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ANNUAL REPORT
TPG Telecom Limited
and its controlled entities
ABN 46 093 058 069
Annual Report
Year ended 31 July 2013
TPG Telecom Limited and its controlled entities
Annual report
For the year ended 31 July 2013
Contents
Chairman’s letter
Directors’ report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Directors’ declaration
Independent auditor’s report
Lead auditor’s independence declaration
ASX additional information
2
Page
3
4
34
35
36
37
38
39
95
96
98
99
TPG Telecom Limited and its controlled entities
Chairman’s letter
For the year ended 31 July 2013
3
Dear Shareholders
I am pleased to present to you, on behalf of the Board of Directors, the TPG Telecom Limited Annual
Report for the financial year ended 31 July 2013 (“FY13”).
It has been another successful year for the Group with continued strong organic growth resulting in
further increases in revenue, profits, and returns for shareholders.
A detailed review of the Group’s operating and financial performance for the year is provided in the
Operating and Financial Review section of the Directors’ Report, starting on page 6 of this Annual Report.
Set out below are some of the key financial highlights from the year.
Revenue
EBITDA
NPAT
EPS (cents/share)
Dividends (cents/share)
Free cashflow
FY13
$m
724.5
293.1
149.2
18.8
7.5
174.5
FY12
$m
663.1
261.4
91.0
11.5
5.5
150.0
Movement
+9%
+12%
+64%
+63%
+36%
+16%
Key to the achievement of these excellent results is the hard work and commitment of all of the Group’s
employees. To them I would like to extend thanks on behalf of the Board and I look forward to their
ongoing contribution to the Group’s success.
On behalf of the Board, I also thank all our shareholders for their continued support of the Company.
Yours faithfully
David Teoh
Chairman
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
4
The directors present their report together with the financial report of the Group, being TPG Telecom
Limited (‘the Company’) and its controlled entities, for the financial year ended 31 July 2013, and the
auditor’s report thereon.
Contents of directors’ report
Page
1. Directors
2. Company secretary
3. Directors’ meetings
4. Operating and financial review
5. Corporate governance statement
6. Remuneration report - audited
7. Principal activities
8. Dividends
9. Events subsequent to reporting date
10. Likely developments
11. Directors’ interests
12. Share options and rights
13. Indemnification and insurance of officers and auditors
14. Non-audit services
15. Lead auditor’s independence declaration
16. Rounding off
5
6
6
6
16
22
30
30
30
30
31
31
32
32
33
33
5
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
1. Directors
Details of the directors of the Company who held office at any time during or since the end of the financial year are
as follows:
Name,
qualifications and
independence
status
David Teoh
Executive Chairman
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
Shane Teoh
Non-Executive Director
B.Com
LLB
Age
Experience, special responsibilities and other directorships
58
62
63
59
60
27
David was the founder and Managing Director of the TPG group of companies.
TPG Telecom Ltd (2008-current).
TPG Telecom Ltd (2000-current), BKI Investment Company Ltd (2003-current),
Apex Healthcare Berhad (2000-current), Australian Pharmaceutical Industries Ltd
(2000-current), Milton Corporation Ltd (1998-current), Brickworks Ltd (1997-
current), New Hope Corporation Ltd (1995-current), Washington H Soul Pattinson
and Company Ltd (1984-current), Exco Resources Ltd (2012-2013), Northern
Energy Corporation Ltd (2011), Souls Private Equity Ltd (2004-2012) and
Choiseul Investments Ltd (1995-2010).
Former Chairman of TPG Telecom Ltd, resigned position in 2008.
Member of Audit & Risk and Remuneration Committees.
Denis was the Managing Director of TPG Telecom between 2000 and 2005, and
was associated with the NBN group of companies for over 24 years (the last 14
as Chief Executive Officer).
TPG Telecom Ltd (2000-current).
Chairman of Audit & Risk and Remuneration Committees.
Prior to becoming an Executive Director of TPG Telecom, Alan was the Chief
Financial Officer of the TPG group of companies. He has also previously worked
with a number of large international IT and financial companies.
TPG Telecom Ltd (2008-current).
Joseph has worked in financial roles in the UK, Canada and Hong Kong prior to
starting his own Management and Financial Consulting Service in Australia.
TPG Telecom Ltd (2008-current).
Member of Audit & Risk and Remuneration Committees.
TPG Telecom Ltd (appointed 11 October 2012).
Shane holds a Bachelor of Commerce and a Bachelor of Laws from the
University of New South Wales. He is managing director of Total Forms Pty Ltd, a
leading developer of accounting and taxation software in Australia.
6
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
2. Company secretary
Mr Stephen Banfield was appointed Company Secretary on 24 October 2007. Stephen 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 Board and committee meetings held during the financial year and the number of meetings
attended by each of the directors as a member of the Board or relevant committee was as follows:
Director
Board Meetings
Audit & Risk
Committee Meetings
Remuneration
Committee Meetings
D Teoh
R Millner
D Ledbury
A Latimer
J Pang
S Teoh
A
14
14
14
14
14
11
B
14
14
14
14
14
11
A
-
2
2
-
2
-
B
-
2
2
-
2
-
A
-
3
3
-
3
-
B
-
3
3
-
3
-
A: Number of meetings attended.
B: Number of meetings held while a member.
4. Operating and financial review
4.1 Operating result overview
The financial year ended 31 July 2013 (“FY13”) was another year of strong organic growth for the TPG
Telecom Limited group (“the Group”). The Group succeeded in increasing profits again this year through
its continued focus on growing its consumer and corporate customer bases by delivering value leading
telecommunications services through its TPG and PIPE Networks brands.
The Group’s reported earnings before interest, tax, depreciation and amortisation (“EBITDA”) increased
by 12% to $293.1m and reported net profit after tax (“NPAT”) grew 64% to $149.2m. It should be noted
that the prior year’s NPAT result was adversely affected by a $23.2m one-off tax expense which arose
from a retrospective change in tax legislation, but even excluding the impact of this, the FY13 NPAT
result still represents a 31% increase compared to FY12.
7
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
4. Operating and financial review (continued)
4.1 Operating result overview (continued)
Earnings per share (“EPS”) also increased strongly by 63% to 18.8 cents per share (31% growth
excluding the prior year one-off tax item).
These strong earnings results were reflected in the Group’s cashflow performance, with $174.5m of free
cashflow generated in the year after tax, interest and capital expenditure.
In light of these FY13 results, the Board of Directors increased dividends to shareholders declared or paid
in respect of FY13 to a total of 7.5 cents for the year (fully franked), a 36% increase over FY12.
These FY13 financial results and returns for shareholders are a continuation of the strong growth trend
achieved by the Group over the last five years as shown in the charts below.
EBITDA
NPAT *
$m
300
200
100
0
¢
20.0
15.0
10.0
5.0
0.0
$m
150
100
50
0
9
0
Y
F
0
1
Y
F
1
1
Y
F
2
1
Y
F
3
1
Y
F
9
0
Y
F
0
1
Y
F
1
1
Y
F
2
1
Y
F
3
1
Y
F
EPS *
Dividends
¢
8.0
6.0
4.0
2.0
0.0
9
0
Y
F
0
1
Y
F
1
1
Y
F
2
1
Y
F
3
1
Y
F
9
0
Y
F
0
1
Y
F
1
1
Y
F
2
1
Y
F
3
1
Y
F
In the charts FY12 NPAT and EPS are normalised to exclude the $23.2m one-off tax expense.
8
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
4. Operating and financial review (continued)
4.2 Customer growth
During FY13 the Group achieved continued organic growth of its broadband subscriber base, with a net
increase of 76,000 subscribers compared to 47,000 in FY12. This growth comprised a net increase of
130,000 subscribers to the Group’s home phone and broadband bundle plans, partially offset by a
reduction in standalone on-net (40,000) and off-net (14,000) subscribers. Since its launch in 2010, the
Group’s home phone and broadband bundle product has added over 350,000 customers.
Broadband Subscribers
)
s
0
0
0
(
s
r
e
b
i
r
c
s
b
u
S
700
650
600
550
500
450
400
350
300
250
200
150
100
50
0
Jul-10
Jul-11
Jul-12
Jul-13
On Net Bundle
On Net
Off Net
Complementing the growth in broadband, TPG’s mobile phone subscriber base increased by 105,000 in
FY13 compared to 54,000 growth in FY12.
Mobile Subscribers
)
s
0
0
0
(
i
s
r
e
b
c
r
s
b
u
S
400
350
300
250
200
150
100
50
0
Jul-10
Jul-11
Jul-12
Jul-13
9
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
4. Operating and financial review (continued)
4.2 Customer growth (continued)
As at 31 July 2013 the Group had 671,000 broadband subscribers and 360,000 mobile phone
subscribers. In addition to this the Group had approximately 4,000 corporate, government, wholesale and
small-medium enterprise customers.
4.3 Network infrastructure update
At the core of the Group’s business is its extensive telecommunications network infrastructure which it
continued to expand in the year with investment in the following main areas:
(i) Adding more capacity within the Group’s 411 DSLAM exchanges to meet the demand for
ADSL2+ broadband services, including adding 12 new exchanges during the year;
(ii) Increasing by 50 the number of exchanges directly connected to the Group’s fibre network;
(iii) Adding over 800 km to the Group’s domestic fibre footprint to meet demand for fibre services from
corporate and SME customers as well as increasing on-net backhaul for all of the Group’s voice
and data traffic. The Group’s total domestic fibre footprint is now over 3,800km; and
(iv) Increasing by approximately 300 the number of buildings that are directly connected to the
Group’s fibre network, with total on-net buildings now exceeding 1,600.
This continued investment in infrastructure provides an important foundation for the growth of the Group’s
customer base and profits. During the year the Group also made a number of significant announcements
in relation to future developments of its network infrastructure, which are designed to ensure that the
Group remains well positioned to continue to profitably service its growing customer base in the future.
1. Spectrum
The Group made a successful bid at the digital dividend auction in May 2013 for 20MHz of spectrum
licences in the 2.5GHz band across the country. The acquisition of spectrum will complement the
Group’s fixed infrastructure, giving it opportunities to offer innovative, value-adding products to further
enhance its existing product suite. The spectrum will only become available for use from October 2014,
with the $13.5m purchase price payable in September 2014.
International fibre
2.
The Group’s existing international fibre infrastructure includes its own submarine cable (“PPC-1”) linking
Australia to Guam, as well as capacity on other cable networks linking Australia directly with New
Zealand, USA, Japan, Hong Kong, Singapore and Philippines. In August 2013 the Group issued a Letter
of Intent to submarine cable group Hawaiki Cable Limited confirming its intention to acquire capacity on
the Australia-US and Australia-NZ segments of the planned Hawaiki submarine cable system. This would
provide a significant addition to the capacity and diversity of the Group’s international network which,
once activated, should deliver cost savings to the Group. The expected capital expenditure in relation to
this project is between US$10m and US$20m for each of the next three financial years commencing
FY14, prior to the cable’s expected activation in FY16.
10
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
4. Operating and financial review (continued)
4.3 Network infrastructure update (continued)
3. Fibre to the building (FTTB)
The Group is planning to increase the number of buildings directly connected to its fibre network in metro
areas. With the evolution of new technologies now enabling speeds of up to 100 Mbps this will enable
the Group to commence offering very high-speed broadband services to its customers at ADSL2+ prices.
4.4 Financial results review
There follows below a review of the key elements of the FY13 result:
Revenue
Consumer
Corporate
Total revenue
Telco costs
Consumer
Corporate
Total telco costs
Other income
Employee expenses
Other expenses
EBITDA
Depreciation
Amortisation
Operating profit
Net financing costs
Profit before tax
Income tax
Profit after tax
Earnings per share (cents)
% of
revenue
66%
34%
49%
37%
45%
-
8%
6%
40%
7%
3%
30%
1%
29%
-
21%
FY13
$m
480.3
244.2
724.5
(237.4)
(90.7)
(328.1)
3.3
(60.1)
(46.5)
293.1
(49.9)
(23.9)
219.3
(7.0)
212.3
(63.1)
149.2
18.8
% of
revenue
62%
38%
52%
37%
46%
-
9%
6%
39%
7%
5%
27%
3%
25%
-
14%
FY12
$m
412.7
250.4
663.1
(215.5)
(91.6)
(307.1)
1.4
(58.7)
(37.4)
261.4
(47.1)
(34.0)
180.4
(17.1)
163.2
(72.3)
90.9
11.5
11
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
4. Operating and financial review (continued)
4.4 Financial results review (continued)
Revenue
a) Consumer
Consumer revenue increased by $67.6m (16%)
to $480.3m in FY13.
This increase was driven by an increase in
subscribers on the Group’s broadband, home
phone and mobile phone plans. Broadband
subscribers increased over the year by 76,000
(13%) to 671,000 (including more than 350,000
subscribers with a home phone service). Mobile
phone subscribers increased by 105,000 (41%)
to 360,000.
Monthly ARPU (average revenue per user) for
broadband customers increased in the year from
$48.2 to $49.3 due to the increasing proportion
of the customer base that is now on a plan that
bundles broadband and home phone line rental.
Mobile ARPU decreased from $18.8 to $17.6 as
a result of the increased take-up in the year of
the Group’s “super value plans”.
(Note that ARPU is calculated using GST
exclusive recurring charges only, i.e. it excludes
one-off charges such as installation fees and
equipment sales).
b) Corporate
Corporate (including government, wholesale and
large SME) revenue decreased by $6.2m (2%)
to $244.2m in FY13.
However, included in FY13 corporate revenue is
$10.5m arising from an IRU (Indefeasible Right
of Use) contract which was recognised in
revenue as a finance lease. This is $10.2m
lower than the $20.7m IRU revenue that was
accounted for in the same manner in FY12. The
relevance of separately identifying these IRU
amounts is because they are non-recurring in
nature whereas the rest of corporate revenue
generally comprises recurring charges to
customers. This means that the corporate
division’s recurring revenue actually grew in
FY13 by $4.0m (2%). This growth, though
small, has been achieved in an environment of
falling prices, and also where telco industry
consolidation is driving some significant
reductions in wholesale revenue.
Corporate sales have performed well in the year
to grow recurring revenues in spite of market
conditions, and pleasingly, the division has been
able to grow earnings at a faster pace than
revenue due to improved margins, as explained
under corporate telco costs below.
Telco costs
Telco costs comprise all of the direct operating
costs incurred to deliver the Group’s
telecommunications services to customers,
including amounts paid to other carriers, and the
non-staff costs of operating and maintaining the
Group’s own network.
a) Consumer
Consumer telco costs reduced as a proportion of
consumer revenue in FY13 from 52% to 49%.
Within the costs for FY13, however, is a $10.0m
one-off benefit arising primarily from credits that
the Group received as a result of regulatory
decisions made by the ACCC during the year.
The ACCC determined that the price Telstra had
been charging industry participants, including
TPG, for certain services was too high. These
determinations provide benefits for the Group’s
ongoing cost structure as well but the amount of
$10.0m is separately identified as it represents a
refund in respect of previous financial years and
has hence provided a one-off boost to the
consumer division’s earnings in FY13.
Excluding the $10.0m one-off benefit, telco costs
in the consumer business have remained
consistent as a proportion of revenue at 52%.
12
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
4. Operating and financial review (continued)
4.4 Financial results review (continued)
b) Corporate
EBITDA
Corporate telco costs in FY13 represented 37%
of revenue, which was in line with FY12.
However, excluding the IRU revenue, telco costs
fell from 40% to 39% of recurring revenue. This
margin improvement has been achieved in an
environment of sharply reduced pricing in
corporate business and reflects the benefits to
the Group of its past and ongoing investment in
network infrastructure. This has enabled higher
operating margins to be generated due to the
increasing proportion of customers’ traffic that is
carried on the Group’s owned infrastructure
rather than on circuits leased from other carriers.
Other income
Other income, which grew from $1.4m to $3.3m
in FY13, comprised dividend income from the
Group’s ASX listed investments and a gain from
a small disposal of shares made during the year.
Employee expenses
Employee expenses grew in absolute terms in
the year by $1.4m (2%) but reduced slightly as a
proportion of revenue from 8.9% to 8.3%. The
Group’s total headcount at the end of the year
was 1987.
Overall Group EBITDA grew by $31.7m (12%) to
$293.1m in FY13. The impact of the reduction in
IRU non-recurring revenue on corporate revenue
and the non-recurring retrospective benefit
received in the year from the Telstra credits
described under consumer telco costs above
broadly offset each other such that the 12%
growth is a reasonable representation of
underlying growth in the year. This underlying
growth has been driven by strong consumer
subscriber growth and improved corporate
revenue margins accompanied by continued
cost discipline.
Depreciation
Depreciation expense increased by $2.8m in
FY13 reflecting the Group’s continued
investment in network infrastructure.
Amortisation
Amortisation expense decreased by $10.1m in
the year. This was due to the fact that the
customer bases acquired in previous years
through the acquisitions of TPG Internet and
PIPE Networks, which are represented as
intangible assets in the Group’s balance sheet,
are amortised on a reducing balance basis.
Other expenses
Net financing costs
Other expenses, which include all of the
overheads incurred by the Group in running the
business as well as marketing costs, grew in
absolute terms in the year by $9.1m but stayed
constant as a proportion of revenue at 6%. The
prior year figure for other expenses, however,
benefited from a one-off amount of $2.0m
following the successful resolution of a
commercial dispute. The increase in other
expenses in FY13 excluding this is $7.1m.
Net financing costs decreased by $10.1m as a
result of the significant reduction in the Group’s
borrowings. The Group repaid $107.0m of bank
debt during FY13 and, as at 31 July 2013, it has
repaid $192.0m since the beginning of FY12.
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
4. Operating and financial review (continued)
13
4.4 Financial results review (continued)
Income tax
The Group’s effective income tax rate was
29.7% in FY13, down from 44.3% in FY12. The
prior year tax expense was inflated by a $23.2m
one-off expense that arose as a result of a
retrospective change in tax legislation enacted in
June 2012 that caused the Group to lose the
right to claim tax deductions for its acquired
customer base amortisation. Excluding the one-
off expense, the effective tax rate for FY12 was
30.0%.
Earnings per share (EPS)
Reported EPS increased by 63% to 18.8 cents
per share. Excluding the impact of the one-off
tax expense that affected FY12 (refer above),
FY13 EPS still grew by 31%.
Free cashflow
Operating cashflow
Tax
Interest
Capital expenditure
Free cashflow
FY13
$m
318.0
(79.2)
(6.0)
(58.3)
174.5
FY12
$m
277.2
(47.7)
(14.9)
(64.6)
150.0
The quality of the Group’s earnings result is
reflected in the strong operating cashflow
generated in the year. Operating cashflow of
$318.0m in FY13 exceeded EBITDA by $24.9m,
which is largely explained by the in-advance
payments received from the Group’s growing
customer base.
After tax, interest and capital expenditure, the
Group generated free cashflow of $174.5m,
$24.5m (16%) more than in FY12.
Capital expenditure
Capital expenditure for FY13 of $58.3m was
10% lower than in FY12. The expenditure
incurred reflects the Group’s continued
investment in its network infrastructure,
predominantly adding more capacity to its
DSLAM network and expanding its fibre network
footprint in order to meet growing customer
demand.
Utilisation of cash
Free cashflow
Utilisation of cash:
Debt repayments
Investment in CDHL
Prior year investments
Dividends paid
Other
Increase in cash held
FY13
$m
174.5
107.0
10.0
-
49.6
(4.3)
12.2
174.5
FY12
$m
150.0
84.5
-
33.8
26.0
0.8
4.9
150.0
Debt repayments
The Group made debt repayments of $107.0m
during the year reducing its outstanding
borrowings to $42.0m as at year-end. Since the
Group’s borrowings peaked in May 2010 at
approximately $350m following the acquisition of
PIPE Networks, the Group has repaid over
$300m in just over three years.
Investment in CDHL
The Group also invested $10.0m in the year to
acquire (i) a 15% equity stake in data security
software business Cocoon Data Holdings
Limited (CDHL), and (ii) an exclusive licence to
distribute certain CDHL products in Australia and
New Zealand. CDHL’s Covata Secure Objects
technology can be used to protect data in transit
and in storage and is expected to enable the
Group to add further value to its consumer and
corporate product offerings.
14
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
4. Operating and financial review (continued)
4.4 Financial results review (continued)
Dividends
Balance sheet notes
Dividends paid in the year comprise the final
FY12 dividend of 2.75 cents per share (“cps”)
and the interim FY13 dividend of 3.50cps.
Subsequent to the year-end, the Board of
directors has declared a 4.0cps final dividend for
FY13 taking the total dividends paid or declared
in respect of FY13 to 7.5cps, a 36% increase
over FY12.
Balance sheet
Below is a condensed version of the Group’s
balance sheet as at the end of FY13,
summarised in a manner to draw attention to a
few key points. Please refer to the full financial
statements contained in this annual report for a
comprehensive balance sheet.
Cash (1)
Investments (2)
Other current assets
Total current assets (3)
Property, Plant & Equipment
Intangible assets
Other non-current assets (4)
Total non-current assets
Deferred income (3)
Other current liabilities
Total current liabilities (3)
Loans and borrowings (1)
Other non-current liabilities
Total non-current liabilities
FY13
$m
26.1
81.2
47.2
154.5
319.2
502.2
22.9
844.3
58.8
136.0
194.8
39.1
48.9
88.0
FY12
$m
13.8
47.6
45.9
107.3
323.9
523.2
6.5
853.6
44.4
132.5
176.9
144.4
48.8
193.2
Net assets
716.0
590.8
1. Net debt
Loans and borrowings of $39.1m are shown in
the balance sheet net of prepaid borrowing
costs. Gross bank borrowings at 31 July 2013
were $42m. Taking into account the $26.1m
cash balance the Group had net debt at the end
of FY13 of $15.9m.
2. Current investments
Current investments represent the Group’s
investment in ASX listed shares. These shares
have appreciated significantly in value during the
year, the benefit of which is reflected directly in
equity in the Group’s results (rather than through
the income statement) as the shares are not
held for trading purposes.
3. Net current liabilities
Total current liabilities of $194.8m exceeded
total current assets of $154.5m as at 31 July
2013 by $40.3m. This net current liability
position is not uncommon in the
telecommunications industry for two principal
reasons. First, cash generated from trading is
commonly used to repay non-current debt and to
invest in non-current asset network
infrastructure. Second, a significant item within
current liabilities is deferred income which is a
non-cash item. Deferred income represents
cash paid in advance by customers which is not
recognised in income until the service has been
delivered. Excluding this item, the Group had
net current assets of $18.5m at the FY13 year-
end.
4. Other non-current assets
Other non-current assets comprise (i) trade
receivables due in greater than 12 months,
which represents one specific corporate
customer contract, and (ii) non-current
investments. Non-current investments comprise
the equity investment in CDHL made during the
year.
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
4. Operating and financial review (continued)
15
4.5 Business outlook
Prospects for FY14
In FY14 the Group will continue to focus its
efforts on growing its customer base profitably
by delivering value leading services. In order to
enhance its prospects for future growth, the
Group will also continue to invest in expanding
its network infrastructure.
The directors have forecast continued organic
growth in FY14 and have provided a guidance
range for EBITDA as set out in the table below:
FY13
Actual
$m
FY14
Guidance
$m
272.6
10.5
10.0
293.1
290-300
-
-
290-300
Regular EBITDA
IRU gains (1)
One-off credits (2)
Total EBITDA
(1) Refer to commentary on FY13 corporate
revenue above.
(2) Refer to commentary on FY13 consumer
telco costs above.
Principal business risks
Like other businesses, the Group is exposed to
a number of risks which may affect future
financial performance. The material business
risks identified by the Group and how they are
addressed are set out below.
1. Competitive environment
Increased competition in the industry could
impact the Group’s financial performance by
affecting its ability to grow its customer base
and/or its ability to make money from its service
offerings.
The Group attempts to mitigate this risk by
continually reviewing its customer offerings, their
pricing relative to the market and customer
needs. This is combined with constantly
reviewing the Group’s cost structures with the
objective of optimising costs to ensure the Group
is best placed to continue providing value
leading services.
2. Business interruption
A significant disruption of the Group’s business
through network or systems failure could cause
financial loss for the Group and increased
customer churn.
The Group continually invests in its network and
systems to improve their resilience and
performance.
3. Regulatory environment
Changes in regulation can significantly impact
the Group’s business. In addition, failure to
comply with regulatory requirements could
create financial loss for the Group.
The Group attempts to mitigate this risk through
close monitoring of regulatory developments,
engaging where necessary with the relevant
regulatory bodies, and monitoring its own
compliance with existing regulations.
16
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
5 Corporate governance statement
The Board of TPG Telecom Limited (‘the Company’) determines the most appropriate corporate
governance arrangements having regard to the best interests of the Company and its shareholders, and
consistent with its responsibilities to other stakeholders.
This statement outlines the Company’s main corporate governance practices, which comply with the
Australian Securities Exchange (“ASX”) Corporate Governance Principles and Recommendations (“ASX
Recommendations”), unless otherwise stated.
Principle 1 Lay solid foundations for management and oversight
The Board’s primary role is the protection and enhancement of long-term shareholder value. To fulfil this
role the Board is responsible for the overall corporate governance of the Group including formulating its
strategic direction, setting remuneration, appointing, removing and creating succession policies for
directors and senior executives, establishing and monitoring the achievement of management’s goals,
ensuring the integrity of risk management, internal control, legal compliance and management information
systems, and approving and monitoring capital expenditure. The Board delegates to senior management
responsibility for the implementation of the strategic direction of the Company.
The Board Charter, which defines the functions reserved for the Board as is required by ASX
Recommendation 1.1, can be found under the investor relations section of the Company’s website at
http://www.tpg.com.au/about/investorrelations.
The performance of the executive directors is reviewed by the non-executive directors on the Board. The
performance of other senior executives is reviewed by the Chief Executive Officer (ASX
Recommendations 1.2 and 1.3).
Principle 2 Structure the Board to add value
The Board considers that the number of directors and the composition of the Board are important for the
success of the Company.
The Board considers that the appropriate number of directors in the current circumstances is six, with four
being non-executive directors of whom two are independent.
Details of the experience and background of all directors are set out on page 5 of this Annual Report.
Independence of directors
The Board believes that maximum value for shareholders is best served with the current Board
composition. The Board currently comprises six directors, two of whom are independent.
17
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
5. Corporate governance statement (continued)
Principle 2 Structure the Board to add value (continued)
The executive directors are David Teoh and Alan Latimer. The Board is of the view that the depth of
experience and understanding that both directors have of the Company and of the industry in which the
Company operates provides benefits that exceed those that may flow from having independent non-
executive directors.
Robert Millner, a non-executive director, is not independent as he is a director of a major shareholder,
Washington H Soul Pattinson and Company Limited. Robert has specific historical, financial and
business knowledge of the Company, the benefits of which, in the opinion of the Board, outweigh the
benefits of independence at this time.
Shane Teoh, a non-executive director, is not independent due to his family relationship with a major
shareholder. The benefits of Shane’s legal qualification, experience in commercial and legal matters and
detailed knowledge of the Company and of the industry in which it operates outweigh, in the opinion of
the Board, the benefits of independence at this time.
The Board believes that each director brings an independent mind and judgement to bear on all Board
decisions, notwithstanding that the Chairman and a majority of the Board are not independent (which is
not in line with ASX Recommendation 2.1). All directors are able to and do review and challenge the
assumptions and performance of management to ensure decisions taken are in the best interest of the
Company.
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, Mr 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 interviews with each of the directors at which time they are able to
make comment or raise issues they have in relation to the Board’s operations (ASX Recommendation
2.5).
18
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
5. Corporate governance statement (continued)
Principle 2 Structure the Board to add value (continued)
Access to Company information and independent professional advice
Directors may request additional information as and when they consider it appropriate or necessary to
discharge their obligations as directors of the Company. This includes access to internal senior
executives or external advisors as and when appropriate. A director must consult the Chairman before
accessing external independent advice and must provide a copy of the advice received to other members
of the Board (ASX Recommendation 2.6).
Principle 3 Promote ethical and responsible decision-making
The Company is committed to maintaining the highest standards in dealing with all of its stakeholders,
both internally and externally. The Company has adopted a written Code of Conduct to assist directors
and staff in understanding their responsibilities to ensure the Company conducts its business in
accordance with all applicable laws and regulations and in a way that enhances the Company’s
reputation (ASX Recommendation 3.1). The Code of Conduct is also reflected in internal policies and
procedures which reinforce the Company’s commitment to complying with all applicable laws and
regulations. A copy of the Code of Conduct can be found on the Company’s website at
http://www.tpg.com.au/about/investorrelations (ASX Recommendation 3.5).
Policy regarding trading in securities
The Company has established a written Securities Trading Policy which identifies the principles by which
the Company balances the investment interests of directors, senior executives and employees with the
requirements for ensuring such trades only take place when all information relevant to making such
investment decisions is fully disclosed to the market.
Directors and senior executives are only permitted to deal in Company shares during a six week period
following the release of the Company’s half-year and annual results to the ASX, the annual general
meeting or any major announcement. Notwithstanding this, the Board may in certain circumstances
permit dealings during other periods.
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, however, is
restricted as outlined in the policy.
Directors must notify the Company Secretary in writing of all transactions in accordance with the
requirements of Sections 205F and 205G of the Corporations Act 2002. The Company will notify the ASX
of the details of any transaction on behalf of the directors.
19
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
5. Corporate governance statement (continued)
Principle 3 Promote ethical and responsible decision-making (continued)
A copy of the Securities Trading Policy can be found on the Company’s website at
http://www.tpg.com.au/about/investorrelations.
Diversity Policy
The Company’s Code of Conduct provides that the Company will treat all employees and potential
employees according to their skills, qualifications, competencies and potential, and will not discriminate
on the basis of race, religion, gender, sexual preference, age, marital status or disability. The following
guidelines have been established to ensure compliance with 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 secondments, in order to develop a diverse and skilled workforce;
Flexibility is provided as appropriate in working hours to accommodate personal and family
commitments; and
Reporting to Senior Management by managers and supervisors takes place in relation to
employment issues, and review and analysis of exit interviews is undertaken to identify any
discrimination related issues.
Aside from the guidelines set out above the Company has not established measurable objectives for
gender diversity in the workforce and does not have a separate written Diversity Policy.
Female Representation
As at 31 July 2013 the proportion of females employed in the Group was as follows (ASX
Recommendation 3.4):
31 July 2013
31 July 2012
Board
Key Management Personnel
Other Management
Workforce
Number
0
1
12
833
%
0%
16.7%
25.5%
43.2%
Number
0
1
13
749
%
0%
16.7%
21.0%
45.1%
Workplace Gender Equality Report 2013
In accordance with the requirements of the Workplace Gender Equality 2012 (Act), the Company lodged its
Workplace Gender Equality Report 2013 with the Workplace Gender Equality Agency on 29 May 2013. A
copy of this report is available on the Company’s website at http://www.tpg.com.au/about/investorrelations.
20
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
5. Corporate governance statement (continued)
Principle 4 Safeguarding integrity in financial reporting
The Board has responsibility for ensuring the integrity of the financial statements and related notes and
that the financial statements provide a true and fair view of the Company’s financial position. To assist
the Board in fulfilling this responsibility, the Board has established an Audit & Risk Committee which has
the responsibility for providing assurance that the financial statements and related notes are complete,
are in accordance with applicable accounting standards, and provide a true and fair view.
Audit & Risk Committee
The Audit & Risk Committee is comprised of three non-executive directors, two of whom are independent,
and is chaired by Mr Denis Ledbury. Details of all members of the Audit & Risk Committee during the
year and their qualifications are set out on page 5 of this Annual Report (ASX Recommendation 4.1, 4.2
& 4.4).
The Board has adopted a formal charter which details the function and responsibility of the Audit & Risk
Committee to ensure the integrity of the financial statements and independence of the external auditor
(ASX Recommendation 4.3). A copy of the charter can be found on the Company’s website at
http://www.tpg.com.au/about/investorrelations.
The Audit & Risk Committee’s responsibilities include ensuring the integrity of the financial reporting
process, the risk management process, 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
twice a year. It met twice during the year and the Committee members’ attendance record is disclosed in
the table of directors’ meetings on page 6 of this Annual Report (ASX Recommendation 4.4).
Auditor selection and appointment
The Audit & Risk Committee reviews annually the audit process including assessment of auditor
independence. Any non-audit work requires the prior approval of the Committee, which approval will only
be given where it can be established that it will not compromise the independence of the audit.
21
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
5. Corporate governance statement (continued)
Principle 5 Make timely and balanced disclosure
Continuous disclosure
The Company is committed to ensuring that shareholders and the wider business community be informed
of all material information concerning the Company in a timely and accurate manner. Accordingly, the
Company has established a Market Disclosure Policy to ensure that the share market is properly informed
of matters that may have a material impact on the price at which the Company’s securities are traded
(ASX Recommendation 5.1 and 5.2). A copy of the Market Disclosure Policy can be found on the
Company’s website at http://www.tpg.com.au/about/investorrelations.
Principle 6 Respect the rights of shareholders
The Board aims to ensure that shareholders are informed of all major developments affecting the
Company.
The Company posts its annual report and major announcements on its website under the Investor
Relations section (http://www.tpg.com.au/about/investorrelations) and provides a link via the website to
the ASX website 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 website, including prior years’
Annual Reports.
Shareholders are encouraged to participate at general meetings, either in person or by proxy, and are
specifically offered the opportunity of receiving communications via email (ASX Recommendation 6.1 and
6.2).
Principle 7 Recognise and manage risk
The Company has an established business risk management framework to enable identification, control
and oversight of material business risks facing the Group. These risks include operational, financial,
regulatory and technical risks.
The primary responsibility for identifying and controlling business risks lies with management. The Audit
and Risk Committee, under delegation from the Board, plays an oversight role in ensuring that material
business risks and their associated controls are regularly reported to the Board by management and that
a satisfactory system of risk management and internal control is maintained.
22
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
5. Corporate governance statement (continued)
Principle 7 Recognise and manage risk (continued)
In relation to the Group’s financial statements for the financial year ended 31 July 2013, the Group’s Chief
Executive Officer and Chief Financial Officer, as required by the Corporations Act and ASX
recommendations, have provided to the Board the following:
-
-
the declaration required by section 295A of the Corporations Act; and
assurance that the section 295A declaration was founded on a sound system of risk management
and internal control and that the system is operating effectively in all material respects in relation
to financial reporting risks.
Principle 8 Remunerate fairly and responsibly
The Remuneration Committee reviews and makes recommendations to the Board on remuneration
packages and policies applicable to executives and directors.
The Remuneration Committee comprises three non-executive directors, two of whom are independent,
and is chaired by Mr Denis Ledbury. The Committee meets as required and, at a minimum, twice a year.
It met three times during the year ended 31 July 2013 and the Committee members’ attendance record is
disclosed in the table of directors’ meetings on page 6 of this Annual Report. Other directors are invited
to attend these meetings at the discretion of the Committee Chairman.
Further information is set out in the Remuneration Report below (ASX Recommendation 8.2 & 8.3).
6. Remuneration report - audited
This remuneration report sets out the remuneration structures of the directors of the Company and of
other key management personnel of the Group, as well as explaining the principles underpinning those
remuneration structures.
For the purpose of this report, key management personnel are defined as those individuals who have
authority and responsibility for planning, directing and controlling the activities of the Group. Key
management personnel include the directors of the Company and key Group executives including the five
most highly remunerated.
6.1
Remuneration principles
Remuneration 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 suitability of remuneration packages relative to trends in comparable companies and to the
objectives of the Group’s remuneration strategy.
23
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
6. Remuneration report - audited (continued)
6.1
Remuneration principles (continued)
The remuneration structures explained below are designed to attract suitably qualified candidates, to
reward the achievement of strategic objectives and to achieve the broader outcome of creation of value
for shareholders by:
a) providing competitive remuneration packages to attract and retain high calibre executives; and
b) ensuring that a significant proportion of executives’ remuneration is performance-linked; and
c) setting performance hurdles for the achievement of performance-linked incentives at a sufficiently
demanding level as to ensure value creation for shareholders.
6.2
Remuneration structure
Remuneration packages include a mix of fixed and performance-linked remuneration.
(i) Fixed remuneration
Fixed remuneration consists of base salary, employer contributions to superannuation funds, and non-
monetary benefits which typically only comprise annual leave entitlements but may also include such
benefits as the provision of a motor vehicle. The Group pays fringe-benefits tax on such non-monetary
benefits where applicable.
Fixed remuneration levels are reviewed annually through a process that considers individual
performance, overall performance of the Group, and remuneration levels for similar roles in comparable
companies. The fixed remuneration of executive directors is determined by the Remuneration
Committee. The fixed remuneration of other key management personnel is determined by the Executive
Chairman in conjunction with the Remuneration Committee. Fixed remuneration reviews for other staff
are determined by the Executive Chairman.
(ii) Performance-linked remuneration
Performance-linked remuneration comprises both long-term and short-term incentives as set out below.
a) Long-term incentives
Former scheme
A former incentive plan which was terminated during 2008 included a long-term component under which
shares allocated to certain employees vested at 20% per annum at the end of each of the five years
following allocation, provided the employee continued to be employed by the Group. The final vesting
date under this plan occurred during the year ended 31 July 2013 and there were therefore no unvested
shares outstanding under this plan as at 31 July 2013. The shares that vested to key management
personnel during the year are set out in section 6.4(ii) below.
Current scheme
The Group’s current long-term incentive structure is in the form of a performance rights plan. Under the
rules of the performance rights plan, participants may be granted rights to acquire fully paid ordinary
shares in the Company for no consideration, subject to certain performance conditions.
24
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
6. Remuneration report - audited (continued)
6.2
(ii)
Remuneration structure (continued)
Performance-linked remuneration (continued)
The plan was introduced in FY12 with the first grant of rights taking place on 9 March 2012. During FY13
a second grant of rights occurred (grant date 24 December 2012). The key terms of both lots of rights are
consistent with one another and are as follows:
One third of the performance rights granted will vest following the release of the Group’s audited
financial statements for each of the 3 financial years ending after the date of grant, subject to the
satisfaction of performance conditions.
At each vesting date:
o 30% of the performance rights that are due to vest on that date will vest if the rights holder has
been continuously employed by the Group up until and including the relevant vesting date; and
o 70% of the performance rights that are due to vest on that date will vest if the rights holder has
been continuously employed by the Group up until and including the relevant vesting date and the
Group has met its financial objectives for the financial year immediately preceding the relevant
vesting date.
Any performance rights which do not vest, automatically lapse.
The financial objectives that form part of the vesting conditions described above are determined annually
by the Remuneration Committee.
Details of the performance rights that have been granted to key management personnel during the year
ended 31 July 2013 are set out in table 6.4(i) below.
b) Short-term incentives
Short-term incentive cash bonuses may be paid by the Group, including to key management personnel,
depending on the Group’s performance and to award individual performance. Bonuses awarded to the
executive directors are determined by the Remuneration Committee. Bonuses awarded to other key
management personnel are determined by the Executive Chairman in conjunction with the Remuneration
Committee. Bonuses awarded to other staff are made at the discretion of the Executive Chairman.
Details of the short-term incentives paid to key management personnel during the current reporting period
are set out at table 6.3 below.
Link to Group Financial Performance
In determining the short-term incentive component of key management personnel remuneration,
consideration is given to the Group’s performance, including against its financial targets.
The Group achieved EPS growth of 63% in the year to 31 July 2013 and increased declared dividends by
36%. This represents the 5th consecutive year of strong EPS and dividend growth by the Group as
reflected in the following table.
25
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
6. Remuneration report - audited (continued)
6.2
(ii)
Remuneration structure (continued)
Performance-linked remuneration (continued)
EPS (cents)
Ordinary dividends paid or declared (cps)
2009
2010
2011
2012
2.6
2.0
7.6
4.0
10.1
4.5
11.5
5.5
2013
18.8
7.5
The Remuneration Committee believes that the current remuneration structures described in this report
have been effective in motivating and rewarding the achievement of these strong results.
(iii) Service contracts
No key management personnel employment contract has a fixed term, nor do any contain 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 with Mr D Teoh, which provides that the contract may be
terminated by either party giving three months’ notice.
(iv) Non-executive director fees
The aggregate remuneration of non-executive directors was last voted upon by shareholders at the 2004
AGM, when an aggregate limit of $500,000 per annum was approved. Actual non-executive director
remuneration for the year ended 31 July 2013 was $289,145 (2012: $215,275). Non-executive directors
do not receive performance-linked remuneration nor are they entitled to any retirement benefit. Directors’
fees cover all main board activities and membership of committees.
6.3
Directors’ and executive officers’ remuneration
The key management personnel of the Company and of the Group during the year were as follows:
Executive Chairman & Chief Executive Officer
Executive Director, Finance & Corporate Services
Mr D Teoh
Mr A Latimer
Mr D Ledbury Non-Executive Director
Non-Executive Director
Mr R Millner
Non-Executive Director
Mr J Pang
Non-Executive Director
Mr S Teoh
Ms M De Ville Chief Information Officer
Mr S Banfield Chief Financial Officer & Company Secretary
General Manager, Consumer
Mr C Levy
Mr J Paine
National Technical & Strategy Manager
Mr W Springer General Manager, Corporate Sales
General Counsel
Mr T Moffatt
26
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
6. Remuneration report – audited (continued)
6.3 Directors’ and executive officers’ remuneration (continued)
Details of the nature and amount of each major element of remuneration of each director of the Company and of other key management personnel of the
Group are set out in the tables below:
Short-term
Post-
employment
Salary &
fees
$
(note A)
STI cash
bonus
$
(note B)
Non-
monetary
benefits
$
Total
$
Superannuation
benefits
$
Other long
term
$
Share-based
payments
$
Total
$
(note C)
Proportion of
remuneration
performance
related
%
Share-based
payments as
proportion of
remuneration
%
2013 814,423 900,000
2012 611,538 800,000
2013 260,960 400,000
2012 256,584 200,000
229,661
222,246
(11,579)
8,903
1,944,084
1,633,784
649,381
465,487
23,534
46,346
23,431
22,270
86,739
71,665
4,190
6,961
2013
2012
2013
2012
2013
2012
2013
2012
78,958
67,500
69,583
65,000
69,583
65,000
46,984
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
78,958
67,500
69,583
65,000
69,583
65,000
46,984
-
7,156
6,075
6,306
5,850
6,306
5,850
4,269
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,054,357
1,751,795
677,002
494,718
44%
46%
59%
40%
86,114
73,575
75,889
70,850
75,889
70,850
51,253
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Directors
Executive Directors
Mr D Teoh, Chairman
Mr A Latimer
Non-Executive Directors
Mr D Ledbury
Mr R Millner
Mr J Pang
Mr S Teoh(1)
(1) Mr S Teoh was appointed on 11 October 2012
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
6. Remuneration report – audited (continued)
6.3 Directors’ and executive officers’ remuneration (continued)
27
Short-term
Post-
employment
Share-based payments
Salary &
fees
$
(note A)
STI cash
bonus
$
(note B)
Non-
monetary
benefits
$
Total
$
Superannuation
benefits
$
Other long
term
$
(note C)
(note D)
Performance
rights
$
(note E)
Shares
$
Total
$
Proportion of
remuneration
performance
related
%
Share-based
payments as
proportion of
remuneration
%
10,000
2013 211,609
2012 211,609
10,000
2013 198,186 104,920
2012 183,917
85,000
2013 243,100 166,533
2012 183,677 135,000
67,460
2013 195,833
85,000
2012 188,515
94,920
2013 194,362
85,000
2012 183,400
94,920
2013 187,267
-
-
2012
7,304
2,989
158
8,481
19,956
2,029
10,469
6,942
10,872
7,418
3,793
-
228,913
224,598
303,264
277,398
429,589
320,706
273,762
280,457
300,154
275,818
285,980
-
19,956
19,891
25,871
24,127
37,090
28,627
23,034
23,850
27,085
23,400
25,826
-
3,515
3,226
6,255
4,621
14,176
4,215
7,216
3,004
7,511
2,923
5,196
-
17,337
-
105,696
42,766
141,891
57,021
105,696
42,766
105,696
42,766
105,696
-
1,500
2,708
6,500
8,473
6,000
7,667
-
-
-
-
4,500
-
271,221
250,423
447,586
357,385
628,746
418,236
409,708
350,077
440,446
344,907
427,198
-
11%
5%
49%
38%
50%
48%
42%
36%
46%
37%
48%
-
7%
1%
25%
14%
24%
15%
26%
12%
24%
12%
26%
-
Executives
Ms M De Ville
Mr S Banfield
Mr C Levy
Mr J Paine
Mr W Springer
Mr T Moffatt (1)
(1) Mr T Moffatt has been recognised within key management personnel from 1 August 2012
28
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
6. Remuneration report - audited (continued)
6.3 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 2013 and 31 July 2012 were for
performance during those years.
B. The amounts disclosed under ‘Non-monetary benefits’ reflect exclusively the movement in the annual leave
balance of each individual in the period, with the exception of Mr D Teoh whose amount also includes the
provision of other fringe benefits (principally a motor vehicle).
C. The amounts disclosed under ‘Other long-term’ reflect the movement in the long-service leave balance of each
individual in the period.
D. The share-based payments disclosed under ‘Performance Rights’ reflect the fair value of each right
multiplied by the number of rights granted to each individual, amortised pro-rata over the vesting period of
each right. The fair value of each right is calculated at date of grant by subtracting the expected dividend
payments per share during the vesting period from the share price at date of grant. The number of rights
granted to each key management person is disclosed in 6.4(i) below. The rules of the performance rights
plan are explained in 6.2(ii)(a) above.
E. The share-based payments disclosed under ‘Shares’ reflect the fair value of each share multiplied by the
number of shares granted to each individual, amortised pro-rata over the vesting period of each share. The
fair value of the shares is the market value of the shares purchased for the individual under the scheme.
The number of shares granted to each key management person is disclosed in 6.4(ii) below. The rules of
the share plan are explained in 6.2(ii)(a) above.
6.4
Share-based payments
(i) Performance rights granted as remuneration
Details of performance rights that were granted to key management personnel during the financial year ended
31 July 2013 are set out below. All rights had a grant date of 24 December 2012, were provided at no cost to
the recipients and have an exercise price of $nil.
FY13 Performance
rights grant
Number of
rights
granted
during FY13
Number of
rights
forfeited
during FY13
Number of
rights vested
during FY13
Number of
rights held as
at 31 July
2013
Fair value per
right at grant
date ($)
Mr S Banfield
Mr C Levy
Mr J Paine
Mr W Springer
Mr T Moffatt
Ms M De Ville
60,000
81,000
60,000
60,000
60,000
18,000
-
-
-
-
-
-
-
-
-
-
-
-
60,000
81,000
60,000
60,000
60,000
18,000
2.3267
2.3267
2.3267
2.3267
2.3267
2.3267
29
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
6. Remuneration report - audited (continued)
6.4
Share-based payments (continued)
(i)
Performance rights granted as remuneration (continued)
Details of performance rights that were granted to key management personnel during previous financial years
and that remained outstanding at the start of FY13 are set out below. All rights in the table below had a grant
date of 9 March 2012, were provided at no cost to the recipients and have an exercise price of $nil.
FY12 Performance
rights grant
Number of
rights held as
at 31 July
2012
Number of
rights
forfeited
during FY13
Number of
rights vested
during FY13
Number of
rights held as
at 31 July
2013
Fair value per
right at grant
date ($)
Mr S Banfield
Mr C Levy
Mr J Paine
Mr W Springer
Mr T Moffatt
75,000
100,000
75,000
75,000
75,000
-
-
-
-
-
25,000
33,333
25,000
25,000
25,000
50,000
66,667
50,000
50,000
50,000
1.4733
1.4733
1.4733
1.4733
1.4733
There has been no vesting or granting of any rights since the year-end.
(ii) Shares granted as remuneration
The shares in the table below were granted on 13 December 2007 under a former incentive plan that ceased to
operate in 2008, the rules of which are described in 6.2(ii)(a) above. The table below shows the number of
shares that vested during the year under this plan to each key management person. As the final vesting date
under this plan occurred during the year, there were no unvested shares as at 31 July 2013.
Number of
unvested shares
as at 31 July
2012
Number of
shares vested
during 2013
Number of
unvested shares
as at 31 July
2013
Fair value per
share at grant
date ($)
Mr S Banfield
Mr C Levy
Ms M De Ville
Mr T Moffatt
15,623
14,419
3,607
10,814
15,623
14,419
3,607
10,814
-
-
-
-
$0.41611
$0.41611
$0.41611
$0.41611
(iii) Modification of terms of share-based payment transactions
No terms of share-based payment transactions have been altered or modified by the issuing entity during the
reporting period or the prior period.
30
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
7. Principal activities
During the financial year the principal activities of the Group continued to be the provision of consumer,
wholesale and corporate telecommunications services.
8. Dividends
Dividends paid or declared by the Company since the end of the previous financial year were as follows:
Cents per share
Total amount
$’000
Franked/
unfranked
Date of payment
Final 2012 ordinary
Interim 2013 ordinary
Total amount
2.75
3.50
21,830
27,783
49,613
Franked
Franked
20 Nov 2012
21 May 2013
Dividends declared and paid during the year were fully franked at the rate of 30 per cent.
After the balance sheet date the directors have declared a fully franked final FY13 dividend of 4.0 cents per
ordinary share, payable on 19 November 2013 to shareholders on the register at 15 October 2013.
The financial effect of this dividend has not been brought to account in the financial statements for the year
ended 31 July 2013 and will be recognised in subsequent financial reports.
9. Events subsequent to reporting date
There has not arisen in the interval between the end of the financial year and the date of this report any item,
transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to
affect significantly the operations of the Group, the results of those operations, or the state of affairs of the
Group in future financial years.
10. Likely developments
There are no material likely developments for the Group to disclose outside of normal business operations at
the date of this report.
31
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
11. Directors’ interests
The relevant interest of each director in the shares and options over such instruments issued by the companies
within the Group and other related bodies corporate, as notified by the directors to the Australian Stock
Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follow:
Shares in
TPG Telecom
Limited
291,625,603
7,374,175
100,000
200,000
88,812
90,251
Mr D Teoh
Mr R Millner
Mr D Ledbury
Mr A Latimer
Mr J Pang
Mr S Teoh
12. Share options and rights
Rights granted to directors and executives of the Group
During the financial year, the Group granted rights over ordinary shares in the Company to the following of the
five most highly remunerated officers of the Group as part of their remuneration:
Number of rights
granted
Mr S Banfield
Mr C Levy
Mr J Paine
Mr W Springer
Mr T Moffatt
60,000
81,000
60,000
60,000
60,000
All rights were granted during the financial year. No rights or options have been granted since the end of the
financial year.
Unissued shares under options
At the date of this report there are no unissued ordinary shares of the Company under option.
Shares issued on exercise of options
The Company issued no ordinary shares as a result of the exercise of options (nor were any options available
to be exercised) either during or subsequent to the year ended 31 July 2013 (2012: Nil).
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
13. Indemnification and insurance of officers and auditors
Indemnification
32
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 where the liability arises out of conduct involving
a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities,
including costs and expenses.
Insurance premiums
Since the end of the previous financial year the Group has paid insurance premiums of $50,541 (2012:
$48,276) in respect of directors’ and officers’ liability insurance for current and former directors and officers,
including senior executives of the Company and directors, senior executives and secretaries of its controlled
entities. The insurance premiums relate to:
costs and expenses that may be incurred by the relevant officers in defending proceedings, whether civil or
criminal and whatever their outcome; and
other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of
duty or improper use of information or position to gain a personal advantage.
14. Non-audit services
During the year KPMG, the Company’s auditor, has performed certain other services in addition to their
statutory duties.
The Board has considered the non-audit services provided during the year by the auditor and is satisfied that
the provision of those non-audit services during the year by the auditor is compatible with, and did not
compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:
all non-audit services were subject to the corporate governance procedures adopted by the Company and
have been reviewed by the Audit & Risk Committee to ensure they do not impact the integrity and objectivity
of the auditor; and
the non-audit services provided do not undermine the general principles relating to auditor independence
as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or
auditing the auditor’s own work, acting in a management or decision making capacity for the Company,
acting as an advocate for the Company or jointly sharing risks and rewards.
Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-
audit services provided during the year are set out below.
33
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2013
14. Non-audit services (continued)
2013
$
2012
$
Audit services:
Audit and review of financial reports
394,800
405,012
Services other than statutory audit:
Other regulatory audit services:
- Telecommunications USO return
- Bank covenant compliance certificate
Other services:
- Taxation advisory services
8,000
7,500
51,905
67,405
8,000
7,500
32,321
47,821
15. Lead auditor’s independence declaration
The lead auditor’s independence declaration is set out on page 98 and forms part of the directors’ report for the
financial year ended 31 July 2013.
16. Rounding off
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and, in accordance with
that Class Order, amounts in the consolidated financial statements and directors’ report have been rounded off
to the nearest thousand dollars, unless otherwise stated.
This report is made with a resolution of the directors.
David Teoh
Chairman
Dated at Sydney this 11th day of October, 2013
TPG Telecom Limited and its controlled entities
Consolidated income statement
For the year ended 31 July 2013
34
In thousands of AUD
Revenue
Other income
Telecommunications expense
Employee benefits expense
Other expenses
Earnings before interest, tax, depreciation and amortisation
(EBITDA)
Note
2013
2012
7
8
724,533
3,349
663,139
1,438
(328,139)
(60,067)
(46,590)
(307,066)
(58,660)
(37,445)
293,086
261,406
Depreciation of plant and equipment
Amortisation of intangibles
19
20
(49,892)
(23,942)
(47,063)
(33,957)
Results from operating activities
219,252
180,386
Finance income
Finance expenses
Net financing costs
Profit before income tax
Income tax expense
2,447
(9,400)
(6,953)
718
(17,863)
(17,145)
9
212,299
163,241
10
(63,134)
(72,277)
Profit for the year attributable to owners of the company
149,165
90,964
Earnings per share:
Basic and diluted earnings per share (cents)
11
18.8
11.5
The notes on pages 39 to 94 are an integral part of these consolidated financial statements.
35
TPG Telecom Limited and its controlled entities
Consolidated statement of comprehensive income
For the year ended 31 July 2013
In thousands of AUD
Profit for the year
Note
2013
2012
149,165
90,964
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences
Net change in fair value of available-for-sale financial assets, net of tax
15
23
24,435
6
9,744
Other comprehensive income, net of tax
24,458
9,750
Total comprehensive income attributable to owners of the company
173,623
100,714
The notes on pages 39 to 94 are an integral part of these consolidated financial statements.
TPG Telecom Limited and its controlled entities
Consolidated statement of financial position
As at 31 July 2013
In thousands of AUD
Note
31 July 2013
31 July 2012
36
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Investments
Prepayments and other assets
Total Current Assets
Trade and other receivables
Investments
Property, plant and equipment
Intangible assets
Prepayments and other assets
Total Non-Current Assets
Total Assets
Liabilities
Trade and other payables
Loans and borrowings
Current tax liabilities
Employee benefits
Provisions
Accrued Interest
Deferred income and other liabilities
Total Current Liabilities
Loans and borrowings
Deferred tax liabilities
Employee benefits
Provisions
Deferred income and other liabilities
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Share Capital
Reserves
Retained earnings
Total Equity
12
13
14
15
16
13
15
19
20
16
21
22
17
23
24
25
22
18
23
24
25
26
26,128
40,676
179
81,181
6,352
154,516
15,268
7,333
319,159
502,201
339
844,300
13,767
38,013
363
47,619
7,515
107,277
6,049
-
323,915
523,225
434
853,623
998,816
960,900
94,122
169
33,628
5,241
2,616
276
58,784
194,836
39,134
15,410
349
7,111
26,010
88,014
85,376
357
39,542
4,606
2,347
276
44,443
176,947
144,360
15,140
743
6,671
26,262
193,176
282,850
370,123
715,966
590,777
516,907
36,134
162,925
715,966
516,907
10,497
63,373
590,777
The notes on pages 39 to 94 are an integral part of these consolidated financial statements.
TPG Telecom Limited and its controlled entities
Consolidated statement of changes in equity
For the year ended 31 July 2013
37
The notes on pages 39 to 94 are an integral part of these consolidated financial statements.
ForeignShare-In thousands of AUDcurrencybasedSharetranslationpaymentsFair valueTotalRetainedTotalNotecapitalreservereservereservereservesearningsequityBalance as at 1 August 2011502,874 100 (81) 1,092 1,111 11,876 515,861 Profit for the year- - - - - 90,964 90,964 Foreign currency translation differences- 6 - - 6 - 6 Net change in fair value of available-for-sale financial assets, net of tax15- - - 9,744 9,744 - 9,744 Total comprehensive income for the period- 6 - 9,744 9,750 90,964 100,714 Share-based payment transactions- - (364) - (364) - (364) Issue of ordinary shares26 607 - - - - - 607 Transaction costs, net of tax26 (24) - - - - - (24) Dividends paid to shareholders26 13,450 - - - - (39,467) (26,017) Total contributions by and distributions to owners14,033 - (364) - (364) (39,467) (25,798) Balance as at 31 July 2012516,907 106 (445) 10,836 10,497 63,373 590,777 Balance as at 1 August 2012516,907 106 (445) 10,836 10,497 63,373 590,777 Profit for the year- - - - - 149,165 149,165 Foreign currency translation differences- 23 - - 23 - 23 Net change in fair value of available-for-sale financial assets, net of tax15- - - 24,435 24,435 - 24,435 Total comprehensive income for the period- 23 - 24,435 24,458 149,165 173,623 Share-based payment transactions- - 1,179 - 1,179 - 1,179 Dividends paid to shareholders26 - - - - - (49,613) (49,613) Total contributions by and distributions to owners- - 1,179 - 1,179 (49,613) (48,434) Balance as at 31 July 2013516,907 129 734 35,271 36,134 162,925 715,966 Attributable to owners of the Company
TPG Telecom Limited and its controlled entities
Consolidated statement of cash flows
For the year ended 31 July 2013
In thousands of AUD
Note
2013
2012
38
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
Acquisition of property, plant and equipment
Acquisition of subsidiaries, net of cash acquired
Costs incurred on acquisition of subsidiaries
Acquisition of investments
Acquisition of intangibles
Proceeds from sale of investments
Dividends received
Net cash used in investing activities
Cash flows from financing activities
Transaction costs related to issue of shares
Transaction costs related to loans & borrowings
Payment of finance lease liabilities
Proceeds from borrowings
Repayment of borrowings
Interest received
Interest paid
Dividends paid, net of Dividend Reinvestment Plan
Net cash used in financing activities
800,467
(482,450)
318,017
(79,218)
238,799
726,940
(449,765)
277,175
(47,703)
229,472
(58,320)
-
-
(7,333)
(2,918)
2,475
2,219
(63,877)
-
-
(372)
27,000
(134,000)
1,411
(7,363)
(49,613)
(162,937)
(64,164)
(11,313)
(132)
(22,406)
(446)
-
1,438
(97,023)
(34)
(1,290)
(843)
25,000
(109,548)
349
(15,179)
(26,017)
(127,562)
36
36
15
20
8
22
22
26
Net increase in cash and cash equivalents
11,985
4,887
Cash and cash equivalents at beginning of the year
Effect of exchange rate fluctuations
12
13,767
376
9,525
(645)
Cash and cash equivalents at end of the year
12
26,128
13,767
The notes on pages 39 to 94 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 2013
Index to notes to the consolidated financial statements
39
Page
Page
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Reporting entity
Basis of preparation
Significant accounting policies
Determination of fair values
Financial risk management
Segment reporting
Revenue
Other income
Finance income and expenses
Income tax expense
Earnings per share
12. Cash and cash equivalents
13.
Trade and other receivables
14.
Inventories
15.
Investments
16.
Prepayments and other assets
17. Current tax liabilities
18. Deferred tax assets and liabilities
19.
Property, plant and equipment
40
40
41
56
57
60
62
62
62
63
64
64
64
65
65
65
66
66
68
20.
Intangible assets
21.
Trade and other payables
22.
Loans and borrowings
23.
Employee benefits
24.
Provisions
25.
Deferred income and other liabilities
26.
Capital and reserves
27.
Financial instruments
28. Operating leases
29.
Capital and other commitments
30.
Contingencies
31.
Consolidated entities
32.
Reconciliation of cash flows from
operating activities
33. Parent entity disclosures
34. Related parties
35. Subsequent events
36. Business combinations
37. Auditors’ remuneration
38. Deed of cross guarantee
70
71
72
73
75
76
76
78
83
84
84
85
86
87
88
91
91
91
91
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
1.
Reporting entity
40
TPG Telecom Limited (the ‘Company’) is a company domiciled in Australia. The address of the
Company’s registered office is 65 Waterloo Road, Macquarie Park, NSW 2113. The consolidated
financial statements as at, and for the year ended 31 July 2013, comprise the accounts of the Company
and its subsidiaries (together referred to as the ‘Group’). The Group is a for-profit entity and is primarily
involved in the provision of consumer, wholesale and corporate telecommunications services.
2.
a.
Basis of preparation
Statement of compliance
The consolidated financial statements are general purpose financial statements which have been
prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian
Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial
statements comply with International Financial Reporting Standards (IFRSs) adopted by the
International Accounting Standards Board (IASB).
The consolidated financial statements were approved by the Board of Directors on 11 October 2013.
b.
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis with the
exception of assets and liabilities acquired through business combinations and financial instruments
which are measured at fair value. The methods used to measure fair values are discussed further at
note 4.
Notwithstanding the fact that the classifications within the 31 July 2013 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 will be able to pay its debts as
and when they become due and payable based on its Board approved cashflow projections, and also
the undrawn debt facility available to it (refer note 22).
c.
Functional and presentation currency
These consolidated financial statements are presented in Australian dollars, which 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
with that Class Order, all financial information presented in Australian dollars has been rounded to the
nearest thousand unless otherwise stated.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
2.
Basis of preparation (continued)
d.
Use of estimates and judgements
41
Preparation of the consolidated financial statements in conformity with 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 reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised and in any future periods
affected.
In particular, information about significant areas of estimation uncertainty and critical judgements in
applying accounting policies that have the most significant effect on the amounts recognised in the
financial statements are described in the following notes:
note 3(m)(iii) and note 7 – Revenue recognition for network capacity sales;
note 20 – measurement of the recoverable amounts of cash-generating units containing goodwill;
note 27 – valuation of financial instruments;
note 36 – business combinations.
3.
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements and have been applied consistently across the Group.
a.
Basis of consolidation
(i)
Business combinations
Business combinations are accounted for using the acquisition method as at the acquisition date, which
is the date on which control is transferred to the Group. Control is the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group
takes into consideration potential voting rights that currently are exercisable.
Acquisitions on or after 1 July 2009
For acquisitions on or after 1 July 2009, the Group measures goodwill 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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
a.
Significant accounting policies (continued)
Basis of consolidation (continued)
42
Costs, other than those associated with the issue of debt or equity securities, that the Group incurs in
connection with 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
within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are
recognised in profit or loss.
When share-based payment awards (replacement awards) are required to be exchanged for awards
held by the acquiree’s employees (acquiree’s awards) and relate to past services, then all or a portion
of the amount of the acquirer’s replacement awards is included in measuring the consideration
transferred in the business combination. This determination is based on the market-based value of the
replacement awards compared with the market-based value of the acquiree’s awards and the extent to
which the replacement awards relate to past and/or future service.
Acquisitions pre 1 July 2009
For acquisitions pre 1 July 2009, goodwill 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 that the Group incurred in connection with business combinations, other than those
associated with the issue of debt or equity securities, were capitalised as part of the cost of the
acquisition.
Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity
as owners and therefore no goodwill 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.
(ii)
Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly
or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that presently are exercisable or convertible are
taken into account. The financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control ceases.
The accounting policies of subsidiaries have been changed when necessary to align them with the
policies adopted by the Group. Such changes have been made with effect from the date of acquisition.
43
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
a.
Significant accounting policies (continued)
Basis of consolidation (continued)
(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. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date
are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the income statement. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates
ruling at the dates the fair value was determined.
c.
Foreign operations
The assets and liabilities of foreign operations, including goodwill 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.
d.
Financial instruments
(i)
Non-derivative financial assets
The Group initially recognises loans and receivables and deposits on the date that they are originated.
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 when the contractual rights to the cashflows from the asset
expire, or it transfers the rights to receive the contractual cashflows on the financial asset in a
transaction in which substantially all the risks and rewards of ownership 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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
d.
Significant accounting policies (continued)
Financial instruments (continued)
44
Financial assets and liabilities are offset and the net amount presented in the statement of financial
position only when 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 following non-derivative financial assets:
Loans and receivables
Loans and receivables are financial assets with 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 with 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 within 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 which the Group becomes a party to the contractual
provisions of the instrument.
The Group derecognises a financial liability when 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 when 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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
d.
Significant accounting policies (continued)
Financial instruments (continued)
45
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
borrowings, 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 cashflows.
(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)
Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation and
accumulated 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, where relevant, of the costs of dismantling and removing
the items and restoring the site on which they are located.
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 with the carrying amount of property, plant and equipment and
are recognised net within other expenses in profit or loss.
(ii)
Leased assets
Leases in the terms of which the Group assumes substantially all the risks and rewards of ownership
are classified as finance leases.
Other leases are operating leases and are not recognised in the Group’s statement of financial position.
46
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
e.
Significant accounting policies (continued)
Property, plant and equipment (continued)
(iii)
Subsequent costs
The Group recognises in the carrying amount of an item of property, plant and equipment the cost of
replacing part of such an item when that cost is incurred, if it is probable that the future economic
benefits embodied within the item will flow to the Group and the cost of the item can be measured
reliably. All other costs are recognised in the income statement as an expense as incurred.
(iv)
Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives
of each part of an item of property, plant and equipment.
The estimated useful lives used in both the current and comparative periods are as follows:
Network infrastructure
Buildings
Leasehold improvements
2.5 - 25 years
40 years
8 years
The residual value, the useful life and the depreciation method applied to an asset are reassessed at
least annually.
f.
(i)
Intangible assets
Goodwill
Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For the
measurement of goodwill at initial recognition, see note 3(a)(i).
Subsequent to its initial recognition, goodwill 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 any accumulated impairment losses (see accounting
policy h).
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
f.
Significant accounting policies (continued)
Intangible assets (continued)
47
The various categories of other intangible assets in the Group’s accounts are as follows:
-
Trademark
On acquisition of a subsidiary, trademarks of the acquired subsidiary are valued and brought to account
as intangible assets. The valuation of a trademark is calculated using the Relief from Royalty Method.
-
Acquired customer bases
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.
-
Internally-generated software
On acquisition of a subsidiary, internally developed software and systems are valued and brought to
account as intangible assets. The software is valued at its amortised replacement cost.
-
Indefeasible right of use of capacity
Indefeasible rights of use (IRUs) of acquired network capacity are brought to account as intangible
assets at the present value of the future cashflows 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 which the future economic benefits are expected to be obtained.
-
Licences
Licences include acquired distribution rights for third party products. Licences are recognised as
intangible assets at cost and are amortised using the straight line method over the term of the licence.
(iii)
Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future
economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed
as incurred.
48
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
f.
Significant accounting policies (continued)
Intangible assets (continued)
(iv)
Amortisation
Amortisation is charged to the income statement on a straight-line basis, unless otherwise stated, over
the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and intangible
assets with an indefinite useful life are systematically tested for impairment at each balance sheet date.
Other intangible assets are amortised from the date they are available for use. The estimated useful
lives used in both the current and comparative periods are as follows:
Goodwill
Acquired customer bases & reacquired
rights
Internally generated software
Indefeasible right of use (IRU) of capacity
Trademark
Development costs
Licences
Indefinite life
-
- Amortised on a reducing balance basis in line
with the expected economic benefits to be
derived from the acquired customer base
Indefinite life
5 years
-
- Amortised over the life of the IRU
-
- Amortised over the term of the licence
2-20 years
g.
Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the
estimated selling price in the ordinary course of business, less 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 cashflows of that
asset.
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax
assets, are reviewed at each reporting date to determine whether there is any indication of impairment.
If any such indication exists, the asset’s recoverable amount is estimated. For goodwill, 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 whenever the carrying amount of an asset or its cash-generating unit
exceeds its recoverable amount. Impairment losses are recognised in the income statement unless an
asset has previously been revalued, in which case the impairment loss is recognised as a reversal to
the extent of that previous revaluation with any excess recognised through profit or loss.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
h.
Significant accounting policies (continued)
Impairment (continued)
49
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the
carrying amount of any goodwill allocated to cash-generating units/group of units and then to reduce
the carrying amount of the other assets in the 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 with similar risk profiles and undertaking a collective assessment of
impairment. Non-significant receivables are not individually assessed. Instead, impairment testing is
performed by placing non-significant receivables in portfolios of similar risk profiles, based on objective
evidence from historical experience adjusted for any effects of conditions existing at each balance
sheet date.
The recoverable amount of other assets is the greater of their fair value less costs to sell and value in
use. In assessing value in use, the estimated future cashflows are discounted to their present value
using a discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. For an asset that does not generate largely independent cash inflows, the
recoverable amount is determined for the cash-generating unit to which the asset belongs.
(ii)
Reversals of impairment
Impairment losses, other than in respect of goodwill, are reversed when there is an indication that the
impairment loss may no longer exist and there has been a change in the estimate used to determine
the recoverable amount. An impairment loss in respect of goodwill 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 was recognised.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortisation, if no impairment
loss had been recognised.
i.
(i)
Employee benefits
Long-term service benefits
The Group’s net obligation in respect of long-term service is the amount of future benefit that
employees have earned in return for their service in the current and prior periods. The obligation is
calculated using expected future increases in wage and salary rates including related on-costs and
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
i.
Significant accounting policies (continued)
Employee benefits (continued)
50
expected settlement dates, and is discounted using the rates attached to the Commonwealth
Government bonds at the balance sheet date which have maturity dates approximating to the terms of
the Group’s obligations.
(ii)
Wages, salaries, annual leave and non-monetary benefits
Liabilities for employee benefits for wages, salaries and annual leave that are expected to be settled
within 12 months of the reporting date represent present obligations resulting from employees’ services
provided up to the reporting date, and are calculated at undiscounted amounts based on remuneration
wage and salary rates that the Group expects to pay as at reporting date including related on-costs
such as workers compensation insurance and payroll tax. Non-accumulating non-monetary benefits,
such as medical care, 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)
Performance rights plan
The Group has in place a performance rights plan that provides for selected employees to be granted
rights to acquire fully paid ordinary shares in the Company for no consideration, subject to certain
performance conditions. Under this scheme funds are transferred to a trust which acts as an agent and
purchases shares for the benefit of the selected employees. A share-based payments reserve is
recognised for the funds transferred to the scheme. An employee expense is recognised over the
period during which the employees become unconditionally entitled to the shares with a corresponding
decrease in the share-based payments reserve. The employee expense is based on the fair value at
date of grant of the rights. The fair value is calculated by subtracting the expected dividend payments
per share during the vesting period from the share price at date of grant.
(iv)
Employee share scheme
The Group has in place an Employee Share Scheme that provides for selected employees to receive
ordinary shares in the Company. Under this scheme funds are transferred to a trust which acts as an
agent and purchases shares for the benefit of the selected employees. A share-based payments
reserve is recognised for the funds transferred to the scheme. An employee expense is recognised
over the period during which the employees become unconditionally entitled to the shares with a
corresponding decrease in the share-based payments reserve.
(v)
Superannuation
The Group contributes to several defined contribution superannuation plans. Contributions are
recognised as an expense in the income statement on an accruals basis.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
j.
Significant accounting policies (continued)
Borrowing costs
51
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets
are capitalised as part of the cost of the asset. Borrowing costs relating to loans and borrowings are
capitalised and amortised over the term of the loan. All other borrowing costs are expensed in the
period they occur.
k.
Provisions
A provision is recognised in the statement of financial position when the Group has a present legal or
constructive obligation as a result of a past event and it is probable that an outflow of economic benefits
will be required to settle the obligation. Provisions are determined by discounting the expected future
cashflows at a pre-tax rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability.
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.
m.
Revenue
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 which the invoiced amount relates.
Installation and set-up fee revenue is recognised on a straight line basis over the period of the contract
to which it relates.
52
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
Significant accounting policies (continued)
m.
Revenue (continued)
(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 allowances)
when the significant risks and rewards of ownership have been transferred to the customer, which is
ordinarily when 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)
Network capacity sales
Where a sale of network 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 which has been identified as a lease also contains the following 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
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, with revenue
recognised over the period of the contract on a straight-line basis.
Where a sale of network 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.
(iv)
Revenue arrangements with multiple deliverables
Where two 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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
Significant accounting policies (continued)
m.
Revenue (continued)
53
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 with the revenue recognition policies described above.
n.
(i)
Expenses
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.
Minimum lease payments made under finance leases are apportioned between 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 whether an arrangement contains a lease
At inception of an arrangement, including sales of capacity described in note 3(m) above, the Group
determines whether 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 payments 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 borrowings calculated using the effective interest
method and interest receivable on funds invested. Borrowing costs relating to loans and borrowings are
capitalised and amortised over the term of the loan. All other borrowing costs are expensed in the
period they 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 2013
3.
Significant accounting policies (continued)
o.
Income tax
54
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is
recognised in the income statement except to the extent that it relates to items recognised directly in
equity, in which case it is recognised in equity or in other comprehensive income.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are not provided for: initial recognition
of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit,
and differences relating to investments in subsidiaries to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes
levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend
to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised
simultaneously.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be
available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is
no longer probable that the related tax benefit will be realised.
Tax consolidation
The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group
with effect from 1 August 2006 and have therefore been taxed as a single entity from that date. The
head entity within the tax-consolidated group is TPG Telecom Limited.
p.
Segment reporting
The Group determines and presents operating segments based on the information that is internally
provided to the Executive Chairman, who is the Group’s chief operating decision maker.
An operating segment is a component of the Group that engages in business activities from which it
may earn revenues and incur expenses, including revenues and expenses that relate to transactions
with any of the Group’s other components. All operating segments’ operating results are regularly
reviewed by the Group’s Executive Chairman to make decisions about resources to be allocated to
each segment and assess its performance, and for which discrete financial information is available.
Segment results that are reported to the Executive Chairman include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise
dividend income, corporate expenses and listing fees.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
3.
q.
Significant accounting policies (continued)
Goods and services tax
55
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST),
except where the amount of GST incurred is not recoverable from the taxation authority. In these
circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the
expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of
financial position.
Cashflows are included in the statement of cash flows on a gross basis. The GST components of
cashflows arising from investing and financing activities which are recoverable from, or payable to, the
ATO are classified as operating cashflows.
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
weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined
by adjusting the weighted 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 2012, 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, which becomes mandatory
for the Group’s 2016 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 2013
4.
Determination of fair values
56
A number of the Group’s accounting policies and disclosures require the determination of fair value, for
both financial and non-financial assets and liabilities. Fair values have been determined for
measurement and/or disclosure purposes based on the following methods. When applicable, further
information about the assumptions made in determining fair values is disclosed in the notes specific to
that asset or liability.
Property, plant and equipment
The fair value of property, plant and equipment recognised as a result of a business combination is
based on market values. The market value of property is the estimated amount for which a property
could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s
length transaction. The market value of items of plant, equipment, fixtures and fittings is based on the
quoted market prices for similar items.
Intangible assets
The fair value of patents and trademarks acquired in a business combination is based on the
discounted estimated royalty payments that have been avoided as a result of the patent or trademark
being owned. The fair value of other intangible assets is based on the discounted cashflows 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 cashflows,
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 cashflow analysis.
Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of
future principal and interest cashflows, 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.
57
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
5.
Financial risk management
Overview
The Group has exposure to the following risks from its use of financial instruments:
credit risk
liquidity risk
market risk.
This note presents information about the Group’s exposure to each of the above risks, its objectives,
policies and processes for measuring and managing risk, and the management of capital. Further
quantitative disclosures are included throughout this financial report (including note 27).
The Board of directors has overall responsibility for the establishment and oversight of the risk
management framework.
Risk management policies are established to identify and analyse the risks faced by the Group, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management
policies and systems are reviewed regularly to reflect changes in market conditions and in the Group’s
activities. The Group aims to develop a disciplined and constructive control environment in which all
employees understand their roles and obligations.
The Group’s Audit & Risk Committee oversees how management monitors compliance with the Group’s
risk management policies and procedures and reviews the adequacy of the risk management framework in
relation to the risks faced by the Group.
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.
The Group’s exposure to credit risk is influenced by the individual characteristics of each customer, the
industry and the geographical region in which the customers operate.
The Group minimises concentration of credit risk by undertaking transactions with a large number of
customers. By industry, the Group is not subject to a concentration of credit risk as its customers
operate in a wide range of industries. Geographically, the Group’s credit risk is concentrated in
Australia.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
5.
Financial risk management (continued)
58
The Group has established a credit policy for its corporate customers under which each new customer
is analysed individually for creditworthiness before the Group’s standard payment and delivery terms
and conditions are offered. The review includes obtaining external ratings, when available, and in some
cases bank references.
Credit limits may be established for each customer. These limits are reviewed regularly. Customers
that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a
prepayment basis or on other specific terms considered by management to be satisfactory.
In monitoring customer credit risk, customers are grouped according to their credit characteristics,
including whether they are an individual or legal entity, whether they are a wholesale or retail customer,
geographic location, industry, ageing profile, and existence of previous financial difficulties.
The Group has established a provision 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 will not be able to meet its financial obligations as they fall due.
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have
sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without
incurring unacceptable losses or risking damage to the Group’s reputation.
The Group manages the cashflow 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.
In addition to its cash reserves, the Group had a debt facility of $300.0m available to it during the year
(of which $42.0m was drawdown as at 31 July 2013).
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates,
will affect the Group’s income or the value of its holdings of financial instruments. The objective of
market risk management is to manage and control market risk exposures within acceptable parameters,
while optimising return.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
5.
Financial risk management (continued)
Currency risk
59
The Group is exposed to currency risk on revenues, expenses, receivables and borrowings that are
denominated in a currency other than its functional currency, the Australian dollar (AUD). These other
currencies include primarily the United States dollar (USD), the New Zealand dollar (NZD), Philippine
peso (PHP) and the Hong Kong dollar (HKD).
The Group to-date has 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 in the past adopted a policy of hedging its exposure to changes in interest rates on its
core borrowings. For example, in April 2010 an interest rate cap agreement was entered into to hedge
75 percent of the maximum value of loans available under the Group’s debt facility at that time. This
interest cap expired during the year and no new hedging arrangement has been entered into.
However, the Group’s exposure to interest rate risk has reduced substantially as at 31 July 2013, with
the Group’s outstanding debt as at year end at $42.0m (down from $149.0m at 1 August 2012).
Equity price risk
The Group is exposed to equity price risk because of its investments in available-for-sale equity
securities. Material investments are managed on an individual basis with 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 monitors return on capital,
which the Group defines as profit from operating activities divided by total shareholders’ equity. The
Board of directors also determines the level of dividends to be paid to shareholders.
It is a policy of the Board to encourage employees of the Group to hold ordinary shares in the
Company.
The Board seeks to maintain a balance between the higher returns that might be possible with higher
levels of borrowings, and the advantages and security afforded by a sound capital position.
From time to time the Group may purchase its own shares on market for the purpose of issuing shares
under employee share plans. The Group does not currently have a defined share buy-back plan.
There were no changes in the Group’s approach to capital management during the year.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
5.
Financial risk management (continued)
The Group’s net debt to equity ratio at the end of the reporting date was as follows:
60
In thousands of AUD
Total loans and borrowings
Less: cash and cash equivalents
Net debt
2013
42,000
(26,128)
15,872
2012
149,000
(13,767)
135,233
Total equity
715,966
590,777
Net debt to equity ratio at 31 July
0.02
0.23
6.
Segment reporting
The Group identifies its operating segments based on the internal reports that are reviewed and used
by the Executive Chairman (the chief operating decision maker) in assessing performance and in
determining the allocation of resources.
The Group’s Consumer segment provides retail telecommunications services to residential and small
business customers. The Group’s Corporate segment provides telecommunications services to
corporate, government, and wholesale customers.
In the following table, expenses in the ‘Unallocated’ column comprise professional fees incurred in
relation to business combinations, plus other corporate costs and listing fees.
61
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
6.
Segment reporting (continued)
In thousands of AUD
2013
2012*
2013
2012*
2013
2012
2013
2012
Consumer
Corporate
Total results
Unallocated
Consolidated results
for the year
2013
2012
Information about reportable segments
Reconciliation to profit for the year
Revenue
Other income
480,295
-
412,740
-
244,238
-
250,399
-
724,533
-
663,139
-
-
3,349
-
1,438
724,533
3,349
663,139
1,438
Telecommunications expense
Employee benefits expense
Other expenses
Results from Segment activities
(237,408)
(27,956)
(34,345)
180,586
(215,460)
(23,242)
(24,571)
149,467
(90,731)
(32,111)
(11,092)
110,304
(91,606)
(35,418)
(12,591)
110,784
(328,139)
(60,067)
(45,437)
290,890
(307,066)
(58,660)
(37,162)
260,251
-
-
(1,153)
2,196
-
-
(283)
1,155
(328,139)
(60,067)
(46.590)
293,086
(307,066)
(58,660)
(37,445)
261,406
Depreciation of plant and equipment
Amortisation of intangibles
Results from operating activities
Net financing costs
Profit before income tax
Income tax expense
Profit for the year
Geographic Information
(49,892)
(23,942)
219,252
(47,063)
(33,957)
180,386
(6,953)
212,299
(17,145)
163,241
(63,134)
149,165
(72,277)
90,964
All of the Group’s revenues are derived from Australian based entities, except for $10.3m (2012: $7.7m) derived from overseas customers.
All of the Group’s non-current assets are located in Australia, except for assets amounting to $122.9m (2012: $129.7m) that are located either overseas or in
international waters.
* The prior year comparative figures have been slightly restated by re-allocating an amount of $9.5m between the revenue and telecommunications expenses of the
two segments in order to better reflect the effects of inter-segment transactions. This re-statement has not impacted the respective segments' reported profits.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
62
7.
Revenue
Revenue comprises the following:
In thousands of AUD
Rendering of services
Sale of goods
Network capacity sales, recognised as:
-
-
operating leases
finance leases
8.
Other income
In thousands of AUD
Dividend income
Profit on sale of investments
9.
Finance income and expense
Recognised in profit or loss
In thousands of AUD
Interest income
Interest expense
Unwinding of discount on provisions
Borrowing 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 of tax
2013
2012
657,036
9,530
47,469
10,498
724,533
2013
2,219
1,130
3,349
587,692
7,505
47,265
20,677
663,139
2012
1,438
-
1,438
2013
2012
2,447
(7,253)
(110)
(2,037)
(6,953)
718
(14,965)
(110)
(2,788)
(17,145)
2013
2012
23
24,435
24,458
6
9,744
9,750
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
10.
Income tax expense
63
In thousands of AUD
Current tax expense
Current year
Adjustments for prior years
Adjustment arising from change in legislation
Deferred tax expense
Origination and reversal of temporary differences
Adjustments for prior years
Adjustment arising from change in legislation
Income tax expense
2013
2012
73,416
(60)
-
73,356
(9,446)
(776)
-
(10,222)
63,134
53,373
(195)
14,964
68,142
(4,967)
860
8,242
4,135
72,277
(i)
(i)
Numerical reconciliation between tax expense and pre-tax accounting profit
In thousands of AUD
Profit before tax
Income tax expense at the rate of 30%
Increase in income tax expense due to:
Non-deductible expenses
Adjustment arising from change in legislation
(i)
Income tax expense on profit before tax
Under/(over) provided in prior year
Income tax expense
2013
2012
212,299
163,241
63,690
48,972
220
-
63,910
(776)
63,134
73
23,206
72,251
26
72,277
(i) A one-off income tax expense of $23.2m arose in FY12 as a result of a retrospective change in tax
legislation enacted in June 2012 that caused the Group to lose the right to claim tax deductions for
its acquired customer base amortisation.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
11.
Earnings per share
Basic and diluted earnings per share
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 shares issued on acquisition of IntraPower Limited
64
2013
Cents
18.8
2012
Cents
11.5
2013
Number
2012
Number
793,808,141
783,481,644
-
-
6,825,024
357,323
Weighted average number of ordinary shares at 31 July
793,808,141
790,663,991
In thousands of AUD
Profit attributable to ordinary shareholders used in calculating basic and
diluted earnings per share
2013
2012
149,165
90,964
12.
Cash and cash equivalents
In thousands of AUD
Bank balances
Cash
Cash and cash equivalents
2013
2012
26,121
7
26,128
13,760
7
13,767
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities
are disclosed in note 27.
13.
Trade and other receivables
In thousands of AUD
2013
2012
Current
Trade receivables
Accrued income and other receivables
Less: Provision for impairment losses
Non-Current
Accrued income and other receivables
30,060
16,895
(6,279)
40,676
28,434
16,663
(7,084)
38,013
15,268
6,049
The Group’s exposure to credit and currency risk and impairment losses related to trade and other
receivables is disclosed in note 27.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
65
14.
Inventories
In thousands of AUD
Customer equipment inventory
15.
Investments
Available-for-sale financial assets
In thousands of AUD
Current
Carrying amount at 1 August
Acquisition
Disposals at cost
Change in fair value
Carrying amount at 31 July
Non-Current
Available-for-sale financial assets
2013
179
2012
363
2013
2012
47,619
-
(1,345)
34,907
81,181
11,293
22,406
-
13,920
47,619
7,333
-
The current available-for-sale financial assets represent investments in ASX listed equity securities.
The non-current available-for-sale financial assets balance represents an investment in Cocoon Data
Holdings Limited (‘CDHL’). During the year ended 31 July 2013, the Company entered into an
agreement with CDHL under which the Company paid $10.0m to acquire (i) approximately 15% of the
ordinary shares in CDHL, and (ii) a 10 year exclusive licence to distribute certain CDHL products to
certain market segments in Australia and New Zealand. $7.3m of the consideration has been
apportioned to the equity investment with the $2.7m balance apportioned to the licence agreement
(refer note 20).
Sensitivity analysis – equity price risk
A two percent increase in the share price of ASX listed equity investments as at the reporting date
would have increased equity by $1.1m after tax. An equal change in the opposite direction would have
decreased equity by $1.1m after tax.
16.
Prepayments and other assets
In thousands of AUD
Current
Prepayments
Non-Current
Security deposits
2013
2012
6,352
7,515
339
434
66
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
17.
Current tax liabilities
The current tax liability for the Group of $33.628m (2012: $39.542m) represents the remaining amount
of income tax payable in respect of year ended 31 July 2013.
18.
Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
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-forwards
Other items
Tax (assets)/liabilities
Set off of tax
Net tax liabilities
Assets
Liabilities
Net
2013
(1,884)
(231)
-
(1,990)
-
-
(7,036)
(1,677)
(10,504)
(2,012)
(969)
1,110
(25,193)
25,193
-
2012
(1,927)
(140)
-
(1,722)
-
(96)
(4,868)
(1,747)
(6,237)
(546)
(959)
(1,419)
(19,661)
19,661
-
2013
1,900
-
15,116
11,436
12,128
20
3
-
-
-
-
-
40,603
(25,193)
15,410
2012
-
-
4,644
11,299
17,475
18
448
-
295
-
-
622
34,801
(19,661)
15,140
2013
16
(231)
15,116
9,446
12,128
20
(7,033)
(1,677)
(10,504)
(2,012)
(969)
1,110
15,410
15,410
2012
(1,927)
(140)
4,644
9,577
17,475
(78)
(4,420)
(1,747)
(5,942)
(546)
(959)
(797)
15,140
-
15,140
67
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
18.
Deferred tax assets and liabilities (continued)
Movement in temporary differences during the year
In thousands of AUD
Balance
31 July
2011
Recognised
in profit or
loss
Recognised
in equity
Acquired in
business
combinations
Balance
31 July
2012
Recognised
in profit or
loss
Recognised
in equity
Balance
31 July
2013
Receivables
Inventories
Investments
Property, plant and equipment
Intangible assets
Payables
Provisions
Employee benefits
Unearned revenue
Equity raising costs
Other items
Tax loss carry-forwards
(1,633)
-
471
7,109
12,616
(261)
(4,299)
(1,543)
(2,139)
(647)
(2,312)
-
7,362
(55)
(140)
-
2,468
3,072
183
(101)
(26)
(3,472)
101
1,557
548
4,135
-
-
4,173
-
-
-
-
-
-
-
-
-
4,173
(239)
-
-
-
1,787
-
(20)
(178)
(331)
-
(42)
(1,507)
(530)
(1,927)
(140)
4,644
9,577
17,475
(78)
(4,420)
(1,747)
(5,942)
(546)
(797)
(959)
15,140
1,943
(91)
-
(131)
(5,347)
98
(2,613)
70
(4,562)
(1,466)
1,907
(10)
(10,202)
-
-
10,472
-
-
-
-
-
-
-
-
-
10,472
16
(231)
15,116
9,446
12,128
20
(7,033)
(1,677)
(10,504)
(2,012)
1,110
(969)
15,410
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
19.
Property, plant and equipment
68
Note
36
In thousands of AUD
Cost
Balance at 1 August 2011
Acquisitions through business combinations
Additions
Disposals
Write-downs and write-offs
Effect of movements in exchange rates
Balance at 31 July 2012
Balance at 1 August 2012
Additions
Disposals
Effect of movements in exchange rates
Balance at 31 July 2013
Network
infrastructure
Land &
Buildings
Leasehold
improvements
474,994
1,979
59,334
(4,929)
(4)
132
531,506
531,506
51,641
(6,668)
271
576,750
3,095
-
-
-
-
53
3,148
3,148
-
-
102
3,250
2,934
-
79
-
-
-
3,013
3,013
-
-
-
3,013
Total
481,023
1,979
59,413
(4,929)
(4)
185
537,667
537,667
51,641
(6,668)
373
583,013
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
19.
Property, plant and equipment (continued)
69
In thousands of AUD
Depreciation and impairment losses
Balance at 1 August 2011
Depreciation charge for the year
Disposals
Effect of movements in exchange rates
Balance at 31 July 2012
Balance at 1 August 2012
Depreciation charge for the year
Disposals
Effect of movements in exchange rates
Balance at 31 July 2013
Carrying amounts
At 1 August 2011
At 31 July 2012
At 1 August 2012
At 31 July 2013
Leased plant and equipment
Network
infrastructure
Land &
Buildings
Leasehold
improvements
165,507
46,474
-
98
212,079
212,079
48,853
(58)
248
261,122
309,505
319,444
319,444
315,646
203
92
-
8
303
303
138
-
20
461
2,892
2,845
2,845
2,789
873
497
-
-
1,370
1,370
901
-
-
2,271
2,043
1,626
1,626
724
Total
166,583
47,063
-
106
213,752
213,752
49,892
(58)
268
263,854
314,440
323,915
323,915
319,159
Network infrastructure includes a number of assets acquired through finance lease agreements. At the end of lease term, the Group has the
option to purchase the asset at a beneficial price. At 31 July 2013 the net carrying amount of leased assets was $1.1m (2012: $1.2m). The
leased asset secures the underlying lease obligation (see note 22).
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
20.
Intangible assets
70
Non-current
In thousands of AUD
Cost
Balance 1 August 2011
Acquisitions through
business combinations
Additions
Balance 31 July 2012
Balance 1 August 2012
Additions
Balance 31 July 2013
Amortisation and Impairment
Balance 1 August 2011
Amortisation for the year
Balance 31 July 2012
Balance 1 August 2012
Amortisation for the year
Balance 31 July 2013
Carrying amounts
At 1 August 2011
At 31 July 2012
At 1 August 2012
At 31 July 2013
* Refer note 15
Non-Amortising
Goodwill Trademark
Amortising
Total
Acquired
customer
bases
Internally
generated
software
Indefeasible
right of use
of capacity
Development
costs
Licences
382,357
20,068
230,800
8,037
61,888
9,164
-
391,521
391,521
-
391,521
-
-
20,068
20,068
-
20,068
-
-
-
-
-
-
-
-
-
-
-
-
382,357
391,521
391,521
391,521
20,068
20,068
20,068
20,068
6,124
-
236,924
236,924
-
236,924
146,554
27,659
174,213
174,213
18,114
192,327
84,246
62,711
62,711
44,597
-
-
8,037
8,037
-
8,037
5,293
1,617
6,910
6,910
1,096
8,006
2,744
1,127
1,127
31
-
446
62,334
62,334
251
62,585
10,287
4,587
14,874
14,874
4,594
19,468
51,601
47,460
47,460
43,117
1,459
-
-
1,459
1,459
-
1,459
1,027
94
1,121
1,121
94
1,215
432
338
338
244
-
-
-
-
-
2,667*
2,667
-
-
-
-
44
44
-
-
-
2,623
704,609
15,288
446
720,343
720,343
2,918
723,261
163,161
33,957
197,118
197,118
23,942
221,060
541,448
523,225
523,225
502,201
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
20.
Intangible assets (continued)
Impairment tests for cash generating units containing goodwill
71
For the purpose of impairment testing, goodwill is allocated to the Group’s cash generating units
(CGUs). CGUs are determined according to the lowest level of groups of assets that generate largely
independent cashflows. The Group has two separate CGUs, being the Consumer and Corporate
CGUs.
Total goodwill at 31 July 2013 is $391.5m (2012: $391.5m), the majority of which ($387.0m) is allocated
to the Consumer CGU as it is the principal beneficiary of the acquisitions from which the goodwill has
arisen.
The recoverable amount of goodwill has been determined based on value-in-use calculations.
Value-in-use is determined by discounting the projected future cashflows generated from the continuing
use of the assets in the relevant CGU.
The cashflow projections utilised in the current year were the budgeted cashflows for the year to 31 July
2014, extrapolated based on revenue and margin growth assumptions to cover a 5 year period and
incorporating a terminal value. The assumed growth rate in cashflows was 2% per annum in years 2 to
5 based on the long-term industry growth rate (2012: 2%). In the terminal phase beyond year 5 the
growth rate used was also 2% (2012: 2%).
A pre-tax discount rate of 13.5% (2012: 14%) has been used in discounting the projected cashflows of
both CGUs, which is based on the Group’s WACC adjusted to reflect an estimate of specific risks
assumed in the cashflow projections.
Sensitivity analysis on all key assumptions employed in the value-in-use calculations has been
performed. From this it was concluded that no reasonable possible movement in any of the key
assumptions would give rise to any impairment in either CGU.
21.
Trade and other payables
In thousands of AUD
Trade creditors
Other creditors and accruals
2013
43,468
50,654
94,122
2012
49,141
36,235
85,376
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in
note 27.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
22.
Loans and borrowings
72
This note provides information about the contractual terms of the Group’s interest-bearing loans and
borrowings. For more information about the Group’s exposure to interest rate and foreign currency risk,
see note 27.
In thousands of AUD
Current liabilities
Finance lease liabilities
Non-Current
Gross secured bank loans
Less: Unamortised borrowing costs
Secured bank loans
Finance lease liabilities
2013
2012
169
169
42,000
(3,171)
38,829
305
39,134
357
357
149,000
(5,129)
143,871
489
144,360
As at 31 July 2013 the Group had a debt facility of $300.0m, of which $258.0m was undrawn. Since the
year-end the Group has elected to reduce the facility limit to $80.0m. The debt facility has an expiry
date of 15 March 2015.
The Group also has a $20.0m working capital facility.
During the year ended 31 July 2013, the Group made debt repayments of $107.0m (net of draw-downs
of $27.0m).
The outstanding loan balance as at the year end is shown in the statement of financial position net of
unamortised borrowing costs of $3.2m (2012: $5.1m).
The bank loan facility is secured by a fixed and floating charge over all of the assets of the Group, with
the exception of the assets of the following subsidiaries:
Chariot Pty Ltd
Kooee Pty Ltd
Digiplus Contracts Pty Ltd
Blue Call Pty Ltd
Orchid Cybertech Services Inc
(Philippines)
Orchid Human Resources Pty Ltd
TPG (NZ) Pty Ltd
IntraPower Pty Ltd
IP Service Xchange Pty Ltd
Trusted Cloud Pty Ltd
Trusted Cloud Solutions Pty Ltd
Alchemyit Pty Ltd
IP Group Pty Ltd
Mercury Connect Pty Ltd
VtalkVoip Pty Ltd
Intrapower Terrestrial Pty Ltd
Hosteddesktop.com Pty Ltd
Virtual Desktop Pty Ltd
Destra Communications Pty Ltd
73
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
22.
Loans and borrowings (continued)
Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
In thousands of AUD
Currency
Nominal
interest rate
Year of
maturity
Face
value
Carrying
amount
Face
value
Carrying
amount
2013
2012
Secured bank loan
Finance lease liabilities
AUD
AUD
BBSY
+ margin (1)
6% - 9%
2015
42,000
42,000
149,000
149,000
2013-2016
526
42,526
474
42,474
952
149,952
846
149,846
(1) Margin is variable and is determined quarterly according to gearing ratio.
Finance lease liabilities
Finance lease liabilities of the Group are payable as follows:
In thousands of AUD
Less than one year
Between one and five years
Minimum
lease
payments
2013
200
326
526
Interest
Principal
2013
31
21
52
2013
169
305
474
Minimum
lease
payments
2012
408
544
952
Interest
Principal
2012
51
55
106
2012
357
489
846
23.
Employee benefits
In thousands of AUD
Current
Liability for annual leave
Liability for long service leave
Non-Current
Liability for long service leave
2013
2012
3,578
1,663
5,241
3,305
1,301
4,606
349
743
74
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
23.
Employee benefits (continued)
Share based payments
(i) Performance rights plan
The Group has a long-term incentive structure in the form of a performance rights plan. Under the rules
of the performance rights plan, participants may be granted rights to acquire fully paid ordinary shares
in the Company for no consideration, subject to certain performance conditions.
The plan was introduced in FY12 with the first grant of rights taking place on 9 March 2012. During
FY13 a second grant of rights occurred (grant date 24 December 2012). The key terms of both lots of
rights are consistent with one another and are as follows:
One third of the performance rights granted will vest following the release of the Group’s audited
financial statements for each of the three financial years ending after the date of grant, subject to
the satisfaction of performance conditions.
At each vesting date:
o 30% of the performance rights that are due to vest on that date will vest if the rights holder has
been continuously employed by the Group up until and including the relevant vesting date; and
o 70% of the performance rights that are due to vest on that date will vest if the rights holder has
been continuously employed by the Group up until and including the relevant vesting date and
the Group has met its financial objectives for the financial year immediately preceding the
relevant vesting date.
Any performance rights which do not vest, automatically lapse.
The number of rights granted or outstanding during the year ended 31 July 2013 are set out below:
Balance at start of year
Granted during the year
Forfeited during the year
Vested during the year
Balance at end of year
Exercisable at end of year
No. of Rights
979,000
703,500
(187,000)
(321,333)
1,174,167
-
The fair value of the rights at date of grant was calculated by subtracting the expected dividend
payments per share during the vesting period from the share price at date of grant. The weighted
average fair value of the rights granted on 9 March 2012 was $1.4733. The share price at date of grant
was $1.56. The weighted average fair value of the rights granted on 24 December 2012 was $2.3267.
The share price at date of grant was $2.48.
At the year-end an estimate of how many rights are likely to vest based on the continuous employment
and financial performance conditions has been updated. The fair value of the number of rights
expected to vest has been expensed in proportion to how far through the vesting period the rights are at
that date. The amount consequently expensed in the year was $1.1m (2012: $586k).
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
23.
Employee benefits (continued)
(ii) Employee share scheme
75
The Group previously had in place an employee share scheme under which ordinary shares in the
Company were allocated to certain employees and vested at 20% per annum at the end of each of the
five years following allocation, provided the employee continued to be employed by the Group. The
final vesting date under this plan occurred during the year ended 31 July 2013 and there were therefore
no unvested shares outstanding under this plan as at 31 July 2013. During the year ended 31 July 2013
$31,000 (2012: $50,000) was recognised as an employee benefit expense in respect of this scheme.
Under both of the above share-based payment schemes, funds are transferred by the Company to a
trust which acts as an agent and purchases shares for the benefit of the selected employees. A share-
based payments reserve is recognised for the funds transferred to the schemes. An employee expense
is recognised over the vesting period of the rights and shares with a corresponding decrease in the
share-based payments reserve.
24.
Provisions
In thousands of AUD
Balance 1 August 2012
Provisions made during the year
Provisions used during the year
Unwind of discount
Balance 31 July 2013
Current
Non-current
Make good costs
Make good
costs
Lease
increment
Other
Total
5,988
-
(11)
110
6,087
-
6,087
6,087
1,030
610
-
-
1,640
616
1,024
1,640
2,000
-
-
-
2,000
2,000
-
2,000
9,018
610
(11)
110
9,727
2,616
7,111
9,727
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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
25.
Deferred income and other liabilities
In thousands of AUD
Current
Deferred income
Non-Current
Deferred income
26.
Capital and reserves
Share capital
76
2013
2012
58,784
44,443
26,010
26,262
Opening balance
Ordinary shares issued during the year:
Dividend Reinvestment Plan
On acquisition of IntraPower Limited
Transaction costs, net of tax
Closing balance
Ordinary shares
In thousands of AUD
2013
2012
793,808,141 783,481,644
2013
516,907
2012
502,874
9,912,535
413,962
-
793,808,141 793,808,141
-
-
-
-
-
-
516,907
13,450
607
(24)
516,907
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 with regard to the Company’s
residual assets.
Foreign currency translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the
financial statements of foreign operations where their functional currency is different to the presentation
currency of the reporting entity.
Share-based payments reserve
The share-based payments reserve represents the value of shares held by a share-based remuneration
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 own equity
instruments. At 31 July 2013 the Group held 21,085 of the Company’s shares (2012: 94,784 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.
77
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
26.
Capital and reserves (continued)
Dividends
Dividends recognised in the current year were as follows:
In thousands of AUD
2013
Interim 2013 ordinary
Final 2012 ordinary
Total amount
2012
Interim 2012 ordinary
Final 2011 ordinary
Total amount
Cents
per share
Total
amount
Franked /
unfranked
Date of
payment
3.50
2.75
2.75
2.25
27,783
21,830
49,613
21,830
17,637
39,467
Franked
Franked
21 May 2013
20 Nov 2012
Franked
Franked
22 May 2012
22 Nov 2011
Franked dividends declared or paid during the year were fully franked at the tax rate of 30%.
The directors have declared a fully franked final FY13 dividend of 4.0 cents per share. As the final
dividend was not declared or resolved to be paid by the Board of directors as at 31 July 2013, the
dividend has not been provided for in the consolidated statement of financial position. The dividend has
a record date of 15 October 2013 and will be paid on 19 November 2013.
The Dividend Reinvestment Plan (DRP) is currently suspended until further notice.
Dividend franking account
In thousands of AUD
2013
2012
30 per cent franking credits available to shareholders of TPG
Telecom Limited for subsequent financial years
181,772
147,476
The above available amounts are based on the balance of the dividend franking account at year-end
adjusted for:
(a)
(b)
franking credits that will arise from the payment of the current tax liabilities;
franking debits that will arise from the payment of dividends recognised as a liability at the year-
end;
franking credits that will arise from the receipt of dividends recognised as receivables by the tax
consolidated group at the year-end; and
franking credits that the entity may be prevented from distributing in subsequent years.
(c)
(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 $13.6m (2012: $9.4m)
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
27.
Financial instruments
78
Exposure to credit, liquidity and market risks arise in the normal course of the Group’s activities. The
Group’s risk management policies are described at note 5.
Credit risk
The carrying amount of the Group’s financial assets represents the maximum credit exposure from
those assets. The Group’s maximum exposure to credit risk at the reporting date was as follows:
In thousands of AUD
Note
2013
2012
Trade and other receivables
Cash and cash equivalents
Available-for-sale financial assets
13
12
15
55,944
26,128
88,514
170,586
44,062
13,767
47,619
105,448
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by customer
type was as follows:
In thousands of AUD
Type of customer
Government
Corporate
Wholesale
Retail
Note
2013
2012
4,691
10,244
7,125
8,000
30,060
5,290
10,150
8,416
4,578
28,434
13
The Group minimises concentration of credit risk by undertaking transactions with a large number of
customers.
By industry, the Group is not subject to a concentration of credit risk in any particular industry as its
customers operate in a wide range of industries.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
27.
Financial instruments (continued)
Credit risk (continued)
79
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by
geographical region was as follows:
In thousands of AUD
Geographical region
Australia
New Zealand
United States
Other
Note
2013
2012
29,432
86
371
171
30,060
27,614
53
20
747
28,434
13
Geographically, the Group is subject to a concentration of credit risk as predominantly all of its revenue
is generated in Australia.
The ageing of the Group’s trade receivables at the reporting date was as follows:
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
Net receivables
Note
2013
2012
18,392
5,003
970
847
1,348
3,500
30,060
(6,279)
23,781
15,424
4,223
1,266
1,128
1,704
4,689
28,434
(7,084)
21,350
13
The provision for impairment losses of the Group at 31 July 2013 of $6.3m (2012: $7.1m) represents
the risk of non-collection of outstanding debts that are past due and believed to be at risk of non-
collection. The provision is used to record impairment losses unless the Group is satisfied that no
recovery of the amount owing is possible. At this point the amount is considered irrecoverable and is
written off against the financial asset directly.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
27.
Financial instruments (continued)
Credit risk (continued)
80
The movement in the provision for impairment losses during the year ended 31 July 2013 is as follows:
In thousands of AUD
Note
Balance at 1 August
Acquired through business combination
Impairment loss recognised/(written back)
Balance at 31 July
13
2013
7,084
-
(805)
6,279
2012
5,243
447
1,394
7,084
Liquidity risk
The following are the contractual maturities of financial liabilities, including estimated interest payments
and excluding the impact of netting agreements:
31 July 2013
In thousands of AUD
Secured bank loans
Finance lease
liabilities
Trade and other
payables
Note
22
Carrying
amount
(42,000)
(474)
Contractual
cashflows
(45,037)
(526)
6 months
or less
(935)
(91)
6-12
months
(935)
(109)
1-2
years
(43,167)
(217)
2-5 years
-
(109)
More than
5 years
-
-
21
(94,122)
(94,122)
(94,122)
-
-
-
136,596
(139,685)
(95,148)
(1,044)
(43,384)
(109)
-
-
31 July 2012
In thousands of AUD
Secured bank loans
Finance lease
liabilities
Trade and other
payables
Note
22
21
Carrying
amount
(149,000)
(846)
Contractual
cashflows
(170,395)
(952)
6 months
or less
(4,075)
(222)
6-12
months
(4,075)
(205)
1-2
years
(8,150)
(217)
2-5 years
(154,094)
(308)
More than
5 years
-
-
(85,376)
(85,376)
(85,376)
-
-
-
(235,222)
(256,723)
(89,673)
(4,280)
(8,367)
(154,402)
-
-
It is not expected that the cashflows included in the maturity analysis above could occur significantly
earlier, or at significantly different amounts.
81
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
27.
Financial instruments (continued)
Market risk
Exposure to currency risk
The Group is exposed to foreign currency risk on revenues, expenses and financial instruments that are
denominated in a currency other than AUD. The Group’s exposure to foreign currency risk at balance
date was as follows:
In thousands
Trade receivables
Other financial assets
Trade payables
Other financial liabilities
Statement of Financial
Position exposure
AUD
equivalent
2,784
4,507
(4,933)
-
31 July 2013
NZD
USD PHP HKD
21
-
(74)
-
2,516
4,091
(4,428)
-
-
429
(43)
-
-
-
(50)
-
AUD
equivalent
656
4,684
(4,027)
(182)
31 July 2012
NZD
USD
PHP
-
-
(17)
-
688
4,897
(4,221)
(191)
-
429
(4)
-
2,358
(53)
2,179
386
(50)
1,131
(17)
1,173
425
In addition to the above, the Group has operating lease commitments denominated in USD (refer note
28).
The average rates during the year and spot rates at the year-end for the currencies that impact the
business were as follows:
Average rate
2013
1.22
0.98
41.61
7.89
2012
1.27
1.03
45.02
8.01
Reporting date spot rate
2013
1.14
0.91
39.42
7.06
2012
1.30
1.05
43.81
8.13
NZD
USD
PHP
HKD
Sensitivity analysis
A 10 percent strengthening/weakening of the Australian dollar against the following currencies at 31
July 2013 would have decreased/increased equity and profit or loss by $214K (2012: $102K). This
analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is
performed on the same basis for 2012.
82
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
27.
Financial instruments (continued)
Interest rate risk
At the reporting date the Group’s interest-bearing financial instruments were as follows:
In thousands of AUD
Fixed rate instruments
Financial liabilities
Variable rate instruments
Financial assets
Financial liabilities
Note
22
12
22
2013
(474)
2012
(846)
26,128
(42,000)
(15,872)
13,767
(149,000)
(135,233)
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit
or loss. Therefore, a change in interest rates at the reporting date would not affect profit or loss.
Cashflow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates would cause a movement in the Group’s annualised
interest expense, based on the balance of its variable rate instruments as at 31 July 2013, of $159k
(2012: $1.4m) (assumes that all other variables, in particular foreign currency rates, remain constant).
Fair values versus carrying amounts
As at 31 July 2013, the fair values of the Group’s financial assets and liabilities approximate their
carrying amounts shown in the statement of financial position.
The basis for determining the fair values of financial assets and liabilities is disclosed in note 4.
83
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
27.
Financial instruments (continued)
Interest rate risk (continued)
Interest rates used for determining fair value
The interest rates used to discount estimated cashflows, where applicable, are based on the rates
implicit in the transaction, and were as follows:
Loans and borrowings
2013
2012
BBSY +
margin
BBSY +
margin
Leases
5% to 10%
5% to 10%
There are three possible valuation methods (or ‘levels’) for financial instruments which are measured at
fair value. Those different levels are as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly
Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The Group’s only financial instruments which are measured at fair value are available-for-sale financial
assets. Financial instruments that are listed securities are categorised as Level 1 as they are valued on
quoted market prices. Other financial instruments are categorised as Level 2 and are valued based on
observable inputs other than quoted market prices.
28.
Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
In thousands of AUD
Less than one year
Between one and five years
More than five years
2013
27,634
46,030
28,796
102,460
2012
35,425
42,999
32,128
110,552
These operating lease commitments include $11.6m denominated in USD (2012: $23.3m).
84
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
29.
Capital and other commitments
In thousands of AUD
Capital expenditure commitments
2013
2012
Contracted but not provided for and payable
23,743
15,075
The capital commitments at 31 July 2013 in the table above include $13.5m in respect of spectrum
licences won by the Company at the Digital Dividend auction in May 2013.
The spectrum acquired comprises 2*10 MHz in the 2.5GHz band across all regions and becomes
available for use from 1 October 2014, with payment due in September 2014.
30.
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 will be required,
or the amount is not capable of reliable measurement.
Guarantees
Under the terms of a Deed of Cross Guarantee (refer note 38) the Company guarantees to each
creditor payment in full of any debt in the event of winding up of any of the subsidiaries covered by the
Deed.
Litigation
The Company (or its subsidiaries) are parties to various legal cases which have arisen in the ordinary
course of the business of the Group.
The directors have provided for costs and settlement of certain cases where such amounts can be
reliably estimated. In the opinion of directors, the likelihood of significant cash outflows relating to other
cases is remote.
In the opinion of the directors, disclosure of further information about these legal cases would be
prejudicial to the interests of the Group.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
31.
Consolidated entities
85
The following is a list of all entities that formed part of the Group as at 31 July 2013:
Country of
incorporation
Ownership interest (%)
2012
2013
Parent entity
TPG Telecom Limited
Subsidiaries
TPG Holdings Pty Ltd
TPG Internet Pty Ltd
Value Added Network Pty Ltd
TPG Network Pty Ltd
TPG Research Pty Ltd
TPG Broadband Pty Ltd
TPG (NZ) Pty Ltd
Orchid Cybertech Services Incorporated
Orchid Human Resources Pty Ltd
Chariot Pty Ltd
Soul Pattinson Telecommunications Pty Ltd
SPT Telecommunications Pty Ltd
SPTCom Pty Ltd
Kooee Communications Pty Ltd
Kooee Pty Ltd
Kooee Mobile Pty Ltd
Soul Communications Pty Ltd
Soul Contracts Pty Ltd
Digiplus Investments Pty Ltd
Digiplus Holdings Pty Ltd
Digiplus Pty Ltd
Digiplus Contracts Pty Ltd
Blue Call Pty Ltd
PIPE Networks Pty Ltd
PIPE Transmission Pty Ltd
PIPE International (Australia) Pty Ltd
PPC 1 Limited
PPC 1 (US) Incorporated
ACN 139 798 404 Pty Ltd
IntraPower Pty Ltd
IP Service Xchange Pty Ltd
Trusted Cloud Pty Ltd
Trusted Cloud Solutions Pty Ltd
Alchemyit Pty Ltd
IP Group Pty Ltd
Mercury Connect Pty Ltd
VtalkVoip Pty Ltd
Intrapower Terrestrial Pty Ltd
Hosteddesktop.com Pty Ltd
Virtual Desktop Pty Ltd
Destra Communications Pty Ltd
Numillar IPS Pty Ltd
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Philippines
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Bermuda
USA
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
99.99
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
88.57
100
100
100
100
100
100
100
99.99
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
88.57
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
32.
Reconciliation of cashflows from operating activities
86
In thousands of AUD
Note
2013
2012
Cash flows from operating activities
Profit 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 borrowing costs
Employee share plan expense
Performance rights plan expense
Unrealised foreign exchange loss/(gain)
Interest income
Interest expense
Profit on sale of investments
Costs relating to mergers and acquisitions
Income tax expense
Operating profit before changes in working capital
and provisions
8
19
20
9
9
9
8
36
10
Increase in trade and other receivables
(Increase)/decrease in inventories
Decrease in other assets
Increase in trade and other payables
Increase in other liabilities
Increase in employee benefits
Increase in provisions
Income taxes paid
149,165
90,964
(2,219)
49,892
23,942
1,301
2,037
31
1,148
48
(2,447)
7,363
(1,130)
-
63,134
(1,438)
47,063
33,957
2,163
2,788
50
586
(154)
(718)
15,075
-
132
72,277
292,265
262,745
(10,581)
184
1,179
19,931
14,089
241
709
318,017
(79,218)
(11,589)
(101)
3,705
10,354
11,073
881
107
277,175
(47,703)
Net cash from operating activities
238,799
229,472
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
87
33.
Parent entity disclosures
In thousands of AUD
Result of the parent entity
Company
Note
2013
2012
Profit/(Loss) for the period
Other comprehensive income
Total comprehensive (loss)/income for the period
(i)
(i) Profit/(Loss) for the period comprises:
Dividend from subsidiaries
Finance expenses
Costs relating to mergers and acquisitions
Income tax benefit
Other
Total (loss)/profit 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:
Share Capital
Reserves
Retained earnings
Total Equity
Parent entity guarantees
(7,891)
-
(7,891)
-
(9,300)
-
2,557
(1,148)
(7,891)
187,305
-
187,305
200,000
(17,561)
(32)
5,177
(279)
187,305
714
1,151,379
943
1,061,190
42,551
618,494
47,176
471,980
516,907
734
15,244
532,885
516,907
(445)
72,748
589,210
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company
guarantees debts in respect of certain 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 2013
34.
Related parties
The following were key management personnel of the Group during the reporting period and, unless
otherwise indicated, were key management personnel for the entire period:
88
Executive directors
Mr David Teoh
Executive Chairman & Chief Executive Officer
Mr Alan Latimer
Executive Director, Finance & Corporate Services
Non-executive directors
Mr Robert Millner
Mr Denis Ledbury
Mr Joseph Pang
Mr Shane Teoh
Executives
Mr Craig Levy
General Manager, Consumer
Mr John Paine
National Technical and Strategy Manager
Ms Mandie De Ville
Chief Information Officer
Mr Stephen Banfield
Chief Financial Officer and Company Secretary
Mr Wayne Springer
General Manager, Corporate Sales
appointed 11 October 2012
Mr Tony Moffatt
General Counsel
recognised in key management personnel
from 1 August 2012
Key management personnel remuneration
The key management personnel remuneration included in employee benefits is as follows:
In AUD
Short-term employee benefits
Post-employment benefits
Other long term benefits
Termination benefits
Share-based benefits
2013
4,680,235
229,864
134,798
-
600,512
5,645,409
2012
3,975,492
232,196
86,132
40,000
204,167
4,537,987
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
34.
Related parties (continued)
89
Individual directors’ and executives’ remuneration disclosures
Information regarding individual directors’ and executives’ remuneration is provided in the
Remuneration Report section of the Directors’ report on pages 22 to 29.
During the year the Group rented office premises from companies related to a director of the Company,
Mr D Teoh. The total rent charged for the financial year 2013 was $122,669 (2012: $116,828).
The Group also licences the use of some office space to a company related to Mr S Teoh who was
appointed a director of the Company on 11 October 2012. The total licence fee received by the Group
for the financial year was $23,611 (2012: $22,702).
Apart from the details disclosed in this note, no director has entered into a material contract with the
Company or the Group since the end of the previous financial year and there were no material
contracts involving directors’ interests existing at year-end.
Loans to key management personnel and their related parties
There were no loans in existence between the Group and any key management personnel or their
related parties at any time during or since the financial year.
Other key management personnel transactions with the Company or its controlled entities
From time to time, key management personnel of the Company or its controlled entities, or their related
entities, may purchase goods from the Group. These purchases are on the same terms and conditions
as those entered into by other Group employees or customers and are trivial or domestic in nature.
Options and rights over equity instruments
The movement during the reporting period in the number of rights over ordinary shares in the Company
held directly, indirectly or beneficially by each key management person, including by their related
parties, is as follows:
Held as
at 31
July
2012
75,000
100,000
75,000
75,000
75,000
-
Granted as
remuneration
in the year
Forfeited
in the
year
Vested
in the
year
Held as
at 31
July
2013
60,000
81,000
60,000
60,000
60,000
18,000
- 25,000 110,000
- 33,333 147,667
- 25,000 110,000
- 25,000 110,000
- 25,000 110,000
18,000
-
-
Mr S Banfield
Mr C Levy
Mr J Paine
Mr W Springer
Mr T Moffatt
Ms M De Ville
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
34.
Related parties (continued)
Movements in shares
Held at
Purchases
Granted as
90
Disposals
Received
under
DRP*
Held at
31 July
2013
-
-
-
-
-
-
-
-
-
-
-
-
- 291,625,603
500,000
7,374,175
100,000
88,812
90,251
(272,980)
-
(50,000)
-
-
(130,563)
-
-
(100,623)
(990,000)
(52,000)
599,783
3,868,717
131,402
200,000
129,902
552,571
1 August
2012
291,625,603
772,980
7,374,175
150,000
88,812
90,251
682,594
3,843,717
127,795
260,000
1,094,902
568,757
remuneration
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
47,752
25,000
3,607
40,623
25,000
35,814
Held at
Purchases
Granted as
1 August
2011
remuneration
Disposals
Received
under
DRP *
Held at
31 July
2012
286,868,769
760,372
7,057,154
150,000
87,363
-
-
200,000
-
-
- 4,756,834
12,608
-
117,021
-
-
-
1,449
-
- 291,625,603
772,980
-
7,374,175
-
150,000
-
88,812
-
663,929
3,781,020
121,512
350,000
1,354,902
-
-
-
-
-
18,665
-
6,283
19,996
-
-
62,697
-
-
-
-
-
-
(109,996)
(260,000)
682,594
3,843,717
127,795
260,000
1,094,902
Directors
Mr D Teoh
Mr A Latimer
Mr R Millner
Mr D Ledbury
Mr J Pang
Mr S Teoh
Executives
Mr C Levy
Mr J Paine
Ms M De Ville
Mr S Banfield
Mr W Springer
Mr T Moffatt
Directors
Mr D Teoh
Mr A Latimer
Mr R Millner
Mr D Ledbury
Mr J Pang
Executives
Mr C Levy
Mr J Paine
Ms M De Ville
Mr S Banfield
Mr W Springer
* DRP = Dividend Reinvestment Plan
Mr S Teoh does not appear in the 2012 table above as his appointment as a non-executive director
occurred subsequent to 31 July 2012. Mr T Moffatt does not appear in the 2012 table above as he has
only been recognised in key management personnel from 1 August 2012.
91
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
34.
Related parties (continued)
Identity of related parties
The Group has no related party relationships other than with its key management personnel.
35.
Subsequent events
There has not arisen in the interval between the end of the financial year and the date of this report any
item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the
Company, to affect significantly the operations of the Group, the results of those operations, or the state
of affairs of the Group in future financial years.
36.
Business combination
The Group acquired IntraPower Limited on 3 August 2011. The financial year 2012 annual report
contains further details of this acquisition.
37.
Auditors’ remuneration
In AUD
2013
2012
Audit and review services
Auditors of the Company – KPMG Australia
- Audit and review of financial statements
- Other regulatory audit services
Other services
Auditors of the Company – KPMG Australia
-
Taxation
38.
Deed of cross guarantee
394,800
15,500
410,300
405,012
15,500
420,512
51,905
462,205
32,321
452,833
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned
subsidiaries listed below are relieved from the Corporations Act 2001 requirements for preparation,
audit, and lodgement of financial reports and directors’ 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
full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the
Corporations Act 2001. If a winding up occurs under other provisions of the Act, the Company will only
be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have
also given similar guarantees in the event that the Company is wound up.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
38.
Deed of cross guarantee (continued)
92
The Deed of Cross Guarantee was entered into on 25 June 2008. The Australian incorporated
companies within the IntraPower group (as included in the list below) were joined as parties to the Deed
of Cross Guarantee through an Assumption Deed dated 25 January 2012. The subsidiaries subject to
the Deed are as follows:
Soul Communications Pty Ltd
Digiplus Investments Pty Ltd
Soul Contracts Pty Ltd
Kooee Communications Pty Ltd
SPTCom Pty Ltd
Kooee Pty Ltd
Digiplus Holdings Pty Ltd
Digiplus Pty Ltd
Digiplus Contracts Pty Ltd
Blue Call Pty Ltd
Soul Pattinson Telecommunications Pty Ltd
Kooee Mobile Pty Ltd
SPT Telecommunications Pty Ltd
TPG Holdings Pty Ltd
TPG Internet Pty Ltd
Value Added Network Pty Ltd
Orchid Human Resources Pty Ltd
TPG Broadband Pty Ltd
TPG Network Pty Ltd
TPG Research Pty Ltd
TPG (NZ) Pty Ltd
Chariot Pty Ltd
Pipe Networks Pty Ltd
Pipe International (Australia) Pty Ltd
Pipe Transmission Pty Ltd
ACN 139 798 404 Pty Ltd
IntraPower Pty Ltd
Trusted Cloud Pty Ltd
IP Group Pty Ltd
Intrapower Terrestrial Pty Ltd
Virtual Desktop Pty Ltd
93
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
38.
Deed of cross guarantee (continued)
A consolidated statement of comprehensive income and consolidated statement of financial position,
comprising the Company and controlled entities which are a party to the Deed, after eliminating all
transactions between parties to the Deed of Cross Guarantee, at 31 July 2013 is set out as follows:
Statement of comprehensive income and retained profits
In thousands of AUD
Revenue
Other 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
Profit for the year attributable to owners of the
company
Other comprehensive income, net of tax
Total comprehensive income for the year
Retained earnings at beginning of year
Profit for the year
Dividends recognised during the year
Retained earnings at end of year
2013
2012
704,829
3,349
659,762
1,438
(322,986)
(46,675)
(44,372)
(301,753)
(48,032)
(48,019)
294,145
263,396
(43,152)
(23,318)
227,675
2,447
(9,400)
(6,953)
(42,515)
(31,489)
189,392
720
(17,864)
(17,144)
220,722
172,248
(63,583)
(72,314)
157,139
99,934
24,435
181,574
9,744
109,678
60,030
157,139
(49,613)
167,556
(437)
99,934
(39,467)
60,030
94
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2013
38.
Deed of cross guarantee (continued)
Statement of financial position
In thousands of AUD
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Investments
Prepayments and other assets
Total Current Assets
Trade and other receivables
Investments in subsidiaries
Loans to subsidiaries
Property, plant and equipment
Intangible assets
Prepayments and other assets
Total Non-Current Assets
2013
2012
25,014
40,371
179
81,181
5,070
151,815
15,268
7,339
109,886
222,530
474,335
-
829,358
13,017
37,682
363
47,619
6,554
105,235
6,049
381
110,090
222,866
493,140
232
832,758
Total Assets
981,173
937,993
Liabilities
Trade and other payables
Loans and borrowings
Current tax liabilities
Employee benefits
Provisions
Accrued Interest
Deferred income and other liabilities
Total Current Liabilities
Loans and borrowings
Deferred tax liabilities
Employee benefits
Provisions
Deferred income and other liabilities
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Share Capital
Reserves
Retained earnings
Total Equity
91,266
169
33,576
5,241
616
276
57,136
188,280
39,134
15,410
349
7,111
10,291
72,295
83,213
357
39,408
4,606
347
276
30,017
158,224
143,499
15,140
743
6,671
26,262
192,315
260,575
350,539
720,598
587,454
516,907
36,135
167,556
720,598
516,907
10,517
60,030
587,454
TPG Telecom Limited and its controlled entities
Directors’ declaration
For the year ended 31 July 2013
95
1.
In the opinion of the directors of TPG Telecom Limited (‘the Company’):
(a)
the financial statements and notes set out on pages 34 to 94 and the Remuneration report in section 6 of
the Directors’ report, set out on pages 22 to 29, are in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the financial position of the Group as at 31 July 2013 and of its
performance for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
and the Corporations Regulations 2001; and
(b)
the financial report also complies with International Financial Reporting Standards as disclosed in note
2(a); and
(c)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable.
2.
There are reasonable grounds to believe that the Company and the consolidated entities identified in note
38 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of
the Deed of Cross Guarantee between the Company and those consolidated entities pursuant to ASIC
Class Order 98/1418.
3.
The directors have been given the declarations from the chief executive officer and chief financial officer
for the financial year ended 31 July 2013 required by Section 295A of the Corporations Act 2001.
Dated at Sydney this 11th day of October, 2013.
Signed in accordance with a resolution of the directors.
David Teoh
Chairman
96
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, which comprises the consolidated statement of financial position as at 31
July 2013, and consolidated income statement and consolidated statement of comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows 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 with 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 whether due to fraud or error. In note 2(a), the directors also state, in accordance with
Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements
of the Group comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant
ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable
assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the
risks of material misstatement of the financial report, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation 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 well as evaluating the overall presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report presents fairly, in
accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is
consistent with our understanding of the Group’s financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
97
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s opinion
In our opinion:
(a) the financial report of the Group is in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 31 July 2013 and of its performance for
the year ended on that date; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
(b) the financial report also complies with International Financial Reporting Standards as disclosed in note
2(a).
Report on the remuneration report
We have audited the Remuneration Report included in pages 22 to 29 of the directors’ report for the year
ended 31 July 2013. The directors of the company are responsible for the preparation and presentation of the
remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to
express an opinion on the remuneration report, based on our audit conducted in accordance with auditing
standards.
Auditor’s opinion
In our opinion, the remuneration report of TPG Telecom Limited for the year ended 31 July 2013, complies
with Section 300A of the Corporations Act 2001.
KPMG
Anthony Travers
Partner
Sydney
11 October 2013
98
Lead Auditor’s Independence Declaration under Section 307C of the
Corporations Act 2001
To: the directors of TPG Telecom Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year
ended 31 July 2013 there have been:
no contraventions of the auditor independence requirements as set out in the Corporations
Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
(i)
(ii)
KPMG
Anthony Travers
Partner
Sydney
11 October 2013
TPG Telecom Limited and its controlled entities
ASX additional information
For the year ended 31 July 2013
99
Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed
elsewhere in this report is set out below. The shareholding information is current as at 30 September 2013.
Substantial shareholders
The number of shares held by substantial shareholders and their associates are set out below:
Name of shareholder
Number of
ordinary shares
held
% of
capital held
David Teoh and Vicky Teoh
Washington H Soul Pattinson and Company Limited
291,625,603
213,400,684
36.74%
26.88%
Distribution of equity security holders
An analysis of the number of shareholders by size of holding is set out below:
No. of shares held
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
No. of holders
2,302
2,416
921
1,179
137
6,955
The number of shareholders holding less than a marketable parcel of ordinary shares is 453.
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.
Stock exchange
TPG Telecom Limited 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
100
ASX additional information
For the year ended 31 July 2013
Twenty largest shareholders
Name of shareholder
Number of
ordinary shares
held
% of
capital held
WASHINGTON H SOUL PATTINSON AND COMPANY LIMITED
DAVID TEOH
VICKY TEOH
NATIONAL NOMINEES LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
WIN CORPORATION PTY LTD
J S MILLNER HOLDINGS PTY LIMITED
FARJOY PTY LTD
JP MORGAN NOMINEES AUSTRALIA LIMITED
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