Improvements in Methodology

 A9-C1 Transfer Charges (providing details of the costs to be billed between regulatory businesses)

 C1-R1 Revenues (showing for each product the relevant R1 revenues)

 A9-R1 Balance Sheet (showing for each A9 activity which R1 Balance Sheet costs are relevant)

 A9-R1 Operating Costs (showing for each A9 activity which R1 P&L costs are relevant)

The results populate linked Excel tables, with the process of model calculation and data extraction through to refreshing of the Regulatory Statements being completed in less than a minute.

8.4 Statement Production

The detailed output of the above four reports is referenced to the individual Profit and Loss Accounts and Balance Sheets as indicated by the attribute that has been associated with each revenue, cost, asset or liability item during the modelling process. The resulting Profit and Loss Accounts and Balance Sheets for each separated business are then consolidated and reconciled to the statutory accounts of C&WG.

8.5 Improvements in Methodology

As indicated in Section 8.2 C&WG upgraded its activity based costing software in April 2012. This not only saved on annual licensing costs, but also brought graphical functionality for users, which had not previously been available. This has led to a better user experience and provides the incentive for further enhancements over the coming months to make the best of the available functionality. The change-out of the software has been undertaken as an in-house project (with background vendor support), thereby maximising user knowledge and minimising costs.

Over the years C&WG has chosen to introduce various enhancements to its ABC model and for the purposes of consistency routinely re-states its prior year results.

The main enhancements in relation to the 2011/12 accounting period related to:

 The increased visibility of the apportionment of support department costs, through the expansion of the Resource levels within the costing model from three to nine.

 A review of C&WG’s CCA model, which resulted in two changes in methodology being applied to the 2011/12 data, along with the restatement of the associated 2010/11 data. The changes were:

o The recalculation of the Net Replacement Cost (NRC) for asset classes 305 and 320 (namely Distribution Lines – Cables and Ducts and Submarine Cables) in relation to the 2010/11 accounting period. This was required to fully align with the requirement specified in the GCRA 04/25 document. More specifically, the NRC of the revalued asset classes was adjusted to reflect current NRC values by taking into consideration fully depreciated assets.

For non-revalued asset classes, the NRC remains equal to the historical NBV.

o The recalculation of Net Book Values for the period 2010/11, as a result of a change in the calculation process during 2009/10.

It should be noted however that no regulatory decisions were taken based on the original NBVs.

 The change in treatment of interconnect payments and receipts. Up until 2011 C&WG’s statutory accounts recognised such receipts and payments in relation to its associated companies’ use as increases in revenue and cost of sales. From 2012 these interconnect services are accounted for through the journaling of revenues and costs directly to the relevant businesses on a monthly basis, thereby requiring no retrospective apportionment within C&WG’s Separated Regulatory Accounts.

The reported profitability of C&WG’s Core Network and Mobile Business should not be affected as a result of this change.

 A change in the application of the Reference Offer rates in the adjustment of transfer charges from the Core Network to the Mobile Business and various retail businesses. Until recently no other local operator interconnected with C&WG’s Core Network at both fixed network switching locations within the Bailiwick. Now that this occurs C&WG’s Mobile Business and the various call-related retail businesses are able to be transfer-charged on that equivalent basis (having always interconnected at both switching locations). Apart from the Public Payphones Business, which continues to require the use of an unlisted Reference Offer service (for which the network component usage is not relevant to Other Licensed Operators), all call conveyance charges have been transfer charged solely at the prevailing Reference Offer rates. This avoids the previous need for more detailed analysis of the specific differences in the route factors between C&WG’s and OLOs’ use of standard Reference Offer services, which required variances in the application of those rates. For reporting consistency all relevant areas of C&WG’s 2010/11 Reference Offer based statements have been restated.

Appendix A: Financial Statement Proformas

The following proformas are provided to assist with the general understanding of the accounting separation process, but do not represent the actual wording used by C&WG in its own regulatory accounts.

Pro forma reporting formats for the Core Network

a) Core Network - Profit and Loss

b) Core Network - Balance Sheet

c) Core Network - Return on Capital Employed

Pro forma reporting formats for the Access Network

a) Access Network - Profit and Loss

b) Access Network – Balance Sheet, as for Core Network

c) Access Network – Return on Capital Employed, as for Core Network

Pro forma reporting formats for the Retail Businesses

a) Retail Businesses - Profit and Loss

b) Retail Businesses – Balance Sheet, as for Core Network

c) Retail Businesses – Return on Capital Employed, as for Core Network

Pro forma reporting formats for the Mobile Business

a) Mobile Business - Profit and Loss

b) Mobile Business – Balance Sheet, as for Core Network

c) Mobile Business – Return on Capital Employed, as for Core Network

Pro forma reporting formats for Other Activities Business

a) Other Activities - Profit and Loss

b) Other Activities – Balance Sheet, as for Core Network

c) Other Activities – Return on Capital Employed, as for Core Network