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TPG Telecom Limited (ASX: TPM), an Australian telecommunication company which provides internet, mobile and fixed line services to its customers, has released the market update about the accounting implications post the 29 January 2019 announcement regarding its decision to cease its Australian mobile network rollout due to outside factors which were beyond the control of TPG.
Spectrum licenses:
The group holds Australian spectrum licenses which are still not amortized in the Groupâs accounts till date. However, as per the accounting policies of the group, the amortization of this license should have commenced after the installation of the associated mobile network assets and were ready for their proposed use.
Since it has ceased its mobile network rollout, the TPG Telecom at present has neither any business plans nor any strategy as such for using the spectrum licenses on a standalone basis. Further, a reassessment is required to evaluate the carrying value of these licenses. The company expects that after the merger with VHA proceeds, the spectrum license will be harmonizing to the VHA mobile network. However, the merger depends on the regulatory as well as the shareholders' approval. As of now, the company is not sure to proceed to use the Spectrum license as the value to the merged entity may not be considered for the accounting purpose and also in determining the current value of the spectrum to the group. Therefore, for undertaking impairment review for 1H FY2019 accounts, the group will be reducing the value of the spectrum license by approximately 92 million, stating that the finite life of the license and their value diminishes with time. From the beginning of the second half of FY2019, the amortization of the spectrum license will be based on a straight-line basis for the remaining life of the spectrum license.
Mobile network assets:
The company expects that when it proceeds towards the merger with VHA, the mobile sites built by the company till date will be complementary to the mobile network of VHA which is still subjected to regulatory approvals as well as shareholdersâ approval. Also, there is no certainty whether the merger will proceed or not. As a result, the expected use and the value of the mobile sites may not be considered for determining the current value of the asset to the Group. Based on these circumstances, the impairment review of the mobile network site for the accounting purpose of 1H FY2019 has resulted in the assets capital expenditure write-down by approximately $76 million.
Capitalized Interest:
As per the accounting policies of the group, all the interest expense on debt that was drawn to finance in the Australian spectrum as well as the related mobile network assets will be considered under the cost of the relevant assets. Based on the decision to cease the mobile network rollout, the group has decided to discontinue the capitalizing interest expense related to the Australian spectrum and associated mobile network assets after January 2019 end. The company also announced that the mobile network construction would even be ended and the amount worth $60 million will be written-off from the 1H FY2019 accounts.
The company will disclose its 1HFY2019 results on 19 March 2019.
Since its inception, the stock has performed exceptionally well and has generated a return of 3766.51%. However, in the last six months, the stock has generated a negative return of 15.40% but its YTD return stands at 4.77%. On 27 February 2019 (2:10 PM), the stock is trading at A$6.576, down by 0.228% as compared to its previous trading dayâs closing price. The company has a market capitalization of A$6.11 billion with approximately 927.81 million outstanding shares and a PE ratio of 15.40x.
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