2019
ANNUAL REPORT
TPG Telecom Limited
and its controlled entities
ABN 46 093 058 069
Annual Report
Year ended 31 July 2019
TPG Telecom Limited and its controlled entities
Annual report
For the year ended 31 July 2019
Contents
Chairman’s letter
Directors’ report
Lead auditor’s independence declaration
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Directors’ declaration
Independent auditor’s report
ASX additional information
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TPG Telecom Limited and its controlled entities
3
Chairman’s letter
For the year ended 31 July 2019
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 2019 (“FY19”).
FY19 was a difficult year for our Group with two major regulatory decisions adversely impacting our ability to
deliver on our long-term strategies.
First, the Australian Government’s decision to prohibit the use of Huawei equipment in 5G networks. A key
feature of our innovative mobile network design that we had been rolling out in Australia was its simple
upgrade path to 5G using Huawei equipment. With that upgrade path blocked and no suitable alternative
technical solution available, it made no commercial sense to continue to invest shareholder funds in a network
that could not be upgraded to 5G and we therefore abandoned our Australian mobile network rollout during
the year.
Second, the decision by the ACCC to oppose our Group’s planned merger with Vodafone Hutchison Australia
(“VHA”). Given our firm belief that the proposed merger would greatly enhance competition in the Australian
telecommunications industry, the merger parties launched proceedings in the Federal Court seeking orders
that the proposed merger will not, and is not likely to, substantially lessen competition. The proceedings were
heard in September and the judge expects to deliver his judgment by February 2020. We remain hopeful that
the merger will be permitted to proceed.
Over the past couple of years, a huge amount of time, resource and shareholder funds has been invested in
our Australian mobile project and in the merger transaction. In relation to the mobile project, we believe that
the mobile sites that we had installed prior to ceasing the rollout would be complementary to the VHA
network and they, and the spectrum licences that we hold, are undoubtedly valuable assets. We also believe
that the investment in the merger transaction has been sensible, given the Board’s view that the merger, if it is
permitted to proceed, will be beneficial for TPG shareholders and allow us to become a more formidable
competitor to Telstra and Optus.
It is important, of course, not to allow regulatory challenges to overshadow some significant achievements by
the Group during FY19.
- Despite facing headwinds of $76m in the year caused by the Government’s NBN rollout, the Group’s
-
-
-
underlying FY19 EBITDA for its core business declined by only $4.3m and exceeded budget and guidance,
due to organic growth achievements.
Cost optimisation efforts delivered a further $21m (8%) reduction in our already lean Consumer Division
employment and overhead costs following savings of a similar magnitude in FY18.
Corporate Division EBITDA increased by $37.4m (11%) with EBITDA margin expanded from 44% to 48%
reflecting the benefits of the Group’s investment in fibre infrastructure.
TPG’s NBN services were recognised by independent ACCC surveys as being number one for average
download speeds delivered and for reliability, and the Group maintained its position as the second largest
provider of NBN services with a market share of 22%.
- Our Singapore mobile network outdoor service coverage surpassed 99%. A free service trial was
subsequently launched with over 300k trial users onboarded at the time of writing.
4
TPG Telecom Limited and its controlled entities
Chairman’s letter
For the year ended 31 July 2019
The NBN rollout is expected to continue to create significant margin headwinds for the Group over the next
couple of years. However, we expect to be well positioned for growth once the headwinds subside following
the end of the NBN rollout with our lean cost structure enabling us to continue to be an effective competitor in
residential broadband, our extensive fibre infrastructure supporting ongoing Corporate Division growth and an
exciting greenfield opportunity in Singapore. All of this would, of course, be greatly supplemented by the
opportunity in mobile that the planned merger would give us.
The enthusiasm for the merger is also widely shared by our wonderful group of employees. I would like to
congratulate them on their achievements and thank them for all their efforts again in FY19 as well as for their
patience during the extended merger approval process.
On behalf of the Board I would also like to thank all our shareholders for their continued support of the
Company.
Yours faithfully
David Teoh
Chairman
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
5
The directors present their report together with the financial report of the Group, being TPG Telecom Limited (‘the
Company’) and its controlled entities, for the financial year ended 31 July 2019, and the auditor’s report thereon.
Page
Contents of directors’ report
1.
2.
Board of Directors
Company secretary
3. Directors’ meetings
4. Operating and financial review
5.
6.
Remuneration report
Principal activities
7. Dividends
8.
9.
Events subsequent to reporting date
Likely developments
10. Directors’ interests
11.
Indemnification and insurance of officers and directors
12. Non-audit services
13. Rounding off
6
6
7
7
19
31
31
31
31
31
32
32
32
TPG Telecom Limited and its controlled entities
6
Directors’ report
For the year ended 31 July 2019
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
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.
Robert was also an interim Director at Hunter Hall Global Value Limited from April 2017 to June 2017.
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.
TPG Telecom Limited and its controlled entities
7
Directors’ report
For the year ended 31 July 2019
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
D Teoh
D Ledbury
R Millner
J Pang
S Teoh
A
13
13
13
11
13
B
13
13
13
13
13
Audit & Risk Committee
(ARC) Meetings
B
A
-
-
2
2
2
2
2
2
-
-
Remuneration Committee
Meetings
A
-
1
1
1
-
B
-
1
1
1
-
A: Number of meetings attended. B: Number of meetings held while a member
The ARC meetings, disclosed above, do not include separate meetings that the ARC Chairman also had with the
audit partner during the year.
4. Operating and financial review
4.1 Operating results overview
Reported Results
The Group’s reported results for its year ended 31 July 2019 (“FY19”) included:
-
Earnings before interest, tax, depreciation and amortisation (“EBITDA”) before impairment for the period
of $809.4m;
- Net Profit After Tax attributable to shareholders (“NPAT”) for the period of $173.8m; and
-
Earnings per share (“EPS”) of 18.7 cents per share.
Underlying Results
The Group’s FY19 reported results were heavily impacted by the Group’s decision to cease the rollout of its
Australian mobile network in January 2019, which gave rise to an impairment expense of $236.8m and a
significant increase in amortisation and interest expense relating to the Group’s Australian spectrum licences.
The FY19 results also included $9.0m of one-off transaction costs relating to the Group’s planned merger with
Vodafone Hutchison Australia (“VHA”). Excluding the impairment expense and merger transaction costs, the
Group’s underlying EBITDA for the year was $818.4m, a 1% decrease on FY18.
Reconciliation of Reported to Underlying Profits
$m
Reported
Add: Transaction costs re planned merger
Add: Impairment expense
Add: Acquired customer base intangible amortisation
Underlying
* Restated for implementation of AASB 15
FY19
FY18*
EBITDA
572.6
9.0
236.8
-
818.4
NPAT
173.8
6.3
165.7
30.4
376.2
EBITDA
826.7
-
-
-
826.7
NPAT
396.4
-
-
35.7
432.1
8
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
4. Operating and financial review (continued)
4.1 Operating results overview (continued)
At the beginning of the FY19 financial year the Group provided EBITDA guidance of $800-820m for its ‘business
as usual’ (BAU) operations, which excluded merger transaction costs and any impact of its mobile network
operations in Australia and Singapore. Actual EBITDA for the year on that comparable basis was above the top
end of the guidance range at $823.8m.
As shown in the chart below, EBITDA continued to be adversely impacted by the loss of margin as DSL and
home phone customers migrate to low margin NBN services.
Bridge between FY18 and FY19 BAU EBITDA
The adverse profit impacts of the headwinds shown in the chart above were within the expectations set with
the FY19 guidance at the start of the year. The $57m of other EBITDA growth achieved relative to FY18 was
driven by growth in the Corporate Division (including an uplift in contribution from the VHA fibre contract) and
the continued realisation of operating expense efficiencies across the Group.
Segment Results
$m
Revenue
EBITDA
EBITDA %
FY19
FY18
FY19
FY18
FY19
FY18
Consumer
1,719.0
1,742.3
457.3
499.1
27%
29%
Corporate
758.4
753.8
367.1
329.7
48%
44%
Other
-
-
(6.0)
(2.1)
-
-
Total
2,477.4
2,496.1
818.4
826.7
33%
33%
The Consumer Segment’s EBITDA for FY19 was $457.3m compared to $499.1m for FY18. This movement
comprised a $62.6m decrease in gross profit, partially offset by a $20.8m decrease in employment and
overhead costs. The gross profit decline was driven by broadband gross margin erosion and loss of home
phone voice revenue, both due to the NBN rollout. The significant decrease in employment and overhead
costs reflects the results of ongoing operating cost optimisation work.
9
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
4. Operating and financial review (continued)
4.1 Operating results overview (continued)
The Corporate Segment achieved EBITDA of $367.1m for FY19 compared to $329.7m for FY18. This $37.4m
increase was driven by a significant step up in the contribution from the contract to provide fibre services to
VHA, complemented by other on-net fibre sales. The continued shift towards revenue delivered on the
Group’s owned fibre infrastructure helped lift the Corporate Segment EBITDA margin to 48% in FY19 compared
to 44% in FY18.
Cashflow, Capital Expenditure and Gearing
The Group’s net operating cashflows before tax were again strong, exceeding EBITDA at $836.3m.
Total capital expenditure for the year of $717.3m included a $352.4m instalment for the 2x10MHz of 700MHz
spectrum acquired at auction in 2017, $86.1m invested in the (now ceased) Australian mobile network build,
and $80.1m in the Singapore mobile network build. The remaining ‘business as usual’ capital expenditure of
$198.7m was $59.3m lower than FY18, within the guidance range of $180-220m provided at the start of FY19,
and primarily consisted of further expansion of the Group’s fibre network infrastructure.
At the end of FY19 the Group had net debt (including remaining spectrum liabilities payable in early 2020) of
$1.94 billion which represents a leverage ratio of ~2.4x underlying FY19 EBITDA.
4.2 Customer growth
Group broadband subscribers
The Group ended FY19 with 1,926k broadband subscribers, a 5k (0.3%) decline in the year. Included within
this movement was a significant change in the composition of the broadband customer base with NBN
subscribers increasing by 358k to 1,219k, representing 63% of the total broadband customer base as at the
year-end. Offsetting that, ADSL subscribers declined by 371k to 569k, representing 30% of the total customer
base as at the year-end. The number of customers using the Group’s on-net FTTB, HFC and VDSL services
services grew by 10k to 117k as at the year-end.
10
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
4. Operating and financial review (continued)
4.2 Customer growth (continued)
Group MVNO subscribers
The Group had 410k mobile subscribers as at 31 July 2019 under its mobile virtual network operator (MVNO)
arrangements with VHA and Optus.
Corporate revenues
The Group’s Corporate Segment revenues increased to $758.4m in FY19, up by $4.6m from the prior year. The
composition of the growth is shown in the table below.
Data and internet revenues grew by $29.5m (5%) reflecting the strength of the Corporate Segment’s data and
internet product suite leveraging the Group’s extensive fibre network.
The decline in voice revenues reflects a continuing industry trend of decline in fixed voice usage.
The decrease in legacy iiNet revenues reflects the fact that new corporate sales are predominantly made
under the TPG and AAPT brands rather than under iiNet.
11
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
4. Operating and financial review (continued)
4.3 Financial results review
There follows below a review of the key elements of the FY19 results:
Revenue
Consumer
Corporate
Total revenue
Telco costs
Consumer
Corporate
Unallocated
Total telco costs
Employment costs
Consumer
Corporate
Unallocated
Total employment costs
Other expenses
Consumer
Corporate
Unallocated
Total other expenses
Earnings before interest, tax,
impairment, depreciation and
amortisation
Impairment
Depreciation
Amortisation
Operating profit
Net financing costs
Profit before tax
Income tax
Profit after tax
Attributable to:
Owners of the Company
Non-controlling interest
Earnings per share (cents)
FY19
$m
% of
revenue
FY18
$m
% of
revenue
69%
31%
58%
33%
-
7%
13%
-
8%
5%
-
33%
10%
5%
6%
12%
2%
10%
-
7%
1,719.0
758.4
2,477.4
(1,003.6)
(253.3)
(2.7)
(1,259.6)
(122.3)
(100.9)
(1.2)
(224.4)
(135.8)
(37.1)
(11.1)
(184.0)
809.4
(236.8)
(133.2)
(136.1)
303.3
(50.7)
252.6
(77.6)
175.0
173.8
1.2
18.7
70%
30%
55%
37%
-
8%
14%
-
8%
5%
-
33%
-
6%
4%
24%
1%
23%
-
16%
1,742.3
753.8
2,496.1
(964.3)
(280.0)
-
(1,244.3)
(133.9)
(108.6)
(0.3)
(242.8)
(145.0)
(35.5)
(1.8)
(182.3)
826.7
-
(138.8)
(90.4)
597.5
(34.4)
563.1
(165.6)
397.5
396.4
1.1
42.8
12
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
4. Operating and financial review (continued)
4.3 Financial results review (continued)
Revenue
a) Consumer
Consumer Segment revenue decreased by $23.3m
to $1,719.0m in FY19.
This movement comprised a $33.8m (2%) increase
in broadband revenues, a $43.8m (38%) decrease
in fixed voice revenue, and a $13.3m (7%)
decrease in other revenues.
Subscribers on the Group’s broadband plans
declined very slightly over the year by 5k (0.3%) to
1,926k. Included within this movement was a
continuation of the transformation of the
composition of the broadband customer base with
NBN subscribers increasing by 358k to represent
63% of the total broadband customer base as at
the year-end. Offsetting that, ADSL subscribers
declined by 371k to represent 30% of the total
customer base as at the year-end. The number of
customers using the Group’s on-net FTTB, HFC and
VDSL services grew by 10k to 117k as at the year-
end.
The increase in broadband revenues despite the
small decrease in subscriber numbers is explained
by the fact that ARPU for broadband customers
continued to increase in the year due to NBN
services having a higher ARPU than the DSL
services they are replacing.
The $43.8m decline in revenue from fixed voice
services reflects both the fact that, across the
industry, usage of home phones is declining and
the fact that standalone home phone services are
being replaced by NBN services which bundle data
and voice.
b) Corporate
Corporate revenue increased by $4.6m to $758.4m
in FY19. This growth in revenue was driven by a
$29.5m (5%) increase in data and internet
revenues, partially offset by a $15.0m decrease in
voice revenues and $9.9m decrease in legacy iiNet
corporate customer revenues.
The increase in data and internet revenues reflects
the strength of the Corporate Segment’s data and
internet product suite leveraging the Group’s
extensive fibre network.
The decline in voice revenues reflects a continuing
industry trend of decline in fixed voice usage. The
decrease in legacy iiNet revenues reflects the fact
that new corporate sales are predominantly made
under the TPG and AAPT brands rather than under
iiNet.
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) Consumer
Consumer Segment telco costs increased by
$39.3m compared to the previous year and
increased as a proportion of revenue from 55% to
58%.
The increase in this cost % reflects the fact that
NBN services with a high wholesale cost and low
margin have grown from 45% to 63% of the
Group’s broadband customer base during the year.
b) Corporate
Corporate Segment telco costs decreased from
37% to 33% of revenue reflecting the fact that
revenue growth was driven by on-net data and
internet revenues delivered using the Group’s
extensive fibre network.
13
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
4. Operating and financial review (continued)
4.3 Financial results review (continued)
Employment costs
Consumer Segment employment costs decreased
by $11.6m in FY19 and from 7.7% to 7.1% of
revenue. Corporate Segment employment costs
decreased by $7.7m, and from 14.4% to 13.3% of
Corporate Segment revenues. This reduction in
employment costs principally reflects ongoing
efficiencies that have been achieved through the
continued integration of iiNet operations and
increased automation of business processes.
The Group’s total number of employees as at 31
July 2019 was 4,776.
Other expenses
Other expenses include all of the overheads
incurred by the Group in running the business, as
well as marketing costs.
The Consumer Segment’s other expenses
decreased by $9.2m in FY19 declining from 8.3% to
7.9% as a proportion of Consumer Segment
revenue.
The Corporate Segment’s other expenses
remained constant as a proportion of revenue at
5% in FY19 and increased by $1.6m.
Unallocated other expenses of $11.1m include
$9.0m of transaction fees related to the Group’s
planned merger with VHA.
Impairment
On 29 January 2019, the Company announced
that, as a consequence of the Government’s ban
on use of Huawei equipment in 5G mobile
networks, it had decided to cease its Australian
mobile network rollout.
Having ceased the mobile network rollout, the
Group now has no business plan or strategy for
using its spectrum licences and other mobile
network assets on a standalone basis and,
accordingly, it has been necessary to reassess the
carrying value of these assets.
It is expected that, in the event that the planned
merger with Vodafone Hutchison Australia (VHA)
proceeds, the Group’s spectrum and mobile assets
will be complementary to the VHA mobile
network. However, as the merger remains subject
to regulatory and shareholder approval and is,
therefore, not certain to proceed, the expected
use by, and value to, the merged entity of these
assets may not be taken into account in
determining their current value to the Group.
Accordingly, pursuant to an impairment review
undertaken of all of the Group’s Australian
spectrum and mobile assets an impairment
expense of $236.8m has been recognised in the
FY19 income statement.
Depreciation
The Group’s depreciation expense decreased by
$5.6m in FY19 despite the fact that capital
expenditure in the year exceeded depreciation
expense. This is principally explained by the fact
that (i) a large proportion of new capital
expenditure has been spent on fibre infrastructure
which has a long useful life, while expenditure on
hardware assets such as DSLAMs, which have
much shorter useful lives, has declined
substantially; (ii) capital expenditure on the mobile
network rollout in Singapore will not start to be
depreciated until the network is ready to deliver
commercial services; and (iii) capital expenditure
incurred on the mobile network rollout in Australia
prior to the project being terminated, has been
mostly written-off within the impairment expense
described above.
Amortisation
The Group’s FY19 intangible amortisation expense
of $136.1m was $45.7m higher than the prior year.
This was principally due to the fact that, up until
the date that the Australian mobile network
rollout ceased, the Group’s Australian mobile
spectrum licences had not been amortised in the
Group’s accounts. In accordance with the Group’s
accounting policies, amortisation of these licences
14
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
4. Operating and financial review (continued)
4.3 Financial results review (continued)
was to commence when the associated mobile
network assets were installed and ready for their
intended use. Following the decision to cease the
rollout, straight-line amortisation of the licences
over their remaining licence terms began from the
end of January 2019. This gave rise to a $53.6m
increase in spectrum licence amortisation in FY19.
The Group achieved another year of strong
cashflow performance with operating cashflow for
FY19 of $836.3m again exceeding EBITDA. Tax
payments in FY19 were significantly lower than the
prior year because FY18 included tax paid on the
capital gain realised on the sale of investments in
FY17.
Net financing costs
Capital expenditure
Net financing costs increased by $16.3m (47%) in
FY19. The drivers of this movement were: (i) a
$12.1m increase in debt facility interest due to
increased borrowings compared to the prior year;
(ii) an $8.2m increase in interest expense on the
deferred 700MHz spectrum payment instalments;
(iii) a $2.6m increase in the capitalisation of
interest directly attributable to the purchase
and/or construction of assets, and (iv) $1.3m
decrease in other interest and borrowing costs.
Following the cessation of the Australian mobile
network rollout, interest capitalised in relation to
the acquisition of Australian spectrum and mobile
assets has been written-off as part of the
impairment expense described above and no
further interest capitalisation has occurred in
relation to the Australian mobile project from the
date the rollout ceased at the end of January 2019.
Income tax
The Group’s effective income tax rate was 30.7%
in FY19, broadly in line with the Australian
corporate tax rate of 30%.
Free cashflow
Operating cashflow
Tax
IRU / finance lease payments
Capex - BAU
Capex - mobile spectrum
Capex - mobile networks (Aus)
Capex - mobile networks (Sg)
FY19
$m
836.3
(128.6)
(5.5)
(198.7)
(352.4)
(86.1)
(80.1)
FY18
$m
868.3
(194.5)
(34.1)
(258.0)
(597.3)
(38.7)
(62.3)
Free cashflow
(15.1)
(316.6)
Business as usual (‘BAU’) capital expenditure of
$198.7m was $59.3m lower than last year
principally due to the substantial completion in the
prior year of the build for the VHA fibre contract.
Mobile spectrum capex of $352.4m in FY19
reflects the payment during the year of the second
instalment for the Australian 700MHz spectrum
acquired at auction in April 2017. The first
instalment of $597.3m was paid in FY18 and the
third and final instalment of $352.4m is payable in
January 2020. A further $86.1m of capex was also
incurred in FY19 in relation to the Australian
mobile network rollout up until the project ceased.
This expenditure on spectrum and mobile assets in
Australia was partly impaired as part of the
impairment review that was undertaken following
the cessation of the project as described above.
Capex for the mobile network build in Singapore in
FY19 was $80.1m taking the aggregate capex
incurred on the project up to $147m (excluding
spectrum).
Non-operating cashflows
Free cashflow
Costs re planned merger
Net drawdown of bank debt
Debt facility fees
Interest payments (net)
Dividend payments
Other
(Decrease)/increase in cash
FY19
$m
(15.1)
(6.6)
87.8
-
(60.2)
(37.1)
0.4
(30.8)
FY18
$m
(316.6)
-
430.8
(10.8)
(44.6)
(23.0)
0.1
35.9
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
4. Operating and financial review (continued)
15
4.3 Financial results review (continued)
The spectrum payment made in the year gave rise
to overall negative free cashflow for the Group in
FY19 which was funded through a net drawdown
on the Group’s debt facilities by an amount of
$87.8m. The increase in debt gave rise to an
increase in interest payments to $60.2m.
Dividends paid
Dividends paid in the year of $37.1m comprise the
final FY18 dividend and the interim FY19 dividend
of 2.0 cents per share (“cps”) each.
Balance sheet
Below is a condensed version of the Group’s
balance sheet as at the end of FY19, 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
Other current assets
Total current assets
Property, plant & equipment (2)
Spectrum assets (3)
Intangible assets
Other non-current assets (4)
Total non-current assets
Deferred income
Loans and borrowings (1)
Spectrum liability (3)
Other current liabilities
Total current liabilities
FY19
$m
51.4
128.3
33.5
213.2
1,355.1
1,334.6
2,350.8
59.1
5,099.6
158.6
14.3
344.2
378.5
895.6
FY18
$m
82.2
134.2
30.5
246.9
1,249.0
1,479.7
2,411.2
13.9
5,153.8
153.6
5.5
344.0
387.5
890.6
Loans and borrowings (1)
1,470.6
1,318.4
Spectrum liability (3)
Other non-current liabilities
-
59.3
327.8
76.1
Total non-current liabilities
1,529.9
1,722.3
Net assets
2,887.3
2,787.8
Balance sheet notes
1. Net debt
Current and non-current loans and borrowings
totalling $1,484.9m are shown in the balance
sheet net of prepaid borrowing costs of $20.7m.
Gross borrowings at 31 July 2019 were $1,505.6m
comprising bank debt of $1,424.7m, finance lease
liabilities of $12.3m and a derivative financial
liability (an out of the money interest rate swap) of
$68.6m. Taking into account the $51.4m cash
balance, the Group had net debt at the end of
FY19 of $1,454.2m.
2. Property, plant & equipment (“PPE”)
The Group’s PPE balance is $106.1m higher at 31
July 19 than at 31 July 18. This movement is made
up predominantly of $317.5m of capital
expenditure (mainly network infrastructure
investment) during the year less $133.2m of
depreciation expense and the impairment of
Australian mobile network assets of $86.8m.
3. Spectrum assets and liabilities
The $145.1m decrease in the book value of
spectrum assets in the year is attributable to the
$91.8m impairment expense booked following the
cessation of the Australian mobile network build in
January 2019 and the amortisation of the
spectrum from the date the network build ceased
through to the end of the reporting period.
The final instalment of $352.4m for the 700MHz
spectrum licence, payable in January 2020, is
disclosed as a spectrum liability on the balance
sheet at its discounted present value of $344.2m.
4. Other non-current assets
The $45.2m increase in other non-current assets is
driven by a deferred tax asset of $45.4m arising
primarily from the recognition of the impairment
expense in the year.
16
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
4. Operating and financial review (continued)
4.4 Business outlook
Prospects for FY20
EBITDA Guidance
FY20 is expected to be the year that the Group experiences the greatest financial impact from customer
migration to NBN, with combined headwinds from residential DSL and home phone customers moving to NBN
expected to be around $85m. In addition, the annualisation of the deterioration of profitability of existing
NBN customers experienced in 2H19 as a result of increased NBN wholesale cost per user is forecast to create
a further NBN headwind for FY20 of approximately $25m.
By the end of FY20 the Group expects to have less than 15% of its residential broadband customer base
remaining on ADSL.
Operating cost efficiency programs across the Group are expected to continue to deliver savings and another
year of growth is forecast for the Group’s Corporate Division but, in this peak year of NBN headwinds, organic
growth for FY20 is not expected to be sufficient to offset the headwinds, with BAU1 EBITDA expected to be in
the range of $735-750m.
1 BAU EBITDA relates to existing Consumer and Corporate Division operations. It excludes Singapore EBITDA
and Australian mobile network operating costs and takes no account of any impact from the planned merger
with VHA, including merger transaction costs. BAU EBITDA guidance is provided on an excluding AASB16 basis.
AASB16 will be effective from the start of FY20 and is expected to have the effect of increasing EBITDA by
moving certain operating lease expenditure out of EBITDA and into depreciation and financing costs.
$824m(~$75m)(~$10m)(~$25m)$21-36m$735-750mFY19ADSL-->NBNiiNetDecline inOtherFY20FBAUGP marginfixed voiceprofitabilitygrowthBAUEBITDAreductionGP decreaseof existingEBITDANBN base
17
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
4. Operating and financial review (continued)
4.4 Business outlook (continued)
Merger of Equals with Vodafone Hutchison Australia
On 30 August 2018, the Company and Vodafone Hutchison Australia (“VHA”) entered into a Scheme
Implementation Deed under which the companies agreed a proposed merger of equals to establish a fully
integrated telecommunications operator in Australia.
If the merger proceeds:
-
-
it will be implemented via a TPG Scheme of Arrangement, with the new merged group listed on the
Australian Securities Exchange (“ASX”) and renamed “TPG Telecom Limited” in conjunction with
implementation of the scheme.
TPG shareholders will own 49.9% of the equity of the Merged Group, with VHA shareholders owning
the remaining 50.1%.
The merger is subject to a number of conditions including shareholder and regulatory approvals.
- On 8 May 2019, the ACCC announced it had decided to oppose the proposed merger.
- On 24 May 2019 proceedings were lodged with the Federal Court of Australia by the merger parties
seeking orders that the proposed merger will not have the effect, or likely effect, of substantially
lessening competition.
The Federal Court hearing was held between 10 September and 1 October 2019 and the Group is
currently awaiting judgment. The judge has indicated that his decision can be expected by February
2020.
-
18
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
4. Operating and financial review (continued)
4.4 Business outlook (continued)
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, for example as a result of the NBN rollout, could impact the Group’s financial
performance by affecting its ability to grow its customer base and/or its ability to make money from its service
offerings.
The Group attempts to mitigate this risk by continually reviewing its customer offerings, their pricing relative
to the market and customer needs. This is combined with constant reviews of the Group’s cost structures with
the objective of optimising costs to ensure the Group is best placed to continue providing value leading
services.
2. Business interruption
A significant disruption of the Group’s business through network or systems failure could cause financial loss
for the Group and increased customer churn. The Group maintains business interruption insurance and
continually invests in its network and systems to improve their resilience and performance.
3. Regulatory environment
Changes in regulation can significantly impact the Group’s business. In addition, failure to comply with
regulatory requirements could create financial loss for the Group. The Group attempts to mitigate this risk
through close monitoring of regulatory developments, engaging where necessary with the relevant regulatory
bodies, and monitoring its own compliance with existing regulations.
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
Environmental and other sustainability risks are addressed in the Group’s Sustainability Report which can be
found on the Company’s website at www.tpg.com.au/about/investorrelations.
TPG Telecom Limited and its controlled entities
19
Directors’ report
For the year ended 31 July 2019
5. Remuneration report
Foreword from Mr Denis Ledbury, Chairman of the Remuneration Committee
On behalf of the Board I am pleased to present the Remuneration Report for FY19.
The objectives of our remuneration structures are to attract, motivate and retain high calibre executive
employees necessary to lead the organisation and deliver on long-term shareholder returns.
The Board strongly believes that the remuneration structures it has employed consistently over many years
have been successful in helping achieve our objectives and delivering excellent value to shareholders.
As set out elsewhere in this Annual Report, FY19 presented a number of significant challenges for the Group
including the impact of the Government’s Huawei ban on the Group’s mobile strategy in Australia, the decision
by the ACCC to oppose the Group’s planned merger with VHA, and the continued margin erosion caused by
the Government’s NBN rollout.
Such significant changes to business conditions and the flow-on impact on strategies require a work-force to
be extremely adaptable, and the spirit and performance of the Group’s employees, led very capably by our
Executive Chairman and CEO, David Teoh, and his senior management team, in the face of these challenges
has been commendable.
All of the aforementioned challenges made for a more demanding year than ever for the Group’s employees.
In that context, it is important to recognise some of their significant achievements during FY19, as set out
below:
• Although the implementation of the planned merger with VHA has been delayed by regulatory approval
processes, the merger agreement negotiated with VHA which was signed and announced in the first
month of FY19 has the potential to deliver excellent long-term value for shareholders.
• Although the Government’s Huawei ban has served to undermine the value of the Group’s Australian
mobile network assets, the design, planning and construction of the 900 sites built up until the rollout was
ceased in January 2019 was a tremendous achievement. These sites will be valuable to the merged group
if the merger proceeds.
• Despite incurring headwinds of $76m in the year caused by the Government’s NBN rollout, the Group’s
underlying FY19 EBITDA for its core business declined by only $4.3m and exceeded budget and guidance,
due in large part to organic growth achievements delivered by the employee group.
Corporate Division EBITDA increased by $37.4m (11%) with EBITDA margin expanded from 44% to 48%.
•
• Our Singapore mobile network outdoor service coverage surpassed 99%. A free service trial was
subsequently launched with over 300k trial users onboarded by October 2019.
Remuneration structure adjustments in FY19
The Remuneration Committee believes firmly in the benefits of equity-based remuneration and that the
Group’s performance rights plan has been an effective tool for incentivising and retaining key employees since
the inception of the plan in FY12.
20
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
5. Remuneration report (continued)
However, following the announcement on 30 August 2018 of the Company’s planned merger with VHA, the
Remuneration Committee determined that it was not appropriate to grant any further equity-based
remuneration to employees pending completion of the merger transaction, under which all of the Company’s
equity is to be acquired by VHA.
This meant that the annual grant of performance rights under the Group’s performance rights plan was
suspended for FY19.
Executive remuneration outcomes in FY19
The Group’s delivery on its strategic objectives and its financial performance were adversely impacted in FY19
by a number of factors that were largely beyond the control of management:
•
•
•
The Government’s ban of use of Huawei equipment for 5G networks led to a decision by the Board to
cease the Group’s mobile network strategy in Australia;
The decision by the ACCC to oppose the merger with VHA meant that it was not possible to complete
the merger with VHA in FY19;
The $76m headwinds from the Government’s NBN rollout were too great to be fully offset by the
Group’s organic growth achievements.
It is important that a Remuneration Committee strike an appropriate balance between recognising within
management remuneration:
a)
b)
c)
the failure to achieve objectives and the impact on shareholder value;
the degree to which factors responsible for missed objectives were beyond management control; and
the efforts by management to maximise shareholder value in the environment created by the
external factors.
I believe that the Remuneration Committee has dealt sensibly with these challenges in FY19 with management
appropriately rewarded for their efforts and achievements but with the amount of remuneration granted to
the CEO below prior year levels in light of some of the disappointing outcomes in the year.
I trust that you will find this Remuneration Report simple to understand and informative. I hope that you will
support the resolution to adopt the Remuneration Report at the 2019 AGM and I will be available at the AGM
to answer any questions that you may have regarding the work of the Remuneration Committee.
Denis Ledbury
Remuneration Committee Chairman
TPG Telecom Limited and its controlled entities
21
Directors’ report
For the year ended 31 July 2019
5. Remuneration report – audited
5.1
Introduction
This remuneration report sets out the remuneration structures of the directors of the Company and of other
key management personnel (‘KMP’) of the Group, and explains the principles underpinning those
remuneration structures.
For the purpose of this report, KMP are defined as those individuals who have authority and responsibility for
planning, directing and controlling the activities of the Group. KMP include the directors of the Company and
key Group executives including the five most highly remunerated.
5.2 Remuneration principles
Remuneration levels for KMP 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
setting performance hurdles for the achievement of performance-linked incentives at a sufficiently
demanding level as to ensure value creation for shareholders.
5.3 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 KMP is determined by the Executive Chairman in conjunction with the Remuneration
Committee. Fixed remuneration reviews for other staff are determined by the Executive Chairman.
(ii) Performance-linked remuneration
Performance-linked remuneration provided by the Group currently includes a performance rights plan and
cash bonuses.
22
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
5. Remuneration report – audited (continued)
5.3 Remuneration structure (continued)
a) Performance Rights Plan
Following the announcement on 30 August 2018 of the Company’s planned merger with VHA, the
Remuneration Committee determined that it was not appropriate to grant any further equity-based
remuneration to employees pending completion of the merger transaction, under which all of the Company’s
equity is to be acquired by VHA. This meant that the annual grant of performance rights under the Group’s
performance rights plan was suspended for FY19.
However, despite there being no new rights granted during the year, the performance rights plan continued to
operate in respect of rights issued in earlier years that were yet to vest at the start of FY19.
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 performance rights were granted under the plan rules in each financial year thereafter up to and
including FY18. All rights granted from FY16 onwards have the same key terms which are as follows:
• One quarter of the performance rights granted will vest following the release of the Group’s audited
financial statements for each of the four financial years ending after the date of grant, subject to the
satisfaction of performance conditions.
• At each vesting date:
o
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 (refer note 1
below); and
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
(refer note 2 below).
• Any performance rights which do not vest, automatically lapse.
For the rights granted prior to FY16, the rules were consistent with the above except for the vesting period
was only three years.
Note 1
This feature of our performance rights plan is designed to promote the retention of our most valuable
employees, which is critical in the competitive industry in which the Group operates.
Note 2
The financial objectives that form part of the vesting conditions described above are determined annually by
the Remuneration Committee. For FY19, the financial objective set by the Remuneration Committee was
achievement of the Group’s Board approved FY19 financial budget. The Group’s actual performance for FY19
exceeded its financial budget. This is reflected in the fact that the Group achieved EBITDA above the top end
of its guidance range. As a result, the Remuneration Committee has determined that 100% of performance
rights that have a vesting date immediately following the release of the FY19 audited financial statements will
be permitted to vest.
23
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
5. Remuneration report – audited (continued)
b) Cash bonuses
Cash bonuses may be paid by the Group, including to KMP, depending on the Group’s performance and to
reward individual performance. Bonuses awarded to executive directors are determined by the Remuneration
Committee. Bonuses awarded to other KMP 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.
5.4 KMP remuneration detail
The KMP 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
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
Chief Information Officer
General Counsel
Group Executive, Corporate, Government & Wholesale (resigned with effect from 6 May 2019)
(i)
FY19 Remuneration awarded to David Teoh, Executive Chairman & Chief Executive Officer
In FY19, David Teoh’s remuneration comprised:
• Fixed salary of $1,635,000 including super; and
• An annual bonus of up to 100% of his base salary.
David’s fixed salary was unchanged from the prior year and has not been increased since 2014.
The objectives set by the Remuneration Committee at the start of the year for determining David’s eligibility to
receive his annual bonus were a mix of financial and strategic objectives. For FY19 the objectives were:
1) Delivery of FY19 financial results for the Group that were in line with or ahead of the Group’s FY19
budget;
2) Delivery on mobile strategy in Singapore;
3) Delivery on mobile strategy in Australia; and
4) Completion of merger with VHA.
It was determined that David fully satisfied objectives 1 and 2. Unfortunately, objectives 3 and 4 were
impeded during the year by external factors beyond David’s control. The Government’s ban of use of Huawei
equipment for 5G networks lead to a decision by the Board to cease the mobile network strategy in Australia
and the decision by the ACCC to oppose the merger with VHA meant that it was not possible to complete the
merger in FY19.
The fact that failure to achieve objectives 3 and 4 was due largely to factors beyond David’s control was taken
into consideration in determining the proportion of the maximum bonus to be awarded. It was determined
overall to award David 85% of his maximum bonus.
David continues to be, as noted in previous years’ reports, a businessman of rare and exceptional acumen and
skills who is widely regarded as one of the leading strategists in the telecommunications industry. The
24
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
5. Remuneration report – audited (continued)
Remuneration Committee’s own analysis of David’s overall remuneration placed him this year around the 80th
percentile for CEO remuneration of ASX listed companies with a similar market capitalisation. The
Remuneration Committee continues to believe that this represents excellent value for shareholders relative to
David’s contribution to the Group.
There is no long-term incentive component to David‘s remuneration nor any deferral or clawback provisions
attached to his annual bonus. These features that are common to many CEO remuneration structures are not
considered necessary by the Remuneration Committee given David’s position as the Company’s largest
shareholder with a very material interest in the Company. There can be no doubt that David’s interests are
already very well aligned with those of the Company’s shareholders generally and with such a significant
existing equity interest in the Company it is not considered necessary by the Board to incentivise David with
any additional equity component to his remuneration.
(ii) FY19 Remuneration awarded to non-executive directors
Non-executive director remuneration in FY19 remained unchanged for the fifth consecutive year, at $400k in
aggregate. This relatively modest Board remuneration is another aspect of the Group’s remuneration
structures that represents excellent value for shareholders. 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. 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.
(iii) FY19 Remuneration awarded to other KMP
The remuneration of each of the other KMP comprises:
• Fixed salary
• Annual cash bonus
• Participation in the Performance Rights Plan.
As noted in previous years’ reports, the Group’s KMPs’ fixed salaries have historically been set at a discount to
the market rate for similar roles in comparable companies, with the executives being compensated with a
relatively generous annual bonus scheme. Taking into account feedback from various stakeholders, it was
decided to align KMPs’ fixed salaries more closely with the market from the start of FY19 and reduce the
KMPs’ eligible bonus pool by a commensurate amount.
Shareholders can take comfort that executive bonuses will not spike to unreasonable levels by the fact that the
Board has in force a set limit across the Group of annual bonus and performance rights expense as a % of
EBITDA. This limit was reduced from 1.5% to 1.4% in FY19 following the decision to align KMPs’ fixed salaries
more closely with the market. That is to say that, the aggregate annual expense of all bonuses and
performance rights across the Group including amounts awarded to the CEO and to other KMP cannot exceed
1.4% of the Group’s annual EBITDA.
The annual cash bonus awarded to each of the KMP in FY19 was 40% of their salary on average (FY18: 104%).
The criteria for assessing their individual performances included:
• Contribution to financial performance in the current financial year.
• Contribution to important strategic projects which may not have an immediate financial impact.
• Other individual goals unique to the role each of the executives plays in the Group’s operations.
25
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
5. Remuneration report – audited (continued)
The Remuneration Committee believes firmly in the benefits of equity-based remuneration and that the
Group’s performance rights plan has been an effective tool for incentivising and retaining key employees since
its introduction in FY12. However, following the announcement on 30 August 2018 of the Company’s planned
merger with VHA, the Remuneration Committee determined that it was not appropriate to grant any further
equity-based remuneration to employees pending completion of the merger transaction, under which all of
the Company’s equity was to be acquired by VHA. This meant that the annual grant of performance rights
under the Group’s performance rights plan was suspended for FY19.
For the reasons described in section 5.3(ii)(a) above, the Remuneration Committee has determined that 100%
of the performance rights held by these executives that were granted in previous years and have a vesting
date immediately following the release of the FY19 audited financial statements will be permitted to vest.
(iv) Service Contracts
No KMP employment contract in place during FY19 has a fixed term, nor do any contain any provision for
termination benefits other than as required by law. No KMP employment contract in place during FY19 had a
notice period of greater than three months.
(v) Link to Group financial performance
In determining the short-term incentive component of KMP remuneration, consideration is given to the
Group’s performance, including against its financial targets.
The table below sets out a summary of the Group’s financial performance over the past ten financial years.
The exceptional growth achieved over this extended period has unfortunately not been able to be sustained
over the past two financial years due to two principal reasons:
First, the headwinds the Group has faced from the forced migration of the Group’s residential broadband
customer base to the Government’s NBN. As set out elsewhere in this report, the NBN headwinds the Group
faced in FY19 were $76m.
Second, the cessation of the Australian mobile network build in January 2019 due to the Government’s ban on
use of Huawei equipment for 5G networks gave rise to an impairment expense in FY19 of $237m, and the
resulting requirement to start amortising the Group’s spectrum licences with no associated earnings has driven
the FY19 decline in underlying EPS.
The Board believes that a decline in underlying EBITDA for FY19 of only 1% is a very respectable achievement
in the context of the above challenges.
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Revenue ($m)
Reported EBITDA ($m)
Impairment ($m)
Reported EPS (cents)
Underlying1 EBITDA ($m)
Underlying1 NPAT ($m)
Underlying1 EPS (cents)
Closing share price ($)
508
171
-
7.6
171
78
10.7
1.79
575
234
-
10.1
234
105
13.6
1.43
663
262
-
11.5
262
110
14.0
1.93
725
293
-
18.8
293
162
20.4
3.64
971
364
-
21.6
364
191
24.0
5.33
1,271
2,388
2,491
2,496
2,477
485
-
28.2
485
247
31.1
9.34
849
-
45.3
775
361
43.1
12.37
891
-
47.9
835
417
48.3
5.46
827
-
42.8
827
432
46.7
5.76
8092
237
18.7
818
376
40.5
6.98
Dividends (cps)
______________________________________________________________________________
1 Underlying EBITDA and NPAT for FY19 and FY18 are as set out on page 7 of this annual report. Underlying EBITDA and NPAT for FY17,
9.25
11.5
14.5
10.0
4.0
4.5
4.0
7.5
4.0
5.5
FY16 and FY15 are as set out in the annual reports for each of those years. For the years before FY15, underlying EBITDA is the same as
reported EBITDA and the only difference between underlying and reported NPAT is an adjustment each year to exclude the post-tax effect
of acquired customer base intangible amortisation. Underlying EPS is based on underlying NPAT. 2 Excludes impairment expense.
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
5.
Remuneration report – audited (continued)
5.5
Directors’ and executive officers’ remuneration
26
The tables below set out the statutory remuneration disclosures for each director of the Company and for other KMP of the Group. The amounts shown reflect the expense recognised
in the Group’s financial statements.
Directors
Executive Director
Mr D Teoh, Chairman
Non-Executive Directors
Mr D Ledbury
Mr R Millner
Mr J Pang
Mr S Teoh
Short-term
Post-employment
Salary &
fees
$‘000
(note A)
STI cash
bonus
$‘000
(note B)
Non-
monetary
benefits
$‘000
Total
$‘000
Superannuation
benefits
$‘000
Movement on
long-service
leave balance
$‘000
Share-based
payments
$‘000
Total
$‘000
Proportion of
remuneration
performance
related
%
Share-based
payments as
proportion of
remuneration
%
FY19
FY18
1,610
1,610
1,360
1,600
69
145
3,039
3,355
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
100
100
90
90
90
90
85
85
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
100
90
90
90
90
85
85
25
25
10
10
9
9
9
9
8
8
27
27
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,091
3,407
44%
47%
110
110
99
99
99
99
93
93
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
5.
Remuneration report – audited (continued)
5.5
Directors’ and executive officers’ remuneration (continued)
Short-term
Post-employment
Share-based
payments
(note A)
STI cash
bonus
$’000
Movement
on annual
leave
balance
$‘000
Salary & fees
$’000
Total
$‘000
Superannuation
benefits
$‘000
Movement on
long-service
leave balance
$‘000
(note C)
Performance
rights
$‘000
Total
$‘000
Proportion of
remuneration
performance
related
%
Share-based
payments as
proportion of
remuneration
%
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
601
300
601
350
346
260
500
300
568
352
215
412
260
412
130
168
215
313
-
325
67
(3)
46
-
37
(5)
-
9
(5)
(3)
883
709
907
762
513
423
715
622
563
674
22
20
22
20
23
20
22
20
18
23
95
5
68
4
25
4
53
5
(40)
(11)
214
313
263
368
142
207
172
250
(112)
338
1,214
1,047
1,260
1,154
703
654
962
897
429
1,024
35%
69%
42%
68%
39%
57%
40%
63%
-
65%
18%
30%
21%
32%
20%
32%
18%
28%
-
33%
Executives
Mr S Banfield
Mr C Levy
Ms M De Ville
Mr T Moffatt
Mr M Rafferty (1)
(1) Mr M Rafferty’s FY19 remuneration is for the period up to 6 May 2019, being the effective date of his resignation. His FY19 salary includes payout of his unused leave balances.
28
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
5.
Remuneration report – audited (continued)
5.5
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 2019 and 31 July 2018 were for
performance during those years.
B. The amounts disclosed under ‘Non-monetary benefits’ for Mr D Teoh reflect the movement in his annual leave
balance and the provision of other fringe benefits (principally a motor vehicle).
C. 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 KMP is disclosed in 5.6 below. The rules of the performance rights plan are
explained in 5.3(ii)(a) above.
Alternative ‘non-statutory’ remuneration calculations
The Remuneration tables on the pages above disclose the value of each KMP’s remuneration as calculated in
accordance with accounting standards. As explained in note C to the tables above, the value of share-based
payments reflects the proportion of the value of the performance rights, as valued at the date they were
granted, that was amortised through the Group’s Income Statement in the relevant financial year. This amount
can differ significantly from the actual value of the share-based payments that the KMP actually received in the
financial year. Therefore, as requested by certain shareholder groups, we have provided below a table showing
an alternative calculation of each KMP’s ‘take home pay’. The table shows the difference in the values under
both methodologies and the impact of this difference on each KMP’s total disclosed remuneration. For the
purpose of the table below, the actual value of the share-based payments that the KMP actually received in the
financial year is calculated by multiplying the number of performance rights that vested during the financial
year by the share price on the vesting date.
Share based
payments per
statutory
remuneration
table
$’000
214
313
263
368
142
207
172
250
Value of
performance
rights that
vested during
the year
$’000
271
185
340
238
186
129
223
166
Total
remuneration
per statutory
remuneration
table
$’000
1,214
1,047
1,260
1,154
703
654
962
897
Total
remuneration per
alternative
calculation
(Take home pay)
$’000
1,271
919
1,337
1,024
747
576
1,013
813
Difference
$’000
57
(128)
77
(130)
44
(78)
51
(84)
Mr S Banfield
Mr C Levy
Ms M De Ville
Mr T Moffatt
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
The favourable variance of ‘take home’ pay to statutory remuneration in FY19 reflects the fact that on the FY19
vesting date in October 2018 the Company’s share price had climbed to $7.51, as compared to the FY18 vesting
date when the share price was $5.21 (both prices reflect the volume weighted average price on the day).
29
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
5.
Remuneration report – audited (continued)
5.6
Share-based payments
As explained in 5.3(ii)(a) above, there were no performance rights granted to KMP during FY19. Details of
performance rights that were granted to KMP during previous financial years and that remained outstanding at the
start of FY19 are set out below. All rights in the tables below were provided at no cost to the recipients and have an
exercise price of $nil.
FY18 Performance
rights grant
Mr S Banfield
Mr C Levy
Ms M De Ville
Mr T Moffatt
Mr M Rafferty
FY17 Performance
rights grant
Mr S Banfield
Mr C Levy
Ms M De Ville
Mr T Moffatt
Mr M Rafferty
FY16 Performance
rights grant
Mr S Banfield
Mr C Levy
Ms M De Ville
Mr T Moffatt
Mr M Rafferty
Number of rights
held as at 31 July
2018
Number of rights
forfeited during
FY19
Number of rights
vested during
FY19
Number of rights
held as at 31 July
2019
Fair value per
right at grant
date ($)
50,000
62,000
32,000
39,000
62,000
-
-
-
-
46,500
12,500
15,500
8,000
9,750
15,500
37,500
46,500
24,000
29,250
-
5.6000
5.6000
5.6000
5.6000
5.6000
Number of rights
held as at 31 July
2018
Number of rights
forfeited during
FY19
Number of rights
vested during
FY19
Number of rights
held as at 31 July
2019
Fair value per
right at grant
date ($)
48,300
55,575
31,500
38,850
48,750
-
-
-
-
32,500
16,100
18,525
10,500
12,950
16,250
32,200
37,050
21,000
25,900
-
6.0058
6.1655
6.0939
6.0906
6.1412
Number of rights
held as at 31 July
2018
Number of rights
forfeited during
FY19
Number of rights
vested during
FY19
Number of rights
held as at 31 July
2019
Fair value per
right at grant
date ($)
15,000
22,500
12,500
14,000
18,800
-
-
-
-
7,000
7,500
11,250
6,250
7,000
11,800
7,500
11,250
6,250
7,000
-
9.5160
9.5160
9.5160
9.5160
9.5471
There has been no vesting or granting of any rights since the year-end.
30
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
5.
Remuneration report – audited (continued)
5.7
KMP shareholdings
The movement during the reporting period in the number of ordinary shares in the Company held directly, indirectly
or beneficially by each KMP, including by their related parties, is as follows:
Directors
D Teoh
D Ledbury
R Millner
J Pang
S Teoh
Executives
S Banfield
C Levy
M De Ville
T Moffatt
Held at
1 August
2018
318,315,607
85,109
8,300,009
103,231
133,258
Vested as
remuneration
Other
changes
-
-
-
-
-
-
-
-
-
-
Held at
31 July
2019
318,315,607
85,109
8,300,009
103,231
133,258
245,000
367,525
229,751
719,521
36,100
45,275
24,750
29,700
(20,000)
(40,000)
-
(10,000)
261,100
372,800
254,501
739,221
5.8
Transactions with KMP
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 FY19 was $1.5m (FY18: $1.4m).
Apart from the above, 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 KMP and their related parties
There were no loans in existence between the Group and any KMP or their related parties at any time during or since
the financial year.
Other KMP transactions with the Company or its controlled entities
From time to time, KMP 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.
31
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
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
$m
Date of payment
Final 2018 ordinary
Interim 2019 ordinary
Total amount
2.0
2.0
18.5
18.6
37.1
20 Nov 2018
21 May 2019
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 FY19 dividend of 2.0 cents per ordinary
share, payable on 19 November 2019 to shareholders on the register at 15 October 2019. The Dividend Reinvestment
Plan (DRP) is currently suspended until further notice.
The financial effect of this dividend has not been brought to account in the financial statements for the year ended
31 July 2019 and will be recognised in subsequent financial reports.
8. Events subsequent to reporting date
The Federal Court hearing to consider whether the planned merger between the Company and VHA would have the
effect, or likely effect, of substantially lessening competition, was held between 10 September and 1 October 2019.
The judge has indicated that his decision can be expected by February 2020.
Other than the above, there has not arisen in the interval between the end of the financial year and the date of this
report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the
Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of
the Group in future financial years.
9. Likely developments
Other than the possible completion of the planned merger of equals with VHA, there are no material likely
developments for the Group to disclose outside of normal business operations at the date of this report.
10. Directors’ interests
The relevant interest of each director in the shares and options over such instruments issued by the companies
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 are as disclosed in section 5.7
above.
32
TPG Telecom Limited and its controlled entities
Directors’ report
For the year ended 31 July 2019
11.
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 policies
The Group maintains policies 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 terms of the insurance contract prohibit disclosure of the premiums payable and other terms
of the policies.
12. Non-audit services
During the year KPMG, the Company’s auditor, has performed certain other services in addition to their statutory
duties.
The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the
provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the
auditor independence requirements of the Corporations Act 2001 for the following reasons:
•
•
all non-audit services were subject to the corporate governance procedures adopted by the Company and have
been reviewed by the Audit & Risk Committee to ensure they do not impact the integrity and objectivity of the
auditor; and
the non-audit services provided do not undermine the general principles relating to auditor independence as
set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing
the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an
advocate for the Company or jointly sharing risks and rewards.
Details of the amounts paid to 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.
13. 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 18th day of October, 2019
33
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 of TPG Telecom Limited for the
financial year ended 31 July 2019 there have been:
i.
ii.
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.
KPMG
Chris Hollis
Partner
Sydney
18 October 2019
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
TPG Telecom Limited and its controlled entities
Consolidated income statement
For the year ended 31 July 2019
34
Revenue
Network, carrier and hardware costs
Employee benefits expense
Other expenses
Note
FY19
$m
FY18*
$m
4
2,477.4
2,496.1
(1,259.6)
(224.4)
(184.0)
(1,244.3)
(242.8)
(182.3)
Earnings before interest, tax, impairment, depreciation and amortisation
809.4
826.7
Impairment of spectrum and mobile assets
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
6
12
13
7
8
(236.8)
(133.2)
(136.1)
-
(138.8)
(90.4)
303.3
597.5
1.8
(52.5)
(50.7)
1.7
(36.1)
(34.4)
252.6
563.1
(77.6)
(165.6)
175.0
397.5
173.8
1.2
175.0
396.4
1.1
397.5
Earnings per share attributable to owners of the Company:
Basic and diluted earnings per share (cents)
9
18.7
42.8
*Restated, see note 31(a)
The notes on pages 39 to 89 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 2019
Profit for the year
Items that may subsequently be reclassified to the income statement, net of tax:
Foreign exchange translation differences
Net (loss)/gain on cash flow hedges taken to equity
Items that will not subsequently be reclassified to the income statement, net of tax:
Net change in fair value of assets measured through other comprehensive income
Total other comprehensive income, net of tax
35
FY19
$m
FY18*
$m
175.0
397.5
8.0
(44.6)
(0.5)
(37.1)
7.0
1.0
(0.7)
7.3
Total comprehensive income for the year
137.9
404.8
Attributable to:
Owners of the Company
Non-controlling interest
*Restated, see note 31(a)
136.7
1.2
137.9
403.7
1.1
404.8
The notes on pages 39 to 89 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 2019
Note
31 July 2019
$m
31 July 2018*
$m
36
Assets
Cash and cash equivalents
Trade and other receivables and contract assets
Deferred contract costs
Inventories
Derivative financial assets
Prepayments and other assets
Total Current Assets
Investments
Deferred contract costs
Derivative financial assets
Property, plant and equipment
Spectrum assets
Goodwill and other intangible assets
Deferred tax assets
Prepayments and other assets
Total Non-Current Assets
Total Assets
Liabilities
Trade and other payables
Loans and borrowings and derivative financial liabilities
Spectrum liability
Current tax liabilities
Deferred revenue
Employee benefits
Provisions
Accrued interest
Total Current Liabilities
Loans and borrowings and derivative financial liabilities
Spectrum liability
Deferred tax liabilities
Deferred revenue
Employee benefits
Provisions
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
*Restated, see note 31(a)
10
5
11
5
12
13
13
8
14
15
16
17
18
15
16
8
17
18
19
The notes on pages 39 to 89 are an integral part of these consolidated financial statements.
51.4
128.3
8.1
5.0
1.2
19.2
213.2
1.2
5.4
0.2
1,355.1
1,334.6
2,350.8
45.4
6.9
5,099.6
5,312.8
319.4
14.3
344.2
12.7
158.6
29.7
12.7
4.0
895.6
1,470.6
-
-
26.3
2.3
30.7
1,529.9
2,425.5
2,887.3
1,465.2
(46.6)
1,463.5
2,882.1
5.2
2,887.3
82.2
134.2
10.0
4.9
0.7
14.9
246.9
1.9
4.8
-
1,249.0
1,479.7
2,411.2
-
7.2
5,153.8
5,400.7
320.3
5.5
344.0
23.2
153.6
29.7
9.2
5.1
890.6
1,318.4
327.8
13.6
26.3
2.2
34.0
1,722.3
2,612.9
2,787.8
1,465.2
(8.2)
1,326.8
2,783.8
4.0
2,787.8
37
TPG Telecom Limited and its controlled entities
Consolidated statement of changes in equity
For the year ended 31 July 2019
Note
Share
capital
Foreign
currency
translation
reserve
Attributable to owners of the Company
Share based
payments
reserve
Fair value
reserve
Cash flow
hedge
reserve
Total
reserves
Retained
earnings
Total
Non-
controlling
interest
Total
equity
Balance as at 1 August 2017, as reported
Effect of AASB 15 implementation
Restated balance at 1 August 2017
Restated profit for the year
Other comprehensive income, net of tax
Restated total comprehensive income for the year
Issue of shares
Share-based payment transactions
Dividends paid to shareholders
Restated balance as at 31 July 2018
Restated balance as at 1 August 2018
Profit for the year
Other comprehensive income, net of tax
Total comprehensive income for the year
Share-based payment transactions
Dividends paid to shareholders
Balance as at 31 July 2019
31(a)(ii)
19
20
20
$m
1,449.4
-
1,449.4
-
-
-
15.8
-
-
1,465.2
1,465.2
-
-
-
-
-
1,465.2
$m
(3.7)
-
(3.7)
-
7.0
7.0
-
-
-
3.3
3.3
-
8.0
8.0
-
-
11.3
$m
(3.5)
-
(3.5)
-
-
-
-
2.6
-
(0.9)
(0.9)
-
-
-
(1.3)
-
(2.2)
$m
(7.0)
-
(7.0)
-
(0.7)
(0.7)
-
-
-
(7.7)
(7.7)
-
(0.5)
(0.5)
-
-
(8.2)
$m
(3.9)
-
(3.9)
-
1.0
1.0
-
-
-
(2.9)
(2.9)
-
(44.6)
(44.6)
-
-
(47.5)
$m
(18.1)
-
(18.1)
-
7.3
7.3
-
2.6
-
(8.2)
(8.2)
-
(37.1)
(37.1)
(1.3)
-
(46.6)
$m
963.3
4.1
967.4
396.4
-
396.4
-
-
(37.0)
1,326.8
1,326.8
173.8
-
173.8
-
(37.1)
1,463.5
$m
2,394.6
4.1
2,398.7
396.4
7.3
403.7
15.8
2.6
(37.0)
2,783.8
2,783.8
173.8
(37.1)
136.7
(1.3)
(37.1)
2,882.1
$m
4.7
-
4.7
1.1
-
1.1
-
-
(1.8)
4.0
4.0
1.2
-
1.2
-
-
5.2
$m
2,399.3
4.1
2,403.4
397.5
7.3
404.8
15.8
2.6
(38.8)
2,787.8
2,787.8
175.0
(37.1)
137.9
(1.3)
(37.1)
2,887.3
The notes on pages 39 to 89 are an integral part of these consolidated financial statements.
TPG Telecom Limited and its controlled entities
Consolidated statement of cash flows
For the year ended 31 July 2019
38
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Acquisition of spectrum assets
Acquisition of other intangible assets
Transaction costs relating to planned business combination
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 borrowings
Interest received
Finance costs paid
Dividends paid
Dividends paid to non-controlling interest
Net cash (used in)/from financing activities
Note
FY19
$m
FY18
$m
2,729.3
(1,893.0)
836.3
(128.6)
707.7
2,743.2
(1,874.9)
868.3
(194.5)
673.8
(327.9)
(352.4)
(37.0)
(6.6)
(723.9)
(5.5)
292.8
(205.0)
-
1.3
(61.5)
(37.1)
-
(15.0)
(292.5)
(597.3)
(66.5)
-
(956.3)
(34.1)
969.4
(538.6)
(10.8)
1.2
(45.8)
(21.2)
(1.8)
318.3
27
16
20
Net (decrease)/increase in cash and cash equivalents
(31.2)
35.8
Cash and cash equivalents at beginning of the year
Effect of exchange rate fluctuations
Cash and cash equivalents at end of the year
82.2
0.4
46.3
0.1
51.4
82.2
The notes on pages 39 to 89 are an integral part of these consolidated financial statements.
39
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
Index to notes to the consolidated financial statements
Page
Page
Note 1
Reporting entity
40
Note 17
Employee benefits
Note 2
Basis of preparation
40
Note 18
Provisions
Note 3
Segment reporting
41
Note 19
Capital and reserves
Note 4
Revenue
43
Note 20
Dividends
Note 5
Deferred contract costs
Note 6
Impairment of spectrum and
mobile assets
44
45
Note 21
Financial instruments and
risk management
Note 22
Operating lease commitments
Note 7
Finance income and expenses
47
Note 23
Capital and other commitments
Note 8
Taxes
47
Note 24
Consolidated entities
Note 9
Earnings per share
49
Note 25
Deed of cross guarantee
Note 10
Trade and other receivables and
contract assets
50
Note 26
Parent entity disclosures
Note 11
Investments
50
Note 27
Reconciliation of cash flows from
operating activities
Note 12
Property, plant and equipment
51
Note 28
Related parties
Note 13
Intangible assets
53
Note 29
Auditors’ remuneration
Note 14
Trade and other payables
56
Note 30
Subsequent events
Note 15
Loans and borrowings and
derivative financial liabilities
57
Note 31
Significant accounting policies
Note 16
Spectrum liability
59
59
61
62
63
64
73
73
74
76
79
80
80
81
81
81
40
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
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 2019 (referred to throughout this report as “FY19”), 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 18 October 2019.
b.
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis with the exception of
investments, derivatives and financial instruments which are measured at fair value. The methods used to
measure fair values are discussed further at note 21.
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.
41
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
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:
- Note 6 – impairment of spectrum and mobile assets;
- Note12(d) – impairment of property, plant and equipment;
- Note 13(c) – amortisation of intangible assets with finite useful lives;
- Note 13(d) & (e) – impairment testing for intangible assets; and
- Note 31(a)(ii) – initial application of AASB 15.
3.
Segment reporting
The Group determines and presents operating segments based on the information that is internally provided
to the Executive Chairman and Chief Executive Officer, 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. For all operating segments, discrete financial information is available and
their operating results are regularly reviewed by the Group’s Executive Chairman and Chief Executive Officer
to make decisions about resources to be allocated to each segment and assess their performance.
The Group currently recognises the following segments:
Consumer
The Consumer segment provides telecommunications and technology services to residential and small
business customers.
Corporate
The Corporate segment provides telecommunications services to corporate, government, and wholesale
customers.
Unallocated
In FY19, ‘Unallocated’ includes:
-
-
-
-
transaction costs for the planned merger with VHA of $9.0m (FY18: nil);
operating costs for Australian mobile sites of $2.7m (FY18: nil);
start-up expenses in relation to the Group’s Singapore operations of $2.7m (FY18: $1.4m); and
other corporate costs of $0.6m (FY18: $0.7m).
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
3.
Segment reporting (continued)
42
For the year ended 31 July 2019
$m
$m
$m
$m
Consumer
Corporate
Unallocated
Total results
Revenue
Network, carrier and hardware costs
Employee benefits expense
Other expenses
Results from segment activities
1,719.0
(1,003.6)
(122.3)
(135.8)
457.3
758.4
(253.3)
(100.9)
(37.1)
367.1
For the year ended 31 July 2018 *
$m
$m
Revenue
Network, carrier and hardware costs
Employee benefits expense
Other expenses
Results from segment activities
1,742.3
(964.3)
(133.9)
(145.0)
499.1
753.8
(280.0)
(108.6)
(35.5)
329.7
-
(2.7)
(1.2)
(11.1)
(15.0)
$m
-
-
(0.3)
(1.8)
(2.1)
2,477.4
(1,259.6)
(224.4)
(184.0)
809.4
$m
2,496.1
(1,244.3)
(242.8)
(182.3)
826.7
* Prior period comparatives have been restated on implementation of AASB15, see note 31(a)(ii).
Reconciliation of segment results to the Group’s profit before income tax is as follows:
Total segment results
Impairment of spectrum and mobile assets
Depreciation of plant and equipment
Amortisation of intangibles
Results from operating activities
Net financing costs
Profit before income tax
Geographic Information
FY19
$m
FY18
$m
809.4
826.7
(236.8)
(133.2)
(136.1)
303.3
(50.7)
252.6
-
(138.8)
(90.4)
597.5
(34.4)
563.1
All of the Group’s revenues are derived from Australian based entities, except for $30.5m (FY18: $32.8m)
derived from overseas customers. A geographic analysis of the Group’s non-current assets is set out below:
Country
Australia
Singapore
Other
Total
FY19
$m
4,549.0
307.8
242.8
5,099.6
FY18
$m
4,713.0
203.0
237.8
5,153.8
‘Other’ predominantly relates to submarine cables located in international waters.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
4.
Revenue
Revenue is measured based on the consideration specified in a contract with a customer. The Group
recognises revenue when it transfers control over a product or service to a customer.
43
The Group determines various performance obligations under a contract, allocates the total contract price
amongst the performance obligations based on their standalone selling prices, and recognise revenue when
the performance obligations are satisfied.
Performance obligations that arise from contracts with customers comprise:
-
Rendering of telecommunications services including provision of data, internet, voice, telehousing,
network capacity and other services. The Group recognises revenue as services are provided over time.
Sale of equipment to customer. Revenue is recognised when the equipment is delivered to the
customer.
-
a.
Major product categories:
The following table provides a breakdown of major product categories by segment.
Data & Internet*
Voice
Mobile
Other
Total
Consumer
FY19
$m
1,459.1
71.1
108.1
80.7
FY18
$m
1,425.3
114.9
111.6
90.5
Corporate
FY19
$m
643.0
115.4
-
-
FY18
$m
623.4
130.4
-
-
Total
FY19
$m
2,096.5
188.5
108.1
84.3
FY18
$m
2,048.7
245.3
111.6
90.5
1,719.0
1,742.3
758.4
753.8
2,477.4
2,496.1
* Includes, for the Consumer Division, revenue from bundled home phone voice.
b.
Contract balances
The following table provides information about receivables, contract assets, and liabilities from contracts
with customers.
Included in ‘Trade and other receivables and contract assets’
- Trade receivables
- Contract assets
Deferred revenue liability
31 July 2019
$m
31 July 2018
$m
106.0
44.5
(184.9)
128.8
34.4
(179.9)
Contract assets primarily relate to the Group’s rights to consideration for work completed but not billed at
the end of the current reporting period. These amounts are transferred to Trade receivables when the rights
become unconditional.
Deferred revenue liability primarily relates to the advance consideration received from customers for which
revenue will be recognised on fulfilment of performance obligations under the customer contracts.
44
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
4.
c.
Revenue (continued)
Remaining performance obligations
The Group has applied the practical expedient of not disclosing information about the amount of transaction
price allocated to the remaining (unfulfilled) performance obligations as the Group has a right to
consideration in an amount that corresponds directly with the value to the customer of the Group’s
performance completed to date.
d.
Effect of applying AASB 15
The effect of initially applying AASB 15 on the Group’s revenue from contracts with customers is described in
Note 31(a)(ii).
5.
Deferred contract costs
Current
Non-current
Total
31 July 2019
$m
8.1
5.4
31 July 2018
$m
10.0
4.8
13.5
14.8
Deferred contract costs comprise the following:
-
-
Incremental costs incurred to acquire customer orders, such as sales commission, are recognised as
deferred contract costs and expensed to employee benefits expense over the contract term.
Costs incurred to fulfil customer orders, such as connection costs and discounted installation charges,
are recognised as deferred contract costs and expensed through network, carrier and hardware costs
over the contract term.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
6.
Impairment of spectrum and mobile assets
45
On 29 January 2019, the Company announced that, as a consequence of the Government’s ban on use of
Huawei equipment in 5G mobile networks, it had decided to cease its Australian mobile network rollout.
Having ceased the mobile network rollout, the Group now has no business plan or strategy for using its
spectrum licences and other mobile network assets on a standalone basis and, accordingly, it has been
necessary to reassess the carrying value of these assets.
It is expected that, in the event that the planned merger with Vodafone Hutchison Australia (VHA) proceeds,
the Group’s spectrum and mobile assets will be complementary to the VHA mobile network. However, as
the merger remains subject to regulatory and shareholder approval and is, therefore, not certain to proceed,
the expected use by, and value to, the merged entity of these assets may not be taken into account in
determining their current value to the Group.
Following the announcement, management conducted an impairment review and estimated the recoverable
amount of all of the relevant assets on a ‘fair value less costs of disposal’ basis (which is categorised as a
level 3 method in the fair value hierarchy set out in note 21).
The impairment review resulted in an impairment expense of $236.8m being recognised in the current
reporting period, comprising the following:
Spectrum licences
Mobile network assets
Capitalised interest, related to
- spectrum licences
- mobile network assets
Other intangibles
Total impairment expense
Note
13
12
13
12
13
FY19
$m
91.8
84.7
57.5
2.1
0.7
236.8
Further details regarding each of these components are provided below.
Spectrum licences
The Group has Australian spectrum licences that had not, as at the date that the mobile network rollout was
ceased, been amortised in the Group’s accounts. In accordance with the Group’s accounting policies,
amortisation of these licences was to commence when the associated mobile network assets were installed
and ready for their intended use.
Following the Group’s decision to cease the mobile network rollout, the carrying value of these assets were
reassessed on a fair value less costs of disposal basis. The key factors considered in assessing the valuation
of the licences were:
-
-
the original price paid at auction for each of the spectrum licences;
a comparison of current market conditions and participants with those prevailing at the time of the
relevant auctions;
- whether there were any more recent, directly comparable spectrum auctions; and
-
the remaining licence term of each spectrum licence.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
6.
Impairment of spectrum and mobile assets (continued)
46
Determination of the fair value of these spectrum licences is an area of significant estimation uncertainty
given the lack of recent market data for relevant spectrum licence sales in the Australian regulatory context.
It was determined that the most relevant value is the price paid at auction by the Group, adjusted for the
licence period that has expired.
Pursuant to this assessment, the Group impaired the carrying value of its spectrum licences by $91.8m
reflecting the licence period that had expired up to the date of the announcement.
Due to there being no plan for the use of the spectrum licences, commencing from the start of 2H19, the
licences are being amortised in the Group’s accounts on a straight-line basis over the remaining term of each
licence.
Mobile network assets
As at 31 July 2019, the Group had incurred capital expenditure of approximately $125m in design, planning,
acquisition and construction costs relating to its Australian mobile network. A significant component of this
capital expenditure relates to the acquisition and installation of Huawei equipment.
Following the Group’s decision to cease the mobile network rollout, the Group reassessed the carrying value
of these mobile network assets. Key factors considered in assessing their fair value were:
-
the fact that Huawei equipment is banned from use in any 5G networks in Australia;
-
the limited alternative uses of the Huawei equipment; and
-
the alternative uses of the non-Huawei assets.
There is also a high level of estimation uncertainty in the valuation adopted for these assets due to the
absence of directly comparable transactions that provide evidence as to the value to third parties of the
various network components.
Pursuant to this assessment, the Group impaired the carrying value of the mobile network assets by $84.7m.
Capitalised interest
In accordance with the Group’s accounting policies, interest expense on debt drawn to finance the Group’s
investments in Australian spectrum and associated mobile network assets was being capitalised into the cost
of the relevant assets. Capitalisation of the interest expense was to cease at the same time as the related
assets began being depreciated.
Interest on deferred 700MHz spectrum payment instalments: $33.2m
Given the decision to cease the mobile network rollout and the change in the expected use of these assets,
the Group ceased capitalising interest expense relating to its Australian spectrum and associated mobile
network assets from the date of the decision. Interest capitalised up until this date comprised:
-
- Debt facility interest: $26.4m.
Given the cessation of the mobile network construction, both amounts (total $59.6m) were written-off in
the current reporting period as the recoverable amount of the spectrum and network assets was below the
carrying value of the assets including the capitalised interest.
47
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
6.
Impairment of spectrum and mobile assets (continued)
Other intangibles
Bank charges incidental to acquisition of spectrum licences of $0.7m had been capitalised prior to the
Group’s decision to cease the mobile network rollout. These capitalised bank charges have been written-off
in the current reporting period.
7.
Finance income and expenses
Interest income
Interest expense
- Debt facility interest
- Interest re deferred spectrum instalments
- Unwinding of discounts on provisions
- Other interest
- Amounts capitalised*
Borrowing costs
Net financing costs
FY19
$m
1.8
(52.3)
(24.8)
(0.5)
(0.1)
42.1
(35.6)
(16.9)
(50.7)
FY18
$m
1.7
(40.2)
(16.6)
(0.3)
(1.0)
39.5
(18.6)
(17.5)
(34.4)
* Finance expenses directly attributable to the construction of the Group’s fibre and mobile networks and
acquisition of mobile spectrum licences have been, in accordance with the Group’s accounting policies,
capitalised as part of the cost of the relevant assets. Following the cessation of the Australian mobile
network rollout, interest capitalised in relation to the acquisition of Australian spectrum and mobile assets
has been written off (refer note 6) and no further interest capitalisation has occurred in relation to this
project from the date the rollout ceased at the end of January 2019.
8.
Taxes
Income tax expense
Current tax expense
Deferred tax expense
Origination and reversal of temporary differences
Adjustments in respect of prior years
Income tax expense
Numerical reconciliation between tax expense and pre-tax accounting profit
Profit before income tax
Income tax using Australian tax rate of 30%
Different tax rates in other jurisdictions
Non-deductible and non-assessable items
Income tax expense
FY19
$m
120.5
(43.7)
0.8
(42.9)
77.6
252.6
75.8
0.4
1.4
77.6
FY18
$m
165.4
(1.1)
1.3
0.2
165.6
563.1
168.9
0.2
(3.5)
165.6
48
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
8. Taxes (continued)
Deferred tax assets and liabilities
Movement in temporary differences during the year
Deferred tax liabilities
Intangible assets
Other items
Deferred tax assets
Property, plant and equipment
Receivables
Inventories
Derivative financial assets
Investments
Provisions
Trade and other payables
Employee benefits
Unearned revenue
Equity raising costs
Tax losses carried forward
Net deferred tax liabilities
Balance
31 July 2017
$m
Recognised in
profit or loss
$m
Recognised in
equity
$m
Balance
31 July 2018
$m
Recognised in
profit or loss
$m
Recognised in
equity
$m
Balance
31 July 2019
$m
68.0
(7.3)
60.7
8.9
(8.2)
(0.9)
(0.1)
(3.0)
(13.6)
(9.2)
(9.0)
(10.9)
(2.0)
(1.0)
(49.0)
11.7
1.9
3.9
5.8
(1.0)
1.5
-
(0.4)
-
0.8
(6.1)
(0.3)
3.3
0.6
(4.0)
(5.6)
0.2
-
2.7
2.7
-
0.1
-
(0.7)
(0.3)
-
-
-
-
(0.1)
-
(1.0)
1.7
69.9
(0.7)
69.2
7.9
(6.6)
(0.9)
(1.2)
(3.3)
(12.8)
(15.3)
(9.3)
(7.6)
(1.5)
(5.0)
(55.6)
13.6
(31.9)
(1.6)
(33.5)
(13.7)
2.6
-
0.2
-
-
(0.7)
(0.1)
1.6
0.5
0.2
(9.4)
-
3.3
3.3
-
-
-
(19.1)
(0.3)
-
-
-
-
-
-
(19.4)
38.0
1.0
39.0
(5.8)
(4.0)
(0.9)
(20.1)
(3.6)
(12.8)
(16.0)
(9.4)
(6.0)
(1.0)
(4.8)
(84.4)
(42.9)
(16.1)
(45.4)
The Company has not recognised deferred tax assets on unutilised capital losses of $15.7m (FY18: $15.7m).
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
8. Taxes (continued)
49
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 do not relate to 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.
9.
Earnings per share
Basic and diluted earnings per share
FY19
Cents
18.7
FY19
$m
FY18
Cents
42.8
FY18
$m
Profit attributable to owners of the Company used in calculating basic and
diluted earnings per share
173.8
396.4
Weighted average number of ordinary shares used as the denominator in
calculating basic and diluted earnings per share
927,811,493
926,209,453
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, of which there were none at the end of the current or previous reporting period.
50
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
10.
Trade and other receivables and contract assets
Trade receivables
Contract assets and other receivables
Less: Provision for impairment losses and credit notes
FY19
$m
106.0
48.1
(25.8)
128.3
FY18
$m
128.8
38.7
(33.3)
134.2
The Group’s exposure to credit and currency risk and impairment losses related to trade and other
receivables is disclosed in note 21.
11.
Investments
Measured at fair value through other comprehensive income
Non-Current
Carrying amount as at 1 August
Change in fair value
Carrying amount as at 31 July
The Group’s investments comprise ASX-listed securities.
Joint venture with Vodafone Hutchison Australia (VHA)
FY19
$m
1.9
(0.7)
1.2
FY18
$m
2.9
(1.0)
1.9
In October 2018, the Company and VHA formed a 50:50 Joint Venture company, Mobile JV Pty Limited. The
initial scope of the joint venture is to acquire, hold and licence 3.6GHz spectrum. The joint venture entity will
be accounted for using the equity method. It had no material balances to report as at 31 July 2019.
Mobile JV successfully bid for twelve 5MHz lots in the 3.6GHz spectrum auction which concluded in
December 2018. Mobile JV will pay $263.3m in March 2020 for the lots purchased. The Group’s share of the
purchase price is reflected in the capital commitments set out in note 23.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
12.
Property, plant and equipment
Network & IT
infrastructure
$m
Land &
Buildings
$m
Leasehold
improvements
$m
Cost
Balance at 1 August 2017
Additions
Disposals
Effect of movements in exchange rates
Balance at 31 July 2018
Balance at 1 August 2018
Additions
Transfers
Disposals
Effect of movements in exchange rates
Balance at 31 July 2019
Depreciation and impairment losses
Balance at 1 August 2017
Depreciation charge for the year
Disposals
Balance at 31 July 2018
Balance at 1 August 2018
Depreciation charge for the year
Impairment (Refer note 6)
Effect of movements in exchange rates
Balance at 31 July 2019
Carrying amounts
At 31 July 2018
At 31 July 2019
1,716.3
325.2
(0.1)
1.6
2,043.0
2,043.0
315.3
4.8
(0.2)
5.0
2,367.9
706.2
136.3
0.1
842.6
842.6
129.3
86.8
1.0
1,059.7
1,200.4
1,308.2
42.7
4.6
-
-
47.3
47.3
0.3
-
-
-
47.6
3.1
1.1
-
4.2
4.2
1.1
-
-
5.3
43.1
42.3
51
Total
$m
1,772.9
330.8
(0.1)
1.6
2,105.2
2,105.2
317.5
4.8
(0.2)
5.0
2,432.3
717.4
138.7
0.1
856.2
856.2
133.2
86.8
1.0
13.9
1.0
-
-
14.9
14.9
1.9
-
-
-
16.8
8.1
1.3
-
9.4
9.4
2.8
-
-
12.2
1,077.2
5.5
4.6
1,249.0
1,355.1
a.
Recognition and measurement
Items of property, plant and equipment are stated at cost less accumulated depreciation and accumulated
impairment losses (see note 6). Cost includes all expenditure that is directly attributable to bringing the
asset to the location and condition necessary for its intended use. The cost of self-constructed assets
includes the cost of materials, direct labour, and the initial estimate, where relevant, of the costs of
dismantling and removing the items and restoring the site on which they are located. Borrowing costs that
are directly attributable to the acquisition, construction or production of qualifying assets form part of the
cost of the asset.
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 the item being disposed and are recognised net
within other expenses in the income statement.
52
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
12
b.
Property, plant and equipment (continued)
Subsequent costs
Subsequent costs are added to existing assets if it is probable that future economic benefits will flow to the
Group.
c.
Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful life of
each part of an item of property, plant and equipment.
The estimated useful lives used in both the current and comparative periods are as follows:
•
•
•
Network infrastructure
Buildings
Leasehold improvements
3 - 25 years
40 years
8 years
The residual value, the useful life and the depreciation method applied to an asset are reassessed at least
annually.
d.
Impairment
At each reporting date, the Group reviews the carrying amounts of its non-financial assets, including
property, plant and equipment, to determine whether there is any indication of impairment. If any such
indication exists, then the asset’s recoverable amount is estimated.
The recoverable amount of an asset is the greater of its 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 (CGU) to which the asset belongs. CGUs are determined according to the lowest
level of groups of assets that generate largely independent cashflows.
An impairment loss is recognised whenever the carrying amount of the asset or its CGU 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 CGUs are allocated first to reduce the carrying amount of any goodwill allocated to CGUs and then
to reduce the carrying amount of other assets in the CGU on a pro rata basis.
Impairment losses 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 is
reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if no impairment loss had been
recognised.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
13.
Intangible assets
Goodwill~
$m
Brands~
$m
Acquired
customer
bases
$m
Indefeasible
rights of use
of capacity
$m
Other
intangibles*
$m
Sub - total
$m
Spectrum
licences
$m
Cost
Balance 1 August 2017
Additions
Effect of movements in exchange rates
Balance 31 July 2018, as reported
AASB 15 adjustments
Restated balance 31 July 2018
Balance 1 August 2018
Additions
Transfers
Effect of movements in exchange rates
Balance 31 July 2019
Amortisation and Impairment
Balance 1 August 2017
Amortisation for the year
Balance 31 July 2018, as reported
AASB 15 adjustments
Restated balance 31 July 2018
Balance 1 August 2018
Amortisation for the year
Impairment (Refer note 6)
Balance 31 July 2019
Carrying amounts
At 31 July 2018, restated
1,911.0
-
-
1,911.0
-
1,911.0
1,911.0
-
-
-
1,911.0
-
-
-
-
-
-
-
-
-
90.6
-
-
90.6
-
90.6
90.6
-
-
-
90.6
-
-
-
-
-
-
-
-
-
480.5
-
-
480.5
-
480.5
480.5
-
-
-
480.5
271.8
51.0
322.8
-
322.8
322.8
43.5
-
366.3
2,802.5
100.1
-
2,902.6
(12.8)
2,889.8
2,889.8
76.6
(4.8)
-
2,961.6
386.3
95.6
481.9
(3.3)
478.6
478.6
74.0
58.2
610.8
222.2
1,262.8
9.1
1,494.1
-
1,494.1
1,494.1
-
-
8.8
1,502.9
5.9
8.5
14.4
-
14.4
14.4
62.1
91.8
168.3
215.8
35.4
-
251.2
-
251.2
251.2
25.5
-
-
276.7
56.1
15.0
71.1
-
71.1
71.1
17.1
-
88.2
180.1
188.5
104.6
64.7
-
169.3
(12.8)
156.5
156.5
51.1
(4.8)
-
202.8
58.4
29.6
88.0
(3.3)
84.7
84.7
13.4
58.2
156.3
71.8
46.5
At 31 July 2019
~ Goodwill and Brands are non-amortising intangible assets as they have indefinite useful lives.
* Other intangible assets include software, capitalised interest, development costs and other licences.
Amortising intangibles are removed from cost in the analysis in the year after they become fully amortised.
1,911.0
1,911.0
90.6
90.6
157.7
114.2
2,411.2
2,350.8
1,479.7
1,334.6
3,890.9
3,685.4
53
Total
$m
3,024.7
1,362.9
9.1
4,396.7
(12.8)
4,383.9
4,383.9
76.6
(4.8)
8.8
4,464.5
392.2
104.1
496.3
(3.3)
493.0
493.0
136.1
150.0
779.1
54
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
13. Intangible assets (continued)
a.
Recognition and measurement
(i)
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 31(c)(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.
(ii)
Intangible assets with definite useful lives:
Acquired customer bases
On acquisition of a subsidiary, customer contracts and relationships of the acquired subsidiary are valued
based on their expected future economic benefits (using 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.
Spectrum licences
Spectrum licences are stated at cost less accumulated amortisation and any accumulated impairment losses.
Other intangible assets
Other intangible assets comprise software, licences other than spectrum licences, operating costs that are
incurred in developing or acquiring income producing assets, and capitalised interest related to the
acquisition of intangible 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.
b.
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.
55
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
13. Intangible assets (continued)
c.
Amortisation
Unless otherwise stated, amortisation is charged to the income statement on a straight-line basis, over the
estimated useful lives of intangible assets. Goodwill and intangible assets with an indefinite useful life are
systematically tested for impairment at each balance sheet date.
The estimated useful lives used in both the current and comparative periods are as follows:
• Acquired customer bases
•
•
Indefeasible rights of use (IRU) of capacity
Spectrum licences
-
-
-
• 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 over the licence term starting
from the date the related network is ready
for its intended use. Subsequent to
impairment (refer note 6), spectrum licences
are being amortised on a straight-line basis
over the remaining licence term.
Amortised over the expected useful life.
d.
Impairment tests for intangible assets with indefinite useful lives
Intangible assets that have indefinite useful lives are tested annually for impairment.
For the purpose of impairment testing, indefinite life intangible assets are allocated to the Group’s CGUs.
As at 31 July 2018, the Group had four CGUs, being the Consumer, Corporate, Singapore and Australia
Mobile CGUs. During FY19 the Group announced that it had decided to cease its Australian mobile network
rollout. There is currently no business plan or strategy for using the spectrum licences and other mobile
network assets on a standalone basis.
The allocation of indefinite life intangible assets to the CGUs is as set out in the table below. Goodwill is
allocated to the CGU that is expected to benefit from the synergies of the acquisition.
FY19
Goodwill
Brands
Total
Goodwill
$m
1,615.5
295.5
-
-
1,911.0
$m
83.6
7.0
-
-
90.6
$m
1,699.1
302.5
-
-
2,001.6
$m
1,615.5
295.5
-
-
1,911.0
FY18
Brands
$m
83.6
7.0
-
-
90.6
Total
$m
1,699.1
302.5
-
-
2,001.6
Consumer
Corporate
Singapore
Australia Mobile
Total
Determining whether goodwill is impaired involves estimating the value-in-use of the CGUs to which the
goodwill has been allocated.
56
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
13. Intangible assets (continued)
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 prepared by senior management for
a five-year period plus a terminal value.
Key assumptions involved in the value-in-use calculations include:
• Gross profit: expected customer growth rates, average revenue per user, direct costs to deliver customer
services and product mix changes. These assumptions are determined based both on an extrapolation of
historical trends and on expected trends of future market developments.
• Overheads: forecast employee headcount and wage inflation, marketing costs and other overheads
required to support the growth assumed in the gross profit projections.
• Capital expenditure: forecast capital expenditure required to maintain and expand network
infrastructure to support the future growth assumed in the gross profit projections.
• Long-term growth rate: the terminal value calculation includes a long-term growth rate of 2.5% which is
reflective of the long-term industry outlook.
• Discount rate: A pre-tax discount rate of 12.0% has been used in discounting the projected cashflows of
each CGU, which is based on the Group’s weighted average cost of capital adjusted to reflect an estimate
of specific risks assumed in the cashflow projections.
Sensitivity analysis on all of the 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.
e.
Impairment tests for intangible assets with definite useful lives
The Group adopts the same process as detailed for property, plant and equipment in note 12(d) above to
test impairment of intangible assets having a definite life.
14.
Trade and other payables
Trade creditors
Other creditors and accruals
FY19
$m
195.3
124.1
319.4
FY18
$m
205.6
114.7
320.3
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 21.
57
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
15.
Loans and borrowings and derivative financial liabilities
This note provides information about the contractual terms of the Group’s interest-bearing loans and
borrowings and derivative financial liabilities. For more information about the Group’s exposure to interest
rate and foreign currency risk, see note 21.
Current
Finance lease liabilities
Derivative financial liabilities
Non-Current
Gross secured bank loans
Less: Unamortised borrowing costs
Finance lease liabilities
Derivative financial liabilities
FY19
$m
6.8
7.5
14.3
1,424.7
(20.7)
1,404.0
5.5
61.1
1,470.6
FY18
$m
5.5
-
5.5
1,330.7
(29.6)
1,301.1
12.4
4.9
1,318.4
As at 31 July 2019, the Group had debt facilities of $2,391.0m (including a Singapore dollar denominated
facility of SGD100m which is translated to AUD using the 31 July 2019 spot rate) of which $1,424.7m was
drawn down. As at 31 July 2019, the maturity profile of the facilities was between 1.2 and 5.2 years, with a
weighted average of 2.6 years. The outstanding loans balance as at the reporting date is shown in the
statement of financial position net of unamortised borrowing costs of $20.7m.
In January 2018, the Group entered into interest rate swap contracts to hedge the interest rate risk on
$800m of its debt facilities. These contracts will enable the Group to convert its borrowings from floating
rates to fixed rates for 5 years starting from December 2019.
The interest rate payable under the debt facility is based on BBSY (or SIBOR for Singapore dollar
denominated facility) rates plus a margin determined quarterly according to the Group’s gearing ratio.
As at 31 July 2019, the debt facilities were 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:
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 JV Company Pty Ltd
58
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
15. Loans and borrowings and derivative financial liabilities (continued)
Reconciliation of movements of liabilities to cash flows arising from financing activities
Liabilities
Equity
Note
Bank Loans
& accrued
interest
$m
Finance
lease
liabilities
$m
Share
capital
Retained
earnings
$m
$m
1,306.2
17.9
1,465.2
1,326.8
20
-
292.8
(205.0)
1.3
(61.4)
-
27.7
74.1
-
(5.5)
-
-
-
(0.1)
-
(5.6)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(37.1)
(37.1)
-
173.8
1,408.0
12.3
1,465.2
1,463.5
Non-
controlling
interest
$m
4.0
-
-
-
-
-
-
-
-
1.2
5.2
Total
$m
4,120.1
(5.5)
292.8
(205.0)
1.3
(61.5)
(37.1)
(15.0)
74.1
175.0
4,354.2
Balance as at 1 August 2018
Changes from financing cash flows
Payment of finance lease liabilities
Proceeds from borrowings
Repayment of borrowings
Interest received
Interest paid
Dividends paid
Total changes from financing cash flows
Other changes
Liability-related
Equity-related
Balance as at 31 July 2019
59
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
16.
Spectrum liability
Balance at the start of the year
Present value of spectrum liabilities assumed
Instalment paid on 31 January 2019
Interest accrued during the year
Balance at the end of the year
Current
Non-current
FY19
$m
671.8
-
(352.4)
24.8
344.2
344.2
-
FY18
$m
-
655.2
-
16.6
671.8
344.0
327.8
The Group acquired a licence for two lots of 10MHz of 700MHz spectrum at an auction in April 2017 for a
purchase price of $1.260 billion, payable in three annual instalments of which only the final instalment of
$352.4m remains payable on 31 January 2020. The total payable for the spectrum licence amounts to
$1,309.6m and implies total interest expense for the deferred payment instalments of $49.6m. The licence
period commenced from 1 April 2018.
17.
Employee benefits
Current
Liability for annual leave
Liability for long service leave
Non-Current
Liability for long service leave
a.
Current employee benefits
FY19
$m
15.0
14.7
29.7
FY18
$m
15.1
14.6
29.7
2.3
2.2
Liabilities for employee benefits that are due 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.
b.
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.
60
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
17. Employee benefits (continued)
c.
Performance rights plan
The Group has in place a performance rights plan as detailed in Section 5.3 of the Remuneration Report. No
new performance rights were granted during FY19. However, the performance rights plan continued to
operate in respect of rights issued in earlier years that were yet to vest at the start of FY19.
The number of rights outstanding during the year ended 31 July 2019 are set out below:
Balance as at 1 August 2018
Granted during the year
Forfeited during the year
Vested during the year
Balance as at 31 July 2019
Number of
Rights
1,839,575
-
(138,350)
(638,400)
1,062,825
The fair value of the rights at date of grant are 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 at date of grant of rights granted during the previous reporting period are as follows:
Date of grant
22 December 2017
23 March 2018
Weighted average
fair value
$6.3570
$5.6000
Share price
$6.46
$5.70
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 $2.9m (2018: $4.7m).
d.
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 $14.6m to defined contribution superannuation plans during the current year (FY18:
$14.7m).
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
18.
Provisions
61
Balance as at 1 August 2018
Provisions made during the year
Provisions used during the year
Unwind of discount
Balance as at 31 July 2019
Current
Non-current
Make good
costs
$m
Lease
increment
$m
Onerous
leases
$m
37.4
1.5
(1.4)
0.5
38.0
8.4
29.6
0.7
-
(0.1)
-
0.6
0.2
0.4
2.3
-
(0.3)
-
2.0
1.3
0.7
Other
$m
2.8
-
-
-
2.8
2.8
-
Total
$m
43.2
1.5
(1.8)
0.5
43.4
12.7
30.7
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.
Lease increment
Where the Group has contracted lease agreements that contain incremental lease payments over the term
of the lease, a provision is recognised for the increased lease payments so that lease expenditure is
recognised on a straight-line basis over the lease term.
Onerous leases
Where the Group has contractual obligations with costs exceeding the expected economic benefits from the
arrangement, a provision is immediately recognised for the excess cost component.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
19.
Capital and reserves
Share capital
62
Ordinary shares
$m
FY19
FY18
FY19
FY18
Balance as at 1 August
Ordinary shares issued during the year
- Dividend reinvestment plan
Balance as at 31 July
927,811,493
924,719,448
1,465.2
1,449.4
-
927,811,493
3,092,045
927,811,493
-
1,465.2
15.8
1,465.2
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 comprises the cost of performance rights granted to eligible employees
(refer note 17c) less any payments made to the employee share trust for the purpose of acquiring shares to
fulfil the Group’s obligations on vesting of the performance rights. At 31 July 2019 the number of Company
shares held in the employee share trust for the Group was nil. (FY18: nil).
Fair value reserve
The fair value reserve comprises the cumulative net change in fair value of the Group’s investments in equity
securities 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 the income statement as
the hedged cash flows or items affect profit or loss.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
20.
Dividends
Dividends recognised in the current year were as follows:
63
FY19
Interim FY19 ordinary
Final FY18 ordinary
Total amount
FY18
Interim FY18 ordinary
Final FY17 ordinary
Total amount
Cents
per share
Total
Amount
$m
Date of
payment
2.0
2.0
2.0
2.0
21 May 2019
20 Nov 2018
22 May 2018
21 Nov 2017
18.6
18.5
37.1
18.5
18.5
37.0
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 FY19 dividend of 2.0 cents per share. As the final dividend
was not declared or resolved to be paid by the Board of directors as at 31 July 2019, the dividend has not
been provided for in the consolidated statement of financial position. The dividend has a record date of
15 October 2019 and will be paid on 19 November 2019. 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
FY19
$m
FY18
$m
813.2
711.0
The above available amounts are based on the balance of the dividend franking account at year-end
adjusted for:
(a) franking credits that will arise from the payment of the current tax liabilities; and
(b) 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 $8.0m (2018: $8.0m).
64
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
21.
Financial instruments and risk management
Financial Instruments
Non-derivative financial instruments
The Group classifies non-derivative financial assets into the following categories: measured at amortised
cost (MAAC), and fair value through other comprehensive income (FVOCI).
a.
Non-derivative financial assets and financial liabilities – recognition and derecognition
The Group initially recognises MAAC assets 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.
b.
Non-derivative financial assets - measurement
MAAC assets
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 MAAC
assets category comprises trade and other receivables.
FVOCI 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 are recognised in other
comprehensive income and accumulated in the fair value reserve. When these assets are derecognised, the
accumulated gain or loss in the fair value reserve is not reclassified to the income statement. The FVOCI
category comprises equity securities.
c.
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, spectrum liability and trade and other payables.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
21.
Financial instruments and risk management (continued)
Derivative financial instruments and hedging
65
The Group uses derivative financial instruments, such as forward currency contracts and interest rate swaps
to manage the foreign currency and interest rate risks. 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. The fair value of forward currency contracts is calculated by reference to current
forward exchange rates. The interest rate swaps are valued at the present value of the estimated future cash
flows. 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.
Derivative financial instruments that meet the criteria for hedge accounting are accounted for as follows:
Derivative financial instruments that hedge the Group’s exposure to variability in cash flows arising due to a
particular risk associated with a recognised asset or liability, a highly probable forecast transaction, or the
foreign currency risk in an unrecognised firm commitment, are called cash flow hedges.
The Group tests cash flow hedges for effectiveness at each reporting date both retrospectively and
prospectively.
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,
transferred to the initial carrying amount of the non-financial asset or liability where the hedged item is
the cost of a non-financial asset or non-financial liability, or
transferred to the consolidated income statement immediately if the forecast transaction or firm
commitment is no longer expected to occur.
If the hedging instrument no longer meets the criteria for hedge accounting, then hedge accounting is
discontinued prospectively. 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.
66
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
21.
Financial instruments and risk management (continued)
Risk management
The Group has exposure to the following risks from its use of financial instruments:
•
credit risk
•
liquidity risk
• market risk
This note presents information about the Group’s exposure to each of the above risks, its objectives, policies
and processes for measuring and managing risk, and the management of capital. Further quantitative
disclosures are included throughout this financial report.
The Board of directors has overall responsibility for the establishment and oversight of the risk management
framework.
Risk management policies are established to identify and analyse the risks faced by the Group, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies
and systems are reviewed regularly to reflect changes in market conditions and in the Group’s activities. The
Group aims to develop a disciplined and constructive control environment in which all employees
understand their roles and obligations.
The Group’s Audit & Risk Committee oversees how management monitors compliance with the Group’s risk
management policies and procedures and reviews the adequacy of the risk management framework in relation
to the risks faced by the Group.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers.
The Group’s exposure to credit risk is influenced by the individual characteristics of each customer, the
industry and the geographical region in which the customers operate.
The Group minimises concentration of credit risk by undertaking transactions with a large number of
customers. By industry, the Group is not subject to a concentration of credit risk as its customers operate in
a wide range of industries.
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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
21.
Financial instruments and risk management (continued)
67
Credit limits may be established for each customer. These limits are reviewed regularly. Customers that fail
to meet the Group’s benchmark creditworthiness may transact with the Group only on a prepayment basis
or on other specific terms considered by management to be satisfactory.
In monitoring customer credit risk, customers are grouped according to their credit characteristics, including
whether they are an individual or legal entity, whether they are a wholesale or retail customer, geographic
location, industry, ageing profile, and existence of previous financial difficulties.
The Group uses an ‘expected credit loss’ (ECL) model as prescribed by AASB 9 to estimate the impairment
provision required on its financial assets that are classified as MAAC or FVOCI, but excluding equity
investments. The Group uses the lifetime expected credit loss method in respect of trade and other
receivables and contract assets.
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 and contract assets
Cash and cash equivalents
Note
10
FY19
$m
154.1
51.4
205.5
FY18
$m
167.5
82.2
249.7
The Group’s maximum exposure to credit risk for trade and other receivables and contract assets at the
reporting date by customer type was as follows:
Type of customer
Wholesale
Corporate
Retail
Note
10
FY19
$m
32.8
30.5
90.8
154.1
FY18
$m
30.9
45.3
91.3
167.5
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
10
FY19
$m
152.8
1.3
154.1
FY18
$m
166.1
1.4
167.5
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 2019
21.
Financial instruments and risk management (continued)
68
The ageing of the Group’s trade receivables and contract assets at the reporting date was as follows:
Ageing of customer debt
Not past due
Past due 1-30 days
Past due 31-60 days
Past due 61-90 days
Past due 91-120 days
Past due 121 days
Gross trade receivables
Less: Provision for impairment losses
Net receivables
Note
10
10
FY19
$m
110.2
28.5
6.0
2.2
1.5
5.7
154.1
(25.8)
128.3
FY18
$m
110.0
34.3
5.7
1.6
3.1
12.8
167.5
(33.3)
134.2
The provision for impairment losses of the Group at 31 July 2019 of $25.8m (FY18: $33.3m) represents the
risk of non-collection of outstanding debts that are past due and believed to be at risk of non-collection. The
provision is used to record impairment losses unless the Group is satisfied that no recovery of the amount
owing is possible. At this point the amount is considered irrecoverable and is written off against the financial
asset directly.
An impairment loss is reversed if the subsequent increase in recoverable amount can be related objectively
to an event occurring after the impairment loss was recognised.
The movement in the provision for impairment losses during the year ended 31 July 2019 is as follows:
Balance at 1 August
Impairment loss (written back)/recognised
Balance at 31 July
Liquidity risk
Note
10
FY19
$m
33.3
(7.5)
25.8
FY18
$m
41.2
(7.9)
33.3
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 requirements 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 $2,391.0m available to it during the year, of
which $1,424.7m was utilised as at 31 July 2019 (refer note 15).
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
21.
Financial instruments and risk management (continued)
69
The following are the contractual maturities of financial liabilities, including estimated interest payments
and excluding the impact of netting agreements:
FY19
Non-derivative financial
liabilities
Secured bank loans
Finance lease liabilities
Spectrum liabilities
Trade and other payables
Derivative financial
liabilities
Interest rate swap
(settled net)
Foreign currency forward
contracts (settled gross)
- Outflow
-
Inflow
Total derivative financial
liabilities
Total
FY18
Non-derivative financial
liabilities
Secured bank loans
Finance lease liabilities
Spectrum liabilities
Trade and other payables
Derivative financial
liabilities
Interest rate swap
(settled net)
Foreign currency forward
contracts (settled gross)
- Outflow
-
Inflow
Total derivative financial
liabilities
Total
Note
Carrying
amount
Contractual
cashflows
6 months
or less
$m
$m
$m
15
15
16
14
(1,424.7)
(12.3)
(344.2)
(319.4)
(2,100.6)
(1,581.0)
(12.4)
(352.4)
(319.4)
(2,265.2)
(22.5)
(3.7)
(352.4)
(319.4)
(698.0)
6-12
months
$m
(27.2)
(3.1)
-
-
(30.3)
1-2
years
$m
2-5
years
$m
More than
5 years
$m
(173.3)
(5.0)
-
-
(178.3)
(1,025.5)
(0.6)
-
-
(1,026.1)
(332.5)
-
-
-
(332.5)
(68.6)
(70.3)
-
(7.6)
(15.4)
(41.7)
(5.6)
(44.9)
46.3
(35.4)
36.2
(5.0)
5.3
(3.5)
3.7
(1.0)
1.1
1.4
-
-
(67.2)
(2,167.8)
(68.9)
(2,334.1)
0.8
(697.2)
(7.3)
(37.6)
(15.2)
(193.5)
(41.6)
(1,067.7)
(5.6)
(338.1)
Note
Carrying
amount
$m
Contractual
cashflows
$m
6 months
or less
$m
6-12
months
$m
1-2
years
$m
2-5
years
$m
More than
5 years
$m
15
15
16
14
(1,330.7)
(17.9)
(671.8)
(320.3)
(1,581.1)
(18.0)
(704.8)
(320.3)
(25.8)
(2.5)
(352.4)
(320.3)
(2,340.7)
(2,624.2)
(701.0)
(25.4)
(3.1)
-
-
(28.5)
(57.5)
(6.8)
(352.4)
-
(1,122.8)
(5.6)
-
-
(349.6)
-
-
-
(416.7)
(1,128.4)
(349.6)
(4.8)
(4.8)
-
-
(2.1)
(5.1)
2.4
-
0.6
(49.2)
49.8
(33.4)
34.0
(5.0)
5.0
(6.3)
6.3
(4.5)
4.5
-
-
(4.2)
(4.2)
0.6
-
(2.1)
(5.1)
2.4
(2,344.9)
(2,628.4)
(700.4)
(28.5)
(418.8)
(1,133.5)
(347.2)
It is not expected that the cashflows included in the maturity analysis above could occur significantly earlier,
or at significantly different amounts.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
21.
Financial instruments and risk management (continued)
Market risk
70
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 payables 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 Singapore dollar (SGD), the New Zealand
dollar (NZD), Philippine peso (PHP), the Hong Kong dollar (HKD), and the South African Rand (ZAR). As at 31
July 2019, currency risks associated with the Group’s foreign currency denominated receivables and
payables are not considered to be significant.
The Group hedges its forecast foreign currency exposures on a rolling basis to manage the impact of short
term foreign exchange fluctuations on its earnings.
Currency risk in relation to SGD is partly managed by the existence of an SGD denominated debt facility
within the Group’s debt facilities.
b) Interest rate risk
At the reporting date the Group’s interest-bearing financial instruments were as follows:
Fixed rate instruments
Finance lease liabilities
Variable rate instruments
Cash and cash equivalents
Secured bank loans
Note
15
15
FY19
$m
FY18
$m
(12.3)
(17.9)
51.4
(1,424.7)
(1,373.3)
82.2
(1,330.7)
(1,248.5)
The Group is exposed to interest rate risk arising from the variable interest rate on its long term borrowings.
To manage this risk, the Group has entered into interest rate swap contracts to hedge the interest rate risk
on $800m of its debt facilities. These contracts will enable the Group to convert its borrowings from floating
rates to fixed rates for 5 years starting from December 2019.
Fair value sensitivity analysis for fixed rate instruments
As at 31 July 2019, the Group does not have 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.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
21.
Financial instruments and risk management (continued)
Cashflow sensitivity analysis for variable rate instruments
71
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 2019, of $13.7m (FY18: $12.5m)
(assumes that all other variables, in particular foreign currency rates, remain constant).
Fair values versus carrying amounts
As at 31 July 2019, the fair values of the Group’s financial assets and liabilities approximate their carrying
amounts shown in the statement of financial position.
Interest rates used for determining fair value
The interest rates used to discount estimated cashflows, where applicable, are based on the rates implicit in
the transaction. In the case of Loans and borrowings, interest rate is based on BBSY rates plus a margin
determined 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:
-
-
-
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly; and
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
Derivative financial assets
Foreign currency forward contracts
Financial liabilities
Derivative financial liabilities
Interest rate swap contracts
Foreign currency forward contracts
31 July 2019
Level 2
$m
Level 1
$m
Level 3
$m
Level 1
$m
31 July 2018
Level 2
$m
Level 3
$m
1.2
-
-
-
-
1.4
(68.6)
-
-
-
-
-
1.9
-
-
-
-
0.7
(4.8)
(0.1)
-
-
-
-
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
21.
Financial instruments and risk management (continued)
72
The Group’s investments, being ASX listed securities, are categorised as Level 1 as they are valued at quoted
market prices.
Interest rate swap contracts are categorised as Level 2 as they are valued at the present value of the
estimated future cash flows. Estimates of future floating rate cash flows are based on quoted swap rates,
futures prices and interbank borrowing rates. The fair value estimate is subject to a credit risk adjustment
that reflects the credit risk of the Group and of the counterparty.
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.
Capital management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. The Board monitors return on capital, which
the Group defines as profit from operating activities divided by total shareholders’ equity. The Board of
directors also determines the level of dividends to be paid to shareholders.
The Board seeks to maintain a balance between the higher returns that might be possible with higher levels
of borrowings, and the advantages and security afforded by a sound capital position.
From time to time the Group may purchase its own shares on market for the purpose of issuing shares under
employee share plans. The Group does not currently have a defined share buy-back plan.
There were no changes in the Group’s approach to capital management during the year.
The Group’s net debt to equity ratio at the reporting date was as follows:
Secured bank loans
Finance lease liabilities
Derivative financial liabilities
Less: cash and cash equivalents
Net debt
Total equity
Net debt to equity ratio at 31 July
FY19
$m
1,424.7
12.3
68.6
1,505.6
(51.4)
1,454.2
2,887.3
0.5
FY18
$m
1,330.7
17.9
4.9
1,353.5
(82.2)
1,271.3
2,787.8
0.5
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
22.
Operating lease commitments
73
The Group has entered into commercial leases on premises and office equipment under non-cancellable
operating leases.
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
FY19
$m
32.5
97.0
10.7
140.2
FY18
$m
35.6
87.2
13.5
136.3
Payments made under operating leases are recognised in the income statement on a straight-line basis over
the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense,
over the term of the lease.
23.
Capital and other commitments
FY19
$m
FY18
$m
Contracted but not provided for in the financial statements
265.1
163.8
Capital commitments at 31 July 2019 include the following individually material items:
-
-
3.6GHz spectrum payment due in March 2020: $131.7m (refer note 11);
IRU agreement for international capacity: US$36.0m*
*Translated into AUD at the prevailing spot rate at 31 July 2019 of 1.452.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
24.
Consolidated entities
The following is a list of all entities that formed part of the Group as at 31 July 2019:
74
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
2019
%
2018
%
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 2019
24.
Consolidated entities (continued)
75
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
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
2019
%
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
2018
%
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
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
24.
Consolidated entities (continued)
76
Name of Entity
Subsidiaries (continued)
Tech2 Business Solutions Pty Ltd
iHug Pty Ltd
Adam Internet Holdings Pty Ltd
Adam Internet Pty Ltd
iiNet (OzEmail) Pty Ltd
TPG Telecom Pte Ltd
TPG JV Company Pty Ltd
25.
Deed of cross guarantee
Ownership interest
as at 31 July
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Singapore
Australia
2019
%
60
100
100
100
100
100
100
2018
%
60
100
100
100
100
100
-
Pursuant to the ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 dated on 28 September
2016, 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 instrument 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 24 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
Destra Communications Pty Ltd
Numillar IPS Pty Ltd
Neighbourhood Cable Unit Trust
Mercury Connect Pty Ltd
VtalkVoip Pty Ltd
Hosteddesktop.com Pty Ltd
The Tech2 Group Pty Ltd
Tech2Home Pty Ltd
Tech2Home (Communications) Pty Ltd
Tech2Home Proprietary Ltd
Gizmo Corporation Pty Ltd
Tech2 Business Solutions Pty Ltd
TPG Telecom Pte Ltd
TPG JV Company Pty Ltd
There have been no changes to the parties to the Deed during the current reporting period.
77
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
25.
Deed of cross guarantee (continued)
A consolidated statement of comprehensive income and consolidated statement of financial position,
comprising the Company and the controlled entities which are a party to the Deed of Cross Guarantee, after
eliminating all transactions between parties to the Deed, at 31 July 2019 is set out as follows:
Statement of comprehensive income and retained profits
Revenue
Network, carrier and hardware costs
Employee benefits expense
Other expenses
Earnings before interest, tax, impairment, depreciation and
amortisation
Impairment of spectrum and mobile assets
Depreciation of plant and equipment
Amortisation of intangibles
Results from operating activities
Finance income
Finance expenses
Net financing costs
Profit before income tax
Income tax expense
Profit for the year attributable to owners of the company
Other comprehensive income, net of tax
Total comprehensive income for the year
Retained earnings at beginning of year
Profit for the year
Dividends recognised during the year
Retained earnings at end of year
FY19
$m
2,434.0
(1,236.4)
(168.1)
(206.2)
FY18
$m
2,442.5
(1,212.4)
(189.4)
(213.9)
823.3
826.8
(236.8)
(126.9)
(131.8)
327.8
1.8
(52.5)
(50.7)
277.1
-
(132.5)
(86.2)
608.1
1.6
(36.2)
(34.6)
573.5
(81.9)
(169.0)
195.2
(44.5)
150.7
1,393.7
195.2
(37.1)
1,551.8
404.5
6.8
411.3
1,026.2
404.5
(37.0)
1,393.7
78
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
25.
Deed of cross guarantee (continued)
Statement of financial position
31 July 2019
$m
31 July 2018
$m
Assets
Cash and cash equivalents
Trade and other receivables and contract assets
Deferred contract costs
Inventories
Derivative financial assets
Prepayments and other assets
Total Current Assets
Investments
Loans to subsidiaries
Deferred contract costs
Derivative financial assets
Property, plant and equipment
Spectrum assets
Goodwill and other intangible assets
Deferred tax assets
Prepayments and other assets
Total Non-Current Assets
Total Assets
Liabilities
Trade and other payables
Loans and borrowings and derivative financial liabilities
Spectrum liability
Current tax liabilities
Deferred revenue
Employee benefits
Provisions
Accrued interest
Total Current Liabilities
Loans and borrowings and derivative financial liabilities
Spectrum liability
Deferred tax liabilities
Deferred revenue
Employee benefits
Provisions
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Share capital
Reserves
Retained earnings
Total Equity
44.9
114.5
8.1
4.6
1.2
17.0
190.3
20.3
479.6
5.4
0.2
1,119.6
1,196.6
2,306.3
40.1
5.1
5,173.2
5,363.5
298.2
14.3
344.2
14.7
157.4
28.4
10.4
4.0
871.6
1,470.6
-
-
26.3
1.8
30.5
1,529.2
2,400.8
62.8
118.5
10.0
4.4
0.7
12.9
209.3
21.0
386.4
4.8
-
1,101.0
1,350.6
2,367.3
-
5.6
5,236.7
5,446.0
303.9
5.5
344.0
20.2
152.1
28.4
7.0
5.1
866.2
1,318.4
327.8
21.1
26.3
1.9
33.9
1,729.4
2,595.6
2,962.7
2,850.4
1,465.2
(54.3)
1,551.8
2,962.7
1,465.2
(8.5)
1,393.7
2,850.4
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
26.
Parent entity disclosures
Result of the parent entity
(Loss)/ Profit for the period
Comprising:
Dividend from subsidiaries
Costs relating to planned business combination
Finance expenses
Income tax benefit
Other
Total (loss)/ profit for the period
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity
Share capital
Reserves
Retained earnings
Total Equity
Parent entity guarantees
79
FY19
$m
FY18
$m
(42.1)
1,178.7
-
(9.0)
(60.2)
18.1
9.0
(42.1)
0.6
6,553.6
6.6
3,906.1
1,465.2
(58.5)
1,240.8
2,647.5
1,200.0
-
(39.0)
9.1
8.6
1,178.7
2.3
5,936.2
28.2
3,166.7
1,465.2
(12.0)
1,316.3
2,769.5
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 25.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
27.
Reconciliation of cash flows from operating activities
80
Note
FY19
$m
FY18
$m
Cash flows from operating activities
Profit for the year after income tax
Adjustments for:
Depreciation of plant and equipment
Amortisation of intangibles
Impairment of spectrum and mobile assets
Bad and doubtful debts
Amortisation of borrowing costs
Performance rights plan expense
Unrealised foreign exchange loss
Interest income
Interest expense
Costs relating to mergers and acquisitions
Income tax expense
Operating profit before changes in working capital and provisions
12
13
6
7
17c
7
7
8
Changes in:
-
Trade and other receivables and contract assets
-
Inventories
- Other assets
-
- Other liabilities
-
-
Employee benefits
Provisions
Trade and other payables
Income taxes paid
175.0
397.5
133.2
136.1
236.8
7.1
16.9
2.9
(2.1)
(1.8)
35.6
9.0
77.6
826.3
5.9
(0.1)
(7.4)
(0.9)
12.2
0.1
0.2
836.3
(128.6)
138.8
90.4
-
4.9
17.5
4.7
(2.2)
(1.7)
18.6
-
165.6
834.1
2.7
1.5
17.2
14.1
(0.4)
1.2
(2.1)
868.3
(194.5)
Net cash from operating activities
707.7
673.8
28.
Related parties
The Group has no related party relationships other than with its key management personnel (KMP).
Information regarding transactions with KMP including their remuneration is provided in the Remuneration
Report section of the Directors’ report on pages 19 to 30.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
29.
Auditors’ remuneration
Audit and review of financial statements
Audit and review services
Auditors of the Company – KPMG, Australia
-
- Other regulatory audit services
Network firms of KPMG
-
Audit of financial statements
Other services
KPMG, Australia
-
-
Fees related to proposed VHA merger transaction
Taxation and other services
30.
Subsequent events
81
FY19
$’000
FY18
$’000
924
8
15
947
1,189
105
2,234
954
8
15
977
-
106
1,083
The Federal Court hearing to consider whether the planned merger between the Company and VHA
would have the effect, or likely effect, of substantially lessening competition, was held between 10
September and 1 October 2019. The judge has indicated that his decision can be expected by
February 2020.
Other than the above, there has not arisen in the interval between the end of the financial year and
the date of this report any item, transaction or event of a material and unusual nature likely, in the
opinion of the directors of the Company, to affect significantly the operations of the Group, the
results of those operations, or the state of affairs of the Group in future financial years.
31.
Significant accounting policies
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. This is the first set
of the Group’s annual financial statements in which AASB 9 Financial Instruments and AASB 15 Revenue from
Contracts with Customers have been applied.
a.
(i)
Adoption of new Accounting Standards
Financial instruments (Revised AASB 9)
The revised AASB 9 is applicable to the Group from 1 August 2018. The standard sets out new requirements
for classification and measurement of financial assets and financial liabilities. The impact of this revised
standard on the Group’s consolidated financial statements is not significant and there has been no
restatement of prior year comparatives.
82
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
31.
Significant accounting policies (continued)
Impact on financial assets
1) Classification and measurement
AASB 9 contains three principal classification categories for financial assets: measured at amortised cost
(MAAC), fair value through other comprehensive income (FVOCI), and fair value through profit or loss
(FVTPL). The standard eliminates the previous categories of: held to maturity, loans and receivables, and
available for sale.
(ii)
The Group has the following categories of financial assets: (i) trade receivables and (ii) equity investments.
(i)
Trade receivables: Under AASB 9, trade receivables are classified as ‘held-to-collect’ MAAC assets
and measured at amortised cost.
Equity investments: At 1 August 2018, the Group had equity investments that are held for long-
term strategic purposes valued at $1.9m, classified as ‘available-for-sale’ and measured on a FVOCI
basis. Upon initial application of AASB 9, the Group has elected to classify these equity investments
as FVOCI assets. Consequently, all fair value gains and losses continue to be reported in other
comprehensive income, but no impairment losses are recognised in the income statement and no
gains or losses are reclassified to the income statement on disposal.
Impairment
2)
Under the revised standard, impairment of financial assets will be calculated using an ‘expected credit loss’
(ECL) model replacing the previous ‘incurred loss’ model. The new impairment model applies to financial
assets that are classified as MAAC or FVOCI, but excluding equity investments. The current provisioning
system for trade receivables is materially consistent with the prescribed lifetime expected credit loss
method and hence no significant impact arises from the adoption of the new standard.
Impact on financial liabilities
The adoption of AASB 9 has not had a significant effect on the Group’s accounting policies related to
financial liabilities.
Hedge accounting
AASB 9 also provides simpler hedge accounting requirements and helps align accounting treatment more
closely to the Group’s risk management strategy. The Group has adopted the AASB 9 hedge accounting
model on initial application of the new standard. All the Group’s previous hedge accounting relationships
comply with the requirements of AASB 9 and therefore there is no change on adoption of AASB 9.
(ii)
Revenue from contracts with customers (AASB 15)
The new AASB 15 is applicable to the Group from 1 August 2018. The standard contains a single model that
applies to all contracts with customers. Under that model, an entity must determine the various
performance obligations under a contract, allocate the total contract price amongst the performance
obligations, and recognise revenue when the performance obligations are satisfied. The standard also
provides guidance on treatment of contract costs, i.e. incremental costs of acquiring a contract and costs to
fulfil the contract.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
31.
Significant accounting policies (continued)
83
Changes to accounting policies, significant judgements and estimates arising from adoption of AASB 15:
1) Set-up revenue and connection costs:
For certain products, set-up revenue charged to customers and connection costs incurred by the Group were
previously recognised on installation. As set-up revenue does not satisfy the definition of a performance
obligation under the new standard, from the date of initial application, it is treated as part of the total
contract price and allocated over the identified performance obligations. Connection costs, being costs of
fulfilling orders, are capitalised as deferred contract costs and expensed to network, carrier and hardware
costs over the life of the contract.
2) Subscriber acquisition costs:
In accordance with AASB Interpretation 1042: Subscriber Acquisition Costs in the Telecommunications
Industry, the direct costs of acquiring customer contracts such as sign-on incentives, free equipment and
discounted installation costs were previously classified as subscriber acquisition costs within intangible
assets and amortised through intangible amortisation.
From the date of initial application of the new standard, costs such as sign-on incentives and free equipment
that arise on obtaining customer contracts form part of the total contract price and hence reduce the
revenue recognised over the contract term.
Costs such as discounted installation costs are classified as deferred contract costs and amortised through
network, carrier and hardware costs over the contract term.
The unamortised balance of these items as at 1 August 2018 of $9.5m was reclassified from intangible assets
to contract assets disclosed under ‘Trade and other receivables and contract assets’ ($5.1m) and deferred
contract costs ($4.4m).
3) Sales commission costs:
Incremental sales commission costs incurred in acquiring new contracts were previously expensed on
contract inception. Under the new AASB 15 these costs are capitalised as deferred contract costs and
expensed to employee benefits expense over the life of the contract.
The impact of initial application of AASB 15 on the Group’s consolidated financial statements is set out in
the tables below. Tables A and B disclose the impact on the previously reported statements of financial
position as at 31 July 2018 and 31 July 2017 respectively. Table C discloses the impact on the previously
reported FY18 income statement.
There is no impact on the statement of cash flows arising from the adoption of AASB 15.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
31.
Significant accounting policies (continued)
84
A.
Impact of changes in accounting policies on the statement of financial position as at 31 July 2018:
Trade and other receivables and contract assets
Deferred contract costs
Goodwill and other intangible assets
Other
Total Assets
Deferred revenue
Deferred tax liabilities
Other
Total Liabilities
Retained earnings
Other
Total Equity
As previously
reported
$m
129.1
-
2,420.7
2,840.5
5,390.3
174.6
12.1
2,419.4
2,606.1
1,323.2
1,461.0
2,784.2
Adjustment
$m
5.1
14.8
(9.5)
-
10.4
5.3
1.5
-
6.8
3.6
-
3.6
As restated
$m
134.2
14.8
2,411.2
2,840.5
5,400.7
179.9
13.6
2,419.4
2,612.9
1,326.8
1,461.0
2,787.8
B.
Impact of changes in accounting policies on the statement of financial position as at 31 July 2017:
Trade and other receivables and contract assets
Deferred contract costs
Goodwill and other intangible assets
Other
Total Assets
Deferred revenue
Deferred tax liabilities
Other
Total Liabilities
Retained earnings
Other
Total Equity
As previously
reported
$m
131.6
-
2,416.2
1,363.2
3,911.0
174.4
10.1
1,327.2
1,511.7
963.3
1,436.0
2,399.3
Adjustment
$m
5.2
19.1
(11.1)
-
13.2
7.5
1.6
-
9.1
4.1
-
4.1
As restated
$m
136.8
19.1
2,405.1
1,363.2
3,924.2
181.9
11.7
1,327.2
1,520.8
967.4
1,436.0
2,403.4
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
31.
Significant accounting policies (continued)
C.
Impact of changes in accounting policies on the income statement for the year ended 31 July 2018:
85
As previously
reported
$m
2,495.2
(1,229.4)
(242.4)
(182.3)
841.1
(138.8)
(104.1)
(34.4)
(165.8)
398.0
7.3
405.3
42.8
Adjustment
As restated
$m
0.9
(14.9)
(0.4)
-
(14.4)
-
13.7
-
0.2
(0.5)
-
(0.5)
-
$m
2,496.1
(1,244.3)
(242.8)
(182.3)
826.7
(138.8)
(90.4)
(34.4)
(165.6)
397.5
7.3
404.8
42.8
Revenue
Network, carrier and hardware costs
Employee benefits expense
Other expenses
EBITDA
Depreciation of plant and equipment
Amortisation of intangibles
Net financing costs
Income tax expense
Profit for the period
Other comprehensive income
Total comprehensive income
Basic and diluted earnings per share (cents)
b.
New standards and interpretations not yet adopted
Leases (AASB 16)
Introduction
AASB 16 will be applicable to the Group from 1 August 2019. AASB 16 introduces a single, on-balance sheet,
lease accounting model for lessees. Contracts that provide the Group with a right to control the use of an
identified asset will be accounted for in the consolidated statement of financial position. The right to use the
asset will be recognised as a Right of Use (ROU) asset and the contracted amounts payable over the lease
term will be accounted for as a Lease liability.
Identifying leases
The Group has carried out an analysis of contracts including leases currently classified as operating leases;
and other service contracts, to identify those that meet the definition of a lease under the new accounting
standard. Property contracts including office premises, data centres and buildings forming part of the
Group’s network and other contracts such as for vehicles, photocopiers, etc. have been identified to meet
the definition of a lease under the new accounting standard.
The Group has elected to adopt the following practical expedients and will not apply the lease accounting
model to:
-
-
-
leases with a remaining term of less than twelve months as at the date of initial adoption;
contracts with a lease term of twelve months or less; and
low value assets such as photocopiers.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
31.
Significant accounting policies (continued)
86
Initial adoption and measurement
The Group will adopt the ‘Modified Retrospective method’ for transition to the new standard. Lease
liabilities will be measured at the present value of lease payments payable over the lease term as at 1 August
2019. ROU assets will be measured as if the new standard had been applicable on the lease commencement
date. There will be no restatement of comparative information and transition adjustments will be carried out
through retained earnings as at 1 August 2019.
The following practical expedients have been used in the initial measurement of lease liabilities and ROU
assets:
-
The Group relies on its previous assessment of whether leases were onerous under AASB 137 –
Provisions, Contingent liabilities and Contingent assets, immediately before the date of initial
application as an alternative to performing an impairment review under AASB 136 – Impairment of
assets, on adoption.
The Group uses a single discount rate for a portfolio of similar leases.
The Group has elected to exclude initial direct costs attributable to obtaining a lease from the
measurement of its ROU asset at the date of initial application.
The Group has elected to use hindsight in arriving at the ROU assets and has used its current assessment
of the lease term.
-
-
-
The Group expects to recognise lease liabilities of between $95m and $110m and ROU assets of between
$90m and $105m on adoption of the new standard on 1 August 2019. Deferred tax assets of between $1.5m
and $6m will also be recognised. The net impact, including deferred tax and other adjustments will be
adjusted through retained earnings.
Subsequent measurement of lease liabilities and ROU assets
At each reporting date, the carrying amount of lease liabilities and ROU assets will be adjusted for changes
in: contractual payment amounts, incremental borrowing rates, and outcomes of impairment testing.
In addition to the impact on the statement of consolidated financial position described above, the following
impacts are expected from FY20 and beyond:
Impact on statement of comprehensive income:
Currently operating lease rentals are expensed on a straight-line basis over the lease term within ‘Network,
carrier and hardware costs’ or ‘Other expenses’. On adoption of the new standard, lease expenses will be
recognised through depreciation of ROU assets and interest expense on lease liabilities. As a result:
-
- Depreciation expense will increase; and
-
Interest expense will be higher in the initial phase of a lease and will reduce gradually towards the end
of the term.
Earnings before interest, tax, depreciation and amortisation will increase;
Impact on statement of cashflows:
Currently, operating lease payments are included in cashflows from operating activities. On adoption of the
new standard, they will be classified as cashflows from financing activities as repayment of lease liabilities
and interest payment.
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
31.
Significant accounting policies (continued)
87
Significant judgements and estimates:
-
The new standard requires an assessment of the likelihood of exercising renewal options on a lease-by-
lease basis. The lease term would include the non-cancellable period plus extension terms for which the
Group is reasonably certain to exercise options.
The Group uses its weighted average cost of borrowing as an estimate of its incremental rate of
borrowing.
-
c.
(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. 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.
(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.
d.
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.
88
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
31.
Significant accounting policies (continued)
e.
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.
f.
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.
g.
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 finance expense and
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.
h.
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.
89
TPG Telecom Limited and its controlled entities
Notes to the consolidated financial statements
For the year ended 31 July 2019
31.
Significant accounting policies (continued)
i.
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.
j.
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.
90
TPG Telecom Limited and its controlled entities
Directors’ declaration
For the year ended 31 July 2019
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 34 to 89 and the Remuneration
report in section 5 of the Directors’ report, set out on pages 19 to 30, 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 2019 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.
3.
4.
There are reasonable grounds to believe that the Company and the group entities identified in note 25 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 the ASIC Corporations (Wholly-
owned Companies) Instrument 2016/785.
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 2019.
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 18th day of October, 2019.
Signed in accordance with a resolution of the directors.
David Teoh
Chairman
91
Independent Auditor’s Report
To the shareholders of TPG Telecom Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of TPG
Telecom Limited (the Company).
In our opinion, the accompanying Financial
Report of the Company is in accordance with
the Corporations Act 2001, including:
•
•
giving a true and fair view of the Group's
financial position as at 31 July 2019 and
of its financial performance for the year
ended on that date; and
complying with Australian Accounting
Standards and the Corporations
Regulations 2001.
Basis for opinion
The Financial Report comprises:
•
•
Consolidated statement of financial position as at 31 July
2019;
Consolidated income statement, Consolidated statement of
comprehensive income, Consolidated statement of changes in
equity, and Consolidated statement of cash flows for the year
then ended;
• Notes including a summary of significant accounting policies;
and
• Directors' Declaration.
The Group consists of the Company and the entities it controlled
at the year end or from time to time during the financial year.
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of
the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants
(the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical
responsibilities in accordance with the Code.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
92
Key Audit Matters
The Key Audit Matters we identified are:
• Revenue IT systems and controls
• Carrying value of goodwill
• Impairment of spectrum assets
Revenue IT systems and controls ($2,477.4m)
Refer to Note 4 Revenue
Key Audit Matters are those matters that, in our professional
judgement, were of most significance in our audit of the Financial
Report of the current period.
These matters were addressed in the context of our audit of the
Financial Report as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
The key audit matter
How the matter was addressed in our audit
Working with our IT specialists, our procedures included:
• Testing the key manual and automated general IT
controls within the billing systems and multi-level sub-
systems. The controls tested included access controls to
programs and data, computer operations controls and
change control procedures for these systems;
• Testing the end-to-end reconciliation control which
reconciles the movement of transaction data from the
business supporting systems to the billing systems and
then to the general ledger. This included analysing
significant journals processed between the billing
systems and the general ledger for accuracy and
consistency; and
• Testing the system configuration for calculating
automated customer bill generation. This included
performing sample tests, including test calls, of accuracy
by checking customer agreed rates and charge plans in
the systems to sources such as published rate cards.
The majority of TPG’s revenue relates to the
provision of telecommunication services for
consumer and corporate customers which are
managed by the Group’s complex revenue IT
systems and associated controls. We focused on
these IT systems and controls as a Key Audit
Matter due to inherent risks associated with
complex IT systems.
TPG has various telecommunication services
plans operating on a number of networks and
uses a number of highly automated billing
systems and multi-level sub-systems to
recognise revenue. The competitive market that
the Group operates in also results in frequent
changes to the pricing of telecommunication
services plans. This increases the audit data
points and therefore complexity for revenue
recognition due to multiple price points, terms
and conditions.
Testing these systems and associated controls
requires the involvement of our IT specialists
and increases the complexity of our audit
procedures.
93
Carrying value of goodwill ($1,911.0m)
Refer to Note 13 Intangible Assets
The key audit matter
How the matter was addressed in our audit
The carrying value of TPG’s goodwill is a Key
Audit Matter due to:
Our procedures included:
• We assessed the Group’s key assumptions such as
the size of the asset, $1,911.0 million, being
TPG’s largest asset;
forecast growth rates, terminal growth rates, AMPUs,
service costs and broadband market share by:
•
•
•
the complexity of auditing forward looking
estimates underlying the valuation models
that are inherently subjective and require a
significant level of judgement by us to
assess; and
the industry the Group operates in being
impacted by changes in technology, such as
the introduction of the National Broadband
Network, and a competitive market with
frequently changing market price points.
These conditions create a risk that business
forecasts used for the assessment of
recoverability may not be achieved.
Our consideration of TPG’s recoverability
assessment of the carrying value of goodwill
involves evaluating the output of valuation
models for each cash generating unit (CGU). We
focussed on the significant judgements the
Group applied in their recoverability assessment
including:
•
key assumptions relating to Average Margin
Per User (AMPU), service costs and
broadband market share; and
• discount rates applied to forecast cash flows
as well as the assumptions underlying the
forecast growth and terminal growth rates.
In assessing this Key Audit Matter, we involved
senior audit team members and our valuation
specialists with knowledge of the
telecommunications industry and the economic
environment in which it operates.
•
•
•
•
•
comparing key underlying data in valuation
models to Board approved forecasts;
comparing forecasts of market demand against
published analyst views and industry reports;
comparing forecasts for TPG’s broadband market
share, pricing and margins to historical data and
trends observed at year end;
performing sensitivity analysis, by varying key
assumptions, such as forecast growth rates,
terminal growth rates, margins and discount rates,
within a reasonably possible range. This analysis
identified those assumptions at higher risk of bias
or inconsistency in application and enabled us to
focus our further procedures; and
assessing the Group’s historical forecasting
accuracy as an indication of risk in future
forecasts.
• working with our valuation specialists, we assessed the
calculation methodology, forecast growth rates and
terminal growth rates against accounting standard
requirements, published analysts’ growth rates and
industry reports;
• working with our valuation specialists, we
independently developed discount rate ranges using
publicly available market data for comparable entities,
adjusted by risk factors specific to the Group and the
telecommunication sector;
• we assessed the quantitative and qualitative disclosures
in relation to this matter by comparing these disclosures
to the accounting standards and our understanding.
94
Impairment of spectrum assets ($91.8m)
Refer to Note 6 Impairment of spectrum assets
The key audit matter
How the matter was addressed in our audit
Our procedures included:
•
•
•
•
challenging TPG’s assessment of the relevant market
conditions;
challenging TPG’s assessment of forecast market
demand for mobile spectrum including consideration of
the alternative technologies employing the relevant
spectrum;
challenging TPG’s assessment of whether there are any
more relevant, directly comparable spectrum auctions;
recalculating the impairment charge and comparing to
the recorded amount; and
• assessing the quantitative and qualitative disclosures in
relation to this matter by comparing these disclosures
to the requirements of the accounting standards and
our understanding of the issue.
These procedures were performed with assistance from our
valuation specialists.
The impairment of TPG’s spectrum assets is a
Key Audit Matter due to the complexity of
auditing the judgements used by management to
determine the recoverable value of these assets.
The Group has prepared an assessment of the
recoverable amount of its spectrum assets using
the fair value less costs of disposal method. The
audit complexity is increased by the minimal
publicly available information for comparable
market transactions involving spectrum assets
due to the unique regulatory and license
conditions that exist in Australia.
Our consideration of TPG’s assessment of the
carrying value of spectrum assets has focussed
on the significant and key judgements TPG
applied in determining the recoverable amounts
of these assets including:
• assessing current market conditions and
participants and a comparison to those
prevailing at the time of the relevant
spectrum auctions; and
• whether there are any more recent, directly
comparable spectrum auctions.
In assessing this Key Audit Matter, we involved
senior audit team members and our valuation
specialists with knowledge of the
telecommunications industry and the
economic environment in which it operates.
Other Information
Other Information is financial and non-financial information in TPG Telecom Limited’s annual reporting which is
provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the
Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not
express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration
Report and our related assurance opinion.
95
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing
so, we consider whether the Other Information is materially inconsistent with the Financial Report or our
knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based
on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report
we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
•
•
•
preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001
implementing necessary internal control to enable the preparation of a Financial Report that gives a true and
fair view and is free from material misstatement, whether due to fraud or error
assessing the Group and Company's ability to continue as a going concern. This includes disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless they either intend to
liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
•
•
to obtain reasonable assurance about whether the Financial Report as a whole is free from material
misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of this
Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and
Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar1.pdf. This description forms
part of our Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report
of TPG Telecom Limited for the year ended
31 July 2019, complies with Section 300A
of the Corporations Act 2001.
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.
96
Our responsibilities
We have audited the Remuneration Report included in pages 21 to 30
of the Directors’ report for the year ended 31 July 2019.
Our responsibility is to express an opinion on the Remuneration
Report, based on our audit conducted in accordance with Australian
Auditing Standards.
KPMG
Chris Hollis
Partner
Sydney
18 October 2019
97
TPG Telecom Limited and its controlled entities
ASX additional information
For the year ended 31 July 2019
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 2019.
Substantial shareholders
The number of shares held by substantial shareholders and their associates are set out below:
Name of shareholder
David Teoh and Vicky Teoh
Washington H Soul Pattinson and Company Limited
Distribution of equity security holders
Number of
ordinary shares
held
% of
capital held
318,315,607
234,396,121
34.31%
25.26%
An analysis of the number of shareholders by size of holding is set out below:
Number of shares held
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number of
holders
11,796
8,515
1,728
1,481
122
23,642
The number of shareholders holding less than a marketable parcel of ordinary shares is 897.
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
98
Number of
ordinary
shares held
234,396,121
96,764,177
78,048,498
77,170,861
75,604,378
47,663,106
47,285,497
32,730,000
32,730,000
29,773,406
14,382,957
8,991,186
6,922,699
6,811,430
6,254,236
5,549,323
4,819,251
3,758,767
3,148,725
3,000,000
815,804,618
% of
capital held
25.26
10.43
8.41
8.32
8.15
5.14
5.10
3.53
3.53
3.21
1.55
0.97
0.75
0.73
0.67
0.60
0.52
0.41
0.34
0.32
87.93
ASX additional information
For the year ended 31 July 2019
Twenty largest shareholders (as at 30 September 2019)
Name of shareholder
WASHINGTON H SOUL PATTINSON AND COMPANY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
TSH HOLDINGS PTY LTD
VICTORIA HOLDINGS PTY LTD
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
DAVID TEOH
VICKY TEOH
TSH HOLDINGS PTY LTD
VICTORIA HOLDINGS PTY LTD
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
J S MILLNER HOLDINGS PTY LIMITED
WIN CORPORATION PTY LTD
FARJOY PTY LTD
BNP PARIBAS NOMS PTY LTD
BKI INVESTMENT COMPANY LIMITED
MILONISS PTY LTD
MILTON CORPORATION LIMITED
AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED
Principal Registered Office
63-65 Waterloo Road
Macquarie Park NSW 2113
Telephone: 02 9850 0800
Share Registry
Computershare Investor Services Pty Ltd
Level 4, 60 Carrington Street
Sydney NSW 2000
Telephone:
(within Australia) 1300 850 505
(international) +61 3 9415 4000
www.investorcentre.com/au
TPG Telecom Limited ABN 46 093 058 069