2014
ANNUAL REPORT
TPG Telecom Limited
and its controlled entities
ABN 46 093 058 069
Annual Report
Year ended 31 July 2014
TPG Telecom Limited and its controlled entities
Annual report
For the year ended 31 July 2014
2
Contents
Chairman’s letter
Directors’ report
Lead auditor’s independence declaration
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
ASX additional information
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TPG Telecom Limited and its controlled entities
Chairman’s letter
For the year ended 31 July 2014
Dear Shareholders
On behalf of the Board of Directors, I am pleased to present to you the TPG Telecom Limited Annual
Report for the financial year ended 31 July 2014 (“FY14”).
Financial Performance
FY14 was another excellent year for the Group. Continued strong organic growth has resulted in further
increases in revenue, profits, and returns for shareholders. FY14 represents the sixth consecutive year
that this has been the case.
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 7 of this Annual Report,
and set out below are some of the key financial highlights from the year.
Revenue ($m)
EBITDA ($m)
NPAT ($m)
EPS (cents/share)
Dividends (cents/share)
Free cashflow ($m)
AAPT Acquisition
FY14
970.9
363.7
171.7
21.6
9.25
223.5
FY13 Movement
724.5
293.1
149.2
18.8
7.50
174.5
+34%
+24%
+15%
+15%
+23%
+28%
An important achievement this year was the acquisition of AAPT. AAPT is one of Australia’s leading
telecommunications infrastructure companies with a large and profitable wholesale and corporate
business. It offers voice, internet, data and cloud services to its customers via its extensive national
network.
AAPT’s network infrastructure is highly complementary to the TPG Group’s existing network and includes
11,000km of fibre across six states and territories, importantly including fibre between the large capital
cities, fibre access to 1,500 premises, 15 data centres across all major capital cities and widespread mid-
band ethernet capability.
The incorporation of AAPT’s infrastructure into TPG’s extensive CBD, metropolitan and international
network assets will further enhance TPG’s position as an increasingly major force in the
telecommunications market.
TPG Telecom Limited and its controlled entities
Chairman’s letter
For the year ended 31 July 2014
4
Conclusion
Key to our achievements again this year has been the continued hard work and commitment of all of the
Group’s employees. I would like to extend thanks to them on behalf of the Board and I look forward to
their ongoing contribution to the Group’s success in FY15 and beyond.
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 2014
5
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 2014, and the
auditor’s report thereon.
Contents of directors’ report
Page
1. Board of 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. Rounding off
6
7
7
7
20
26
34
34
34
34
35
35
36
36
37
6
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
1. Board of Directors
Name, qualifications
and independence
status
CURRENT
David Teoh
Executive Chairman
Chief Executive Officer
Denis Ledbury
Non-Executive Director
B.Bus, A.I.C.D.
Independent
Robert Millner
Non-Executive Director
F.A.I.C.D.
Experience, special responsibilities and other directorships
David is the founder and Managing Director of the TPG group of companies.
TPG Telecom Ltd (2008-current).
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.
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) and Souls Private Equity Ltd (2004-2012).
Former Chairman of TPG Telecom Ltd, resigned position in 2008.
Member of Audit & Risk and Remuneration Committees.
Joseph Pang
Non-Executive Director
FCA
Independent
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.
Shane Teoh
Non-Executive Director
B.Com, LLB
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.
TPG Telecom Ltd (2012-current).
RETIRING
Alan Latimer
Executive Director
B.Com, CA, G.A.I.C.D
Prior to becoming an Executive Director of TPG Telecom in 2008, 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.
Alan will retire from the Board and the Company effective 31 October 2014.
7
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
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 were as follows:
Director
Board Meetings
Audit & Risk
Committee Meetings
Remuneration
Committee Meetings
D Teoh
A Latimer
D Ledbury
R Millner
J Pang
S Teoh
A
16
16
15
16
16
16
B
16
16
16
16
16
16
A
-
-
2
2
2
-
B
-
-
2
2
2
-
A
-
-
2
2
2
-
B
-
-
2
2
2
-
A: Number of meetings attended.
B: Number of meetings held while a member.
4. Operating and financial review
4.1 Operating result overview
The Group again achieved record financial results for the year ended 31 July 2014 (“FY14”), highlights of
which are as follows:
EBITDA for the year increased by 24% to $363.7m.
Net Profit After Tax (“NPAT”) increased by 15% to $171.7m.
NPAT excluding intangible amortisation increased by 18% to $196.3m.
Earnings per share (“EPS”) increased by 15% to 21.6 cents per share.
EPS excluding intangible amortisation increased by 18% to 24.7 cents per share.
Pre-tax operating cashflow increased by 25% to $396.6m and exceeded EBITDA by $32.9m.
Free cashflow after tax, interest and capex increased by 28% to $223.5m.
Dividends per share paid or declared in respect of FY14 increased by 23% to 9.25 cents.
8
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
4. Operating and financial review (continued)
4.1 Operating result overview (continued)
These FY14 financial results and returns for shareholders are a continuation of the strong growth trend
achieved by the Group over the last six years as shown in the charts below.
$m
$m
$m
$m
¢
¢
The FY14 result has been driven by continued strong organic growth across the Group’s consumer and
corporate divisions (underlying EBITDA up by 19% and 20% respectively) accompanied by a maiden
EBITDA contribution from AAPT of $38.2m underlying for the five month post acquisition period.
Consumer business
The Consumer division’s EBITDA for the year was $205.6m which includes $3.3m of non-recurring
benefits arising from credits and commercial settlements related to prior years. As reported last year, the
division’s EBITDA for FY13 of $180.6m benefitted from $10.0m of back-dated rebates arising from
favourable regulatory determinations. The Consumer division’s underlying EBITDA growth for FY14
relative to FY13 was therefore $31.7m or 19%. This has been driven by ongoing organic broadband
subscriber growth as well as an increase in contribution per subscriber arising from continued tight cost
control and an uplift in ARPU (average revenue per user) from subscribers to the Group’s home phone
bundle plans.
9
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
4. Operating and financial review (continued)
4.1 Operating result overview (continued)
Corporate business (excluding AAPT)
The Group’s Corporate division (excluding AAPT) achieved an EBITDA of $126.0m for the year. This
result includes $6.3m of non-recurring benefits (comprising $4.0m of back-dated supplier credits and a
$2.3m IRU gain). As reported last year, the division’s FY13 EBITDA of $110.3m included a $10.5m IRU
gain. The Corporate division’s underlying EBITDA growth for FY14 relative to FY13 was therefore
$19.9m or 20%. This increase has been achieved through revenue growth as well as an improvement in
underlying margin from 43% to 50%.
AAPT
The acquisition of AAPT on 28 February 2014 contributed $29.9m to the Group’s FY14 EBITDA.
Excluding $5.1m of one-off integration costs and $3.2m of acquisition related costs incurred in the period,
AAPT’s underlying EBITDA for the five months to 31 July 2014 was $38.2m.
Integration activities have focused on the consolidation of teams, systems, networks and processes,
resulting in an uplift in AAPT’s EBITDA margin from ~18% pre-acquisition to 23% underlying for the five
months.
In addition to these cost benefits the integration is now also enabling the merged sales groups to leverage
the Group’s combined product and network strengths. The corporate sales teams now operate as TPG
Network for the direct channels of enterprise, government and corporate businesses with AAPT
Wholesale continuing as provider to carrier and wholesale customers.
Cashflow and Gearing
The Group’s excellent cashflow performance continued in FY14 with $396.6m cash being generated from
operations (pre-tax). After tax, interest and capital expenditure, the Group had free cashflow of $223.5m.
The Group made total debt repayments of $117.0m in FY14, meaning that even after a total outlay of
$465.9m for the acquisition of AAPT during the year the Group had already reduced its outstanding debt
to $350.0m by 31 July 2014. This level of debt represents a comfortable gearing ratio of less than 0.9x
the Group’s annualised EBITDA run-rate.
Dividends
In light of the Group’s strong cashflow and earnings growth, the Board of Directors increased dividends to
shareholders declared or paid in respect of FY14 to a total of 9.25 cents per share for the year (fully
franked), an increase of 23% over FY13.
10
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
4. Operating and financial review (continued)
4.2 Customer growth
Consumer division
During FY14 the Consumer division achieved further organic growth of its broadband subscriber base,
with a net increase of 77,000 subscribers. This growth comprised a net increase of 120,000 subscribers
to the Group’s bundled internet and home phone plans, partially offset by a reduction in standalone on-
net and off-net subscribers.
During the final quarter of FY14 the Group also soft launched its first NBN plans. Since the year-end the
rate of customer sign-up to these plans has reached 500-600 per week. In September 2014 the Group
has also released for sale its first ‘fibre to the building’ (FTTB) plans.
TPG’s mobile phone subscriber base showed much more modest growth in FY14 increasing by just 2,000
subscribers over the year. Unlike its broadband services, the Group’s mobile services are not delivered
on owned infrastructure and the Group is therefore dependent on available wholesale offerings in order to
have competitive plans to grow its mobile business. Mobile services represent less than 5% of the
Group’s overall EBITDA.
As at 31 July 2014 the Consumer division had 748,000 broadband subscribers and 362,000 mobile
phone subscribers.
11
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
4. Operating and financial review (continued)
4.2 Customer growth (continued)
Corporate division
The Group’s Corporate division customer base has also grown significantly this year with the addition of
the AAPT customer base increasing the Group’s Corporate division revenues to over $600m annualised.
The split of Corporate division annualised revenues at the end of the year by customer and product
category is set out below.
4.3 Network infrastructure update
At the core of the Group’s business is its extensive telecommunications network infrastructure. With the
addition of AAPT during the year, the Group now operates a national, state-of-the-art network that
consists of:
Over 17,000km of metro and inter-capital fibre network;
Australia’s largest dedicated dark fibre network (over 5,000km);
More than 400 national network points of presence (POPs);
Over 400 DSLAM enabled exchanges, offering Mid-Band Ethernet and ADSL services;
One of Australia’s largest and most sophisticated voice networks, moving over 184 million calls per
month;
PPC-1, our 7,000km submarine cable connecting Sydney to Guam, and onward to the US and Asia;
International services delivered in New Zealand, Singapore, Hong Kong, Japan and the US;
Significant cloud computing and storage footprint distributed across six locations nationally; and
One of Australia’s largest Internet exchanges.
This infrastructure investment provides an important foundation for the continued growth of the Group’s
customer base and profits into the future.
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
4. Operating and financial review (continued)
4.4 Financial results review
There follows below a review of the key elements of the FY14 result, including five months AAPT:
12
Revenue
Consumer
Corporate (excl AAPT)
AAPT
Total revenue
Telco costs
Consumer
Corporate (excl AAPT)
AAPT
Total telco costs
Employment costs
Consumer
Corporate (excl AAPT)
AAPT
Total employment costs
Other expenses
Consumer
Corporate (excl AAPT)
AAPT
Unallocated
Total other expenses
Other income
EBITDA
Depreciation
Amortisation
Operating profit
Net financing costs
Profit before tax
Income tax
Profit after tax
Earnings per share (cents)
% of
revenue
58%
25%
17%
52%
31%
52%
47%
6%
13%
23%
11%
6%
4%
4%
-
5%
-
37%
7%
4%
26%
1%
25%
-
18%
FY14
$m
563.2
242.9
164.8
970.9
(293.2)
(74.7)
(86.2)
(454.1)
(33.2)
(32.1)
(38.3)
(103.6)
(31.2)
(10.0)
(7.2)
(3.7)
(52.1)
2.6
363.7
(72.6)
(35.2)
255.9
(9.1)
246.8
(75.1)
171.7
21.6
% of
revenue
66%
34%
-
49%
37%
-
45%
6%
13%
-
8%
7%
5%
-
-
6%
-
40%
7%
3%
30%
1%
29%
-
21%
FY13
$m
480.3
244.2
-
724.5
(237.4)
(90.7)
-
(328.1)
(28.0)
(32.1)
-
(60.1)
(34.3)
(11.1)
-
(1.1)
(46.5)
3.3
293.1
(49.9)
(23.9)
219.3
(7.0)
212.3
(63.1)
149.2
18.8
13
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
4. Operating and financial review (continued)
4.4 Financial results review (continued)
Revenue
a) Consumer
Consumer division revenue increased by
$82.9m (17%) to $563.2m in FY14.
This increase was driven by a combination of
increased broadband subscriber numbers and
increased ARPU (average revenue per user).
Subscribers on the Group’s broadband and
home phone plans increased over the year by
77,000 (11%) to 748,000 (including 471,000
subscribers with a home phone service).
Monthly ARPU for broadband customers
increased in the year from $49.3 to $50.1 due to
the ongoing increase in the proportion of the
customer base that has a plan that bundles
broadband and home phone line rental.
In addition, home phone customers generated
an average of $7 per month in voice usage
revenue, up from $6 last year.
Note that ARPU is calculated using GST
exclusive recurring charges only and it excludes
one-off charges such as installation fees and
equipment sales.
b) Corporate (excluding AAPT)
Corporate revenue (excluding AAPT) decreased
by $1.3m (0.5%) to $242.9m in FY14.
However, included in the FY14 corporate
division revenue is $2.3m arising from an IRU
(Indefeasible Right of Use) contract which was
recognised in revenue as a finance lease. This
is $8.2m lower than the $10.5m of IRU revenue
that was accounted for in the same manner in
FY13. 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
FY14 by $6.9m (3%). This growth, as was the
case in FY13, was achieved in an environment
of falling prices and telco industry consolidation
which drives some significant reductions in
wholesale revenue.
c) AAPT
AAPT revenue of $164.8m was for the five
month period post acquisition (1 March 2014 to
31 July 2014).
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 division telco costs increased as a
proportion of consumer division revenue in FY14
from 49% to 52%.
Within the costs for FY13, however, was a
$10.0m one-off benefit arising from credits that
the Group received as a result of regulatory
decisions made by the ACCC during that year.
Excluding this $10.0m one-off benefit, and a
minor $1.0m one-off benefit affecting FY14, telco
costs in the consumer division increased only
slightly as a proportion of revenue from 51.5% to
52.2%.
b) Corporate (excluding AAPT)
Corporate division telco costs in FY14 represent
31% of revenue, compared to 37% in FY13.
14
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
4. Operating and financial review (continued)
4.4 Financial results review (continued)
Excluding the non-recurring IRU revenue the
decrease was from 39% to 31% of revenue.
Employment costs
Two percentage points of this decrease was due
to a $4m one-off credit received from a supplier
during FY14. The balance of the decrease
represents an improvement in recurring
operating margins arising from the increasing
proportion of customers’ traffic that is carried on
the Group’s owned infrastructure rather than on
circuits leased from other carriers.
This margin improvement, as was the case in
FY13, was 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.
c) AAPT
AAPT telco costs for the five months post
acquisition period were 52% of revenue. The
main reason for these costs being higher as
proportion of revenue than in the TPG corporate
business is that AAPT’s product mix includes a
significantly higher proportion of wholesale and
low margin re-bill business.
Other income
Other income, which decreased from $3.3m to
$2.6m in FY14, comprises dividend income from
the Group’s ASX listed investments. The reason
for the small decrease in FY14 is due to that fact
that FY13 also included a gain from a small
disposal of shares. Dividends from the Group’s
investments actually increased by 18% to $2.6m
in FY14.
Consumer division employment costs grew in
absolute terms in the year by $5.2m but
increased only from 5.8% to 5.9% of revenue.
Corporate division employment costs were in
line with FY13 both in absolute terms and as a
% of revenue.
AAPT employment costs of $38.3m for the five
month period post acquisition included $5.1m of
one-off restructuring costs.
The Group’s total headcount at 31 July 2014
was 2,828, an 841 increase in the year. The
major driver of the significant increase in the
year was the acquisition of AAPT.
Other expenses
Other expenses include all of the overheads
incurred by the Group in running the business,
as well as marketing costs.
The consumer division’s other expenses
declined by $3.1m in FY14, although this
included a $2.3m one-off benefit arising from a
release of provisions created in prior years
relating to matters that were resolved during
FY14 in a manner that no longer required
retention of the provisions.
The corporate division’s other expenses were
also down by $1.1m in FY14.
AAPT incurred other expenses of $7.2m for the
five month period post acquisition.
There were also $3.7m of unallocated other
expenses in FY14 up by $2.6m from last year.
This includes $3.2m in FY14 attributable to the
acquisition of AAPT and predominantly
represents stamp duty and professional fees
incurred.
15
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
4. Operating and financial review (continued)
4.4 Financial results review (continued)
EBITDA
Overall, Group EBITDA grew by $70.6m (24%)
to $363.7m in FY14. The acquisition of AAPT
contributed $29.9m ($33.1m less the $3.2m of
acquisition related expenses).
The $40.7m balance of the increase includes
one-off favourable items of $9.6m (as described
in the paragraphs above), $10.9m less than the
favourable items reported as having impacted
last year’s result. This means that underlying
EBITDA growth of the business in FY14
excluding AAPT was $51.6m or 19%. This has
been achieved through strong continued
broadband subscriber growth in the consumer
division in addition to revenue growth and
margin expansion in the corporate division.
Depreciation
The Group’s depreciation expense increased by
$22.7m in FY14, $21.5m of which was
attributable to AAPT. AAPT’s depreciation
expense far exceeds its current capital
expenditure run-rate (it incurred $11.2m of
capex during the five month period post
acquisition) and reflects its historic investment in
its extensive inter capital city fibre network.
The Group started the year with $42.0m of debt
which it repaid during 1H14. To fund the
acquisition of AAPT a revised debt facility
agreement was negotiated under which a
drawdown of $425.0m was made on 28
February 2014, subsequent to which further
repayments of $75.0m were made prior to the
year-end.
Income tax
The Group’s effective income tax rate was
30.5% in FY14, up from 29.7% in FY13. The
increase is due to an increase in non tax
deductible expenditure in FY14, principally being
expenses related to the acquisition of AAPT.
Earnings per share (EPS)
Reported EPS increased by 15% to 21.6 cents
per share in FY14. Excluding the impact of
intangible amortisation EPS would have
increased by 18% to 24.7 cents per share. The
relevance of considering EPS excluding
intangible amortisation is that, as noted above,
intangible amortisation is almost entirely a non-
cash expense predominantly arising from
acquisition accounting.
Amortisation
Free cashflow
The Group’s FY14 amortisation expense
increased by $11.3m to $35.2m. This included
$15.8m of amortisation of the intangible assets
recognised on acquisition of AAPT.
Amortisation expense is largely a “non-cash”
expense. Excluding the acquisition of AAPT, the
Group incurred only $0.7m of cash expenditure
on intangible assets during FY14.
Net financing costs
Net financing costs increased by $2.1m as a
result of the increased debt arising from the
Group’s acquisition of AAPT.
Operating cashflow
Tax
Interest
Capital expenditure
FY14
$m
396.6
(96.1)
(7.5)
(69.5)
FY13
$m
318.0
(79.2)
(6.0)
(58.3)
Free cashflow
223.5
174.5
The Group’s strong earnings result is reflected in
the strong operating cashflow generated in the
year. Operating cashflow of $396.6m in FY14
exceeded EBITDA by $32.9m, which is
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
4. Operating and financial review (continued)
16
4.4 Financial results review (continued)
explained by a) the in-advance payments
received from the Group’s growing customer
base, b) receipt of deferred instalments under an
IRU agreement for which the revenue was
earned and recognised in prior years, and c)
improvement in AAPT’s working capital position
during the post acquisition period.
After tax, interest and capital expenditure, the
Group generated free cashflow of $223.5m,
$49.0m (28%) more than in FY13.
Capital expenditure
Capital expenditure for FY14 of $69.5m includes
$11.0m incurred by AAPT during the five month
period post acquisition, excluding which the
Group’s capex was $58.5m, in line with FY13.
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:
AAPT acquisition
Debt drawdown
Debt repayments
Dividends paid
Other
(Decrease) / increase
in cash held
FY14
$m
223.5
465.9
(425.0)
117.0
67.5
0.4
FY13
$m
174.5
-
-
107.0
49.6
5.5
(2.3)
12.4
223.5
174.5
AAPT acquisition
The Group outlaid $465.9m to acquire AAPT
during the year comprising the $450.0m
purchase price, a $13.5m working capital
adjustment also paid to the vendor plus other
costs totalling $3.2m being stamp duty and other
acquisition related expenses, less $0.7m of cash
acquired.
Debt drawdown and repayments
In order to fund the AAPT acquisition the Group
drew down on $425.0m of its bank debt facility.
However, the Group also made debt repayments
of $117.0m in the year. Note the reason for the
numbers in the table above being different to the
full cashflow statement in this annual report is
that the latter shows debt drawdowns and
repayments grossed up by $47.0m of other
short-term drawdowns and repayments made
throughout the year to efficiently manage month-
to-month cashflows.
Dividends paid
Dividends paid in the year comprise the final
FY13 dividend of 4.0 cents per share (“cps”) and
the interim FY14 dividend of 4.50cps.
Subsequent to the year-end, the Board of
directors has declared a 4.75cps final dividend
for FY14 taking the total dividends paid or
declared in respect of FY14 to 9.25cps, a 23%
increase over FY13.
17
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
4. Operating and financial review (continued)
4.4 Financial results review (continued)
Balance sheet
Below is a condensed version of the Group’s
balance sheet as at the end of FY14,
summarised in a manner to highlight 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)
FY14
$m
23.8
99.2
98.4
221.4
Property, plant & equipment (4)
Intangible assets (5)
Other non-current assets
Total non-current assets
553.8
712.3
21.7
1,287.8
Deferred income (3)
Other current liabilities
Total current liabilities (3)
Loans and borrowings (1)
Other non-current liabilities
Total non-current liabilities
79.2
178.6
257.8
346.8
72.2
419.0
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
Net assets
832.4
716.0
Balance sheet notes
1. Net debt
Loans and borrowings of $346.8m are shown in
the balance sheet net of prepaid borrowing
costs. Gross bank borrowings at 31 July 2014
were $350.0m. Taking into account the $23.8m
cash balance the Group had net debt at the end
of FY14 of $326.2m.
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 $257.8m exceeded
total current assets of $221.5m as at 31 July
2014 by $36.3m. 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 $42.8m as at 31 July 2014.
4. Property, plant & equipment (“PPE”)
The Group’s PPE balance is $234.6m higher at
31 July 14 than 31 July 13. The acquisition of
AAPT during the year added $240.9m to this
balance. AAPT’s PPE principally comprises its
extensive inter-capital fibre network.
Intangible assets
5.
The increase in the Group’s intangible assets
balance in the year is also due to the acquisition
of AAPT. $157.6m of goodwill was recognised
on acquisition of AAPT along with $87.0m of
other intangible assets, comprising the acquired
customer base as well as AAPT’s IRU assets
and software.
18
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
4. Operating and financial review (continued)
4.5 Business outlook
Prospects for FY15
In FY15 the Group will continue to focus its efforts on growing its consumer and corporate customer
bases profitably by delivering market leading telecommunications services. In order to enhance its
prospects for future growth the Group will also continue to invest in expanding its network infrastructure.
There will also be continued focus on the integration of the AAPT business into the Group’s operations.
The directors have forecast continued strong growth in the Group’s financial results in FY15 with EBITDA
expected to be around $455m-$460m. Capital expenditure is expected to be in the range of $100m -
$120m (includes $13.5m spectrum purchase but excludes Hawaiki expenditure (refer 19/8/13 ASX
release) and the recent purchase of a Sydney property (currently leased by the group) and any other
major new initiatives.
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 or consolidation 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 constant reviews of 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 maintains business interruption insurance
and 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.
19
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
5. Operating and financial review (continued)
4.5 Business outlook (continued)
4. Data security
Failures or breaches of data protection and systems security can cause reputational damage, regulatory
impositions and financial loss. Australian Privacy Principles (APPs) now govern privacy and data
protection throughout Australia and significantly enhance privacy and data protection regulation.
The Group has policies regarding information security and risk protection measures in place to ensure
adherence to APPs and to provide safeguards to company and customer information. These measures
include restricted access to company premises and areas housing equipment, restricted access to
systems and network devices, strict change control measures, anti-virus software and firewall protection
at various network points.
Environmental and other sustainability risks
The environmental and sustainability risks that attach to the Group’s business are relatively benign. The
Group operates in the telecommunications industry which, whilst a consumer of electrical power, is
generally considered to provide net reductions to adverse environmental impacts. This is achieved by the
increasing technological capabilities that can be relied on by consumers and businesses so as to achieve
significantly reduced travel and paper consumption. The Group aims to reduce its impact on the
environment by employing power saving measures, such as switching off electrical equipment when it is
not being used, and by minimising the amount of travel undertaken by employees.
The Company recognises the importance of having a skilled and experienced workforce. Most of the
Group’s employees work in office and high technology environments where industrial risks are minimal.
Management employs appropriate measures to minimise employee and social risks by providing a safe
and comfortable working environment, providing suitable training, complying with gender equality
requirements and by ensuring appropriate remuneration structures are in place.
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.
During the year, the Group has made donations to provide charitable relief to human suffering, including
in relation to typhoon events in Asia.
20
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
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, establishing and monitoring the achievement of management’s goals, ensuring the integrity of
risk management, internal control and legal compliance. 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 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. At the date of this report, the Board comprises six directors, two of whom are
independent. Following the retirement of Alan Latimer at 31 October 2014, the Board considers that the
appropriate number of directors in the current circumstances is five, 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 6 of this Annual Report.
Independence of directors
Denis Ledbury and Joseph Pang are independent directors.
The remaining executive director is David Teoh. The Board is of the view that the depth of experience
and understanding that David has of the Company and of the industry in which the Company operates
provides benefits that exceed those that may flow from having an independent non-executive director.
21
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
5. Corporate governance statement (continued)
Principle 2 Structure the Board to add value (continued)
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 major
shareholders. 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 - 2.2). 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 (not in line with ASX
Recommendation 2.3). 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).
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).
22
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
5. Corporate governance statement (continued)
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 2001. The Company will notify the ASX
of the details of any transaction on behalf of the directors.
A copy of the Securities Trading Policy can be found on the Company’s website at
http://www.tpg.com.au/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.
23
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
5. Corporate governance statement (continued)
Principle 3 Promote ethical and responsible decision-making (continued)
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; 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 2014 the proportion of females employed in the Group was as follows (ASX
Recommendation 3.4):
31 July 2014
31 July 2013
Board
Key Management Personnel
Other Management
Workforce
Number
0
1
18
1,112
%
0%
14.3%
18.6%
40.9%
Number
0
1
12
833
%
0%
16.7%
25.5%
43.2%
Workplace Gender Equality Report 2014
In accordance with the requirements of the Workplace Gender Equality 2012 (Act), the Company lodged its
Workplace Gender Equality Report 2014 with the Workplace Gender Equality Agency on 30 May 2014. A
copy of this report is available on the Company’s website at http://www.tpg.com.au/about/investorrelations.
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.
24
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
5. Corporate governance statement (continued)
Principle 4 Safeguarding integrity in financial reporting (continued)
Audit & Risk Committee
The Audit & Risk Committee is comprised of three non-executive directors, two of whom are independent,
and is chaired by Mr Denis Ledbury. Details of all members of the Audit & Risk Committee during the
year and their qualifications are set out on page 6 of this Annual Report (ASX Recommendation 4.1, 4.2
& 4.4).
The Board has adopted a formal charter which details the function and responsibility of the Audit & Risk
Committee to ensure the integrity of the financial statements and independence of the external auditor
(ASX Recommendation 4.3). A copy of the charter can be found on the Company’s website at
http://www.tpg.com.au/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 7 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.
Principle 5 Make timely and balanced disclosure
Continuous disclosure
The Company is committed to ensuring that the market is 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 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.
25
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
5. Corporate governance statement (continued)
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 invited 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.
In relation to the Group’s financial statements for the financial year ended 31 July 2014, the Group’s Chief
Executive Officer and Chief Financial Officer, as required by the Corporations Act 2001 and ASX
recommendations, have provided to the Board the following:
-
-
the declaration required by section 295A of the Corporations Act 2001; 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 twice during the year ended 31 July 2014 and the Committee members’ attendance record is
disclosed in the table of directors’ meetings on page 7 of this Annual Report. Other directors may attend
these meetings at the invitation of the Committee Chairman.
Further information is set out in the Remuneration Report below (ASX Recommendation 8.2 & 8.3).
26
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
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.
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;
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.
27
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
6. Remuneration report – audited (continued)
6.2
Remuneration structure (continued)
(ii)
Performance-linked remuneration
Performance-linked remuneration comprises both long-term and short-term incentives as set out below.
a) Long-term incentives
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 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) and a third grant of rights was made in FY14 (certain
participants were granted rights on 22 November 2013 and others on 18 December 2013). All rights
issued to-date have the same key terms which 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 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 2014 and 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 reward 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.
28
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
6. Remuneration report – audited (continued)
6.2
Remuneration structure (continued)
(ii) Performance-linked remuneration (continued)
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 had another year of strong growth in FY14 with EBITDA and NPAT up by 24% and 15%
respectively, generating a 15% increase in EPS, whilst declared dividends for the FY14 year are up by
23%.
These FY14 results represent the sixth consecutive year of strong growth. The Group’s five year record
is set out in the following table.
Revenue ($m)
EBITDA ($m)
NPAT ($m)
EPS (cents)
DPS (cents)
2010
2011
2012
2013
2014
508
171
56
7.6
4.0
575
234
78
10.1
4.5
663
261
91
11.5
5.5
725
293
149
18.8
7.5
971
364
172
21.6
9.25
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 five weeks,
except for the Group’s employment contracts with Mr D Teoh and Mr M Rafferty, both of which provide
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 2014 was $390,705 (2013: $289,145). Non-executive directors
do not receive performance-linked remuneration nor are they entitled to any retirement benefit other than
statutory superannuation payments. Directors’ fees cover all main board activities and membership of
committees.
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
6. Remuneration report – audited (continued)
6.3
Directors’ and executive officers’ remuneration
The key management personnel of the Company and of the Group during the year were as follows:
29
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
Mr S Banfield Chief Financial Officer & Company Secretary
National Technical & Strategy Manager
Mr J Paine
General Manager, Consumer
Mr C Levy
Mr W Springer General Manager, Corporate Products & Pricing
Ms M De Ville Chief Information Officer
Mr T Moffatt
Mr M Rafferty General Manager Sales, Enterprise & Wholesale
General Counsel
30
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
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
%
2014 951,923 900,000
2013 814,423 900,000
2014 321,780 659,755
2013 260,960 400,000
133,867
229,661
22,031
(11,579)
1,985,790
1,944,084
1,003,566
649,381
25,899
23,534
28,942
23,431
49,973
86,739
21,682
4,190
2014
2013
2014
2013
2014
2013
2014
2013
98,333
78,958
88,333
69,583
88,333
69,583
83,333
46,984
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
98,333
78,958
88,333
69,583
88,333
69,583
83,333
46,984
9,158
7,156
8,227
6,306
8,227
6,306
7,761
4,269
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,061,662
2,054,357
1,054,190
677,002
44%
44%
63%
59%
107,491
86,114
96,560
75,889
95,560
75,889
91,094
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
31
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
6. Remuneration report – audited (continued)
6.3 Directors’ and executive officers’ remuneration (continued)
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
%
2014 248,737 175,000
2013 198,186 104,920
80,000
2014 206,217
2013 195,833
67,460
2014 289,225 200,000
2013 243,100 166,533
90,000
2014 237,326
94,920
2013 194,362
35,000
2014 211,609
2013 211,609
10,000
2014 231,588 100,000
2013 187,267
94,920
2014 138,844 148,567
-
2013
-
14,600
158
(794)
10,469
3,620
19,956
11,035
10,872
(4,869)
7,304
2,727
3,793
(7,905)
-
438,337
303,264
285,423
273,762
492,845
429,589
338,361
300,154
241,740
228,913
334,315
285,980
279,506
-
20,862
25,871
18,325
23,034
26,740
37,090
20,714
27,085
19,559
19,956
20,574
25,826
7,490
-
17,032
6,255
7,594
7,216
13,531
14,176
19,318
7,511
3,515
3,515
9,981
5,196
2,201
-
135,762
105,696
125,342
105,696
187,155
141,891
130,552
105,696
32,337
17,337
130,552
105,696
-
-
-
6,500
-
-
-
6,000
-
-
-
1,500
-
4,500
-
-
611,993
447,586
436,684
409,708
720,271
628,746
508,945
440,446
297,151
271,221
495,422
427,198
289,197
-
51%
49%
47%
42%
54%
50%
43%
46%
23%
11%
47%
48%
51%
-
22%
25%
29%
26%
26%
24%
26%
24%
11%
7%
26%
26%
-
-
Executives
Mr S Banfield
Mr J Paine
Mr C Levy
Mr W Springer
Ms M De Ville
Mr T Moffatt
Mr M Rafferty*
*Mr M Rafferty has been recognised within key management personnel from 28 February 2014, the date on which his employer (AAPT) was acquired by the Group.
32
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
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 2014 and 31 July 2013 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’ relate to a previous long-term incentive plan that has
been discontinued.
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 2014 are set out below. All rights had a grant date of 22 November 2013, were provided at no cost to
the recipients and have an exercise price of $nil.
FY14 Performance
rights grant
Number of
rights granted
during FY14
Number of
rights forfeited
during FY14
Number of
rights vested
during FY14
Number of
rights held as
at 31 July 2014
Fair value per
right at grant
date ($)
Mr S Banfield
Mr J Paine
Mr C Levy
Mr W Springer
Ms M De Ville
Mr T Moffatt
36,000
30,000
51,000
33,000
9,000
33,000
-
-
-
-
-
-
-
-
-
-
-
-
36,000
30,000
51,000
33,000
9,000
33,000
3.9567
3.9567
3.9567
3.9567
3.9567
3.9567
33
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
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 FY14 are set out below. All rights in the table below were provided
at no cost to the recipients and have an exercise price of $nil. The FY13 and FY12 grants occurred on 24
December 2012 and 9 March 2012 respectively.
FY13 Performance
rights grant
Number of
rights held as
at 31 July 2013
Number of
rights forfeited
during FY14
Number of
rights vested
during FY14
Number of
rights held as
at 31 July 2014
Fair value per
right at grant
date ($)
Mr S Banfield
Mr J Paine
Mr C Levy
Mr W Springer
Ms M De Ville
Mr T Moffatt
60,000
60,000
81,000
60,000
18,000
60,000
-
-
-
-
-
-
20,000
20,000
27,000
20,000
6,000
20,000
40,000
40,000
54,000
40,000
12,000
40,000
2.3267
2.3267
2.3267
2.3267
2.3267
2.3267
FY12 Performance
rights grant
Number of
rights held as
at 31 July 2013
Number of
rights forfeited
during FY14
Number of
rights vested
during FY14
Number of
rights held as
at 31 July 2014
Fair value per
right at grant
date ($)
Mr S Banfield
Mr J Paine
Mr C Levy
Mr W Springer
Mr T Moffatt
50,000
50,000
66,667
50,000
50,000
-
-
-
-
-
25,000
25,000
33,333
25,000
25,000
25,000
25,000
33,334
25,000
25,000
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) 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.
34
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
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
Date of payment
Final 2013 ordinary
Interim 2014 ordinary
Total amount
4.00
4.50
31,753
35,720
67,473
19 Nov 2013
20 May 2014
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 FY14 dividend of 4.75 cents per
ordinary share, payable on 18 November 2014 to shareholders on the register at 14 October 2014.
The financial effect of this dividend has not been brought to account in the financial statements for the year
ended 31 July 2014 and will be recognised in subsequent financial reports.
9. Events subsequent to reporting date
On 30 September 2014 a Group entity entered into a contract to purchase a property close to the Sydney CBD
for consideration of $30.1m. The site, which is currently leased by the Group for annual rent of some $3.1m,
houses a key Group network hub and data centre and also provides office accommodation. Of the purchase
price, $3.0m will be paid in FY15 with the balance payable in 1H FY16 when the existing lease expires and
ownership transfers.
Other than above, 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.
35
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
11. Directors’ interests
The relevant interest of each director in the shares and options over such instruments issued by the companies
within the Group and other related bodies corporate, as notified by the directors to the Australian Stock
Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows:
Shares in
TPG Telecom
Limited
291,625,604
200,000
100,000
7,374,175
88,812
90,251
Mr D Teoh
Mr A Latimer
Mr D Ledbury
Mr R Millner
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 five
most highly remunerated officers of the Group as part of their remuneration:
Number of rights
granted
Mr S Banfield
Mr J Paine
Mr C Levy
Mr W Springer
Mr T Moffatt
36,000
30,000
51,000
33,000
33,000
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 2014 (2013: Nil).
36
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
13. Indemnification and insurance of officers and auditors
Indemnification
The Company has agreed to indemnify all directors and officers of the Company against all liabilities to another
person (other than the Company or a related body corporate) that may arise from their position as 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 $51,077 (2013:
$50,541) 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.
37
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2014
14. Non-audit services (continued)
Audit services:
Audit and review of financial reports
799,000
394,800
2014
$
2013
$
Services other than statutory audit:
Other regulatory audit services:
- Review of AAPT working capital
statement
- Telecommunications USO return
- Bank covenant compliance certificate
Other services:
- Taxation advisory services
15. Rounding off
15,750
8,500
8,000
27,500
59,750
-
8,000
7,500
51,905
67,405
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 17th day of October, 2014
38
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 2014 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
17 October 2014
39
TPG Telecom Limited and its controlled entities
Consolidated income statement
For the year ended 31 July 2014
Revenue
Other income
Telecommunications expense
Employee benefits expense
Other expenses
Earnings before interest, tax, depreciation and amortisation
(EBITDA)
Note
2014
$’000
2013
$’000
4
5
970,920
2,633
724,533
3,349
(454,199)
(103,634)
(52,069)
(328,139)
(60,067)
(46,590)
363,651
293,086
Depreciation of plant and equipment
Amortisation of intangibles
14
15
(72,559)
(35,214)
(49,892)
(23,942)
Results from operating activities
255,878
219,252
Finance income
Finance expenses
Net financing costs
Profit before income tax
Income tax expense
1,762
(10,837)
(9,075)
2,447
(9,400)
(6,953)
6
246,803
212,299
7
(75,124)
(63,134)
Profit for the year attributable to owners of the company
171,679
149,165
Earnings per share:
Basic and diluted earnings per share (cents)
8
21.6
18.8
The notes on pages 44 to 103 are an integral part of these consolidated financial statements.
40
TPG Telecom Limited and its controlled entities
Consolidated statement of comprehensive income
For the year ended 31 July 2014
Note
2014
$’000
2013
$’000
Profit for the year
171,679
149,165
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
12
(10)
12,583
23
24,435
Other comprehensive income, net of tax
12,573
24,458
Total comprehensive income attributable to owners of the company
184,252
173,623
The notes on pages 44 to 103 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 2014
Note
31 July 2014
$’000
31 July 2013
$’000
41
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Investments
Prepayments and other assets
Total Current Assets
Trade and other receivables
Investments
Property, plant and equipment
Intangible assets
Prepayments and other assets
Total Non-Current Assets
Total Assets
Liabilities
Trade and other payables
Loans and borrowings
Current tax liabilities
Employee benefits
Provisions
Accrued interest
Deferred income and other liabilities
Total Current Liabilities
Loans and borrowings
Deferred tax liabilities
Employee benefits
Provisions
Deferred income and other liabilities
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Share capital
Reserves
Retained earnings
Total Equity
9
10
11
12
13
10
12
14
15
13
16
17
7
18
19
20
17
7
18
19
20
21
23,756
85,534
2,749
99,159
10,261
221,459
7,720
7,333
553,833
712,311
6,638
1,287,835
26,128
40,676
179
81,181
6,352
154,516
15,268
7,333
319,159
502,201
339
844,300
1,509,294
998,816
136,556
183
17,085
13,112
11,534
214
79,156
257,840
346,847
18,105
2,170
23,069
28,841
419,032
94,122
169
33,628
5,241
2,616
276
58,784
194,836
39,134
15,410
349
7,111
26,010
88,014
676,872
282,850
832,422
715,966
516,907
48,384
267,131
832,422
516,907
36,134
162,925
715,966
The notes on pages 44 to 103 are an integral part of these consolidated financial statements.
TPG Telecom Limited and its controlled entities
Consolidated statement of changes in equity
For the year ended 31 July 2014
42
The notes on pages 44 to 103 are an integral part of these consolidated financial statements.
ForeignShare-currencybasedSharetranslationpaymentsFair valueTotalRetainedTotalNotecapitalreservereservereservereservesearningsequity$'000$'000$'000$'000$'000$'000$'000Balance 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 tax12- - - 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 shareholders22 - - - - - (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 Balance as at 1 August 2013516,907 129 734 35,271 36,134 162,925 715,966 Profit for the year- - - - - 171,679 171,679 Foreign currency translation differences- (10) - - (10) - (10) Net change in fair value of available-for-sale financial assets, net of tax12- - - 12,583 12,583 - 12,583 Total comprehensive income for the period- (10) - 12,583 12,573 171,679 184,252 Share-based payment transactions- - (323) - (323) - (323) Dividends paid to shareholders22 - - - - - (67,473) (67,473) Total contributions by and distributions to owners- - (323) - (323) (67,473) (67,796) Balance as at 31 July 2014516,907 119 411 47,854 48,384 267,131 832,422 Attributable to owners of the Company
TPG Telecom Limited and its controlled entities
Consolidated statement of cash flows
For the year ended 31 July 2014
43
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 subsidiaries, net of cash acquired
Costs incurred on acquisition of subsidiaries
Acquisition of property, plant and equipment
Acquisition of intangibles
Acquisition of investments
Proceeds from sale of investments
Dividends received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Transaction costs related to loans & borrowings
Payment of finance lease liabilities
Interest paid
Interest received
Dividends paid
Net cash from/(used in) financing activities
Note
2014
$’000
2013
$’000
1,089,953
(693,326)
396,627
(96,103)
300,524
800,467
(482,450)
318,017
(79,218)
238,799
(462,752)
(3,119)
(68,870)
(676)
-
-
2,633
(532,784)
472,000
(164,000)
(2,409)
(185)
(8,537)
1,030
(67,473)
230,426
-
-
(58,320)
(2,918)
(7,333)
2,475
2,219
(63,877)
27,000
(134,000)
-
(372)
(7,363)
1,411
(49,613)
(162,937)
28
27
15
12
5
17
17
22
Net increase in cash and cash equivalents
(1,834)
11,985
Cash and cash equivalents at beginning of the year
Effect of exchange rate fluctuations
26,128
(538)
13,767
376
Cash and cash equivalents at end of the year
9
23,756
26,128
The notes on pages 44 to 103 are an integral part of these consolidated financial statements.
44
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
Index to notes to the consolidated financial statements
Note 1
Reporting entity
Note 2
Basis of preparation
Note 3
Segment reporting
Note 4
Revenue
Note 5
Other income
Note 6
Finance income and expenses
Note 7
Taxes
Note 8
Earnings per share
Note 9
Cash and cash equivalents
Note 10
Trade and other receivables
Note 11
Inventories
Note 12
Investments
Note 13
Prepayments and other assets
Note 14
Property, plant and equipment
Note 15
Intangible assets
Note 16
Trade and other payables
Note 17
Loans and borrowings
Note 18
Employee benefits
Page
45
45
46
48
48
48
49
52
52
52
53
53
54
55
57
59
59
62
Note 19 Provisions
Page
63
Note 20 Deferred income and other liabilities
64
Note 21 Capital and reserves
Note 22 Dividends
Note 23
Financial instruments and
risk management
Note 24 Operating leases
Note 25 Capital and other commitments
Note 26 Consolidated entities
Note 27 Acquisition of subsidiary
Note 28 Reconciliation of cash flows from
operating activities
Note 29 Parent entity disclosures
Note 30 Related parties
Note 31 Subsequent events
Note 32 Auditors’ remuneration
Note 33 Deed of cross guarantee
Note 34 Significant accounting policies
65
66
67
75
75
76
78
80
81
82
85
85
85
89
45
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
1.
Reporting entity
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 2014, 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, government 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 17 October 2014.
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 34(v).
Notwithstanding the fact that the classifications within the 31 July 2014 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 17).
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.
46
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
2.
Basis of preparation (continued)
d.
Use of estimates and judgements
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 prospectively.
In particular, information about significant areas of estimation uncertainties and critical judgements in
applying accounting policies that have the most significant effect on the amounts recognised in the
financial statements is provided in the following notes:
Note 15 – measurement of the recoverable amounts of cash-generating units containing goodwill;
Note 23 – valuation of financial instruments;
Note 27 – acquisition of subsidiary;
Note 34(o)(iii) and note 4 – revenue recognition for network capacity sales.
3.
Segment reporting
See accounting policy in Note 34(r).
Operating segments
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.
Following the acquisition of AAPT on 28 February 2014 (refer note 27), the Group has recognised three
primary segments, Consumer, Corporate and AAPT, in its financial statements for the current year.
The Group’s Consumer segment provides retail telecommunications services to residential and small
business customers. The Group’s Corporate and AAPT segments provide telecommunications services
to corporate, government, and wholesale customers.
Results for the year for each operating segment are set out in the table on the next page.
Geographic Information
All of the Group’s revenues are derived from Australian based entities, except for $10.5 million (2013:
$10.3 million) derived from overseas customers.
All of the Group’s non-current assets are located in Australia, except for assets amounting to $116.5
million (2013: $122.9 million) that are located either overseas or in international waters.
47
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
3.
Segment reporting (continued)
Consumer
Corporate
AAPT
Unallocated
Consolidated results
2014
$'000
2013
$'000
2014
$'000
2013
$'000
2014*
$'000
2013
$'000
2014
$'000
2013
$'000
2014
$'000
2013
$'000
Revenue
Other income
563,215
-
480,295
-
242,914
-
244,238
-
164,791
-
Telecommunications expense
Employee benefits expense
Other expenses
Results from segment activities
(293,249)
(33,181)
(31,223)
205,562
(237,408)
(27,956)
(34,345)
180,586
(74,749)
(32,139)
(10,021)
126,005
(90,731)
(32,111)
(11,092)
110,304
(86,201)
(38,314)
(7,158)
33,118
-
-
-
-
-
-
2,633
-
-
(3,667)
(1,034)
-
3,349
970,920
2,633
724,533
3,349
-
-
(1,153)
2,196
(454,199)
(103,634)
(52,069)
363,651
(328,139)
(60,067)
(46,590)
293,086
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
(72,559)
(35,214)
255,878
(49,892)
(23,942)
219,252
(9,075)
246,803
(6,953)
212,299
(75,124)
171,679
(63,134)
149,165
* AAPT results are for the post acquisition period from 1 March 2014 to 31 July 2014.
Expenses in the ‘Unallocated’ column comprise costs incurred in relation to business combinations, plus other corporate expenses.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
48
4.
Revenue
See accounting policy in Note 34(o).
Revenue comprises the following:
Rendering of services
Sale of goods
Network capacity sales, recognised as:
-
-
operating leases
finance leases
5.
Other income
Dividend income
Profit on sale of investments
6.
Finance income and expenses
See accounting policy in Note 34(p)(ii).
Interest income
Interest expense
Unwinding of discount on provisions
Borrowing costs
Net finance expense
2014
$’000
2013
$’000
902,134
10,701
55,800
2,285
970,920
2014
$’000
2,633
-
2,633
657,036
9,530
47,469
10,498
724,533
2013
$’000
2,219
1,130
3,349
2014
$’000
2013
$’000
1,762
(8,291)
(184)
(2,362)
(9,075)
2,447
(7,253)
(110)
(2,037)
(6,953)
49
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
7.
Taxes
See accounting policy in Note 34(q).
Income tax expense
Current tax expense
Current year
Adjustments for prior years
Deferred tax expense
Origination and reversal of temporary differences
Adjustments for prior years
2014
$’000
2013
$’000
79,152
(202)
78,950
(3,582)
(244)
(3,826)
73,416
(60)
73,356
(9,446)
(776)
(10,222)
Income tax expense
75,124
63,134
Numerical reconciliation between tax expense and pre-tax accounting profit
Profit before tax
Income tax expense at the rate of 30%
Expenses not deductible for tax
Over provided in prior year
Income tax expense
Current tax liabilities
2014
$’000
2013
$’000
246,803
212,299
74,041
63,690
1,177
(94)
220
(776)
75,124
63,134
The current tax liability for the Group of $17.1m (2013: $33.6m) represents the remaining amount of
income tax payable in respect of the year ended 31 July 2014.
50
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
7.
Taxes (continued)
Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
2014
$’000
2013
$’000
(839)
(309)
-
(1,835)
-
-
(14,453)
(4,585)
(11,589)
(259)
(241)
311
(33,799)
33,799
-
(1,884)
(231)
-
(1,990)
-
-
(7,036)
(1,677)
(10,504)
(384)
(969)
(518)
(25,193)
25,193
-
2014
$’000
398
-
20,508
11,712
18,337
-
70
-
802
-
-
2013
$’000
1,900
-
15,116
11,436
12,128
20
3
-
-
-
-
2014
$’000
(441)
(309)
20,508
9,877
18,337
-
(14,383)
(4,585)
(10,787)
(259)
(241)
2013
$’000
16
(231)
15,116
9,446
12,128
20
(7,033)
(1,677)
(10,504)
(384)
(969)
77
51,904
(33,799)
18,105
-
40,603
(25,193)
15,410
388
18,105
(518)
15,410
18,105
15,410
Receivables
Inventories
Investments
Property, plant and
equipment
Intangible assets
Payables
Provisions
Employee benefits
Unearned revenue
Equity raising costs
Tax losses carried
forward
Other items
Tax (assets)/liabilities
Set off of tax
Net tax liabilities
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
7. Taxes (continued)
Movement in temporary differences during the year
51
Balance
31 July 2012
$’000
Recognised
in profit or
loss
$’000
Recognised
in equity
$’000
Balance
31 July 2013
$’000
Recognised
in profit or
loss
$’000
Recognised
in equity
$’000
Acquired in
business
combination
$’000
Balance
31 July 2014
$’000
Receivables
Inventories
Investments
Property, plant and equipment
Intangible assets
Payables
Provisions
Employee benefits
Unearned revenue
Equity raising costs
Other items
Tax loss carry-forwards
(1,927)
(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)
162
279
(10)
(10,202)
-
-
10,472
-
-
-
-
-
-
-
-
-
10,472
16
(231)
15,116
9,446
12,128
20
(7,033)
(1,677)
(10,504)
(384)
(518)
(969)
15,410
(457)
186
-
431
(6,764)
(20)
2,045
371
(283)
125
(803)
728
(4,441)
-
-
5,392
-
-
-
-
-
-
-
-
-
5,392
-
(264)
-
-
12,973
-
(9,395)
(3,279)
-
-
1,709
-
1,744
(441)
(309)
20,508
9,877
18,337
-
(14,383)
(4,585)
(10,787)
(259)
388
(241)
18,105
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
8.
Earnings per share
See accounting policy in Note 34(t).
Basic and diluted earnings per share
52
2014
Cents
21.6
2014
$’000
2013
Cents
18.8
2013
$’000
Profit attributable to ordinary shareholders used in calculating basic and
diluted earnings per share
171,679
149,165
Weighted average number of ordinary shares used as the denominator
in calculating basic and diluted earnings per share
793,808,141
793,808,141
9.
Cash and cash equivalents
See accounting policy in Note 34(e).
Bank balances
Cash
Cash and cash equivalents
10.
Trade and other receivables
Current
Trade receivables
Accrued income and other receivables
Less: Provision for impairment losses
Non-Current
Accrued income and other receivables
2014
$’000
23,739
17
23,756
2013
$’000
26,121
7
26,128
2014
$’000
2013
$’000
86,069
15,291
(15,826)
85,534
30,060
16,895
(6,279)
40,676
7,720
15,268
The Group’s exposure to credit and currency risk and impairment losses related to trade and other
receivables is disclosed in note 23.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
53
11.
Inventories
See accounting policy in Note 34(i).
Customer equipment inventory
12.
Investments
See accounting policy in Note 34(d)(ii).
Available-for-sale financial assets
Current
Carrying amount at 1 August
Disposals at cost
Change in fair value
Carrying amount at 31 July
Non-Current
Carrying amount at 1 August
Acquisitions
Carrying amount at 31 July
2014
$’000
2,749
2013
$’000
179
2014
$’000
81,181
-
17,978
99,159
7,333
-
7,333
2013
$’000
47,619
(1,345)
34,907
81,181
-
7,333
7,333
There are three possible valuation methods (or ‘levels’) for financial instruments that are measured at
fair value. Those different levels are as follows:
Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices that are observable for the asset or liability, either directly
or indirectly; and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
The Group’s only financial instruments that are measured at fair value are available-for-sale financial
assets. The current available-for-sale financial assets, being ASX listed securities, are categorised as
Level 1 financial assets as they are valued at quoted market prices.
The non-current available-for-sale financial assets balance represents the Group’s investment in
Cocoon Data Holdings Limited. This investment is categorised as a Level 2 financial asset as it is
valued based on observable inputs other than quoted market prices.
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 $1.4m after tax. An equal change in the opposite direction would have
decreased equity by $1.4m after tax.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
13.
Prepayments and other assets
Current
Prepayments
Non-Current
Security deposits
54
2014
$’000
2013
$’000
10,261
6,352
6,638
339
55
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
14.
Property, plant and equipment
See accounting policy in Note 34(f).
Cost
Note
Network
infrastructure
$’000
Land &
Buildings
$’000
Leasehold
improvements
$’000
Balance at 1 August 2012
Additions
Disposals
Effect of movements in exchange rates
Balance at 31 July 2013
Balance at 1 August 2013
Acquisitions through business combinations
Additions
Disposals
Effect of movements in exchange rates
Balance at 31 July 2014
27
531,506
51,641
(6,668)
271
576,750
576,750
238,776
64,756
(100)
(112)
880,070
3,148
-
-
102
3,250
3,250
-
1,602
-
(30)
4,822
3,013
-
-
-
3,013
3,013
2,138
112
-
-
5,263
Total
$’000
537,667
51,641
(6,668)
373
583,013
583,013
240,914
66,470
(100)
(142)
890,155
56
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
14. Property, plant and equipment (continued)
Depreciation and impairment losses
Balance at 1 August 2012
Depreciation charge for the year
Disposals
Effect of movements in exchange rates
Balance at 31 July 2013
Balance at 1 August 2013
Depreciation charge for the year
Disposals
Effect of movements in exchange rates
Balance at 31 July 2014
Carrying amounts
At 31 July 2013
At 31 July 2014
Network
infrastructure
$’000
Land &
Buildings
$’000
Leasehold
improvements
$’000
212,079
48,853
(58)
248
261,122
261,122
71,800
-
(83)
332,839
303
138
-
20
461
461
118
-
(8)
571
1,370
901
-
-
2,271
2,271
641
-
-
2,912
Total
$’000
213,752
49,892
(58)
268
263,854
263,854
72,559
-
(91)
336,322
315,628
2,789
742
319,159
547,231
4,251
2,351
553,833
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
15.
Intangible assets
See accounting policy in Note 34(h).
57
Note
27
Cost
Balance 1 August 2012
Additions
Balance 31 July 2013
Balance 1 August 2013
Additions
Acquisitions through
business combinations
Balance 31 July 2014
Amortisation and Impairment
Balance 1 August 2012
Amortisation for the year
Balance 31 July 2013
Balance 1 August 2013
Amortisation for the year
Balance 31 July 2014
Carrying amounts
At 31 July 2013
Non-Amortising
Amortising
Total
Goodwill
$’000
Trademarks
$’000
Acquired
customer
bases
$’000
Indefeasible
rights of use
of capacity
$’000
Software
$’000
Licences
$’000
391,521
-
391,521
391,521
-
157,579
549,100
-
-
-
-
-
-
20,068
-
20,068
20,068
-
-
20,068
-
-
-
-
-
-
236,924
-
236,924
236,924
-
43,245
280,169
174,213
18,114
192,327
192,327
27,525
219,852
62,334
251
62,585
62,585
567
9,496
-
9,496
9,496
109
37,284
100,436
6,540
16,145
14,874
4,594
19,468
19,468
6,057
25,525
8,031
1,190
9,221
9,221
1,365
10,586
-
2,667
2,667
2,667
-
-
2,667
-
44
44
44
267
311
$’000
720,343
2,918
723,261
723,261
676
244,648
968,585
197,118
23,942
221,060
221,060
35,214
256,274
391,521
20,068
44,597
43,117
275
2,623
502,201
At 31 July 2014
549,100
20,068
60,317
74,911
5,559
2,356
712,311
Amortising intangibles are removed from cost in the analysis in the year after they become fully amortised.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
15.
Intangible assets (continued)
Impairment tests for cash generating units containing goodwill
58
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 currently has three separate CGUs, being the Consumer, Corporate
and AAPT CGUs.
Indefinite life intangible assets comprise goodwill and trademarks and are allocated to the CGUs as set
out in the table below. Goodwill is allocated to the CGU that is expected to benefit from the synergies
of the acquisition.
2014
Goodwill Trademarks
$m
20
-
-
20
$m
387
5
157
549
Total
$m
407
5
157
569
2013
Goodwill Trademarks
$m
20
-
-
20
$m
387
5
-
392
Total
$m
407
5
-
412
Consumer
Corporate
AAPT
Total
Determining whether goodwill is impaired involves estimating the value-in-use of the CGUs to which the
goodwill has been allocated.
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 for this purpose comprise projections for a five year period plus a
terminal value. The projections are prepared by senior management using conservative assumptions
which include a long-term growth rate of 2% per annum based on the long-term industry growth rate
(2013: 2%), including for the terminal phase beyond year 5.
A pre-tax discount rate of 13.5% (2013: 13.5%) has been used in discounting the projected cashflows
of each CGU, 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 any of the CGUs.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
59
16.
Trade and other payables
See accounting policy in Note 34(n).
Trade creditors
Other creditors and accruals
2014
$’000
62,631
73,925
136,556
2013
$’000
43,468
50,654
94,122
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in
note 23.
17.
Loans and borrowings
See accounting policy in Note 34(d).
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 23.
Current
Finance lease liabilities
Non-Current
Gross secured bank loans
Less: Unamortised borrowing costs
Finance lease liabilities
2014
$’000
2013
$’000
183
169
350,000
(3,259)
346,741
106
346,847
42,000
(3,171)
38,829
305
39,134
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
17.
Loans and borrowings (continued)
60
At the beginning of FY14 the Group had outstanding debt of $42.0m which it fully repaid during 1H14.
Subsequently, on 27 February 2014, in order to finance the acquisition of AAPT (refer note 27) the
Group entered into an Amendment and Restatement Deed relating to its existing Syndicated Debt
Facility Agreement. Under the terms of the Deed the facility limit was increased to $490.0m and the
termination date of the facility was extended to 27 February 2017.
The initial drawdown under the amended facility was $425.0m. Repayments of $75.0m have been
made since that date taking total debt repayments for the year to $117.0m (net of draw-downs of
$47.0m) and leaving a closing debt balance of $350.0m as at 31 July 2014.
The outstanding loan balance as at year end is shown in the statement of financial position net of
unamortised borrowing costs of $3.3m (2013: $3.2m).
Under the terms of the facility there are no compulsory repayments until the 27 February 2017
termination date.
In addition to the $140.0m undrawn debt facility at 31 July 2014, the Group also has a $25.0m working
capital facility.
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
Telecom New Zealand Australia Pty Ltd
AAPT Limited
Connect Internet Solutions Pty Limited
PowerTel Limited
Request Broadband Pty Ltd
Telecom Enterprises Australia Pty Limited
61
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
17.
Loans and borrowings (continued)
Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
Currency
Nominal
interest
rate
Year of
maturity
2014
Face
value
$’000
Carrying
amount
$’000
2013
Face
value
$’000
Carrying
amount
$’000
Secured bank
loans
Finance lease
liabilities
AUD
BBSY
+ margin (1)
AUD
6% - 9%
2017
2014-
2016
350,000
350,000
42,000
42,000
308
289
526
474
350,308
350,289
42,526
42,474
(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:
Minimum
lease
payments
$’000
199
109
308
2014
2013
Interest
$’000
Principal
$’000
Minimum
lease
payments
$’000
Interest
$’000
Principal
$’000
16
3
19
183
106
289
200
326
526
31
21
52
169
305
474
Less than one year
Between one and five years
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
62
18.
Employee benefits
See accounting policy in Note 34(k).
Current
Liability for annual leave
Liability for long service leave
Non-Current
Liability for long service leave
2014
$’000
7,432
5,680
13,112
2013
$’000
3,578
1,663
5,241
2,170
349
Share based payments - 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 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) and a third grant of rights was
made in FY14 (certain participants were granted rights on 22 November 2013 and others on 18
December 2013). All rights issued to-date have the same key terms which 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 2014 are set out below:
Balance as at 1 August 2013
Granted during the year
Forfeited during the year
Vested during the year
Balance as at 31 July 2014
Number of
Rights
1,174,167
401,400
-
(482,833)
1,092,734
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
18.
Employee benefits (continued)
63
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 and share price as at each date of grant are as follows:
Date of grant
9 March 2012
24 December 2012
22 November 2013
18 December 2013
Weighted average
fair value
$1.4733
$2.3267
$3.9567
$4.5767
Share price
$1.56
$2.48
$4.15
$4.77
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 $1.5m (2013: $1.1m).
Under the above share-based payment scheme, 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 trust. An employee expense is
recognised over the vesting period of the rights with a corresponding decrease in the share-based
payments reserve.
Superannuation contributions
The Group contributed $5.7m to defined contribution superannuation plans during the current year
(2013: $3.0m).
19.
Provisions
See accounting policy in Note 34(m).
Balance as at 1 August 2013
Acquired through business combinations
Provisions made during the year
Provisions used during the year
Unwind of discount
Balance as at 31 July 2014
Current
Non-current
Make good
costs
$’000
Lease
increment
$’000
Onerous
leases
$’000
6,087
12,111
-
(80)
184
18,302
630
17,672
18,302
1,640
-
-
(229)
-
1,411
205
1,206
1,411
-
14,769
-
(2,879)
-
11,890
7,699
4,191
11,890
Other
$’000
2,000
-
1,000
-
-
3,000
3,000
-
3,000
Total
$’000
9,727
26,880
1,000
(3,188)
184
34,603
11,534
23,069
34,603
64
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
19.
Provisions (continued)
Make good costs
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.
Onerous leases
Where the Group has contractual obligations with costs exceeding the expected economic benefits
flowing from the arrangement, a provision is immediately recognised for the excess cost component.
20.
Deferred income and other liabilities
See accounting policy in Note 34(o).
Current
Deferred income
Non-Current
Deferred income
2014
$’000
2013
$’000
79,156
58,784
28,841
26,010
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
21.
Capital and reserves
See accounting policy in Note 34(d)(iv).
Share capital
65
Ordinary shares
$’000
2014
2013
2014
2013
Balance as at 1 August
Ordinary shares issued during the year
Balance as at 31 July
793,808,141 793,808,141
-
793,808,141 793,808,141
-
516,907
-
516,907
516,907
-
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 2014 the number of Company shares held by the Group was 16 (2013: 21,085).
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.
66
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
22.
Dividends
Dividends recognised in the current year were as follows:
2014
Interim 2014 ordinary
Final 2013 ordinary
Total amount
2013
Interim 2013 ordinary
Final 2012 ordinary
Total amount
Cents
per share
4.50
4.00
3.50
2.75
Total
Amount
$’000
35,720
31,753
67,473
Date of
payment
20 May 2014
19 Nov 2013
27,783
21,830
49,613
21 May 2013
20 Nov 2012
All dividends declared or paid during the year were fully franked at the tax rate of 30%.
The directors have declared a fully franked final FY14 dividend of 4.75 cents per share. As the final
dividend was not declared or resolved to be paid by the Board of directors as at 31 July 2014, the
dividend has not been provided for in the consolidated statement of financial position. The dividend has
a record date of 14 October 2014 and will be paid on 18 November 2014.
The Dividend Reinvestment Plan (DRP) is currently suspended until further notice.
Dividend franking account
2014
$’000
2013
$’000
30 per cent franking credits available to shareholders of the
Company for subsequent financial years
232,971
181,772
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; and
franking credit transferred in on business combinations.
(c)
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
yet recognised as a liability is to reduce it by $16.2m (2013: $13.6m).
67
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
23.
Financial instruments and risk management
See accounting policy in Note 34(d).
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.
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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
23.
Financial instruments and risk management (continued)
Credit risk (continued)
68
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.
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:
Trade and other receivables
Cash and cash equivalents
Available-for-sale financial assets
Note
10
9
12
2014
$’000
93,254
23,756
106,492
223,502
2013
$’000
55,944
26,128
88,514
170,586
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by customer
type was as follows:
Type of customer
Corporate
Retail
Wholesale
Government
Note
10
2014
$’000
25,126
9,832
45,511
5,600
86,069
2013
$’000
10,244
8,000
7,125
4,691
30,060
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
23.
Financial instruments and risk management (continued)
Credit risk (continued)
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by
geographical region was as follows:
69
Geographical region
Australia
New Zealand
United States
Other
Note
10
2014
$’000
85,111
92
463
403
86,069
2013
$’000
29,432
86
371
171
30,060
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:
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
10
2014
$’000
51,184
21,653
5,011
1,844
1,613
4,764
86,069
(15,826)
70,243
2013
$’000
18,392
5,003
970
847
1,348
3,500
30,060
(6,279)
23,781
The provision for impairment losses of the Group at 31 July 2014 of $15.8m (2013: $6.3m) 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 2014
23.
Financial instruments and risk management (continued)
Credit risk (continued)
70
The movement in the provision for impairment losses during the year ended 31 July 2014 is as follows:
Note
10
2014
$’000
6,279
9,786
(239)
15,826
2013
$’000
7,084
-
(805)
6,279
Balance at 1 August
Acquired through business combination
Amounts written off
Balance at 31 July
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 has a debt facility of $490.0m available to it during the year
(of which $350.0m was utilised as at 31 July 2014) (refer note 17).
The following are the contractual maturities of financial liabilities, including estimated interest payments
and excluding the impact of netting agreements:
31 July 2014
Note
Carrying
amount
Contractual
cashflows
6 months
or less
6-12
months
$’000
$’000
$’000
$’000
1-2
years
$’000
2-5 years
More than
5 years
$’000
$’000
Secured bank loans
Finance lease
liabilities
Trade and other
payables
17
(350,000)
(387,532)
(7,264)
(7,264)
(14,529)
(358,475)
(289)
(308)
(106)
(93)
(109)
16
(136,556)
(136,556)
(136,556)
-
-
-
-
(486,845)
(524,396)
(143,926)
(7,357)
(14,638)
(358,475)
-
-
-
-
71
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
23.
Financial instruments and risk management (continued)
Liquidity risk (continued)
31 July 2013
Note
Carrying
amount
Contractual
cashflows
6 months
or less
$’000
$’000
$’000
6-12
months
$’000
1-2
years
$’000
2-5 years
More than
5 years
$’000
$’000
Secured bank loans
Finance lease
liabilities
Trade and other
payables
17
(42,000)
(45,037)
(935)
(935)
(43,167)
-
(474)
(526)
(91)
(109)
(217)
(109)
16
(94,122)
(94,122)
(94,122)
-
-
-
136,596
(139,685)
(95,148)
(1,044)
(43,384)
(109)
-
-
-
-
It is not expected that the cashflows included in the maturity analysis above could occur significantly
earlier, or at significantly different amounts.
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.
(i) Currency risk
The Group is exposed to currency risk on revenues, expenses, receivables and borrowings that are
denominated in a currency other than its functional currency, the Australian dollar (AUD). These other
currencies include primarily the United States dollar (USD), the New Zealand dollar (NZD), 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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
23.
Financial instruments and risk management (continued)
Market risk (continued)
The Group’s exposure to foreign currency risk at balance date was as follows:
31 July 2014
31 July 2013
AUD
equivalent
NZD
USD
PHP
HKD
AUD
equivalent
NZD
USD
PHP
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Trade receivables
Other financial assets
Trade payables
1,106
2,531
(4,556)
(919)
5
-
(34)
(29)
1,031
2,352
(4,224)
(841)
-
695
(91)
604
-
-
(64)
(64)
2,784
4,507
(4,933)
2,358
21
-
(74)
(53)
2,516
4,091
(4,428)
2,179
-
429
(43)
386
The average rates during the year and spot rates at the year-end for the currencies that impact the
business were as follows:
72
HKD
$’000
-
-
(50)
(50)
Average rate
2014
1.12
0.92
40.00
7.16
2013
1.22
0.98
41.61
7.89
Reporting date spot rate
2013
1.14
0.91
39.42
7.06
2014
1.10
0.94
40.58
7.25
NZD
USD
PHP
HKD
Sensitivity analysis
A 10 percent strengthening/weakening of the Australian dollar against the above currencies at 31 July
2014 would have decreased/increased equity and profit or loss by $85k (2013: $214k). This analysis
assumes that all other variables, in particular interest rates, remain constant. The analysis is performed
on the same basis for 2013.
(ii)
Interest rate risk
At the reporting date the Group’s interest-bearing financial instruments were as follows:
Fixed rate instruments
Financial liabilities
Variable rate instruments
Financial assets
Financial liabilities
Note
17
9
17
2014
$’000
(289)
2013
$’000
(474)
23,756
(350,000)
(326,244)
26,128
(42,000)
(15,872)
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
23.
Financial instruments and risk management (continued)
Market risk (continued)
73
The Group does from time-to-time hedge its exposure to the impact of changes in interest rates on its
core borrowings. As at 31 July 2014 the amount of borrowings that were hedged was $nil (2013: $nil).
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 2014, of $3.3m
(2013: $159k) (assumes that all other variables, in particular foreign currency rates, remain constant).
Fair values versus carrying amounts
As at 31 July 2014, 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 34(v).
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
2014
2013
BBSY +
margin
BBSY +
margin
Leases
6% to 9%
6% to 9%
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
23.
Financial instruments and risk management (continued)
(iii) Equity price risk
74
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.
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.
The Group’s net debt to equity ratio at the reporting date was as follows:
Total loans and borrowings
Less: cash and cash equivalents
Net debt
2014
$'000
350,000
(23,756)
326,244
2013
$'000
42,000
(26,128)
15,872
Total equity
832,422
715,966
Net debt to equity ratio at 31 July
0.39
0.02
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
24.
Operating leases
See accounting policy in Note 34(p)(i).
Non-cancellable operating lease rentals are payable as follows:
75
Less than one year
Between one and five years
More than five years
25.
Capital and other commitments
2014
$’000
35,635
88,801
35,182
159,618
2013
$’000
27,634
46,030
28,796
102,460
2014
$’000
2013
$’000
Capital expenditure commitments
Contracted but not provided for in the financial statements
34,453
23,743
The capital commitments at 31 July 2014 in the table above include $13.5m in respect of spectrum
licences won by the Company at the Digital Dividend auction in May 2013 payable in September 2014.
.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
26.
Consolidated entities
The following is a list of all entities that formed part of the Group as at 31 July 2014:
76
Name of Entity
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
Ownership interest
as at 31 July
Country of
incorporation
2014
%
2013
%
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
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
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
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
26.
Consolidated entities (continued)
77
Name of Entity
Subsidiaries (continued)
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
Telecom New Zealand Australia Pty Ltd
AAPT Limited
Connect Internet Solutions Pty Limited
PowerTel Limited
Request Broadband Pty Ltd
Telecom Enterprises Australia Pty Limited
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ownership interest
as at 31 July
2014
%
100
100
100
100
100
100
100
100
100
88.57
100
100
100
100
100
100
2013
%
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 2014
27.
Acquisition of subsidiary
78
On 28 February 2014 TPG Telecom Limited acquired 100% of Telecom New Zealand Australia Pty Ltd
and its subsidiaries which include AAPT (“AAPT”).
The agreed purchase price of A$450.0m was paid in cash on 28 February 2014 and a further working
capital adjustment amount of A$13.5m was subsequently paid on 6 May 2014.
The acquisition was funded through a combination of debt and cash reserves.
The rationale for the acquisition was to further enhance the Group’s infrastructure through the addition
of AAPT’s inter-capital fibre network as well as adding a large and profitable wholesale and corporate
business.
The Group incurred acquisition related costs of $3.2m relating to stamp duty, external legal fees and
due diligence costs. These costs have been included in other expenses in the consolidated income
statement.
The provisional fair values of the identifiable assets and liabilities of AAPT as at the date of acquisition
are set out below.
Identifiable assets acquired and liabilities assumed
Trade and other receivables
Provision for doubtful debts
Inventories
Prepayments and other assets
Property, plant and equipment
Customer base
IRU assets
Intangible assets
Trade and other payables
Employee benefits and provisions
Provisions
Deferred income
Deferred tax liabilities (net)
Net identifiable assets acquired
Consideration transferred
Cash paid
Less: Cash acquired
Total consideration, net of cash acquired
$’000
63,909
(9,786)
3,281
17,447
240,914
43,245
37,284
6,540
(38,310)
(12,496)
(26,880)
(18,231)
(1,744)
305,173
463,540
(788)
462,752
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
27.
Acquisition of subsidiary (continued)
79
Goodwill on acquisition
Consideration transferred, net of cash acquired
Less: Net identifiable assets acquired, net of cash acquired
Goodwill on acquisition
$’000
462,752
(305,173)
157,579
The goodwill arising on the acquisition is primarily attributable to the synergies expected to be achieved
from integrating AAPT into the Group’s operations.
In the five month period from the date of acquisition (28 February 2014) to 31 July 2014, AAPT
contributed revenue of $164.8m and profit after tax of $6.2m to the Group’s results (excluding
acquisition costs and amortisation of acquisition intangibles). Due to complexity caused by inconsistent
accounting policies and the change in valuation of assets and liabilities upon acquisition, management
has deemed it not possible to reliably estimate what AAPT would have contributed to the Group if it had
been owned for the entire financial year.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
28.
Reconciliation of cashflows from operating activities
80
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
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
Changes in:
-
Trade and other receivables
-
Inventories
- Other assets
-
- Other liabilities
- Employee benefits
- Provisions
Trade and other payables
Income taxes paid
Note
2014
$’000
2013
$’000
171,679
149,165
5
14
15
6
6
6
5
27
7
(2,633)
72,559
35,214
1,783
2,362
-
1,497
299
(1,762)
8,475
-
3,119
75,124
(2,219)
49,892
23,942
1,301
2,037
31
1,148
48
(2,447)
7,363
(1,130)
-
63,134
367,716
292,265
16,811
711
7,150
4,076
4,971
(2,804)
(2,004)
396,627
(96,103)
(10,581)
184
1,179
19,931
14,089
241
709
318,017
(79,218)
Net cash from operating activities
300,524
238,799
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
29.
Parent entity disclosures
81
Result of the parent entity
Loss for the period
Comprising:
Finance expenses
Costs relating to mergers and acquisitions
Income tax benefit
Other
Total loss for the period
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising:
Share capital
Reserves
Retained earnings
Total Equity
Parent entity guarantees
Company
2014
$’000
2013
$’000
(11,461)
(7,891)
(10,620)
(3,234)
2,736
(343)
(11,461)
(9,300)
-
2,557
(1,148)
(7,891)
1,328
1,246,377
714
1,151,379
17,768
792,749
42,551
618,494
516,907
411
(63,690)
453,628
516,907
734
15,244
532,885
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 33.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
30.
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:
82
Executive directors
Mr David Teoh
Executive Chairman & Chief Executive Officer
Mr Alan Latimer
Executive Director, Finance & Corporate Services
Non-executive directors
Mr Denis Ledbury
Mr Robert Millner
Mr Joseph Pang
Mr Shane Teoh
Executives
Mr Stephen Banfield
Chief Financial Officer and Company Secretary
Mr John Paine
National Technical and Strategy Manager
Mr Craig Levy
General Manager, Consumer
Mr Wayne Springer
General Manager, Corporate Products & Pricing
Ms Mandie De Ville
Chief Information Officer
Mr Tony Moffatt
General Counsel
Mr Mark Rafferty
General Manager Sales, Enterprise & Wholesale
Recognised within key management personnel
from 28 February 2014, the date on which his
employer (AAPT) was acquired by the Group.
Key management personnel remuneration
The key management personnel remuneration included in employee benefits is as follows:
Short-term employee benefits
Post-employment benefits
Other long term benefits
Share-based benefits
2014
$
2013
$
5,758,214
222,479
144,827
741,700
6,867,220
4,680,235
229,864
134,798
600,512
5,645,409
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
30.
Related parties (continued)
83
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 26 to 33.
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 2014 was $166,186 (2013: $122,669).
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 $24,556 (2013: $23,611).
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 or services 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.
84
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
30.
Related parties (continued)
Movement in shares
The movement during the reporting period in the number of ordinary shares in the Company held
directly, indirectly or beneficially by each key management person, including by their related parties, is
as follows:
Held at
Granted as
Disposals
1 August
remuneration
2013
Held at
31 July
2014
291,625,603
500,000
100,000
7,374,175
88,812
90,251
-
-
-
-
-
-
-
(300,000)
-
-
-
-
291,625,603
200,000
100,000
7,374,175
88,812
90,251
200,000
3,868,717
599,783
129,902
131,402
552,571
45,000
45,000
60,333
45,000
6,000
45,000
(45,000)
-
(166,450)
-
-
(22,000)
200,000
3,913,717
493,666
174,902
137,402
575,571
Held at
Granted as
Disposals
1 August
remuneration
2012
Held at
31 July
2013
291,625,603
772,980
150,000
7,374,175
88,812
90,251
-
-
-
-
-
-
-
(272,980)
(50,000)
-
-
-
291,625,603
500,000
100,000
7,374,175
88,812
90,251
260,000
3,843,717
682,594
1,094,902
127,795
568,757
40,623
25,000
47,752
25,000
3,607
35,814
(100,623)
-
(130,563)
(990,000)
-
(52,000)
200,000
3,868,717
599,783
129,902
131,402
552,571
Directors
Mr D Teoh
Mr A Latimer
Mr D Ledbury
Mr R Millner
Mr J Pang
Mr S Teoh
Executives
Mr S Banfield
Mr J Paine
Mr C Levy
Mr W Springer
Ms M De Ville
Mr T Moffatt
Directors
Mr D Teoh
Mr A Latimer
Mr D Ledbury
Mr R Millner
Mr J Pang
Mr S Teoh
Executives
Mr S Banfield
Mr J Paine
Mr C Levy
Mr W Springer
Ms M De Ville
Mr T Moffatt
85
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
30.
Related parties (continued)
Identity of related parties
The Group has no related party relationships other than with its key management personnel.
31.
Subsequent events
On 30 September 2014 a Group entity entered into a contract to purchase a property close to the
Sydney CBD for consideration of $30.07m. The site, which is currently leased by the Group for annual
rent of some $3.1m, houses a key Group network hub and data centre and also provides office
accommodation. Of the purchase price, $3m will be paid in FY15 with the balance payable in 1H FY16
when the existing lease expires and ownership transfers.
Other than above, 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.
32.
Auditors’ remuneration
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
33.
Deed of cross guarantee
2014
$
2013
$
799,000
32,250
831,250
394,800
15,500
410,300
27,500
858,750
51,905
462,205
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.
86
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
33.
Deed of cross guarantee (continued)
The Deed of Cross Guarantee was entered into on 25 June 2008. The Australian incorporated
companies within the AAPT group (as included in the list below) were joined as parties to the Deed of
Cross Guarantee through an Assumption Deed dated 8 May 2014. 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
Telecom New Zealand Australia Pty Ltd
AAPT Limited
Connect Internet Solutions Pty Limited
PowerTel Limited
Request Broadband Pty Ltd
Telecom Enterprises Australia Pty Limited
87
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
33.
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 2014 is set out as follows:
Statement of comprehensive income and retained profits
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
2014
$’000
2013
$’000
945,371
2,633
704,829
3,349
(448,973)
(87,062)
(49,102)
(322,986)
(46,675)
(44,372)
362,867
294,145
(67,491)
(32,700)
(43,152)
(23,318)
262,676
227,675
1,762
(10,837)
(9,075)
2,447
(9,400)
(6,953)
253,601
220,722
(74,965)
(63,583)
Profit for the year attributable to owners of the company
178,636
157,139
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
12,583
191,219
24,435
181,574
167,556
178,636
(67,473)
278,719
60,030
157,139
(49,613)
167,556
88
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
33.
Deed of cross guarantee (continued)
Statement of financial position
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
31 July 2014
$’000
31 July 2013
$’000
22,169
85,232
2,749
99,159
8,393
217,702
7,720
7,333
107,766
461,362
686,396
6,130
1,276,707
25,014
40,371
179
81,181
5,070
151,815
15,268
7,339
109,886
222,530
474,335
-
829,358
Total Assets
1,494,409
981,173
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
133,356
183
17,030
13,112
8,534
214
76,896
249,325
346,847
18,105
2,170
23,069
10,879
401,070
91,266
169
33,576
5,241
616
276
57,136
188,280
39,134
15,410
349
7,111
10,291
72,295
650,395
260,575
844,014
720,598
516,907
48,388
278,719
844,014
516,907
36,135
167,556
720,598
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies
89
Except as described below, the accounting policies set out from 34(a) to 34(v) have been applied
consistently to all periods presented in these consolidated financial statements and have been applied
consistently across the Group. In the current financial year, the Group has adopted all of the new and
revised Standards and Interpretations issued by the Australian Accounting Standards Board (AASB)
that are effective for the current reporting period and that are relevant to the Group. The adoption of
these amendments, discussed below, has not resulted in any change to the Group’s accounting policies
and has had no material impact on the Group’s consolidated financial statements.
Changes in accounting standards adopted
AASB 10 Consolidated Financial Statements: AASB 10 establishes a single consolidation model
based on control that applies to all entities, irrespective of the nature of the investee. The new
control model broadens the situations where an entity is considered to be controlled by another
entity.
AASB 13 Fair Value Measurement: AASB 13 does not change the requirements regarding which
items should be measured or disclosed at fair value but expands the disclosure requirements for all
assets or liabilities carried at fair value. This includes information about the assumptions made and
the qualitative impact of those assumptions on the fair value determined. To comply with the new
standard, additional disclosures have been included in note 12.
AASB 119 Employee Benefits (revised): The revised standard changes the distinction between
short-term and long-term employee benefits which is now based on whether the benefits are
“expected to be settled” wholly within 12 months after the reporting date rather than “due to be
settled” within 12 months.
Amendments to AASB 136: Amendments relating to recoverable amount disclosures for non-
financial assets are applicable for annual reporting periods beginning on or after 1 January 2014
but have been early adopted in the current year.
a.
Basis of consolidation
(i)
Business combinations
The Group accounts for business combinations using the acquisition method when control is
transferred to the Group (refer (a)(ii)). The consideration transferred in the acquisition is generally
measured at fair value, as are the identifiable net assets acquired. Valuation techniques adopted for
measuring assets acquired are explained at (v) below. Goodwill is measured as the excess of
consideration transferred as compared to the value of identifiable net assets acquired. Transaction
costs are expensed as incurred, except if related to the issue of debt or equity securities.
Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent
consideration is classified as equity, then it is not remeasured and settlement is accounted for within
equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised
in profit or loss.
90
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
(ii)
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. The financial statements of subsidiaries are included in the
consolidated financial statements from the date on which control commences until the date on which
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.
(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 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.
91
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
d.
Financial instruments
The Group classifies non-derivative financial assets into the following categories: loans and
receivables, and available-for-sale financial assets.
The Group classifies non-derivative financial liabilities into the other financial liabilities category.
(i)
Non-derivative financial assets and financial liabilities – recognition and derecognition
The Group initially recognises loans and receivables and debt securities issued on the date when they
are originated. All other financial assets and financial liabilities are initially recognised on the trade date.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset
expire, or it transfers the rights to receive the contractual cash flows in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are transferred, or it neither
transfers nor retains substantially all of the risks and rewards of ownership and does not retain control
over the transferred asset. Any interest in such derecognised financial assets that is created or retained
by the Group is recognised as a separate asset or liability.
The Group derecognises a financial liability when its contractual obligations are discharged or
cancelled, or expire.
Financial assets and financial liabilities are offset and the net amount presented in the statement of
financial position when, and only when, the Group has a legal right to offset the amounts and intends
either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
(ii)
Non-derivative financial assets - measurement
Loans and receivables
These assets are initially recognised at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition, they are measured at amortised cost using the effective interest
method. The loans and receivables category comprises trade and other receivables.
Available-for-sale financial assets
These assets are initially recognised at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition, they are measured at fair value and changes therein, other than
impairment losses, are recognised in other comprehensive income and accumulated in the fair value
92
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
d.
Financial instruments (continued)
reserve. When these assets are derecognised, the gain or loss in equity is transferred to profit or loss.
The available-for-sale financial assets category comprises equity securities.
(iii)
Non-derivative financial liabilities - measurement
Non-derivative financial liabilities are initially recognised at fair value less any directly attributable
transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost
using the effective interest method. The non-derivative financial liabilities category comprises loans and
borrowings, and trade and other payables.
(iv)
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.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with original maturities of three
months or less and includes bank overdrafts that are repayable on demand and form an integral part of
the Group’s cash management.
f.
Property, plant and equipment
Items of property, plant and equipment are stated at cost less accumulated depreciation and
accumulated impairment losses (see note 34(j)). 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.
(i)
Subsequent costs
Subsequent costs are added to existing assets if it is probable that future economic benefits will flow to
the Group.
93
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
f.
Property, plant and equipment (continued)
(ii)
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
3 - 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.
g.
(i)
Leases
Determining whether an arrangement contains a lease
At inception of an arrangement, including sales of capacity described in note 34(o)(iii) below, 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.
(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.
h.
(i)
Intangible assets
Goodwill
Goodwill arising on acquisition of subsidiaries is measured at cost less accumulated impairment losses.
For the measurement of goodwill at initial recognition, see note 34(a)(i).
94
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
h.
Intangible assets (continued)
(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 and any accumulated impairment losses.
The various categories of other intangible assets in the Group’s accounts are as follows:
-
Trademarks
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.
-
Indefeasible rights 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.
-
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.
-
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.
95
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
h.
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
Trademarks
Acquired customer bases & reacquired
rights
Indefeasible rights of use (IRU) of capacity
Software
Licences
Indefinite life
Indefinite life
-
-
- Amortised on a reducing balance basis in line
with the expected economic benefits to be
derived
- Amortised over the life of the IRU
-
- Amortised over the term of the licence
2-20 years
i.
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.
j.
Impairment
Any financial asset that is not classified as an ‘at fair value through profit or loss’ 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.
At each reporting date, the Group reviews the carrying amounts of its non-financial assets, other than
inventories and deferred tax assets, to determine whether there is any indication of impairment. If any
such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets
that have indefinite useful lives or that are not yet available for use are tested annually for impairment.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit
exceeds its recoverable amount. Impairment losses are recognised in the income statement unless an
asset has previously been revalued, in which case the impairment loss is recognised as a reversal to
the extent of that previous revaluation with any excess recognised through profit or loss.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the
96
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
j.
Impairment (continued)
carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying
amount of the other assets in the 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. 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.
k.
(i)
Employee benefits
Short-term employee 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.
97
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
k.
Employee benefits (continued)
(ii)
Long-term employee benefits
The Group’s obligation in respect of long-term service is the amount of future benefit that employees
have earned in return for their service in the current and prior periods. The obligation is
calculated using expected future increases in wage and salary rates including related on-costs and
expected settlement dates, and is discounted using the rates attached to the Commonwealth
Government bonds at the balance sheet date which have maturity dates approximating to the terms of
the Group’s obligations.
(iii)
Performance rights plan
The Group has in place a performance rights plan that provides for selected employees to be granted
rights to 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)
Superannuation
The Group contributes to several defined contribution superannuation plans. Contributions are
recognised as an expense in the income statement on an accruals basis.
l.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets
are capitalised as part of the cost of the asset. Borrowing costs relating to loans and borrowings are
capitalised and amortised over the term of the loan. All other borrowing costs are expensed in the
period they occur.
m.
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,
98
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
m.
Provisions (continued)
where appropriate, the risks specific to the liability. The unwinding of the discount is recognised as
finance expense.
n.
Trade and other payables
Trade and other payables are stated at their amortised cost. Trade payables are non-interest bearing
and are normally settled on 30-60 day terms.
o.
Revenue
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.
(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.
99
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
o.
Revenue (continued)
(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 some or all 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 (o)(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.
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.
p.
(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.
100
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
p.
Expenses (continued)
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.
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 and finance leases, amortisation of
borrowing costs relating to loans and borrowings, unwinding of discount on provisions and interest
receivable on funds invested.
Interest income or expense is recognised using the effective interest method.
q.
Income tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is
recognised in the income statement except to the extent that it relates to a business combination, or
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 is not a business combination and that
affects 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.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
101
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
q.
Income tax (continued)
Tax consolidation
The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group
with effect from 1 August 2006 and have therefore been taxed as a single entity from that date. The
head entity within the tax-consolidated group is TPG Telecom Limited.
r.
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.
s.
Goods and services tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST),
except where the amount of GST incurred is not recoverable from the taxation authority. In these
circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the
expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from, or payable to, the ATO is included as a current asset or liability in the 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.
102
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
t.
Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS
is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the
weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined
by adjusting the weighted average number of ordinary shares outstanding, for the effects of all dilutive
potential ordinary shares, being share options.
u.
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 2013, 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.
v.
Determination of fair values
A number of the Group’s accounting policies and disclosures require the determination of fair value for
both financial and non-financial assets and liabilities. Fair values have been determined for
measurement and/or disclosure purposes based on the following methods. When applicable, further
information about the assumptions made in determining fair values is disclosed in the notes specific to
that asset or liability.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2014
34.
Significant accounting policies (continued)
v.
Determination of fair values (continued)
Material assets acquired through business combinations
103
Asset
acquired
Property,
plant and
equipment
Intangible
assets
Valuation technique
Fair values are based on quoted market prices for similar items when available, and
depreciated replacement cost when appropriate. Depreciated replacement cost
reflects adjustments for physical deterioration as well as functional and economic
obsolescence.
The fair value of trademarks is based on the discounted estimated royalty payments
that have been avoided as a result of the trademark being owned. The fair value of
other intangible assets is based on the discounted cashflows expected to be derived
from the use of the assets.
Inventories
Fair value is determined based on estimated selling price in the ordinary course of
business less the estimated costs of sale.
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.
TPG Telecom Limited and its controlled entities
Directors’ declaration
For the year ended 31 July 2014
104
1.
In the opinion of the directors of TPG Telecom Limited (‘the Company’):
(a)
the consolidated financial statements and notes that are set out on pages 39 to 103 and the Remuneration
report in section 6 of the Directors’ report, set out on pages 26 to 33, are 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 2014 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)
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 group entities identified in note 33 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 group entities pursuant to ASIC Class Order
98/1418.
3
The directors have been given the declarations required by Section 295A of the Corporations Act 2001
from the chief executive officer and chief financial officer for the financial year ended 31 July 2014.
4. The directors draw attention to note 2(a) to the consolidated financial statements, which includes a
statement of compliance with International Financial Reporting Standards.
Dated at Sydney this 17th day of October, 2014.
Signed in accordance with a resolution of the directors.
David Teoh
Chairman
105
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 2014, 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 34 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.
106
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 2014 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 26 to 33 of the directors’ report for the year
ended 31 July 2014. 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 2014, complies
with Section 300A of the Corporations Act 2001.
KPMG
Anthony Travers
Partner
Sydney
17 October 2014
107
TPG Telecom Limited and its controlled entities
ASX additional information
For the year ended 31 July 2014
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 9 October 2014.
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
291,625,604
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:
Number of
holders
Number of shares held
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
3,465
3,239
1,026
1,144
122
8,996
The number of shareholders holding less than a marketable parcel of ordinary shares is 438.
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
108
ASX additional information
For the year ended 31 July 2014
Twenty largest shareholders (as at 9 October 2014)
Name of shareholder
WASHINGTON H SOUL PATTINSON AND COMPANY LIMITED
TSH HOLDINGS PTY LTD
VICTORIA HOLDINGS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
DAVID TEOH
VICKY TEOH
NATIONAL NOMINEES LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
WIN CORPORATION PTY LTD
CITICORP NOMINEES PTY LIMITED
J S MILLNER HOLDINGS PTY LIMITED
FARJOY PTY LTD
BNP PARIBAS NOMS PTY LTD (DRP)
BKI INVESTMENT COMPANY LIMITED
AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED
MR JOHN ERIC PAINE
MILTON CORPORATION LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED (NT-COMNWLTH
SUPER CORP A/C)
CITICORP NOMINEES PTY LIMITED (COLONIAL FIRST STATE INV A/C)
AMP LIFE LIMITED
Number of
ordinary shares
held
% of
capital
held
213,400,684
101,645,893
100,840,608
52,132,138
43,562,525
43,217,403
40,987,852
39,785,437
16,000,000
14,626,422
6,151,207
6,010,000
5,566,882
4,420,000
4,046,692
3,843,717
3,731,553
3,179,047
2,859,899
2,445,615
26.88
12.80
12.70
6.57
5.49
5.44
5.16
5.01
2.02
1.84
0.77
0.76
0.70
0.56
0.51
0.48
0.47
0.40
0.36
0.31
708,453,574
89.23
Principal Registered Office
63-65 Waterloo Road
Macquarie Park NSW 2113
Telephone: 02 9850 0800
Share Registry
Computershare Investor Services Pty Ltd
Level 4, 60 Carrington Street
Sydney NSW 2000
Telephone:
(within Australia) 1300 850 505
(international) +61 3 9415 4000
www.investorcentre.com/au
TPG Telecom Limited ABN 46 093 058 069
76 TPG Telecom Limited and its controlled entities