TPG Telecom Limited
Annual Report 2011

Plain-text annual report

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 2011 TPG Telecom Limited and its controlled entities 2 Annual Report For the year ended 31 July 2011 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 Flow s  Notes to the Consolidated Financial Statements  Directors‟ declaration   Lead auditor‟s independence declaration  ASX additional information Independent auditor‟s report Page 3 5 23 24 25 26 27 28 84 85 86 88 TPG Telecom Limited and its controlled entities Chairman‟s report For the year ended 31 July 2011 3 FY11 w as another very successful year for the Group, and this is reflected in its financial results w hich include a 37% increase in Earnings before interest, tax, depreciation and amortisation (“ EBITDA” ) to $234.0m, a 40% increase in Net Profit After Tax (“ NPAT” ) to $78.2m, and a 33% increase in earnings per share (“ EPS” ) to 10.1 cents per share. This result w as the third consecutive year, since FY08, of strong grow th in all key profit measures as show n in the charts below . The FY11 results include the first full 12 months‟ contribution from PIPE Netw orks, but also include strong organic earnings grow th across all of the Group‟s core continuing operations. Strong organic subscriber grow th in the Group‟s core consumer broadband business has continued w ith a net increase in the year of 59,000 subscribers (comprising 77,000 On-Net grow th, partially offset by a decline in low er margin Off-Net subscribers). The On-Net broadband and home phone bundle has been the major grow th driver in FY11, adding 98,000 subscribers during the year. As at 31 July 2011 the Group‟s total consumer broadband subscribers had increased to 548,000. 4 TPG Telecom Limited and its controlled entities Chairman‟s report (continued) For the year ended 31 July 2011 The TPG consumer mobile offering to consumers also continued to be successful, gaining 36,000 subscribers during the year, such that the Group ended the year w ith 201,000 mobile subscribers. The PIPE Netw orks business has also continued to grow strongly. Its first full 12 months as part of the Group has contributed $57.2m to the FY11 EBITDA result, w hich has been driven by continued strong domestic revenue grow th. During the year PIPE signed a number of significant customer contracts, one of the most notable of w hich w as a contract to provide domestic fibre to Vodafone Hutchison Australia. The netw ork rollout required to service this contract, w hich is progressing w ell to schedule, w ill increase PIPE‟s domestic fibre footprint by approximately 60% over the 2 year rollout period. The Group‟s strong cashflow enabled it to reduce its bank debt by $100m during the year. At 31 July 2011, the Group‟s bank debt had been reduced to $232 million, w hich equates to a debt to annual EBITDA leverage ratio of less than 1.0 times, dow n from approximately 2.0 times at the time of the acquisition of PIPE in M arch 2010. In July 2011 TPG announced a takeover offer for all of the shares in IntraPow er Limited. The takeover offer valued IntraPow er at approximately $12.8m and, having already been accepted by IntraPow er shareholders representing 97% of total IntraPow er shares, the acquisition w ill formally complete w hen the compulsory acquisition of the remaining 3% takes place in October 2011. IntraPow er brings to the Group immediate expertise in cloud computing, an established cloud computing customer base, and its „Trusted Cloud‟ platform is a first class cloud computing platform, having w on an Australian Telecommunications User Group (“ ATUG” ) aw ard for the best communications initiative for small business for FY11. The cloud computing technology w ill complement the Group‟s extensive netw ork infrastructure and enable further products and services to be offered to the Group‟s customers. TPG‟s Board of Directors has declared a final FY11 dividend of 2.25 cents per share (fully franked), payable on 22 November 2011 to shareholders on the register at 18 October 2011, bringing total FY11 dividends to 4.5 cents per share. For this dividend, the directors again invite shareholders to reinvest in the Company through its Dividend Reinvestment Plan, for w hich the discount w ill be 2.0% . Looking forw ard to FY12, another year of strong organic profit grow th is expected. The Board has announced that it expects EBITDA for FY12 to be in the range of $250m - $260m. 5 TPG Telecom Limited and its controlled entities Directors‟ report For the year ended 31 July 2011 The directors present their report together w ith the financial report of the Group, being TPG Telecom Limited („the Company‟) and its controlled entities, for the financial year ended 31 July 2011 and the auditor‟s report thereon. Contents of directors’ report Page 1. 2. 3. 4. 4.1 4.1.1 4.1.2 4.1.3 4.1.3.1 4.1.3.2 4.1.3.3 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Directors Company Secretary Directors’ meetings 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 - M ake 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 M odification 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 6 7 7 7 7 8 9 10 11 11 12 12 12 12 14 17 17 18 18 18 18 19 19 20 20 20 21 21 22 22 6 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 1. Directors Details of the directors of the Company w ho held office at any time during or since the end of the financial year are as follow s: 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 56 60 61 57 58 David w as the founder and M anaging Director of the TPG group of companies, one of the largest privately ow ned 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), Brickw orks Ltd (1997-current), BKI Investment Company Ltd (2003-current), Australian Pharmaceutical Industries Ltd (2000-current) and M ilton Corporation Ltd (1998-current). Former Chairman, resigned position in 2008. M ember of Audit & Risk Committee. Denis w as the M anaging Director of TPG Telecom betw een 2000 and 2005, and w as associated w ith 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 w as the Chief Financial Officer of the TPG group of companies. He has also previously w orked w ith a number of large international IT and financial companies. TPG Telecom Ltd (2008-current), Chariot Ltd (2007-2008). M ember of Remuneration Committee. Joseph has w orked in financial roles in the UK, Canada and Hong Kong prior to starting his ow n M anagement and Financial Consulting Service in Australia. TPG Telecom Ltd (2008-current). M ember of Audit & Risk and Remuneration Committees. 7 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 2. Company secretary M r Stephen Banfield w as appointed Company Secretary on 24 October 2007. M r 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 w ere as follow s: Director Board M eetings Audit & Risk Committee M eetings Remuneration Committee M eetings D Teoh RD M illner D Ledbury A Latimer J Pang A 14 13 13 14 14 B 14 14 14 14 14 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. 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 w ith its responsibilities to other stakeholders. This statement outlines the Company‟s main corporate governance practices, w hich comply w ith the Australian Securities Exchange (“ ASX” ) Corporate Governance Principles and Recommendations (“ ASX Recommendations” ), unless otherw ise 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 com pliance and management information systems, and approving and monitoring capital expenditure. The Board delegates to senior management responsibility for the implementation of the strategic direction of the Company. The Board Charter, w hich defines the functions reserved for the Board as is required by ASX Recommendation 1.1., can be found on the Company‟s w ebsite at http://w w w .tpg.com.au under Investor Relations. The performance of the executive directors is review ed by the non-executive directors on the Board. The performance of other senior executives is review ed by the Chief Executive Officer (ASX Recommendations 1.2 and 1.3) 8 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 4. Corporate governance statement (continued) 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, w ith three being non-executive directors of w hom tw o are independent. Details of the experience and background of all directors are set out on page 6 of this Annual Report. Independence of directors The Board believes that maximum value for shareholders is best served w ith the current Board composition. The Board currently comprises five directors, tw o of w hom 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 Company, and of the industry in w hich the Company operates, outw eighs the requirement for independent non-executive directors. Robert M illner, 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 know ledge of the Company, the benefit of w hich in the opinion of the Board outw eighs the requirement for independence at this time. The Board believes that each director brings an independent mind and judgement to bear on all Board decisions, notw ithstanding that the Chairman and a majority of the Board are not independent (w hich is not in line w ith 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. 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. As Chief Executive Officer, M r Teoh consults the Board on matters that are sensitive, extraordinary or of a strategic nature. Nominations Committee The Board acts as the 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 interview s w ith each of the directors at w hich time they are able to make 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 w hen they consider it appropriate or necessary to discharge their obligations as directors of the Company. This includes access to internal senior executives or external advisors as and w hen 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). 9 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 4. Corporate governance statement (continued) Principle 3 Promote ethical and responsible decision-making The Company is committed to maintaining the highest standards in dealing w ith all of its stakeholders, both internally and externally. The Company has adopted a w ritten Code of Conduct to assist directors and staff in understanding their responsibilities to ensure the Company conducts its business in accordance w ith all applicable law s and regulations and in a w ay that enhances the Company‟s reputation (ASX Recommendation 3.1). The Code of Conduct is also reflected in internal policies and procedures w hich reinforce the Company‟s commitment to complying w ith all applicable law s and regulations. A copy of the Code of Conduct can be found on the Company‟s w ebsite at w w w .tpg.com.au under Investor Relations (ASX Recommendation 3.5). Policy regarding trading in securities The Company has established a w ritten Securities Trading Policy w hich identifies the principles by w hich the Company balances the investment interests of directors, senior executives and employees w ith t he requirements for ensuring such trades only take place w hen all information relevant to making such investment decisions is fully disclosed to the market Directors and senior executives are only permitted to deal in Company shares during a six w eek period follow ing the release of the Company‟s half-year and annual results to the ASX, the annual general meeting or any major announcement. Notw ithstanding this, the Board may in certain circumstances permit dealings during other periods. Where the dealing relates to the acquisition of shares pursuant to an employee rights or option plan, through a dividend re-investment plan, or through conversion of convertible securities, these dealings are specifically excluded from this policy. Subsequent dealing in the underlying securities is, how ever, restricted as outlined in the policy. Directors must notify the Company Secretary in w riting of all transactions in accordance w ith the requirements of Sections 205F and 205G of the Corporations Act 2002. The Company w ill 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 w ebsite at w w w .tpg.com.au/Investor Relations. Diversity Policy The Company has not established a separate w ritten Diversity Policy as required by ASX Recommendation 3.2. How ever, the existing Code of Conduct provides that the Company w ill treat all employees and potential employees according to their skills, qualifications, competencies and potential, and w ill not discriminate on the basis of race, religion, gender, sexual preference, age, marital status or disability. 10 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 4. Corporate governance statement (continued) Principle 3 Promote ethical and responsible decision-making (continued) The follow ing guidelines have been established to ensure compliance w ith the Code of Conduct, and in turn ASX Recommendation 3.2.  Selection of new staff, development, promotion and remuneration is on the basis of performance and   capability; Training and development is offered across the Group including external technical courses, mentoring and secondment to develop a diverse and skilled w orkforce; Flexibility is provided as appropriate in w orking hours to accommodate personal and family commitments; and  Reporting to Senior M anagement by managers and supervisors takes place in relation to employment issues, and review and analysis of exit interview s is undertaken to identify any discrimination related issues. Aside from the guidelines set out above the Company has not established measurable objectives for achieving gender diversity in the w orkforce. Female Representation As at 31 July 2011 the proportion of females employed in the Group w as as follow s (ASX Recommendation 3.4) Board Key M anagement Personnel Other M anagement Workforce Number 0 1 10 703 % 0 % 16.7 % 18.2 % 45.2 % 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 w hich has the responsibility for providing assurance that the financial statements and related notes are complete, are in accordance w ith applicable accounting standards, and provide a true and fair view . Audit & Risk Committee The Audit & Risk Committee is comprised of three non-executive directors, tw o of w hom are independent, and is chaired by M r 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 w hich 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 w ebsite at http://w w w .tpg.com.au under Investor Relations. 11 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 4. Corporate governance statement (continued) Principle 4 Safeguarding integrity in financial reporting (continued) 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, and the Chief Financial Officer are invited to Audit & Risk Committee meetings at the discretion of the Chairman of the Committee. The Committee meets at least tw ice a year. It met tw ice 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 w ill annually review the audit process including assessment of auditor independence. Any non-audit w ork requires the prior approval of the Committee, w hich approval w ill only be given w here it can be established that it w ill not compromise the independence of the audit. Principle 5 M ake timely and balanced disclosure Continuous disclosure The Company believes that shareholders and the w ider 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 w hich the Company‟s securities are traded (ASX Recommendation 5.1 and 5.2). A copy of the Continuous Disclosure Policy can be found on the Company‟s w ebsite at http://w w w .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 w ebsite under the Investor Relations section (http://w w w .tpg.com.au), and provides a link via the w ebsite to the ASX w ebsite so that all ASX releases, including notices of meetings, presentations, and analyst and media briefings, can be accessed (ASX Recommendation 6.1.). Historical information is also available to shareholders on the Company‟s w ebsite 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). 12 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 4. Corporate governance statement (continued) Principle 7 Recognise and manage risk The Company has in place strategies and controls in relation to the management of financial risk, w hich include identifying and measuring financial risk, developing strategies to minimise the identified risks, and monitoring implementation. The Chief Executive Officer and Chief Financial Officer are required to provide assurance to the Board as to the contents of the annual financial statements, including compliance w ith 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 framew ork based on AS/NZS 4360:2004 to ensure management, control and oversight of the major business risks of the Company. The framew ork 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). Principle 8 Remunerate fairly and responsibly The Remuneration Committee review s and makes recommendations to the Board on remuneration packages and policies applicable to executives and directors. The Remuneration Committee comprises three directors, two of w hom are independent non-executive directors. The Committee meets as required and at least tw ice a year. It met tw ice during the year and Committee members‟ attendance record is disclosed in the table of directors‟ meetings on page 7 of this Annual Report. Other directors are invited to attend these meetings at the discretion of the Committee Chairman. 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 w ill not be entitled to a retirement benefit, nor are any directors entitled to participate in share, option or rights plans except w ith the approval of shareholders. For further information, refer to the Remuneration Report below (ASX Recommendation 8.2 & 8.3). 4.1 Remuneration report – audited 4.1.1 Principles of compensation Remuneration is also 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 of the Group, including the activities of directors of the Company and other executives. Key management personnel comprise the directors of the Company, and executives of the Company and of 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 relative to trends in comparable companies and to the objectives of the Group‟s compensation strategy. The compensation structures explained below are designed to attract suitably qualified candidates, rew ard the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 13 4. Corporate governance statement (continued) Remuneration report – audited (continued) 4.1 4.1.1 Principles of compensation (continued) The compensation structures take into account the follow ing:     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 w ithin 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, key management personnel may also be provided w ith non-cash benefits. Fixed compensation Fixed compensation consists of base compensation (w hich includes FBT charges related to employee benefits such as motor vehicles), as w ell as employer contributions to superannuation funds. Compensation levels are review ed annually by the Remuneration Committee through a process that considers individual performance and overall performance of the Group. Performance-linked compensation a) Long-term No long-term incentives w ere granted during the year ended 31 July 2011. How ever, the follow ing tw o former incentive plans have still had an impact on the remuneration of certain key management personnel for the periods disclosed in this remuneration report: (i) A former incentive plan w hich w as terminated during 2008 included a long-term component under w hich shares allocated to certain employees vested at 20% per annum at the end of each of the five years follow ing allocation, provided the employee continued to be employed by the Group. At 31 July 2011 certain key management personnel still had unvested shares under this former incentive plan, as set out below in 4.1.3.1. (ii) Betw een July and November 2009 a number of share options w ere granted to employees, all of w hich vested and w ere exercised during the year ended 31 July 2010. The Board is currently considering a new long-term incentive structure w hich w ill be introduced during the year ending 31 July 2012. b) Short-term Certain short-term cash bonuses w ere paid during the year, including to certain key management personnel, to aw ard individual performance. Bonuses aw arded to the executive directors w ere determined by the Remuneration Committee. Bonuses aw arded to other key management personnel w ere determined by the Executive Chairman in conjunction w ith the Remuneration Committee. Bonuses aw arded to other staff w ere made at the discretion of the Executive Chairman. 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 have been effective as evidenced by the Group‟s strong profit grow th since 2008. 14 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 4.1 Remuneration report – audited (continued) 4.1.1 Principles of compensation (continued) Performance-linked compensation (continued) The table below show s the Group‟s Earnings per Share (EPS) and dividends paid (or declared) in respect of the the last 5 years. 2007 2008 2009 2010 2011 EPS (cents) 1.7* (3.9) 2.6 7.6 10.1 Ordinary dividends paid or declared (cents per share) 2.4 0.0 2.0 4.0 4.5 * Excludes media interests disposed of during 2007 Non-monetary benefits Key management personnel can also receive non-monetary benefits as part of the terms and conditions of their appointment. Non-monetary benefits typically include motor vehicles and annual leave entitlements. The Group pays fringe benefits tax on such benefits w here applicable. Service contracts No key management personnel employment contract has a fixed term , and no key management personnel employment contract contains any provision for termination benefits other than as required by law . No key management personnel employment contract has a notice period of greater than one month, except for the Group‟s employment contract w ith M r D Teoh, w hich provides that the contract may be terminated by either party giving three months notice. 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. 4.1.2 Directors’ and executive officers’ remuneration The key management personnel as at 31 July 2011 w ere as follow s: M r D Teoh M r A Latimer M r R M illner M r D Ledbury M r J Pang M s M De Ville M r S Banfield M r C Levy M r J Paine M r J Sinclair M r W Springer Executive Chairman & Chief Executive Officer Executive Director, Finance & Corporate Services Non-Executive Director Non-Executive Director Non-Executive Director Chief Information Officer Chief Financial Officer General M anager, M arketing & Consumer Sales National Technical & Strategy M anager Chief Executive Officer, PIPE Netw orks General M anager, Corporate Sales TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 Remuneration report – audited (continued) 4.1 4.1.2 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, and of other key management personnel of the Group (w ho include the five highest remunerated executives) are set out in the table below: Directors Executive Directors M r D Teoh, Chairman M r A Latimer Non-executive Directors M r D Ledbury M r R Millner M r J Pang 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 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 % 459,632 303,940 233,553 179,391 400,000 350,000 180,000 180,000 169,225 1,028,857 730,544 436,258 362,341 76,604 22,705 2,950 37,558 133,423 22,955 32,345 35,547 21,678 2,469 5,796 67,500 60,000 65,000 57,500 65,000 57,500 - - - - - - - - - - - - 67,500 60,000 65,000 57,500 65,000 57,500 6,075 5,400 5,850 5,175 5,850 5,175 - - - - - - - - - - - - - - - - - 1,427,131 - 1,427,131 - 1,101,962 - 2,312,776 - 461,682 - 1,827,613 36% 77% 39% 88% - 62% - 78% - - - - - - - - - - - - 73,575 65,400 70,850 62,675 70,850 62,675 - - - - - - - - - - - - TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 4.1 4.1.2 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 % 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 211,009 211,009 174,231 165,000 174,231 165,000 185,705 154,577 178,628 - 181,284 67,257 20,000 - 100,000 85,000 100,000 85,000 100,000 120,000 100,000 - 250,000 50,000 9,081 1,623 (2,393) 3,023 4,073 - 6,783 503 3,901 - 20,108 2,936 240,090 212,632 271,838 253,023 278,304 250,000 292,488 275,080 282,529 - 451,392 120,193 20,791 18,991 24,681 22,500 24,681 22,500 24,936 24,703 24,309 - 38,816 10,553 3,814 3,515 4,780 2,748 4,369 2,748 6,533 2,846 10,397 - 10,483 - - - - - - - - - - - - - 255,374 228,581 91,724 123,379 30,000 130,000 - 91,743 (66,525) 2,405 (90,014) 38,687 218,849 360,986 1,710 253,809 13,333 32,272 8,255 19,361 (61,436) 4,298 (41,938) 5,625 58,464 - - - - - - - - - - - - - - - - - - - 2,707 2,707 8,472 8,472 7,666 7,666 - - - - - 53,022 267,402 237,845 309.771 286,743 315,020 282,914 323,957 302,629 317,235 - 500,691 183,768 - - - - 229,210 397,556 (31,973)* 278,795 8% 1% 35% 33% 34% 33% 31% 40% 32% - 50% 56% 13% 33% - 33% - - - - - - - - - - - - - - - - Executives M s M De Ville M r S Banfield M r C Levy M r J Paine M r W Springer (recognised in KM P from 1 August 2010) M r J Sinclair (employer subsidiary acquired 17 M arch 2010) Former M r W Piestrzynski (ceased employment 18 February 2011) M r B Slattery (employer subsidiary acquired 17 M arch 2010, resigned 30 Sept 2010) * M r Slattery‟s total remuneration for the year, as disclosed in the table above, is negative due to the fact that the long-service leave that he had accrued was not payable to him upon his resignation. 17 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 4.1 4.1.2 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 2011 and 31 July 2010 w ere for performance during those years. B. The tw o executive directors w ere granted share options follow ing approval by shareholders at the November 2009 AGM . The fair value of the options w as calculated using a Black Scholes model. All options w ere exercisable immediately upon grant and as a result the related expense w as 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 plan that ceased to operate in 2008. The fair value of the shares w as the market value of the shares purchased for the executive under the scheme. The fair value is allocated to each reporting period evenly over the period from grant date to vesting date subject to certain events w hich trigger vesting. M r J Sinclair w as granted shares in the Company in July 2010 w hich vested immediately. 4.1.3 Equity instruments 4.1.3.1 Shares, options and rights over equity instruments granted as compensation There w ere no options or rights granted during the financial year ended 31 July 2011. Details of share options that w ere granted to key management personnel during the financial year ended 31 July 2010 (follow ing approval from shareholders at the 2009 AGM ) are detailed below : 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 M r D Teoh M r A 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 w ere provided at no cost to the recipients. Details of ordinary shares in the Company that w ere granted as compensation to key management personnel during the reporting period are as follow s: On 30 July 2010 30,000 ordinary shares in the Company w ere granted to M r J Sinclair. The shares had a fair value at date of grant of $1.7674 each and all vested immediately, w ith the related expense being fully recognised in the financial results for the year ended 31 July 2010. Aside from this there w ere no other shares granted to key management personnel during the years ending 31 July 2011 or 31 July 2010. Details of ordinary shares in the Company that vested to key management personnel during the reporting period are as follow s: The shares in the table below w ere granted on 13 December 2007 under former incentive plans that ceased to operate in 2008. The table show s the number of shares that vested during the year and the number of unvested shares at the year end. The unvested shares w ill continue to vest in accordance w ith the rules described in 4.1.1(a). 18 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 4.1 Remuneration report – audited (continued) 4.1.3 4.1.3.1 Equity instruments (continued) Shares, options and rights over equity instruments granted as compensation (continued) Number of unvested shares as at 31 July 2010 Number of shares vested during 2011 Number of unvested shares as at 31 July 2011 Fair value per share at grant date ($) M r S Banfield M r C Levy M s M De Ville 55,612 50,646 16,169 19,993 18,112 6,279 35,619 32,534 9,890 $0.42373 $0.42322 $0.43096 4.1.3.2 M odification 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. 4.1.3.3 Exercise of options granted as compensation During the financial year ended 31 July 2010, the follow ing shares w ere issued upon the exercise of options previously granted as compensation: Executives M r V Piestrzynski M r J Paine M r C Levy M r S Banfield M r S M cCullough Executive Directors M r D Teoh M r 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 w ere exercised during the year ended 31 July 2010 such that there w ere none outstanding as at 31 July 2010. 5. Principal activities During the financial year the principal activities of the Group continued to be the provision of consumer, w holesale and corporate telecommunications services. 6. 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. 19 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 7. Dividends Dividends paid or declared by the Company since the end of the previous financial year w ere as follow s: Cents per share Total amount $’000 Franked/ unfranked Date of payment Declared and paid during the year ended 31 July 2011 Final 2010 ordinary Interim 2011 ordinary 2.00 2.25 15,357 17,449 Franked Franked 17 Nov 2010 24 M ay 2011 Total amount 32,806 Dividends declared and paid during the year w ere 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 FY11 dividend of 2.25 cents per ordinary share, payable on 22 November 2011 to shareholders on the register at 18 October 2011. The financial effect of this dividend has not been brought to account in the financial statem ents for the year ended 31 July 2011 and w ill be recognised in subsequent financial reports. 8. Events subsequent to reporting date Takeover of IntraPow er Limited On 14 July 2011 the Company entered into a Takeover Bid Implementation Agreement w ith IntraPow er Limited, under w hich the Company proposed to acquire all outstanding shares in IntraPow er, via an off market takeover offer, for $0.30 per IntraPow er share in cash, or $0.15 in cash plus 0.089 TPG Telecom Limited shares per IntraPow er share. The value of the all cash offer w as $12.792 million. The takeover offer opened on 29 July 2011, and closed on 29 August 2011 w ith offer acceptances having been received in relation to shares representing 97.36% of the total number of IntraPow er shares. The consideration for these shares w as paid on 19 September 2011, by w ay of a cash payment of $11.758 million and the issue of 412,694 TPG Telecom Limited shares. The Company commenced the compulsory acquisition of the remaining 2.64% of IntraPow er shares on 31 August 2011, the consideration for w hich w ill be paid follow ing the completion of the compulsory acquisition in October 2011. On 14 July 2011 the Company also entered into Pre-bid acceptance agreements w ith certain IntraPow er shareholders under w hich the shareholders, w ho represented 8,485,410 IntraPow er shares (19.90% ), agreed to accept the takeover offer, thereby giving the Company an option to acquire these shares. At the 31 July 2011 balance date these options w ere deemed to have no material value. As at the date of this report, no assessment has been made of the fair values at date of acquisition of the assets of the acquired business. 20 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 8. Events subsequent to reporting date (continued) Other than as noted above, there has not arisen in the interval betw een 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. 9. Likely developments Other than the matters discussed, there are no material likely developments for the Group at the date of this report. 10. Directors’ interests The relevant interest of each director in the shares and options over such instruments issued by the companies w ithin the Group and other related bodies corporate, as notified by the directors to the Australian Stock Exchange in accordance w ith S205G(1) of the Corporations Act 2001, at the date of this report is as follow s: Shares in TPG Telecom Limited 286,868,770 7,057,154 150,000 760,372 87,363 M r D Teoh M r RD M illner M r D Ledbury M r A Latimer M r J Pang 11. Share options Options granted to directors and executives of the Group During the year ended 31 July 2010, follow ing approval from shareholders at the November 2009 AGM , the Group granted options over unissued ordinary shares in the Company to the follow ing: M r D Teoh M r A Latimer No options have been granted subsequent to the above. Number of options granted 1,000,000 1,000,000 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 The Company issued no ordinary shares as a result of the exercise of options either during or subsequent to the year ended 31 July 2011 (2010: 8,105,000). The amount paid for each of the shares issued in 2010 w as $0.18. There are no amounts unpaid on the issued shares. 21 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 12. 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 a director or as an officer of the Company and its controlled entities, except w here the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company w ill 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 $41,935 (2010:$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, w hether civil or criminal and w hatever their outcome; and  other liabilities that may arise from their position, w ith the exception of conduct involving a w ilful breach of duty or improper use of information or position to gain a personal advantage. 13. Non-audit services During the year KPM G, 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 w ith, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the follow ing reasons:  all non-audit services w ere subject to the corporate governance procedures adopted by the Company and have been review ed 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 review ing or auditing the auditor‟s ow n w ork, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rew ards.  Details of the amounts paid to the auditor of the Company, KPM G, and its related practices for audit and non- audit services provided during the year are set out below . Audit services: Auditors of the Company: Audit and review of financial reports Services other than statutory audit: Other regulatory audit services: Telecommunications USO return Bank covenant compliance certificate Other services: Taxation advisory services 2011 $ 2010 $ 378,800 378,800 432,850 432,850 13,500 7,500 103,822 124,822 13,500 7,500 55,000 76,000 22 TPG Telecom Limited and its controlled entities Directors‟ report (continued) For the year ended 31 July 2011 14. Lead auditor’s independence declaration The Lead auditor‟s independence declaration is set out on page 86 and forms part of the directors‟ report for the financial year ended 31 July 2011. 15. Rounding off The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance w ith that Class Order, amounts in the financial report and directors‟ report have been rounded off to the nearest thousand dollars, unless otherw ise stated. This report is made w ith a resolution of the directors. David Teoh Chairman Dated at Sydney this 6th day of October, 2011.  TPG Telecom Limited and its controlled entities 23 Consolidated Income Statement For the year ended 31 July 2011 In thousands of AUD Revenue Dividend Income Telecommunications expense Employee benefits expense Other expenses Note 2011 2010 7 8 574,513 667 508,017 207 (260,305) (48,345) (32,502) (258,391) (43,257) (35,522) Earnings before interest, tax, depreciation and amortisation (EBITDA) 234,028 171,054 Depreciation of plant and equipment Amortisation of intangibles 20 21 (46,399) (47,037) (35,443) (44,557) Results from operating activities 140,592 91,054 Finance income Finance expenses Net financing costs Profit before income tax Income tax expense 1,206 (28,555) 1,861 (15,076) 10 (27,349) (13,215) 113,243 77,839 11 (35,081) (22,113) Profit for the year attributable to ow ners of the company 78,162 55,726 Earnings per share: Basic earnings per share (cents) Diluted earnings per share (cents) 12 12 10.1 10.1 7.6 7.6 The notes on pages 28 to 83 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 2011 In thousands of AUD Profit for the year Foreign exchange translation differences Net change in fair value of available-for-sale financial assets, net of tax Other comprehensive income, net of tax Total comprehensive income attributable to ow ners of the company 2011 2010 78,162 55,726 (50) 982 932 73 110 183 79,094 55,909 The notes on pages 28 to 83 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 2011 In thousands of AUD Assets Cash and cash equivalents Trade and other receivables Inventories Intangible assets Investments 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 borrow ings Current tax liabilities Employee benefits Provisions Accrued Interest Deferred income and other liabilities Total Current Liabilities Loans and borrow ings 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 Total Equity Note 2011 2010 13 14 15 21 17 16 20 21 16 22 23 18 24 25 26 23 19 24 25 26 27 9,525 30,310 262 - 11,293 6,655 58,045 314,440 541,448 809 856,697 17,112 23,302 446 382 9,890 5,997 57,129 312,671 588,103 1,096 901,870 914,742 958,999 72,957 76,214 19,482 3,865 2,000 380 36,312 84,491 76,595 29,845 3,629 2,000 412 33,494 211,210 230,466 149,474 7,362 603 6,912 23,320 187,671 245,884 8,978 621 6,117 21,496 283,096 398,881 513,562 515,861 445,437 502,874 (55,326) 68,313 515,861 478,814 (56,334) 22,957 445,437 The notes on pages 28 to 83 are an integral part of these consolidated financial statements.  TPG Telecom Limited and its controlled entities 26 The notes on pages 28 to 83 are an integral part of these consolidated financial statements. Consolidated Statement of Changes in EquityFor the year ended 31 July 2011ForeignMinorityIn thousands of AUDcurrencyShareTreasuryinterestSharetranslationoptionshareFair valueRevaluationacquisitionTotalRetainedTotalNotecapitalreservereservereservereservereservereservereservesearningsequityBalance as at 1 August 2009389,747 77 2,227 (385) - 439 (56,437) (54,079) (10,870) 324,798 Profit for the year- - - - - - - - 55,726 55,726 Foreign currency translation differences10- 73 - - - - - 73 - 73 Net change in fair value of available-for-sale financial assets, net of tax10 - - - - 110 - - 110 - 110 Total comprehensive income for the period- 73 - - 110 - - 183 55,726 55,909 Share based payment transactions- - 2,852 - - - - 2,852 - 2,852 Share options exercised27 7,379 (5,079) (5,079) 2,300 Movement in treasury share reserve- - - 228 - - - 228 - 228 Transfers between reserves- - - - - (439) - (439) 439 - Issue of ordinary shares27 66,185 - - - - - - - - 66,185 Transaction costs, net of tax27 (1,486) - - - - - - - - (1,486) Dividends paid to shareholders27 16,989 - - - - - - - (22,338) (5,349) Total contributions by and distributions to owners89,067 - (2,227) 228 - (439) - (2,438) (21,899) 64,730 Balance as at 31 July 2010478,814 150 - (157) 110 - (56,437) (56,334) 22,957 445,437 Balance as at 1 August 2010478,814 150 - (157) 110 - (56,437) (56,334) 22,957 445,437 Profit for the year- - - - - - - - 78,162 78,162 Foreign currency translation differences10- (50) - - - - - (50) - (50) Net change in fair value of available-for-sale financial assets, net of tax10 - - - - 982 - - 982 - 982 Total comprehensive income for the period- (50) - - 982 - - 932 78,162 79,094 Movement in treasury share reserve- - - 76 - - - 76 - 76 Transaction costs, net of tax27 (26) - - - - - - - - (26) Dividends paid to shareholders27 24,086 - - - - - - - (32,806) (8,720) Total contributions by and distributions to owners24,060 - - 76 - - - 76 (32,806) (8,670) Balance as at 31 July 2011502,874 100 - (81) 1,092 - (56,437) (55,326) 68,313 515,861 Attributable to owners of the Company  TPG Telecom Limited and its controlled entities 27 Consolidated Statement of Cash Flow s For the year ended 31 July 2011 In thousands of AUD Note 2011 2010 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 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 Dividends paid Net cash (used in)/ from financing activities 37 23 23 632,745 (417,559) 215,186 (47,538) 573,481 (384,403) 189,078 (16,768) 167,648 172,310 - (43,254) - - - 667 32 (68,203) (371,034) (2,961) 5,781 207 (42,587) (436,178) - - (37) - (415) 10,000 (110,000) 1,206 (24,625) (8,720) 66,185 2,068 (2,145) (11,467) (8,268) 354,489 (119,989) 1,674 (13,249) (5,349) (132,591) 263,949 Net (decrease)/increase in cash and cash equivalents (7,530) 81 Cash and cash equivalents at beginning of the year Effect of exchange rate fluctuations Cash and cash equivalents at end of the year 13 13 17,112 (57) 17,179 (148) 9,525 17,112 The notes on pages 28 to 83 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 2011 28 Index to notes to the consolidated financial statements Page Page 1. 2. 3. 4. 5. 6. 7. 8. 9. Reporting entity Basis of preparation Significant accounting policies Determination of fair values Financial risk management Segment reporting Revenue Expenses Auditors‟ remuneration 10. Finance income and expenses 11. Income tax expense 12. 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 liabilities 19. Deferred tax assets and liabilities 29 29 30 42 43 46 48 48 48 49 49 50 51 51 51 51 52 52 52 20. Property, plant and equipment 21. Intangible assets 22. Trade and other payables 23. Loans and borrow ings 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 flow s from operating activities 34. Parent entity disclosures 35. Related parties 36. Subsequent events 37. Business combinations 38. Deed of cross guarantee 54 56 58 59 60 62 62 63 65 71 71 71 72 73 74 75 79 80 81  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 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, M acquarie Park, NSW 2113. The consolidated financial report as at, and for the year ended 31 July 2011, comprises the Company and its subsidiaries (together referred to as the „Group‟). 2. Basis of preparation (a) Statement of compliance The consolidated financial statements are general purpose financial statements w hich have been prepared in accordance w ith Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply w ith International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB). The consolidated financial statements w ere approved by the Board of Directors on 6 October 2011. (b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis w ith the exception of assets and liabilities acquired through business combinations and financial instruments w hich are measured at fair value. The methods used to measure fair values are discussed further at note 4. Notw ithstanding the fact that the classifications w ithin the 31 July 2011 consolidated statement of financial position 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 w ill be able to pay its debts as and w hen they become due and payable based on its Board approved cashflow projections, and also the undraw n debt facility available to it (refer note 23). (c) Functional and presentation currency These consolidated financial statements are presented in Australian dollars, w hich is the functional currency of the majority of the subsidiaries of the Group. The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998, and in accordance w ith that Class Order all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherw ise stated. (d) Use of estimates and judgements Preparation of the consolidated financial statements in conformity w ith IFRSs 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 review ed on an ongoing basis. Revisions to accounting estimates are recognised in the period in w hich 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 amounts recognised in the financial statements are described in the follow ing notes:     note 3(m)(iii) and note 7 – Revenue recognition for netw ork capacity sales note 21 – measurement of the recoverable amounts of cash-generating units containing goodw ill note 28 – valuation of financial instruments note 37 – business combinations  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 3. Significant accounting policies 30 The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently across the Group. (a) Basis of consolidation (i) Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, w hich is the date on w hich control is transferred to the Group. Control is the pow er 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. Acquisitions on or after 1 July 2009 For acquisitions on or after 1 July 2009, the Group measures goodw ill at the acquisition date as:  the fair value of the consideration transferred; plus  the recognised amount of any non-controlling interests in the acquiree; plus  if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less  the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. Costs related to the acquisition, other than those associated w ith the issue of debt or equit y securities, that the Group incurs in connection w ith a business combination are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for w ithin equity. Otherw ise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. When share-based payment aw ards (replacement aw ards) are required to be exchanged for aw ards held by the acquiree‟s employees (acquiree‟s aw ards) and relate to past services, then all or a portion of the amount of the acquirer‟s replacement aw ards is included in measuring the consideration transferred in the business combination. This determination is based on the market- based value of the replacement aw ards compared w ith the market-based value of the acquiree‟s aw ards and the extent to w hich the replacement aw ards relate to past and/or future service. Acquisitions betw een 1 July 2004 and 1 July 2009 For acquisitions betw een 1 July 2004 and 1 July 2009, goodw ill represents the excess of the cost of the acquisition over the Group‟s interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and contingent liabilities of the acquiree. Transaction costs, other than those associated w ith the issue of debt or equity securities, that the Group incurred in connection w ith business combinations w ere capitalised as part of the cost of the acquisition. Acquisitions of non-controlling interests are accounted for as transactions w ith ow ners in their capacity as ow ners and therefore no goodw ill is recognised as a result of such transactions. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 31 3. Significant accounting policies (continued) (a) Basis of consolidation (continued) (ii) Subsidiaries Subsidiaries are entities controlled by the Group. Control exists w hen the Group has the pow er, 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 w hen necessary to align them w ith the policies adopted by the Group. Such changes have been made w ith effect from the date of acquisition. (iii) 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. (b) Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. M onetary 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 w as determined. (c) Foreign operations The assets and liabilities of foreign operations, including goodw ill and fair value adjustments arising on acquisition, are translated to Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 3. Significant accounting policies (continued) (d) Financial Instruments (i) Non-derivative financial assets 32 The Group initially recognises loans and receivables and deposits on the date that they are originat ed. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset w hen the contractual rights to the cash flow s from the asset expire, or it transfers the rights to receive the contractual cash flow s on the financial asset in a transaction in w hich substantially all the risks and rew ards of ow nership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position only w hen the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group has the follow ing non-derivative financial assets: Loans and receivables Loans and receivables are financial assets w ith fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise trade and other receivables. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits w ith original maturities of three months or less. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale and that are not classified in any other category of financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see note 3(h)(i)), are recognised in other comprehensive income and presented w ithin equity in the fair value reserve in equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. Available-for-sale financial assets comprise equity securities. (ii) Non-derivative financial liabilities The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at w hich the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability w hen its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position only w hen the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Non-derivative financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method. Non-derivative financial liabilities comprise loans and borrow ings, bank overdrafts and trade and other payables. 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 flow s.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 33 3. Significant accounting policies (continued) Financial Instruments (continued) (d) (iii) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. (e) Property, plant and equipment (i) Ow ned assets Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see accounting policy (h)). Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, w here relevant, of the costs of dism antling and removing the items and restoring the site on w hich 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. The gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal w ith the carrying amount of property, plant and equipment and are recognised net w ithin other expenses in profit or loss. (ii) Leased assets Leases in the terms of w hich the Group assumes substantially all the risks and rew ards of ow nership are classified as finance leases. Other leases are operating leases and are not recognised in the Group‟s statement of financial position. (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 w hen that cost is incurred, if it is probable that the future economic benefits embodied w ithin the item w ill 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 used in the current and comparative periods are as follow s:  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 2011 34 3. Significant accounting policies (continued) Intangible assets (f) (i) Goodw ill Goodw ill that arises upon the acquisition of subsidiaries is included in intangible assets. For the measurement of goodw ill at initial recognition, see note 3(a)(i). Subsequent to its initial recognition, goodw ill is measured at cost less accumulated impairment losses. (ii) Other intangible assets Other intangible assets that are acquired by the Group and have finite useful lives are stated at cost less accumulated amortisation (see below ) and impairment losses (see accounting policy (h)). The various categories of other intangible assets in the Group‟s accounts are as follow s: - Acquired customer base On acquisition of a subsidiary, customer contracts and relationships of the acquired subsidiary are valued at the expected future economic benefits (based on discounted cashflow projections) and brought to account as intangible assets. - 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 M ethod. Internally-generated softw are - On acquisition of a subsidiary, internally developed softw are and systems are valued and brought to account as intangible assets. The softw are is valued at its amortised replacement cost. - Indefeasible right of use of capacity Indefeasible rights of use (IRUs) of acquired netw ork capacity are brought to account as intangible assets at cost, being the present value of the future cashflow s payable for the right. IRUs of acquired subsidiaries are accounted for at their fair value as at the date of acquisition. - 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 w hich the future economic benefits are expected to be obtained. - 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 w hich the future economic benefits are expected to be obtained, being the contract period.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 3. Significant accounting policies (continued) 35 (f) Intangible assets (continued) (iii) Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only w hen it increases the future economic benefits embodied in the specific asset to w hich it relates. All other expenditure is expensed as incurred. (iv) Amortisation Amortisation is charged to the income statement on a straight-line basis, unless otherw ise stated, over the estimated useful lives of intangible assets unless such lives are indefinite. Goodw ill and intangible assets w ith 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 used in the current and comparative periods are as follow s:  Goodw ill  Acquired customer bases & Reacquired rights Internally-generated softw are Indefeasible right of use (IRU) of capacity  Trademark    Development costs  Capitalised subscriber costs - Indefinite life - Amortised on a reducing balance basis in line w ith the expected economic benefits to be derived from the acquired customer base - Indefinite life - 5 years - Amortised over the life of the IRU - 2 - 20 years - 2 years (g) Inventories Inventories are stated at the low er of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated selling expenses. (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 review ed at each reporting date to determine w hether there is any indication of impairment. If any such indication exists, the asset‟s recoverable amount is estimated. For goodw ill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. An impairment loss is recognised w henever 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 w hich case the impairment loss is recognised as a reversal to the extent of that previous revaluation w ith any excess recognised through profit or loss.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 3. Significant accounting policies (continued) (h) Impairment (continued) 36 Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodw ill allocated to cash-generating units/group of units and then to reduce the carrying amount of the other assets in the units/group of units on a pro rata basis. (i) Calculation of recoverable amount 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 w ith 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 flow s 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 inflow s, the recoverable amount is determined for the cash-generating unit to w hich the asset belongs. (ii) Reversals of impairment Impairment losses, other than in respect of goodw ill, are reversed w hen 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 goodw ill cannot be 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 w as recognised. An impairment loss is reversed only to the extent that the asset‟s carrying amount does not exceed the carrying amount that w ould have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (i) 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 w age and salary rates including related on-costs and expected settlement dates, and is discounted using the rates attached to the Commonw ealth Government bonds at the balance sheet date w hich have maturity dates approximating to the terms of the Group‟s obligations.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 3. Significant accounting policies (continued) 37 (i) Employee benefits (continued) (ii) Wages, salaries, annual leave and non-monetary benefits Liabilities for employee benefits for w ages, salaries and annual leave that are expected to be settled w ithin 12 months of the reporting date represent present obligations resulting from employees‟ services provided up to the reporting date, and are calculated at undiscounted amounts based on remuneration w age and salary rates that the Group expects to pay as at reporting date including related on-costs such as w orkers compensation insurance and payroll tax. Non-accumulating non-monetary benefits such as medical care, cars and free or subsidised goods and services, are expensed based on 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 w ith 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 w hich 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 w hich the employees become unconditionally entitled to the shares w ith 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. (j) Borrow ing costs Borrow ing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalised as part of the cost of the asset. Borrow ing costs relating to loans and borrow ings are capitalised and amortised over the term of the loan. All other borrow ing costs are expensed in the period they occur. (k) Provisions A provision is recognised in the statement of financial position w hen 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 w ill be required to settle the obligation. Provisions are determined by discounting the expected future cash flow s at a pre-tax rate that reflects current market assessments of the time value of money and, w here appropriate, the risks specific to the liability. (l) 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.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 3. Significant accounting policies (continued) (m) Revenue 38 All revenue is recognised at fair value of the consideration received or receivable, net of the amount of goods and services tax (GST). (i) Rendering of services Revenue from the rendering of telecommunications services includes the provision of data, internet, voice, telehousing and other services. Revenue from the rendering of data, internet and telehousing services to consumers and corporate customers is recognised on a straight-line basis over the period the service is provided. Revenue for voice services is recognised at completion of the call. Where revenue for services is invoiced to customers in advance, the amount that is unearned at a reporting date is recognised in the statement of financial position as deferred income, and its recognition in the income statement is deferred until the period to w hich the invoiced amount relates. Installation and set-up fee revenue is recognised on a straight line basis over the period of the contract to w hich it relates. (ii) Sale of goods Revenue from the sale of goods represents sales of customer equipment to consumer and corporate customers. Revenue from the sale of goods is recognised (net of rebates, returns, discounts and other allow ances) w hen the significant risks and rew ards of ow nership have been transferred to the customer, w hich is ordinarily w hen the equipment 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) Netw ork capacity sales Where a sale of netw ork capacity relates to a specific separable asset, the sale is accounted for as a lease and the Group is considered to be the lessor in the arrangement. Where a sale w hich has been identified as a lease also contains the follow ing characteristics, it is accounted for as a finance lease: the purchaser‟s right of use is exclusive and irrevocable; the terms of the contract are for the major part of the asset‟s useful economic life; the attributable costs or carrying value can be measured reliably; and (i) (ii) (iii) (iv) no significant risks are retained by the Group. Finance lease sales are accounted for by recognising in revenue the net gain on disposal of the specific asset at the time the asset is de-recognised. Lease sales that do not satisfy the above criteria are accounted for as operating leases, w ith revenue recognised over the period of the contract on a straight-line basis. Where a sale of netw ork capacity is deemed not to relate to a specific separable asset, the sale is accounted for as the rendering of a service and accounted for as described in (m)(i) above.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 3. Significant accounting policies (continued) 39 (m) Revenue (continued) (iv) Revenue arrangements w ith multiple deliverables Where tw o or more revenue-generating activities or deliverables are sold under a single arrangement, each deliverable considered to be a separate unit of accounting is accounted for separately. When the deliverables in a multiple deliverable arrangement are not considered to be separate units of accounting, the arrangement is accounted for as a single unit. The consideration from the revenue arrangement is allocated to its separate units based on the relative selling prices of each unit. If no third party evidence exists for the selling price, then the item is measured based on the best estimate of the selling price of that unit. The revenue allocated to each unit is then recognised in accordance w ith the revenue recognition policies described above. (n) Expenses (i) Lease payments Payments made under operating leases are recognised in profit or loss on a straight -line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. M inimum lease payments made under finance leases are apportioned betw een the finance expense and the reduction of the outstanding liability. The finance expense 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. Determining w hether an arrangement contains a lease At inception of an arrangement, including sales of capacity described in note 3(m) above, the Group determines w hether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset. At inception or upon reassessment of the arrangement, the Group separates paym ents and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. (ii) Finance income and expenses Net financing costs comprise interest payable on borrow ings calculated using the effective interest method and interest receivable on funds invested. Borrow ing costs relating to loans and borrow ings are capitalised and amortised over the term of the loan. All other borrow ing costs are expensed in the period they are 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.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 3. Significant accounting policies (continued) 40 (o) 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 relat es to items recognised directly in equity, in w hich case it is recognised in equity. Deferred tax is provided using the balance sheet liability method, providing for temporary differences betw een the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The follow ing temporary differences are not provided for: initial recognition of goodw ill, 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 w ill 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 w ill be realised simultaneously. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits w ill be available against w hich the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit w ill be realised. Tax consolidation The Company and its w holly-ow ned Australian resident entities have formed a tax-consolidated group w ith effect from 1 August 2006 and have therefore been taxed as a single entity from that date. The head entity w ithin the tax-consolidated group is TPG Telecom Limited. (p) Segment reporting The Group determines and presents operating segments based on the information that internally is provided to the CEO, w ho is the Group‟s chief operating decision maker. An operating segment is a component of the Group that engages in business activities from w hich it may earn revenues and incur expenses, including revenues and expenses that relate to transactions w ith any of the Group‟s other components. All operating segments‟ operating results are regularly review ed by the Group‟s CEO to make decisions about resources to be allocated to each segment and assess its performance, and for w hich discrete financial information is available. Segment results that are reported to the CEO include items directly attributable to a segment as w ell as those that can be allocated on a reasonable basis. Unallocated items comprise corporate costs and listing fees.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 3. Significant accounting policies (continued) 41 (q) Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except w here 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 w ith 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 statement of financial position. Cash flow s are included in the statement of cash flow s on a gross basis. The GST components of cash flow s arising from investing and financing activities w hich are recoverable from, or payable to, the ATO are classified as operating cash flow s. (r) 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 w eighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting both the profit or loss attributable to ordinary shareholders of the Company, and the w eighted average number of ordinary shares outstanding, for the effects of all dilutive potential ordinary shares, being share options. (s) New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 August 2010, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except for AASB 9 Financial Instruments, w hich becomes mandatory for the Group‟s 2014 consolidated financial statements and could change the classification and measurement of financial assets. The Group does not plan to adopt this standard early and the extent of the impact has not been determined.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 4. Determination of fair values 42 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 follow ing 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 w hich a property could be exchanged on the date of valuation betw een a w illing buyer and a w illing seller in an arm‟s length transaction. 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 ow ned. The fair value of other intangible assets is based on the discounted cash flow s 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 their 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 flow s, discounted at the market rate of interest at the reporting date. Equity and debt securities The fair value of equity and debt securities is determined by reference to their quoted closing bid price at the reporting date, or if unquoted, by using valuation techniques including market multiples and discounted cash flow analysis. Non-derivative financial liabilities Fair value, w hich is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flow s, 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 2011 5. Financial risk management 43 Overview The Group has exposure to the follow ing 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 framew ork. 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 review ed regularly to reflect changes in market conditions and in the Group‟s activities. The Group aims to develop a disciplined and constructive control environment in w hich 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 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 w hich the customers operate, and the geographical region in w hich the customers operate.  Approximately 14% (2010: 28% ) of the Group‟s trade receivables are attributable to retail customers. The Group minimises concentration of credit risk by undertaking transactions w ith a large number of customers.  By industry, the Group is not subject to a concentration of credit risk as its customers operate in a w ide 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 2011 5. Financial risk management (continued) 44 Credit risk (continued) Trade and other receivables (continued) The Group has established a credit policy for its corporate customers under w hich each new customer is analysed individually for creditw orthiness before the Group‟s standard payment and delivery terms and conditions are offered. The Group‟s review includes external ratings, w hen available, and in some cases bank references. Purchase limits are established for each customer. These limits are review ed regularly. Customers that fail to meet the Group‟s benchmark creditw orthiness may transact w ith the Group only on a prepayment basis. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including w hether they are an individual or legal entity, w hether they are a w holesale, retail or end-user customer, geographic location, industry, ageing profile, maturity, and existence of previous financial difficulties. The Group has established an allow ance for impairment that represents management‟s estimate of incurred losses in respect of trade and other receivables. Liquidity risk Liquidity risk is the risk that the Group w ill 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 w ill alw ays have sufficient liquidity to meet its liabilities w hen due, under both normal and stressed conditions, w ithout incurring unacceptable losses or risking damage to the Group‟s reputation. The Group manages the cash flow projections of subsidiaries 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. The Group maintains a bank overdraft facility of $10.6 million (2010: $11.5 million) w hich w as fully unutilised at 31 July 2011 (2010: fully unutilised). In addition, the Group had $48.0 million of its debt facility available for draw dow n as at 31 July 2011. M arket risk M arket risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, w ill 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 w ithin acceptable parameters, w hile optimising the return. Currency risk The Group is exposed to currency risk on revenues, expenses, receivables and borrow ings 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 the Philippine peso (PHP). 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 borrow ings. An interest rate cap agreement w as 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 M arch 2010. At 31 July 2011, the maximum value of loans available under the facility w as $280 million and the amount draw n dow n w as $232 million.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 5. Financial risk management (continued) 45 Other market price risk Equity price risk arises from available-for-sale equity securities. M aterial investments are managed on an individual basis w ith the 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 return on capital, w hich the Group defines as profit from operating activities divided by total shareholders‟ equity. 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 betw een the higher returns that might be possible w ith higher levels of borrow ings, and the advantages and security afforded by a sound capital position. From time to time the Group may purchase its ow n shares on the market for the purpose of issuing shares under employee share plans. The Group does not currently have a defined share buy-back plan. There w ere no changes in the Group‟s approach to capital management during the year. The Group‟s net debt to equity ratio at the end of the reporting date w as as follow s: In thousands of AUD Total loans and borrow ings Less: cash and cash equivalents Net debt Total equity 2011 2010 225,688 (9,525) 216,163 322,479 (17,112) 305,367 515,861 445,437 Net debt to equity ratio at 31 July 0.42 0.69  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 46 6. Segment reporting The Group has identified its operating segments based on the internal reports that are review ed and used by the Chief Executive Officer (the chief operating decision maker) in assessing performance and in determining the allocation of resources. Follow ing the integration of the PIPE Netw orks business, the Group now recognises three primary operating segments; the Consumer, Corporate and PIPE Netw orks segments. The Consumer segment provides telecommunications services to retail customers. The Corporate segment provides telecommunications services to corporate, government and w holesale customers. The PIPE Netw orks segment provides telecommunications infrastructure and services in Australia, and international telecommunications and internet transmission capacity betw een Australia, Guam, USA and Asia via its submarine cable system know n as PPC-1. The accounting policies of all reportable segments are the same as described in Notes 2 and 3. In the follow ing table, costs in the „Unallocated‟ column comprise corporate costs and listing fees. The prior year comparatives also include fees associated w ith the acquisition of PIPE Netw orks Limited and professional advisor fees related to a due diligence exercise that the Group undertook on an acquisition opportunity that did not proceed.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 6. Segment Reporting (continued) 47 Information about reportable segments Reconciliation to profit for the year In thousands of AUD 2011 2010 2011 2010 2011 2010* 2011 2010 2011 2010 2011 2010 Consumer Corporate Pipe Netw orks Total results Unallocated Consolidated results for the year Revenue Dividend Income 374,250 - 367,412 - 108,910 - 111,466 - 91,353 - 29,140 - 574,513 - 508,017 - Telecommunications expense Employee benefits expense Other expenses EBITDA (181,038) (20,892) (23,618) (189,150) (21,973) (21,880) (56,270) (17,525) (6,837) (61,989) (17,341) (5,313) 148,702 134,409 28,278 26,823 (22,997) (9,928) (1,207) 57,221 (7,253) (3,943) (2,571) 15,373 (260,305) (48,345) (31,662) (258,391) (43,257) (29,764) 234,201 176,605 - 667 - - (840) (173) - 207 574,513 667 508,017 207 - - (5,758) (260,305) (48,345) (32,502) (258,391) (43,257) (35,522) (5,551) 234,028 171,054 Depreciation of plant and equipment (18,496) (13,490) (16,337) (17,843) (11,566) (4,110) (46,399) (35,443) - - (46,399) (35,443) Results from Segment activities 130,206 120,919 11,941 8,980 45,655 11,263 187,802 141,162 (173) (5,551) 187,629 135,611 Amortisation of intangibles Results from operating activities Net financing costs Profit before income tax Income tax expense Profit for the year * 4 ½ months (47,037) (44,557) 140,592 91,054 (27,349) (13,215) 113,243 77,839 (35,081) (22,113) 78,162 55,726 Geographic Information All of the Group‟s revenues are derived from Australian based entities, except for $7.3 million (2010: $2.5 million) derived from overseas customers. All of the Group‟s non-current assets are located in Australia, except for assets amounting to $137.6 million (2010: $145.5 million) that are located either overseas or in international waters.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 48 7. Revenue In thousands of AUD 2011 2010 Revenue comprises the following: Rendering of services 523,160 488,235 Sale of goods 5,425 7,104 Netw ork capacity sales, recognised as: - - operating leases finance leases 39,516 6,412 12,678 - 574,513 508,017 8. Expenses In thousands of AUD 2011 2010 Other expenses include the follow ing specific items: Expenses incurred in the acquisition of PIPE Netw orks Limited 68 3,135 Due diligence expenses incurred in relation to an acquisition opportunity that did not proceed 73 2,549 9. Auditors’ remuneration In AUD Audit services Auditors of the Company – KPM G Australia Audit and review of financial reports Other regulatory audit services Other services Auditors of the Company – KPM G Australia Taxation 2011 2010 378,800 21,000 399,800 432,850 21,000 453,850 103,822 55,000 503,622 508,850  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 49 10. Finance income and expense Recognised in profit or loss In thousands of AUD Interest income Interest expense Unw inding of discount on provisions Borrow ing costs Net finance expense Recognised in equity In thousands of AUD Foreign currency translation differences on retranslation of foreign operations Net change in fair value of available-for-sale financial assets Net finance income recognised directly in equity, net of tax, attributable to ow ners of the company 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 Income tax expense 2011 2010 1,206 (24,486) (110) (3,959) (27,349) 1,861 (13,656) (110) (1,310) (13,215) 2011 2010 (50) 982 932 73 110 183 2011 2010 37,006 104 37,110 28,466 - 28,466 (2,029) (6,353) 35,081 22,113 Numerical reconciliation betw een tax expense and pre-tax accounting profit In thousands of AUD Profit before tax Income tax expense using the domestic corporation tax rate of 30% (2010: 30% ) Increase/(decrease) in income tax expense due to: Non-deductible expenses Adjustments in respect of tax deductions for prior year subscriber bases acquired Income tax expense on profit before tax Over provided in prior year Income tax expense 2011 2010 113,243 77,839 33,973 23,351 1,144 1,844 - 35,117 (36) 35,081 (3,082) 22,113 - 22,113  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 12. Earnings per share 50 Basic and diluted earnings per share 2011 Cents 2010 Cents 10.1 7.6 2011 Number 2010 Number Weighted average number of shares used in calculating basic and diluted earnings per share Ordinary shares on issue at 1 August Effect of shares issued under the Dividend Reinvestment Plan Effect of Institutional share placement Effect of share options exercised Effect of issue under Share Purchase Plan 767,849,104 6,864,647 - - - 703,600,974 4,072,719 19,212,653 8,324,275 311,231 Weighted average number of ordinary shares at 31 July 774,713,751 735,521,852 In thousands of AUD 2011 2010 Profit attributable to ordinary shareholders Profit for the year Profit attributable to ordinary shareholders used in calculating basic and diluted earnings per share 78,162 55,726 78,162 55,726  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 51 13. Cash and cash equivalents In thousands of AUD Current Bank balances Cash Cash and cash equivalents 2011 2010 9,519 6 9,525 17,105 7 17,112 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 Current Trade receivables Accrued income and other receivables Less: Provision for impairment losses 2011 2010 28,383 7,170 (5,243) 30,310 21,069 8,811 (6,578) 23,302 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 2011 2010 Customer equipment inventory 262 446 16. Prepayments and other assets In thousands of AUD Current Prepayments Non-current Security deposits 2011 2010 6,655 5,997 809 1,096  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 52 17. Investments In thousands of AUD Current Note 2011 2010 Available-for-sale financial assets 11,293 9,890 Available-for-sale financial assets represent investments in ASX listed equity securities. Sensitivity analysis – equity price risk A tw o percent increase in share price as at the reporting date w ould have increased equity by $158 thousand after tax. An equal change in the opposite direction w ould have decreased equity by $158 thousand after tax. 18. Current tax liabilities The current tax liability for the Group of $19.482 million (2010: $29.845 million) represents the remaining amount of income tax payable in respect of year ended 31 July 2011 19. Deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the follow ing: In thousands of AUD Receivables Inventories Investments Property, plant and equipment Intangible assets Payables Provisions Employee benefits Unearned revenue Equity raising costs Tax loss carry-forw ards recognised Other items Tax (assets)/liabilities Set off of tax Net tax liabilities Assets Liabilities Net 2011 (1,633) - - (1,819) - (261) (4,338) (1,543) (2,551) (647) - (2,379) 2010 (2,643) (117) - (2,003) - (1,490) (3,761) (1,388) (1,786) (575) (1,949) (5,414) 2011 - - 471 8,928 12,616 - 39 - 412 - - 67 2010 - - 47 6,568 21,334 28 - - 241 - - 1,886 (15,171) 15,171 (21,126) 21,126 22,533 (15,171) 30,104 (21,126) - - 7,362 8,978 2011 (1,633) - 471 7,109 12,616 (261) (4,299) (1,543) (2,139) (647) - (2,312) 7,362 - 7,362 2010 (2,643) (117) 47 4,565 21,334 (1,462) (3,761) (1,388) (1,545) (575) (1,949) (3,528) 8,978 - 8,978  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 19. Deferred tax assets and liabilities (continued) M ovement in temporary differences during the year 53 In thousands of AUD Balance in profit or Recognised business Balance Recognised in Recognised Balance 1 August 2009 loss in equity combinations 31 July 2010 profit or loss in equity 31 July 2011 Recognised Acquired in Receivables Inventories Investments Property, plant and equipment Intangible assets Payables Provisions Employee benefits Unearned revenue Equity raising costs Interest-bearing loans and borrow ings Other items Tax loss carry-forw ards (1,208) (236) - 4,794 18,874 (1,613) (2,094) (1,047) (1,009) - 538 (423) (3,888) 12,688 (1,168) 119 - 901 (6,856) 152 (771) (176) (536) 41 (538) 540 1,939 - - 47 - (187) - - - - (616) - - - (6,353) (756) (267) - - (1,130) 9,503 (1) (896) (165) - - - (3,645) - 3,399 (2,643) (117) 47 4,565 21,334 (1,462) (3,761) (1,388) (1,545) (575) - (3,528) (1,949) 8,978 1,010 117 - 2,544 (8,718) 1,201 (538) (155) (594) (61) - 1,216 1949 (2,029) - - 424 - - - - - (11) - - - 413 (1,633) - 471 7,109 12,616 (261) (4,299) (1,543) (2,139) (647) - (2,312) - 7,362  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 20. Property, plant and equipment 54 In thousands of AUD Note Land Plant and equipment Leasehold improvements Leased assets Buildings Total 7 Cost Balance at 1 August 2009 Acquisitions through business combinations Additions Disposals Write-dow ns and w rite-offs Effect of movements in exchange rates Balance at 31 July 2010 Balance at 1 August 2010 Additions Disposals Effect of movements in exchange rates Balance at 31 July 2011 60 - - - - - 60 60 - - - 60 216,728 169,739 38,650 (523) (118) (62) 424,414 424,414 49,943 (1,720) (227) 472,410 119 2,404 297 - - - 2,820 2,820 114 - - 2,934 2,584 - - - - - 2,584 2,584 - - - 2,584 1,035 2,152 - - - (38) 3,149 3,149 - - (114) 3,035 220,526 174,295 38,947 (523) (118) (100) 433,027 433,027 50,057 (1,720) (341) 481,023  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 20. Property, plant and equipment (continued) 55 In thousands of AUD Depreciation and impairment losses Balance at 1 August 2009 Depreciation charge for the year Disposals Write-dow ns and w rite-offs Effect of movements in exchange rates Balance at 31 July 2010 Balance at 1 August 2010 Depreciation charge for the year Disposals Effect of movements in exchange rates Balance at 31 July 2011 Carrying amounts At 1 August 2009 At 31 July 2010 At 1 August 2010 At 31 July 2011 Land Plant and equipment Leasehold improvements Leased assets Buildings Total - - - - - - - - - - - 60 60 60 60 84,093 35,043 (44) (118) (68) 118,906 118,906 45,594 (102) (58) 164,340 132,635 305,508 305,508 308,070 78 206 - - - 284 284 589 - - 873 41 2,536 2,536 2,061 906 134 - - - 1,040 1,040 127 - - 1,167 1,678 1,544 1,544 1,417 41 60 - - 25 85,118 35,443 (44) (118) (43) 126 120,356 126 89 - (12) 203 120,356 46,399 (102) (70) 166,583 994 135,408 3,023 312,671 3,023 2,832 312,671 314,440  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 56 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 2011 the net carrying amount of leased plant and equipment w as $1.417 million (2010: $1.544 million). The leased plant and equipment secures lease obligations (see note 23). 21. Intangible assets In thousands of AUD 2011 2010 Current Capitalised deferred subscriber acquisition costs Balance 1 August Written-off Balance 31 July Amortisation Balance 1 August Amortisation Written-off Balance 31 July Carrying amounts At beginning of year At end of year 4,685 (4,685) 25,456 (20,771) - 4,685 4,303 382 (4,685) 18,141 6,882 (20,720) - 4,303 382 - 7,315 382  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 21. Intangible assets (continued) 57 In thousands of AUD Non-current Cost Balance 1 August 2009 Acquisitions through business combinations Additions Balance 31 July 2010 Balance 1 August 2010 Additions Balance 31 July 2011 Amortisation and Impairment Balance 1 August 2009 Amortisation for the year Balance 31 July 2010 Balance 1 August 2010 Amortisation for the year Balance 31 July 2011 Carrying amounts At 1 August 2009 At 31 July 2010 At 1 August 2010 At 31 July 2011 Note Goodw ill Acquired customer bases Reacquired rights Trademark Internally generated softw are Indefeasible right of use of capacity Development costs Total 241,918 112,465 - 20,068 7,837 26,069 1,459 409,816 37 140,439 - 382,357 382,357 - 382,357 - - - - - - 241,918 382,357 382,357 382,357 114,419 - 226,884 226,884 - 226,884 73,172 32,181 105,353 105,353 38,381 143,734 39,293 121,531 121,531 83,150 3,916 - 3,916 3,916 - 3,916 - 820 820 820 2,000 2,820 - - 20,068 20,068 - 20,068 - - - - - - - 3,096 3,096 1,096 20,068 20,068 20,068 20,068 200 - 8,037 8,037 - 8,037 2,089 1,587 3,676 3,676 1,617 5,293 5,748 4,361 4,361 2,744 34,786 1,033 61,888 61,888 - 61,888 2,731 2,993 5,724 5,724 4,563 10,287 23,338 56,164 56,164 51,601 - - 1,459 1,459 - 1,459 839 94 933 933 94 1,027 620 526 526 432 293,760 1,033 704,609 704,609 - 704,609 78,831 37,675 116,506 116,506 46,655 163,161 330,985 588,103 588,103 541,448  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 21. Intangible assets (continued) 58 Impairment tests for cash generating units containing goodw ill For the purpose of impairment testing, goodw ill is allocated to the Group‟s cash generating units (CGUs). CGUs are determined according to the low est level of groups of assets that generate largely independent cashflow s. The Group has four separate CGUs, being the Consumer, Corporate, PIPE domestic and PIPE international CGUs. Total goodw ill at 31 July 2011 is $382,357,000 (2010: $382,357,000), and is allocated fully to the Consumer CGU as it is the principal beneficiary of the acquisitions from w hich the goodw ill has arisen. The recoverable amount of the goodw ill in the Consumer CGU has been determined based on a value in use calculation. Value in use is determined by discounting the projected future cashflow s generated from the continuing use of the assets in the Consumer CGU. The cashflow projections utilised in the current year w ere the forecast cashflow s for the 3 years to 31 July 2014, extrapolated based on revenue and margin grow th assumptions to cover a 5 year period and incorporating a terminal value. The assumed grow th rate in cashflow s w as 2% per annum in years 4 to 5 based on the long-term industry grow th rate (2010: 2% ). In the terminal phase beyond year 5 the grow th rate used w as also 2% (2010: 2%). A pre-tax discount rate of 15% (2010: 17%) has been used in discounting the projected cashflow s, w hich 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 w hich indicated that a reasonably possible movement in the assumptions w ould not create an impairment. 22. Trade and other payables In thousands of AUD Trade creditors Other creditors and accruals 2011 41,132 31,825 72,957 2010 46,270 38,221 84,491 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 2011 23. Loans and borrow ings 59 This note provides information about the contractual terms of the Group‟s interest-bearing loans and borrow ings. For more information about the Group‟s exposure to interest rate and foreign currency risk, see note 28. In thousands of AUD Current liabilities Gross secured bank loans Less: Unamortised borrow ing costs Secured bank loans Finance lease liabilities Non-current liabilities Gross secured bank loans Less: Unamortised borrow ing costs Secured bank loans Finance lease liabilities 2011 2010 80,000 (3,989) 76,011 203 76,214 80,000 (3,819) 76,181 414 76,595 152,000 (2,542) 149,458 16 149,474 252,000 (6,338) 245,662 222 245,884 (i) (i) (i) On 12 M arch 2010 the Group entered into a new $360 million Syndicated Debt Facility Agreement w hich expires on 12 M arch 2013. $354 million w as initially draw n dow n, the funds being used to finance, together w ith 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. During the year ended 31 July 2011, the Group repaid $100 million of the facility (2010: $22 million), net of a draw dow n of $10 million. The total debt balance at 31 July 2011 w as $232 million. The outstanding loan balance as at the year end is show n in the statement of financial position net of unamortised borrow ing costs of $6.5 million (2010: $10.2 million). As at 31 July 2011, $48 million of the debt facility is available for draw dow n. The Group is making permanent compulsory repayments against the facility of $20 million per quarter. The Group also maintains a bank overdraft facility of $10.6 million (2010: $11.5 million) w hich w as fully unutilised at 31 July 2011 (2010: fully unutilised). The bank loan facility is secured by a fixed and floating charge over all of the assets of the Group, w ith the exception of the assets of the follow ing subsidiaries: Chariot Pty Ltd Kooee Pty Ltd Digiplus Contracts Pty Ltd Digiplus Limited (NZ) Blue Call Pty Ltd Orchid Cybertech Services Inc (Philippines) Orchid Human Resources Pty Ltd TPG (NZ) Pty Ltd  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 23. Loans and borrow ings (continued) Terms and debt repayment schedule Terms and conditions of outstanding loans w ere as follow s: 60 In thousands of AUD Currency interest rate maturity Nominal Year of 2011 2010 Face value Carrying amount Face value Carrying amount Secured bank loan AUD BBSY Finance lease liabilities AUD 6.9% 2011-2013 + margin (1) 2013 (2) 225,469 224 225,693 225,469 219 225,688 321,843 659 322,502 321,843 636 322,479 (1) M argin is variable and is determined quarterly according to gearing ratio. (2) The Group has a repayment schedule of $20 million every quarter until January 2013, w ith the balance of the facility being repayable on 12 March 2013. Finance lease liabilities Finance lease liabilities of the Group are payable as follow s: In thousands of AUD Less than one year Betw een one and five years M inimum lease payments Interest Principal M inimum lease payments Interest Principal 2011 2011 2011 2010 2010 2010 207 17 224 (4) (1) (5) 203 16 219 459 200 659 (21) (2) (23) 438 198 636 24. Employee benefits In thousands of AUD 2011 2010 Current Liability for annual leave Liability for long service leave Non Current Liability for long service leave 2,807 1,058 3,865 2,695 934 3,629 603 621 Included in employee benefits expense for the year ended 31 July 2011 are share based payments totalling $0.112 million (2010: $2.928 million)  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 61 24. Employee benefits (continued) Share based payments (i) Employee Share Option Plan On 8 July 2009, 10.875 million share options w ere granted to employees. On 25 November 2009, a further 2.0 million share options w ere granted to the tw o executive directors. All options granted w ere immediately exercisable w ith a latest exercise date of 30 June 2010. All options w ere to be settled by physical delivery of shares. All outstanding options w ere exercised by the last exercise date of 30 June 2010 w ith the exception of 100,000 w hich lapsed. The fair value of services received in return for share options granted is based on the fair value of share options granted. Expected volatility is estimated by considering historic average share price volatility. The fair value of the options w as measured using a Black Scholes model w ith the follow ing inputs: Share price at grant date Exercise price Expected volatility Option life Expected dividends Risk-free interest rate Fair value at grant date 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 number and w eighted average exercise price of the share options outstanding during 2010 are show n below : Weighted average exercise price 2010 $0.18 $0.18 $0.18 $0.18 Number of options 2010 10,875,000 2,000,000 - (12,775,000) (100,000) - - Balance at start of year Granted during the year Forfeited during the year Exercised during the year Expired during the year Balance at end of year Exercisable at end of year (ii) 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 w hich 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 w hich the employees become unconditionally entitled to the shares w ith 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, how ever they are unable to access the shares until they satisfy the continuity of service criteria. Shares purchased under this scheme vest to the employee at 20% per annum at the end of each of the five years follow ing 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. No amount w as paid into the employee share scheme for the purchase of shares in either 2011 or 2010. In 2010 65,000 previously unallocated shares w ere allocated to 5 employees. During the year ended 31 July 2011 $76,000 (2010: $228,000) w as 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 2011 62 25. Provisions In thousands of AUD M ake good costs Lease increment Other Total Balance 1 August 2010 Provisions made during the year Provisions used during the year Unw ind of discount 5,767 - - 110 350 699 (14) - 2,000 8,117 - - - 699 (14) 110 Balance 31 July 2011 5,877 1,035 2,000 8,912 Current Non-current M ake good costs - 5,877 5,877 - 2,000 1,035 1,035 - 2,000 2,000 6,912 8,912 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. 26. Deferred income and other liabilities In thousands of AUD Current Deferred income Non-current Deferred income 2011 2010 36,312 33,494 23,320 21,496  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 63 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 Dividend Reinvestment Plan Transaction costs, net of tax On issue at 31 July Company Company Ordinary shares In thousands of AUD 2011 2010 767,849,104 703,600,974 2011 478,814 2010 389,747 - 41,009,464 - 747,365 - - 15,632,540 - 12,775,000 9,716,301 - 24,086 65,000 1,185 7,379 16,989 - 783,481,644 767,849,104 - (26) 502,874 (1,486) 478,814 (i) On 4 February 2010 the Company completed an institutional placement to raise $65.0 million through the (ii) issue of 41.0 million new ordinary shares at $1.585. In February 2010, the Company raised $1.2 million under a Share Purchase Plan offered to its shareholders. The Company does not have authorised capital or par value in respect of its issued 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 w ith 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 w here 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. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company‟s ow n equity instruments. At 31 July 2011 the Group held 170,458 of the Company‟s shares (2010: 246,131 shares). 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. Revaluation reserve The revaluation reserve relates to the value of contracted customers that w as recognised on the consolidation of SPT Telecommunications Pty Ltd. This entity w as previously equity accounted and the amount recognised in the reserve reflects 50% of the increment in value of contracted customers that w ere previously equity accounted.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 64 27. Capital and reserves (continued) M inority interest acquisition reserve The minority interest acquisition reserve represents the surplus of the acquisition price over the minority interest acquired. Dividends Dividends recognised in the current year by the Company are as follow s: In thousands of AUD 2011 Interim 2011 ordinary Final 2010 ordinary 2010 Interim 2010 ordinary Final 2009 ordinary Total amount Cents per share Total amount Franked / unfranked Date of payment 2.25 2.00 2.0 1.0 17,449 Franked 24 M ay 2011 15,357 Franked 17 Nov 2010 32,806 15,220 Franked 27 M ay 2010 7,118 Franked 18 Nov 2009 22,338 Franked dividends declared or paid during the year w ere fully franked at the tax rate of 30%. The directors have declared a fully franked final FY11 dividend of 2.25 cents per share. As the final dividend w as not declared or resolved to be paid by the Board of directors as at 31 July 2011, the dividend has not been provided for in the consolidated statement of financial position. The dividend has a record date of 18 October 2011 and w ill be paid on 22 November 2011. For each of the dividends in the table above, a Dividend Reinvestment Plan (DRP) w as made available w ith a discount of 2.5% (final 2009, interim and final 2010) or 2.0% (interim and final 2011). Dividend franking account In thousands of AUD 30 per cent franking credits available to shareholders of TPG Telecom Limited for subsequent financial years 96,502 73,112 2011 2010 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 w ill arise from the payment of the current tax liabilities; franking debits that w ill arise from the payment of dividends recognised as a liability at the year-end; franking credits that w ill 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 $7,555,002 (2010: $6,581,564)  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 65 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 as follows: Carrying amount In thousands of AUD Note 2011 2010 Trade and other receivables Cash and cash equivalents Available-for-sale financial assets Forw ard exchange contracts 14 13 17 30,310 9,525 11,293 - 51,128 23,302 17,112 9,890 (173) 50,131 The Group‟s maximum exposure to credit risk for trade receivables at the reporting date by customer type w as as follow s: In thousands of AUD Type of customer Government Corporate Wholesale Retail Carrying amount Note 2011 2010 * 4,250 13,083 6,935 4,115 4,862 4,561 5,785 5,861 14 28,383 21,069 * The 2011 Corporate trade receivables balance includes an amount of $7.9 million relating to a customer that w as invoiced this amount shortly prior to the year-end and settled the amount subsequent to the year-end. Approximately 14% of the Group‟s trade receivables are attributable to retail customers (2010: 28% ). The Group minimises concentrations of credit risk by undertaking transactions w ith a large number of customers. By industry, the Group is not subject to a concentration of credit risk in any particular industry as its customers operate in a w ide range of industries.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 66 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 w as as follow s: In thousands of AUD Geographical region Australia New Zealand United States Other Carrying amount Note 2011 2010 27,760 6 75 542 28,383 20,236 25 94 714 21,069 14 Geographically, the Group is subject to a concentration of credit risk as predominantly all of its revenue is generated in Australia. Provision for Impairment losses The ageing of the Group‟s trade receivables at the reporting date w as as follow s: 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 2011 2010 19,602 3,719 552 652 896 2,962 28,383 (5,243) 23,140 9,733 5,924 1,229 812 435 2,936 21,069 (6,578) 14,491 The provision for impairment losses of the Group at 31 July 2011 of $5.2 million (2010: $6.6 million) represents the risk of non-collection of outstanding debts that are past due and believed to be at risk. The allow ance is used to record impairment losses unless the Group is satisfied that no recovery of the amount ow ing is possible. At this point the amount is considered irrecoverable and is w ritten off against the financial asset directly. The movement in the provision for impairment losses during the year ended 31 July 2011 is as follow s: In thousands of AUD Balance at 1 August Impairment loss w ritten back Balance at 31 July 2011 2010 6,578 (1,335) 5,243 7,819 (1,241) 6,578  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 67 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 2011 In thousands of AUD Note Carrying amount Contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years More than 5 years Non-derivative financial liabilities Secured bank loans Finance lease liabilities Trade and other payables 23 23 22 (225,469) (259,663) (49,608) (48,302) (161,753) (219) (224) (182) (72,957) (72,957) (72,957) (25) - (17) - (298,645) (332,844) (122,747) (48,327) (161,770) - - - - - - - - 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 Secured bank loans Finance lease liabilities Trade and other payables* 23 23 22 Derivative financial liabilities Forw ard exchange contracts Outflow Inflow * Excludes derivatives (show n 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) More than 5 years - - - - - - It is not expected that the cash flow s included in the maturity analysis above 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 2011 68 28. Financial instruments (continued) M arket 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 w as as follow s: In thousands Trade receivables Other financial assets Trade payables Other financial liabilities Gross Statement of Financial Position exposure Forw ard exchange contracts Net exposure AUD equivalent NZD USD PHP AUD equivalent NZD USD PHP 31 July 2011 31 July 2010 635 659 (2,445) (799) (1,950) - - 699 - 198 22,144 462 1,778 - - 416 - 1,297 13,943 (115) (2,574) (601) (6,902) (7) (6,194) (905) - (879) - (903) - (814) - (115) (2,556) 21,543 (5,565) (7) (5,295) 13,038 - - - - (11,098) - (10,000) - (1,950) (115) (2,556) 21,543 (16,663) (7) (15,295) 13,038 In addition to the above, the Group has operating lease commitments denominated in USD (refer note 29). The follow ing significant exchange rates applied during the year: NZD USD PHP Average rate Reporting date spot rate 2011 2010 2011 2010 1.25 1.00 43.68 1.26 0.86 40.26 1.25 1.10 46.23 1.25 0.90 41.13 Sensitivity analysis A 10 percent strengthening of the Australian dollar against the follow ing currencies at 31 July w ould have increased/(decreased) equity and profit or loss by the amounts show n below . This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2010. In thousands of AUD Equity Profit or loss 31 July 2011 NZD USD PHP 31 July 2010 NZD USD PHP 8 211 (42) 1 1,543 (29) - 211 - - 1,543 - A 10 percent w eakening of the Australian dollar against the above currencies at 31 July w ould have had the equal but opposite effect on the above currencies to the amounts show n 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 2011 69 28. Financial instruments (continued) M arket risk (continued) Interest rate risk Profile At the reporting date the interest rate profile of the Group‟s interest-bearing financial instruments w as as follow s: In thousands of AUD Fixed rate instruments Financial liabilities Variable rate instruments Financial assets Financial liabilities Carrying amount Note 2011 2010 23 13 23 (219) (636) 9,525 (225,469) 17,112 (321,843) (215,944) (304,731) 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 w ould 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 w ould have increased/(decreased) the Group‟s equity and profit or loss by the amounts show n below . This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2010. In thousands of AUD 31 July 2011 Variable rate instruments Cash flow sensitivity 31 July 2010 Variable rate instruments Cash flow sensitivity Group profit/ (loss) 100bp 100bp decrease increase (2,160) (2,160) 2,160 2,160 (3,047) (3,047) 3,047 3,047  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 70 28. Financial instruments (continued) Fair values Fair values versus carrying amounts The fair values of financial assets and liabilities, together w ith the carrying amounts show n in the statement of financial position, are as follow s: 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* Forw ard exchange contracts * Excludes derivatives (show n separately) Note 31 July 2011 31 July 2010 14 13 17 23 23 22 Carrying amount 30,310 9,525 11,293 Fair value 30,310 9,525 11,293 Carrying amount 23,302 17,112 9,890 Fair value 23,302 17,112 9,890 (225,469) (225,469) (321,843) (321,843) (219) (219) (636) (636) (72,957) (72,957) (84,318) (84,318) - - (173) (173) (247,517) (247,517) (356,666) (356,666) 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 flow s, w here applicable, are based on the rates implicit in the transaction, and w ere as follow s: Loans and borrow ings Leases 2011 2010 BBSY + margin 5% to 10% BBSY + margin 5% to 10% Forw ard exchange contracts - 4% to 7% There are three possible valuation methods (or „levels‟) for financial instruments w hich are measured at fair value. Those different levels are as follow s:  Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities  Level 2: inputs other than quoted prices included w ithin Level 1 that are observable for the asset or liability, either directly or indirectly  Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Group‟s only financial instruments w hich are measured at fair value are available-for-sale financial assets. These are categorised as 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 2011 29. Operating leases Leases as lessee Non-cancellable operating lease rentals are payable as follow s: 71 In thousands of AUD Less than one year Betw een one and five years M ore than five years 2011 29,457 56,297 27,251 2010 26,969 71,458 17,198 113,005 115,625 These operating lease commitments include $44.9 million denominated in USD (2010: $62.9 million). 30. Capital and other commitments In thousands of AUD Capital expenditure commitments Contracted but not provided for and payable: 2011 2010 Within one year 8,386 6,900 31. Contingencies The directors are of the opinion that provisions are not required in respect of the below matters, because either it is not probable that a future economic sacrifice of economic benefits w ill 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 w inding up of any of the subsidiaries covered by the Deed. Litigation The Company (or its subsidiaries) are parties to various legal cases w hich have arisen in the ordinary course of the business of the Group. The directors have provided for costs and settlement of certain cases w here such amounts can be reliably estimated. In the opinion of directors, the likelihood of significant cash outflow s relating to other cases is considered remote. In the opinion of the directors, disclosure of further information about these legal cases w ould 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 2011 72 32. Consolidated entities The follow ing is a list of all entities that formed part of the Group as at 31 July 2011: Parent entity TPG Telecom Limited Subsidiaries TPG Holdings Pty Ltd TPG Internet Pty Ltd Value Added Netw ork Pty Ltd TPG Netw ork 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 M obile Pty Ltd Soul Communications Pty Ltd Soul Contracts Pty Ltd Digiplus Investments Pty Ltd Digiplus Holdings Pty Ltd Digiplus Pty Ltd Digiplus Limited (1) Codex Limited Digiplus Contracts Pty Ltd Blue Call Pty Ltd PIPE Netw orks Pty Ltd PIPE Transmission Pty Ltd PIPE International (Australia) Pty Ltd PPC 1 Limited PPC 1 (US) Incorporated ACN 139 798 404 Pty Ltd (1) PSSC Pty Ltd (1) Non-operating subsidiaries w ound up during the year Country of Incorporation Ownership interest (%) 2011 2010 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 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 33. Reconciliation of cash flow s from operating activities 73 In thousands of AUD Note 2011 2010 Cash flow s from operating activities Profit/(loss) for the year after income tax Adjustments for: Dividend income Depreciation of plant and equipment Amortisation and impairment of intangibles Bad and doubtful debts Amortisation of prepaid advertising Borrow ing costs w ritten-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 w orking 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 11 78,162 55,726 (667) 46,399 47,037 (2,905) - 3,959 37 75 1,237 (1,206) 24,596 - - 35,081 (207) 35,443 44,557 1,992 1,833 1,310 40 2,890 133 (1,861) 13,766 5,684 (20) 22,113 231,805 183,399 (4,103) 184 (484) - (17,416) 4,187 218 795 10,207 259 2,955 51 (12,875) 2,479 525 2,078 215,186 189,078 (16,768) (47,538) 167,648 172,310  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 74 34. Parent entity disclosures In thousands of AUD Result of the parent entity Loss for the period Other comprehensive income Total comprehensive income for the period (i) Loss for the period comprises: Finance expenses Costs relating to mergers and acquisitions Income tax benefit Others Total loss for the period 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 Treasury share reserve Retained accumulated losses Total Equity Company Note 2011 2010 (i) (21,343) - (15,955) - (21,343) (15,955) (28,420) (148) 7,670 (445) (14,660) (5,684) 5,872 (1,483) (21,343) (15,955) 545 723,387 1,316 854,469 113,368 295,682 117,936 396,751 502,874 (81) (75,088) 478,814 (157) (20,939) 427,705 457,718 Parent entity guarantees The parent entity has entered into a Deed of Cross Guarantee w ith 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 2011 35. Related parties 75 The follow ing w ere key management personnel of the Group at any time during the reporting period and, unless otherw ise indicated, were key management personnel for the entire period: Executive directors M r David Teoh Executive Chairman & Chief Executive Officer M r Alan Latimer Executive Director, Finance & Corporate Services Non-executive directors M r Robert M illner M r Denis Ledbury M r Joseph Pang Executives M r Craig Levy General M anager, M arketing & Consumer Sales M r Jason Sinclair Chief Executive Officer, PIPE Netw orks M r John Paine National Technical and Strategy M anager M s M andie De Ville Chief Information Officer M r Stephen Banfield Chief Financial Officer and Company Secretary M r Witold Piestrzynski Chief Operating Officer M r Wayne Springer General M anager, Corporate Sales M r Bevan Slattery Chief Executive Officer, PIPE Netw orks Subsidiary employer acquired 17 M arch 2010 Ceased employment 18 February 2011 Recognised in key management personnel from 1 August 2010 Subsidiary employer acquired 17 M arch 2010 Resigned w ith effect from 30 September 2010  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 35. Related parties (continued) Key management personnel compensation 76 The key management personnel compensation included in employee benefits is as follow s: In AUD Short-term employee benefits Post-employment benefits Other long term benefits Termination benefits Equity compensation benefits 2011 2010 3,699,815 258,090 (24,982) 58,464 18,845 3,175,569 349,332 46,926 20,192 2,926,129 4,010,232 6,518,148 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, M r D Teoh. The total rent charged for the financial year 2011 w as $111,264 (2010: $105,966). Apart from the details disclosed in this note, no director has entered into a material contract w ith the Company or the Group since the end of the previous financial year and there w ere no material contracts involving directors‟ interests existing at year-end. Loans to key management personnel and their related parties There w ere no loans in existence betw een 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 w ith 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 2011 35. Related parties (continued) Options and rights over equity instruments 77 There w ere no rights or options over shares in the Company outstanding at the start of the financial year ended 31 July 2011 and none w ere granted during the year. Details of the movement during the year ended 31 July 2010 in the number of options over ordinary shares in the Company held directly, indirectly or beneficially, by each key management person, including their related parties, are set out below : 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 Directors M r D Teoh M r A Latimer Executives M r C Levy M r J Paine M s M De Ville M r S Banfield - - 1,000,000 1,000,000 1,000,000 1,000,000 500,000 700,000 100,000 500,000 - - - - 500,000 700,000 100,000 500,000 - - - - - - - 1,000,000 - 1,000,000 - - - - - - - - - - - - - -  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 78 35. Related parties (continued) M ovements in shares Held at 1 August Granted as 2010 Purchases remuneration Received under DRP * * Disposals Held at 31 July 2011 279,109,400 1,174,108 6,466,269 150,000 85,000 - - 400,000 - - - - - - - 7,759,369 26,552 190,885 - 2,363 - (440,288) - - - 286,868,769 760,372 7,057,154 150,000 87,363 645,817 3,678,749 30,000 115,233 500,000 2,803,352 1,595,296 - - - - - - - 18,112 - - 6,279 19,993 - - - 102,271 - - - - - - - - - (169,993) 663,929 3,781,020 30,000 121,512 350,000 (2,400,000) n/a (240,394) 1,354,902 Held at 1 August 2009 Purchases Granted as remuneration or on exercise of options Received under DRP * * Disposals Held at 31 July 2010 273,383,415 1,322,844 6,223,244 311,709 - - - 133,352 - 85,000 1,000,000 1,000,000 - - - 4,725,985 21,264 109,673 2,494 - - (1,170,000) - (164,203) - 279,109,400 1,174,108 6,466,269 150,000 85,000 116,705 3,114,767 - 8,954 24,368 2,303,352 99,000 - - - - 518,112 700,000 30,000 106,279 519,991 - 63,982 - - - (88,000) (200,000) - - (44,359) 645,817 3,678,749 30,000 115.233 500,000 - 1,000,000 - (500,000) 2,803,352 Directors M r D Teoh M r A Latimer M r R M illner M r D Ledbury M r J Pang Executives M r C Levy M r J Paine M r J Sinclair M s M De Ville M r S Banfield M r W Piestrzynski* M r W Springer Directors M r D Teoh M r AJ Latimer M r R M illner M r D Ledbury M r J Pang Executives M r C Levy M r J Paine M r J Sinclair M s M De Ville M r S Banfield M r W Piestrzynski * Ceased employment on 18 February 2011 * * DRP = Dividend Reinvestment Plan  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 79 35. Related parties (continued) Identity of related parties The Group has no related party relationships other than w ith its key management personnel. 36. Subsequent events Takeover of IntraPower Limited On 14 July 2011 the Company entered into a Takeover Bid Implementation Agreement w ith IntraPow er Limited, under w hich the Company proposed to acquire all outstanding shares in IntraPow er, via an off market takeover offer, for $0.30 per IntraPow er share in cash, or $0.15 in cash plus 0.089 TPG Telecom Limited shares per IntraPow er share. The value of the all cash offer w as $12.792 million. The takeover offer opened on 29 July 2011, and closed on 29 August 2011 w ith offer acceptances having been received in relation to shares representing 97.36% of the total number of IntraPow er shares. The consideration for these shares w as paid on 19 September 2011, by w ay of a cash payment of $11.758 million and the issue of 412,694 TPG Telecom Limited shares. The Company commenced the compulsory acquisition of the remaining 2.64% of IntraPow er shares on 31 August 2011, the consideration for w hich w ill be paid follow ing the completion of the compulsory acquisition in October 2011. On 14 July 2011 the Company also entered into Pre-bid acceptance agreements w ith certain IntraPow er shareholders under w hich the shareholders, w ho represented 8,485,410 IntraPow er shares (19.90% ), agreed to accept the takeover offer, thereby giving the Company an option to acquire these shares. At the 31 July 2011 balance date these options w ere deemed to have no material value. As at the date of this report, no assessment has been made of the fair values at date of acquisition of the assets of the acquired business. Other than as noted above, there has not arisen in the interval betw een 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.  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 80 37. Business combinations The Group acquired 100% of Pipe Netw orks Limited on 17 M arch 2010. The goodw ill that arose on acquisition w as 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 for 2010. The fair values of the identifiable assets and liabilities of PIPE as at the date of acquisition are shown in the table below: 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 borrow ings (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 Goodw ill 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 2011 81 38. Deed of cross guarantee Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the w holly-owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for preparation, audit, and lodgement of financial reports and directors‟ reports. 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 f ull of any debt in the event of w inding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a w inding up occurs under other provisions of the Act, the Company w ill 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 w ound up. The Deed of Cross Guarantee w as entered into on 25 June 2008. The Australian incorporated companies w ithin the PIPE group (as included in the list below ) w ere joined as parties to the Deed of Cross Guarantee through an Assumption Deed dated 6 M ay 2010. The subsidiaries subject to the Deed are as follow s: 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 M obile Pty Ltd SPT Telecommunications Pty Ltd TPG Holdings Pty Ltd TPG Internet Pty Ltd Value Added Netw ork Pty Ltd Orchid Human Resources Pty Ltd TPG Broadband Pty Ltd TPG Netw ork Pty Ltd TPG Research Pty Ltd TPG (NZ) Pty Ltd Digiplus Limited (NZ) Chariot Pty Ltd Pipe Netw orks Pty Ltd Pipe International (Australia) Pty Ltd Pipe Transmission Pty Ltd ACN 139 798 404 Pty Ltd  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 82 38. Deed of cross guarantee (continued) A consolidated statement of comprehensive income and consolidated statement of financial position, comprising the Company and controlled entities w hich are a party to the Deed, after eliminating all transactions betw een parties to the Deed of Cross Guarantee, at 31 July 2011 is set out as follow s: Statement of comprehensive income and retained profits In thousands of AUD Revenue Dividend Income 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 2011 2010 571,888 667 506,144 207 (256,016) (39,147) (42,442) (256,939) (35,740) (42,721) 234,950 170,951 (38,966) (47,042) 148,942 (32,405) (44,557) 93,989 1,203 (28,555) 1,860 (15,076) (27,352) (13,216) 121,590 80,773 (37,581) (22,851) Profit for the year attributable to owners of the company 84,009 57,922 Other comprehensive income, net of tax Total comprehensive income for the year 982 84,991 110 58,032 Retained earnings at beginning of year Profit for the year Dividends recognised during the year Retained earnings at end of year 4,944 84,009 (32,806) 56,147 (30,640) 57,922 (22,338) 4,944  TPG Telecom Limited and its controlled entities Notes to the consolidated financial statements For the year ended 31 July 2011 38. Deed of cross guarantee (continued) Statement of financial position In thousands of AUD 2011 2010 83 Assets Cash and cash equivalents Trade and other receivables Inventories Intangible assets Investments Prepayments and other assets Total Current Assets Investments in subsidiaries Loans to subsidiaries Property, plant and equipment Intangible assets Prepayments and other assets Total Non-Current Assets Total Assets Liabilities Trade and other payables Loans and borrow ings Current tax liabilities Employee benefits Accrued Interest Deferred income and other liabilities 9,040 29,931 262 - 11,293 5,879 56,405 381 113,787 209,347 508,988 629 833,132 15,514 23,059 446 382 9,890 5,166 54,457 381 115,679 202,055 553,181 980 872,276 889,537 926,733 71,018 76,214 19,471 3,865 380 35,606 79,207 76,595 29,856 3,549 412 32,898 Total Current Liabilities 206,554 222,517 Loans and borrow ings Deferred tax liabilities Employee benefits Provisions Deferred income and other liabilities Total Non-Current Liabilities 149,474 7,705 515 6,912 14,637 179,243 245,884 10,479 621 6,117 13,705 276,806 Total Liabilities 385,797 499,323 Net Assets 503,740 427,410 Equity Share Capital Reserves Retained earnings Total Equity 502,875 (55,282) 56,147 503,740 478,814 (56,348) 4,944 427,410 TPG Telecom Limited and its controlled entities Directors‟ declaration For the year ended 31 July 2011 84 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 83 and the Remuneration report in section 4.1 of the Directors‟ report, set out on pages 12 to 18, are in accordance w ith 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 2011 and of their performance for the financial year ended on that date; and (ii) complying w ith Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial report also complies w ith International Financial Reporting Standards as disclosed in note 2(a); and (c) there are reasonable grounds to believe that the Company w ill be able to pay its debts as and w hen they become due and payable. 2. 3. There are reasonable grounds to believe that the Company and the consolidated entities identified in Note 38 w ill be able to meet any obligations or liabilities to w hich they are or may become subject to by virtue of the Deed of Cross Guarantee betw een 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 2011 required by Section 295A of the Corporations Act 2001. Dated at Sydney this 6th day of October, 2011. Signed in accordance w ith a resolution of the directors: David Teoh Chairman 85 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 its controlled entities, w hich comprises the consolidated statement of financial position as at 31 July 2011, and consolidated income statement and consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flow s for the year ended on that date, notes 1 to 38 comprising a summary of significant accounting policies and other explanatory information and the directors‟ declaration of the Group comprising the Company and the entities it controlled at the year‟s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance w ith Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement w hether due to fraud or error. In note 2(a), the directors also state, in accordance w ith Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply w ith 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 w ith Australian Auditing Standards. These Auditing Standards require that w e comply w ith relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance w hether 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 audit or‟s judgement, including the assessment of the risks of material misstatement of the financial report, w hether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity‟s preparation of the financial report that gives a true and fair view 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 w ell as evaluating the overall presentation of the financial report. We performed the procedures to assess w hether in all material respects the financial report presents fairly, in accordance w ith the Corporations Act 2001 and Australian Accounting Standards, a true and fair view w hich is consistent w ith our understanding of the Group‟s financial position and of its performance. We believe that the audit evidence w e have obtained is sufficient and appropriate to provide a basis for our audit opinion. 86 Independence In conducting our audit, w e have complied w ith the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial report of the Group is in accordance w ith the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group‟s financial position as at 31 July 2011 and of its performance for the year ended on that date; and complying w ith Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report also complies w ith International Financial Reporting Standards as disclosed in note 2(a). Report on the remuneration report We have audited the Remuneration Report included in pages 12 to 18 of the directors‟ report for the year ended 31 July 2011. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance w ith 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 w ith auditing standards. Auditor’s opinion In our opinion, the remuneration report of TPG Telecom Limited for the year ended 31 July 2011, complies w ith Section 300A of the Corporations Act 2001. KPM G Anthony Travers Partner Sydney 6 October 2011 87 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 know ledge and belief, in relation to the audit for the financial year ended 31 July 2011 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) KPM G Anthony Travers Partner Sydney 6 October 2011 88 TPG Telecom Limited and its controlled entities ASX additional information For the year ended 31 July 2011 Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsew here in this report is set out below . Shareholdings (as at 28 September 2011) 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 286,868,770 209,919,812 36.60 26.78 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 1,574 1,942 856 1,256 153 5,781 The number of shareholders holding less than a marketable parcel of ordinary shares is 653. Stock exchange The Company is listed on the Australian Stock Exchange. The home exchange is Sydney, and the 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 2011 89 Tw enty largest shareholders Name of shareholder Number of ordinary shares held Percentage of capital held WASHINGTON H SOUL PATTINSON AND COM PANY LIM ITED DAVID TEOH VICKY TEOH J P M ORGAN NOM INEES AUSTRALIA LIM ITED NATIONAL NOM INEES LIM ITED WIN CORPORATION PTY LTD HSBC CUSTODY NOM INEES (AUSTRALIA) LIM ITED RBC DEXIA INVESTOR SERVICES AUSTRALIA NOM INEES PTY LIM ITED FARJOY PTY LTD CITICORP NOM INEES PTY LIM ITED COGENT NOM INEES PTY LIM ITED J S M ILLNER HOLDINGS PTY LIM ITED JP M ORGAN NOM INEES AUSTRALIA LIM ITED BKI INVESTMENT COM PANY LIM ITED M R JOHN ERIC PAINE M ILTON CORPORATION LIM ITED TOTAL PERIPHERALS PTY LTD M S SENG BEE TEOH + M R SIN M ONG WONG GWYNVILL TRADING PTY LTD M R KOK YEONG M OEY 209,919,812 142,839,860 141,708,217 48,595,421 43,396,874 21,530,923 21,203,239 12,871,468 9,010,000 6,888,556 6,175,774 5,854,134 4,458,138 4,420,000 3,781,020 3,731,553 2,320,693 2,276,755 2,250,000 1,758,953 26.78 18.22 18.08 6.20 5.54 2.75 2.70 1.64 1.15 0.88 0.79 0.75 0.57 0.56 0.48 0.48 0.30 0.29 0.29 0.22 694,991,390 88.67 Principal Registered Office 65 Waterloo Road M acquarie Park NSW 2113 Telephone: 02 9850 0800 Location of Share Registry Computershare Investor Services Pty Ltd Level 3, 60 Carrington Street Sydney NSW 2000 Telephone: 02 8234 5000 w w w. t p g . c o m . a u 

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