TPG Telecom Limited
and its controlled entities
ABN 46 093 058 069
Annual Report
Year ended 31 July 2016
TPG Telecom Limited and its controlled entities
Annual report
For the year ended 31 July 2016
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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3
TPG Telecom Limited and its controlled entities
Chairman’s letter
For the year ended 31 July 2016
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 2016 (“FY16”).
Financial Performance
FY16 was another successful year for the Group. Continued organic growth and the integration of iiNet
into the business have resulted in further increases in revenue, profits and dividends for shareholders.
FY16 represents the eighth 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 and earnings attributable to shareholders from
the year.
FY16
FY15
Movement
2,387.8
1,270.6
849.4
379.6
45.3
14.5
484.5
224.1
28.2
11.5
+88%
+75%
+69%
+61%
+26%
Revenue ($m)
EBITDA ($m)
NPAT ($m)
EPS (cents/share)
Dividends (cents/share)
iiNet Acquisition
At the beginning of FY16 we completed the acquisition of iiNet and consequently there has been
significant focus during the year on integrating the businesses to improve the efficiency of the combined
organisation.
Whilst there is still much to do I am pleased to report that the integration is progressing well. Employees
from both sides of the merger have risen to the challenge of the integration and have continued to deliver
the premium levels of customer service for which iiNet has gained a strong reputation.
Moving Forward
Our Group has achieved outstanding growth over the last eight years and has a tremendously exciting
future ahead of it.
Chief among our competitive advantages is our extensive network infrastructure which enables our Group
to offer market leading on-net products to a broad range of customers right across the country as well as
overseas utilising our vast international capacity.
TPG Telecom Limited and its controlled entities
Chairman’s letter
For the year ended 31 July 2016
4
We have the second largest fixed broadband customer base in Australia and an opportunity to continue to
grow it as a leading provider of NBN services as well as through providing super-fast broadband services
over our ‘fibre to the building’ network.
Our continued growth will be assisted by our multiple well known and highly regarded brands supported
by our top class customer service.
The Group has a significant opportunity to expand its corporate market share both through the strength of
its expanding direct sales team and through its valuable wholesale customer relationships.
In addition, we have an efficient operating cost model with experienced management and over 6,000
dedicated personnel across Australia, New Zealand, the Philippines and South Africa.
We have ahead of us numerous exciting opportunities to consider and strategies to implement using
these expansive assets and strengths which I am confident will continue to create excellent value for our
shareholders over the long term.
In Memoriam – John Paine
The Board and employees of the Group were deeply saddened by the passing in January 2016 of Mr
John Paine, the Group’s National Technical & Strategy Manager and one of the Group’s longest serving
and finest employees. John was instrumental in the growth of the TPG business and, as part of the
senior management team for many years, the value of his contribution cannot be overstated. He is
missed greatly by his friends and colleagues.
Conclusion
The Group’s achievements are made possible by the dedication of our hard-working employees. I would
like to thank them all again for their efforts this year and look forward to their ongoing contribution to the
Group’s success in FY17 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
5
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
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 2016, 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. Remuneration report - audited
6. Principal activities
7. Dividends
8. Events subsequent to reporting date
9. Likely developments
10. Directors’ interests
11. Share options and rights
12. Indemnification and insurance of officers and auditors
13. Non-audit services
14. Rounding off
6
6
7
7
22
30
30
30
30
31
31
32
32
33
6
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
1. Board of Directors
Details of directors of the Company who held office at any time during or since the end of the previous
year are set out below:
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.
Joseph Pang
Non-Executive Director
FCA
Independent
Shane Teoh
Non-Executive Director
B.Com, LLB
David is the founder and Chief Executive Officer of the TPG group of companies. He has
served as Executive Chairman of the Company since 2008.
Special Responsibilities: Chairman of the Board
Denis has served as a Director of the Company since 2000 and was the Managing Director of
the Company between 2000 and 2005. Denis was also associated with the NBN television
group of companies for over 24 years, the last 14 of which as Chief Executive Officer.
Special Responsibilities: Chairman of the Remuneration and Audit & Risk Committee
Robert has served as a Non-Executive Director of the Company since 2000 and was the
Chairman until 2008.
Robert has over 30 years’ experience as a Company Director and is currently a Director of
the following listed companies: Apex Healthcare Berhad, Australian Pharmaceutical Industries
Limited, Brickworks Limited, BKI Investment Company Limited, Milton Corporation Limited,
New Hope Corporation Limited and Washington H. Soul Pattinson and Company Limited.
Special Responsibilities: Member of the Remuneration and Audit & Risk Committee
Joseph has served as a Non-Executive Director of the Company since 2008.Joseph worked
in financial roles in the UK, Canada and Hong Kong prior to starting his own management and
financial consulting service in Australia.
Special Responsibilities: Member of the Remuneration and Audit & Risk Committee
Shane has served as a Non-Executive Director of the Company since 2012.
Shane holds a Bachelor of Commerce and a Bachelor of Laws from the University of New
South Wales. He is managing director of Total Forms Pty Ltd, a leading developer of
accounting and taxation software in Australia.
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.
7
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
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
D Ledbury
R Millner
J Pang
S Teoh
A
17
16
17
17
17
B
17
17
17
17
17
A
-
2
2
2
-
B
-
2
2
2
-
A
-
1
1
1
-
B
-
1
1
1
-
A: Number of meetings attended.
B: Number of meetings held while a member.
4. Operating and financial review
4.1 Operating result overview
Reported Results
The Group again achieved record financial results for the year ended 31 July 2016 (“FY16”), highlights of
which are as follows:
- Earnings before interest, tax, depreciation and amortisation (“EBITDA”) for the year increased by 75%
to $849.4m.
- Net Profit After Tax (“NPAT”) attributable to shareholders for the year was $379.6m, an increase over
FY15 of 69%.
- Earnings per share (“EPS”) increased by 61% to 45.3 cents per share.
- Pre-tax operating cashflow increased by 54% to $759.2m.
- Dividends per share paid or declared in respect of FY16 increased by 26% to 14.5 cents (fully
franked).
Underlying Results
The FY16 reported results include the following irregular items:
- $73.1m gain on the Group’s previously held interest in iiNet ($73.1m post tax).
- $17.6m profit realised on a part-disposal of shares held as an investment by the Group ($12.3m post
tax).
- $10.3m transaction fees relating to the Group’s acquisition of iiNet ($10.3m post tax).
- $6.3m restructuring costs arising from iiNet integration activities ($4.4m post tax).
8
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.1 Operating result overview (continued)
Excluding these irregular items, the Group’s underlying EBITDA for the year was $775.3m, up by
$290.0m (60%) over FY15.
This EBITDA growth includes a maiden contribution from iiNet of $248.9m for the eleven and a quarter
months post acquisition.
Notwithstanding the increased financing costs arising from the predominantly debt financed acquisition of
iiNet, the Group’s underlying NPAT1 grew by $114.0m (46%) in FY16 to $361.0m.
Underlying EPS1 increased by 39% to 43.1 cents per share.
These results represent the eighth consecutive year of strong growth for the Group.
1
Underlying NPAT and EPS incorporate the same adjustments as described for Underlying EBITDA and are also adjusted to
exclude the impact of acquired customer base intangible amortisation.
9
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.1 Operating result overview (continued)
TPG Consumer Division
The TPG Consumer Division’s EBITDA for FY16 was $255.7m compared to $239.7m for FY15. Growth
in FY16 was driven by ongoing organic broadband subscriber growth (up by 64k in the year) and nine
months of lower access costs arising from the ACCC’s fixed line services final access determination.
As at 31 July 2016 the TPG Consumer Division had 885k broadband subscribers and 304k mobile
subscribers.
TPG Corporate Division
The Group’s Corporate Division achieved EBITDA of $269.3m for the year compared to $242.3m for
FY15. This $27.0m (11%) growth was achieved despite a negative $10.1m accounting impact on the
Division’s EBITDA for the year arising from the consolidation of iiNet2, excluding which the division’s
EBITDA growth would have been $37.1m (15%).
iiNet
iiNet contributed EBITDA of $242.6m for the eleven and a quarter months post acquisition inclusive of
$6.3m of restructuring costs arising from integration activities, without which the EBITDA result would
have been $248.9m. By comparison, iiNet reported $201.7m underlying EBITDA for FY153.
The principal drivers of the FY16 EBITDA growth were (i) realisation of post-acquisition integration
benefits, (ii) nine months of lower access costs arising from the ACCC’s fixed line services final access
determination, and (iii) an increased contribution from Tech2.
iiNet’s broadband subscribers on 31 July 2016 were 983k.
Cashflow and Gearing
The Group delivered another strong cashflow result in FY16 with $759.2m cash generated from
operations (pre-tax) and free cashflow after tax, capital expenditure and IRU lease payments of $318.0m.
The Group had bank debt at the end of the year of $1,350m and a net debt to EBITDA leverage ratio of
~1.8x4.
2 Prior to the iiNet acquisition the TPG Corporate Division earned revenue from delivery of services to iiNet, the cost of which iiNet
capitalised as an intangible asset and amortised in its accounts. Therefore, when this revenue is eliminated on consolidation in the
Group’s post acquisition accounts there is no offsetting cost elimination within the Group’s EBITDA. Instead the corresponding
intangible asset has been de-recognised in iiNet’s accounts resulting in a reduction in intangible amortisation.
3 iiNet underlying FY15 EBITDA as disclosed in iiNet’s FY15 accounts.
4 Based on underlying FY16 EBITDA and including IRU debt within net debt.
10
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.1 Operating result overview (continued)
Dividends
In light of the Group’s strong FY16 cashflow and earnings growth, the Board of Directors has declared an
increased final FY16 dividend of 7.5 cents per share (fully franked) payable on 22 November 2016 to
shareholders on the register at 18 October 2016, bringing total FY16 dividends to 14.5 cents per share
(fully franked), an increase of 26% over FY15.
4.2 Customer growth
Group Broadband Subscribers
The acquisition of iiNet increased the Group’s consumer broadband subscribers to over 1.8m and by the
end of FY16 the Group had a total of 1.87m consumer broadband subscribers, comprising 885k TPG and
983k iiNet subscribers.
11
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.2 Customer growth (continued)
The TPG Consumer Division achieved further organic growth of its broadband subscriber base in FY16
with a net increase of 64k subscribers driven by growth in NBN customers.
At the date of acquisition by the Group, iiNet had 989k broadband subscribers. This declined slightly to
983k as at the end of FY16.
12
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.2 Customer growth (continued)
Group Mobile Subscribers
The Group had 475k mobile subscribers as at 31 July 2016 including 171k iiNet subscribers. During the
year TPG migrated over 200k of its mobile subscribers to its new MVNO arrangement with Vodafone
Hutchison Australia.
TPG Corporate Division
The TPG Corporate Division achieved revenues of $654.6m in FY16, up by $12.1m from the prior year.
This growth was achieved despite a negative $10.1m accounting impact arising from the consolidation of
iiNet (prior to acquisition iiNet was a substantial customer of the TPG Corporate division. Post-acquisition
these revenues are eliminated on consolidation).
The split of annualised revenues at the end of the year by customer and product category is set out below
(prior year figures in brackets).
13
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.3 Network infrastructure update
At the core of the Group’s business is its extensive network infrastructure which continued to grow rapidly
during the year through customer driven expansion bolstered with infrastructure assets acquired through
the iiNet acquisition. The Group’s network infrastructure now includes:
International network
(cid:120) PPC-1, our 7,000km submarine cable connecting Sydney to Guam, and onward to the US and Asia
(cid:120) Significant capacity on the Southern Cross Cable connecting Australia to the US
(cid:120)
(cid:120)
Investment in the SEA-US cable between Guam and the US (due to be completed in 2017)
International links into New Zealand, Singapore, Hong Kong, Japan and the US.
National Core Network
(cid:120) Over 21,000km of metro and inter-capital fibre network
(cid:120) More than 400 national network points of presence servicing metro and regional areas
(cid:120) Connected to 117 NBN Points of Interconnect (remaining 4 in progress)
(cid:120) National voice network interconnected in all 65 Call Collection Areas.
Thousands of on-net fibre buildings in metro and regional areas.
Customer Access Networks
(cid:120)
(cid:120) Over 400 DSLAM enabled exchanges, offering ADSL and Mid-Band Ethernet services
(cid:120) Regional HFC networks in Ballarat, Mildura and Geelong
(cid:120) Extensive VDSL network in ACT.
Wireless Networks and Spectrum
(cid:120) City WiFi networks in Adelaide, Ballarat, Bendigo, Canberra and Melbourne
(cid:120) WiMax network in metro and regional South Australia
(cid:120) Point to point microwave services.
During the year the Group was a successful bidder in the auction for spectrum in the 1800 MHz band.
The Group acquired two 2x5 MHz lots (i.e. 10 MHz of spectrum) in each of the following regions: Darwin,
South Queensland, Northern NSW, Canberra, Southern NSW, Regional Victoria, Regional South
Australia, and Tasmania. In addition, it was the winning bidder for one lot of 2x5 MHz (i.e. 5 MHz) in each
of Adelaide and Western NSW.
The total amount payable for the spectrum acquired is $87m, $15m of which was paid prior to the year-
end with the balance payable in April 2017.
Fixed line broadband has to-date been the backbone of the Group’s growth but wireless connectivity will
play an increasing role in the future needs of Australian telecommunications consumers. This investment
in spectrum, which is complementary to the Group’s fibre network expansion, will have significant long-
term benefits for the Group.
14
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.4 Financial results review
There follows below a review of the key elements of the FY16 results:
FY16
$m
% of
revenue
FY15
$m
% of
revenue
Revenue
TPG Consumer
TPG Corporate
iiNet
Total revenue
Telco costs
TPG Consumer
TPG Corporate
iiNet
Total telco costs
Employment costs
TPG Consumer
TPG Corporate
iiNet
Total employment costs
Other expenses
TPG Consumer
TPG Corporate
iiNet
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)
674.3
654.6
1,058.9
2,387.8
(330.3)
(256.5)
(577.1)
(1,163.9)
(45.0)
(100.4)
(128.2)
(273.6)
(43.3)
(28.4)
(111.0)
(10.9)
(193.6)
92.7
849.4
(136.9)
(115.1)
597.4
(83.3)
514.1
(129.5)
384.6
45.3
28%
27%
45%
49%
39%
55%
7%
15%
12%
6%
4%
10%
-
-
36%
6%
5%
25%
3%
22%
-
16%
628.1
642.5
-
1,270.6
(308.4)
(272.1)
-
(580.5)
(39.9)
(99.2)
-
(139.1)
(40.1)
(28.9)
-
(1.3)
(70.3)
3.8
484.5
(102.4)
(43.3)
338.8
(19.8)
319.0
(94.9)
224.1
28.2
49%
51%
-
49%
42%
-
6%
15%
-
6%
4%
-
-
-
38%
8%
3%
31%
2%
25%
-
18%
15
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.4 Financial results review (continued)
Revenue
a) TPG Consumer
TPG Consumer Division revenue increased by
$46.2m (7%) to $674.3m in FY16.
This increase was driven by a $60.6m (11%)
increase in broadband revenues, partially offset
by a $14.4m decrease in mobile revenues.
The growth in broadband revenues was driven
by a combination of increased broadband
subscriber numbers and higher ARPU (average
revenue per user).
Subscribers on the Group’s broadband plans
increased over the year by 64k (8%) to 885k
driven by 75k growth in NBN services.
Monthly ARPU for broadband customers
continued to increase in the year due to more
expensive NBN services (ARPU ~$67) replacing
DSL services (on-net ARPU ~$59).
Note that ARPU is calculated using GST
exclusive recurring charges only including
revenue from bundled home phone services and
excludes one-off charges such as installation
fees and equipment sales.
b) TPG Corporate
This organic revenue growth has been achieved
in an environment where expensive, lower
margin off-net customer revenues are being
replaced by on-net services that are less
expensive for our customers but more profitable
for the Group. This helps drive profit growth in
the Corporate Division.
c)
iiNet
iiNet revenues of $1,058.9m were for the eleven
and a quarter months post acquisition period in
FY16. The composition of this revenue by
service type was 66% broadband, 19% fixed
voice, 5% mobile and 10% other.
Network, carrier and hardware costs
(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) TPG Consumer
TPG Consumer Division telco costs increased
by $21.9m compared to the previous year but
remained constant as a proportion of revenue at
49%.
Corporate revenue increased by $12.1m (2%) to
$654.6m in FY16.
b) TPG Corporate
However, prior to the acquisition of iiNet the
TPG Corporate Division was earning wholesale
revenues from iiNet which have been eliminated
on consolidation of iiNet causing a $10.1m
detrimental impact on the Corporate Division’s
reported revenues for the eleven and a quarter
months post acquisition period in FY16.
Without this negative accounting impact the
Corporate Division’s revenues would have
increased by $22.2m (3%).
TPG Corporate Division telco costs decreased
as a proportion of revenue in FY16 from 42% to
39%. This has been achieved in an environment
of sharply reduced pricing in corporate business
and reflects the benefits to the Group of its past
and ongoing investment in network
infrastructure. This has enabled higher
operating margins to be generated due to the
increasing proportion of customer services that
are delivered over the Group’s owned
infrastructure rather than on circuits leased from
other carriers.
16
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.4 Financial results review (continued)
c)
iiNet
Other income
iiNet telco costs represent 55% of iiNet
revenues. The main reason for this being higher
as a proportion of revenue than in the TPG
Consumer and Corporate Divisions is the higher
proportion of off-net services delivered by iiNet.
Employment costs
TPG Consumer Division employment costs grew
in absolute terms in the year by $5.1m (13%)
and increased from 6.4% to 6.7% of revenue
largely driven by an increase in headcount.
TPG Corporate Division employment costs
stayed constant as a proportion of Corporate
Division revenue in FY16 at 15% and increased
just slightly in absolute terms by $1.2m (1.2%).
iiNet employment costs of $128.2m include non-
recurring costs of $6.3m incurred as part of post-
acquisition re-organisation and integration
activities.
The Group’s total headcount at 31 July 2016
was 5,083, a 1,973 increase in the year driven
by the acquisition of iiNet.
Other expenses
Other expenses include all of the overheads
incurred by the Group in running the business,
as well as marketing costs.
The TPG Consumer Division’s other expenses
remained constant as a proportion of revenue at
6% in FY16 and increased by $3.2m in absolute
terms driven mainly by marketing expenditure.
The TPG Corporate Division’s other expenses
remained constant as a proportion of revenue at
4% in FY16 and decreased by $0.5m in absolute
terms.
iiNet’s other expenses represent 10% of
revenue. The principal reason for this being
higher than the other divisions is the fact that it
includes the cost of iiNet’s out-sourced call
centre operations.
Other income in FY16 of $92.7m comprises the
following:
(i) a $73.1m accounting gain on the Group’s
previously held interest in iiNet which
represents the difference between the market
value on acquisition of the stake in iiNet that
the Group held at the date of acquisition and
the amount the Group originally paid for that
stake;
(ii) a $17.6m profit on disposal of shares held as
an investment by the Group; and
(iii) $2.0m dividend income from the Group’s
ASX listed investments, down from $3.8m in
FY15.
Depreciation
The Group’s depreciation expense increased by
$34.5m in FY16 largely driven by the acquisition
of iiNet.
Amortisation
The Group’s FY16 intangible amortisation
expense increased by $71.8m to $115.1m. This
includes $74.5m (up by $43.0m) of amortisation
of acquired customer bases which arises from
acquisition accounting and is a “non-cash”
expense.
Net financing costs
Net financing costs increased by $63.5m as a
result of the Group’s increased bank debt that
arose from the Group’s debt financed acquisition
of iiNet.
Income tax
The Group’s effective income tax rate was
25.2% in FY16, down from 29.7% in FY15. The
decrease is principally due to the fact that the
$73.1m accounting gain included within other
income is not assessable for tax.
17
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.4 Financial results review (continued)
Free cashflow
Non-operating cashflows
Operating cashflow
Tax
IRU payments
Capital expenditure*
Free cashflow
FY16
$m
759.2
(138.8)
(21.4)
(281.0)
318.0
FY15
$m
492.8
(110.9)
-
(153.8)
228.1
* includes payments for property, plant and equipment plus
intangible assets.
The Group’s operating cashflow before tax
increased to $759.2m in FY16. After tax, IRU
payments and capital expenditure, the Group
generated free cashflow of $318.0m.
IRU payments
IRU payments of $21.4m represent payment of
liabilities for international capacity acquired by
iiNet prior to acquisition.
Capital expenditure
Capital expenditure for FY16 of $281.0m is
$127.2m higher than in the prior year. This
increase includes one-off payments for the
acquisition of a data centre property in Sydney
($27m) and for the purchase of spectrum
($15m). The balance of the increase is driven
by expansion of the Group’s fibre network (i) to
connect corporate customers, (ii) for the Group’s
‘fibre to the building’ (FTTB) project and (iii) for
the build for the Vodafone Hutchison Australia
contract.
FY16
$m
318.0
(3.0)
FY15
$m
228.1
(115.6)
60.0
(1,317.6)
322.5
808.8
(66.5)
(108.4)
1.7
15.5
-
-
-
(21.0)
(14.3)
(81.4)
4.1
(0.1)
Free cashflow
Investment in equities
Investment disposal
proceeds
iiNet acquisition
Net cap raise proceeds
Debt drawdown/(repay’t)
Interest payments
Dividend payments
Other
Increase in cash
Investments
The Group paid $3.0m in the year to increase its
strategic investment in Covata Limited (in which
the Group held an interest of approximately
14.5% at 31 July 2016). The Group disposed of
part of its investment in Vocus Communications
Limited during the year realising proceeds of
$60.0m.
iiNet acquisition
The total cash outflow of $1,317.6m in respect of
the acquisition of iiNet comprises (i) cash
consideration of $1,151.3m (net of $5.5m cash
acquired from iiNet), (ii) $106.7m special
dividend paid to iiNet shareholders, (iii)
acquisition transaction costs of $8.6m, and (iv)
$51.0m transaction costs relating to the new
debt facility established to finance the
acquisition.
18
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.4 Financial results review (continued)
Net capital raise proceeds
Interest payments
Net capital raise proceeds of $322.5m comprise
$300m raised from an institutional share
placement and $26.9m raised from a share
purchase plan conducted during the year less
share issue costs of $4.4m.
The Group paid $66.5m of interest in the year
(net of $1.0m interest received) which
represents an increase of $52.2m over the
previous year. This is due to the higher debt
outstanding following the acquisition of iiNet.
Debt repayment/drawdown
Dividends paid
The Group drew down on a net $808.8m of bank
debt during FY16 as a consequence of (i)
$1,317.6m drawn down to fund the iiNet
acquisition cash consideration and transaction
costs, (ii) $322.5m repaid from the net capital
raise proceeds, and (iii) $186.2m repaid from
cash generated during the year.
Dividends paid in the year comprise the final
FY15 dividend of 6.0 cents per share (“cps”) and
the interim FY16 dividend of 7.0 cps.
Subsequent to the year-end, the Board of
directors has declared a 7.5 cps final dividend
for FY16 taking the total dividends paid or
declared in respect of FY16 to 14.5 cps, a 26%
increase over FY15.
19
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
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 FY16,
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)
Trade and other receivables
Investments (2)
Other current assets
Total current assets
FY16
$m
39.2
145.2
139.1
35.1
358.6
FY15
$m
23.7
63.8
151.6
14.8
253.9
Property, plant & equipment (3)
Intangible assets (4)
Investments (2)
Other non-current assets
Total non-current assets
895.1
2,485.2
16.3
15.8
3,412.4
592.8
685.6
115.6
5.9
1,399.9
Deferred income
Other current liabilities
Total current liabilities
142.5
371.4
513.9
62.7
195.4
258.1
Loans and borrowings (1)
1,350.4
327.7
Other non-current liabilities
127.5
64.8
Total non-current liabilities
1,477.9
392.5
Net assets
1,779.2
1,003.2
Balance sheet notes
The significant increase in most balance sheet
amounts is primarily attributable to the first-time
inclusion of iiNet within the FY16 balance sheet.
Other specific explanations of movements are
set out below.
1. Net debt
Loans and borrowings of $1,350.4m are shown
in the balance sheet net of prepaid borrowing
costs of $34.2m. Gross borrowings at 31 July
2016 were $1,411.7m comprising bank debt of
$1,350.0m and IRU/finance lease liabilities of
$61.7m. Taking into account the bank debt and
the $39.2m cash balance the Group had net
debt at the end of FY16 of $1,310.8m.
Investments
2.
At 31 July 2016 current investments represented
the Group’s investment in Vocus
Communications Limited shares and non-current
investments represent the Group’s ownership of
shares in Covata Limited. In the prior year non-
current investments also included the Group’s
investment in iiNet shares which was de-
recognised upon the acquisition of iiNet.
The decline in value of current investments in
the year reflects the part-disposal of Vocus
shares during the year.
3. Property, plant & equipment (“PPE”)
The Group’s PPE balance is $302.3m higher at
31 July 16 than at 31 July 15. This increase
comprises $178.4m of fixed assets acquired as
part of the iiNet acquisition, capital expenditure
(mainly network infrastructure investment) during
the year of $260.8m less $136.9m of
depreciation expense.
Intangible assets
4.
The $1,799.6m increase in intangible assets in
the year comprises goodwill recognised on the
acquisition of iiNet ($1,364.9m), the acquired
iiNet customer base ($316.8m), other iiNet
intangible assets acquired ($185.0m), payments
made during the year for international capacity
IRUs ($20.2m), spectrum ($15.3m) and other
intangible assets ($12.5m) net of amortisation
expense for the year ($115.1m).
20
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.5 Business outlook
Prospects for FY17
In FY17 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 iiNet business into the Group’s operations with
particular emphasis on systems consolidation and automation.
The directors anticipate continued organic growth for the Group in FY17 with underlying EBITDA for the
Group for FY17 forecast to be in the range of $820m to $830m as reflected in the table below.
Underlying EBITDA
Acquisition/integration costs
Non-recurring gains
Reported EBITDA
FY17
Guidance
$m
820 to 830
FY16
Actual
$m
775.3
(16.6)
90.7
849.4
FY17 capital expenditure is expected to be in the range of $370m to $420m. This range includes $72m
for 1800 MHz spectrum, $50m for committed international capacity purchases with the balance primarily
related to ongoing fibre network expansion for customer contracts and for the continuing FTTB rollout.
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.
21
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
4. Operating and financial review (continued)
4.5 Business outlook (continued)
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.
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.
22
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
5. 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.
5.1 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.
5.2 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.
23
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
5. Remuneration report – audited (continued)
5.2 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 and there have been five lots of rights granted to-date, one lot being
granted in each of FY12, FY13, FY14, FY15 and FY16.
All rights granted up to and including FY15 have the same key terms which are as follows:
(cid:120) 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.
(cid:120) 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.
(cid:120) Any performance rights which do not vest, automatically lapse.
For the rights granted in FY16, the rules were amended so that the rights are scheduled to vest in four
equal instalments over four years instead of over three years. The rules are otherwise consistent with the
above.
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 2016 and in prior years are set out in table 5.4(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 5.3 below.
24
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
5. Remuneration report – audited (continued)
5.2 Remuneration structure (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 FY16 with EBITDA and NPAT up by 75% and 69%
respectively, generating a 61% increase in EPS, whilst declared dividends for the FY16 year are up by
26%.
These FY16 results represent the eighth 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)
2012
2013
2014
2015
2016
663
261
91
11.5
5.5
725
293
149
18.8
7.5
971
364
172
21.6
9.25
1,271
485
224
28.2
11.5
2,388
849
380
45.3
14.5
The Remuneration Committee believes that the current remuneration structures described in this report
have been effective in motivating and rewarding the achievement of these strong results.
(iii) Service contracts
No key management personnel employment contract has a fixed term, nor do any contain any provision
for termination benefits other than as required by law.
No key management personnel employment contract has a notice period of greater than 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 $500k per annum was approved. Actual non-executive director
remuneration for the year ended 31 July 2016 was $400k (2015: $400k). 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.
25
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
5. Remuneration report – audited (continued)
5.3
Directors’ and executive officers’ remuneration
The key management personnel of the Company and of the Group during the year were as follows:
Mr D Teoh
Mr D Ledbury
Mr R Millner
Mr J Pang
Mr S Teoh
Mr S Banfield
Mr C Levy
Mr W Springer
Ms M De Ville
Mr T Moffatt
Mr M Rafferty
Executive Chairman & Chief Executive Officer
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Financial Officer & Company Secretary
Chief Operating Officer
General Manager, Corporate Products & Pricing
Chief Information Officer
General Counsel
Group Executive, Corporate, Government & Wholesale
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28
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
5.
Remuneration report – audited (continued)
5.3
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 2016 and 31 July 2015 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 5.4(i) below. The rules of the performance rights
plan are explained in 5.2(ii)(a) above.
5.4
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 2016 are set out below. All rights had a grant date of 21 December 2015, were provided at no cost to
the recipients and have an exercise price of $nil.
FY16 Performance
rights grant
Number of
rights granted
during FY16
Number of
rights forfeited
during FY16
Number of
rights vested
during FY16
Number of
rights held as
at 31 July 2016
Fair value per
right at grant
date ($)
Mr S Banfield
Mr C Levy
Mr W Springer
Ms M De Ville
Mr T Moffatt
Mr M Rafferty1
30,000
45,000
25,000
25,000
28,000
42,400
-
-
-
-
-
-
-
-
-
-
-
-
30,000
45,000
25,000
25,000
28,000
42,400
9.5160
9.5160
9.5160
9.5160
9.5160
9.5471
There has been no vesting or granting of any rights since the year-end.
1 All rights are subject to the rules described in 5.2(ii) (a) above with the exception of 14,400 of the rights granted to Mr Rafferty
during FY16 which are scheduled to vest over 3 years rather than 4 years to align with the timing of a specific deliverable.
29
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
5.
Remuneration report – audited (continued)
5.4
Share-based payments (continued)
Details of performance rights that were granted to key management personnel during previous financial years
and that remained outstanding at the start of FY16 are set out below. All rights in the table below were provided
at no cost to the recipients and have an exercise price of $nil. The rights were granted on 16 December 2014
(FY15 grant), 22 November 2013 (FY14 grant) and 24 December 2012 (FY13 grant).
FY15 Performance
rights grant
Number of
rights held as
at 31 July 2015
Number of
rights forfeited
during FY16
Number of
rights vested
during FY16
Number of
rights held as
at 31 July 2016
Fair value per
right at grant
date ($)
Mr S Banfield
Mr C Levy
Mr W Springer
Ms M De Ville
Mr T Moffatt
Mr M Rafferty
36,000
48,000
18,000
24,000
36,000
36,000
-
-
-
-
-
-
12,000
16,000
6,000
8,000
12,000
12,000
24,000
32,000
12,000
16,000
24,000
24,000
5.9433
5.9433
5.9433
5.9433
5.9433
5.9433
FY14 Performance
rights grant
Number of
rights held as
at 31 July 2015
Number of
rights forfeited
during FY16
Number of
rights vested
during FY16
Number of
rights held as
at 31 July 2016
Fair value per
right at grant
date ($)
Mr S Banfield
Mr C Levy
Mr W Springer
Ms M De Ville
Mr T Moffatt
24,000
34,000
22,000
6,000
22,000
-
-
-
-
-
12,000
17,000
11,000
3,000
11,000
12,000
17,000
11,000
3,000
11,000
3.9567
3.9567
3.9567
3.9567
3.9567
FY13 Performance
rights grant
Number of
rights held as
at 31 July 2015
Number of
rights forfeited
during FY16
Number of
rights vested
during FY16
Number of
rights held as
at 31 July 2016
Fair value per
right at grant
date ($)
Mr S Banfield
Mr C Levy
Mr W Springer
Ms M De Ville
Mr T Moffatt
20,000
27,000
20,000
6,000
20,000
-
-
-
-
-
20,000
27,000
20,000
6,000
20,000
-
-
-
-
-
2.3267
2.3267
2.3267
2.3267
2.3267
(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.
30
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
6. Principal activities
During the financial year the principal activities of the Group continued to be the provision of consumer,
wholesale and corporate telecommunications services.
7. Dividends
Dividends paid or declared by the Company since the end of the previous financial year were as follows:
Cents per share
Total amount
$m
Date of payment
Final 2015 ordinary
Interim 2016 ordinary
Total amount
6.0
7.0
49.0
59.4
108.4
17 Nov 2015
24 May 2016
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 FY16 dividend of 7.5 cents per
ordinary share, payable on 22 November 2016 to shareholders on the register at 18 October 2016.
The financial effect of this dividend has not been brought to account in the financial statements for the year
ended 31 July 2016 and will be recognised in subsequent financial reports.
8. Events subsequent to reporting date
There has not arisen in the interval between the end of the financial year and the date of this report any item,
transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to
affect significantly the operations of the Group, the results of those operations, or the state of affairs of the
Group in future financial years.
9. Likely developments
The Group has lodged an Expression of Interest to bid for a spectrum licence in Singapore. Although there is
no certainty that the Group will be the successful bidder, if it does secure a licence, the Group will invest capital
and resources in building a mobile network in Singapore.
Other than the above. there are no material likely developments for the Group to disclose outside of normal
business operations at the date of this report.
31
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
10. 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
Mr D Teoh
Mr D Ledbury
Mr R Millner
Mr J Pang
Mr S Teoh
291,625,603
75,000
7,539,983
90,264
116,723
11. 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:
Mr S Banfield
Mr C Levy
Ms M De Ville
Mr T Moffatt
Mr M Rafferty
Number of rights
granted
30,000
45,000
25,000
28,000
42,400
All rights were granted during the financial year. No rights or options have been granted since the end of the
financial year.
Options
At the date of this report there are no unissued ordinary shares of the Company under option.
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 2016 (2015: Nil).
32
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
12.
Indemnification and insurance of officers and directors
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 $252,815 (2015:
$131,125) 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:
(cid:120)
costs and expenses that may be incurred by the relevant officers in defending proceedings, whether civil or
criminal and whatever their outcome; and
(cid:120) 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.
13. 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:
(cid:120) all non-audit services were subject to the corporate governance procedures adopted by the Company and
(cid:120)
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 KPMG and its related practices for audit and non-audit services provided during
the year are set out in note 29 to the financial statements.
33
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2016
14. Rounding off
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Director’s Reports)
instrument 2016/191 dated 24 March 2016 and, in accordance with that instrument, all financial information
presented in Australian dollars has been rounded to the nearest hundred thousand dollars, unless otherwise
stated.
This report is made with a resolution of the directors.
David Teoh
Chairman
Dated at Sydney this 20th day of October, 2016
34
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 2016 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
Chris Hollis
Partner
Sydney
20 October 2016
TPG Telecom Limited and its controlled entities
Consolidated income statement
For the year ended 31 July 2016
35
Revenue
Other income
Network, carrier and hardware costs
Employee benefits expense
Other expenses
Earnings before interest, tax, depreciation and amortisation
(EBITDA)
Depreciation of plant and equipment
Amortisation of intangibles
Results from operating activities
Finance income
Finance expenses
Net financing costs
Profit before income tax
Income tax expense
Profit for the year
Attributable to:
Owners of the Company
Non-controlling interest
Note
2016
$m
4
5
2,387.8
92.7
(1,163.9)
(273.6)
(193.6)
24(a)
2015
$m
1,270.6
3.8
(580.5)
(139.1)
(70.3)
849.4
484.5
11
12
(136.9)
(115.1)
(102.4)
(43.3)
6
7
597.4
338.8
1.3
(84.6)
(83.3)
1.1
(20.9)
(19.8)
514.1
319.0
(129.5)
(94.9)
384.6
224.1
379.6
5.0
384.6
224.1
-
224.1
Earnings per share:
Basic and diluted earnings per share (cents)
8
45.3
28.2
The notes on pages 40 to 90 are an integral part of these consolidated financial statements.
TPG Telecom Limited and its controlled entities
Consolidated statement of comprehensive income
For the year ended 31 July 2016
Profit for the year
Items that may be reclassified subsequently to profit or loss, net of tax:
Foreign exchange translation differences
Net loss on cash flow hedges taken to equity
Net change in fair value of available-for-sale financial assets
Available-for-sale financial assets reclassified to profit or loss
Other comprehensive income, net of tax
Total comprehensive income for the year
Attributable to:
Owners of the Company
Non-controlling interest
36
2016
$m
2015
$m
384.6
224.1
(0.1)
(2.0)
29.8
(62.4)
0.3
-
31.6
-
(34.7)
31.9
349.9
256.0
344.9
5.0
349.9
256.0
-
256.0
The notes on pages 40 to 90 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 2016
Note
31 July 2016
$m
31 July 2015
$m
37
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Investments
Current tax assets
Derivative financial instruments
Prepayments and other assets
Total Current Assets
Investments
Derivative financial instruments
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
Equity attributable to owners of the Company
Non-controlling interest
Total Equity
9
10
10
11
12
13
14
15
16
14
7
15
16
17
39.2
145.2
12.0
139.1
3.8
5.4
13.9
358.6
16.3
6.4
895.1
2,485.2
9.4
3,412.4
3,771.0
298.0
27.1
-
28.1
16.6
1.6
142.5
513.9
1,350.4
62.7
2.4
36.0
26.4
1,477.9
1,991.8
23.7
63.8
5.8
151.6
-
-
9.0
253.9
115.6
-
592.8
685.6
5.9
1,399.9
1,653.8
153.8
0.1
12.3
14.4
10.5
4.3
62.7
258.1
327.7
17.1
2.0
21.4
24.3
392.5
650.6
1,779.2
1,003.2
1,051.9
41.2
681.0
1,774.1
5.1
516.9
76.5
409.8
1,003.2
-
1,779.2
1,003.2
The notes on pages 40 to 90 are an integral part of these consolidated financial statements.
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T
TPG Telecom Limited and its controlled entities
Consolidated statement of cash flows
For the year ended 31 July 2016
39
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Acquisition of intangibles
Disposal of investments
Acquisition of investments
Acquisition of subsidiaries, net of cash acquired
Special dividend paid under Scheme of Arrangement
Costs incurred on acquisition of subsidiaries
Dividends received
Net cash used in investing activities
Cash flows from financing activities
Payment of finance lease liabilities
Proceeds from borrowings
Repayment of borrowings
Transaction costs related to loans & borrowings
Issue of shares
Share issue costs
Interest received
Interest paid
Dividends paid
Net cash from/(used in) financing activities
Note
2016
$m
2015
$m
2,625.5
(1,866.3)
759.2
(138.8)
620.4
(246.9)
(34.1)
60.0
(3.0)
(1,151.3)
(106.7)
(8.6)
2.0
(1,488.6)
(21.4)
1,789.7
(980.9)
(51.0)
326.9
(4.4)
1.0
(67.5)
(108.4)
884.0
1,403.3
(910.5)
492.8
(110.9)
381.9
(135.4)
(18.4)
-
(115.6)
-
-
-
3.8
(265.6)
(0.2)
175.0
(196.0)
-
-
-
0.6
(14.9)
(81.4)
(116.9)
26
10
10
14,24
14,24
14
5
14
18
Net increase/(decrease) in cash and cash equivalents
15.8
(0.6)
Cash and cash equivalents at beginning of the year
Effect of exchange rate fluctuations
23.7
(0.3)
23.8
0.5
Cash and cash equivalents at end of the year
39.2
23.7
The notes on pages 40 to 90 are an integral part of these consolidated financial statements.
40
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
Index to notes to the consolidated financial statements
Page
Page
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
Trade and other receivables
Note 10
Investments
Note 11
Property, plant and equipment
Note 12
Intangible assets
Note 13
Trade and other payables
Note 14
Loans and borrowings
Note 15
Employee benefits
Note 16
Provisions
41
41
42
44
45
45
45
47
48
48
49
51
54
54
56
58
Note 17
Capital and reserves
Note 18
Dividends
Note 19
Financial instruments and
risk management
Note 20
Operating leases
Note 21
Capital and other commitments
Note 22
Consolidated entities
Note 23
Deed of cross guarantee
Note 24
Acquisition of subsidiary
Note 25
Parent entity disclosures
Note 26
Reconciliation of cash flows from
operating activities
Note 27
Related parties
Note 28
Subsequent events
Note 29
Auditors’ remuneration
Note 30
Significant accounting policies
60
61
62
71
71
72
74
77
80
81
82
85
85
85
41
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
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 2016, 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 20 October 2016.
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 30(k).
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 Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191 dated 24 March 2016 and, in accordance with that instrument, all financial
information presented in Australian dollars has been rounded to the nearest hundred thousand dollars
unless otherwise stated.
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.
42
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
2.
Basis of preparation (continued)
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:
(cid:120) Note 4 – revenue recognition;
(cid:120) Note 12(iii) – amortisation of intangible assets with finite useful lives;
(cid:120) Note 12(iv) – impairment testing for cash-generating units containing goodwill;
(cid:120) Note 19 – valuation of financial instruments;
(cid:120) Note 24 – acquisition of subsidiary.
3.
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.
As at the end of the previous reporting period, the Group had two operating segments, being its
Consumer and Corporate segments.
As a result of the acquisition of iiNet during the year ended 31 July 2016, the number of operating
segments recognised by the Group and disclosed in this report has now increased to three. They are as
follows:
TPG Consumer
The TPG Consumer segment provides retail telecommunications services to residential and small
business customers.
TPG Corporate
The TPG Corporate segment provides telecommunications services to corporate, government, and
wholesale customers.
iiNet
The iiNet segment provides telecommunications and technology services to residential and business
customers.
Results for the year for each operating segment are set out in the table on the next page. In the table,
expenses in the ‘Unallocated’ column comprise professional fees incurred in relation to business
combinations plus other corporate costs.
43
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
3.
Segment reporting (continued)
For the year ended 31 July 2016
Revenue
Other income
Network, carrier and hardware costs
Employee benefits expense
Other expenses
Results from segment activities
For the year ended 31 July 2015
Revenue
Other income
Network, carrier and hardware costs
Employee benefits expense
Other expenses
Results from segment activities
Note
TPG
Consumer
$m
TPG
Corporate
$m
iiNet
Unallocated Total results
$m
$m
$m
5
5
674.3
-
(330.3)
(45.0)
(43.3)
255.7
654.6
-
(256.5)
(100.4)
(28.4)
269.3
1,058.9
-
(577.1)
(128.2)
(111.0)
242.6
-
92.7
-
-
(10.9)
81.8
2,387.8
92.7
(1,163.9)
(273.6)
(193.6)
849.4
628.1
-
(308.4)
(39.9)
(40.1)
239.7
642.5
-
(272.1)
(99.2)
(28.9)
242.3
-
-
-
-
-
-
-
3.8
-
-
(1.3)
2.5
1270.6
3.8
(580.5)
(139.1)
(70.3)
484.5
Reconciliation of segment results to the Group’s profit before income tax is as follows:
2016
$m
2015
$m
Total segment results
849.4
484.5
Depreciation of plant and equipment
Amortisation of intangibles
Results from operating activities
Net financing costs
Profit before income tax
Geographic Information
(136.9)
(115.1)
597.4
(83.3)
514.1
(102.4)
(43.3)
338.8
(19.8)
319.0
All of the Group’s revenues are derived from Australian based entities, except for $15.3m (2015:$10.8m)
derived from overseas customers.
All of the Group’s non-current assets are located in Australia, except for assets amounting to $124.4m
(2015:$115.9m) that are located either overseas or in international waters.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
44
4.
Revenue
Rendering of services
Sale of goods
(i)
Rendering of services
2016
$m
2015
$m
2,360.9
26.9
2,387.8
1,261.5
9.1
1,270.6
Revenue from the rendering of telecommunications services includes the provision of data, internet, voice,
telehousing, network capacity and other services to consumers and corporate customers. It is recognised
on a straight-line basis over the period the service is provided. Usage 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. It is recognised (net of rebates, returns, discounts and other allowances) when the significant
risks and rewards of ownership have been transferred to the customer, which is ordinarily when the
equipment is delivered to the customer.
Where the sale is settled through instalments, interest revenue is recognised over the contract term, using
the effective interest method.
(iii)
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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
5.
Other income
45
Gain on previously held interest in iiNet
Profit on sale of investments
Dividend income
6.
Finance income and expenses
Interest income
Interest expense
Unwinding of discount on provisions
Borrowing costs
Net financing costs
2016
$m
73.1
17.6
2.0
92.7
2016
$m
1.3
(66.0)
(0.5)
(18.1)
(83.3)
2015
$m
-
-
3.8
3.8
2015
$m
1.1
(14.0)
(0.6)
(6.3)
(19.8)
Net financing costs comprise interest payable on borrowings and finance leases, borrowing costs
expensed during the year relating to loans and borrowings, unwinding of discount on provisions and
interest income on funds invested.
7.
Taxes
Income tax expense
Current tax expense
Deferred tax expense
Origination and reversal of temporary differences
Adjustments for prior years
Income tax expense
Reconciliation between tax expense and pre-tax accounting profit
Profit before tax
Income tax using tax rate of 30%
Non deductible and non assessable items
Adjustments for prior years
Income tax expense
2016
$m
2015
$m
135.3
107.7
(5.7)
(0.1)
(5.8)
129.5
514.1
154.2
(25.0)
0.3
129.5
(12.6)
(0.2)
(12.8)
94.9
319.0
95.7
(0.7)
(0.1)
94.9
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T
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
7. Taxes (continued)
47
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.
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.
Tax consolidation
The Company and its wholly-owned Australian resident entities 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.
8.
Earnings per share
Basic and diluted earnings per share
2016
Cents
45.3
2016
$m
2015
Cents
28.2
2015
$m
Profit attributable to owners of the company used in calculating basic
and diluted earnings per share
Weighted average number of ordinary shares used as the denominator
in calculating basic and diluted earnings per share
379.6
224.1
838,078,074
793,808,141
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 owners 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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
9.
Trade and other receivables
Current
Trade receivables
Accrued income and other receivables
Less: Provision for impairment losses
48
2016
$m
146.1
32.4
(33.3)
145.2
2015
$m
62.0
18.9
(17.1)
63.8
The Group’s exposure to credit and currency risk and impairment losses related to trade and other
receivables is disclosed in note 19.
10.
Investments
Available-for-sale financial assets
Current
Carrying amount at 1 August
Less: reclassified as non-current
Acquisitions
Disposals
Change in fair value
Carrying amount at 31 July
Non-Current
Carrying amount at 1 August
Add: reclassified from current
Acquisitions
Deemed disposal on acquisition of iiNet
Change in fair value
Carrying amount at 31 July
2016
$m
151.6
-
-
(60.0)
47.5
139.1
115.6
-
3.0
(97.3)
(5.0)
16.3
2015
$m
99.2
(77.7)
113.0
-
17.1
151.6
7.3
77.7
2.6
-
28.0
115.6
The Group’s investments comprise available-for-sale financial assets, being ASX listed securities.
They are measured at fair value and are valued at quoted market prices. They are categorised as
Level 1 under the fair value hierarchy of AASB 7. Refer note 19(ii) for accounting policy on recognition
and measurement.
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 $2.2m after tax. An equal change in the opposite direction would have
decreased equity by $2.2m after tax.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
11. Property, plant and equipment
Note
Network
infrastructure
$m
Land &
Buildings
$m
Leasehold
improvements
$m
Cost
Balance at 1 August 2014
Additions
Disposals
Effect of movements in exchange rates
Balance at 31 July 2015
Balance at 1 August 2015
Acquisitions through business combinations
Additions
Disposals
Effect of movements in exchange rates
Balance at 31 July 2016
24
Depreciation and impairment losses
Balance at 1 August 2014
Depreciation charge for the year
Disposals
Effect of movements in exchange rates
Balance at 31 July 2015
Balance at 1 August 2015
Depreciation charge for the year
Disposals
Effect of movements in exchange rates
Balance at 31 July 2016
Carrying amounts
At 31 July 2015
At 31 July 2016
880.2
135.4
-
0.7
1,016.3
1,016.3
172.5
233.4
(1.9)
-
1,420.3
332.8
101.2
-
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434.6
434.6
133.3
(0.2)
-
567.7
4.9
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-
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6.5
6.5
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1.7
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2.9
1.1
-
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4.3
2.3
(0.1)
-
6.5
581.7
852.6
8.9
35.3
2.2
7.2
592.8
895.1
49
Total
$m
890.3
140.8
-
1.4
1,032.5
1,032.5
178.4
262.8
(2.3)
-
1,471.4
336.3
102.4
-
1.0
439.7
439.7
136.9
(0.3)
-
576.3
50
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
11. Property, plant and equipment (continued)
(i)
Recognition and measurement
Items of property, plant and equipment are stated at cost less accumulated depreciation and
accumulated impairment losses (see note 30(g)). Cost includes expenditure that is directly attributable
to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials, direct
labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and
restoring the site on which they are located.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted
for as separate items of property, plant and equipment.
The gains and losses on disposal of an item of property, plant and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property, plant and equipment and
are recognised net within other expenses in profit or loss.
(ii)
Subsequent costs
Subsequent costs are added to existing assets if it is probable that future economic benefits will flow to
the Group.
(iii)
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:
(cid:120)
(cid:120)
(cid:120)
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.
1
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52
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
12. Intangible assets (continued)
(i)
Recognition and measurement
a.
Intangible assets with indefinite useful lives:
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 30(a)(i).
Brands
On acquisition of a subsidiary, brands of the acquired subsidiary are valued and brought to account as
intangible assets. The value is calculated using the Relief from Royalty Method.
b.
Intangible assets with definite useful lives:
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.
Other intangible assets
Other intangible assets comprise software, subscriber acquisition costs, spectrum, other licences and
operating costs that are incurred in developing or acquiring income producing assets. Other intangible
assets are stated at cost less accumulated amortisation and any accumulated impairment losses.
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.
(ii)
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.
53
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
12. Intangible assets (continued)
(iii)
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:
(cid:120) Acquired customer bases
Indefeasible rights of use (IRU) of capacity
(cid:120)
(cid:120) Other intangible assets with finite useful
lives
- Amortised on a reducing balance basis in line
with the expected economic benefits to be
derived
- Amortised over the life of the IRU
- Amortised using the straight line method over
the expected useful life
(iv)
Impairment tests for cash generating units containing goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s cash generating units
(CGUs). CGUs are determined according to the lowest level of groups of assets that generate largely
independent cashflows. As at 31 July 2015, the Group had two CGUs, being the Consumer and
Corporate CGUs. Following the acquisition of iiNet, the Group now has a three CGU structure, being
the TPG Consumer, TPG Corporate and iiNet CGUs.
Indefinite life intangible assets comprise goodwill and brands 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.
Goodwill
$m
387.1
159.0
1,364.9
1,911.0
2016
Brands
$m
20.1
-
70.5
90.6
Total
Goodwill
$m
407.2
159.0
1,435.4
2,001.6
$m
387.1
159.0
-
546.1
2015
Brands
$m
20.1
-
-
20.1
Total
$m
407.2
159.0
-
566.2
Consumer
Corporate
iiNet
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 (including
FY17 budgets as approved by the Board of directors) plus a terminal value. The projections are
54
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
12. Intangible assets (continued)
prepared by senior management using assumptions which include a long-term growth rate of 2% per
annum based on the long-term industry growth rate (2015: 2%), including for the terminal phase beyond
year 5.
A pre-tax discount rate of 12% (2015: 12.5%) 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.
13.
Trade and other payables
Trade creditors
Other creditors and accruals
2016
$m
212.2
85.8
298.0
2015
$m
76.3
77.5
153.8
Trade payables are non-interest bearing and are normally settled on 30-60 day terms.
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in
note 19.
14.
Loans and borrowings
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 19.
Current
Indefeasible right of use (IRU) lease liabilities
Other finance lease liabilities
Non-Current
Gross secured bank loans
Less: Unamortised borrowing costs
IRU lease liabilities
Other finance lease liabilities
2016
$m
26.5
0.6
27.1
1,350.0
(34.2)
1,315.8
34.5
0.1
1,350.4
2015
$m
-
0.1
0.1
329.0
(1.3)
327.7
-
-
327.7
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
14. Loans and borrowings (continued)
55
During the year ended 31 July 2016, the Group entered into revised debt facility agreements with a
syndicate of banks in order to fund the acquisition of iiNet, refinance the Group’s and iiNet’s existing
bank debt and fund the continuing operations of the Group.
Explanation of the movement in the gross bank loan balance during the period is set out below:
Balance as at 1 August 2015
Loan drawdowns required to fund acquisition of iiNet:
(cid:120) Cash consideration, net of cash acquired
(cid:120) Special dividend paid to iiNet shareholders
(cid:120) Acquisition transaction costs
(cid:120) Transaction costs relating to new debt facility
(cid:120) iiNet bank debt acquired
Total loan drawdowns required to fund acquisition of iiNet
Loan repayments from proceeds of issue of shares
Other repayments made
Balance as at 31 July 2016
Note
$m
329.0
24
24
24
1,151.3
106.7
8.6
51.0
212.1
1,529.7
(322.5)
(186.2)
1,350.0
As at 31 July 2016 the Group had a debt facility of $1,635m of which $1,350m is drawn down.
The outstanding loan balance as at year end is shown in the statement of financial position net of
unamortised borrowing costs of $34.2m (2015: $1.3m).
The interest rate payable under the debt facility is based on BBSY rates plus a margin determined
quarterly according to gearing ratio.
As at 31 July 2016, the debt facility was 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 Incorporated
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
iiNet (New Zealand) AKL Ltd
Neighbourhood Cable Unit Trust
The Tech2 Group Pty Ltd
Tech2 Business Solutions Pty Ltd
Tech2Home (Proprietary) Ltd
Tech2Home Pty Ltd
Tech2Home (Communications) Pty Ltd
Gizmo Corporation Pty Ltd
TPG Telecom Pte Ltd
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
56
15.
Employee benefits
Current
Liability for annual leave
Liability for long service leave
Non-Current
Liability for long service leave
(i)
Current employee benefits
2016
$m
15.0
13.1
28.1
2015
$m
8.2
6.2
14.4
2.4
2.0
Liabilities for employee benefits 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.
(ii)
Non-Current 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 corporate 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.
The plan was introduced in FY12 and there have been five lots of rights granted to-date, one lot being
granted in each of FY12, FY13, FY14, FY15 and FY16.
All rights granted up to and including FY15 have the same key terms which are as follows:
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
15. Employee benefits (continued)
57
(cid:120) 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.
(cid:120) 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.
(cid:120) Any performance rights which do not vest, automatically lapse.
For the rights granted in FY16, the rules were amended so that the rights are scheduled to vest in four
equal instalments over four years instead of over three years. The rules are otherwise consistent with
the above.
The number of rights granted or outstanding during the year ended 31 July 2016 are set out below:
Balance as at 1 August 2015
Granted during the year
Forfeited during the year
Vested during the year
Balance as at 31 July 2016
Number of
Rights
945,000
617,100
-
(496,800)
1,065,300
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
24 December 2012
22 November 2013
18 December 2013
16 December 2014
21 December 2015
Weighted average
fair value
$2.3267
$3.9567
$4.5767
$5.9433
$9.5160
Share price
$2.48
$4.15
$4.77
$6.20
$9.92
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 $3.6m (2015:$2.1m).
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
58
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
15. Employee benefits (continued)
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.
(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.
The Group contributed $17.5m to defined contribution superannuation plans during the current year
(2015: $8.2m).
16.
Provisions
Balance as at 1 August 2015
Acquired through business
combinations
Provisions made during the year
Provisions used during the year
Unwind of discount
Balance as at 31 July 2016
Current
Non-current
Make good
costs
$m
Lease
increment
$m
Onerous
leases
$m
19.3
11.0
1.7
(0.5)
0.5
32.0
4.5
27.5
1.1
-
-
(0.1)
-
1.0
0.2
0.8
8.0
11.3
0.8
(7.1)
-
13.0
5.3
7.7
Other
$m
3.5
3.8
0.9
(1.6)
-
6.6
6.6
-
Total
$m
31.9
26.1
3.4
(9.3)
0.5
52.6
16.6
36.0
A provision is recognised in the statement of financial position when the Group has a present legal or
constructive obligation as a result of a past event and it is probable that an outflow of economic benefits
will be required to settle the obligation. Provisions are determined by discounting the expected future
cashflows at a pre-tax rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability. The unwinding of the discount is recognised as a
finance expense.
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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
16. Provisions (continued)
Lease increment
59
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
owing from the arrangement, a provision is immediately recognised for the excess cost component.
Other
The $3.8m ‘other’ provision acquired though business combinations in the year represents contingent
consideration payable to the minority shareholders of Tech2 Group Pty Ltd (‘Tech2’) in accordance with
the iiNet Group’s 2014 acquisition of a 60% interest in Tech2. This payment amount was contingent on
FY16 performance targets for Tech2 which have been achieved, and as a result was paid in full after
the year-end in September 2016.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
17.
Capital and reserves
Share capital
60
Ordinary shares
$m
2016
2015
2016
2015
Balance as at 1 August
Ordinary shares issued during the year:
- Consideration for acquisition of iiNet
-
- Share purchase plan
Share issue costs (net of tax)
Balance as at 31 July
Institutional share placement
793,808,141
793,808,141
516.9
516.9
23,212,554
28,846,154
2,606,269
-
848,473,118
-
-
-
-
793,808,141
211.2
300.0
26.9
(3.1)
1,051.9
-
-
-
-
516.9
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. 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 2016 the number of Company shares held by the Group was 350,000 (2015:
403,008).
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.
Cash flow hedge reserve
The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair
value of hedging instruments used in cash flow hedges, pending subsequent recognition in profit or loss
as the hedged cash flows or items affect profit or loss.
61
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
18.
Dividends
Dividends recognised in the current year were as follows:
2016
Interim 2016 ordinary
Final 2015 ordinary
Total amount
2015
Interim 2015 ordinary
Final 2014 ordinary
Total amount
Cents
per share
7.00
6.00
Total
Amount
$m
59.4
49.0
108.4
Date of
payment
24 May 2016
17 Nov 2015
5.50
4.75
43.7 19 May 2015
37.7
18 Nov 2014
81.4
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 FY16 dividend of 7.5 cents per share. As the final
dividend was not declared or resolved to be paid by the Board of directors as at 31 July 2016, the
dividend has not been provided for in the consolidated statement of financial position. The dividend has
a record date of 18 October 2016 and will be paid on 22 November 2016.
The Dividend Reinvestment Plan (DRP) is currently suspended until further notice.
Dividend franking account
30 per cent franking credits available to shareholders of the
Company for subsequent financial years
2016
$m
2015
$m
437.1
322.9
The above available amounts are based on the balance of the dividend franking account at year-end
adjusted for:
(a)
(b)
(c)
franking credits that will arise from the payment of the current tax liabilities;
franking debits that will arise from the payment of dividends recognised as a liability at the year-
end; and
franking credits transferred in on business combinations.
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 $27.3m (2015:$20.4m).
62
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
19.
Financial instruments and risk management
Financial Instruments
Non-derivative financial instruments
The Group classifies non-derivative financial assets into the following categories: loans and
receivables, and available-for-sale financial assets.
(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 and it does not
retain control over the transferred asset.
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
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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
19. Financial instruments and risk management (continued)
Derivative financial instruments and hedging
63
The Group uses derivative financial instruments such as forward currency contracts to manage its risks
associated with foreign currency fluctuations. Such derivative financial instruments are initially
recognised at fair value on the date on which a derivative contract is entered into and are subsequently
remeasured to fair value. Derivatives are carried as assets when their fair value is positive and as
liabilities when their fair value is negative. Any gains or losses arising from changes in the fair value of
derivatives, except for those that qualify for hedge accounting, are taken to the Consolidated income
statement. The fair values of forward currency contracts are calculated by reference to current forward
exchange rates. Non-performance risk is taken into account when valuing derivatives. Hedges that
meet the strict criteria for hedge accounting are accounted for as follows:
Cash flow hedges are hedges of the Group’s exposure to variability in cash flows that are either
attributable to a particular risk associated with a recognised asset or liability or a highly probable
forecast transaction or the foreign currency risk in an unrecognised firm commitment. The effective
portion of the gain or loss on the hedging instrument is recognised directly in Other Comprehensive
Income, while the ineffective portion is recognised in the Consolidated income statement. Amounts
taken to Other Comprehensive Income are transferred to the Consolidated income statement when the
hedged transaction affects profit or loss, such as when the hedged financial income or financial expense
is recognised, or when a forecast transaction occurs. Where the hedged item is the cost of a non-
financial asset or non-financial liability, the amounts taken to equity are transferred to the initial carrying
amount of the non-financial asset or liability. The Group tests the designated cash flow hedge for
effectiveness and ineffectiveness at each reporting date both retrospectively and prospectively. If the
hedging instrument no longer meets the criteria for hedge accounting then hedge accounting is
discontinued prospectively. If the forecast transaction or firm commitment is no longer expected to
occur, amounts recognised in equity are transferred to the Consolidated income statement.
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or
if its designation as a hedge is revoked (due to it being ineffective), amounts previously recognised in
Other Comprehensive Income remain in Other Comprehensive Income until the forecast transaction
occurs.
64
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
19. Financial instruments and risk management (continued)
Risk management
The Group has exposure to the following risks from its use of financial instruments:
credit risk
(cid:120)
(cid:120)
liquidity risk
(cid:120) 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.
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
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
19. Financial instruments and risk management (continued)
65
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
Note
9
2016
$m
146.1
39.2
185.3
2015
$m
62.0
23.7
85.7
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by customer
type was as follows:
Type of customer
Wholesale
Corporate
Retail
Note
9
2016
$m
44.1
32.4
69.6
146.1
2015
$m
35.0
17.2
9.8
62.0
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by
geographical region was as follows:
Geographical region
Australia
Other
Note
9
2016
$m
143.9
2.2
146.1
2015
$m
61.1
0.9
62.0
Geographically, the Group is subject to a concentration of credit risk as predominantly all of its revenue
is generated in Australia.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
19. Financial instruments and risk management (continued)
The ageing of the Group’s trade receivables at the reporting date was as follows:
66
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
9
9
2016
$m
90.1
37.7
5.1
3.5
2.0
7.7
146.1
(33.3)
112.8
2015
$m
30.3
22.2
4.0
1.0
0.8
3.7
62.0
(17.1)
44.9
The provision for impairment losses of the Group at 31 July 2016 of $33.3m (2015:$17.1m) represents
the risk of non-collection of outstanding debts that are past due and believed to be at risk of non-
collection. The provision is used to record impairment losses unless the Group is satisfied that no
recovery of the amount owing is possible. At this point the amount is considered irrecoverable and is
written off against the financial asset directly. The movement in the provision for impairment losses
during the year ended 31 July 2016 is as follows:
Balance at 1 August
Acquired through business combination
Impairment loss (written back)/ recognised
Balance at 31 July
Liquidity risk
Note
24
9
2016
$m
17.1
28.1
(11.9)
33.3
2015
$m
15.8
-
1.3
17.1
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have
sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without
incurring unacceptable losses or risking damage to the Group’s reputation.
The Group manages the cashflow projections of subsidiaries to optimise its return on cash. The Group
ensures that it has sufficient cash on demand to meet expected operational expenses including the
servicing of financial obligations.
In addition to its cash reserves, the Group had a debt facility of $1,635.0m available to it during the year
(of which $1,350.0m was utilised as at 31 July 2016) (refer note 14).
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
19. Financial instruments and risk management (continued)
67
The following are the contractual maturities of financial liabilities, including estimated interest payments
and excluding the impact of netting agreements:
31 July 2016
Non-derivative financial liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables
Note
Carrying
amount
Contractual
cashflows
6 months
or less
6-12
months
$m
$m
$m
$m
1-2
years
$m
2-5 years
$m
14
13
(1,350.0)
(61.7)
(298.0)
(1,709.7)
(1,500.6)
(65.9)
(298.0)
(1,864.5)
(26.4)
(15.3)
(298.0)
(339.7)
(24.9)
(14.8)
-
(39.7)
(50.3)
(35.8)
-
(86.1)
(1,399.0)
-
-
(1,399.0)
Derivative financial liabilities
Foreign currency forward contracts
(settled gross)
- Outflow
-
Inflow
Total derivative financial liabilities
Total
31 July 2015
Non-derivative financial liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables
Note
14
13
-
-
-
(1,709.7)
(65.6)
54.4
(11.2)
(1,875.7)
(14.7)
12.1
(2.6)
(342.3)
(14.8)
12.2
(2.6)
(42.3)
Carrying
amount
$m
Contractual
cashflows
$m
6 months
or less
$m
6-12
months
$m
(36.1)
30.1
(6.0)
(92.1)
1-2
years
$m
-
-
-
(1,399.0)
2-5 years
$m
(329.0)
(0.1)
(153.8)
(482.9)
(347.6)
(0.1)
(153.8)
(501.5)
(5.9)
(0.1)
(153.8)
(159.8)
(5.9)
-
-
(5.9)
(335.8)
-
-
(335.8)
-
-
-
-
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.
a) 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), the Hong Kong dollar (HKD) and South African Rand (ZAR).
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
19. Financial instruments and risk management (continued)
68
The Group has hedged its exposure to its USD-denominated finance lease liabilities as follows:
IRU lease liabilities
Add: Highly probable forecast transactions
Total exposure on IRU lease liabilities
Forward exchange contracts
Net exposure
Note
14
2016
$m
(61.0)
(4.2)
(65.2)
64.4
(0.8)
2015
$m
-
-
-
-
-
Exposure to other non-functional currencies has not been hedged and is not considered to be a
significant risk to the Group.
b) 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
2016
$m
14
(61.7)
14
39.2
(1,350.0)
(1,310.8)
2015
$m
(0.1)
23.7
(329.0)
(305.3)
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 2016, of $13.1m
(2015: $3.1m) (assumes that all other variables, in particular foreign currency rates, remain constant).
Fair values versus carrying amounts
As at 31 July 2016, the fair values of the Group’s financial assets and liabilities approximate their
carrying amounts shown in the statement of financial position.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
19. Financial instruments and risk management (continued)
Interest rates used for determining fair value
69
The interest rates used to discount estimated cashflows, where applicable, are based on the rates
implicit in the transaction. In the case of Loans and borrowings, interest rate is based on BBSY rates
plus a margin determined quarterly according to gearing ratio.
c) Equity price risk
The Group is exposed to equity price risk because of its investments in available-for-sale equity
securities. Material investments are managed on an individual basis with the goal of maximising
returns.
Classification of financial instruments
Fair value hierarchy
There are three possible valuation methods (or ‘levels’) for financial instruments which are measured at
fair value. Those different levels are as follows:
(cid:120) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
(cid:120) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly; and
(cid:120) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
The Group’s financial instruments which are measured at fair value are categorised as follows:
Financial assets
Investments
Foreign currency forward contracts
Financial liabilities
Provision for contingent consideration
31 July 2016
Level 2
Level 1
Level 3
31 July 2015
Level 2
Level 1
Level 3
155.4
-
-
11.8
-
-
267.2
-
-
-
(3.8)
-
-
-
-
-
-
-
The Group’s investments, being ASX listed securities, are categorised as Level 1 as they are valued at
quoted market prices.
Foreign currency forward contracts are categorised as Level 2 as they are measured based on
observable spot exchange rates, the yield curves of the respective currencies as well as the currency
basis spreads between the respective currencies.
The fair value of the contingent consideration is determined using the discounted cash flow method and
hence it is categorised as Level 3.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
19. Financial instruments and risk management (continued)
Capital management
70
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
2016
$m
1,350.0
(39.2)
1,310.8
2015
$m
329.0
(23.7)
305.3
Total equity
1,779.2
1,003.2
Net debt to equity ratio at 31 July
0.7
0.3
71
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2015
20.
Operating leases
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
2016
$m
43.2
95.7
14.6
153.5
2015
$m
31.4
83.5
28.5
143.4
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.
21.
Capital and other commitments
Capital expenditure commitments contracted but not
provided for in the financial statements
2016
$m
2015
$m
343.7
162.1
IRU agreements for international capacity (US$108m*);
Capital commitments at 31 July 2016 are comprised mainly of commitments in respect of:
(cid:120)
(cid:120) Spectrum licences purchased in FY16, payable in April 2017 ($72m); and
(cid:120) Domestic fibre construction projects.
*translated into AUD at the prevailing spot rate at 31 July 2016 of $0.76.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
22.
Consolidated entities
The following is a list of all entities that formed part of the Group as at 31 July 2016:
72
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 Energy Pty Ltd
FTTB Wholesale 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
2016
%
2015
%
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 2016
22. Consolidated entities (continued)
73
Ownership interest
as at 31 July
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
iiNet Limited
Chime Communications Pty Ltd
Internode Pty Ltd
Agile Pty Ltd
Westnet Pty Ltd
iiNet (New Zealand) AKL Ltd
Jiva Pty Ltd
Netspace Online Systems Pty Ltd
iiNet Labs Pty Ltd
TransACT Communications Pty Ltd
TransACT Broadcasting Pty Ltd
TransACT Capital Communications Pty Ltd
TransFlicks Pty Ltd
TransACT Victoria Holdings Pty Ltd
Cable Licence Holdings Pty Ltd
ACN 088 889 230 Pty Ltd
TransACT Victoria Communications Pty Ltd
Neighbourhood Cable Unit Trust
Connect West Pty Ltd
The Tech2 Group Pty Ltd
Tech2Home Proprietary Ltd
Tech2Home Pty Ltd
Gizmo Corporation Pty Ltd
Tech2Home(Communications) Pty Ltd
Tech2 Business Solutions Pty Ltd
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
2016
%
100
100
100
100
100
100
100
100
100
88.57
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
60
60
60
60
60
60
2015
%
100
100
100
100
100
100
100
100
100
88.57
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 2016
22. Consolidated entities (continued)
74
Name of Entity
Subsidiaries (continued)
iHug Pty Ltd
Adam Internet Holdings Pty Ltd
Adam Internet Pty Ltd
iiNet (OzEmail) Pty Ltd
TPG Telecom Pte Ltd
23.
Deed of cross guarantee
Ownership interest
as at 31 July
Country of
incorporation
Australia
Australia
Australia
Australia
Singapore
2016
%
100
100
100
100
100
2015
%
-
-
-
-
-
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned
subsidiaries as mentioned 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.
The Deed of Cross Guarantee was entered into on 25 June 2008. All the subsidiaries listed in Note 22
above are subject to the Deed except for the following:
Orchid Cybertech Services Incorporated
PPC 1 Limited
PPC 1 (US) Incorporated
Trusted Cloud Solutions Pty Ltd
Alchemyit Pty Ltd
IP Service Xchange Pty Ltd
The Tech2 Group Pty Ltd
Tech2Home Pty Ltd
Tech2Home (Communications) Pty Ltd
TPG Telecom Pte Ltd
Mercury Connect Pty Ltd
VtalkVoip Pty Ltd
Hosteddesktop.com Pty Ltd
Destra Communications Pty Ltd
Numillar IPS Pty Ltd
Neighbourhood Cable Unit Trust
Tech2Home Proprietary Ltd
Gizmo Corporation Pty Ltd
Tech2 Business Solutions Pty Ltd
75
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
23. 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 2016 is set out as follows:
Statement of comprehensive income and retained profits
Revenue
Other income
Network, carrier and hardware costs
Employee benefits expense
Other expenses
2016
$m
2,328.0
92.7
(1,128.2)
(266.5)
(183.6)
2015
$m
1,266.4
3.8
(599.8)
(117.2)
(65.5)
Earnings before interest, tax, depreciation and amortisation
(EBITDA)
842.4
487.7
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
(130.9)
(112.0)
(97.1)
(40.8)
599.5
349.8
1.3
(84.6)
(83.3)
1.2
(20.9)
(19.7)
516.2
330.1
(130.5)
(94.7)
Profit for the year attributable to owners of the company
385.7
235.4
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
(34.7)
351.0
432.7
385.7
(108.4)
710.0
31.9
267.3
278.7
235.4
(81.4)
432.7
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
23. Deed of cross guarantee (continued)
Statement of financial position
31 July 2016 31 July 2015
$m
$m
76
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Investments
Current tax assets
Derivative financial instruments
Prepayments and other assets
Total Current Assets
Investments
Derivative financial instruments
Loans to subsidiaries
Property, plant and equipment
Intangible assets
Prepayments and other assets
Total Non-Current Assets
Total Assets
Liabilities
Trade and other payables
Loans and 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
31.3
136.2
11.7
139.1
3.7
5.4
12.5
339.9
16.3
6.4
148.9
798.6
2,462.1
8.3
3,440.6
3,780.5
287.8
27.1
-
27.4
14.0
1.6
141.2
499.1
1,350.1
63.9
2.2
36.0
26.4
1,478.6
1,977.7
21.4
63.7
5.8
151.6
-
-
7.7
250.2
115.6
-
135.4
500.3
662.2
5.3
1,418.8
1,669.0
149.5
0.1
12.3
14.4
7.5
4.3
62.7
250.8
327.7
17.1
2.0
21.4
24.3
392.5
643.3
1,802.8
1,025.7
1,051.9
40.9
710.0
1,802.8
516.9
76.1
432.7
1,025.7
77
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
24.
Acquisition of subsidiary
During the period the Group completed its acquisition of iiNet Limited.
The acquisition combines two businesses that are highly complementary for a number of reasons, including
their respective market positioning and geographic presence, and should deliver scale benefits for the
combined group.
The acquisition was implemented through a scheme of arrangement under which the Group acquired the
93.75% of share capital in iiNet that it did not already own.
The scheme was approved by the Federal court on 21 August 2015, became effective on the date of change of
control, which was 24 August 2015, and was completed when the consideration was transferred to iiNet
shareholders on 7 September 2015.
The consideration transferred to iiNet shareholders comprised:
Cash consideration: $1,156.8m; and
Share consideration: 23,212,554 TPG Telecom Limited shares with an acquisition date fair value of $211.2m.
This valuation was determined by reference to TPG’s volume weighted average share price on 24 August 2015.
In addition, immediately prior to completion, iiNet shareholders were paid a discretionary special dividend
amounting to $106.7m (net of $7.0m which was paid to the Group) which was funded through a loan to iiNet by
the Group.
During 2H16 acquisition accounting was completed, as a result of which a number of adjustments were made to
the provisional value of identifiable assets and liabilities disclosed in the HY16 accounts. Set out on the next
page are the finalised fair values of the identifiable assets and liabilities of iiNet as at the date of acquisition.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
24. Acquisition of subsidiary (continued)
Identifiable assets acquired and liabilities assumed
78
Trade and other receivables
Provision for doubtful debts
Inventories
Derivative financial assets
Prepayments and other assets
Property, plant and equipment
Brand
Customer base
IRU assets
Other intangible assets
Income tax receivable
Minority interest acquired
Trade and other payables
Liability for special dividend
Loans payable
IRU lease liabilities
Finance lease liabilities
Employee benefits and provisions
Provisions
Deferred income
Derivative financial liabilities
Deferred tax liabilities (net)
Net identifiable assets acquired
Consideration transferred
Cash paid
Less: Cash acquired
Net cash consideration paid
Issue of shares
Fair value of previously held interest in iiNet
Total consideration, net of cash acquired
Goodwill on acquisition
Consideration transferred, net of cash acquired
Less: Net identifiable assets acquired, net of cash acquired
Goodwill on acquisition
$m
108.2
(28.1)
10.1
27.0
8.0
178.4
70.5
316.8
52.3
62.2
12.4
(0.1)
(133.4)
(106.7)
(212.1)
(83.0)
(4.2)
(14.9)
(26.1)
(74.5)
(0.6)
(67.3)
94.9
1,156.8
(5.5)
1,151.3
211.2
97.3
1,459.8
1,459.8
(94.9)
1,364.9
79
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
24. Acquisition of subsidiary (continued)
The goodwill arising on the acquisition is primarily attributable to the synergies expected to be achieved from
integrating iiNet into the Group’s operations.
For the year ended 31 July 2016, iiNet contributed revenue of $1,058.9m and profit after tax of $122.0m to the
Group’s results (excluding acquisition costs and amortisation of acquisition intangibles) for the eleven and a
quarter months post acquisition. Management estimates that if iiNet had have been owned by the Group for the
full twelve month period, it would have contributed revenue of $1,130.0m and profit after tax of $124.0m to the
Group’s results.
24 (a). Transaction costs related to acquisition of subsidiary
During the period, the Group incurred transaction costs of $10.3m related to the acquisition of iiNet. These
costs have been included in “Other expenses’ in the consolidated income statement.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
25.
Parent entity disclosures
80
Result of the parent entity
Profit for the period
Comprising:
Dividend from subsidiaries
Gain on previously held interest in iiNet
Finance expenses
Costs relating to mergers and acquisitions
Income tax benefit
Other
Total profit for the period
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity
Share capital
Reserves
Retained earnings
Total Equity
Parent entity guarantees
2016
$m
2015
$m
308.4
216.4
300.0
73.1
(78.5)
(10.3)
23.5
0.6
308.4
3.9
3,537.2
3.8
2,145.1
1,051.9
(1.6)
341.8
1,392.1
232.0
-
(20.3)
(0.8)
6.0
(0.5)
216.4
1.2
1,413.7
16.4
751.5
516.9
3.6
141.7
662.2
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 23.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
26.
Reconciliation of cashflows from operating activities
81
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
Performance rights plan expense
Unrealised foreign exchange loss
Interest income
Interest expense
Gain on previously held interest in iiNet
Profit on sale of investments
Costs relating to mergers and acquisitions
Income tax expense
Note
2016
$m
2015
$m
384.6
224.1
5
11
12
6
15
6
6
5
5
14
7
(2.0)
136.9
115.1
10.2
18.1
3.6
1.9
(1.3)
66.5
(73.1)
(17.6)
8.6
129.5
(3.8)
102.4
43.3
1.3
6.3
2.1
(1.8)
(1.1)
14.6
-
-
-
94.9
Operating profit before changes in working capital
and provisions
781.0
482.3
Changes in:
-
Trade and other receivables
-
Inventories
- Other assets
-
- Other liabilities
- Employee benefits
- Provisions
Trade and other payables
Income taxes paid
(9.7)
3.9
(2.7)
(8.9)
4.6
(0.8)
(8.2)
759.2
(138.8)
10.5
(3.1)
5.2
4.4
(3.1)
1.1
(4.5)
492.8
(110.9)
Net cash from operating activities
620.4
381.9
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
27.
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 director
Mr David Teoh
Executive Chairman & Chief Executive Officer
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 Craig Levy
Chief Operating Officer
Mr Wayne Springer
General Manager, Corporate Products & Pricing
Ms Mandie De Ville
Chief Information Officer
Mr Tony Moffatt
General Counsel
Mr Mark Rafferty
General Executive, Corporate, Government & Wholesale
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
27. Related parties (continued)
Key management personnel remuneration
The key management personnel remuneration included in employee benefits is as follows:
83
Short-term employee benefits
Post-employment benefits
Other long term benefits
Share-based benefits
2016
$m
7.1
0.2
0.1
1.3
8.7
2015
$m
7.2
0.2
0.2
0.9
8.5
Individual directors’ and executives’ remuneration disclosures
Information regarding individual directors’ and executives’ remuneration is provided in the
Remuneration Report section of the Directors’ report on pages 22 to 29.
During the year the Group rented office premises from companies related to a director of the Company,
Mr D Teoh. The total rent charged for the financial year 2016 was $1.3m (2015:$0.8m).
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 2016
27. 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
Purchases
Granted as
Disposals
1 August
2015
remuneration
Held at
31 July
2016
Directors
D Teoh
D Ledbury
R Millner
J Pang
S Teoh
Executives
S Banfield
C Levy
W Springer
M De Ville
T Moffatt
M Rafferty
Directors
D Teoh
D Ledbury
R Millner
J Pang
S Teoh
Executives
Mr S Banfield
Mr J Paine
Mr C Levy
Mr W Springer
Ms M De Ville
Mr T Moffatt
M Rafferty
291,625,603
100,000
7,434,175
88,812
90,251
-
-
5,808
1,452
26,472
-
-
-
-
-
-
(25,000)
-
-
-
291,625,603
75,000
7,439,983
90,264
116,723
237,000
271,000
230,902
146,402
631,571
-
-
-
-
-
-
-
44,000
60,000
37,000
17,000
43,000
12,000
(18,000)
(33,500)
(90,000)
-
(10,000)
-
Held at
Purchases
Granted as
Disposals
1 August
2014
remuneration
263,000
297,500
177,902
163,402
664,571
12,000
Held at
31 July
2015
291,625,603
100,000
7,374,175
88,812
90,251
-
-
60,000
-
-
-
-
-
-
-
-
-
-
-
-
291,625,603
100,000
7,434,175
88,812
90,251
200,000
3,913,717
493,666
174,902
137,402
575,571
-
-
-
-
-
-
-
-
57,000
55,000
77,334
56,000
9,000
56,000
-
(20,000)
-
(300,000)
-
-
-
-
237,000
3,968,717
271,000
230,902
146,402
631,571
-
Identity of related parties
The Group has no related party relationships other than with its key management personnel.
85
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
28.
Subsequent events
There has not arisen in the interval between the end of the financial year and the date of this report
any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of
the Company, to affect significantly the operations of the Group, the results of those operations, or
the state of affairs of the Group in future financial years.
29.
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 and other services
30.
Significant accounting policies
2016
$’000
2015
$’000
1,059
8
1,067
119
1,186
667
8
675
124
799
The accounting policies as set out below 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, there are no new or revised Standards/ Interpretations issued by the Australian
Accounting Standards Board (AASB) that are effective for the current reporting period and that are
relevant to the Group.
a.
(i)
Basis of consolidation
Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred
to the Group (refer (ii) below). 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 (k) 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.
86
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
30. 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.
d. 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.
87
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
30. Significant accounting policies (continued)
e.
Leases
(i)
Determining whether an arrangement contains a lease
At inception of an arrangement, 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.
(iii)
Lease payments
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.
f.
Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated
selling price in the ordinary course of business, less estimated selling expenses.
g.
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.
88
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
30. Significant accounting policies (continued)
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit
exceeds its recoverable amount. Impairment losses are recognised in the income statement unless an
asset has previously been revalued, in which case the impairment loss is recognised as a reversal to
the extent of that previous revaluation with any excess recognised through profit or loss.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the
carrying amount of any goodwill allocated to cash-generating units 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.
h.
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.
89
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
30. Significant accounting policies (continued)
i. 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.
j.
New standards and interpretations not yet adopted
In the current reporting period, there are no new or revised Standards and Interpretations issued by the
Australian Accounting Standards Board (AASB) that are effective for the current reporting period and
are relevant to the Group.
Standards that have been issued but are not effective yet, and have not been early adopted by the
Group are as follows:
Financial instruments (Revised AASB 9)
Issued in December 2014, AASB 9 will be applicable to the Group from 1 August 2018. The revised
standard provides guidance on classification and measurement of financial assets, including a third
measurement category for debt instruments. Impairment of financial assets will be calculated using an
expected credit loss model. Simpler hedge accounting requirements will help to align accounting
treatment more closely to the risk management strategy.
Revenue from contracts with customers (AASB 15)
The standard contains a single model that applies to contracts with customers. It provides two
approaches to recognising revenue - at a point in time, or over time. The model features a contract-
based five step analysis of transactions to determine whether, how much and when revenue is
recognised. This standard is applicable to the Group from 1 August 2018.
Leases (AASB 16)
Applicable to the Group from 1 August 2019, AASB 16 will significantly change the accounting for
leases. The distinction between operating and finance leases will cease and all leases would be
recognised as assets in the statement of financial position with a corresponding liability equal to the
present value of unavoidable lease payments. Lease payments on operating leases that are currently
treated as operating costs will be replaced with a depreciation charge and an interest expense incurred
on the lease liability.
The Group is currently assessing the impact of the above standards on its financial results.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2016
30. Significant accounting policies (continued)
k.
Determination of fair values
90
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.
Material assets acquired through business combinations
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 brands 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.
91
TPG Telecom Limited and its controlled entities
Directors’ declaration
For the year ended 31 July 2016
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 35 to 90 and the Remuneration
report in section 5 of the Directors’ report, set out on pages 22 to 29, are in accordance with the
Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 31 July 2016 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 23 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 2016.
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 20th day of October, 2016.
Signed in accordance with a resolution of the directors.
David Teoh
Chairman
92
Independent auditor’s report to the members of TPG Telecom Limited
Report on the financial report
We have audited the accompanying financial report of TPG Telecom Limited (the Company), which comprises
the consolidated statement of financial position as at 31 July 2016, and the 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 30 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
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.
93
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 TPG Telecom Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Company’s financial position as at 31 July 2016 and of its performance
for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
(b) the financial report also complies with International Financial Reporting Standards as disclosed in note
2(a).
Report on the remuneration report
We have audited the Remuneration Report included in pages 22 to 29 of the directors’ report for the year
ended 31 July 2016. 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 2016, complies
with Section 300A of the Corporations Act 2001.
KPMG
Chris Hollis
Partner
Sydney
20 October 2016
94
TPG Telecom Limited and its controlled entities
ASX additional information
For the year ended 31 July 2016
Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed
elsewhere in this report is set out below. The shareholding information is current as at 30 September 2016.
Substantial shareholders
The number of shares held by substantial shareholders and their associates are set out below:
Name of shareholder
Number of
ordinary shares
held
% of
capital held
David Teoh and Vicky Teoh
Washington H Soul Pattinson and Company Limited
291,625,603
213,402,136
34.37
25.15
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
9,718
7,972
1,643
1,402
128
20,863
The number of shareholders holding less than a marketable parcel of ordinary shares is 735.
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
95
ASX additional information
For the year ended 31 July 2016
Twenty largest shareholders (as at 30 September 2016)
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
J P MORGAN NOMINEES AUSTRALIA LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
WIN CORPORATION PTY LTD
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
(BKCUST A/C)
CITICORP NOMINEES PTY LIMITED (COLONIAL FIRST STATE INV A/C)
BNP PARIBAS NOMS PTY LTD (DRP)
J S MILLNER HOLDINGS PTY LIMITED
FARJOY PTY LTD
AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED
BKI INVESTMENT COMPANY LIMITED
MR JOHN ERIC PAINE
MILTON CORPORATION LIMITED
NATIONAL NOMINEES LIMITED
Number of
ordinary
shares held
% of
capital held
213,402,136
101,645,893
100,840,608
66,011,730
43,562,525
43,217,403
43,022,773
35,579,541
19,724,325
10,000,000
9,937,160
9,028,039
8,901,946
6,302,659
6,011,452
5,340,000
4,420,000
3,758,767
3,731,553
3,685,725
25.15
11.98
11.88
7.78
5.13
5.09
5.07
4.19
2.32
1.18
1.17
1.06
1.05
0.74
0.71
0.63
0.52
0.44
0.44
0.43
738,124,235
86.99
Principal Registered Office
63-65 Waterloo Road
Macquarie ParkNSW2113
Telephone: 02 9850 0800
Share Registry
Computershare Investor Services Pty Ltd
Level 4, 60 Carrington Street
Sydney NSW 2000
Telephone:
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(international) +61 3 9415 4000
www.investorcentre.com/au