TPC CONSOLIDATED LIMITED A.B.N. 99 073 079 268 Annual Report For the year ended 30 June 2019 Contents Chairman's Letter CEO and Managing Director's Review Board of Directors Directors' Report Corporate Governance Statement Auditor's Independence Declaration Consolidated Statement of Profit or Loss and Other 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 Shareholder Information Corporate Directory Page 2 3 4 6 15 16 17 18 19 20 21 63 64 68 70 Chairman's Letter Dear Shareholder, On behalf of the Board of TPC Consolidated Limited, I am pleased to present the Annual Report for the financial year ending 30 June 2019. the business strategy has enabled us to deliver a financial result Throughout the past year, we focused on delivering improving business efficiencies through high energy prices in the energy market, especially in Victoria. Our aim is to be more reliant on new generation opportunities moving forward. The execution of that was slightly above our initial expectations. CovaU has stepped up to the challenge; remaining focused on trying to achieve the best outcome through the management of our customers' experiences. Building upon the performance within the past year, CovaU continues to grow with key financial metrics trending in the right direction. Our management approach to profitable growth continues with both organic and acquisition scenarios. There were consistent upturns of performance for the year. Revenue of the consolidated entity increased to $83.3 million, up by 3.9% from the previous year. Gross profit increased to $16.7 million, up by 16.4%. EBITDA increased to $2.7 million, up by 47.0% from the last year of $1.8 million. NPAT was $2.2 million, down by 30.1% compared with last year of $3.2 million. Should there be no major changes in the overall energy market, the Group expects to maintain its profitability and cash flow in the next financial year. CovaU's energy business will remain the largest contributor to revenues and profits. Dependable performance will be achieved by diligent management and stringent cost control alongside activities that grow the energy business. On behalf of the Board, I would like to thank Management for their hard work and shareholders for their patience and I sincerely hope that we will be able to report correspondingly improved financial results for the continued support. Company in the coming years as a reward to that continuing support. Yours sincerely, Greg McCann Chairman 2 CEO and Managing Director’s Review I am pleased to report our results reflect a good performance from CovaU. We managed to maintain momentum and improve this year's performance. I would like to thank everyone for their contribution. The issue of energy policy at the national level remained uncertain, with the energy industry seeking direction from the government. We may not see any conclusive policy until 2019 despite the National Energy Guarantee (NEG) being strongly debated between Federal and State government members. Until a framework is established with supporting policies, retailer confidence will remain uncertain, price volatility continues and the wholesale sector will be unable to stabilise. Currently, energy costs are beginning to show signs of decreasing trends from sustained high levels seen in previous years. Should this trend persist, we will see this reflected in price reductions to customer bills. However, due to the frequent updates to policy and regulation, investments have to be made towards updating the IT infrastructure and internal process, and subsequently, increase of operating expense. The Chief Strategy Officer and I continue to invest our efforts heavily in the renewable generation segment, with a view to strategically position CovaU into a strong renewable future. This is achieved from both green field ventures to the other end of the spectrum; the redistribution of effort by shifting purchases from black to green. Recent periods of higher energy prices have caused many consumers to experience difficulties in paying their energy bills. As such, the executive team has taken steps to increase our involvement with the Ombudsman's activities to mitigate challenges downstream. This includes activities such as raising awareness of support available to both business and residential customers. In continuing the growth of the business, we are re-engaging the corporate market. Having focused on SME for the past couple of years, we believe the business is at a maturity to target larger, corporate customers. While we understand this may take time to develop, we recognise this is an important market for CovaU in driving future growth. iGENO has ridden the slow down in the residential property sector and is now targeting selective development sites. We are continuing to pursue opportunities that present themselves to us and are taking this time to bring renewable services and technologies into this part of the business. Management has integrated our support organisation in the Philippines into the our Australian operation so that they align more closely. Even at this stage, we continue to advance staff development for better outcomes in both organisational culture and business performance. The mobile business remains profitable although revenues have been declining due to time and resources directed towards the energy business. At the very least, it is likely this will continue into the next year. The executive team will maintain prudent management of the business profitability. Our organic sales growth is expected at a similar rate as this financial year. Our business is subject to risks that may impact on our strategy even after careful planning and management. Such risks include: • sales competition with no regard to commercial viability; and • unpredictable weather conditions or industry uncertainty which may result in extreme or prolonged high wholesale energy prices. In summary we will to continue to manage our business well and position ourselves for profitable growth whilst continuing to provide competitive energy services to our customers. Chiao-Heng (Charles) Huang CEO and Managing Director 3 Board of Directors Greg McCann B Bus, FCA, FAICD Non-Executive Chairman Appointed 2 April 2007 Greg holds a Bachelor of Business (Accounting) degree and is a Fellow of the Institute of Chartered Accountants in Australia and the Australian Institute of Company Directors. He has had 24 years of financial consulting experience with Deloitte Touche Tohmatsu. During this time he held a variety of senior leadership positions including the roles of Managing Partner for Papua New Guinea (1987 to 1990), Managing Partner for Queensland (1990 to 1995), Managing Partner for New South Wales (1995 to 1997), Managing Director of Deloitte Consulting / ICS Australia (1979 to 2001) and most recently Associate Managing Director of Deloitte Consulting for Australia and New Zealand (1999 to 2004). Greg has extensive experience with boards and senior executives at CEO level. He is currently the Executive Chairman of the Executor Group of Companies, an independent software and consulting services supplier to the Asia Pacific region, employing over 1200 professionals. Greg has also chaired other ASX and NASDAQ listed companies and was on the board of the law firm, Lander & Rogers for ten years. He was also Chairman of NBN Tasmania. He has not held any other directorships in the last 3 years. Chiao-Heng (Charles) Huang B Eng Managing Director and Chief Executive Officer Appointed 28 February 1996 Charles founded the Company in 1996 as an ISP whilst in his third year of studying towards a Bachelor of Mechanical Engineering degree at Sydney University. Following the deregulation of the telecommunications industry, Charles sought the opportunity to resell voice products in Australia and in 1999 he decided to transform the Company from a technology oriented ISP to a marketing and innovation-oriented player in the prepaid calling card sector. He has successfully steered TPC Consolidated Limited (formerly Tel.Pacific Limited) from a start-up company to a public company which was listed on the Australian Securities Exchange in 2007. He has not held any other directorships in the last 3 years. Jeffrey Ma B A, FCA, F Fin Executive Director, Chief Financial Officer and Company Secretary Appointed 22 November 2004 Jeffrey joined the Company in 2000 with more than 15 years financial services experience. He holds a Bachelor of Arts (Accounting and Financial Management) degree from the University of Sheffield, England and is a Fellow of the Institute of Chartered Accountants in England and Wales. He is also a Fellow of the Institute of Chartered Accountants in Australia and a Fellow of the Financial Services Institute of Australia. He has over 11 years of financial services experience gained with Credit Lyonnais Australia Limited, a merchant bank, where he held the position of Company Secretary and Head of Finance and Administration in his last five years and was a Member of the Management Committee. Jeffrey also worked for two years in Westfield Holdings Limited; a listed property management and development company. He has an extensive professional background, having also worked for Coopers and Lybrand (now PricewaterhouseCoopers) in Hong Kong and with a chartered accounting firm in London. He has not held any other directorships in the last 3 years. 4 Board of Directors Steven Goodarzi B A Executive Director and Chief Strategy Officer Appointed 30 November 2015 Steven joined the Company as Chief Strategy Officer in 2013. Steven has extensive management and operational experience internationally in strategy, business development, sales and marketing across the telecommunications and IT industries. He has been involved in leading the development of strategy of the financial markets across the major financial centres of Asia, North America and Europe. Most recently, Steven was based in Tokyo with KVH, a Fidelity Investment company, as Director of Strategy and Business Development. Steven is also a board member of Long Tail Property Pty Ltd, a utilities and apartment concierge company. Steven’s vision and leadership is the driver behind the establishment of the energy business. He has not held any other directorships in the last 3 years. 5 Directors' Report Your directors present Company) and the entities it controlled during the year ended 30 June 2019. the Group's report on the consolidated entity consisting of TPC Consolidated Limited (the Directors The names of the directors in office during the year and until the date of this report are as below. Other than as noted, directors were in office for this entire period. Greg McCann Chiao-Heng (Charles) Huang Managing Director, Chief Executive Officer Jeffrey Ma Steven Goodarzi Director, Chief Financial Officer, Company Secretary Director, Chief Strategy Officer Chairman (Non-executive) Principal Activities The principal activities of the consolidated entity during the year were the provision of retail electricity and gas services to residential and business customers and of the provision of pre-paid mobile and related services in Australia. These activities have not changed during the period. Operating Result for the Financial Year Operating revenue from operations was $83,336,529, up by 3.9% from the previous year of $80,184,187. Earnings before interest expense, taxation, depreciation, amortisation and impairment (EBITDA) from operations was $2,681,095, up by 47.0% from the previous year of $1,824,443. Net profit from operations after tax was $2,214,993, down by 30.1% compared to the profit in previous year of $3,168,497. Review of Operations $000’s Revenue EBITDA (1) NPAT Year ended 30 June 2018 Year ended 30 June 2019 % Change on PCP 80,184 1,824 3,168 83,337 2,681 2,215 3.9% 47.0% -30.1% (1) EBITDA is a non-IFRS measure and is used internally by management to assess the performance of the business. EBITDA has been extracted from the full financial report. Revenue of the consolidated entity for the year increased by $3.2 million, from $80.2 million to $83.3 million, up by 3.9% compared to the previous corresponding period (PCP), which was attributable to the continuing growth of its core energy business. The energy revenue increased by $4.2 million to $81.0 million, representing an increase of $3.1 million (up 5.5%) in electricity service and of $1.1 million (up 5.3%) in gas service. The telecommunication revenue however decreased by $1.0 million (down 42.8%) from $3.4 million to $2.3 million during the same period due to the further decline in mobile revenue as a result of continuing fierce competition in the prepaid mobile market. Gross profit of the consolidated entity increased by $2.4 million, from $14.3 million to $16.7 million, up by 16.4% over the PCP, and the gross margin increased by 2.1%, from 17.9% to 20.0%. Despite the challenging circumstances for the energy industry continued from FY 2018 to FY 2019, the electricity gross margin increased by 5.9% over the PCP, from 13.4% to 19.3%, which was mainly attributable to the lower renewable energy cost. The increase in electricity gross margin offset the decrease of the gas gross margin by 7.5% over the PCP, from 19.2% to 26.7%. Total operating expenses and employee benefit expense of the consolidated entity increased to $14.2 million, up 11.9% over the PCP of $12.7 million. The efficiency ratio of expenses over revenue increased by 1.2% from 15.8% to 17.1% largely due to the increase in the provision of double debts as a result of the implementation of AASB 9 relating to the expected credit loss model for impairment of financial assets this year. Earnings before interest expense, taxation, depreciation and amortisation (EBITDA) of the consolidated entity for the year ended 30 June 2019 increased by $0.9 million to $2.7 million, up by 47.0%, from the last year of $1.8 million. 6 Directors' Report Profit before tax of the consolidated entity for the year increased by $0.9 million to $2.2 million, up by 65.2% from the last year of $1.3 million. Net profit after tax (NPAT) of the consolidated entity for the year was $2.2 million, down by 30.1% compared with the last year of $3.2 million. Over the year, net assets increased by $1.5 million, up 31.9%, to $6.1 million, which was due to the current years profit after tax $2.2 million. Current assets increased by $1.9 million, up 10.9%, to $19.2 million, which was mainly attributable to the trade receivables and other assets increased by $3.2 million, offsetting by the decrease in cash and bank deposits by $1.1 million. Non- current assets increased by $0.6 million, up 16.0%, to $4.5 million largely due to the increase of $0.9 million in deferred tax assets and the additional provision of $0.1 million for impairment in the associated company, Long Tail Property Pty Ltd. Current liabilities increased by $0.3 million, up 2.1%, to $15.7 million attributable to the increases in the borrowing of $0.8 million and the derivatives held at fair value of $0.3 million, offsetting the decrease of $0.8 million in trade payables. Non- current liabilities increased by $0.7 million, up 59.8% to $1.9 million attributable to the increase of $0.7 million in deferred tax liabilities. As at 30 June 2019, cash and bank deposits stood at $3.3 million (including $2.2 million held as security for bank facilities), representing a decrease of $1.2million (down 25.9%) during the year. Dividends No dividend was declared or paid for the year ended 30 June 2019. Significant Changes in State of Affairs There were no significant changes in the state of affairs of the consolidated entity during the financial year ended 30 June 2019. Events Subsequent to the End of the Financial Year No matter nor circumstance, other than those referred to in the financial statements or notes thereto, has arisen since the end of the financial year that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of operations or the state of affairs of the consolidated entity in future financial years. Likely Developments and Expected Results The directors expect continued growth in the energy business going forward and that the Company will maintain its profitability and cash flow in the financial year ending 30 June 2020. Management are exploring strategies to grow the energy business through strategic partnerships, acquisitions and organic means. Environmental Issues As a reseller of the electricity and gas services, CovaU Pty Limited is required to purchase renewable energy certificates and surrender to regulation authority. Apart from that, the consolidated entity's operations are not subject to any significant environmental regulation under any law of the Commonwealth or a State or Territory. Directors' Securities Holdings As at the date of this report, the interests of the directors in the shares of the Company were: Director Greg McCann Chiao-Heng (Charles) Huang Jeffrey Ma Steven Goodarzi See the Remuneration Report for further details. Number of Ordinary Shares 85,000 4,463,393 423,003 210,335 7 Directors' Report Directors' Meetings The number of directors' meetings (including meeting of committees of directors) held during the year and the number of meetings attended by each director were as follows: Number of Meetings Greg McCann Chiao-Heng (Charles) Huang Jeffrey Ma Steven Goodarzi Board Meetings Attend / Held (1) 5/5 5/5 5/5 5/5 Audit and Risk Committee Attend / Held (1) 2/2 2/2 n/a n/a (1) Number of meetings held while a director or a member. n/a denotes director is not and was not a member of the committee during the year. Members acting on the committee of the Board were: Audit and Risk Committee Greg McCann (Chairman) Chiao-Heng (Charles) Huang As at the date of this report the Company had an Audit and Risk Committee and the functions of the previously established Remuneration and Nomination Committee were handled by the full Board. Indemnification and Insurance of Directors and Officers and Auditors The entity has entered into a directors' & officers' insurance contract on 30 January 2019 for the purpose of insuring against any liability that may arise from the directors carrying out their duties and responsibilities in their capacity as officers of the Company. The amount of the premium was $50,990. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an auditor of the entity or of any related body corporate against a liability incurred as such an auditor. 8 Directors' Report Remuneration Report (Audited) The remuneration report, which has been audited, outlines the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Details of Directors and Executives The names and positions of each director and executive in the Company who received the highest remuneration and having the greatest authority within the Company, along with the components of their remuneration are provided below. Directors Greg McCann Chiao-Heng (Charles) Huang Jeffrey Ma Steven Goodarzi Chairman (Non-executive) Managing Director, Chief Executive Officer Director, Chief Financial Officer, Company Secretary Director, Chief Strategy Officer Executives Bing Zhou Charles Hsieh Gang Gu Huy Nguyen Sales Director Commercial Director Head of Information System Sales Director Remuneration Policy The Board of Directors of the Company is responsible for determining remuneration arrangements for the directors, the Managing Director and the senior management team. The Board assesses the appropriateness of the nature and amount of the remuneration of directors and senior executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. Employee Share Ownership Plan The 2009 Employee Share Ownership Plan, which was implemented on 30 November 2009, was amended and approved by shareholders at the Annual General Meeting on 30 November 2015 (2009 ESOP). This plan replaced the previously approved Employee Option Plan instituted on 23 May 2007, which the Board believed was no longer as effective following changes to the taxation of options in recipients hands. The 2009 ESOP aims to motivate, retain and attract quality employees and directors of the Company to create a commonality of purpose between the employees and directors and the Company. The 2009 ESOP is operated by way of the Company issuing new shares to participants, with an amount equal to the subscription price for those shares being loaned to the participant by the Company. That loan is secured by the Company taking security over the shares which are subject to a holding lock period of five years, and is interest free with recourse only to the shares. The loan is to be repaid over time by the participant (whether through dividends, specific payments to reduce the loan, or on sale of the underlying shares). Shares issued under the 2009 ESOP will rank from the date of issue equally with the other shares in the Company then on issue. Non-executive Director Remuneration The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided among the directors as agreed. The latest determination was at the Annual General Meeting held on 20 April 2007 when shareholders approved an aggregate remuneration of $350,000 per year payable to non-executive directors for their services as directors, including their services on a committee of directors. The Board determines payments to the non-executive directors and will review their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. Each non-executive director receives a fee for being a director of the Company. An additional fee may also be paid for each Board committee on which a director sits. Non-executive directors are eligible to be granted shares under the Employee Share Ownership Plan. 9 Directors' Report Executive Director and Executives Remuneration Remuneration granted to the executive directors and other executives has regard to the Company's financial and operational performance. The Board determines the base salary of the executive directors and will review their remuneration annually against the external market and individual contribution to the Company. Performance pay based on overall corporate performance may be made available to the executive team. Each executive director and executive receives remuneration commensurate with their position and responsibilities within the Company. Executive directors and executives are eligible to be granted shares under the Employee Share Ownership Plan. Voting and Comments made at the Company's 2018 Annual General Meeting ("AGM") At the 2018 AGM, shareholders voted to approve the adoption of the remuneration report for the year ended 30 June 2018. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. Remuneration of Directors and Executives The following tables set out the remuneration received by the directors and executives of the Company during the financial years ended 30 June 2019 and 30 June 2018. 2019 Short Term Benefits Post Employment Long Term Benefits Total Directors Greg McCann Chiao-Heng (Charles) Huang Jeffrey Ma Steven Goodarzi Executives Bing Zhou Charles Hsieh Gang Gu Huy Nguyen Salary and Fees $ Cash Benefits (1) $ Non-Cash Benefits $ Super- annuation $ Accrued Leave Entitlement $ 72,765 305,000 196,008 200,692 135,819 144,667 137,973 127,322 1,320,246 - - - 44,512 - - - - 44,512 - - - 8,045 1,181 - 4,181 - 13,407 6,913 25,000 25,000 20,917 11,875 12,508 13,300 10,956 126,469 - 6,934 4,409 - 2,399 991 2,860 - 17,593 $ 79,678 336,934 225,417 274,166 151,274 158,166 158,314 138,278 1,522,227 10 Directors' Report 2018 Short Term Benefits Post Employment Long Term Benefits Total Directors Greg McCann Chiao-Heng (Charles) Huang Jeffrey Ma Steven Goodarzi Executives Bing Zhou Charles Hsieh Gang Gu Huy Nguyen Salary and Fees $ Cash Benefits (1) $ Non-Cash Benefits $ Super- annuation $ 72,765 305,000 196,008 200,692 135,124 142,000 137,994 128,200 1,317,783 - 23,899 - - - 5,000 - - 28,899 - - - 32,398 2,164 - 4,160 - 38,722 6,913 25,000 25,000 19,308 11,902 12,825 13,300 11,039 125,287 Accrued Leave Entitlement $ - 44 519 - - - 322 (1,981) 386 - (2,126) $ 79,678 353,943 221,527 252,398 148,868 157,844 155,068 139,239 1,508,565 The proportion of remuneration linked to performance and the fixed proportion are as follows: Fixed Remuneration 2019 2018 Performance 2019 2018 Directors Greg McCann Chiao-Heng (Charles) Huang Jeffrey Ma Steven Goodarzi Executives Bing Zhou Charles Hsieh Gang Gu Huy Nguyen 100% 100% 100% 100% 100% 100% 100% 94% 100% 100% 100% 100% 100% 100% 100% 88% (1) Cash benefits represented the payout of unused annual leave entitlements. 0% 0% 0% 0% 0% 0% 0% 6% 0% 0% 0% 0% 0% 0% 0% 12% 11 Directors' Report Key Terms of Employment Agreements Apart from the non-executive directors, all key management personnel are employed under standard company employment agreements. With the exception of the executive directors (where either party may terminate the agreement by giving a three months notice to the other), the notice period of standard company employment agreements is one month. None of these agreements provide for termination conditions or payments. The Board considers that the significant equity holding of executive directors mitigates any risk of not having formal termination clauses. Any termination entitlements payable to the key management personnel would be considered in light of the relevant circumstances and would be determined after consideration of entitlements of common law rights. Directors and Executives Share Holdings The number of ordinary shares in the Company held directly, indirectly or beneficially during the financial year by key management personnel and their related entities are as follows: Greg McCann Chiao-Heng (Charles) Huang Jeffrey Ma Steven Goodarzi Bing Zhou Charles Hsieh Gang Gu Huy Nguyen Total Shares Held at Beginning of Year Total Shares Held at End of Year Shares Disposal 85,000 4,463,393 423,003 210,335 61,000 30,000 83,826 67,922 5,424,479 - - - - - - - - - 85,000 4,463,393 423,003 210,335 61,000 30,000 83,826 67,922 5,424,479 Total shareholdings include shares held by key management personnel and their related entities. Unless related to the Employee Share Ownership Plan (2009 ESOP) - see Note 27 (a), shares acquired or disposed during the year were on an arm's length basis at market price. No director or key management personnel were issued options to acquire shares during the year, held any options at the end of the year or had any options that expired during the year. 12 Directors' Report Company Performance, Shareholder Wealth and Director and Executive Remuneration The remuneration policy has been tailored to increase goal congruence between shareholders, directors and executives. There have been two methods applied in achieving this aim, the first being a performance based bonus based on key performance indicators, and the second being the issue of equity to the majority of directors and executives to encourage the alignment of personal and shareholder interests. No bonus have been paid in the current year. The following table shows gross revenue, profits and dividends over the last discontinued operations). five years (including continuing and Revenue 2019 $83.34 m 2018 $80.18 m 2017 $68.89 m 2016 $47.64 m 2015 $24.57 m Profit/(loss) after tax Underlying profit/(loss) after tax $2.21 m $2.21 m $3.17 m $3.17 m $0.81 m $0.81 m ($2.54 m) ($2.54 m) ($4.73 m) ($4.73 m) Share price at year end $0.40 $1.01 $0.85 $0.55 $0.95 Interim/Special dividend Final dividend 0.00 cents 0.00 cents 0.00 cents 0.00 cents 3.00 cents 0.00 cents 0.00 cents 0.00 cents 0.00 cents 0.00 cents This concludes the Remuneration Report which has been audited. Shares under Options There were no ordinary shares of the company issued on exercise of options during the year (2018:Nil), nor are there any ordinary shares under option at the end of the financial year and the date of this report. Proceedings on Behalf of the Company No person has applied for leave of Court to bring proceedings on behalf of the consolidated entity or intervene in any the proceedings to which the consolidated entity is a party for the purpose of consolidated entity for all or any part of those proceedings. taking responsibility on behalf of The consolidated entity was not a party to any such proceedings during the year. Auditor's Independence Declaration A copy of the Auditor's independence declaration as required under section 307C of the Corporations Act 2001 has been provided to the directors and is set out immediately after this directors' report. 13 Directors' Report Non-Audit Services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in Note 7 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in Note 7 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Corporate Governance Statement The directors of the Company support and adhere to the principle of corporate governance, recognising the need for the highest standard of corporate behaviour and accountability. A review of the Company's corporate governance practices was undertaken during the year to ensure they remained optimal. Please refer to the corporate governance statement in this report. Rounding of Amounts issued by the Australian Securities and The Company is of a kind referred to in Legislative Instrument 2016/191, Investment Commission, relating to "rounding-off". Amounts in this report have been rounded off in accordance with that Class Order to the nearest dollar. Amounts could have been rounded off to nearest thousand, but management has selected not to do so at this point in time. This report is made in accordance with a resolution of Directors, pursuant to Section 298 (2) (a) of the Corporation Act 2001. On behalf of the Directors, Greg McCann Chairman Chiao-Heng (Charles) Huang Managing Director Dated this 28 August 2019 14 Corporate Governance Statement The Company is committed to implementing standards of corporate governance consistent with the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations (3rd Edition). Where the Company's corporate governance practices do not correlate with the Recommendations, the Company does not currently regard it appropriate to meet that specific Recommendation, due to the nature and size of the Company's operations. The Board's reasoning for any departure to the Recommendations is explained in the Corporate Governance Statement which is available on the Company website http://www.tpc.com.au/investor_reports.asp. 15 Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of TPC Consolidated Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of TPC Consolidated Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. Grant Thornton Audit Pty Ltd Chartered Accountants Matthew Leivesley Partner – Audit & Assurance Sydney, 28 August 2019 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 16 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2019 Note 2019 $ 2018 $ Revenue Delivery of services Gross profit Other income Operating expenses Employee benefits expense Gain on fair value of derivatives Earnings before interest, taxation, depreciation, amortisation and impairment (EBITDA) Depreciation and amortisation Impairment Earnings before interest and taxation (EBIT) Finance revenue Finance costs Share of loss of equity-accounted investees Profit before income tax Income tax benefit Profit for the year Other comprehensive income Amounts that may subsequently be transferred to profit or loss Exchange differences on translating foreign operations Fair value movement on derivatives designated for Hedge Accounting Other comprehensive (loss)/income for the year, net of tax Total comprehensive income for the year Profit attributable to Members of TPC Consolidated Limited Total comprehensive income attributable to Members of TPC Consolidated Limited Earnings per share for the year attributable to the members of TPC Consolidated Limited Earnings per share - Basic earnings per share - Diluted earnings per share 2 2 3 3 3 3 3 4 5 5 83,336,529 (66,635,764) 16,700,765 169,171 16,869,936 (7,670,323) (6,539,582) 21,064 80,184,187 (65,842,395) 14,341,792 176,971 14,518,763 (6,590,340) (6,103,980) - 2,681,095 1,824,443 (290,372) (111,380) 2,279,343 103,523 (170,541) (1,368) 2,210,957 4,036 2,214,993 (262,075) (113,098) 1,449,270 95,557 (142,084) (64,731) 1,338,012 1,830,485 3,168,497 8,471 (460,965) (452,494) 2,487 1,217,228 1,219,715 1,762,499 4,388,212 2,214,993 3,168,497 1,762,499 4,388,212 Cents Cents 19.71 19.71 28.20 28.20 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 17 Consolidated Statement of Financial Position As at 30 June 2019 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Derivatives held at fair value Bank deposits Other assets Total Current Assets Non-Current Assets Property, plant and equipment Equity-accounted investments Deferred tax assets Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Borrowings Derivatives held at fair value Short term provisions Contract liabilities Total Current Liabilities Non-Current Liabilities Long term provisions Deferred tax liabilities Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated Losses TOTAL EQUITY Note 2019 $ 2018 $ 8 9 10 25 11 12 14 15 4 16 17 25 18 19 18 4 20 21 1,045,304 14,167,401 55,764 - 2,272,101 1,629,528 19,170,098 588,513 12,093,472 64,801 147,967 3,887,101 505,833 17,287,687 937,700 - 3,577,205 4,514,905 1,055,016 112,748 2,724,707 3,892,471 23,685,003 21,180,158 9,463,087 2,946,218 291,934 1,145,020 1,850,513 15,696,772 10,276,062 2,191,885 - 1,052,183 1,849,007 15,369,137 246,914 1,617,618 1,864,532 272,419 894,222 1,166,641 17,561,304 16,535,778 6,123,699 4,644,380 9,833,668 (275,325) (3,434,644) 6,123,699 9,825,028 (555,266) (4,625,382) 4,644,380 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 18 Consolidated Statement of Changes in Equity For the year ended 30 June 2019 Issued Capital $ Reserves $ Accumulated Losses $ Total $ Note Balance at 1 July 2017 9,825,028 (1,774,981) (7,793,879) 256,168 Profit for the year Other comprehensive income Total comprehensive income for the year - - - - 1,219,715 1,219,715 3,168,497 - 3,168,497 3,168,497 1,219,715 4,388,212 Balance at 30 June 2018 9,825,028 (555,266) (4,625,382) 4,644,380 Balance at 1 July 2018 (Reported) Adjusted from adoption of AASB 9 Balance at 1 July 2018 Transfer relating to cashflow hedge reserve Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with Shareholders Payment related to ESOP shares 9,825,028 (555,266) - 9,825,028 - - - - - (555,266) 732,435 - (452,494) (452,494) (4,625,382) (291,820) (4,917,202) (732,435) 2,214,993 - 2,214,993 4,644,380 (291,820) 4,352,560 - 2,214,993 (452,494) 1,762,499 20 8,640 - - 8,640 Balance at 30 June 2019 9,833,668 (275,325) (3,434,644) 6,123,699 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 19 Consolidated Statement of Cash Flows For the year ended 30 June 2019 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest and other financial costs paid Income tax paid NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant & equipment Net proceeds from disposal of fixed assets Received from/(Payment) to bank deposits NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from partially paid share capital Proceeds from borrowings Repayment of borrowings NET CASH PROVIDED BY FINANCING ACTIVITIES Net increase in cash held Cash held at the beginning of the financial year Note 2019 $ 2018 $ 88,828,003 (90,502,813) 92,094 (170,541) - (1,753,257) 85,760,242 (85,384,853) 93,973 (142,084) - 327,278 8(b) (168,211) 286 1,615,000 1,447,075 (1,067,834) 1,471 (890,169) (1,956,532) 8,640 88,216,121 (87,461,788) 762,973 - 79,545,000 (77,912,609) 1,632,391 456,791 588,513 3,137 585,376 CASH AT THE END OF FINANCIAL YEAR 8(a) 1,045,304 588,513 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 20 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies This financial report Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of Accounting Standards Board (AASB) and the Corporations Act 2001 as applicable to for-profit entities. that has been prepared in accordance with Australian the Australian is a general purpose financial report The consolidated financial report of the Group also complies with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB). The following is a summary of the material accounting policies adopted in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated, with all balances being presented in Australian dollars. This financial report includes the consolidated financial statements and notes of TPC Consolidated Limited and the controlled entities (consolidated group or group). TPC Consolidated Limited is a company limited by shares, incorporated and domiciled in Australia, whose shares are publicly traded on the Australian Securities Exchange, under the ticker TPC. Basis of Preparation The financial report has been prepared on an accruals basis and is based on historical costs except where applicable as modified by the revaluation of financial assets and financial liabilities for which the fair value basis of accounting has been applied. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the consolidated financial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated. The financial report of TPC Consolidated Limited and its controlled entities for the year ended 30 June 2019 was authorised for issue in accordance with a resolution of the TPC Board of Directors on 28 August 2019. Parent Entity Information In accordance with Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in Note 30. 21 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies New, Revised or Amended Accounting Standards and Interpretations Adopted The Company has applied the required amendments to the Standards that are relevant to its operations and effective for the current reporting period. The application of the amendments to Standards do not have a material impact on disclosure or amounts recognised in these financial statements. New Standards Adopted as at 1 July 2018 AASB 9 Financial Instruments AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and Measurement requirements. It makes major changes to the previous guidance on the classification and measurement of financial assets and introduces an ‘expected credit loss’ model for impairment of financial assets. When adopting AASB 9, the Group has applied transitional relief and elected not to restate prior periods. Rather, differences arising from the adoption of AASB 9 in relation to impairment are recognised in opening retained earnings as at 1 July 2018. Further, the Group chose to continue applying the hedge accounting requirements in AASB 139 as permitted by AASB 9. The adoption of AASB 9 has mostly impacted the following area: Impairment of financial assets AASB 9 introduces an expected credit loss model for impairment of financial assets which replaces the existing incurred loss model. For trade and other receivables the Group applies a simplified approach of recognising lifetime expected credit losses as these items do not have a significant financing component. The impact of applying an expected credit loss model was a related increase in the impairment allowance for trade and other receivables of $416,886 and a restated increase in deferred tax assets of $125,066 at 30 June 2018, and a restated decrease of profit for year ended 30 June 2018 of $291,820. Hedge accounting All of the Group’s forward derivate contracts had been designated as hedging instruments in cash flow hedges under AASB 139. All hedging relationships that were hedging relationships under AASB 139 at the 30 June 2018 reporting date, meet AASB 9’s criteria for hedge accounting at 1 July 2018 and are therefore regarded as continuing hedging relationships. AASB 15 Revenue from Contracts with Customers AASB 15 and its associated amendments supersede AASB 111 Construction Contracts, AASB 118 Revenue and related Interpretations and it applies, with limited exceptions, to all revenue arising from contracts with customers. AASB 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. AASB 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires new disclosures. The entity adopted AASB 15 using the modified retrospective method of adoption with the date of initial application of 1 July 2018. In accordance with this method, to the extent the impact is material, the entity is required to recognise adjustment in opening retained earnings as at 1 July 2018. While the retrospective adoption of AASB 15 resulted in changes in accounting policies which are discussed below, it has nil impact in the current or preceding financial reporting years which is why there are no adjustments shown below relating to the impact of AASB 15 on comparative financial information. 22 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) AASB 15 Revenue from Contracts with Customers (continued) Impact on adoption The Group undertook a comprehensive analysis of the impact of the new revenue standard with the primary focus being to understand whether the timing, amount and nature of revenue recognised could differ pursuant to AASB 15. Based on this assessment, the application of AASB 15 has nil impact on the recognition, timing or measurement of the Group's revenue. (a) Principles of Consolidation The Group financial statements consolidate those of the Parent Company and all of its subsidiaries as of 30 June 2019. The Parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 June. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. (b) Business Combination Business combinations occur where control over another business is obtained and results in the consolidation of its assets and liabilities. All business combinations, including those involving entities under common control, are accounted for by applying the acquisition method. Consideration transferred for the acquisition comprises the fair value of the assets transferred, liabilities incurred and the equity interests issued by the acquirer. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. Any deferred consideration payable is discounted to present value using the entity's incremental borrowing rate. Acquisition related costs are expensed as incurred. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition- date fair value of any previous equity interest in the acquiree over the fair value of the acquirer's share of net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. (c) Investments in Associate Associates are those entities over which the Group is able to exert significant influence but which are not subsidiaries. Investments in associates are accounted for using the equity method. Any goodwill or fair value adjustment attributable to the Group's share in the associate is not recognised separately and is included in the amount recognised as investment. The carrying amount of the investment in associates is increased or decreased to recognise the Group's share of the profit or loss and other comprehensive income of the associate, adjusted where necessary to ensure consistency with the accounting policies of the Group. 23 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) (d) Income Tax The income tax expense or benefit represents the sum of current tax and deferred tax. Current tax is calculated on accounting profit after adjustment for any non-taxable and non-deductible items. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. It is calculated using the tax rates that have been enacted or are substantially enacted at reporting date. The current tax and deferred tax is recognised as an expense in the consolidated statement of profit or loss and other comprehensive income, except when it relates to items directly charged or credited to equity, in which case the current and deferred tax is also recognised directly in equity. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax liabilities are recognised for all taxable temporary differences, except to the extent that the deferred tax liabilities arises from: - the initial recognition of goodwill; or - the initial recognition of an asset or liability in a transaction that is not a business combination and affects neither the accounting profit or taxable income at the time of the transaction. Deferred tax assets are recognised for all deductible temporary differences and for carrying forward of unused tax losses and tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carrying forward of unused tax losses and tax credits can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will be occurring in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Effective 1 July 2003, for the purposes of income taxation, TPC Consolidated Limited and its 100% owned Australian subsidiaries formed a tax consolidated group. As part of the election to enter tax consolidation, the tax consolidated group is treated as a single entity for income tax purposes. Gotalk Pty Limited and its wholly owned subsidiaries joined the tax consolidated group upon acquisition on 23 December 2011. TPC Consolidated Limited, as the head entity in the tax consolidated group, recognises, in addition to its own, the current tax liabilities and the deferred tax assets arising from unused tax losses and tax credits of all entities in the group. 24 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) (e) Inventories Inventories are initially measured and recorded at cost and are valued at the lower of cost and net realisable value. (f) Property, Plant and Equipment Each class of property, plant and equipment is carried at cost less any accumulated depreciation and any provision for impairment loss. Plant and Equipment Plant and Equipment are measured on the cost basis less depreciation and impairment losses. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the consolidated statement of profit or loss and other comprehensive income during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including buildings and capitalised lease assets, but excluding freehold land, is depreciated on a straight line basis over their useful lives to the consolidated entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Office Fittings & Furniture Office Equipment Network Equipment 13% 20% - 33% 20% - 33% An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains or losses between the carrying amount and the disposal proceeds are taken to profit or loss. (g) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to entities in the consolidated group are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight line basis over the shorter of their useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the period in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight line basis over the life of the lease term. 25 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) (h) Financial Instruments Recognition and derecognition Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Classification and initial measurement of financial assets Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with AASB 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable) Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories: • amortised cost • fair value through profit or loss (FVTPL) • fair value through other comprehensive income (FVOCI). In the periods presented the corporation does not have any financial assets categorised as FVOCI. The classification is determined by both: • the entity’s business model for managing the financial asset • the contractual cash flow characteristics of the financial asset. All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. Subsequent measurement of financial assets Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL): • they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows • the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments as well as listed bonds that were previously classified as held-to-maturity under AASB 39. 26 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) (h) Financial Instruments (continued) Financial assets at fair value through profit or loss (FVTPL) Financial assets that are held within a different business model other than ‘hold to collect’ or ‘hold to collect and sell’ are categorised at financial assets whose contractual cash flows are not solely payments of principal and interest are accounted for at FVTPL. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements apply. fair value through profit and loss. Further, irrespective of business model The category also contains an equity investment. The Group accounts for the investment at FVTPL and did not make the irrevocable election to account for the investment in XY Ltd and listed equity securities at fair value through other comprehensive income (FVOCI). The fair value was determined in line with the requirements of AASB 9, which does not allow for measurement at cost. Assets in this category are measured at fair value with gains or losses recognised in profit or loss. The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists. Financial assets at fair value through other comprehensive income (FVOCI) The Group accounts for financial assets at FVOCI if the assets meet the following conditions: • they are held under a business model whose objective it is “hold to collect” the associated cash flows and sell and • the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. Any gains or losses recognised in other comprehensive income (OCI) will be recycled upon derecognition of the asset. Impairment of financial assets AASB 9’s impairment requirements use more forward-looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’. This replaced AASB 39’s ‘incurred loss model’. Instruments within the scope of the new requirements included loans and other debt-type financial assets measured at amortised cost and FVOCI, trade receivables, contract assets recognised and measured under AASB 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss. Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event. Instead the Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. In applying this forward-looking approach, a distinction is made between: • financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’) and • financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’). ‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date. ‘12-month expected credit recognised for the second category. losses’ are recognised for the first category while ‘lifetime expected credit losses’ are Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. 27 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) (h) Financial Instruments (continued) Trade and other receivables and contract assets The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix. The Group assess impairment of trade receivables on a collective basis as they possess shared credit risk characteristics they have been grouped based on the days past due. Classification and measurement of financial liabilities The Group’s financial liabilities include borrowings, trade and other payables and derivative financial instruments. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss. financial Subsequently, for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as hedging instruments). liabilities are measured at amortised cost using the effective interest method except All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income. Derivative financial instruments and hedge accounting The Group applies the new hedge accounting requirements in AASB 9 prospectively. On adoption of AASB 9, all hedging relationships that were hedging relationships under AASB 39 at the 30 June 2018 reporting date met the AASB 9’s criteria for hedge accounting at 1 July 2018 and were therefore regarded as continuing hedging relationships. Derivative financial instruments are accounted for at fair value through profit and loss (FVTPL) except for derivatives designated as hedging instruments in cash flow hedge relationships, which require a specific accounting treatment. To qualify for hedge accounting, the hedging relationship must meet all of the following requirements: • there is an economic relationship between the hedged item and the hedging instrument • the effect of credit risk does not dominate the value changes that result from that economic relationship • the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item. For the reporting periods under review, the Group has designated certain forward currency contracts as hedging instruments in cash flow hedge relationships. These arrangements have been entered into to mitigate foreign currency exchange risk arising from certain highly probable sales transactions denominated in foreign currency. All derivative financial subsequently at fair value in the statement of financial position. instruments used for hedge accounting are recognised initially at fair value and reported To the extent that the hedge is effective, changes in the fair value of derivatives designated as hedging instruments in cash flow hedges are recognised in other comprehensive income and included within the cash flow hedge reserve in equity. Any ineffectiveness in the hedge relationship is recognised immediately in profit or loss. 28 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) (h) Financial Instruments (continued) At the time the hedged item affects profit or loss, any gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss and presented as a reclassification adjustment within other comprehensive income. However, if a non-financial asset or liability is recognised as a result of the hedged transaction, the gains and losses previously recognised in other comprehensive income are included in the initial measurement of the hedged item. If a forecast transaction is no longer expected to occur, any related gain or loss recognised in other comprehensive income is transferred immediately to profit or loss. the effectiveness conditions, hedge accounting is discontinued and the related gain or loss is held in the equity reserve until the forecast transaction occurs. the hedging relationship ceases to meet If (i) Impairment of Assets At each reporting date, the group reviews the carrying values of assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is charged to the consolidated statement of profit or loss and other comprehensive income. Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash generating unit to which the asset belongs. (j) Foreign Currency Transactions and Balances Functional and Presentational Currency The functional currency of each group entity is measured using the currency of the primary economic environment in which the entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity's functional and presentational currency. Transactions and Balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year end exchange rate. Non monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the consolidated statement of profit or loss and other comprehensive income. Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the consolidated statement of profit or loss and other comprehensive income. 29 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) (j) Foreign Currency Transactions and Balances (continued) Group Companies The financial results and position of presentational currency are translated as follows: - Assets and liabilities are translated at year end exchange rates prevailing at the reporting date; - Income and expenses are translated at average exchange rates for the period; and - Retained earnings are translated at the exchange rates prevailing at the date of the transaction. foreign operations whose functional currency is different from the group's Exchange differences arising on translation of foreign operations are transferred directly to the group's foreign currency translation reserve in the consolidated statement of financial position. These differences are recognised in the consolidated statement of profit or loss and other comprehensive income in the period in which the operation is disposed. (k) Employee Benefits Annual Leave/Long Service Leave Provision is made for the consolidated entity's liability for employee benefits arising from services rendered by employees to reporting date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the future cash outflows to be made for those benefits. Superannuation Contributions are made by the consolidated entity to employee superannuation funds and are charged as expenses when incurred. Share-based Payments The group operates equity-settled share-based payment employee share and option schemes. The fair value of the equity to which employees become entitled is measured at grant date and is recognised as an expense over the vesting period, with a corresponding increase in equity. The fair value of shares is ascertained as the market bid price. The fair value of options (and ESOP awards accounted for as options) is ascertained using a Black-Scholes pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at each reporting date such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. (l) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts. (m) Trade Receivables Trade and other receivables are stated at amortised cost less any provision for impairment loss. Impairment The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach, which requires expected lifetime losses to be recognised from initial recognition of the receivables. The Group uses an allowance matrix to measure expected credit losses of trade receivables and unbilled revenue from its customers. Trade receivable amounts are disaggregated into customer segments. Loss rates are estimated in each age category and are based on the probability of a receivable progressing through to write-off. Factors to estimate the loss rate are based on risk assessment performed per customer segment and economic factors such as wholesale electricity forward curves. 30 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) (m) Trade Receivables (continued) The amount of the impairment loss is recognised in profit or loss within other expenses. When a trade receivable for which an impairment loss had been recognised becomes uncollectible in a subsequent period, it is written off against the provision account. Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss. Expected credit loss on trade receivables and unbilled revenue The Group uses an allowance matrix to measure expected credit losses of trade receivables and unbilled revenue from its customers. Trade receivable amounts are disaggregated into customer segments. (n) Trade and Other Payables Trade and other payables are stated at amortised cost. (o) Provisions Provisions are recognised when the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. (p) Contract Liabilities Contract liabilities represents the unused component of prepaid mobile products as at the reporting date and relates to cards that have been activated. Contract liabilities also represents receipts in advance from customers of the energy business as at the reporting date. (q) Revenue Recognition The Group’s primary revenue streams relate to the retail sale of electricity and gas to residential and business customers in Australia. Revenue from contracts with customers is recognised when control of the goods or services is transferred to a customer at an amount that reflects the consideration to which the Group expects to be entitled to receive in exchange for those goods or services. The majority of contractual energy supply arrangements with customers have no fixed duration, generally require no minimum consumption by the customer and are able to be terminated by either party at any time without incurring significant penalty. Given this, the enforceable contracts are considered short term (less than 12 months) in nature. The Group has generally concluded that it is the principal in its revenue arrangements because it controls the goods or services before transferring them to the customer. The Group’s primary performance obligations are the supply of energy (gas or electricity) over the contractual term. There are either individual contracts representing separate purchasing decisions of customers, or the units of supply of energy represent a series of distinct goods that are substantially the same and have the same pattern of transfer to the customer and hence is considered one performance obligation satisfied over time. For the shorter term contracts, the performance obligations are considered to be satisfied, and revenue is recognised, as and when the units of energy are delivered. Residential electricity and gas sales Residential energy sales relate to the sales of energy (gas and electricity) to retail customers. Residential sales are classified as individual, short term, day-by-day contracts and are recognised as revenue on a day-by-day basis upon delivery of energy to customers. The Group recognises revenue from contracts with its residential customers at the electricity and gas portfolio levels. 31 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) (q) Revenue Recognition (continued) Business electricity and gas sales Business sales represent the sale of energy to business customers. The nature and accounting treatment of this revenue stream is consistent with residential sales. Revenue from the rendering of telecommunication service Revenue from the rendering of telecommunication service is recognised upon the delivery of the service to customers. A sales incentive provided to a customer in the form of non-cash consideration, for example bonus time, is considered to be a separate deliverable in a multiple deliverable arrangement. Sales revenue is allocated proportionally to the aggregate of the service paid for and the incentive, and is recognised when the customer utilises the incentive i.e. when TPC provides the service. Customer contract liabilities are recognised for cash received in advance and services not used yet. Costs to obtain and fulfil a contract Costs that are incurred regardless of whether an energy contract is obtained are expensed as incurred, unless those costs are explicitly chargeable to the customer. Variable consideration and constraints The Group includes variable consideration in the transaction price as estimated at the inception of a contract. However, if it is considered 'highly probable' that a significant reversal of revenue recognised will occur in the future, the variable consideration is constrained and not included in the transaction price. The Group's contractual arrangements contain a number of variable pricing elements including pay-on-time discounts. Some of these variable elements are resolved during the reporting periods. Where they are not, management estimates the likelihood of the variable pricing element eventuating and recognises the variable pricing element to the extent it is not highly probable that it will reverse. Interest revenue is recognised using the effective interest method. (r) Goods and Services Tax Revenues and expenses are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense. Receivables and payables in the statement of financial position are shown inclusive of GST. The net amount of GST due, but not paid, to the Australian Taxation Office is included under payables. Cash flows are presented in the cash flow statements on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. 32 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) (s) Earnings per Share Basic earnings per share is calculated as net profit or loss attributable to ordinary equity holders of TPC Consolidated Limited divided by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated as adjusted net profit or loss attributable to ordinary equity holders of TPC Consolidated Limited divided by the weighted average number of shares outstanding adjusted for the effects of all dilutive potential ordinary shares during the period. (t) Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors. (u) Comparatives Where required by accounting standards, comparative figures have been adjusted to conform to changes in the current year. (v) Critical Accounting Estimates and Judgments The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and consolidated data, obtained both externally and within the group. Provision for Impairment of Receivables The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach, which requires expected lifetime losses to be recognised from initial recognition of the receivables. The Group uses an allowance matrix to measure expected credit losses of trade receivables and unbilled revenue from its customers. Trade receivable amounts are disaggregated into customer segments. Loss rates are estimated in each age category and are based on the probability of a receivable progressing through to write-off. Factors to estimate the loss rate are based on risk assessment performed per customer segment and economic factors such as wholesale electricity forward curves. 33 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) (v) Critical Accounting Estimates and Judgments (continued) Unbilled Revenue The Group recognises revenue from gas and electricity sales once the gas and/or electricity has been consumed by the customer. Management estimates customer consumption between the last invoice date and the end of the reporting period when determining gas and electricity revenue for the financial period. Various assumptions and financial models are used to determine the estimated unbilled consumption. Some of the assumptions and estimates include: • Volume and timing of energy consumed by the customers • Various pricing plans and allocation of the estimated volume to such pricing plans • Loss factors • Behavioural discounts Deferred tax assets relating to tax losses Deferred tax assets are recognised for deductible temporary differences and accumulated tax losses only if the consolidated entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses (see Note 4). Share-based Payment Transactions The group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined internally by management using a Black- Scholes valuation model. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity. Fair Value of Financial Instruments When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, the fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. See Note 25 for further discussion. 34 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 1: Statement of Significant Accounting Policies (continued) Accounting Policies (continued) (v) Recently Issued Accounting Standards to be Applied in Future Reporting Periods Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2018. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below. AASB 16 Leases: This standard is applicable to annual reporting periods beginning on or after 1 January 2019. For lessee accounting, the standard eliminates the 'operating lease' and 'finance lease' classification required by AASB 117 'Leases'. Subject to exceptions, a 'right-of -use' asset will be capitalised in the statement of financial position, measured as the present value of the unavoidable future lease payments to be made over the lease term. The exceptions related to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and office furniture) where an accounting policy choice exists whereby either a ' right-of-use' asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) components. For lessor accounting, the standard does not substantially change how to a lessor accounts for leases. The Group will adopt this standard for the year ending 30 June 2020 and is expected to apply the modified retrospective approach. The cumulative impact of the adoption will be recognised in 1 July 2019 opening retained earnings and comparatives will not be restated. The impact of adoption of AASB 16 will be a restated decrease of profit for the year ended 30 June 2019 of $35,615, a restated increase in leased assets of $1,227,887, a restated increase in deferred tax assets of $15,264, a restated increase in lease liabilities $1,467,171 and a restated decrease in provision for future rent of $188,405 at 30 June 2019. 35 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 2: Revenue Disaggregated Revenue Services transferred over time - Electricity Service - Gas Service - Telecommunication Services Other Income - Foreign Exchange Gain - Sundry Income 2019 $ 2018 $ 59,615,654 21,407,626 2,313,249 83,336,529 56,485,423 20,333,459 3,365,305 80,184,187 6,025 163,146 169,171 - 176,971 176,971 AASB 15 requires entities to disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Group has determined that a disaggregation of revenue using existing segments and the nature of revenue best depicts the Group's revenue. For 2019, revenue includes $1,595,370 (2018: $1,670,107) included in contract liability balance at the beginning of the period. Note 3: Profit Before Income Tax Occupancy Expense Advertising and Promotion Expense Communication Expense Professional Fees Bank and Merchant Fees Travel Expense Bad and Doubtful Debts Expense Foreign Exchange Losses Call Centre Expenses Other Expenses Total Operating Expenses Employee Benefits Expenses Superannuation Total Employee Benefits Expenses Depreciation of Non-current Assets Total Depreciation and Amortisation Finance Costs 2019 $ 2018 $ 805,721 383,379 81,178 833,650 414,187 311,568 2,733,880 - - 2,106,760 7,670,323 6,053,403 486,179 6,539,582 610,700 441,487 92,977 733,534 407,645 268,673 1,767,340 46,013 987,433 1,234,538 6,590,340 5,615,308 488,672 6,103,980 290,372 290,372 262,075 262,075 170,541 142,084 36 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 4: Income Tax Benefit (a) Income Tax Expense The major components of income tax expense are: Current tax expense Overprovision in respect of prior years Deferred tax movement arising from origination and reversal of temporary differences Deferred tax relating from the recognition of prior years tax loss (b) The prima facie income tax expense/(benefit) on profit from ordinary activities differs from the income tax expense/(benefit) provided in the financial statements and is reconciled as follows: Profit before income tax expense Prima facie tax expense on profit from ordinary activities at 30% (2018: 30%) Non-assessable items Overprovision in respect of prior years Deferred tax relating from the recognition of prior years tax loss Income tax benefit attributable to profit from ordinary activities 2019 $ 2018 $ 324,994 (92,440) (236,590) - (4,036) 622,061 - (780,543) (1,672,003) (1,830,485) 2019 $ 2018 $ 2,210,957 1,338,012 663,287 401,404 (574,883) (92,440) - (4,036) (559,885) - (1,672,004) (1,830,485) (c) Deferred Tax Balances Deferred tax liability Accrued Income Others Balance as at 30 June 2018 Accrued Income Others Opening Balance $ Charged to Income $ Charged directly to Equity $ Closing Balance $ - - - 893,106 1,116 893,106 1,116 894,222 568,112 155,284 - - - - - - 893,106 1,116 894,222 1,461,218 156,400 1,617,618 Balance as at 30 June 2019 894,222 723,396 37 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 4: Income Tax (Expense)/Benefit (continued) (c) Deferred Tax Balances (continued) Deferred tax assets Property, plant and equipment Provision Carry forward tax losses Others Balance as at 30 June 2018 Property, plant and equipment Provision Carry forward tax losses Others Opening Balance $ Charged to Income $ Charged directly to Equity $ Closing Balance $ - - - - - 2,225 397,381 1,049,942 1,275,159 2,225 397,381 1,049,942 1,275,159 2,724,707 (2,225) (104,867) (232,553) 1,067,077 - - - - - - 125,066 - - 2,225 397,381 1,049,942 1,275,159 2,724,707 - 417,580 817,389 2,342,236 Balance as at 30 June 2019 2,724,707 727,432 125,066 3,577,205 (d) Tax Consolidation Effective 1 July 2003, for the purposes of income taxation, TPC Consolidated Limited and its 100% owned Australian subsidiaries formed a tax consolidated group. As part of the election to enter tax consolidation, the tax consolidated group is treated as a single entity for income tax purposes. Gotalk Pty Limited and its wholly owned subsidiaries joined the tax consolidated group upon acquisition on 23 December 2011. in addition to its own TPC Consolidated Limited, as the head entity in the tax consolidated group, recognises, transactions, the current tax liabilities and the deferred tax assets arising from unused tax losses and tax credits of all entities in the group. 38 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 5: Earnings Per Share Basic earnings per share Diluted earnings per share 2019 Cents 2018 Cents 19.71 19.71 28.20 28.20 Net earnings used in the calculation of basic and diluted EPS 2,214,993 3,168,497 Weighted average number of ordinary shares outstanding during the year in the calculation of basic EPS in the calculation of diluted EPS Number 11,235,613 11,235,613 Number 11,235,613 11,235,613 Note 6: Dividends Paid and Proposed Franking Credit Balance The amount of franking credits available for the subsequent financial year - Franking account balance as at the end of the financial year at 30% (2018: 30%) The amount of franking credits available for future reporting periods: - Impact on franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during period 2019 $ 2018 $ 1,500,093 1,500,093 1,500,093 1,500,093 - 1,500,093 - 1,500,093 39 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 7: Auditor's Remuneration During the financial year the following fees were paid or payable for services provided by Grant Thornton, the auditor of the Company: Auditors of Parent Entity Audit and Review of Financial Reports Non-assurance Services Taxation Services Other Advisory Services Total Auditors Remuneration Note 8: Cash and Cash Equivalents (a) Cash Balance Cash at bank and in hand (b) Reconciliation of Net Cash Flow from Operations with Profit after Income Tax Profit after income tax Non-cash flows in profit Depreciation and amortisation Gain on fair value of derivatives Impairment Share of loss of equity-accounted investees Changes in assets and liabilities Decrease/(increase) in prepayments Increase in trade & other receivables (Decrease)/increase in trade & other payables Increase in other provisions Increase in deferred tax liabilities (Increase) in deferred tax assets 2019 $ 2018 $ 105,465 101,525 12,000 - 117,465 12,000 12,500 126,025 2019 $ 2018 $ 1,045,304 1,045,304 588,513 588,513 2019 $ 2018 $ 2,214,993 3,168,497 290,372 (21,064) 111,380 1,368 (1,140,665) (2,868,097) (279,774) 67,332 723,396 (852,498) (1,753,257) 262,075 - 113,098 64,731 36,239 (2,388,912) 738,015 164,020 894,222 (2,724,707) 327,278 40 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 9: Trade and Other Receivables Current Trade Receivables Provision for Impairment of Receivables Accrued Income (a) Other Receivables (a) Accrued income comprises of: - Unbilled Revenue - Other Accrued Income 2019 $ 2018 $ 9,852,541 (2,598,330) 6,891,671 21,519 14,167,401 8,675,422 (1,804,162) 5,215,624 6,588 12,093,472 6,876,520 15,151 6,891,671 5,211,902 3,722 5,215,624 The movement in the provision for impairment in respect of trade receivables and other receivables are detailed below: Opening balance (Reported) Adjusted from adoption of AASB 9 Opening balance - Provision for impairment recognised during the year - Provision for impairment reversed during the year - Receivables written off during the year as uncollectible Closing balance Credit Policy (1,804,162) (416,886) (2,221,048) (2,766,368) 32,560 2,356,526 (2,598,330) (1,282,121) - (1,282,121) (1,785,142) 18,040 1,245,061 (1,804,162) The group requires customers to pay in accordance with agreed terms. Trade receivables are non-interest bearing and are generally on 20-90 days terms. A provision for impairment is recognised based on expected credit loss model. All credit and recovery risk associated with trade receivables has been provided for in the consolidated statement of financial Ageing of trade receivables at the reporting date was: Not past due Past due 0 - 30 days Past due 31 - 60 days Past due 61 - 90 days Past due 90 days over Total Impairment losses Trade receivables net of provision for impairment 4,796,718 1,436,480 595,885 625,639 2,397,819 9,852,541 4,563,817 1,051,599 605,157 359,173 2,095,676 8,675,422 (2,598,330) 7,254,211 (1,804,162) 6,871,260 Ageing of trade receivables that are past due but not impaired at the reporting date was: Past due 0 - 30 days Past due 31 - 60 days Past due 61 - 90 days Past due 90 days over 1,237,037 414,243 341,760 618,862 2,611,902 1,045,810 597,657 80,855 583,121 2,307,443 The consolidated entity did not consider there to be a credit risk on the aggregate balance after reviewing credit terms of customers based on recent collection practices. 41 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 10: Inventories Current Inventories Inventories are held at the lower of cost and net realisable value. Note 11: Bank Deposits Current Bank Deposits 2019 $ 2018 $ 55,764 64,801 2019 $ 2018 $ 2,272,101 3,887,101 Bank deposits include term deposits which are held as security for bank guarantee amounting to $2,272,101 (2018: $3,887,101). Note 12: Other Assets Current Deferred Commission Costs Prepayments Security Deposit 2019 $ 2018 $ 32,915 1,555,096 41,516 1,629,527 41,097 414,431 50,305 505,833 42 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 13: Controlled Entities Parent Entity TPC Consolidated Limited Controlled Entities Interest at Cost CovaU Pty Limited iGENO Pty Limited Tel.Pacific ESOP Pty Limited Kinect Inc. (1) Investment in controlled entities Impairment losses Total investment in controlled entities Country of Incorporation Effective Interest 2019 2018 % % Company's recorded amount of Investment 2019 $ 2018 $ Australia Australia Australia Australia Philippines 100% 100% 100% 100% 100% 100% 100% 100% 12 100 1 38,864 38,977 - 38,977 12 100 1 38,864 38,977 - 38,977 (1) Kinect Inc. was incorporated in the Philippines on 6 October 2017. 43 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 14: Property, Plant and Equipment Network Equipment & Software Less: Accumulated Depreciation Office Equipment & Software Less: Accumulated Depreciation Office Fittings & Furniture Less: Accumulated Depreciation Movement in Carrying Amount 2019 Balance at the beginning of the year Reclassification Additions Disposal Depreciation expense Foreign currency exchange difference 2019 $ 2018 $ 736,345 (680,366) 55,979 710,912 (653,696) 57,216 1,345,011 (1,141,998) 203,013 1,273,915 (1,083,552) 190,363 1,875,339 (1,196,631) 678,708 1,796,391 (988,954) 807,437 937,700 1,055,016 Network Equipment & Software $ Office Equipment & Software $ Office Fittings & Furniture $ Total $ 57,216 190,363 807,437 1,055,016 - 25,433 - (26,670) - 6,177 75,877 (10,560) (64,419) 5,575 (6,177) 66,901 - (199,283) 9,830 - 168,211 (10,560) (290,372) 15,405 Balance at the end of the year 55,979 203,013 678,708 937,700 2018 Balance at the beginning of the year Additions Disposal Depreciation expense Network Equipment & Software $ Office Equipment & Software $ Office Fittings & Furniture $ Total $ 80,723 62,010 107,600 250,333 8,973 - (32,480) 181,000 (1,076) (51,571) 877,861 - (178,024) 1,067,834 (1,076) (262,075) Balance at the end of the year 57,216 190,363 807,437 1,055,016 44 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 15: Equity-accounted Investments The Group has a 41% equity interest in Long Tail Property Pty Ltd. The associate is not material to the Group. Summarised aggregated financial information of the Group's share in the associate: Loss from continuing operations Total comprehensive loss 2019 $ (1,368) (1,368) 2018 $ (64,731) (64,731) 2019 $ 2018 $ Aggregate carrying amount of the Group's interests in associates - 112,748 The movement for the period in the Group's investments accounted for using the equity method is as follows: Balances at 1 July 2018 Share of results for the period Impairment Balances at 30 June 2019 Note 16: Trade and Other Payables Current Trade Payables Accrued Expenses Sundry Payables Goods and Services Tax Payable Note 17: Borrowings Current Bank borrowings - Invoice finance facility $ 112,748 (1,368) (111,380) - 2019 $ 2018 $ 1,111,061 8,189,586 153,256 9,184 9,463,087 340,940 9,374,334 213,448 347,340 10,276,062 2019 $ 2018 $ 2,946,218 2,946,218 2,191,885 2,191,885 The bank borrowings is classified as a current liability consistent with the current assets classification of the receivable against which it is secured. Facility is $6m (2018: $6m). 45 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 18: Provisions Short Term Provisions Leave Entitlement (1) Future Rent (2) Long Term Provisions Leave Entitlement (1) Future Rent (2) 2019 $ 2018 $ 1,115,230 29,790 1,145,020 1,042,922 9,261 1,052,183 88,299 158,615 246,914 84,014 188,405 272,419 Movements in Provisions Movement of each class of provision (current and non-current), other than employee benefits, are set out below: (a) Future Rent Opening balance - additional provisions - amount used Closing balance 2019 $ 2018 $ 197,666 20,529 (29,790) 188,405 20,853 197,666 (20,853) 197,666 (1) Leave Entitlement Provision represents provision for employee entitlements relating to annual leave and long service leave. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. The measurement and recognition criteria relating to employee benefits have been included in Note 1. (2) Future Rent Provision relates to the difference between the cash payments on the leasehold property and the accounting charge spread over the life of the lease on a straight line basis. 46 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 19: Contract Liabilities Unearned revenue relating to energy services Unearned revenue relating to telecommunication services 2019 $ 1,306,274 544,239 1,850,513 2018 $ 1,241,022 607,985 1,849,007 The amounts recognised as a contract liability will generally be utilised within the next reporting period. Note 20: Issued Capital (a) Ordinary Shares Issued and Fully Paid Issued and Partially Paid (1) 2019 2018 Number $ Number $ 9,715,613 1,520,000 11,235,613 9,797,668 27,360 9,825,028 9,715,613 1,520,000 11,235,613 9,797,668 27,360 9,825,028 (b) Movements in Ordinary Shares on Issue Balance at the beginning of the year 11,235,613 9,825,028 11,235,613 9,825,028 Payments related to ESOP shares - 8,640 - - Balance at the end of the year 11,235,613 9,833,668 11,235,613 9,825,028 (1) The issue of shares under the 2009 Employee Shares Ownership Plan (2009 ESOP) has been treated as issue of share options in accordance with the pronouncement of the International Financial Reporting Interpretations Committee. Where the company funds the acquisition of its own shares via a loan to employees with recourse only to the shares, it is treated as an option grant and accounted for under AASB 2 Share-based Payment. No loan or equity is booked initially. The Company has effectively given the employee an option exercisable sometime in the future to buy a share at a set price. For information relating to shares issued under the 2009 ESOP during the financial year, refer to Note 27(a). Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the company does not have authorised capital nor par value in respect of its issued shares. Ordinary shares carry one vote per share and carry the right to dividends. 47 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 20: Issued Capital (continued) (c) Capital Management Management controls the capital of the group in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the group can fund its operations and continue as a going concern. The group's capital includes ordinary shares supported by financial assets, and structured debt facilities. Management effectively manages the group's capital by assessing the group's financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders, buy-back shares and share issues. Apart from the above, there have been no changes in the strategy adopted by management to control the capital of the group since the prior year. Note 21: Reserves Foreign Currency Translation Reserve 2019 $ 2018 $ The foreign currency translation reserve records exchange differences arising on translation of foreign controlled entities. Balance at the beginning of the year Gain on translation of overseas controlled entities Balance at the end of the year Employee Equity Benefits Reserve 2,487 8,471 10,958 - 2,487 2,487 The employee equity benefits reserve records the value of equity benefits provided to employees and directors as part of their remuneration. Balance at the beginning of the year Balance at the end of the year Cashflow Hedge Reserve Balance at the beginning of the year Transferred to retained earnings Cashflow hedge (loss)/gain recognised in equity Balance at the end of the year Total Reserves 26,715 26,715 26,715 26,715 (584,468) 732,435 (460,965) (312,998) (1,801,696) - 1,217,228 (584,468) (275,325) (555,266) 48 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 22: Capital and Leasing Commitments Operating Lease Commitments Non-cancellable operating leases contracted for but not capitalised in the financial statements. 2019 $ 2018 $ - not later than 1 year - later than 1 year but not later than 5 years Total lease commitments Operating lease for the following types of assets: 466,218 1,168,275 1,634,493 453,498 1,634,493 2,087,991 1. Property lease with a five or six year term and rent payable monthly in advance. Contingent rental provisions within the lease agreement require that the minimum lease payments shall increase by 4% per annum. 2. Rental of office equipment with average lease terms 3 - 5 years Note 23: Contingent Liabilities As at 30 June 2019 the consolidated entity has issued bank guarantees totalling $2,272,101 (2018: 3,887,101) for which term deposits are held to secure this amount. Apart from the bank guarantees, there are no contingent liabilities as at the date of signing of this report. Note 24: Related Party Transactions Information relating to controlled entities is set out in Note 13. Transactions occurred between certain of these entities during the period, all of which are eliminated from the consolidated accounts. During the year, the Company has received commission totalling $14,092 GST inclusive (2018: $45,210) on normal commercial terms and conditions no more favourable than those available to other parties, from Nextgen Capital Pty Limited whom Chiao-Heng (Charles) Huang is director. 49 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 25: Fair Value of Financial Instruments At balance date, the Company has a number of derivative financial instruments which are recorded at fair value in the Statement of Financial Position. Current Assets Derivative financial instruments Opening Balance - Designated - Non designated Acquired Recognised in the statement of profit or loss and other comprehensive income Closing Balance - Designated - Non designated Current Liabilities Derivative financial instruments Opening Balance - Designated - Non designated Acquired Recognised in the statement of profit or loss and other comprehensive income Closing Balance - Designated - Non designated Fair Value $ Carrying Amount $ 147,967 - 147,967 - (147,967) 147,967 - 147,967 - (147,967) - - - - - - - - - - - - 291,934 - 291,934 - 291,934 291,934 - 291,934 - 291,934 (291,934) (291,934) These financial instruments are classified as "Level 2" instruments per the fair value hierarchy in AASB 13. Level 2 refers to instruments where the fair value is determined using inputs other than quoted prices other than those traded on an active market. Financial assets Derivative financial instrument - Energy derivatives - cash flow hedges Financial liabilities Derivative financial instrument - Energy derivatives - cash flow hedges Carrying Amount $ Level 2 $ Total $ - - - - - - (291,934) (291,934) (291,934) (291,934) (291,934) (291,934) The fair value of the instruments has been determined by reference to comparable similar instrument prices as at the balance sheet date. The instruments include Cap and Swap agreements mitigating exposure to significant increases in energy prices over the next twelve months. 50 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 26: Directors and Executives Disclosures (a) Remuneration of Key Management Personnel Short-term Employee Benefits Long-term Employee Benefits Post-employment Benefits 2019 $ 1,378,165 17,593 126,469 1,522,227 2018 $ 1,385,404 (2,126) 125,287 1,508,565 The remuneration paid to the key management personnel is detailed in the Directors' Report. Note 27: Employee Benefits (a) Employee Share Ownership Plan The 2009 Employee Share Ownership Plan, which was implemented on 30 November 2009, was amended and approved by shareholders at the Annual General Meeting on 30 November 2015 (2009 ESOP). The 2009 ESOP aims to motivate, retain and attract quality employees and directors of the company to create commonality of purpose between the employees and directors and the company. The ESOP is operated by way of the company issuing new shares to participants, with an amount equal to the subscription price for those shares being loaned to the participant by the company. That loan secured by the company taking security over the shares which are subject to a holding lock period of five years, is interest free with recourse only to the shares. The loan is to be repaid over time by the participant (whether through dividends, specific payments to reduce the loan, or on sale of the underlying shares). Shares issued under the 2009 ESOP will rank from the date of issue equally with the other shares in the company then on issue. All shares issued pursuant to the 2009 ESOP are held by a trustee appointed by the company in trust for the participant until such time as the loan is repaid. The loan becomes immediately repayable in the event of dismissal, resignation, death or retirement of the participant. 60% of all dividends and distributions made in respect of the shares must be applied towards repayment of the loan. Voting rights attached to the shares may only be exercised by the trustee holder in the best interest of the participant. On 15 January 2016, a total of 1,600,000 shares were granted to the employees and directors of the company under the 2009 ESOP. For accounting purposes, the share issue under the 2009 ESOP has been treated as option grant and the value of the options vested has been accounted for and included in the result of the period. Any repayment of the loan will be treated as partial payment to be applied towards the payment of shares issued under the 2009 ESOP. The fair value of the option grant relating to the 2009 ESOP is estimated at the date of grant using a Black-Scholes Options Pricing Model applying the following inputs: Number of Options on Issue Exercise Price Time to Maturity Underlying Share Price Expected Share Price Volatility Risk-free Interest Rate Dividend Yield 1,600,000 $0.450 5 years $0.540 18.61% 2.73% 12.96% 51 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 27: Employee Benefits (continued) (a) Employee Share Ownership Plan (continued) ESOP shares in issue - At started of year - Exercised - At year ended Number of shares Exercise Price $ 1,520,000 (20,000) 1,500,000 0.450 0.450 0.450 The number of ESOP shares on issue represents the number of shares issued under the 2009 ESOP on 15 January 2016. The expected life of the shares is based on historical data, which may not eventuate in the future. The expected share price volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in the Remuneration Report on pages 9-13. (b) Expenses Arising from Share-based Payment Transactions Total expenses arising from share-based payment transactions recognised during the year as part of employee benefits expenses were as follows: Payments related to 2009 ESOP Shares (c) Superannuation Plan 2019 $ 2018 $ - - The company contributes to employee superannuation plans in accordance with contractual and statutory requirements. Defined contribution superannuation expense 486,179 488,672 2019 $ 2018 $ 52 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 28: Financial Instruments and Financial Risk Management Objectives and Policies The group undertakes transactions in a range of financial instruments including: - Cash assets; - Trade and other receivables; - Trade and other payables; - Investments; and - Derivative financial instruments. The main risks arising from the group's financial instruments are energy price risk, interest rate risk, foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks. (a) Energy Price Risk The group is exposed to energy price risk associated with the purchase and/or sale of electricity, gas and environmental products. The group manages energy risk through an established risk management framework consisting of policies to place appropriate risk limits on overall energy market exposures and transaction limits for approved energy commodities, requirements for delegations of authority on trading, regular reporting of exposures and segregation of duties. It is the group's policy to actively manage the energy price exposure arising from both forecast energy supply and retail customer energy load. The Group’s risk management policy for energy price risk is to hedge forecast future positions for up to 12 months into the future. Exposures to fluctuations in the wholesale market energy prices are managed through the use of various types of hedge contracts including derivative financial instruments, such as energy swaps and caps. As at 30 June 2019 instruments entered into include 84,664 MWh (2018: 96,006 MWh) swaps, caps and options to cover an estimate 33% (2018: 39%) forecast yearly electricity demands, and 165,600 GJ (2018: 27,600 GJ) swaps to cover an estimate 14% (2018: 3%) forecast yearly gas demands. 53 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 28: Financial Instruments and Financial Risk Management Objectives and Policies (continued) (b) Interest Rate Risk The group’s exposure to interest rate risk is the risk that the financial changes in market interest rates. The effective weighted average interest rates on those financial assets is as follows: instrument's value will fluctuate as a result of 2019 Financial Assets Cash Trade and other receivables (1) Bank deposit (1) Financial Liabilities Trade and other payables (2) Borrowing (2) 2018 Financial Assets Cash Trade and other receivables (1) Bank deposit (1) Financial Liabilities Trade and other payables (2) Borrowing (2) (1) Loans and receivables category (2) Financial liabilities at amortised cost category, excluding GST payable Average Effective Interest Rate Total Note $ 8 9 11 16 17 8 9 11 16 17 1,045,304 14,167,401 2,272,101 17,484,806 9,453,903 2,946,218 12,400,121 588,513 12,093,472 3,887,101 16,569,086 9,928,722 2,191,885 12,120,607 0.03% 0.00% 2.27% 0.00% 6.43% 0.29% 0.00% 2.20% 0.00% 5.46% 54 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 28: Financial Instruments and Financial Risk Management Objectives and Policies (continued) (c) Foreign Currency Risk The group operates internationally and is exposed to foreign currency risk arising from various currency exposures, primarily with respect to the US dollar, NZ dollar and Philippine Peso. Foreign exchange risk arises from future commercial transactions and net investments in foreign operations. The transactional currency exposure will be minimised by seeking economically favourable local suppliers. When it is required, the group will enter into forward exchange contracts to reduce and minimise its currency exposures. Foreign currency risk also arises on translation of the net assets of our non Australian controlled entities which have different functional currency. The foreign currency gains or losses arising from this risk are recorded through the foreign currency translation reserve. The group does not seek to hedge this exposure taking consideration of current net investment position. The carrying amount of the consolidated entity's foreign currency denominated financial assets and financial liabilities at the reporting date was as follows: Consolidated US dollars New Zealand dollars Philippine Peso (d) Credit Risk Assets 2019 178,411 18,468 72,557 269,436 2018 93,639 17,664 38,924 150,227 Liabilities 2019 14,823 - 4,821 19,644 2018 14,894 - 887 15,781 The group's maximum exposure to credit risk at reporting date in relation to each class of recognised financial assets is the carrying amount of those assets as indicated in the consolidated statement of financial position. Trade receivables consist of residential and business customers. Prior to contracting, customers must agree to and successfully pass a credit check and all results are individually assessed for approval by our credit team under the credit risk management policy. In the event that a credit check result is declined by our credit team all offers of supply and sale are withdrawn from the customers. The group does not have any significant credit risk exposure to any single counter-party or any group of counter-parties having similar characteristics. In addition, receivable balances are monitored on an ongoing basis. There are no significant concentrations of credit risk within the group. 55 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 28: Financial Instruments and Financial Risk Management Objectives and Policies (continued) (e) Liquidity Risk The group's objective is to be self-funding by the generation of positive cash flow. The group manages liquidity risk by monitoring cash flow requirements on a continuing basis. Remaining contractual maturities The following tables detail the consolidated entity's remaining contractual maturity for its financial instrument liabilities. Both interest and principal cash flows are disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. 2019 Non-derivatives financial assets Non-interest bearing Trade and other receivables Interest-bearing Cash and cash equivalents Bank Deposits Non-derivatives financial liabilities Non-interest bearing Trade and other payables Interest-bearing Borrowing Total non-derivatives Derivatives financial assets Non-interest bearing Derivatives held at fair value Derivatives financial liabilities Non-interest bearing Derivatives held at fair value Total derivatives 1 year or less $ Between 1 and 2 years $ Between 2 and 5 years $ Total $ 6.43% 14,167,401 1,045,304 2,272,101 (9,463,087) (2,946,218) 5,075,501 - (291,934) (291,934) - - - - - - - - - - - - - - - - - - 14,167,401 1,045,304 2,272,101 (9,463,087) (2,946,218) 5,075,501 - (291,934) (291,934) 56 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 28: Financial Instruments and Financial Risk Management Objectives and Policies (continued) (e) Liquidity Risk (continued) 2018 Non-derivatives financial assets Non-interest bearing Trade and other receivables Interest-bearing Cash and cash equivalents Bank Deposits Non-derivatives financial liabilities Non-interest bearing Trade and other payables Interest-bearing Borrowing Total non-derivatives Derivatives financial assets Non-interest bearing Derivatives held at fair value Derivatives financial liabilities Non-interest bearing Derivatives held at fair value Total derivatives 1 year or less $ Between 1 and 2 years $ Between 2 and 5 years $ Total $ 12,093,472 588,513 3,887,101 5.46% (10,276,062) (2,191,885) 4,101,139 147,967 - 147,967 - - - - - - - - - - - - - - - - - - 12,093,472 588,513 3,887,101 (10,276,062) (2,191,885) 4,101,139 147,967 - 147,967 As at 30 June 2019, the group maintained a total $3,317,405 in cash balance and bank deposits. 57 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 28: Financial Instruments and Financial Risk Management Objectives and Policies (continued) (f) Summarised Sensitivity Analysis Energy Price Risk The sensitivity analysis is based on energy price risk exposures arising from the electricity and gas prices from 10 per cent movement in the wholesale market with all other variables remaining constant. A sensitivity of 10 per cent has been selected as this is considered reasonable given the current level of market contract price and the volatility observed both on an historical basis and market expectations for future movements. Year Ended 30 June 2019 Year Ended 30 June 2018 Profit/Loss +10% $ -10% $ Equity +10% $ -10% $ Profit/Loss +10% $ -10% $ Equity +10% $ -10% $ (701,806) (650,223) (1,352,029) 686,804 650,223 1,337,027 (701,806) (650,223) (1,352,029) 686,804 650,223 1,337,027 (594,897) (557,160) (1,152,057) 565,391 557,160 1,122,551 (594,897) (557,160) (1,152,057) 565,391 557,160 1,122,551 (Decrease)/increase - Electricity - Gas Interest Rate Risk The following sensitivity analysis is based on interest rate exposures arising from the effect on interest income on net average balance of cash and cash equivalents and term deposits from 50 basis point (0.5%) movement in interest rates during the year. A sensitivity of plus or minus 50 basis point (0.5%) has been selected as this is considered reasonable given the current level of both short term and long term Australian interest rates. Year Ended 30 June 2019 Year Ended 30 June 2018 Profit/Loss +0.5% $ -0.5% $ Equity +0.5% $ -0.5% $ Profit/Loss +0.5% $ -0.5% $ Equity +0.5% $ -0.5% $ Financial Assets Cash and cash equivalents Other assets - term deposit Financial Liabilities Borrowings Increase/(decrease) 2,859 (2,859) 2,859 (2,859) 2,054 (2,054) 2,054 (2,054) 10,779 (10,779) 10,779 (10,779) 12,047 (12,047) 12,047 (12,047) (8,992) 4,646 8,992 (4,646) (8,992) 4,646 8,992 (4,646) (4,815) 9,286 4,815 (9,286) (4,815) 9,286 4,815 (9,286) 58 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 28: Financial Instruments and Financial Risk Management Objectives and Policies (continued) (f) Summarised Sensitivity Analysis (Continued) Foreign Exchange Risk The sensitivity analysis is based on foreign currency risk exposures on financial instruments and net foreign investment balances as at reporting date. Foreign currency risk arising from financial instruments represents a financial risk. A sensitivity of 10 per cent has been selected as this is considered reasonable given the current level of exchange rates and the volatility observed both on an historical basis and market expectations for future movements. Year Ended 30 June 2019 Year Ended 30 June 2018 Profit/Loss +10% $ -10% $ Equity +10% $ -10% $ Profit/Loss +10% $ -10% $ Equity +10% $ -10% $ (Decrease)/increase (15,896) (15,896) 19,428 19,428 (15,896) (15,896) 19,428 19,428 (8,556) (8,556) 10,457 10,457 (8,556) (8,556) 10,457 10,457 59 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 29: Segment Reporting The consolidated entity has identified its operating segments based on the internal reports and that are reviewed and used by the chief operating decision makers in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on revenue stream. Discrete financial information about each of those operating business is reported on a monthly basis. (a) Types of Products and Services The consolidated entity operates in the provision of pre-paid mobile telephony products and services and the associated operations of the Mobile Real Time Monitoring platform, and the provision of retail electricity and gas services to residential and businesses in Australia. (b) Accounting Policies and Inter-Segment Transactions Unless stated otherwise, all amounts reported to the Board of Directors as the chief operating decision maker with respect to operating segments are determined in accordance with accounting policies that are consistent with the consolidated entity's policies described in Note 1. (c) Major Customers The consolidated entity is not reliant on any single customer and no one customer represents more that 10% of the Group’s revenue. 2019 Revenue Revenue from external customers Other income Inter-segment revenue Total segment revenue Result Earnings before interest expense and taxation (EBIT) Finance revenue Finance costs Share of loss of equity-accounted investees, net of tax Profit before income tax for the year Other Segment Information Depreciation Impairment Energy Services $ Telecom- munication Services $ Total $ 81,023,280 7,719 - 81,030,999 2,313,249 161,452 - 2,474,701 83,336,529 169,171 - 83,505,700 1,791,732 487,611 2,279,343 103,523 (170,541) (1,368) 2,210,957 279,370 111,380 11,002 - 290,372 111,380 60 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 29: Segment Reporting (continued) 2018 Revenue Revenue from external customers Other income Inter-segment revenue Total segment revenue Result Earnings before interest expense and taxation (EBIT) Finance revenue Finance costs Share of loss of equity-accounted investees, net of tax Profit before income tax for the year Other Segment Information Depreciation Impairment Energy Services $ Telecom- munication Services $ Total $ 76,818,882 55,818 - 76,874,700 3,365,305 121,153 - 3,486,458 80,184,187 176,971 - 80,361,158 866,254 583,016 1,449,270 95,557 (142,084) (64,731) 1,338,012 255,435 113,098 6,640 - 262,075 113,098 No segment assets and liabilities are disclosed because there is no measure of segment liabilities regularly reported to chief operating decision makers. 61 Notes to the Consolidated Financial Statements For the year ended 30 June 2019 Note 30: Parent Entity Disclosures Current assets Total assets Current liabilities Total liabilities Issued capital Employee equity benefits reserve Retained earnings Shareholders' equity Loss for the year Total comprehensive income Parent entity contingencies Company 2019 $ 2,557,507 6,003,008 11,710,409 12,820,894 2018 $ 2,475,396 6,022,472 7,282,781 8,428,731 9,833,668 26,715 (16,678,269) (6,817,886) 9,825,028 26,715 (12,258,002) (2,406,259) (4,420,267) (4,134,955) (4,420,267) (4,134,955) The details of all contingent liabilities in respect to TPC Consolidated Limited are disclosed in Note 23. The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in Note 1. Note 31: Events Subsequent to the End of the Financial Year No matter or circumstance, other than those referred to in the financial statements or notes thereto, has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. Note 32: Company Details The Company is incorporated and domiciled in Australia. The registered office and principal place of business of the Company is: Suite 1103, Level 11, 201 Kent Street, Sydney NSW 2000, Australia 62 Directors' Declaration The directors of the Company declare that: 1. 2. 3. 4. The financial statements, comprising the consolidated statement of profit or loss and other comprehensive financial position, consolidated statement of changes in equity, income, consolidated statement of consolidated statement of cash flows, accompanying notes, are in accordance with the Corporations Act 2001 and: (a) (b) comply with Accounting Standards and the Corporations Regulations 2001; and give a true and fair view of the consolidated entity’s financial position as at 30 June 2019 and of its performance for the year ended on that date. The Company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. In the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: Greg McCann Chairman Chiao-Heng (Charles) Huang Managing Director Sydney, 28 August 2019 63 Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of TPC Consolidated Limited Report on the audit of the financial report Opinion We have audited the financial report of TPC Consolidated Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the year ended on that date; and b complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. 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 auditor independence requirements of 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 also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 64 Key audit matters 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. Key audit matter How our audit addressed the key audit matter Estimation of unbilled revenue – Note 9 Unbilled revenue of $6,876,520 disclosed in Note 9(a) of the annual report represents the value of gas and electricity supplied to customers for the period between the date of the last meter reading and the reporting date of 30 June 2019, of which the invoices had not been issued to the customers. Detailed calculations utilising estimates of the electricity and gas consumption of the Group’s customers and applicable pricing plans are used to determine the estimate of unbilled revenue. This area is a key audit matter due to the estimation uncertainty involved in determining customer consumption between the last invoice date and the end of the reporting period and the application of pricing assumptions to the calculation of unbilled revenue. Unbilled network expenses – Note 16 Management estimates energy consumption between the date of the last invoice date from the energy distributor to the Group, and the end of the reporting period when estimating network expenses. Detailed financial models utilising estimates of the electricity and gas consumption of the Group’s customers are used to determine the unbilled distribution costs of. Detailed calculations utilising estimates of the electricity and gas consumption of the Group’s customers are used to determine the unbilled network expenses of $7,862,152, as disclosed within Accrued Expenses in Note 16 to the financial statements. This area is a key audit matter due to the estimation uncertainty involved in estimating the volume of energy purchased to satisfy the Groups customer demand since the last invoice. Derivative financial instruments – Note 25 The Group enters into derivative arrangements, such as energy price caps and swaps, in order to hedge its exposure to the variable and volatile wholesale energy prices. These financial instruments are classified by the Group of cashflow hedges. Accounting for derivative financial instruments involves judgement in the application of specific hedge accounting requirements under Our procedures included, amongst others: obtaining an understanding of the processes and key controls management has in place to determine and review the estimate of unbilled revenue; comparing the Group’s previous estimates against subsequent billings to evaluate the historical accuracy of the Group’s calculations and estimates; agreeing management’s reconciliation of purchase volumes to revenue volumes recognised; challenging management’s calculations and the underlying assumptions, and comparing: o o average pricing rates used in the calculation to historical and current rates; internally generated estimates of physical energy loss levels through the distribution process to industry averages published by the Australian Energy Market Operator (AEMO); and assessing the adequacy of the Group’s disclosure in respect of unbilled revenue. Our procedures included, amongst others: obtaining an understanding of the process and key controls management have in place to determine the estimate of the accrued expenses; testing the volume of wholesale energy purchased by the Group to AEMO invoices on a sample basis; reconciling purchase volumes to revenue volumes recognised; comparing post period-end invoices to management’s estimate of accrued expenses; and assessing the appropriateness and adequacy of the disclosures in the financial report. Our procedures included, amongst others: obtaining an understanding of the internal risk management procedures, systems and controls associated with the origination and maintenance of complete and accurate information relating to the derivative arrangements; obtaining details of all swap and cap contracts as at 30 June 2019, and confirming directly with the counterparty the 65 AASB 9: Financial Instruments. There is also a requirement to record the derivatives at fair value, which involves the application of further judgement. This area is a key audit matter due to the heightened complexities associated with the valuation and accounting for these derivative financial instruments and this is the first year of the adoption of AASB 9. Upon adoption, the Group was required to assess whether their derivative arrangements still met the recognition and measurement requirements under the new standards. key terms and conditions of the arrangement and pricing of an equivalent contract as at 30 June 2019; comparing the year-end pricing provided by the counterparty to the contracted pricing, recalculating the fair value of the financial instrument and comparing the fair value to those recorded by management; obtaining and evaluating management’s hedge documentation of hedge relationships in order to ensure compliance with AASB 9; and assessing the appropriateness and adequacy of the disclosures in the financial report. Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, 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. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are 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 the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and 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_responsibilities/ar1.pdf. This description forms part of our auditor’s report. 66 Report on the remuneration report Opinion on the remuneration report We have audited the Remuneration Report included in pages 9-13 of the Directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of TPC Consolidated Limited, for the year ended 30 June 2019 complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Grant Thornton Audit Pty Ltd Chartered Accountants M R Leivesley Partner – Audit & Assurance Sydney, 28th August 2019 67 Shareholder Information Shareholder information required by the Australian Securities Exchange Limited and not shown elsewhere in this report is as follows. (a) Shares and Options as at 19 August 2019 Equity Security Shares on issue (b) Distribution of Equity Securities as at 31 July 2019 Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total There were 17 holders of less than a marketable parcel of 2,953 ordinary shares. (c) Substantial Shareholders as at 19 August 2019 Rank Shareholder Tel.Pacific ESOP Pty Limited Focus Capital Finance Limited 1 Mr Chiao Heng Huang 2 3 4 Megaway Group Limited 5 Mr Barry Christopher Chan Number 11,235,613 Class of Equity Securities Ordinary Shares Holders Ordinary Shares Units 214 76 20 28 14 352 198,560 190,207 147,253 818,130 9,881,463 11,235,613 Number of Shares % of Issued Capital 4,063,393 1,500,000 544,500 544,500 500,000 36.17 13.35 4.85 4.85 4.45 68 Shareholder Information (d) Twenty Largest Shareholders as at 19 August 2019 Rank Shareholder Number of Shares % of Issued Capital Fortune Giant International Limited Tel.Pacific ESOP Pty Limited Focus Capital Finance Limited 1 Mr Chiao Heng Huang 2 3 4 Megaway Group Limited 5 Mr Barry Christopher Chan 6 Mr Guonan Guan 7 8 Ms Wei Chun Wu 9 Mr Bob Cheng 10 Middleton Capital Investment Pty Ltd (Chen and Xuan Family A/C) 11 Mrs Maobin Guan 12 Mrs Xiaohong Xue 13 14 15 Mr Jeffrey Wu Kin Ma 16 Mr Chiao Ting Huang 17 Mr Junwu Lian 18 Snowtop Wealth Management Pty Ltd 19 Mrs Samantha Vieira 20 Nunc Coepi Pty Ltd CX & J Pty Ltd (CXJ Superannuation Fund A/C) Global Property Services Pty Limited (Super Account) Total 4,063,393 1,500,000 544,500 544,500 500,000 439,509 424,924 415,000 379,488 331,410 228,888 228,888 202,959 137,112 82,003 77,476 70,000 67,315 42,744 32,500 10,312,609 36.17 13.35 4.85 4.85 4.45 3.91 3.78 3.69 3.38 2.95 2.04 2.04 1.81 1.22 0.73 0.69 0.62 0.60 0.38 0.29 91.80 69 Corporate Directory Directors Greg McCann Chiao-Heng (Charles) Huang Jeffrey Ma Steven Goodarzi Company Secretary Jeffrey Ma Registered Office Suite 1103, Level 11, 201 Kent Street Sydney NSW 2000 Australia Telephone Facsimile Web Site (02) 8448 0633 1300 369 222 www.tpc.com.au Share Registry Computershare Investor Services Pty Limited Level 3, 60 Carrington Street Sydney NSW 2000 Stock Exchange Listing Australian Securities Exchange Limited ASX Code: TPC Auditor Grant Thornton Audit Pty Ltd Level 17, 383 Kent Street Sydney NSW 2000 Solicitor Lander & Rogers lawyers Level 19, 123 Pitt Street Sydney NSW 2000 Banker Westpac Banking Corporation 425 Victoria Avenue Chatswood NSW 2067 Commonwealth Bank 48 Martin Place Sydney NSW 2000 70
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