in person or by proxy, and are
specifically offered the opportunity of receiving communications via email (ASX Recommendation 6.1 and
6.2).
Principle 7
Recognise and manage risk
The Company has in place strategies and controls in relation to management of financial risk which include
identifying and measuring financial risk, developing strategies to minimise the identified risks and
monitoring implementation.
The Chief Executive Officer and the Chief Financial Officer are required to provide assurance to the Board
as to the contents of the annual financial statements including compliance with accounting standards, that
they are founded on a sound system of financial risk management, and that the accounts represent a true
and fair view of the Company’s financial position (ASX Recommendation 7.3).
The Company has established a business risk framework based on AS/NZS 4360:2004 to ensure
management, control and oversight of the major business risks of the Company. The framework takes into
account various risks including operational, financial, compliance, technical, and strategic risks and
provides a means of evaluation and reporting on the management of risk. As part of this process a risk
management committee has been established to ensure oversight of the Company’s business risk and to
report to the Audit & Risk Committee on the effectiveness of the risk management controls (ASX
Recommendation 7.1, 7.2 & 7.4).
12
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
5. Corporate governance statement (continued)
Principle 8
Remunerate fairly and responsibly
The Remuneration Committee reviews and makes recommendations to the Board on remuneration
packages and policies applicable to executives and directors.
The Remuneration Committee comprises three directors, two of whom are independent non-executive
directors. The Committee meets at least twice a year and as required. It met twice during the year and
Committee members’ attendance record is disclosed in the table of directors’ meetings on page 7 of this
Annual Report.
Non-executive directors’ fees may not exceed $500,000 per annum, as voted upon by shareholders at the
2004 AGM. In addition, non-executive directors will not be entitled to a retirement benefit, nor are any
directors entitled to participate in share or option plans except with the approval of shareholders.
For further information, refer to the Remuneration Report below (ASX Recommendation 8.2 & 8.3).
5.1
Remuneration report – audited
5.1.1 Principles of compensation
Remuneration is referred to as compensation throughout this report.
Key management personnel have authority and responsibility for planning, directing and controlling the
activities of the Company and the Group, including those of directors of the Company and other executives.
Key management personnel comprise the directors of the Company and executives for the Company and the
Group including the five most highly remunerated Company and Group executives.
Compensation levels for key management personnel of the Group are designed to attract and retain
appropriately qualified and experienced directors and executives. The Remuneration Committee considers the
appropriateness of compensation packages given trends in comparative companies and the objectives of the
Group’s compensation strategy.
The compensation structures explained below are designed to attract suitably qualified candidates, reward the
achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders.
The compensation structures take into account:
•
•
•
•
the capability and experience of the key management personnel
the key management personnel’s ability to affect the Group’s performance
the Group’s performance
the amount of incentives within each key management person's compensation.
Compensation packages include a mix of fixed and variable compensation and short-term and long-term
performance-based incentives.
In addition to their salaries, the Group may also provide non-cash benefits to its key management personnel.
13
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
5.1
Remuneration report – audited (continued)
5.1.1 Principles of compensation (continued)
Fixed compensation
Fixed compensation consists of base compensation (which is calculated on a total cost basis and includes any
FBT charges related to employee benefits including motor vehicles), as well as employer contributions to
superannuation funds.
Compensation levels are reviewed annually by the Remuneration Committee through a process that considers
individual performance and overall performance of the Group.
Performance-linked compensation
a) Former incentive plans
A former incentive plan which was terminated during 2008 included a long-term component under which shares
allocated to certain employees vested at 20% per annum at the end of each of the five years following
allocation, provided the employee continued to be employed by the Group. At 31 July 2010 certain key
management personnel still had unvested shares under this former incentive plan, as set out below in 5.1.3.1.
b) Current incentive plans
(i)
Long-term
On 27 February 2009, the Company announced a pool of 13.5 million share options with an exercise price of
$0.18 per share, based on the 60 day Volume Weighted Average Share Price (“VWAP”) at that date of $0.16
per share.
On 7 July 2009, the Board approved the terms of a new Employee Share Option Plan under which these
options would be granted to employees.
On 8 July 2009, 10.875 million of these share options were granted to employees (including certain key
management personnel). The allocation of the options was approved by the Remuneration Committee.
All options granted on that date were immediately exercisable with a latest exercise date of 30 June 2010.
Following approval from shareholders at the November 2009 AGM, 1 million share options were granted to
each of the two executive directors under the same terms as the options granted to other employees in July
2009 described above.
In July 2010, 30,000 shares in the Company were granted to a new member of the key management personnel.
(ii) Short-term
Certain short-term cash bonuses were also paid during the year, including to certain key management
personnel, to award individual performance. The awards to the executive directors were determined by the
Remuneration Committee, and the awards to executive officers and other staff were made at the discretion of
the Executive Chairman.
14
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
5.1
Remuneration report – audited (continued)
5.1.1 Principles of compensation (continued)
Link of Remuneration to Group Financial Performance
In determining the short-term incentive component of executives’ remuneration, consideration is given to the
Group’s performance, including against its financial targets. The Remuneration Committee believes that the
current remuneration structures are effective as evidenced by the Group’s strong profit growth since 2008. The
table below shows the Group’s Earnings per Share (EPS) for the last 5 years (excluding discontinued
operations).
EPS (cents)
Other benefits
2006
0.1
2007
1.7
2008
(3.9)
2009
2.6
2010
7.6
Key management personnel can also receive non-cash benefits as part of the terms and conditions of their
appointment. Non-cash benefits typically include motor vehicles, and the Group pays fringe benefits tax on
these benefits.
Service contracts
On 30 August 2010 the Group entered into a new employment contract with Mr D Teoh. The contract is not for
a fixed term, but provides that the contract may be terminated by either party giving three months notice.
On 17 March 2010 the Group entered into a service contract with Mr B Slattery. The contract was for an initial
term expiring on 31 March 2011. Mr Slattery resigned by mutual agreement with an effective date of 30
September 2010 and no termination benefits were payable under the contract.
no key management personnel employment contract has a fixed term; and
no key management personnel employment contract has a notice period of greater than 1 month.
Other than as noted above:
•
•
No key management personnel employment contract contains any provision for termination benefits other than
as required by law.
Non-executive directors
Total compensation for all non-executive directors, last voted upon by shareholders at the 2004 AGM, is not to
exceed $500,000 per annum. Non-executive directors do not receive performance related compensation.
Directors’ fees cover all main board activities and membership of committees.
5.1.2 Directors’ and executive officers’ remuneration
The key management personnel as at 31 July 2010 were:
Mr D Teoh
Mr A Latimer
Mr W Piestrzynski
Ms M De Ville
Mr S Banfield
Mr C Levy
Mr J Paine
Mr J Sinclair
Mr B Slattery
Executive Chairman & Chief Executive Officer
Executive Director, Finance & Corporate
Chief Operating Officer
Chief Information Officer
Chief Financial Officer
General Manager, Marketing & Consumer Sales
National Technical & Strategy Manager
Chief Operating Officer, PIPE Networks
Chief Executive Officer, PIPE Networks (resigned with effect from 30 Sept 2010)
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
Remuneration report – audited (continued)
5.1
5.1.2 Directors’ and executive officers’ remuneration (continued)
15
Details of the nature and amount of each major element of remuneration of each director of the Group, each of the five named Group executives and relevant Group executives who receive the
highest remuneration and other key management personnel are set out in the table below:
Directors
Executive Directors
Mr D Teoh, Chairman
Mr AJ Latimer
Non-executive Directors
Mr D Ledbury
Mr RD Millner
Mr J Pang
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
Short-term
Post-
employment
Share-based payments
Salary &
fees
$
STI cash
bonus
$(A)
Non-
monetary
benefits
$
Total
$
Superannuation
benefits
$
Other long
term
$
Termination
benefits
$
Options
$(B)
Shares
$(B)
Total
$
S300A (1)(e)(i)
Proportion of
remuneration
performance
related %
S300A
(1)(e)(vi)
Value of
options as
proportion of
remuneration
%
303,940
250,000
179,391
191,891
350,000
-
180,000
50,000
76,604
26,157
2,950
6,262
730,544
276,157
362,341
248,153
133,423
100,311
32,345
21,770
21,678
4,900
5,796
7,592
60,000
52,500
57,500
50,000
57,500
50,000
-
-
-
-
-
-
-
-
-
-
-
-
60,000
52,500
57,500
50,000
57,500
50,000
5,400
4,725
5,175
4,500
5,175
4,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,427,131
-
1,427,131
-
- 2,312,776
-
381,368
- 1,827,613
277,515
-
-
-
-
-
-
-
-
-
-
-
-
-
65,400
57,225
62,675
54,500
62,675
54,500
77%
-
88%
18%
-
-
-
-
-
-
62%
-
78%
-
-
-
-
-
-
-
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
5.1
5.1.2
Remuneration report – audited (continued)
Directors’ and executive officers’ remuneration (continued)
16
Short-term
Post-
employment
Share-based payments
Salary &
fees
$
STI cash
bonus
$(A)
Non-
monetary
benefits
$
Total
$
Superannuation
benefits
$
Other long
term
$
Termination
benefits
$
Options
$(B)
Shares
$(C)
Total
$
S300A
(1)(e)(i)
Proportion of
remuneration
performance
related %
S300A
(1)(e)(vi)
Value of
options as
proportion of
remuneration
%
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
228,581
241,081
211,009
211,009
165,000
165,000
165,000
165,000
154,577
154,577
67,257
-
123,379
-
143,014
140,770
130,000
20,000
-
-
85,000
-
85,000
30,000
120,000
30,000
50,000
-
91,743
-
49,695
77,932
2,405
6,614
1,623
2,434
3,023
3,791
-
4,125
503
1,225
2,936
-
38,687
-
(10,748)
10,748
360,986
267,695
212,632
213,443
253,023
168,791
250,000
199,125
275,081
185,802
120,193
-
253,809
-
181,961
229,450
32,272
23,498
18,991
18,991
22,500
14,850
22,500
17,550
24,703
16,603
10,553
-
19,361
-
16,934
19,682
4,298
4,298
3,515
3,515
2,748
2,748
2,748
2,748
2,846
2,645
-
-
5,625
-
(2,328)
2,328
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,192
-
-
204,840
-
20,484
-
102,420
-
102,420
-
143,388
-
-
-
-
-
30,726
-
-
2,707
2,707
8,472
8,472
7,666
7,666
-
-
53,022
-
-
-
-
-
397,556
500,331
237,845
259,140
286,743
297,281
282,914
329,509
302,630
348,438
183,768
-
278,795
-
216,759
282,186
33%
45%
1%
9%
33%
37%
33%
43%
40%
50%
56%
-
33%
-
23%
39%
-
41%
-
8%
-
34%
-
31%
-
41%
-
-
-
-
-
11%
Executives
Mr W Piestrzynski
Ms M De Ville
Mr S Banfield
Mr C Levy
Mr J Paine
Mr J Sinclair (employer subsidiary
acquired 17 March 2010)
Mr B Slattery (employer subsidiary
acquired 17 March 2010)
Mr S McCullough (ceased
employment 11 June 2010)
17
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
5.1
5.1.2
Remuneration report – audited (continued)
Directors’ and executive officers’ remuneration (continued)
Notes in relation to the table of directors’ and executive officers remuneration
A. The short-term incentive bonuses paid during the years ended 31 July 2010 and 31 July 2009 were for
performance during those years and were awarded at the discretion of the Remuneration Committee for the
executive directors, and at the discretion of the Executive Chairman for other executive officers. In the case of Mr
S McCullough his short-term incentive bonuses represent sales commission.
B. Certain executives received share options during the year ended 31 July 2009 as part of their remuneration under
the Employee Share Option Plan approved by the Board on 7 July 2009. The two executive directors received
share options under the same plan following approval by shareholders at the November 2009 AGM. The fair value
of the options was calculated using a Black Scholes model. All options were exerciseable immediately upon grant
and as a result the expense of the options allocated in July 2009 was recognised fully in the financial results for the
year ended 31 July 2009, and for the two executive directors granted options in November 2009, the related
expense was recognised fully in the financial results for the year ended 31 July 2010.
C. Certain executives received shares as part of their remuneration under the former incentive plans that ceased to
operate in 2008. The fair value of the shares was the market value of the shares purchased under the scheme for
the executive. The fair value is allocated to each reporting period evenly over the period from grant date to vesting
date subject to certain events which trigger vesting.
Mr J Sinclair was granted shares in the Company in July 2010 which vested immediately.
5.1.3
Equity instruments
5.1.3.1
Shares, options and rights over equity instruments granted as compensation
Details on options over ordinary shares in the Company that were granted as compensation to each key management
person during the reporting period and details on options that vested during the reporting period are as follows:
Number of
options
granted
during 2010
Fair value
per option
at grant
date ($)
Exercise
price per
option ($)
Grant date
Number of
options
vested
during 2010
Expiry date
Mr D Teoh
Mr AJ Latimer
1,000,000
1,000,000
25 Nov 2009
25 Nov 2009
$1.4271
$1.4271
$0.18
$0.18
30 June 2010
30 June 2010
1,000,000
1,000,000
The above options were provided at no cost to the recipients. No options have been granted since 31 July 2010.
18
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
5.1
Remuneration report – audited (continued)
5.1.3
5.1.3.1
Equity instruments (continued)
Shares, options and rights over equity instruments granted as compensation (continued)
Details on ordinary shares in the Company that were granted as compensation to each key management person during
the reporting period and details on the shares that vested during the reporting period are as follows:
(i) On 30 July 2010 30,000 ordinary shares in the Company were granted to Mr J Sinclair. The shares had a fair
value at date of grant of $1.7674 each and all vested immediately, with the related expense being fully recognised
in the financial results for the year ended 31 July 2010. Aside from this there were no other shares granted to key
management personnel during the years ending 31 July 2010 or 31 July 2009.
(ii) The shares in the table below were granted on 13 December 2007 under former incentive plans that ceased to
operate in 2008. The unvested shares will continue to vest in accordance with the rules described in 5.1.1(a).
Number of
unvested
shares as at
31 July 2009
Number of
shares
vested
during 2010
Number of
unvested
shares as at
31 July 2010
Fair value
per share at
grant date ($)
Mr S Banfield
Mr C Levy
Ms M De Ville
75,603
68,758
22,445
19,991
18,113
6,280
55,612
50,645
16,165
$0.42373
$0.42322
$0.43096
5.1.3.2 Modification of terms of equity-settled share-based payment transactions
No terms of equity-settled share-based payment transactions (including options and rights granted as compensation to
a key management person) have been altered or modified by the issuing entity during the reporting period or the prior
period.
5.1.3.3
Exercise of options granted as compensation
During the reporting period, the following shares were issued on the exercise of options previously granted as
compensation:
Executives
Mr V Piestrzynski
Mr J Paine
Mr C Levy
Mr S Banfield
Mr S McCullough
Executive Directors
Mr D Teoh
Mr AJ Latimer
Number of
shares issued
1,000,000
700,000
500,000
500,000
150,000
1,000,000
1,000,000
All outstanding options were exercised during the year ended 31 July 2010 such that there were none outstanding as at
31 July 2010.
19
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
6. Principal activities
During the financial year the principal activities of the Group continued to be the provision of consumer, wholesale and
corporate telecommunications services.
7. Operating and financial review
Commentary on the Group’s operating and financial performance is provided in the Chairman’s Report on pages 3 to 4.
8. Dividends
Dividends paid or declared by the Company to members since the end of the previous financial year were:
Cents per
share
Total amount
$’000
Franked/
unfranked
Date of payment
Declared and paid during the year 2009
Final 2009 ordinary
Interim 2010 ordinary
Total amount
1.0
2.0
7,118
15,220
Franked
Franked
18 Nov 2009
27 May 2010
22,338
Franked dividends declared as paid during the year were fully franked at the rate of 30 per cent.
Declared after end of year
After the balance sheet date the directors have declared a fully franked final FY10 dividend of 2.0 cents per ordinary
share, payable on 17 November 2010 to shareholders on the register at 20 October 2010.
The financial effect of this dividend has not been brought to account in the financial statements for the year ended 31
July 2010 and will be recognised in subsequent financial reports.
9.
Events subsequent to reporting date
There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction
or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the
operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.
10. Likely developments
Other than the matters discussed, there are no material likely developments for the Group at the date of this report.
20
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
11. Directors’ interests
The relevant interest of each director in the shares and options over such instruments issued by the companies
within the Group and other related bodies corporate, as notified by the directors to the Australian Stock
Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows:
Shares in
TPG Telecom
Limited
279,109,400
6,866,269
150,000
1,174,108
85,000
Mr D Teoh
Mr RD Millner
Mr D Ledbury
Mr AJ Latimer
Mr J Pang
12.
Share options
Options granted to directors and executives of the Group
During the financial year, following approval from shareholders at the November 2009 AGM, the Group granted
options over unissued ordinary shares in the Company to the following:
Mr D Teoh
Mr AJ Latimer
Number of options
granted
1,000,000
1,000,000
No options have been granted since the end of the financial year.
Unissued shares under options
At the date of this report there are no unissued ordinary shares of the Company under option.
Shares issued on exercise of options
During or since the end of the financial year, the Company issued 8,105,000 ordinary shares as a result of the
exercise of options (2009: 4,670,000). The amount paid for each of these shares was $0.18. There are no
amounts unpaid on the shares issued.
13.
Indemnification and insurance of officers and auditors
Indemnification
The Company has agreed to indemnify all directors and officers of the Company against all liabilities to another
person (other than the Company or a related body corporate) that may arise from their position as directors of
the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good
faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including
costs and expenses.
21
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
13.
Indemnification and insurance of officers and auditors (continued)
The Company has also agreed to indemnify all directors and officers of its controlled entities for all liabilities to
another person (other than the company or a related body corporate) that may arise from their position, except
where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the
Company will meet the full amount of any such liabilities, including costs and expenses.
Insurance premiums
Since the end of the previous financial year, the Group has paid insurance premiums of $42,755 in respect of
directors’ and officers’ liability insurance contracts, for current and former directors and officers, including senior
executives of the Company and directors, senior executives and secretaries of its controlled entities. The
insurance premiums relate to:
• costs and expenses that may be incurred by the relevant officers in defending proceedings, whether civil or
criminal and whatever their outcome; and
• other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of
duty or improper use of information or position to gain a personal advantage.
14. Non-audit services
During the year KPMG, the Company’s auditor, has performed certain other services in addition to their
statutory duties.
The Board has considered the non-audit services provided during the year by the auditor and is satisfied that
the provision of those non-audit services during the year by the auditor is compatible with, and did not
compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:
• all non-audit services were subject to the corporate governance procedures adopted by the Company and
•
have been reviewed by the Audit & Risk Committee to ensure they do not impact the integrity and
objectivity of the auditor; and
the non-audit services provided do not undermine the general principles relating to auditor independence as
set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or
auditing the auditor’s own work, acting in a management or decision making capacity for the Company,
acting as an advocate for the Company or jointly sharing risks and rewards.
Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-
audit services provided during the year are set out below. In addition, amounts paid to other auditors have been
disclosed:
Audit services:
Auditors of the Company:
Audit and review of financial reports (KPMG Australia)
Services other than statutory audit:
Other regulatory audit services:
Telecommunications USO return
Bank covenant compliance certificate
Other services:
Taxation advisory services
2010
$
2009
$
387,000
387,000
405,000
405,000
11,000
7,500
5,000
7,500
55,000
73,500
-
12,500
22
TPG Telecom Limited and its controlled entities
Directors’ report (continued)
For the year ended 31 July 2010
15.
Lead auditor’s independence declaration
The Lead auditor’s independence declaration is set out on page 91 and forms part of the directors’ report for
financial year ended 31 July 2010.
16.
Rounding off
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with
that Class Order, amounts in the financial report and directors’ report have been rounded off to the nearest
thousand dollars, unless otherwise stated.
This report is made with a resolution of the directors:
David Teoh
Chairman
Dated at Sydney this 14th day of October, 2010.
TPG Telecom Limited and its controlled entities
23
Consolidated Income Statement
For the year ended 31 July 2010
In thousands of AUD
Revenue
Telecommunications expense
Employee benefits expense
Other expenses
Earnings before interest, tax, depreciation and amortisation
(EBITDA)
Depreciation of plant and equipment
Amortisation of intangibles
Results from operating activities
Finance income
Finance expenses
Net financing costs
Profit before income tax
Income tax expense
Profit for the year
Attributable to:
Owners of the company
Profit for the year
Earnings per share:
Basic earnings per share (cents)
Diluted earnings per share (cents)
Note
2010
2009
508,224
481,169
(258,391)
(43,257)
(35,522)
171,054
(272,629)
(44,057)
(43,683)
120,800
(35,443)
(44,557)
(27,193)
(58,342)
91,054
35,265
1,861
(15,076)
(13,215)
1,342
(10,284)
(8,942)
77,839
26,323
8
20
21
10
11
(22,113)
(8,662)
55,726
17,661
55,726
55,726
17,661
17,661
12
12
7.6
7.6
2.6
2.5
The notes on pages 28 to 87 are an integral part of these consolidated financial statements.
TPG Telecom Limited and its controlled entities
24
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2010
In thousands of AUD
Profit for the period
Foreign exchange translation differences
Revaluation of investments, net of tax
Other comprehensive income, net of tax
2010
2009
55,726
17,661
73
110
207
-
183
207
Total comprehensive income
55,909
17,868
Total comprehensive income attributable to:
Owners of the company
Total comprehensive income
55,909
17,868
55,909
17,868
The notes on pages 28 to 87 are an integral part of these consolidated financial statements.
TPG Telecom Limited and its controlled entities
25
Consolidated Statement of Financial Position
As at 31 July 2010
In thousands of AUD
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Intangible assets
Investments
Current tax assets
Prepayments and other assets
Total Current Assets
Property, plant and equipment
Intangible assets
Prepayments and other assets
Total Non-Current Assets
Total Assets
Liabilities
Trade and other payables
Loans and borrowings
Current tax liabilities
Employee benefits
Provisions
Deferred income and other liabilities
Total Current Liabilities
Loans and borrowings
Deferred tax liabilities
Employee benefits
Provisions
Deferred income and other liabilities
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Share Capital
Reserves
Retained earnings/(Accumulated losses)
Total Equity
* Refer Note 37
Note
2010
Restated *
2009
13
14
15
21
17
18
16
20
21
16
22
23
18
24
25
26
23
19
24
25
26
27
17,112
23,302
446
382
9,890
116
5,997
57,245
17,179
30,282
705
7,315
-
55
6,983
62,519
312,671
588,103
1,096
901,870
959,115
84,903
76,595
29,961
3,629
2,000
33,494
230,582
245,884
8,978
621
6,117
21,496
283,096
513,678
135,408
330,985
993
467,386
529,905
75,997
8,535
9,486
3,066
936
25,371
123,391
58,429
12,688
537
2,193
7,869
81,716
205,107
445,437
324,798
473,735
(51,255)
22,957
389,747
(54,079)
(10,870)
445,437
324,798
The notes on pages 28 to 87 are an integral part of these consolidated financial statements.
TPG Telecom Limited and its controlled entities
Consolidated Statement of Changes in Equity
For the year ended 31 July 2010
Attributable to owners of the Company
In thousands of AUD
Share
capital
Note
Foreign
currency
translation
reserve
Share
option
reserve
Treasury
share
reserve
Minority
interest
Fair value Revaluation acquisition
reserve
reserve
reserve
26
Total
reserves
Retained
earnings
Total
equity
Balance as at 1 August 2008
384,693
(130)
-
Profit for the year
Foreign currency translation differences
Total comprehensive income for the period
Movement in share option reserve
Movement in treasury share reserve
Transfers between reserves
Acquisition of minority interest
Transaction costs
Dividends paid to shareholders
Total contributions by and distributions to owners
27
27
Balance as at 31 July 2009
Balance as at 1 August 2009
Profit for the year
Foreign currency translation differences
Net change in fair value of available-for-sale financial
assets, net of tax
Total comprehensive income for the period
Movement in share option reserve
Movement in treasury share reserve
Transfers between reserves
Issue of ordinary shares
Transaction costs, net of tax
Dividends paid to shareholders
Total contributions by and distributions to owners
-
-
-
-
-
-
-
(17)
5,071
5,054
389,747
389,747
-
-
-
207
207
-
-
-
-
-
-
-
77
77
-
73
-
-
-
2,227
-
-
-
-
-
2,227
2,227
2,227
-
-
(204)
-
-
-
-
(181)
-
-
-
-
(181)
(385)
(385)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
915
-
-
-
-
-
(476)
-
-
-
(476)
439
439
-
-
(56,459)
(55,878)
(22,165)
306,650
-
-
-
-
-
-
-
-
22
22
-
207
207
2,227
(181)
(476)
22
-
-
1,592
17,661
-
17,661
-
-
476
-
-
(6,842)
(6,366)
17,661
207
17,868
2,227
(181)
-
22
(17)
(1,771)
280
(56,437)
(54,079)
(10,870)
324,798
(56,437)
(54,079)
(10,870)
324,798
-
-
-
73
55,726
-
55,726
73
10 - -
73
-
-
-
-
-
-
68,485
(1,486)
16,989
83,988
27
27
27
-
-
-
-
-
-
-
-
2,852
-
-
-
-
-
2,852
5,079
110
110
-
-
-
-
-
-
-
- - 110 -
55,726
-
-
439
-
-
(22,338)
(21,899)
183
2,852
228
(439)
-
-
-
2,641
-
-
-
(439)
-
-
-
(439)
-
-
-
-
-
-
-
-
110
55,909
2,852
228
-
68,485
(1,486)
(5,349)
64,730
-
-
228
-
-
-
-
228
(157)
110
-
(56,437)
(51,255)
22,957
445,437
Balance as at 31 July 2010
473,735
150
The notes on pages 28 to 87 are an integral part of these consolidated financial statements.
TPG Telecom Limited and its controlled entities
27
Consolidated Statement of Cash Flows
For the year ended 31 July 2010
In thousands of AUD
Note
2010
2009
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
Acquisition of subsidiaries, net of cash acquired
Costs incurred on acquisition of subsidiaries
Proceeds from sale of investments
Dividends received
Security deposits paid
Net cash used in investing activities
Cash flows from financing activities
Issue of shares
Proceeds from exercise of share options
Transaction costs related to issue of shares
Transaction costs related to loans & borrowings
Payment of network capacity and finance lease liabilities
Proceeds from borrowings
Repayment of borrowings
Interest received
Interest paid
Restricted cash released
Dividends paid, net of Dividend Reinvestment Plan
Net cash from/(used in) financing activities
7
23
23
573,481
(384,403)
189,078
(16,768)
549,549
(396,723)
152,826
(19,104)
172,310
133,722
32
(68,203)
(371,034)
(2,961)
5,781
207
-
34
(23,040)
-
-
-
-
(348)
(436,178)
(23,354)
66,185
2,068
(2,145)
(11,467)
(8,268)
354,489
(119,989)
1,674
(13,249)
-
(5,349)
-
229
(17)
-
(13,510)
-
(83,375)
773
(9,920)
80
(1,771)
263,949
(107,511)
Net increase in cash and cash equivalents
81
2,857
Cash and cash equivalents at beginning of period
Effect of exchange rate fluctuations
13
17,179
(148)
14,053
269
Cash and cash equivalents at 31 July
13
17,112
17,179
The notes on pages 28 to 87 are an integral part of these consolidated financial statements.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
28
Index to notes to the consolidated financial statements
Page
Page
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Reporting entity
Basis of preparation
Significant accounting policies
Determination of fair values
Financial risk management
Segment reporting
Acquisitions of subsidiaries and
minority interests
Expenses
Auditors’ remuneration
Finance income and expenses
Income tax expense
Earnings per share
13. Cash and cash equivalents
14.
Trade and other receivables
15.
Inventories
16.
Prepayments and other assets
17.
Investments
18. Current tax assets and liabilities
19. Deferred tax assets and liabilities
29
29
30
44
45
48
51
53
53
54
55
56
57
57
57
57
58
58
59
20.
Property, plant and equipment
21.
Intangible assets
22.
Trade and other payables
23.
Loans and borrowings
24.
Employee benefits
25.
Provisions
26.
Deferred income and other liabilities
27.
Capital and reserves
28.
Financial instruments
29. Operating leases
30.
Capital and other commitments
31.
Contingencies
32.
Consolidated entities
33.
Reconciliation of cash flows from
operating activities
34.
Parent entity disclosures
35.
Related parties
36.
Subsequent events
37.
Revision to accounts
38.
Deed of cross guarantee
61
63
65
66
67
69
69
70
72
78
78
78
79
80
81
82
86
86
86
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
1.
Reporting entity
29
TPG Telecom Limited (the ‘Company’) is a company domiciled in Australia. The address of the
Company’s registered office is 65 Waterloo Road, North Ryde, NSW 2113. The consolidated financial
report as at, and for the year ended 31 July 2010 comprises the Company and its subsidiaries (together
referred to as the ‘Group’).
2.
Basis of preparation
(a) Statement of compliance
The financial report is a general purpose financial report which has been prepared in accordance with
Australian Accounting Standards (AASBs) (including Australian Interpretations) adopted by the Australian
Accounting Standards Board (AASB) and the Corporations Act 2001. The financial report complies with
International Financial Reporting Standards (IFRSs) and interpretations adopted by the International
Accounting Standards Board (IASB).
The financial statements were approved by the Board of Directors on 14 October 2010.
(b) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis with the exception
of assets and liabilities acquired through business combinations being measured at fair value. The
methods used to measure fair values are discussed further at note 4.
Notwithstanding the fact that the classifications within the 31 July 2010 consolidated balance sheet show
a net current liability position, the accounts have been prepared on a going concern basis as there are
reasonable grounds to believe that the Group will be able to pay its debts as and when they become due
and payable based on its Board approved cashflow projections, and also the undrawn debt facility
available to it (refer note 23).
(c) Functional and presentation currency
These consolidated financial statements are presented in Australian dollars, which is the functional
currency of the majority of the Group.
The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with
that Class Order, all financial information presented in Australian dollars has been rounded to the nearest
thousand unless otherwise stated.
(d) Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates. Estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation uncertainty and critical judgements in
applying accounting policies that have the most significant effect on the amount recognised in the
financial statements are described in the following notes:
•
•
•
•
note 7 – business combinations
note 19 – utilisation of tax losses
note 21 – measurement of the recoverable amounts of cash-generating units containing goodwill
note 28 – valuation of financial instruments.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
30
2.
Basis of preparation (continued)
(e) Changes in accounting policies
Starting as of 1 August 2009, the Group has changed its accounting policies in the following areas:
• Accounting for business combinations
• Accounting for acquisitions of non-controlling interests
• Accounting for borrowing costs
• Determination and presentation of operating segments
• Presentation of financial statements.
3.
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in
these consolidated financial statements and have been applied consistently by the Group.
Certain comparative amounts have been reclassified to conform with the current year presentation.
(a) Basis of consolidation
(i) Business combinations
Change in accounting policy
The Group has adopted revised AASB 3 Business Combinations (2008) and amended AASB 127
Consolidated and Separate Financial Statements (2008) for business combinations occurring in the
financial year starting 1 August 2009. All business combinations occurring on or after 1 August
2009 are accounted for by applying the acquisition method. The change in accounting policy is
applied prospectively and had no material impact on earnings per share.
The Group has applied the acquisition method for the business combination disclosed in note 7.
For every business combination, the Group identifies the acquirer, which is the combining entity that
obtains control of the other combining entities or businesses. Control is the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities. In assessing
control, the Group takes into consideration potential voting rights that currently are exercisable. The
acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in
determining the acquisition date and determining whether control is transferred from one party to
another.
Measuring goodwill
The Group measures goodwill as the fair value of the consideration transferred including the
recognised amount of any non-controlling interest in the acquiree, less the net recognised amount
(generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of
the acquisition date.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the
Group to the previous owners of the acquiree, and equity interests issued by the Group.
Consideration transferred also includes the fair value of any contingent consideration and share-
based payment awards of the acquiree that are replaced mandatorily in the business combination
(see below).
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
31
3.
Significant accounting policies (continued)
(a) Basis of consolidation (continued)
(i) Business combinations (continued)
Share-based payment awards
When share-based payment awards exchanged (replacement awards) for awards held by the
acquiree’s employees (acquiree’s awards) relate to past services, then a part of the market-based
measure of the awards replaced is included in the consideration transferred. If they require future
services, then the difference between the amount included in consideration transferred and the
market-based measure of the replacement awards is treated as post-combination compensation
cost.
Contingent liabilities
A contingent liability of the acquiree is assumed in a business combination only if such a liability
represents a present obligation and arises from a past event, and its fair value can be measured
reliably.
Non-controlling interest
The Group measures any non-controlling interest at its proportionate interest in the identifiable net
assets of the acquiree.
Transaction costs
Transaction costs that the Group incurs in connection with a business combination, such as legal
fees, due diligence fees, and other professional and consulting fees, are expensed as incurred
(ii) Accounting for acquisitions of non-controlling interests
The Group has adopted AASB 3 Business Combinations (2008) and AASB 127 Consolidated and
Separate Financial Statements (2008) for acquisitions of non-controlling interests occurring in the
financial year starting 1 August 2009. Under the new accounting policy, acquisitions of non-
controlling interests are accounted for as transactions with equity holders in their capacity as equity
holders and therefore no goodwill is recognised as a result of such transactions. Previously, an
equity reserve was recognised arising on the acquisition of a non-controlling interest in a subsidiary;
and that represented the difference between the cost of the additional investment over the carrying
amount of the interest in the net assets acquired at the date of exchange. The change in accounting
policy was applied prospectively and had no material impact on earnings per share.
(iii) Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power,
directly or indirectly, to govern the financial and operating policies of an entity so as to obtain
benefits from its activities. In assessing control, potential voting rights that presently are exercisable
or convertible are taken into account. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control
ceases.
The accounting policies of subsidiaries have been changed when necessary to align them with the
policies adopted by the Group.
(iv) Transactions eliminated on consolidation
Intra-group balances and any unrealised gains and losses or income and expenses arising from
intra-group transactions are eliminated in preparing the consolidated financial statements.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
3.
Significant accounting policies (continued)
32
(b) Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance
sheet date are translated to Australian dollars at the foreign exchange rate ruling at that date.
Foreign exchange differences arising on translation are recognised in the income statement. Non-
monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction. Non-monetary assets and
liabilities denominated in foreign currencies that are stated at fair value are translated to Australian
dollars at foreign exchange rates ruling at the dates the fair value was determined.
(c) Property, plant and equipment
(i) Owned assets
Items of property, plant and equipment are stated at cost or deemed cost less accumulated
depreciation and impairment losses (see accounting policy (h)). The cost of self-constructed assets
includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of
dismantling and removing the items and restoring the site on which they are located, and an
appropriate proportion of production overheads.
Where parts of an item of property, plant and equipment have different useful lives, they are
accounted for as separate items of property, plant and equipment.
(ii) Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership
are classified as finance leases.
(iii) Subsequent costs
The Group recognises in the carrying amount of an item of property, plant and equipment the cost of
replacing part of such an item when that cost is incurred, if it is probable that the future economic
benefits embodied within the item will flow to the Group and the cost of the item can be measured
reliably. All other costs are recognised in the income statement as an expense as incurred.
(iv) Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful
lives of each part of an item of property, plant and equipment.
The estimated useful lives in the current and comparative periods are as follows:
• Plant and equipment
Leasehold improvements
Leased assets
•
•
• Buildings
• Domestic fibre optic cable
•
International fibre optic cable
2.5 - 20 years
8 years
5 - 10 years
40 years
20 years
25 years
The residual value, the useful life and the depreciation method applied to an asset are reassessed at
least annually.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
33
3.
Significant accounting policies (continued)
Intangible assets
(d)
(i) Goodwill
Change in accounting policy
As from 1 August 2009, the Group has adopted the revised AASB 3 Business Combinations
(2008) and the amended AASB 127 Consolidated and Separate Financial Statements (2008).
Revised AASB 3 and amended AASB 127 have been applied prospectively to business
combinations with an acquisition date on or after 1 August 2009.
The change in accounting policy had no material impact on earnings per share. For details on
the initial recognition and measurement of goodwill related to business combinations that
occurred during the financial year ended 31 July 2010, see note 7.
Goodwill represents the difference between the cost of the acquisition and the fair value of the net
identifiable assets acquired. Goodwill is stated at cost less any accumulated impairment losses.
Goodwill is allocated to cash-generating units and tested annually for impairment (see accounting
policy (h)).
(ii) Capitalised subscriber costs
Capitalised subscriber costs comprising dealer connection commissions, fulfilment costs and sim-
cards are recognised as an asset and amortised using the straight line method from the date of
initial recognition over the period during which the future economic benefits are expected to be
obtained, being the contract period.
(iii) Acquired customer base
On acquisition of a subsidiary, customers of the acquired subsidiary are valued and brought to
account as intangible assets. The value given to the customers is the expected future economic
benefit expected to be derived from these customers.
(iv) Development costs
Operating costs incurred in developing or acquiring income producing assets are recognised as
an asset and amortised using the straight line method from the date of initial recognition over the
period during which the future economic benefits are expected to be obtained, being the contract
period.
(v) Trademark
On acquisition of a subsidiary, trademarks of the acquired subsidiary are valued and brought to
account as intangible assets. The valuation of a trademark is calculated using the Relief from
Royalty Method.
(vi)
Internally-generated software
On acquisition of a subsidiary, internally developed software and systems are valued and brought
to account as intangible assets. The software is valued at its depreciated replacement cost.
(vii)
Indefeasible right of use of capacity
Indefeasible rights of use of acquired capacity are brought to account as intangible assets at cost,
being the present value of the future cashflows payable for the right.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
34
3.
Significant accounting policies (continued)
(d)
Intangible assets (continued)
(viii) Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost less accumulated
amortisation (see below) and impairment losses (see accounting policy (h)).
Expenditure on internally generated goodwill and brands is recognised in the income statement as
an expense as incurred.
(ix) Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the
future economic benefits embodied in the specific asset to which it relates. All other expenditure is
expensed as incurred.
(x) Amortisation
Amortisation is charged to the income statement on a straight-line basis, unless stated otherwise,
over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and
intangible assets with an indefinite useful life are systematically tested for impairment at each
balance sheet date. Other intangible assets are amortised from the date they are available for
use. The estimated useful lives in the current and comparative periods are as follows:
• Goodwill
• Trademark
•
• Acquired customer bases
Indefeasible right of use (IRU) of capacity
•
Internally-generated software
• Capitalised subscriber costs
• Development costs
indefinite life
indefinite life
over the life of the IRU
amortised on a reducing balance basis in
line with the expected economic benefits
to be derived from the acquired customer
base
5 years
2 years
2 - 20 years
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
3.
Significant accounting policies (continued)
35
(e) Trade and other receivables
Trade and other receivables are stated at their amortised cost less impairment losses (see
accounting policy (h)).
(f)
Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the
estimated selling price in the ordinary course of business, less the estimated costs of completion
and selling expenses.
(g) Cash and cash equivalents
Cash and cash equivalents comprise cash balances, short term bills and call deposits. Bank
overdrafts that are repayable on demand and form an integral part of the Group’s cash
management are included as a component of cash and cash equivalents for the purpose of the
statement of cash flows.
(h)
Impairment
A financial asset is assessed at each reporting date to determine whether there is any objective
evidence that it is impaired. A financial asset is considered to be impaired if objective evidence
indicates that one or more events have had a negative effect on the estimated future cash flows of
that asset.
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax
assets, are reviewed at each reporting date to determine whether there is any indication of
impairment. If any such indication exists, the asset’s recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-
generating unit exceeds its recoverable amount. Impairment losses are recognised in the
income statement, unless an asset has previously been revalued, in which case the impairment
loss is recognised as a reversal to the extent of that previous revaluation with any excess
recognised through profit or loss.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce
the carrying amount of any goodwill allocated to cash-generating units (group of units) and then
to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
3.
Significant accounting policies (continued)
Impairment (continued)
(h)
(i) Calculation of recoverable amount
36
Impairment of receivables is not recognised until objective evidence is available that a loss event
has occurred. Significant receivables are individually assessed for impairment. Impairment
testing of significant receivables that are not assessed as impaired individually is performed by
placing them into portfolios of significant receivables with similar risk profiles and undertaking a
collective assessment of impairment. Non-significant receivables are not individually assessed.
Instead, impairment testing is performed by placing non-significant receivables in portfolios of
similar risk profiles, based on objective evidence from historical experience adjusted for any
effects of conditions existing at each balance sheet date.
The recoverable amount of other assets is the greater of their fair value less costs to sell and
value in use. In assessing value in use, the estimated future cash flows are discounted to their
present value using a discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset. For an asset that does not generate largely
independent cash inflows, the recoverable amount is determined for the cash-generating unit to
which the asset belongs.
(ii) Reversals of impairment
Impairment losses, other than in respect of goodwill, are reversed when there is an indication that
the impairment loss may no longer exist and there has been a change in the estimate used to
determine the recoverable amount.
An impairment loss in respect of goodwill is not reversed.
An impairment loss in respect of a receivable carried at amortised cost is reversed if the
subsequent increase in recoverable amount can be related objectively to an event occurring after
the impairment loss was recognised.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
3.
Significant accounting policies (continued)
37
Impairment (continued)
(h)
(iii) Derecognition of financial assets and liabilities
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar
financial assets) is derecognised when:
(cid:1)
(cid:1)
the rights to receive cash flows from the asset have expired
the Group retains the right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third party; or
the Group has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred
nor retained substantially all the risks and rewards of the asset, but has transferred control of
the asset.
(cid:1)
A financial liability is derecognised when the obligation under the liability is discharged, cancelled
or expired. When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such an
exchange or modification is treated as a derecognition of the original liability and the recognition
of a new liability. The difference in the respective carrying amounts is recognised in profit and
loss.
(i) Share capital
Transaction costs
Transaction costs of an equity transaction are accounted for as a deduction from equity, net of
any related income tax benefit.
(j)
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs.
Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with
any difference between cost and redemption value being recognised in the income statement
over the period of the borrowings on an effective interest basis.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
38
3.
Significant accounting policies (continued)
(k) Employee benefits
(i) Long-term service benefits
The Group’s net obligation in respect of long-term service is the amount of future benefit that employees
have earned in return for their service in the current and prior periods. The obligation is calculated using
expected future increases in wage and salary rates including related on-costs and expected settlement
dates, and is discounted using the rates attached to the Commonwealth Government bonds at the balance
sheet date which have maturity dates approximating to the terms of the Group’s obligations.
(ii) Wages, salaries, annual leave and non-monetary benefits
Liabilities for employee benefits for wages, salaries and annual leave that are expected to be settled within
12 months of the reporting date represent present obligations resulting from employees’ services provided
to reporting date and are calculated at undiscounted amounts based on remuneration wage and salary
rates that the Group expects to pay as at reporting date including related on-costs, such as workers
compensation insurance and payroll tax. Non-accumulating non-monetary benefits, such as medical care,
housing, cars and free or subsidised goods and services, are expensed based on the net marginal cost to
the Group as the benefits are taken by the employees.
(iii) Employee share option plan
The fair value of share options granted to employees, classed as equity settled share based payments, is
recognised as an employee expense, together with a corresponding increase in equity, over the vesting
period of the options. Their fair value is calculated using the Black Scholes methodology.
(iv) Employee share scheme
The Group has in place an Employee Share Scheme that provides for selected employees to receive
ordinary shares in the Company. Under this scheme funds are transferred to a trust which acts as an agent
and purchases shares for the benefit of the selected employees. A treasury share reserve is recognised for
the funds transferred to the scheme. An employee expense is recognised over the period during which the
employees become unconditionally entitled to the shares with a corresponding decrease in the treasury
share reserve.
(v) Superannuation
The Company and other controlled entities contribute to several defined contribution superannuation plans.
Contributions are recognised as an expense in the income statement on an accruals basis.
(l) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are
capitalised as part of the cost of the asset. Borrowing costs relating to loans and borrowings are capitalised
and amortised over the term of the loan. All other borrowing costs are expensed in the period they occur.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
3.
Significant accounting policies (continued)
39
(m) Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive
obligation as a result of a past event, and it is probable that an outflow of economic benefits will be
required to settle the obligation. Provisions are determined by discounting the expected future cash flows
at a pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
(n) Trade and other payables
Trade and other payables are stated at their amortised cost. Trade payables are non-interest bearing
and are normally settled on 30-60 day terms.
(o) Revenue
(i) Goods sold and services rendered
Revenues are recognised at fair value of the consideration received net of the amount of goods and
services tax (GST).
(ii) Sale of goods
Revenue from the sale of goods is recognised (net of returns, discounts and allowances) when control of
the goods passes to the customer.
Revenue from the sale of equipment and handsets is recognised in the income statement (net of rebates,
returns, discounts and other allowances) when the significant risks and rewards of ownership have been
transferred to the customer, which is ordinarily when the equipment and handset is delivered to the
customer.
Where the sale is settled through instalments, interest revenue is recognised over the contract term,
using the effective interest method.
(iii) Rendering of services
Revenue from rendering services is recognised in proportion to the stage of completion of the contract
and is only brought to account when it is considered probable that the revenue will be received.
Revenue from the provision of telecommunication services includes access to the mobile network,
telephone calls, connection and retention commission and other services. Connection and retention
commissions are recognised on a straight-line basis over the specified contract period. These are
received at the time of connection or retention of a customer. These are deferred and amortised over the
contract term. Airtime and access fee revenues are recognised when the fee in respect of the services is
earned.
(iv) Unearned revenue
Unearned revenue represents customer access fees invoiced that are not earned at the reporting date.
Access fees are normally invoiced to customers one month in advance. This is taken to revenue in the
month to which the access fees relate.
(v) Sale of Indefeasible right of use of capacity (IRU sales)
The appropriate revenue recognition treatment for an IRU sale is determined on a contract by contract
basis. Where an IRU contract is deemed to satisfy all the criteria of containing a finance lease, then the
sale will be treated as a disposal of a specific asset resulting in revenue and profit recognition at the time
the asset is derecognised and a finance lease receivable recognised. Alternatively, where an IRU
contract is deemed not to contain a finance lease the contract is treated as a provision of a service and
the revenue is recognised over the period of the contract.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
40
3.
Significant accounting policies (continued)
(p) Expenses
(i) Operating lease payments
Payments made under operating leases are recognised in the income statement on a straight-line
basis over the term of the lease. Lease incentives received are recognised in the income
statement as an integral part of the total lease expense and spread over the lease term.
(ii) Finance lease payments
Minimum lease payments are apportioned between the finance charge and the reduction of the
outstanding liability. The finance charge is allocated to each period during the lease term so as to
produce a constant periodic rate of interest on the remaining balance of the liability.
(iii) Finance income and expenses
Net financing costs comprise interest payable on borrowings calculated using the effective
interest method and interest receivable on funds invested. Borrowing costs are expensed as
incurred and included in net financing costs.
Interest income is recognised in the income statement as it accrues, using the effective interest
method. The interest expense component of finance lease payments is recognised in the income
statement using the effective interest method.
(q)
Income tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is
recognised in the income statement except to the extent that it relates to items recognised directly
in equity, in which case it is recognised in equity.
Deferred tax is provided using the balance sheet liability method, providing for temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The following temporary differences are not
provided for: initial recognition of goodwill, the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the
extent that they will probably not reverse in the foreseeable future. The amount of deferred tax
provided is based on the expected manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current
tax liabilities and assets, and they relate to income taxes levies by the same tax authority on the
same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and
assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits
will be available against which the asset can be utilised. Deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit will be realised.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
41
3.
Significant accounting policies (continued)
(q)
Income tax (continued)
Tax consolidation
The Company and its wholly-owned Australian resident entities have formed a tax-consolidated
group with effect from 1 August 2006 and have therefore been taxed as a single entity from that
date. The head entity within the tax-consolidated group is TPG Telecom Limited.
TPG Holdings Pty Ltd and its wholly owned Australian resident entities joined the Company’s tax
consolidated group from 7 April 2008 (the date of acquisition of TPG) and Chariot Pty Ltd joined
from 14 August 2008.
Following its acquisition by the Group, the Pipe Networks tax-consolidated group has joined the
TPG Telecom tax-consolidated group from 31 March 2010.
Current tax expense/income, deferred tax liabilities and deferred tax assets arising from
temporary differences of the members of the tax-consolidated group are recognised in the
separate financial statements of the members of the tax-consolidated group using the ‘separate
taxpayer within group’ approach by reference to the carrying amounts of assets and liabilities in
the separate financial statements of each entity and the tax values applying under tax
consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the
subsidiaries are assumed by the head entity in the tax-consolidated group and are recognised as
amounts payable (receivable) to (from) other entities in the tax-consolidated group in conjunction
with any tax funding arrangement amounts (refer below). Any difference between these amounts
is recognised by the Company as an equity contribution or distribution.
The Company recognises deferred tax assets arising from unused tax losses of the tax-
consolidated group to the extent that it is probable that future taxable profits of the tax-
consolidated group will be available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a
result of revised assessments of the probability of recoverability is recognised by the head entity
only.
Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax-consolidated group, has entered
into a tax funding arrangement which sets out the funding obligations of members of the tax-
consolidated group in respect of tax amounts. The tax funding arrangements require payments
to/from the head entity equal to the current tax liability (asset) assumed by the head entity and
any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity
recognising an inter-entity receivable (payable) equal in amount to the tax liability (asset)
assumed. The inter-entity receivables (payables) are at call.
Contributions to fund the current tax liabilities are payable as per the tax funding arrangement
and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the
relevant tax authorities.
The head entity, in conjunction with other members of the tax-consolidated group, has also
entered into a tax sharing agreement. The tax sharing agreement provides for the determination
of the allocation of income tax liabilities between the entities should the head entity default on its
tax payment obligations. No amounts have been recognised in the financial statements in
respect of this agreement as payment of any amounts under the tax sharing agreement is
considered remote.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
3.
Significant accounting policies (continued)
(r) Segment reporting
42
As of 1 August 2009 the Group determines and presents operating segments based on the
information that internally is provided to the CEO, who is the Group’s chief operating decision
maker. This change in accounting policy is due to the adoption of AASB 8 Operating Segments.
Previously operating segments were determined and presented in accordance with AASB 114
Segment Reporting. The new accounting policy in respect of segment operating disclosures is
presented as follows.
Comparative segment information has been re-presented in conformity with the transitional
requirements of such standard. Since the change in accounting policy only impacts presentation
and disclosure aspects, there is no impact on earnings per share.
An operating segment is a component of the Group that engages in business activities from
which it may earn revenues and incur expenses, including revenues and expenses that relate to
transactions with any of the Group’s other components. All operating segments’ operating results
are regularly reviewed by the Group’s CEO to make decisions about resources to be allocated to
each segment and assess its performance, and for which discrete financial information is
available.
Segment results that are reported to the CEO include items directly attributable to a segment as
well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly
interest on the Group’s core debt, amortisation of intangibles arising from business combinations
and other corporate expenses.
(s) Goods and services tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax
(GST), except where the amount of GST incurred is not recoverable from the taxation authority.
In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as
part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from, or payable to, the ATO is included as a current asset or liability in the balance
sheet.
Cash flows are included in the statement of cash flows on a gross basis. The GST components
of cash flows arising from investing and financing activities which are recoverable from, or
payable to, the ATO are classified as operating cash flows.
(t) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares.
Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders of
the Company and the weighted average number of ordinary shares outstanding for the effects of
all dilutive potential ordinary shares, which comprise share options.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
3.
Significant accounting policies (continued)
43
(u)
New standards and interpretations not yet adopted
The following standards, amendments to standards and interpretations have been identified as
those which may impact the entity in the period of initial application. They are available for early
adoption at 31 July 2010, but have not been applied in preparing this financial report:
• AASB 9 Financial Instruments includes requirements for the classification and
measurement of financial assets resulting from the first part of Phase 1 of the project to
replace AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 will
become mandatory for the Group’s 31 July 2014 financial statements. Retrospective
application is generally required, although there are exceptions, particularly if the entity
adopts the standard for the year ended 31 July 2012 or earlier. The Group has not yet
determined the potential effect of the standard.
• AASB 124 Related Party Disclosures (revised December 2009) simplifies and clarifies the
intended meaning of the definition of a related party and provides a partial exemption from
the disclosure requirements for government-related entities. The amendments, which will
become mandatory for the Group’s 31 July 2012 financial statements, are not expected to
have any impact on the financial statements.
• AASB 2009-5 Further amendments to Australian Accounting Standards arising from
the Annual Improvements Process affect various AASBs resulting in minor changes for
presentation, disclosure, recognition and measurement purposes. The amendments, which
become mandatory for the Group’s 31 July 2011 financial statements, are not expected to
have a significant impact on the financial statements.
• AASB 2009-8 Amendments to Australian Accounting Standards - Group Cash-settled
Share-based Payment Transactions resolves diversity in practice regarding the attribution
of cash-settled share-based payments between different entities within a group. As a result of
the amendments AI 8 Scope of AASB 2 and AI 11 AASB 2 - Group and Treasury Share
Transactions will be withdrawn from the application date. The amendments, which become
mandatory for the Group’s 31 July 2011 financial statements, are not expected to have a
significant impact on the financial statements.
• AASB 2009-10 Amendments to Australian Accounting Standards - Classification of
Rights Issue [AASB 132] (October 2010) clarify that rights, options or warrants to acquire a
fixed number of an entity’s own equity instruments for a fixed amount in any currency are
equity instruments if the entity offers the rights, options or warrants pro-rata to all existing
owners of the same class of its own non-derivative equity instruments. The amendments,
which will become mandatory for the Group’s 31 July 2011 financial statements, are not
expected to have any impact on the financial statements.
•
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments addresses the
accounting by an entity when the terms of a financial liability are renegotiated and result in
the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the
financial liability. IFRIC 19 will become mandatory for the Group’s 31 July 2011 financial
statements, with retrospective application required. The amendments are not expected to
have a significant impact on the financial statements.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
44
4.
Determination of fair values
A number of the Group’s accounting policies and disclosures require the determination of fair
value, for both financial and non-financial assets and liabilities. Fair values have been
determined for measurement and/or disclosure purposes based on the following methods. When
applicable, further information about the assumptions made in determining fair values is disclosed
in the notes specific to that asset or liability.
Property, plant and equipment
The fair value of property, plant and equipment recognised as a result of a business combination
is based on market values. The market value of property is the estimated amount for which a
property could be exchanged on the date of valuation between a willing buyer and a willing seller
in an arm’s length transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion. The market value of items of plant,
equipment, fixtures and fittings is based on the quoted market prices for similar items.
Intangible assets
The fair value of patents and trademarks acquired in a business combination is based on the
discounted estimated royalty payments that have been avoided as a result of the patent or
trademark being owned. The fair value of other intangible assets is based on the discounted
cash flows expected to be derived from the use and eventual sale of the assets.
Inventories
The fair value of inventories acquired in a business combination is determined based on its
estimated selling price in the ordinary course of business less the estimated costs of completion
and sale, and a reasonable profit margin based on the effort required to complete and sell the
inventories.
Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of future cash
flows, discounted at the market rate of interest at the reporting date.
Non-derivative financial assets - Investments
Investments in equity securities are classified as available-for-sale financial assets. Subsequent
to initial recognition, they are measured at fair value and changes therein, other than impairment
losses, are recognised in other comprehensive income and presented within equity in the fair
value reserve. When an investment is derecognised, the cumulative gain or loss in equity is
transferred to profit or loss.
Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value
of future principal and interest cash flows, discounted at the market rate of interest at the
reporting date. For finance leases, the market rate of interest is determined by reference to
similar lease agreements.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
5.
Financial risk management
45
Overview
The Group has exposure to the following risks from its use of financial instruments:
•
credit risk
•
liquidity risk
• market risk.
This note presents information about the Group’s exposure to each of the above risks, its
objectives, policies and processes for measuring and managing risk, and the management of
capital. Further quantitative disclosures are included throughout this financial report (including
note 28).
The Board of directors has overall responsibility for the establishment and oversight of the risk
management framework.
Risk management policies are established to identify and analyse the risks faced by the Group, to
set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect changes in market conditions
and the Group’s activities. The Group, through its training and management standards and
procedures, aims to develop a disciplined and constructive control environment in which all
employees understand their roles and obligations.
The Group’s Audit & Risk Committee oversees how management monitors compliance with the
Group’s risk management policies and procedures and reviews the adequacy of the risk
management framework in relation to the risks faced by the Group. The Group’s Audit & Risk
Committee is assisted in its oversight role by the Risk Management Committee. The Risk
Management Committee undertakes both regular and ad-hoc reviews of risk management controls
and procedures, the results of which are reported to the Group’s Audit & Risk Committee.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Group’s
receivables from customers.
Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each
customer, the industry in which the customers operate and the geographical region in which the
customers operate.
• Approximately 28% (2009: 41%) of the Group’s trade receivables are attributable to retail
customers. The Group minimises concentrations of credit risk by undertaking transactions
with a large number of customers.
• By industry, the Group is not subject to a concentration of credit risk as its customers operate
in a wide range of industries.
• Geographically, the Group’s credit risk is concentrated in Australia.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
5.
Financial risk management (continued)
46
Credit risk (continued)
Trade and other receivables (continued)
The Group has established a credit policy under which each new customer is analysed
individually for creditworthiness before the Group’s standard payment and delivery terms and
conditions are offered. The Group’s review includes external ratings, when available, and in
some cases bank references. Purchase limits are established for each customer. These limits
are reviewed regularly. Customers that fail to meet the Group’s benchmark creditworthiness may
transact with the Group only on a prepayment basis.
In monitoring customer credit risk, customers are grouped according to their credit characteristics,
including whether they are an individual or legal entity, whether they are a wholesale, retail or
end-user customer, geographic location, industry, ageing profile, maturity and existence of
previous financial difficulties.
The Group has established an allowance for impairment that represents their estimate of incurred
losses in respect of trade and other receivables.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall
due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group monitors cash flow requirements from its businesses to optimise its return on cash.
The Group ensures that it has sufficient cash on demand to meet expected operational expenses
including the servicing of financial obligations.
In addition, the Group maintains a bank overdraft facility of $11.5 million (2009: $7.9 million)
which was fully unutilised at 31 July 2010 (2009: fully unutilised).
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest
rates, will affect the Group’s income or the value of its holdings of financial instruments. The
objective of market risk management is to manage and control market risk exposures within
acceptable parameters, while optimising the return.
Currency risk
The Group is exposed to currency risk on revenues, expenses, receivables and borrowings that
are denominated in a currency other than its functional currency, the Australian dollar (AUD).
These other currencies include primarily the United States dollar (USD), the New Zealand dollar
(NZD) and Philippine peso (PP).
The Group has to-date not hedged its exposure to these non-functional currencies as the
exposure is not considered to be a significant risk to the Group.
Interest rate risk
The Group has adopted a policy of hedging its exposure to changes in interest rates on its core
borrowings. An interest rate cap agreement was entered into on 30 April 2010 to hedge 75
percent of the maximum value of loans available under the Syndicated Debt Facility Agreement
entered into on 12 March 2010. At 31 July 2010, the maximum value of loans available under the
facility was $360 million and the amount drawn down was $332 million.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
47
5.
Financial risk management (continued)
Other market price risk
Equity price risk arises from available-for-sale equity securities. Material investments are
managed on an individual basis with a goal of maximising returns.
Capital management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and
market confidence and to sustain future development of the business. The Board of directors
monitors the return on capital, which the Group defines as net operating income divided by total
shareholders’ equity, excluding minority interests. The Board of directors also monitors the level
of dividends to ordinary shareholders.
It is a policy of the Board to encourage employees of the Group to hold ordinary shares in the
Company.
The Board seeks to maintain a balance between the higher returns that might be possible with
higher levels of borrowings and the advantages and security afforded by a sound capital position.
From time to time the Group may purchase its own shares on the market; the timing of these
purchases depends on market prices. The Group does not currently have a defined share buy-
back plan.
There were no changes in the Group’s approach to capital management during the year.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital
requirements.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
48
6.
Segment reporting
The Group has identified its operating segments based on the internal reports that are reviewed
and used by the Chief Executive Officer (the chief operating decision maker) in assessing
performance and in determining the allocation of resources.
Following the acquisition of PIPE Networks Limited (‘PIPE’) on 17 March 2010 (refer note 7), the
Group now operates in four primary operating segments; the Consumer and Corporate segments
of its previous ongoing business plus PIPE’s domestic and international operations.
The Consumer segment provides retail telecommunications services to consumer customers in
Australia.
The Corporate segment provides telecommunications services to corporate, government and
wholesale customers in Australia.
The PIPE domestic services segment provides telecommunications infrastructure and services in
Australia.
The PIPE international services segment provides international telecommunications and internet
transmission capacity between Australia, Guam, USA and Asia.
There are varying levels of integration between all of the operating segments. This integration
relates to transfer of services and shared distribution services. The accounting policies of the
reportable segments are the same as described in Notes 2 and 3.
In the following table, costs in the ‘Unallocated’ column comprise interest on the Group’s core
debt, amortisation of intangibles arising from acquisition accounting, listing fees, the fees
associated with the acquisition of PIPE and professional advisor fees related to a due diligence
exercise that the Group undertook on an acquisition opportunity that arose during the year which
did not proceed.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
6.
Segment Reporting (continued)
49
Information about reportable segments
In thousands of AUD
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
Consumer
Corporate
Pipe
Domestic
Pipe
International
Total results
Revenue
367,412
362,174
111,466
118,995
24,031
Telecommunications expense
Employee benefits expense
Other expenses
EBITDA
(189,150)
(21,973)
(21,880)
(202,894)
(23,782)
(34,254)
(61,989)
(17,341)
(5,313)
(69,735)
(20,275)
(9,114)
134,409
101,244
26,823
19,871
(5,709)
(3,474)
(1,753)
13,095
Depreciation of plant and
equipment
Results from Segment activities
(13,490)
(10,108)
(17,843)
(17,085)
(2,189)
120,919
91,136
8,980
2,786
10,907
-
-
-
-
-
-
-
5,315
(1,544)
(469)
(818)
2,485
(1,921)
563
-
-
-
-
-
-
-
508,224
481,169
(258,391)
(43,257)
(29,764)
(272,629)
(44,057)
(43,368)
176,812
121,115
(35,443)
(27,193)
141,369
93,922
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
6.
Segment Reporting (continued)
50
Reconciliation to profit for the period
Total results
for
reportable segments
2009
2010
Unallocated
Consolidated results
for the year
2010
2009
2010
2009
508,224
481,169
-
-
508,224
481,169
In thousands of AUD
Revenue
Telecommunications expense
Employee benefits expense
Other expenses
EBITDA
(258,391)
(43,257)
(29,764)
(272,629)
(44,057)
(43,368)
176,812
121,115
-
-
(5,758)
(5,758)
-
-
(315)
(315)
(258,391)
(43,257)
(35,522)
(272,629)
(44,057)
(43,683)
171,054
120,800
Depreciation of plant and
equipment
Results from Segment activities
Amortisation of intangibles
Results from operating activities
Net financing costs
Profit before income tax
Income tax expense
Profit for the period
(35,443)
(27,193)
-
-
(35,443)
(27,193)
141,369
93,922
(5,758)
(315)
135,611
93,607
(44,557)
(58,342)
91,054
35,265
(13,215)
77,839
(8,942)
26,323
(22,113)
55,726
(8,662)
17,661
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
51
7.
Acquisition of subsidiary
On 4 November 2009 the Group paid $17.6 million to acquire 2.8 million shares in PIPE Networks
Limited (PIPE) under a Share Subscription Agreement at $6.30 per share. On 9 November 2009 a
Scheme of Arrangement was announced under which the Group was to purchase, for $6.30 per share,
100% of the shares in PIPE that it did not already own. The Scheme of Arrangement was approved by
the Supreme Court of Queensland on 17 March 2010.
The total consideration for the acquisition, including the initial $17.6 million, was $373.1 million. The
consideration was paid fully in cash, which was financed through an institutional share placement (refer
note 27), a Share Purchase Plan (refer note 27) and a new syndicated debt facility (refer note 23).
From 4 November 2009 until 17 March 2010 the investment in the 2.8 million PIPE shares was held as
an available for sale financial asset in the consolidated balance sheet, and no portion of PIPE’s operating
results for that period was included in the consolidated income statement. From 17 March 2010, 100% of
the operating results of PIPE and its controlled entities have been included in the consolidated income
statement.
The primary reason for the acquisition was to enhance the Group’s capabilities as a data
communications provider through PIPE’s international bandwidth and extensive metropolitan dark fibre
network.
In the period from 17 March 2010 to 31 July 2010 PIPE contributed to the Group revenue of $29.3 million
and profit after tax of $7.3 million. Due to the complexity of calculating the impact of differences in
accounting policies on pre-acquisition transactions which occurred within PIPE, management has
deemed it not possible to reliably estimate what the impact on the Group’s results would have been if
PIPE had have been acquired at 1 August 2009.
The provisional fair values of the identifiable assets and liabilities of PIPE as at the date of acquisition are
shown in the table on the following page.
The goodwill arising on the acquisition is primarily attributable to the synergies expected to be achieved
from integrating PIPE into the Group’s operations.
The Group incurred acquisition related costs of $3.1 million relating to external legal fees and due
diligence costs. These legal fees and due diligence costs have been included in Other expenses in the
Consolidated Income Statement.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
7. Acquisition of subsidiary (continued)
52
The provisional fair values of the identifiable assets and liabilities of PIPE as at the date of
acquisition are as follows:
In thousands of AUD
Property, plant and equipment
Intangible assets
Deferred tax assets
Trade and other receivables
Cash and cash equivalents
Prepayments
Investments
Other assets
Pre-
acquisition
Recognised
carrying
Fair value
values on
amounts
adjustments
acquisition
190,032
(15,737)
174,295
34,786
118,535
153,321
6,409
2,848
5,219
-
2,059
-
1,874
-
13,313
3,986
2,031
-
9,257
5,219
2,059
1,874
17,299
2,031
Interest-bearing loans and borrowings
(39,576)
-
(39,576)
Current tax liabilities
Provisions
Employee benefits
Deferred tax liabilities
Deferred revenue
(8,533)
-
(2,910)
-
(122)
(4,262)
(21,648)
-
(8,394)
2,052
(8,533)
(2,910)
(122)
(12,656)
(19,596)
Trade and other payables
(49,308)
-
(49,308)
Net identifiable assets and liabilities
129,364
103,290
232,654
Goodwill on acquisition
Total Consideration paid in cash
Less: Cash acquired
Consideration paid, net of cash acquired
140,439
373,093
(2,059)
371,034
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
53
8.
Other expenses
In thousands of AUD
2010
2009
Other expenses include the following specific items:
Expenses incurred in the acquisition of PIPE Networks
Limited
Due diligence expenses incurred in relation to an
acquisition opportunity that did not proceed
3,135
2,549
-
-
Net foreign exchange losses
482
5,171
9.
Auditors’ remuneration
In AUD
Audit services
Auditors of the Company – KPMG Australia
Audit and review of financial reports
Other regulatory audit services
Other services
Auditors of the Company – KPMG Australia
Taxation
2010
2009
387,000
18,500
405,500
405,000
12,500
417,500
55,000
460,500
-
417,500
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
54
10.
Finance income and expense
Recognised in profit or loss
In thousands of AUD
2010
2009
Interest income
Interest expense
Borrowing costs
Net finance expense
Recognised in equity
1,861
(13,766)
(1,310)
(13,215)
1,342
(9,791)
(493)
(8,942)
In thousands of AUD
2010
2009
Foreign currency translation differences
on retranslation of foreign operations
Net change in fair value of available-for-
sale financial assets
Finance income(expense) recognised
directly in equity, net of tax
Attributable to:
Owners of the Company
Minority interest
Finance income(expense) recognised
directly in equity, net of tax
73
110
183
183
-
183
207
-
207
207
-
207
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
55
11.
Income tax expense
Recognised in the income statement
In thousands of AUD
Current tax expense
Current year
Adjustments for prior years
Deferred tax expense
Origination and reversal of temporary differences
Total income tax expense
Restated *
2010
2009
28,466
-
28,466
18,635
(100)
18,535
(6,353)
(9,873)
22,113
8,662
Numerical reconciliation between tax expense and pre-tax accounting
profit
In thousands of AUD
2010
2009
Profit before tax
Income tax expense using the Company’s
domestic tax rate of 30% (2009: 30%)
Increase/(decrease) in income tax expense due to:
Non-deductible expenses
Adjustments in respect of tax deductions for prior
year customer bases acquired
Over provided in prior years
Income tax expense/(benefit)
77,839
26,323
23,351
7,896
1,844
866
(3,082)
22,113
-
22,113
-
8,762
(100)
8,662
* Refer Note 37 – Revision to accounting for the acquisition of TPG Holdings Pty Ltd
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
56
12. Earnings per share
Basic earnings per share
Diluted earnings per share
2010
Cents
2009
Cents
7.6
7.6
2.6
2.5
2010
Number
2009
Number
Weighted average number of shares used in calculating basic
earnings per share
Ordinary shares on issue at 1 August
Effect of ordinary shares issued under the Dividend Reinvestment Plan
Effect of Institutional share placement
Effect of share options exercised
Effect of issue under Share Purchase Plan
703,600,974
4,072,719
19,212,653
8,324,275
311,231
684,200,230
3,454,927
-
-
-
Weighted average number of ordinary shares at 31 July
735,521,852
687,655,157
Weighted average number of shares used in calculating diluted
earnings per share
Ordinary shares on issue at 1 August
Effect of ordinary shares issued under the Dividend Reinvestment Plan
Effect of Institutional share placement
Effect of share options exercised
Effect of issue under Share Purchase Plan
Effect of share options on issue
703,600,974
4,072,719
19,212,653
8,324,275
311,231
-
684,200,230
3,454,927
-
-
-
6,559,630
Weighted average number of ordinary shares at 31 July
735,521,852
694,214,787
In thousands of AUD
2010
2009
Profit attributable to ordinary shareholders
Profit for the year
Profit attributable to ordinary shareholders used in calculating basic and
diluted earnings per share
55,726
17,661
55,726
17,661
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
57
13.
Cash and cash equivalents
In thousands of AUD
Current
Bank balances
Cash
Cash and cash equivalents
2010
2009
17,105
7
17,112
17,172
7
17,179
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are
disclosed in note 28.
14.
Trade and other receivables
In thousands of AUD
2010
2009
Current
Trade receivables
Accrued income and other receivables
Less: Provision for impairment losses
21,069
8,811
(6,578)
23,302
20,489
17,612
(7,819)
30,282
The Group’s exposure to credit and currency risk and impairment losses related to trade and other
receivables are disclosed in note 28.
15.
Inventories
In thousands of AUD
2010
2009
Customer Equipment inventory
446
705
16.
Prepayments and other assets
In thousands of AUD
Current
Prepayments
Non-current
Security deposits
2010
2009
5,997
5,997
1,096
1,096
6,983
6,983
993
993
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
58
17.
Investments
In thousands of AUD
Current investments
Note
2010
2009
Available-for-sale financial assets
9,890
-
Available-for-sale financial assets represent investments in ASX listed equity securities.
Sensitivity analysis – equity price risk
A two percent increase in share price as at the reporting date would have increased equity by $138
thousand after tax. An equal change in the opposite direction would have decreased equity by $138
thousand after tax.
The investment in an associated undertaking of PIPE was fair valued at $4.2 million on acquisition. This
investment was subsequently sold at fair value with no impact on the Income Statement. The Group’s share
of profits of the associated undertaking subsequent to acquisition was not material.
18.
Current tax assets and liabilities
The current tax asset for the Group of $116,324 (2009: $55,000) represents the amount of income taxes
recoverable in respect of current and prior financial periods that arise from the payment of tax in excess of
the amounts due to the relevant tax authority.
The current tax liability for the Group of $29.961 million (2009: $9.486 million) represents the amount of
income taxes payable in respect of current and prior financial periods. The amount includes $7.1 million
relating to the income tax payable by one of its subsidiaries, PIPE Networks Ltd, prior to entering the tax
consolidated group on 31 March 2010.
The current tax liability at 31 July 2010 represents the income tax payable by all members of the tax
consolidated group.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
59
19.
Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
In thousands of AUD
2010
2009
2010
2009*
2010
2009
Assets
Liabilities
Net
Property, plant and equipment
Intangible assets
Receivables
Inventories
Interest-bearing loans and borrowings
Employee benefits
Payables
Provisions
Other items
Unearned revenue
Equity raising costs
Investments
Tax value of loss carry-forwards
recognised
Tax (assets)/liabilities
Set off of tax
Net tax liabilities
(2,003)
-
(2,643)
(117)
-
(1,388)
(1,490)
(3,761)
(5,414)
(1,786)
(575)
-
(1)
-
(2,266)
(236)
-
(1,047)
(1,625)
(2,094)
(423)
(1,009)
-
-
6,568
21,334
-
-
-
-
28
-
1,886
241
-
47
4,795
18,874
1,058
-
538
-
12
-
-
-
-
-
4,565
21,334
(2,643)
(117)
-
(1,388)
(1,462)
(3,761)
(3,528)
(1,545)
(575)
47
4,794
18,874
(1,208)
(236)
538
(1,047)
(1,613)
(2,094)
(423)
(1,009)
-
-
(1,949)
(3,888)
-
-
(1,949)
(3,888)
(21,126)
21,126
(12,589)
12,589
30,104
(21,126)
25,277
(12,589)
-
-
8,978
12,688
8,978
-
8,978
12,688
-
12,688
* Refer Note 37 – Revision to accounting for the acquisition of TPG Holdings Pty Ltd
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
19. Deferred tax assets and liabilities (continued)
Movement in temporary differences during the year
60
In thousands of AUD
Balance
in profit or
Recognised
Balance
Recognised in
Recognised
business
Balance
1 August 2008
loss
in equity
31 July 2009
profit or loss
in equity
combinations
31 July 2010
Recognised
Acquired in
Receivables
Property, plant and equipment
Intangible assets
Inventories
Interest-bearing loans and
borrowings
Payables
Equity raising costs
Investments
Unearned revenue
Provisions
Employee benefits
Other items
Tax loss carry-forwards
(4,282)
4,222
34,904
(306)
871
(824)
-
-
(3,898)
(601)
(1,175)
(966)
(5,180)
22,765
3,074
572
(15,826)
70
(333)
(789)
-
-
2,889
(1,493)
128
543
1,292
(9,873)
-
-
(204)
-
-
-
-
-
-
-
-
-
-
(204)
(1,208)
4,794
18,874
(236)
538
(1,613)
-
-
(1,009)
(2,094)
(1,047)
(423)
(3,888)
12,688
(1,168)
901
(6,856)
119
(538)
152
41
-
(536)
(771)
(176)
540
1,939
(6,353)
-
-
(187)
-
-
-
(616)
47
-
-
-
-
-
(756)
(267)
(1,130)
9,503
-
-
(1)
-
-
-
(896)
(165)
(3,645)
-
3,399
(2,643)
4,565
21,334
(117)
-
(1,462)
(575)
47
(1,545)
(3,761)
(1,388)
(3,528)
(1,949)
8,978
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
20.
Property, plant and equipment
61
In thousands of AUD
Note
Land
Plant and
equipment
Leasehold
improvements
Leased assets
Buildings
Total
Cost
Balance at 1 August 2008
Additions
Disposals
Effect of movements in exchange rates
Balance at 31 July 2009
Balance at 1 August 2009
Acquisitions through business combinations
Additions
Disposals
Write-downs and write-offs
Effect of movements in exchange rates
Balance at 31 July 2010
7
60
-
-
-
60
60
-
-
-
-
-
60
192,130
25,078
(460)
(20)
216,728
216,728
169,739
38,650
(523)
(118)
(62)
424,414
119
-
-
-
119
119
2,404
297
-
-
-
2,820
2,470
114
-
-
2,584
2,584
-
-
-
-
-
2,584
990
-
-
45
1,035
1,035
2,152
-
-
-
(38)
3,149
195,769
25,192
(460)
25
220,526
220,526
174,295
38,947
(523)
(118)
(100)
433,027
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
20.
Property, plant and equipment (continued)
62
In thousands of AUD
Depreciation and impairment losses
Balance at 1 August 2008
Depreciation charge for the year
Disposals
Effect of movements in exchange rates
Balance at 31 July 2009
Balance at 1 August 2009
Depreciation charge for the year
Disposals
Write-downs and write-offs
Effect of movements in exchange rates
Balance at 31 July 2010
Carrying amounts
At 1 August 2008
At 31 July 2009
At 1 August 2009
At 31 July 2010
Land
Plant and
equipment
Leasehold improvements
Leased assets
Buildings
Total
-
-
-
-
-
-
-
-
-
-
-
60
60
60
60
57,417
26,918
(184)
(58)
84,093
84,093
35,043
(44)
(118)
(68)
118,906
134,713
132,635
132,635
305,508
73
5
-
-
78
78
206
-
-
-
284
46
41
41
2,536
685
221
-
-
906
906
134
-
-
-
1,040
1,785
1,678
1,678
1,544
-
49
-
(8)
41
41
60
-
-
25
126
58,175
27,193
(184)
(66)
85,118
85,118
35,443
(44)
(118)
(43)
120,356
990
994
137,594
135,408
994
135,408
3,023
312,671
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
63
20.
Property, plant and equipment (continued)
Leased plant and equipment
The Group leases plant and equipment under a number of finance lease agreements. At the end of each
of the leases the Group has the option to purchase the plant and equipment at a beneficial price. At 31
July 2010 the net carrying amount of leased plant and equipment was $1.544 million (2009: $1.678
million). The leased plant and equipment secures lease obligations (see note 23).
21.
Intangible assets
In thousands of AUD
Current
Net capitalised deferred subscriber acquisition costs
Balance 1 August
Additions
Written-off
Balance 31 July
Amortisation
Balance 1 August
Amortisation
Written-off
Balance 31 July
Carrying amounts
At 1 August
At 31 July
2010
2009
25,456
-
(20,771)
45,824
6,199
(26,567)
4,685
25,456
18,141
6,882
(20,720)
21,104
22,267
(25,230)
4,303
18,141
7,315
382
24,720
7,315
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
64
21.
Intangible assets (continued)
In thousands of AUD
Non-current
Cost
Balance 1 August 2008
Acquisitions through business combinations
Balance 31 July 2009
Balance 1 August 2009
Acquisitions through business combinations
Additions
Balance 31 July 2010
7
Amortisation and Impairment
Balance 1 August 2008
Amortisation for the year
Balance 31 July 2009
Balance 1 August 2009
Amortisation for the year
Balance 31 July 2010
Carrying amounts
At 1 August 2008
At 31 July 2009
At 1 August 2009
At 31 July 2010
Note
Goodwill
Acquired
customer
bases
Reacquired
rights
Trademark
Internally
generated
software
Indefeasible
right of use
of capacity
Development
costs
Total
242,028
(110)
241,918
241,918
140,439
-
382,357
-
-
-
-
-
-
242,028
241,918
241,918
382,357
112,465
-
112,465
112,465
114,419
-
226,884
40,865
32,307
73,172
73,172
32,181
105,353
71,600
39,293
39,293
121,531
-
-
-
-
3,916
-
3,916
-
-
-
-
820
820
20,068
-
20,068
20,068
-
-
20,068
-
-
-
-
-
-
-
-
-
3,096
20,068
20,068
20,068
20,068
7,837
-
7,837
7,837
200
-
8,037
522
1,567
2,089
2,089
1,587
3,676
7,315
5,748
5,748
4,361
26,069
-
26,069
26,069
34,786
1,033
61,888
624
2,107
2,731
2,731
2,993
5,724
25,445
23,338
23,338
56,164
1,459
-
1,459
1,459
-
-
1,459
745
94
839
839
94
933
714
620
620
526
409,926
(110)
409,816
409,816
293,760
1,033
704,609
42,756
36,075
78,831
78,831
37,675
116,506
367,170
330,985
330,985
588,103
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
65
21.
Intangible assets (continued)
Impairment tests for cash generating units containing goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s cash generating units (CGUs). CGUs
are determined according to the lowest level of groups of assets that generate largely independent cashflows.
Following the acquisition of PIPE Networks Limited and its subsidiaries during the 2010 financial year, it was
determined that there were now four separate CGUs, being the Consumer, Corporate, PIPE domestic and PIPE
international CGUs. Total goodwill at 31 July 2010 is $382,357,000 (2009: $241,918,000), and is allocated fully to
the consumer CGU as the Group is primarily focused on leveraging all of the Group’s assets for the benefit of the
consumer business.
The recoverable amount of the goodwill in each CGU has been determined based on a value in use calculation.
Value in use was determined by discounting the projected future cashflows generated from the continuing use of
the assets in each CGU. The cashflow projections utilised were the forecast cashflows for the 3 years to 31 July
2013, extrapolated based on revenue and margin growth assumptions to cover a 5 year period and incorporating a
terminal value. The net projected growth rate in cashflows is 2% per annum in years 4 to 5 based on the long-term
industry growth rate (2009: 2%). In the terminal phase beyond year 5 the growth rate used was also 2% (2009:
0%). A pre-tax discount rate of 17% (2009: 18%) has been used in discounting the projected cashflows, which is
based on the Group’s WACC adjusted to reflect an estimate of specific risks assumed in the cashflow projections.
Sensitivity analysis on these assumptions has been performed which indicated that a reasonably possible
movement in the assumptions would not create an impairment.
22.
Trade and other payables
In thousands of AUD
Trade creditors
Other creditors and accruals
2010
46,270
38,633
84,903
2009
36,334
39,663
75,997
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 28.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
23.
Loans and borrowings
66
This note provides information about the contractual terms of the Group’s interest-bearing loans and
borrowings. For more information about the Group’s exposure to interest rate and foreign currency risk, see
note 28.
In thousands of AUD
Current liabilities
Secured bank loans
Finance lease liabilities
Liability under network capacity agreement
Non-current liabilities
Secured bank loans
Finance lease liabilities
Note
2010
2009
(i)
(ii)
(i)
76,181
414
-
76,595
-
442
8,093
8,535
245,662
222
245,884
58,000
429
58,429
(i)
On 12 March 2010 the Group entered into a new $360 million Syndicated Debt Facility Agreement which
expires on 12 March 2013. $354.5 million was initially drawn down, the funds being used to finance, together
with cash raised through a share placement, the acquisition of PIPE, and to pay back TPG’s and PIPE’s
existing debt facilities totalling $98 million. By 31 July 2010, $22 million of the new facility had also been repaid
such that the total debt balance at year end was $332 million.
The outstanding loan balance as at the year end is shown in the balance sheet net of unamortised borrowing
costs of $10.2 million.
As at 31 July 2010, $28 million of the debt facility is available for drawdown, and the Group will commence
making permanent repayments against the facility of $20 million per quarter from October 2010.
The bank loan facility is secured by a fixed and floating charge over all of the assets of the Group, with the
exception of the assets of the following subsidiaries:
Chariot Pty Ltd
Kooee Pty Ltd
Digiplus Contracts Pty Ltd
Digiplus Limited (NZ)
Codex Limited (NZ)
Blue Call Pty Ltd
Orchid Cybertech Services Inc (Philippines)
Orchid Human Resources Pty Ltd
TPG (NZ) Pty Ltd
(ii) Unsecured liability in respect of an agreement for the supply of network capacity (indefeasible right of use of
capacity).
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
67
23.
Loans and borrowings (continued)
Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
In thousands of AUD
Currency
interest rate
maturity
Nominal
Year of
2010
2009
Face
value
Carrying
amount
Face
value
Carrying
amount
Secured bank loan
AUD
BBSY
Finance lease liabilities
Liability under network
capacity agreement
AUD
USD
+ margin (1)
2013 (2)
321,843
321,843
58,000
58,000
6.9%
2010-2013
659
636
940
871
8.7%
2010
-
-
8,261
8,093
322,502
322,479
67,201
66,964
(1) Margin is variable and is determined quarterly according to gearing ratio.
(2)
The Group has a repayment schedule of $20 million every quarter starting from October 2010 until January 2013, with the
balance of the facility being repayable on 12 March 2013.
Finance lease liabilities
Finance lease liabilities of the Group are payable as follows:
Minimum
lease
payments
2010
459
200
659
Interest
2010
Principal
2010
(21)
(2)
(23)
438
198
636
Minimum
lease
payments
2009
485
455
940
Interest
2009
Principal
2009
(43)
(26)
(69)
442
429
871
In thousands of AUD
Less than one year
Between one and five years
24.
Employee benefits
In thousands of AUD
2010
2009
Current
Liability for annual leave
Liability for long service leave
Non Current
Liability for long service leave
2,695
934
3,629
2,289
777
3,066
621
537
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
68
24.
Employee benefits (continued)
Share based payments
(i) Employee Share Option Plan
On 27 February 2009, the Company announced a pool of 13.5 million share options with an exercise price of
$0.18 per share, based on the 60 day Volume Weighted Average Share Price (“VWAP”) at that date of $0.16.
On 7 July 2009, the Board approved the terms of a new Employee Share Option Plan under which these options
would be granted to employees.
On 8 July 2009, 10.875 million of these share options were granted to employees.
On 25 November 2009, a further 2.0 million of these share options were granted to the two executive directors.
All options granted were immediately exercisable with a latest exercise date of 30 June 2010. All options were to
be settled by physical delivery of shares.
All outstanding options were exercised by the last exercise date of 30 June 2010 with the exception of 100,000
which lapsed. There were no outstanding options on issue as at 31 July 2010.
The fair value of services received in return for share options granted is based on the fair value of share options
granted. The fair value of the options was measured using a Black Scholes model with the following inputs:
Share price at grant date
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate
Fair value at grant date
(ii) Employee Share Scheme
Options issued
on 25 Nov 2009
$1.60
$0.18
55.2%
0.50 years
-
5.75%
$1.4271
Options issued
on 8 July 2009
$0.38
$0.18
66.3%
0.27 years
-
5.5%
$0.20484
The Group has in place an Employee Share Scheme that provides for selected employees to receive ordinary
shares in the Company. Under this scheme funds are transferred to a trust which acts as an agent and purchases
shares for the benefit of the selected employees. A treasury share reserve is recognised for the funds transferred
to the scheme. An employee expense is recognised over the period during which the employees become
unconditionally entitled to the shares with a corresponding decrease in the treasury share reserve.
Under the share scheme the employee receives the voting rights and dividend entitlement to shares purchased
under the scheme, however they are unable to access the shares until they satisfy the continuity of service
criteria. Shares purchased or allocated during 2009 and 2010 vested immediately, whereas shares purchased
under this scheme in previous years vest to the employee at 20% per annum at the end of each of the five years
following the purchase, provided they continue to be employed in the Group. If the employee terminates their
employment, they forfeit their entitlement to the unvested shares, except in limited circumstances such as medical
reasons, bona fide retirement or termination other than for gross misconduct.
During the year $nil (2009: $400,388) was paid into the employee share scheme for the purchase of shares. No
shares were purchased for the benefit of any employees during the year (2009: 43 employees), although 65,000
previously unallocated shares were allocated to 5 employees in 2010. During the year ended 31 July 2010,
$228,000 (2009: $219,507) was recognised as an employee benefit expense in respect of this scheme.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
69
25.
Provisions
In thousands of AUD
Balance 1 August 2009
Acquired in business
combinations
Provisions made during the year
Provisions used during the year
Balance 31 July 2010
Current
Non-current
Make good costs
Make good
costs
Lease
increment
Other
Total
3,009
120
-
910
2,410
(562)
5,767
-
5,767
5,767
-
2,000
288
(58)
350
-
350
350
-
-
2,000
2,000
-
2,000
3,129
2,910
2,698
(620)
8,117
2,000
6,117
8,117
The make good costs provision relates to the Group’s estimated costs to make good leased premises. The
provision is based on the estimated cost per leased site using historical costs for sites made good previously.
Lease increment
Where the Group has contracted lease agreements that contain incremental lease payments over the term of the
lease a provision is recognised for the increased lease payments so that lease expenditure is recognised on a
straight line basis over the lease term.
Other
Other includes a provision for an estimated cost of repair of certain network assets.
26.
Deferred income and other liabilities
In thousands of AUD
2010
2009
Current liabilities
Deferred income
Accrued interest
Other
Non-current liabilities
Deferred income
33,494
-
-
33,494
25,046
96
229
25,371
21,496
7,869
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
70
27.
Capital and reserves
Share capital
On issue at 1 August
Ordinary shares issued during the year
Institutional share placement (i)
Share Purchase Plan (ii)
Exercise of options
Transaction costs, net of tax
Ordinary shares issued under the Dividend
Reinvestment Plan
On issue at 31 July
Company
Company
Ordinary shares
In thousands of AUD
2010
2009
703,600,974 684,200,230
2010
389,747
2009
384,693
41,009,464
747,365
12,775,000
-
-
-
65,000
1,185
2,300
-
-
-
(1,486)
(17)
9,716,301 19,400,744
16,989
5,071
767,849,104 703,600,974
473,735
389,747
(i) On 4 February 2010 the Company completed an institutional placement to raise $65.0 million
through the issue of 41.0 million new ordinary shares at $1.585.
(ii) The Company also offered to its shareholders the opportunity to acquire shares at $1.585 under a
Share Purchase Plan. This offer closed on 19 February 2010 and raised $1.2 million through the
issue of 747.4 thousand new ordinary shares.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled
to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s
residual assets.
Foreign currency translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial
statements of foreign operations where their functional currency is different to the presentation currency of the
reporting entity.
Share option reserve
The share option reserve is used to recognise the fair value of options issued but not exercised.
Treasury share reserve
The treasury share reserve represents the value of shares held by an equity compensation plan that the
Company is required to include in the consolidated financial statements. This reserve will be reversed against
share capital when the underlying shares vest in the employee. No gain or loss is recognised in profit or loss
on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Fair value reserve
The fair value reserve comprises the cumulative net change in the fair value of available-for-sale financial
assets until the investments are derecognised or impaired.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
71
27.
Capital and reserves (continued)
Revaluation reserve
The revaluation reserve relates to the value of contracted customers that was recognised on the consolidation
of SPT Telecommunications Pty Ltd. This entity was previously equity accounted and the amount recognised
in the reserve reflects 50% of the increment in value of contracted customers.
Minority interest acquisition reserve
The minority interest acquisition reserve represents the surplus of the acquisition price over the minority
interest acquired. Refer Note 3(a)(ii).
Dividends
Dividends recognised in the current year by the Company are:
In thousands of AUD
2010
Interim 2010 ordinary
Final 2009 ordinary
2009
Interim 2009 ordinary
Total amount
Cents
per share
Total
amount
Franked /
unfranked
Date of
payment
2.0
1.0
1.0
15,220
Franked
27 May 2010
7,118
Franked
18 Nov 2009
22,338
6,842
6,842
Franked
27 May 2009
Franked dividends declared or paid during the year were fully franked at the tax rate of 30%.
The directors have declared a fully franked final FY10 dividend of 2 cents per share. The dividend has a
record date of 20 October 2010 and will be paid on 17 November 2010.
For each of the dividends in the table above, as well as the declared final FY10 dividend, a Dividend
Reinvestment Plan was made available with a discount of 2.5%.
Dividend franking account
In thousands of AUD
30 per cent franking credits available to shareholders of TPG Telecom Limited
for subsequent financial years
73,112
34,774
2010
2009
The above available amounts are based on the balance of the dividend franking account at year-end
adjusted for:
(a)
(b)
(c)
franking credits that will arise from the payment of the current tax liabilities;
franking debits that will arise from the payment of dividends recognised as a liability at the year-end;
franking credits that will arise from the receipt of dividends recognised as receivables by the tax
consolidated group at the year-end; and
franking credits that the entity may be prevented from distributing in subsequent years.
(d)
The ability to utilise the franking credits is dependent upon the ability of the Company to pay dividends. The
impact on the dividend franking account of dividends proposed after the balance sheet date but not
recognised as a liability is to reduce it by $6,581,564 (2009: $3,050,468)
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
72
28.
Financial instruments
Exposure to credit, liquidity and market risks arise in the normal course of the Group’s activities.
The Group’s risk management policies are addressed at note 5.
Credit risk
Exposure to credit risk
The carrying amount of the Group’s financial assets represents the maximum credit exposure.
The Group’s maximum exposure to credit risk at the reporting date was:
Carrying amount
In thousands of AUD
Note
2010
2009
Trade and other receivables
Cash and cash equivalents
Available-for-sale financial assets
Forward exchange contracts
14
13
17
23,302
17,112
9,890
(173)
50,131
30,282
17,179
-
-
47,461
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by
customer was:
In thousands of AUD
Type of customer
Government
Corporate
Wholesale
Retail
Carrying amount
Note
2010
2009
8,320
4,561
2,327
5,861
4,788
3,947
3,352
8,402
14
21,069 20,489
Approximately 28% of the Group’s trade receivables are attributable to retail customers (2009:
41%). The Group minimises concentrations of credit risk by undertaking transactions with a
large number of customers.
By industry, the Group is not subject to a concentration of credit risk as its customers operate in
a wide range of industries.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
73
28.
Financial instruments (continued)
Credit risk (continued)
Exposure to credit risk (continued)
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by geographical region
was:
In thousands of AUD
Geographical region
Australia
New Zealand
United States
Other
Carrying amount
Note
2010
2009
20,236
25
94
714
21,069
20,042
174
10
263
20,489
14
Geographically, the Group is subject to a concentration of credit risk as predominantly all of its revenue is
attributable to Australia.
Provision for Impairment losses
The ageing of the Group’s trade receivables at the reporting date was:
In thousands of AUD
Ageing of customer
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61-90 days
Past due 91-120 days
Past due 121 days
Gross trade receivables
Less: Provision for impairment losses
14
14
Net receivables
Carrying amount
Note
2010
2009
9,733
5,924
1,229
812
435
2,936
21,069
(6,578)
14,491
8,861
3,428
1,420
1,630
430
4,720
20,489
(7,819)
12,670
The provision for impairment losses of the Group at 31 July 2010 of $6.6 million (2009: $7.8 million) represents
the risk of non-collection of outstanding debts that are past due and believed to be at risk. The allowance is
used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible.
At this point the amount is considered irrecoverable and is written off against the financial asset directly.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
74
28.
Financial instruments (continued)
Liquidity risk
The following are the contractual maturities of financial liabilities, including estimated interest payments and
excluding the impact of netting agreements:
31 July 2010
In thousands of AUD
Note
Carrying
amount
Contractual
cash flows
6 months
or less
6-12
months
1-2
years
2-5 years
Non-derivative financial liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables*
23
23
22
Derivative financial liabilities
Forward exchange contracts
Outflow
Inflow
* Excludes derivatives (shown separately)
(321,843)
(383,425)
(53,309)
(51,897)
(99,149) (179,070)
(636)
(659)
(231)
(227)
(184)
(84,730)
(84,730)
(84,730)
(173)
(11,271)
(11,271)
-
11,098
11,098
-
-
-
-
-
-
(17)
-
-
-
(407,382)
(468,987)
(138,443)
(52,124)
(99,333) (179,087)
31 July 2009
In thousands of AUD
Note
Carrying
amount
Contractual
cash flows
6 months
or less
6-12
Months
1-2
years
2-5 years
Secured bank loans
Finance lease liabilities
Liability under network capacity
agreement
Trade and other payables
23
23
23
22
(58,000)
(62,914)
(1,575)
(1,575)
(59,764)
-
(871)
(940)
(341)
(144)
(289)
(166)
(8,093)
(75,997)
(8,261)
(75,997)
(6,196)
(75,997)
(2,065)
-
-
-
-
-
(142,961)
(148,112)
(84,109)
(3,784)
(60,053)
(166)
More
than 5
years
-
-
-
-
-
-
More
than 5
years
-
-
-
-
-
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly
different amounts.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
75
28.
Financial instruments (continued)
Market risk
Currency risk
Exposure to currency risk
The Group is exposed to foreign currency risk on revenues, expenses and financial instruments that are
denominated in a currency other than AUD. The Group’s exposure to foreign currency risk at balance date was
as follows:
In thousands
Trade receivables
Other financial assets
Trade payables
Other financial liabilities
Gross Statement of Financial
Position exposure
Forward exchange contracts
Net exposure
AUD
equivalent
462
1,778
(6,902)
(903)
(5,565)
(11,098)
(16,663)
NZD
USD
PP
AUD
equivalent
NZD
USD
PP
31 July 2010
31 July 2009
-
-
416
-
455
204
240
-
1,297 13,943
13,292
117 10,567
12,287
(7)
(6,194)
(905)
-
(814)
-
(1,838)
(8,093)
(77)
(1,457)
-
(6,636)
-
-
(7)
(5,295) 13,038
3,816
244
2,714
12,287
-
(10,000)
-
-
-
-
-
(7)
(15,295) 13,038
3,816
244
2,714
12,287
In addition to the above, the Group has operating lease commitments denominated in USD (refer note 29).
The following significant exchange rates applied during the year:
In AUD
NZD
USD
PP
Average rate
Reporting date spot rate
2010
2009
2010
2009
1.26
0.86
40.26
1.23
0.73
35.05
1.25
0.90
41.13
1.26
0.82
39.38
Sensitivity analysis
A 10 percent strengthening of the Australian dollar against the following currencies at 31 July would have
increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other
variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2009.
In thousands of AUD
31 July 2010
NZD
USD
PP
31 July 2009
NZD
USD
PP
Equity
Profit or loss
1
1,543
(29)
(18)
(301)
(28)
-
1,543
-
-
(301)
-
A 10 percent weakening of the Australian dollar against the above currencies at 31 July would have had the equal
but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables
remain constant.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
76
28.
Financial instruments (continued)
Market risk (continued)
Interest rate risk
Profile
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
In thousands of AUD
Fixed rate instruments
Financial assets
Financial liabilities
Variable rate instruments
Financial assets
Financial liabilities
Carrying amount
Note
2010
2009
23
13
23
-
(636)
(636)
-
(8,964)
(8,964)
17,112
(321,843)
(304,731)
17,179
(58,000)
(40,821)
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss.
Therefore, a change in interest rates at the reporting date would not affect profit or loss.
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would have increased (decreased) the Group’s
equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular
foreign currency rates, remain constant. The analysis is performed on the same basis for 2009.
In thousands of AUD
31 July 2010
Variable rate instruments
Cash flow sensitivity
31 July 2009
Variable rate instruments
Cash flow sensitivity
Group
Profit or loss
100bp
increase
100bp
decrease
(3,047)
(3,047)
3,047
3,047
(409)
(409)
409
409
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
77
28.
Financial instruments (continued)
Fair values
Fair values versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance
sheet, are as follows:
In thousands of AUD
Trade debtors and other receivables
Cash and cash equivalents
Available-for-sale financial assets
Secured bank loans
Finance lease liabilities
Trade and other payables*
Forward exchange contracts
* Excludes derivatives (shown separately)
Note
31 July 2010
31 July 2009
14
13
17
23
23
22
Carrying
amount
23,302
17,112
9,890
Fair value
23,302
17,112
9,890
Carrying
amount
30,282
17,179
-
Fair value
30,282
17,179
-
(321,843)
(321,843)
(58,000)
(58,000)
(636)
(636)
(871)
(871)
(84,730)
(84,730)
(75,997)
(75,997)
(173)
(173)
-
-
(357,078)
(357,078)
(87,407)
(87,407)
The basis for determining the fair values of financial assets and liabilities is disclosed in note 4.
Interest rates used for determining fair value
The interest rates used to discount estimated cash flows, where applicable, are based on the rates implicit in the
transaction, and were as follows:
Loans and borrowings
Leases
Forward exchange contracts
2010
2009
BBSY +
margin
5% to 10%
4% to 7%
BBSY +
margin
5% to 10%
-
Financial instruments carried at fair value are analysed by valuation method.
The different levels have been defined as follows:
• Level 1: quotes prices (unadjusted) in active markets for identical assets or liabilities
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (i.e., as prices) or indirectly (i.e., derived from prices)
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The available-for-sale financial assets are categorised Level 1 as they are valued on quoted market prices.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
78
29.
Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
In thousands of AUD
Less than one year
Between one and five years
More than five years
2010
26,969
71,458
17,198
2009
22,121
79,331
533
115,625
101,985
These operating lease commitments include $62.9 million denominated in USD (2009: $94.8 million).
30.
Capital and other commitments
In thousands of AUD
2010
2009
Capital expenditure commitments
Plant and equipment
Contracted but not provided for and payable:
Within one year
One year or later and no later than five years
6,900
-
6,900
3,648
-
3,648
31.
Contingencies
The directors are of the opinion that provisions are not required in respect of these matters, as it is not
probable that a future economic sacrifice of economic benefits will be required or the amount is not capable
of reliable measurement.
Guarantees
Under the terms of a Deed of Cross Guarantee (refer note 38) the Company guarantees to each creditor
payment in full of any debt in the event of winding up of any of the subsidiaries.
Litigation
The Company (or its subsidiaries) are parties to various legal cases which have arisen in the ordinary course
of the business of the Group.
The directors have provided for costs and settlement of certain cases where such amounts can be reliably
estimated. In the opinion of directors, the likelihood of significant cash outflows relating to other cases is
considered remote.
In the opinion of directors, disclosure of further information about these legal cases would be prejudicial to
the interests of the Group.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
79
32.
Consolidated entities
The following is a list of all entities that form part of the Group at 31 July 2010:
Parent entity
TPG Telecom Limited
Subsidiaries
TPG Holdings Pty Ltd
TPG Internet Pty Ltd
Value Added Network Pty Ltd
TPG Network Pty Ltd
TPG Research Pty Ltd
TPG Broadband Pty Ltd
TPG (NZ) Pty Ltd
Orchid Cybertech Services Incorporated
Orchid Human Resources Pty Ltd
Chariot Pty Ltd
Soul Pattinson Telecommunications Pty Ltd
SPT Telecommunications Pty Ltd
SPTCom Pty Ltd
Kooee Communications Pty Ltd
Kooee Pty Ltd
Kooee Mobile Pty Ltd
Soul Communications Pty Ltd
Soul Contracts Pty Ltd
Digiplus Investments Pty Ltd
Digiplus Holdings Pty Ltd
Digiplus Pty Ltd
Digiplus Limited
Codex Limited
Digiplus Contracts Pty Ltd
Blue Call Pty Ltd
PIPE Networks Pty Ltd
PIPE Transmission Pty Ltd
PIPE International (Australia) Pty Ltd
PPC 1 Limited
PPC 1 (US) Incorporated
ACN 139 798 404 Pty Ltd
PSSC Pty Ltd
Country of
Incorporation
Ownership interest (%)
2010
2009
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Philippines
99.99
99.99
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
Australia
Australia
Australia
Australia
Australia
Bermuda
USA
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
-
-
-
-
-
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
80
33.
Reconciliation of cash flows from operating activities
In thousands of AUD
Note
2010
2009
Cash flows from operating activities
Profit/(loss) for the year after income tax
Adjustments for:
Depreciation of plant and equipment
Amortisation and impairment of intangibles
Bad and doubtful debts
Amortisation of prepaid advertising
Borrowing costs written-off
Employee share plan expense
Employee share option plan expense
Unrealised foreign exchange loss/(gain)
Interest income
Interest expense
Costs relating to mergers and acquisitions
Net loss/(gain) on sale on non-current assets
Income tax expense/(benefit)
Operating profit before changes in working
capital and provisions
Changes in operating assets and liabilities adjusted for
effects from purchase of controlled entities during the
financial year:
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventories
(Increase)/decrease in other assets
(Increase)/decrease in intangible assets
(Decrease)/increase in trade and other payables
(Decrease)/increase in other liabilities
(Decrease)/increase in employee benefits
(Decrease)/Increase in provisions
Income taxes paid
Net cash from operating activities
20
21
10
10
10
8
11
55,726
17,661
35,443
44,557
1,992
1,833
1,310
40
2,890
133
(1,861)
13,766
5,684
(20)
22,113
27,193
58,342
3,438
2,000
493
219
2,228
929
(1,342)
9,791
-
219
8,662
183,606
129,833
10,207
259
2,955
51
(13,082)
2,479
525
2,078
189,078
(16,768)
34,597
428
5,308
(4,863)
(4,872)
(7,482)
(244)
121
152,826
(19,104)
172,310
133,722
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
81
34.
Parent entity disclosures
In thousands of AUD
Result of the parent entity
Company
Note
2010
2009
Loss for the period
Other comprehensive income
Total comprehensive income for the period
(i)
(15,955)
-
(15,955)
(474)
-
(474)
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising of:
Share Capital
Reserves
Retained (Accumulated losses)/Earnings
Total Equity
(i) Loss for the period includes:
Finance expenses
Costs relating to mergers and acquisitions
Income tax benefit
Others
Total
(14,660)
(5,684)
5,872
(1,483)
(15,955)
1,316
854,469
1,999
549,371
117,936
396,751
82,433
140,433
473,735
4,925
(20,942)
457,718
389,747
1,842
17,349
408,938
Parent entity guarantees
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company
guarantees debts in respect of its subsidiaries.
Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are
disclosed in Note 38.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
82
35.
Related parties
The following were key management personnel of the Group at any time during the reporting period and,
unless otherwise indicated, were key management personnel for the entire period:
Executive directors
Mr David Teoh
Executive Chairman & Chief Executive Officer
Mr Alan Latimer
Executive Director, Finance & Corporate
Non-executive directors
Mr Robert Millner
Mr Denis Ledbury
Mr Joseph Pang
Executives
Mr Witold Piestrzynski
Chief Operating Officer
Mr Stephen Banfield
Chief Financial Officer and Company Secretary
Ms Mandie De Ville
Chief Information Officer
Mr Craig Levy
General Manager, Marketing & Consumer Sales
Mr John Paine
National Technical and Strategy Manager
Mr Stuart McCullough
National General Manager, Sales
Mr Jason Sinclair
Chief Operating Officer, PIPE Networks
Mr Bevan Slattery
Chief Executive Officer, PIPE Networks
Appointed 26 August 2008
Ceased employment 11 June 2010
Subsidiary employer acquired 17 March 2010
Subsidiary employer acquired 17 March 2010
Resigned with effect from 30 September 2010
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
83
35.
Related parties (continued)
Key management personnel compensation
The key management personnel compensation included in employee benefits (see note 24) is as follows:
In AUD
Short-term employee benefits
Post-employment benefits
Other long term benefits
Termination benefits
Equity compensation benefits
2010
2009
3,175,569
349,332
46,926
20,192
2,926,129
1,742,293
445,803
30,775
-
623,123
6,518,148
2,841,994
Individual directors’ and executives’ compensation disclosures
Information regarding individual directors’ and executives’ compensation is provided in the Remuneration
Report section of the Directors’ report on pages 12 to 18.
During the year the Group rented office premises from companies related to a director of the Company, Mr D
Teoh. The total rent charged for the financial year 2010 was $111,264 (2009: $100,920).
Apart from the details disclosed in this note, no director has entered into a material contract with the Company or
the Group since the end of the previous financial year and there were no material contracts involving directors’
interests existing at year-end.
Loans to key management personnel and their related parties
There were no loans in existence between the Group and any key management personnel or their related parties
at any time during or since the financial year.
Other key management personnel transactions with the Company or its controlled
entities
From time to time, key management personnel of the Company or its controlled entities, or their related entities,
may purchase goods from the Group. These purchases are on the same terms and conditions as those entered
into by other Group employees or customers and are trivial or domestic in nature.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
84
35.
Related parties (continued)
Options and rights over equity instruments
The movement during the reporting period in the number of options over ordinary shares in TPG Telecom Limited
held directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
Held at
1 August
Granted as
Vested and
Held at
31 July
Vested
exercisable
during the
at 31 July
2009
compensation
Exercised
Expired
2010
year
2010
-
-
1,000,000
1,000,000
1,000,000
1,000,000
700,000
500,000
500,000
150,000
100,000
-
-
-
-
-
700,000
500,000
500,000
150,000
100,000
-
-
-
-
-
-
-
- 1,000,000
- 1,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Held at
1 August
Granted as
Vested and
Held at
31 July
Vested
exercisable
during the
at 31 July
2008
compensation
Exercised
Expired
2009
year
2009
-
-
-
-
-
-
1,000,000
700,000
500,000
500,000
150,000
100,000
1,000,000
-
-
-
-
-
-
-
-
-
-
-
- 1,000,000
700,000
500,000
500,000
150,000
100,000
700,000
500,000
500,000
150,000
100,000
-
700,000
500,000
500,000
150,000
100,000
Directors
Mr D Teoh
Mr A Latimer
Executives
Mr J Paine
Mr C Levy
Mr S Banfield
Mr S McCullough
Ms M De Ville
Executives
Mr V Piestrzynski
Mr J Paine
Mr C Levy
Mr S Banfield
Mr S McCullough
Ms M De Ville
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
85
35. Related parties (continued)
Movements in shares
Held at
Granted as
remuneration
or on exercise
1 August 2009
Purchases
of options
Received
under DRP
(1)
Disposals
Held at
31 July 2010
273,383,415
6,223,244
311,709
1,322,844
-
-
133,352
-
-
85,000
1,000,000
-
-
1,000,000
-
4,725,985
109,673
2,494
21,264
-
- 279,109,400
6,466,269
-
150,000
(164,203)
1,174,108
(1,170,000)
85,000
-
2,303,352
24,368
8,956
116,706
3,114,767
93,060
-
-
-
-
99,000
-
2,000
-
1,000,000
519,991
106,280
518,113
700,000
150,000
30,000
-
-
-
-
63,982
1,044
-
(500,000)
(44,359)
-
(88,000)
(200,000)
(85,000)
-
2,803,352
500,000
115.236
645,819
3,678,749
n/a
30,000
Held at
1 August 2008
Purchases
Granted as
remuneration
Received
under DRP (1)
Held at
31 July 2009
261,172,492
3,695,784
178,223
1,174,102
-
2,219,626
2,300,000
122,000
100,000
-
-
-
-
-
-
9,991,297
227,460
11,486
48,742
-
273,383,415
6,223,244
311,709
1,322,844
-
2,303,352
4,374
2,676
10,593
2,600,000
-
-
-
-
88,000
400,000
90,000
-
19,994
6,280
18,113
-
-
-
-
-
-
114,767
3,060
2,303,352
24,368
8,956
116,706
3,114,767
93,060
Directors
Mr D Teoh
Mr R Millner (2)
Mr D Ledbury
Mr AJ Latimer
Mr J Pang
Executives
Mr W Piestrzynski
Mr S Banfield
Ms M De Ville
Mr C Levy
Mr J Paine
Mr S McCullough (3)
Mr J Sinclair
Directors
Mr D Teoh
Mr R Millner (2)
Mr D Ledbury
Mr AJ Latimer
Mr J Pang
Executives
Mr W Piestrzynski
Mr S Banfield
Ms M De Ville
Mr C Levy
Mr J Paine
Mr S McCullough
(1) DRP = Dividend Reinvestment Plan
(2) Prior year comparatives and opening balance at 1 August 2009 have been corrected for interests omitted in prior
year’s report
(3) Ceased to be key management personnel on 11 June 2010
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
86
35.
Related parties (continued)
Identity of related parties
The Group has a related party relationship with its key management personnel.
36.
Subsequent events
There has not arisen in the interval between the end of the financial year and the date of this report any item,
transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect
significantly the operations of the Company, the results of those operations, or the state of affairs of the Company in
future financial years.
37.
Revision to accounting for the acquisition of TPG Holdings Pty Ltd
In the current period an error has been discovered in the calculation of the allocable cost amount in the tax
consolidation process that was performed when the TPG Holdings Pty Ltd consolidated tax group joined the
Company’s consolidated tax group in April 2008. The impact of this error was an understatement of goodwill and
deferred tax liabilities at the date of acquisition and an understatement of goodwill, deferred tax liabilities and current
tax liabilities in the 31 July 2008 and 31 July 2009 balance sheets of the Group.
The amount of goodwill arising from the TPG acquisition is revised to $180.4 million and was understated in both
balance sheets by $6.1 million. The amounts by which deferred tax liabilities and current tax liabilities were
understated in the 31 July 2008 balance sheet were $5.7 million (reported $37.3 million; restated $43.0 million) and
$366 thousand (reported $8.4 million; restated $8.8 million) respectively. The amounts by which deferred tax
liabilities and current tax liabilities were understated in the 31 July 2009 balance sheet were $4.6 million (reported
$20.7 million; restated $25.3 million) and $1.5 million (reported $8.0 million; restated $9.5 million) respectively.
The Group’s 31 July 2009 balance sheet comparatives have been re-stated in this report to show the corrected
goodwill, deferred tax liabilities and current tax liabilities.
The amendments described above have had no impact on the profit attributable to members, total comprehensive
income or retained earnings, or basic and diluted earnings per share of the Group in the current or comparative
periods. Given this, the directors have concluded that the error does not warrant the presentation of a third balance
sheet showing the amended 1 August 2008 balances.
38.
Deed of cross guarantee
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries
listed below are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of
financial reports, and directors’ report.
It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross
Guarantee. The effect of the Deed is that the Company guarantees to each creditor payment in full of any
debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act
2001. If a winding up occurs under other provisions of the Act, the Company will only be liable in the event
that after six months any creditor has not been paid in full. The subsidiaries have also given similar
guarantees in the event that the Company is wound up.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2010
87
38.
Deed of cross guarantee (continued)
The Deed of Cross Guarantee was entered into on 25 June 2008. The Australian incorporated companies
within the PIPE group (as included in the list below) were joined as parties to the Deed of Cross Guarantee
through an Assumption Deed dated 6 May 2010.
The subsidiaries subject to the Deed are:
Soul Communications Pty Ltd
Digiplus Investments Pty Ltd
Soul Contracts Pty Ltd
Kooee Communications Pty Ltd
SPTCom Pty Ltd
Kooee Pty Ltd
Digiplus Holdings Pty Ltd
Digiplus Pty Ltd
Digiplus Contracts Pty Ltd
Blue Call Pty Ltd
Soul Pattinson Telecommunications Pty Ltd
Kooee Mobile Pty Ltd
SPT Telecommunications Pty Ltd
TPG Holdings Pty Ltd
TPG Internet Pty Ltd
Value Added Network Pty Ltd
Orchid Human Resources Pty Ltd
TPG Broadband Pty Ltd
TPG Network Pty Ltd
TPG Research Pty Ltd
TPG (NZ) Pty Ltd
Digiplus Limited (NZ)
Codex Limited (NZ)
Chariot Pty Ltd
Pipe Networks Pty Ltd
Pipe International (Australia) Pty Ltd
Pipe Transmission Pty Ltd
ACN 139 798 404 Pty Ltd
TPG Telecom Limited and its controlled entities
Directors’ declaration
For the year ended 31 July 2010
88
1.
In the opinion of the directors of TPG Telecom Limited (‘the Company’):
(a)
the financial statements and notes set out on pages 23 to 87 and the Remuneration report in
section 5.1 of the Directors’ report, set out on pages 12 to 18, are in accordance with the
Corporations Act 2001, including:
(i) giving a true and fair view of the financial position of the Company and the Group as at 31
July 2010 and of their performance for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting
Interpretations) and the Corporations Regulations 2001; and
(b)
the financial report also complies with International Financial Reporting Standards as disclosed
in note 2(a); and
(c)
there are reasonable grounds to believe that the Company will be able to pay its debts as and
when they become due and payable.
There are reasonable grounds to believe that the Company and the consolidated entities identified in
Note 37 will be able to meet any obligations or liabilities to which they are or may become subject to
by virtue of the Deed of Cross Guarantee between the Company and those consolidated entities
pursuant to ASIC Class Order 98/1418.
The directors have been given the declarations from the chief executive officer and chief financial
officer for the financial year ended 31 July 2010 required by Section 295A of the Corporations Act
2001.
2.
3.
Dated at Sydney this 14th day of October, 2010.
Signed in accordance with a resolution of the directors:
David Teoh
Chairman
89
Independent auditor’s report to the members of TPG Telecom Limited
Report on the financial report
We have audited the accompanying financial report of the Group comprising TPG Telecom
Limited (the Company) and the entities it controlled at the year’s end or from time to time during
the financial year, which comprises the balance sheet as at 31 July 2010, and income statement
and statement of comprehensive income, statement of changes in equity and statement of cash
flows for the year ended on that date, a description of significant accounting policies and other
explanatory notes 1 to 38 and the directors’ declaration.
Directors’ responsibility for the financial report
The directors of the Company are responsible for the preparation and fair presentation of the
financial report in accordance with Australian Accounting Standards (including the Australian
Accounting Interpretations) and the Corporations Act 2001. This responsibility includes
establishing and maintaining internal control relevant to the preparation and fair presentation of
the financial report that is free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances. In note 2(a), the directors also state, in accordance with
Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the
financial report, comprising the financial statements and notes, complies with International
Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards
require that we comply with relevant ethical requirements relating to audit engagements and plan
and perform the audit to obtain reasonable assurance whether the financial report is free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether due
to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity’s preparation and fair presentation of the financial report in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report
presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting
Standards (including the Australian Accounting Interpretations), a view which is consistent with
our understanding of the Group’s financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
90
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act
2001.
Auditor’s opinion
In our opinion:
(a) the financial report of the Group is in accordance with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as
at 31 July 2010 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian
Accounting Interpretations) and the Corporations Regulations 2001.
(b) the financial report also complies with International Financial Reporting Standards as disclosed in note
2(a).
Report on the remuneration report
We have audited the Remuneration Report included in the directors’ report for the year ended 31 July
2010. The directors of the company are responsible for the preparation and presentation of the
remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is
to express an opinion on the remuneration report, based on our audit conducted in accordance with
auditing standards.
Auditor’s opinion
In our opinion, the remuneration report of TPG Telecom Limited for the year ended 31 July 2010,
complies with Section 300A of the Corporations Act 2001.
KPMG
Kevin Leighton
Partner
Sydney
14 October 2010
91
Lead Auditor’s Independence Declaration under Section 307C of the
Corporations Act 2001
To: the directors of TPG Telecom Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year
ended 31 July 2010 there have been:
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
(i)
(ii)
KPMG
Kevin Leighton
Partner
Sydney
14 October 2010
92
TPG Telecom Limited and its controlled entities
ASX additional information
For the year ended 31 July 2010
Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsewhere
in this report is set out below.
Shareholdings (as at 7 October 2010)
Substantial shareholders
The number of shares held by substantial shareholders and their associates are set out below:
Shareholder
David Teoh and Vicky Teoh
Washington H Soul Pattinson and Company Limited
Number of
ordinary
shares held
% of
capital
held
279,109,400
204,241,796
36.35
26.60
Voting rights
Ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a
poll each share shall have one vote.
Distribution of equity security holders
Number of Equity Security Holders
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,000 - 100,000
100,000 and over
Ordinary
shares
1,233
1,817
904
1,386
192
5,532
The number of shareholders holding less than a marketable parcel of ordinary shares is 470.
Stock exchange
The Company is listed on the Australian Stock Exchange. The home exchange is Sydney and ASX code is TPM.
Other information
TPG Telecom Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.
TPG Telecom Limited and its controlled entities
ASX additional information (continued)
For the year ended 31 July 2010
93
Twenty largest shareholders
Name of shareholder
Number
of
ordinary shares
held
Percentage
of
capital held
WASHINGTON H SOUL PATTINSON AND COMPANY LIMITED
DAVID TEOH
VICKY TEOH
J P MORGAN NOMINEES AUSTRALIA LIMITED
NATIONAL NOMINEES LIMITED
WIN CORPORATION PTY LTD
RBC DEXIA INVESTOR SERVICES AUSTRALIA NOMINEES PTY
LIMITED
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