Idea Transcript
M2 Telecommunications Group Ltd Annual Report 2011
www.m2.com.au
Contents Chairman’s Letter
4
Managing Director / CEO’s Review
6
Case Studies
18
Directors’ Report
22
Remuneration Report (audited)
24
Corporate Governance Statement
27
Corporate Social Responsibility Statement
32
Consolidated Statement Of Comprehensive Income
34
Consolidated Statement Of Financial Position
35
Consolidated Statement Of Changes In Equity
36
Consolidated Statement Of Cash Flow
37
Notes To The Consolidated Financial Statements
38
Directors’ Declaration
71
Independent auditor’s report
72
ASX additional information
73
Corporate Directory
75
M2 An nua l Re p ort 2 01 1
Timeline 2
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Timeline
M2 An nua l Re p ort 2 01 1 - TIM ELINE
Delivering record increases in top and bottom lines since 2003.
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M2 An nua l Re p ort 2 01 1 - TIM ELINE
Chairman’s Letter Dear Shareholder, On behalf of the Board of M2 Telecommunications Group Ltd (“M2”), I am pleased to present to you our Annual Report, for the period 1 July 2010 to 30 June 2011 (“FY11”). I am genuinely thrilled to be delivering our shareholders the details of a year in which we have improved M2’s EBITDA and NPAT by 54% and 72% respectively. Given we operate in an industry in which on average low single digit growth is being generated, this result is a stunning testament to the diligence and ingenuity of our team and the many hundreds of representatives across our national dealer network.
M2 An nua l Re p ort 2 01 1 - C hairman’ s L e tter
“This result is a stunning testament to the diligence and ingenuity of our team.”
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This time last year I reported on the focus the business had devoted to integration of its major acquisitions from the previous year (People Telecom and Commander). This year I’m pleased to report on a period which has been considerably less impacted by the need to integrate major acquisitions. Rather, we took advantage of the opportunity to refine our operating processes and made a key strategic decision regarding the central operating system which will support our business into the future. We also drove cost efficiencies into the business, across both our cost of goods and operating expense base. Summarising the many achievements of such a busy and productive year is indeed difficult. However,
following is a summary of the key highlights of FY11, a number of which are further elaborated upon in the Managing Director / CEO’s report which follows: > Consolidated revenues increased to $426.8 million from $406.1 million last year, an increase of 5%; > Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of $48.3 million, as compared with $31.4 million in the previous year, representing an EBITDA increase of 54%; > Net Profit After Tax (NPAT) increased by 72% from the previous year to a new record high of $27.6 million; > Earnings Per Share (EPS) increased by 56% compared with the previous year, to 22.6c per share; > A number of sizable customer base acquisitions made late in the second half of the period, most notably; Clear Telecoms (February 2011), Austar Mobile (February 2011) and Edirect (April 2011). The assets of New Zealand-based Black and White Group Limited were also acquired in November 2010; > Implementation of business-wide process improvements and operating efficiencies, including Australian “on-shoring” of all recently acquired overseas-based customer support operations; > Delivery of substantial increase in our “Net Promoter Score”, a recognised measure of customer satisfaction, across all M2 brands; > Cash flows remained strong and gearing levels remained very low in relation to borrowing covenants;
> Declaration of interim and final (fully franked) dividends of 7c and 9c respectively, a 60% increase on FY10. These were the Company’s 13th and 14th consecutive dividends since listing on the ASX in October 2004; > Expansion of the Company’s internal and external sales channels, both in Australia and New Zealand; > Selection and customisation of a new Companywide Business Support System (“BSS”) scheduled for phased implementation, commencing early FY12.
“This heightened focus on growth coupled with our strengthened operating systems, provides cause for considerable optimism about M2’s prospects for future success...” Together with the announcement of FY11 results on 29 August 2011, the Directors released financial guidance for FY12, which forecasts another strong year of earnings growth. Inherent within M2’s FY12 guidance is a sizable incremental investment in its sales channels, expansion of our inside sales team and certain one-off costs associated with the implementation of our new BSS. This heightened focus on growth coupled with our strengthened operating systems provides cause for considerable optimism about M2’s prospects for future success,
not only in the year ahead but also for the medium to longer term. One of the Board’s core functions is succession planning of the CEO role. To this end, the Board was advised by Vaughan Bowen of his intention to step aside from his current role as CEO / Managing Director and it was announced on 29 August 2011 that Vaughan will assume an Executive Director role whilst Geoff Horth, M2’s present Chief Operating Officer, will be appointed as CEO. Both changes will become effective at the conclusion of M2’s 2011 Annual General Meeting, on 28 October 2011. Over the past 12 years, Vaughan Bowen has proven himself to be an outstanding CEO. Commencing in the role at the time of the Company’s incorporation in December 1999, Vaughan has grown M2 from a fledgling start-up to a large, profitable, respected member of the Australian telecommunications industry, employing nearly 500 people across Australia and in New Zealand. Since its listing on the ASX almost seven years ago, Vaughan has steered the Company from a market capitalisation of $14 million to approximately $357 million at the time of writing, an increase of over 2400%.
“Since its listing on the ASX almost seven years ago, Vaughan has steered the Company from a market capitalisation of $14 million to approximately $357 million”
In addition to a distinguished senior managerial career Geoff has proven himself to be an outstanding member of the M2 executive team for more than two years. After more than 20 years in the telecoms industry, Geoff assumed the role of COO at M2, where he presently has executive management responsibility for all operating divisions of the M2 Group. Geoff possesses exceptional capability to implement the systems, processes and organisational structure necessary to equip M2 to move to the next level in terms of scale whilst maintaining its lean, hungry, “challenger” culture.
The Board is extremely pleased to be retaining Vaughan in his new Executive Director role and as a continuing member of the M2 Board of Directors, demonstrating his continued commitment to M2 and its future success. Finally, on behalf of the Board, I would like to sincerely thank you for choosing to be a shareholder of our Company and for your support during what has been a very successful and developmental year for M2. Yours faithfully,
Craig L Farrow Chairman
M2 An nua l Re p ort 2 01 1 - C hairman’ s L e tter
The M2 Board would like to sincerely thank Vaughan for his dedication and exceptional performance. Vaughan’s determination, in consultation with the Board, was that M2’s prospects of continued future success were best served by a well managed transition of the day-to-day management of the Company. The Board conducted a structured and thorough evaluation process and formed the strong and united view that Geoff possesses the appropriate skills and experience to lead the next stage of M2’s evolution.
“Geoff possesses the appropriate skills and experience to lead the next stage of M2’s evolution.” In his new role as Executive Director, Vaughan’s principal responsibilities will be identifying and negotiating merger and acquisition opportunities, continued active involvement with management of key supplier and capital markets relationships, whilst continuing to serve as a member of the M2 Board of Directors and ongoing advisor to the new CEO.
Craig Farrow, Chairman
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Managing Director/CEO’s Review largely due to organic / underlying improvements in the business as a whole, rather than relying heavily on contributions from businesses or assets acquired during the period. This illustrates that our commitment to becoming a more efficient and more profitable business, not just a bigger one, has been realised during the year. In addition to the financial performance achievements of FY11, some exceptional business improvements and foundations for future improvement were delivered during the year. Amongst these were a stunning increase in our Net Promoter Score (“NPS”) customer satisfaction rating (across all M2-owned brands), the “on-shoring” of all acquired customer service functions to our existing Australian-based contact centres, the expansion of our national sales dealer network and selection of a business-wide billing and customer management system.
M2 An nua l Re p ort 2 01 1 - MD / C EO’s R e vi e w
Vaughan Bowen, Managing Director / CEO
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The Year @ a Glance As our Chairman’s letter clearly highlights, the 2011 financial year (FY11) has been a year of outstanding achievement for M2. A year-on-year earnings increase in excess of 50% is something that, as a now relatively mature business (we celebrate our 12th birthday this December!), we are incredibly proud to have delivered for our shareholders. Our remarkable, adaptable, innovative team is, as always, at the core of our sustained success and is to be congratulated for what has been achieved during a year in which we have dramatically outperformed our sector as a whole.
Hearty congratulations also are due to our expanding dealer network, located all across the country and in New Zealand. Our dealer network is the “arms and legs” that enable us to take our offerings to prospective customers and they are trusted local advisors to our tens of thousands of business customers.
“...the 2011 financial year (FY11) has been a year of outstanding achievement for M2.” Perhaps the most pleasing aspect of the major lift in earnings delivered in FY11 is that it was
The “Numbers that Matter” (opposite) provide a quick snap-shot of the key metrics of the M2 business at the end of FY11. The following sections of this report provide a little more detail regarding the ingredients that collectively comprise M2 today, together with an insight into the key strategic priorities and planned activities of note.
The M2 Business Today Our “place in the space” The Australian telecommunications industry comprises a diverse blend of more than 400 retail and wholesale service providers, targeting both the mass market and specialist customer niches. M2’s unique place in the Australian telco landscape is best illustrated through two stand-out features:
“Infrastructure Light”: M2 ranks as by far the largest of the light infrastructure operators. That is, the M2 core business model is one which leverages strategic wholesale supply relationships with the major telecommunications carriers (most notably Telstra and Optus). These long-standing and sizable supply relationships enable M2 to deliver to its customers a wide suite of telecoms services, remain technology agnostic and operate with particularly low capital expenditure. M2’s light infrastructure business model puts us in a strategically enviable position in advance of the deployment of the National Broadband Network (NBN), which is elaborated upon in “M2 and the NBN” section which follows.
“We are confident that we have the team, sales channels and exceptional service offerings to take full advantage of our fractional market share.” SMB Focused: Whilst M2 does provide a complete suite of services to the consumer/residential market (under our “Southern Cross Telco” brand) as well as having a successful wholesale business (“M2 Wholesale”), it is the Small and Medium Business (“SMB”) customer that over nearly 12 years we have learned to promote to and support with considerable expertise. With a full suite of telco services, a national network of SMB sales channel partners and the highly recognisable and respected “Commander” brand in our stable, we are well poised to continue to expand our presently modest share of the SMB market over the years to come.
Our retail business Approximately two thirds of M2’s more than $400 million in recurring customer revenues falls within our retail business. As the previous section highlighted, it is the SMB market which we have made our central focus ever
since opening our doors in 1999. We have markedly expanded our SMB “footprint” over the last few years, most particularly through a number of sizable acquisitions, including (most notably) People Telecom, Commander and Clear Telecoms.
“...it is the SMB market which we have made our central focus ever since opening our doors in 1999.” Whilst we are not aggressively organically expanding our presence in the consumer/residential market, our Southern Cross Telco brand is a specialist provider of a full suite of telecoms services to this market segment. Recent acquisitions of the customers
The Numbers That Matter
Team Members 488 14% increase The period saw a strong 14% increase in our total number of team members across the country. Our talented and dedicated team is, as always, at the core of our success. This growth is exceptional in light of the increases in EBITDA and NPAT (detail following).
Revenue $426.8m 5% increase
of Austar Mobile and Edirect have bolstered our residential customer base substantially.
today, each addressing particular niches, whether
All retail customers within the M2 Group, whether they are SMB or consumer/residential, have available to them a full suite of telecommunications services, ranging from traditional fixed line voice services through to 3G mobile, mobile broadband, ADSL2 broadband and a range of multi-location data services (“Virtual Private Networks”).
market. M2 Wholesale not only provides competitive
Our M2 Wholesale business
operational functions.
M2 Wholesale provides small and medium sized reseller telecommunications service providers (“RSP’s”) with a comprehensive range of services, purchased on a wholesale basis from M2 and then on-sold to their target retail customers.
M2 Wholesale has experienced solid growth over
Over 200 RSP’s are within the M2 Wholesale stable
in the rapidly-evolving telecoms industry.
that is a specific regional, ethnic or industry target commercial arrangements to its wholesale customers but also seeks to at all times provide RSP’s with the benefits of our own experience in building the M2 business. This includes providing our RSP partners with access to M2 management and briefings by team members from marketing, sales, collections and
recent years and has been intensively focusing on the systems and processes required to deliver our customers the operational tools and product range required to ensure their businesses remain competitive
NPAT EBITDA $48.3m 54% increase
Consolidated M2 Group revenues for the year ended 30 June 2011.
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) for the year to 30 June 2011.
This revenue growth represents a 5% increase on the previous corresponding period. Acquisitions were completed late in the period and as such contributed minimally to revenue.
Improved purchasing arrangements and internal efficiencies implemented during the period drove the sizeable growth in EBITDA (by 54%) and EBITDA margin (to more than 11%).
$27.6m 72% increase Net Profit After Tax (NPAT) for the year to 30 June 2011 This is an outstanding NPAT increase of 72% on the previous corresponding period. NPAT has increased at a substantially greater rate than revenue, also due to improved purchasing arrangements and internal efficiencies. Underlying NPAT is $31.3 million, an increase of 68% on the previous corresponding period.
Dividend EPS 22.6c 56% increase Earnings Per Share (EPS) for the year ended 30 June 2011. This is a strong increase of 56% on the previous corresponding period. Underlying EPS is 25.3c, an increase of 52% on the previous corresponding period.
16c 60% increase Combined interim and final dividend declared for the year to 30 June 2011.
M2 continues to deliver strong returns to shareholders, with a 60% increase in the combined dividend, year-on-year. A 9c fully franked dividend was declared by the directors on 26 August 2011, M2’s 14th consecutive dividend payment.
M2 An nua l Re p ort 2 01 1 - MD / C EO’s R e vi e w
In revenue terms, M2 ranks as the 7th largest telecommunications company in Australia (and more importantly, we are higher up the order in profitability terms). Pleasingly, this represents only approximately 1% of the total annual telecommunications industry revenues, providing sizable opportunity to make considerable inroads into our target markets. We are confident that we have the team, sales channels and exceptional service offerings to take full advantage of our fractional market share.
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Our sales machines We have often referred to the M2 business as “a sales company which happens to sell telecoms services”. Whilst we are indeed a full-service telco, with all of the operational and technical resources necessary to service our growing base of customers, the “DNA” of M2 is very much built upon an aggressive, effective culture of selling our wares to our target market – rather than simply waiting by the phone to take orders!
M2 An nua l Re p ort 2 01 1 - MD / C EO’s R e vi e w
Whilst we have certainly been busy integrating our now much larger business over the last few years, there has been marked expansion in both our internal and external sales channels and the supporting marketing resources within our business.
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“We are committed to service excellence being a central tenet of what defines the M2 customer experience...” As at the time of preparing this report, there were approximately 500 committed individuals across Australia and in New Zealand selling and supporting M2’s retail service offerings, predominantly our Commander and People Telecom dealers and agents. This expansive sales and service network is wholly focused on the SMB market and is armed with service offerings which are specifically tailored to the requirements of this market. In addition to our “field force”, we have made great gains in the performance of our “Inside Sales” operation over the last 12 months in particular. As the name suggests, Inside Sales is a team within M2 through which we promote other products and services to our existing customers. During the last year we have bolstered our Inside Sales team, each armed with offerings specifically designed to provide our customers with compelling incentives to make us their “one stop shop” for their telco services.
Our Australian-based Contact Centres & the hunt for more “Promoters” Whilst it seems that every day a news story appears about a company taking hundreds, sometimes thousands of jobs off shore, we are pleased to be bucking that trend. Through certain businesses M2 acquired over recent years we inherited existing off-shore customer service operations (in both Manila and India), yet in the last year we have returned every single customer service job to our team in Australia. We are absolutely proud to be supporting local jobs. However, our “on-shoring” motivation is driven most particularly by our firm and proven view that we can deliver a higher standard of service and skilled attention to our customers from our established customer support operations on Australian soil. It is this service and expertise which will form a key differentiator of all telecoms companies both now and into the future. We are committed to service excellence being a central tenet of what defines the M2 customer experience and are in the final throws of developing a universal “Customer Promise” which forces us to stand behind this goal.
“It is this service and expertise which will form a key differentiator of all telecoms companies both now and into the future.” The real evidence of the value we are delivering
Joshua Gill, Corporate Account Manager
to our customers from our locally-based service centres is that over the last 12 months we have
Haydn Corbett, Southern Region Sales Manager
radically improved our performance in the most telling of customer service survey questions, the “Net Promoter Score” (NPS). The NPS measures customer satisfaction through the willingness of a customer to recommend our services to others. Very pleasingly, we have made substantial year-on-year gains across all of our brands, with our Southern Cross Telco brand having led the way with a NPS of +48, placing it amongst the best performers in the industry today. Our Key Supplier Alliances As a committed “Infrastructure Light” telco, M2 has developed very strong and strategic relationships with its key suppliers, which could be aptly described as “Infrastructure Heavy”. It is this difference in our business model to that of our main suppliers that creates (on the main) a cooperative and supportive relationship, with M2 effectively assisting our infrastructure-owning suppliers to better “sweat” their assets.
“We are very proud of our long-standing track-record of performance with our suppliers, in terms of our sustained growth and impeccable payment history.” Telstra Wholesale and Optus Wholesale are the
Clear Telecom: An established, sizable SMB customer
Personally, I am genuinely excited about my new
Ready, set, grow!
base acquired in February 2011. Customer support
Executive Director role, as it specifically captures the
operations located in Sydney and Perth.
areas where I have been able to deliver the greatest
Austar Mobile: A consumer mobile service customer
value to the Company over recent years and in which
Over the last two years our team has been particularly focused on internal systems enhancement, sales channel expansion and business integration, following the large-scale acquisitions of People Telecom and the Commander telecoms assets, together with a number of smaller customer bases.
base acquired in February 2011. Previously a subsidiary of the Austar pay television business.
years ahead. Similarly, I have every confidence in
Cross Telco brand in May 2011.
the job Geoff will do in his new role as CEO and look
Edirect: A consumer mobile services customer base,
have been for many years. Through our strong growth
acquired in April 2011. Customer service operations
and associated scale increase over recent years,
originally located in New Delhi, India, relocated to
there has been a considerable expansion in the depth,
M2’s Hobart customer support centre in June 2011.
relationships with both Telstra and Optus.
challenging times that our industry faces over the
Austar Mobile customers transferred to M2’s Southern
cornerstone wholesale suppliers to the M2 Group and
strength and commercial competitiveness of our
I expect to continue to do so over the changing and
The Year ahead – Evolution, Investment, Improvement
forward to supporting him completely as he drives the business forward over the years to come.
Very pleasingly, the year ahead (FY12) is one in which, within the business and across our dealer network, we are intensely committed to setting in place all
Geoff Horth, Chief Operating Officer
other specialist providers of telecoms and related
A change @ the top
services, including AAPT, Globe Telecom and FlexiGroup.
I assumed the role of Chief Executive Officer (CEO) /
We are very proud of our long-standing track-record
Managing Director at the time that we founded M2 in
of performance with our suppliers, in terms of our
1999. After nearly 12 years in the role, I have made
sustained growth and impeccable payment history.
the considered decision, in consultation with the
We look forward to building upon these excellent
Board, to hand over the role of CEO at the conclusion
foundations as the product and service offerings
of this year’s Annual General Meeting on 28 October.
required to service our customers evolve over time.
Following a structured and thorough review process,
Acquisitions in 2011
the Board made the decision to appoint M2’s current Chief Operating Officer (COO), Geoff Horth as M2’s new
Since beginning a program of making strategic
CEO. As stated in the Chairman’s Letter, I will then
acquisitions in 2007, our team has developed a
immediately assume the role of Executive Director.
core competency in the identification, negotiation,
The changes in the roles performed by Geoff and
execution and integration of complementary businesses and business assets.
myself represent a logical, evolutionary development in our executive structure, matching our respective skills
During the course of FY11, M2 completed the
to the tasks and challenges which our business will
following notable acquisitions:
need to address over the next phase of its growth.
M2 An nua l Re p ort 2 01 1 - MD / C EO’s R e vi e w
Additional important supply alliances are in place with
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strong balance sheet, capable of taking advantage of strategic acquisitions which are able to be executed on appropriate terms and we will continue to actively pursue these prospects in FY12. Introducing “Ninja”
available measures to organically grow, both in
Commander sales agents across the country,
and services we provide to each customer.
targeting underserviced geographies and areas with high SMB presence
“...we are intensely committed to setting in place all available measures to organically grow...” M2 An nua l Re p ort 2 01 1 - MD / C EO’s R e vi e w
A number of key growth-targeted initiatives
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> Engagement of an expanded network of
number of customers and in the number of products
will be implemented in FY12, all of which are aimed at further building upon what is still a very modest share of the SMB market-place (sub 5%). Spearheading these initiatives are: > Expansion of our Inside Sales team by nearly 30%, to ensure that our existing customers are proactively made aware of the diverse and expanding suite of products available within the M2 stable > Commencing consolidation of our SMB brand portfolio, with the established, respected Commander brand assuming an increasing national presence
> Investment into specialist lead generation and appointment-setting activity, to further stimulate incremental new customer acquisition by our dealers and agents > Investment into local area marketing, to further stimulate sales activity in our target geographies > Capitalising upon and adding to corporate alliances and affinity partnerships. M2 has established “preferred telco” status with several organisations, including: Capricorn Group (Australia’s largest automotive supplies buying group), the Real Estate Institute of Victoria (REIV) and the Master Builders Association of Victoria (MBAV), amongst others In addition to our intensified organic growth focus, acquisitions remain “on the radar” in FY12. We have a number of target companies that fit our core business model and/or bring to the Company complementary products and services. M2 has a
A Company-wide naming competition undertaken by our team saw “Ninja” selected as the name for our new, universal business support system (“BSS”). Ninja is the result of more than a year-long selection process, in which we assessed more than fifty BSS alternatives from around the world. From a short list we eventually selected a proven, next-generation BSS which is customised, deployed and supported by UK based company, Cerillion (www.cerillion.com). After a number of months tailoring the system to M2’s specific requirements, Ninja is now tested and ready to be deployed across the business to replace our legacy billing and customer support systems, many of which have been “inherited” through our numerous acquisitions over recent years. The impact of Ninja will be wide reaching in terms of cost efficiencies delivered across the business and in providing a flexible, operationally efficient solution for all of the services we presently provide to our customers as well as for all future services and solutions. M2 and the NBN As has been well publicised over the last few years, a Federal Government owned and operated National Broadband Network (“NBN”) is earmarked for deployment over the coming 8-10 years, providing ultra-high-speed fibre-to-the-premises broadband to 93% of Australian households and
businesses, with the remaining 7% to be serviced by a combination of wireless and satellite services at marginally lesser speeds.
“Being a proudly technology/ infrastructure agnostic telco, M2 is in the enviable position of not being faced with “stranded” network assets...” Whilst the final form of the NBN is the subject of ongoing political debate and a number of regulatory and other hurdles are still to be cleared, the NBN has been deployed partially in Tasmania and more recently across five mainland “trial sites” in both metropolitan and regional areas. Being a proudly technology/infrastructure agnostic telco, M2 is in the enviable position of not being faced with “stranded” network assets, nor the prospect of having to deal with rapidly declining margins through what is effectively a change of business model. Rather, we are an enthusiastic wholesale access seeker of any new technology which can provide our customers with an enhanced service experience. To this end, M2 announced in early July that, through an alliance with Telstra Wholesale, it had begun connecting customers to the NBN in the mainland trial site locations. In essence, the NBN provides a leveling of the proverbial playing field in the area of fixed line voice and broadband services, the result of which will be a more healthy competitive landscape where telcos are differentiated by the creativity of their offerings,
the strength of their distribution and the quality of their customer service. Pleasingly, this is a business model that M2 has operated for more than a decade. We feel M2 is “match fit” for the next phase of the industry’s evolution and enthusiastically embrace the opportunity to continue to innovate and enhance the way we find and support our growing customer base.
“The FY12 year is forecast to be another year where M2 expects to considerably outperform the telecoms sector in terms of earnings growth.”
A final word I hope this summary of the year that was and our plans for the year ahead, together with the detailed financial information contained within the balance of this year’s Annual Report, illustrates to our shareholders the robust health of the M2 business and the basis for our optimism about the future. As this will be my final CEO Review, I would like to say a sincere thanks to the amazing team that has built M2 from a fledgling start-up nearly 12 years ago to a large organization which employs nearly 500 team members, has more than 3500 shareholders and, most importantly, has developed a reputation as a capable, successful and respected “challenger” telecoms company.
Combining strong growth with Investment for the future
I am confident that based on its solid foundations and
The FY12 period is forecast to be another year where
loyal and talented executive management team, M2’s
M2 expects to considerably outperform the telecoms
best days lay ahead. M2 An nua l Re p ort 2 01 1 - MD / C EO’s R e vi e w
under the leadership of Geoff Horth, supported by our
sector in terms of earnings growth. As described earlier in this report, FY12 will see the Company make a sizable incremental investment into key areas which strengthen our position in our core target markets and add more fire power to our sales and marketing endeavours. Additionally, the business is forecast to make a number of business efficiency-led decisions in the FY12 year, in particular relating to functions within the business which will be consolidated through the introduction of the Ninja BSS. These decisions, whilst incurring once-off expense to the business in FY12, will ensure the business is operating on a leaner, more efficient operating cost base in FY13 and beyond.
Cleide Pereira, Group Financial Controller
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Customer profile Organisation: Chadstone Toyota www.chadstonetoyota.com.au Commander Telecom Solution: • Commander Phone System Maintenance – Samsung OfficeServ 7200 • Commander Office Phone Plan • Commander Mobile Plan Industry: Car Sales
M2 An nua l Re p ort 2 01 1 – C ommande r Case St udy
Benefits: • Improved network efficiency and performance • Ensured seamless, out-of-hours cutover to new network and system • Introduced IP telephony to seamlessly connect all three sites • Cost savings of up to 60% on both national and calls to mobiles compared to previous providers bill • Resulted in significant overall savings compared to previous provider
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Chadstone Toyota – Commander Case Study
Graeme Ward Dealer Principal Chadstone Toyota
About Chadstone Toyota Chadstone Toyota is a well established supplier of motor vehicles to the Victorian market. They are committed to offering quality vehicle purchases and a customer service experience that is second to none. Since their inception in 1990, the Melbourne-based company has undergone significant growth. As a result, the company required a communications provider to assist with the expansion and provide reliable, ongoing maintenance and support. Chadstone Toyota currently operates out of one central location, divided into three separate sites; Sales - for new, used and fleet Toyota vehicles - Parts & Accessories and Service.
“The move to Commander had to be seamless; downtime was not an option for us. The company’s (Commander) ability to deliver a first-class package for the modern business solution was sensational”.
About Commander
The Solution
mobile telephony, IT hardware and software, Internet
Having been a satisfied Commander phone system customer since 2002, Chadstone Toyota approached
The Challenge AllThe launch of Toyota Australia’s new branding in 2009 resulted in the rebrand and upgrade of major Toyota Dealerships throughout Australia with the aim of consolidating the company’s corporate identity across metropolitan dealers. As a result of the upgrade,
Commander for an overall communication solution. An in-depth, complimentary site survey was undertaken to identify the business needs and review current services.
telecommunications services, savings were immediately identified. Graeme stated that “Commander technicians
service centre.
identified a number of unused services saving us once
of upmost importance. At the same time staff required flexibility to be on site to perform their duties without being desk-bound.
Commander provides leading edge telecommunications solutions for Small to Medium Enterprise, backed by an industry renowned technical and field workforce. Commander has developed market leading solutions to ensure your business thrives such as office and and network access, converged solutions, support and maintenance services and software licensing. Professional services include infrastructure solutions, software solutions, strategic consulting services and managed services.
www.commander.com
convenience of one bill and local, reliable support.
cover between the sales yard, parts & accessories and
therefore guaranteed maintenance response times were
Through its dedicated Commander Centre network,
For more information about Commander visit
Following the consolidation of Chadstone Toyota’s
Communication downtime meant loss of income,
to Australian businesses for over 25 years.
solution, tailored for Chadstone Toyota, with the
showroom which meant staff had a lot more ground to
were answered promptly so business was not missed.
tools, connectivity, support and infrastructure solutions
The result; a complete business telecommunications
Toyota Chadstone constructed a new, double-story
Something had to be done to ensure all incoming calls
Commander has been providing business communication
again on our monthly costs.” More importantly, staff flexibility and efficiency was increased. The pairing of mobile extensions to desktop office phones allowed staff to be in the yard selling whilst taking inbound sales enquiries. “We’re pleased the implementation of our Commander solution guaranteed no business was missed and a greater level of customer service was achievable” says Graeme.
M2 An nua l Re p ort 2 01 1 - C omma nd e r Cas e S t udy
““The diversity of the Commander solution has increased flexibility between sites and therefore has resulted in greater staff efficiency and a higher level of customer support. As a business owner I am pleased my staff can now all work more effectively whilst guaranteeing no business calls are missed”.
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Customer profile Organisation: Allied Medical Group Koral Denholm www.alliedmgp.com.au People Telecom Solution: • Dedicated Account Manager • Consolidation of bills Industry: Medical
M2 An nua l Re p ort 2 01 1 - Pe op l e T e l eco m Ca se S t udy
Benefits: • Cut costs by $12,000 in total • Improved network efficiency and performance
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Allied Medical Group – People Telecom Case Study
Koral Denholm Allied Medical Group
About Allied Medical Group
The Solution
About People Telecom
Allied Medical Group is a recognised leader in medical
Following their transfer to People Telecom, Allied
Established in 2000, People Telecom has earned a
centre establishment and operation. Since its inception
Medical Group experienced several improvements to
reputation as a specialist provider of competitive
in January 2005, Allied Medical Group has expanded
their telecommunications solution.
solutions and premium service to the Small to Medium
its current centres and added many new clinics to its group of quality centres. Allied Medical Group currently operates medical centres across Melbourne, Brisbane and Adelaide.
The Challenge Allied Medical Group manages a number of clinics whilst continually expanding their operations in Victoria and nationally. The operational challenge of rapid growth requires specialist advice on Information Communication and Technologies. The difficulties the group faced were record keeping issues based around multiple monthly accounts, with no uniformity with service labelling or cost centres. This made payment for statements difficult as their accounts were being received sporadically. On top of this, there was no online billing system to assist them in managing their usage. There was no single point of contact when there were questions or problems with their telecommunication service. Nor was there any project management when implementing a new clinic, making the process difficult with no guarantees for assistance when needed. Consequently they were very unhappy with their service provider.
A locally based Account Manager was appointed to be available as their first point of contact. The People Telecom Account Manager provided recommendations, solutions, project management and updated market reviews to ensure their telecommunication service was meeting the needs of the business. All services were consolidated onto one single bill, with clearly labelled cost centres and access to the online billing portal ‘PeopleNet’. This allowed for easier management of their services and record keeping. In addition to the above benefits, there have been significant cost savings for Allied Medical Group with
Enterprise markets. As one of Australia’s largest network independent resellers, its suite of solutions include: fixed line, mobile, internet, corporate data and VPN services. People Telecom takes pride in its Australian-based customer contact centre offering access to responsive and trained staff.
Let People Telecom turn services into solutions for your business, visit www.peopletelecom.com.au or call us today on 1300 558 888
intra-account calls. Intra-account calls allow costeffective calls between all of their medical centres, doctors and head office. Their personalised People Telecom Account Management service also provides continued account reviews to determine where cost savings can be improved.
M2 An nua l Re p ort 2 01 1 - Pe op l e T e l eco m Ca se S t udy
“During our time with People Telecom as our telecommunications provider, we have built confidence in the ongoing support we receive from our account manager. We have enjoyed significant cost savings with competitive and customised pricing.”
15
Customer profile Organisation: Total Networks Pty Ltd / James Casey www.totalnetworks.com.au SCT Solution: • ADSL service • Fax line • Two standard lines • One additional line • Rebated for each customer referred to Southern Cross Telco Industry: IT support and Sales
M2 An nua l Re p ort 2 01 1 – Sout he rn Cr oss Te lco Cas e Study
Benefits: • Cut bill costs by $450 • Seamless and hassle free customer service tailor made to suit client • Ensured customer was credited for loyalty
16
Total Networks – Southern Cross Telco Case Study
James Halyer Casey Business Owner Total Networks Pty Ltd
“We were looking for a provider that offered valued for money, excellent customer service and benefits like no other”
For each customer referral, Southern Cross Telco has
business environment.
The Solution
because they are a good service provider not because of
The owner of Total Networks, James Casey, prides
After being a customer for less than twelve months, with
Introduction Based in Tasmania, Total Networks is a company that delivers a high level of service in several areas of information technology. Their clients are offered competitive IT Solutions, allowing them to operate on a reliable computer infrastructure in today’s ever-changing
his business on quality services, the development of productive relationships with his clients, and the flexibility to adapt to meet continuing changes in client’s needs and market trends.
a total of five services, James was very happy with the benefits and support that Southern Cross Telco provides. Not only was a Southern Cross Telco solution catered to suit the Total Networks business, he found the service to
In order to be reliable for their clients, it was essential
be commendable – which, thanks to the Southern Cross
for Total Networks to have a telecommunications
Telco customer referral benefits, helped to further reduce
provider with a similar commitment to service and value.
his telecommunications invoice.
The Challenge
provided Total Networks with a credit, allowing the saved funds to be put to better use within his own company. “The money I have saved due to great prices and referral credit is unbelievable. I refer Southern Cross Telco the credit, which is just an added bonus”.
About Southern Cross Telco Southern Cross Telco is a nationwide telecommunications company that strives to place customers first. Offering a wide range of services including landline, mobile and data, Southern Cross Telco has all of your personal and small business communication options covered. Southern Cross Telco offers all of the personalised service of a
In the process of building his client base and client
small company with the bottom line savings of a large
relationships, James became aware of how unhappy
telecommunications company.
James frequently faces complex problem solving for
his clients were with their existing telecommunications
clients and relies on his team of trained IT professionals
service providers. He began to James refer his clients
to be on the phone, internet or on site in order to maintain
to Southern Cross Telco based solely on his own
the Total Networks services and a happy working
impressions and experience. “The referral to Southern
relationship with his clients. As the scale of his business
Cross Telco was easy, the price difference and quality
increased, James needed to find a way to minimise his
of customer service was phenomenal. To me the referral
telecommunication costs.
was simple”.
James needed a tailor-made solution appropriate to the
Over the last ten months, Total Networks has referred
diverse needs of his business, which provided value and
more than ten customers to Southern Cross Telco, all
good service.
of which have transferred due to the experience of and recommendation by James. “High quality customer service is a priority to everyone and the team at Southern Cross Telco has consistently delivered”.
M2 An nua l Re p ort 2 01 1 - Sout he rn Cross Te lc o Cas e Study
“The pricing with Southern Cross Telco is competitive and value for money not to mention the high quality of customer service I receive. I enjoy being able to contact the sales team at SCTELCO and speak with the same representative every time - now that’s service.”
17
Directors’ Report Directors The names and details of the directors of M2 during the financial year and at the date of this report are as follows: Craig L Farrow Chairman B Ec, Dip FS, CPMgr, SA Fin, FCA, FAICD
Appointed director 18 February 2000 Appointed Chairman 28 April 2006
M2 An nua l Re p ort 2 01 1 - DIR ECTOR S ’ REPO RT
Vaughan Bowen, Managing Director / CEO
18
In compliance with the provisions of the Corporations Act 2001, the directors of M2 Telecommunications Group Ltd (‘M2’ or ‘the Company’) submit the following report for the Company and its controlled entities for the financial year ended 30 June 2011.
Mr Farrow is a founding partner of Brentnalls SA, Chartered Accountants and former National Chairman of the Brentnalls National Affiliation of Accounting Firms. He is Deputy President of the Institute of Chartered Accountants in Australia, Chairman of Tonkin Consulting Engineers and AIRR Holdings Limited. In addition, Mr Farrow is a director and Board adviser to several private consulting and trading enterprises across the agribusiness, software and manufacturing sectors. Formerly Chairman of the Institute of Chartered Accountant’s Public Practice Advisory Committee, Mr Farrow is also highly awarded, including being a Fellow of the Governor’s Leadership Foundation and receiving the Institute of Chartered Accountants 1999 National President’s Award for services to the Institute and the profession. Within the last three years, Mr Farrow has held no other listed company directorships. Mr Farrow is Chair of M2’s Nomination and Remuneration Committee and a member of the Audit & Risk Committee.
Vaughan G Bowen Managing Director & Chief Executive Officer B Com, MAICD
Appointed 14 February 2000 Mr V. Bowen co-founded M2 in late 1999. He was appointed Managing Director/CEO following incorporation, and has successfully steered M2 from a start-up technology enterprise to its current position as a fast growing and profitable national telecommunications company. In over 10 years of leading the Company, Mr Bowen’s innovative approach to branding, sales, alliance marketing and his proven ability to successfully execute complementary acquisitions has provided M2 with a considerable competitive advantage and a respected position in the telecommunications industry. He is a member of the Australian Institute of Company Directors and was named as a finalist in the Entrepreneur of the Year Southern Region in 2004 and 2009. Within the last three years, Mr Bowen has held no other listed company directorships. Max G Bowen Non Executive Director Appointed 14 February 2000
Mr M. Bowen provides the Board with valuable experience gained in a management and business career spanning more than four decades. Founding Chairman of M2, Mr Bowen spent over 20 years developing commercial property throughout Sydney and overseas. Over the last 10 years, Mr Bowen has acted in a senior advisory capacity to corporations and public utilities, including PricewaterhouseCoopers, Optus, Sydney Olympic Village, Sydney Harbour Foreshore Authority and
Federal Airports Corporation. Within the last three years, Mr Bowen has held no other listed company directorships. John S Hynd Non-Executive Director LLB, MAICD
Appointed 18 February 2000 Mr Hynd is founding partner of Hynd & Co, a commercial law firm in Adelaide. He has over 30 years experience in commercial transactions, corporate advice, corporate governance, insolvency and property development. A fellow of the Australian Taxation Institute and a former member of the Council of the Law Society of South Australia, Mr Hynd’s broad business experience provides M2 with valuable assistance with legal perspectives and strategic planning. Within the last three years, Mr Hynd has held no other listed company directorships. Mr Hynd is a member of M2’s Audit & Risk Committee and is also a member of the Nomination & Remuneration Committee. Michael Simmons Non-Executive Director BCom FCPA ACIS
Appointed 26 November 2009 Mr Simmons brings to the Board considerable experience in the telecommunications sector, having previously held the position of Chief Executive Officer of ASX-listed SP Telemedia Limited (“SPT Group”, and now known as TPG Telecom Limited) since its listing in 2001. Prior to listing, the
Mr Simmons is Chair of M2’s Audit & Risk Committee. Dennis N Basheer Non-Executive Director Appointed 14 February 2000 Resigned 29 October 2010 Mr Basheer is an experienced company director with a focus on property development, project management and franchise developments. Until late 2003, Mr Basheer served as an executive director of M2 and was involved in corporate and channel sales. Following this time, Mr Basheer was an external sales dealer for M2, specialising in key alliance partnerships. Within the last three years, Mr Basheer held no other listed company directorships. During his directorship, Mr Basheer was a member of M2’s Nomination & Remuneration Committee.
Company Secretary
The Board of Directors
Kellie Dean BA, LLB, Grad Dip App Corp Gov, ACIS, MAICD
Appointed 30 November 2007 Ms Dean is responsible for all company secretarial matters, as well as legal affairs for the M2 Group. Prior to her appointment, Ms Dean was Company Secretary for Orion Telecommunications Limited, which was acquired by M2 in October 2007. An associate of Chartered Secretaries Australia and a member of the Australian Institute of Company Directors, Ms Dean has particular experience in the areas of merger and acquisitions, corporate governance, compliance and risk management.
Craig L Farrow, Chairman
Max G Bowen, Non-Executive Director
John S Hynd, Non-Executive Director
Michael Simmons, Non-Executive Director
Former Audit Partners No directors or officers of M2 have been a partner or director of Ernst & Young, the Company’s auditor. PRINCIPAL ACTIVITY The principal activity of the consolidated entity during the financial year was the supply of fixed line voice, mobile telecommunications and broadband data services within the Australian and New Zealand markets through its retail and wholesale operating divisions.
Review Of Operations And Results Please refer to the Chairman’s Letter on page 4 and Managing Director/CEO’s Review on page 6 for further details relating to M2’s operations and results for the 2010/2011 financial year. This information is to be read in conjunction with the Directors’ Report.
M2 An nua l Re p ort 2 01 1 - DIR ECTOR S ’ REPO RT
SPT Group was a wholly owned subsidiary of the Washington H. Soul Pattinson Limited controlled NBN Television Group. He served in executive roles for nearly 26 years within the SPT/NBN Group of Companies, including as Chief Financial Officer and Chief Executive Officer. Following the acquisition of TPG Telecom Pty Ltd, Mr Simmons left the SPT Group to become the Managing Director of TERRiA, a telecommunications consortium of infrastructure based telecommunications carriers, formed to bid for the contract to build the National Broadband Network (NBN).
19
Likely Future Developments And Results The directors expect that the financial performance of the business will remain strong in the 2011-2012 financial year, particularly through the anticipated continued growth in revenue and earnings as a result of organic growth and recent acquisitions.
Environmental Regulation And Performance M2 is not subject to any significant environment regulation under any law of the Commonwealth or of a State or Territory.
Dividends Details of dividends paid during the financial year and the final dividend declared for payment is as follows: Payment Date
Cents Per Share
Franking
Total Dividend Paid / Declared
29-October-2010
5.00
100%
$6,111,910
14-April-2011
7.00
100%
$8,616,324
Dividends Paid Final dividend Interim dividend TOTAL
Darryl Inns, Chief Financial Officer
M2 An nua l Re p ort 2 01 1 - DIR ECTOR S ’ REPO RT
Final dividend
20
12.00 28-October-2011
Significant Changes In State Of Affairs
Events After Balance Date
Indemnities And Insurance
In February 2011, M2 Clear Pty Ltd (‘M2 Clear’), a wholly owned subsidiary of M2, acquired the business assets of Clear Telecoms (Aust) Pty Ltd (“Clear”) for a total cash consideration of $24.5 million, comprised of an upfront payment and a deferred payment schedule. The principal assets acquired were the small and medium business (“SMB”) customer contracts of Clear.
On 1 July 2011, M2 commenced operation of the M2 Employee Share Plan (Salary Sacrifice) which allows eligible team members to salary sacrifice a portion of their salary in order to acquire M2 shares. The shares will be issued or acquired on-market on a quarterly basis, commencing in October 2011.
During the financial year, M2 paid a premium in respect
On 26 August 2011, the directors declared a final dividend on ordinary shares in respect of the 2011 financial year. The total amount of the dividend is $11,125,459, which represents a fully franked dividend of 9 cents per share (on shares issued as at 30 June 2011). This final dividend will be paid to shareholders on 28 October 2011.
prohibits disclosure of the nature of the liability and the
In March 2011, M2 Viptel Pty Ltd (‘M2 Viptel’), a wholly owned subsidiary of M2, acquired the business assets of Edirect Pty Ltd (‘Edirect’) for consideration equal to $5.9 million. The principal assets acquired were the retail customer contracts of Edirect.
$14,728,234
Dividend Declared
of a contract insuring the directors and officers of the Company and any related body corporate against any liability that may arise from the carrying out of their duties and responsibilities to the extent permitted by the Corporations Act 2001. The contract of insurance amount of the premium. Directors are also subject to indemnification under the Company’s Constitution and are party to a Deed of Indemnity and Access.
9.00
100%
$11,125,459
“On 26 August 2011, the directors declared a final dividend... of 9 cents per share.”
Directors’ Meetings
Directors’ Shareholdings And Options
The number of directors’ meetings, including meetings of each Board committee held during the financial year and the number of meetings attended by each director is as follows:
The following table sets out the details of each director’s relevant interest in M2 shares and options (where section 205G of the Corporations Act 2001 requires the director to notify ASX of that holding).
Director
Nomination & Remuneration Committee
Shares held in M2 Telecommunications Group Ltd: Directors
Audit & Risk Committee
Eligible to Attend
Attended
Eligible to Attend
Attended
Eligible to Attend
Attended
Craig Farrow Vaughan Bowen Max Bowen Michael Simmons John Hynd
14 14 14 14 14
14 13 14 13 13
4 4 4
4 4 4
2 2
2 2
Dennis Basheer (1)
4
4
-
-
1
1
(1) Mr Basheer resigned as a director on 29 October 2010
Craig Farrow Vaughan Bowen Max Bowen John Hynd
Balance at 30 June 2010
Shares granted as remuneration
On exercise of options
Net change
Balance at 30 June 2010
958,522
-
-
(375,742)
582,780
10,929,737
-
-
(2,559,000)
8,370,737
32,274
-
-
-
32,274
2,832,524
-
-
(500,000)
2,332,524
Michael Simmons
3,591
-
-
6,000
9,591
Dennis Basheer (1)
5,044,906
-
-
(250,000)
4,794,906
19,801,554
-
-
(3,678,742)
16,122,812
TOTAL
(1) Mr Basheer resigned as a director on 29 October 2010
Options held in M2 Telecommunications Group Ltd: Currently there are no options held by any directors of M2.
M2 An nua l Re p ort 2 01 1 - DIR ECTOR S ’ REPO RT
Board Meeting
21
Remuneration Report (Audited) > Establish appropriate, demanding performance hurdles for variable executive remuneration; and > Establish clear distinction between non-executive director and other key management personnel remuneration. Nomination and Remuneration Committee
M2 An nua l Re p ort 2 01 1 - re mune rat ion r e port
Julian Barons, Billing Manager
22
In accordance with s.300A of the Corporations Act 2001 and Regulation 2M.0.03, the following report outlines the remuneration arrangements for key management personnel and relevant group and company executives for the financial year ended 30 June 2011.
Board Policy The performance of the Company depends upon the quality of its key management personnel (which includes directors and executives). Remuneration levels are set to enable M2 to attract and retain appropriately qualified and experienced personnel, who will create sustainable value for shareholders and other stakeholders. To this end, the Company embodies the following principles in its remuneration framework: > Provide competitive rewards to attract high calibre personnel; > Link executive rewards to shareholder value; > Have a significant portion of executive remuneration ‘at risk’, dependent upon meeting pre-determined performance benchmarks;
The Nomination and Remuneration Committee is responsible for determining and reviewing remuneration arrangements for key management personnel. They assesses the appropriateness of the nature and amount of remuneration on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of high quality directors and other key management personnel. Specific details relating to the structure and membership of this Committee can be found in the Corporate Governance Statement, immediately following the Directors’ Report. Remuneration Structure In accordance with best practice corporate governance, the remuneration structure for nonexecutive directors and other key management personnel is distinct.
Each non-executive director receives fees for their services. They also receive reimbursement of all reasonable and proper expenses incurred while carrying out their director duties. In addition, the Board provides $2,000 each financial year for each director to utilise for the purpose of attending training or professional development courses and events. No proportion of non-executive directors’ fees is based upon performance nor are they entitled to retirement or termination benefits. The amount of aggregate remuneration and the manner in which it is apportioned amongst directors is reviewed annually. The Board considers individual director contributions and performance and the fees paid to non-executive directors of comparable companies when undertaking the annual review process. Non-executive directors have long been encouraged by the Board to hold shares in the Company (purchased by the director on market). M2 considers it good governance for directors to have a stake in the company on whose Board they sit. The remuneration of non-executive directors for the period ending 30 June 2011 is detailed in Table 1 on page 24 of this Report.
Non-executive director remuneration
Other key management personnel remuneration
In accordance with the Company’s Constitution and ASX Listing Rules, the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting of shareholders. An amount not exceeding the amount determined is then divided between the directors as agreed. The current aggregate remuneration is set at $600,000 per year.
M2 aims to reward other key management personnel (‘Executives’) with a level and mix of remuneration commensurate with their position and responsibilities within the Company. In addition, it aims to: > reward Executives for company, business unit and individual performance against targets set by reference to appropriate benchmarks;
Remuneration Report Variable Remuneration — Short Term Incentive (STI)
> link rewards with the strategic goals and performance of the Company; and
The objective of STIs is to link the achievement of M2’s operational targets with the remuneration received by the Executives responsible for meeting those targets. The total potential STI available for each Executive is set at a level so as to provide sufficient incentive to the Executive to achieve the operational targets and such that the cost to the Company is reasonable in the circumstances.
> ensure total remuneration is competitive by market standards. In determining the level and make-up of Executive remuneration, the Nomination and Remuneration Committee reviews market levels of remuneration for comparable executive roles, from which the Committee makes its recommendations to the Board. It is the Committee’s policy that employment contracts are entered into with all Executives. Executive remuneration consists of the following key elements: > Fixed Remuneration > Variable Remuneration - Short-Term Incentive (‘STI’) > Options The proportion of fixed and variable remuneration and any issue of options is established for each Executive by the Nomination and Remuneration Committee and approved by the Board.
Fixed Remuneration The level of fixed remuneration is set each year in accordance with the Board’s remuneration policy, the Executive’s performance during the past financial year and the external compensation environment. Executives may also receive non-monetary benefits such as the provision of motor vehicles and car parking. The amount of fixed remuneration paid to Executives during the financial year is detailed in Table 2 on page 25.
Actual STI payments granted to an Executive depend on the extent to which specific operating targets set at the beginning of the financial year are met. The operational targets consist of a number of key performance indicators (KPIs) covering both financial and nonfinancial measures of performance. Typical measures include contribution to net profit after tax, customer service levels, risk management, product management, completion of specific projects, leadership and team contribution. Such KPIs are chosen as they are representative of the key performance metrics of the business, which drive overall growth. The Company has pre-determined benchmarks which must be met in order to trigger payments under the STI scheme. On an annual basis, after consideration of performance against KPIs, an overall performance rating for the Executive is nominated by the Chairman and/or the Managing Director/CEO and approved by the Nomination and Remuneration Committee. This performance rating determines the amount, if any, of the STI that is paid to an Executive. This method of assessing performance against KPIs ensures that the STI granted to an Executive is based upon the actual achievement of metrics.
The amount of annual STI available to each Executive is subject to approval of the Nomination and Remuneration Committee and the Board. Payments made are usually delivered as a cash bonus in the following reporting period.
provide an additional element to Executive remuneration that was competitive to the external compensation environment. The issue of options under ESOP further allows an opportunity for the Board to reward Executives for their performance in a given period.
The amount of variable remuneration paid to Executives during the financial year is detailed in Table 2 on page 25.
All Executives of M2 are eligible to participate in the ESOP. However, the issue of options under the ESOP to Executive directors is subject to approval by M2 shareholders.
Under the terms of each Executive’s STI arrangements, an STI payment is only made upon the Executive achieving specific operating targets as outlined above and the Company achieving its pre-determined target relating to net profit after tax (NPAT). As NPAT is used to calculate earnings per share (EPS), the following table outlines M2’s EPS over the five year period from 1 July 2007 to 30 June 2011: Year
Cents per share
2011
22.56
2010
14.49
2009
8.76
2008
7.01
2007
4.00
The Company’s performance has remained strong and consistent over the last five reporting periods. Executive STIs, as well as other remuneration arrangements, are reflective of the growth in shareholder return.
Under the ESOP, Executives may be offered options to acquire M2 shares. Any shares issued under the ESOP consequent upon exercise of the options will rank equally with all other M2 shares and application will be made for them to be quoted on the ASX. No application will be made for the options to be quoted on the ASX. Options issued under the ESOP vest (and may only then be exercised) one, two and three years (as determined by the M2 Board) after they were offered to the eligible Executive. Unless the M2 Board determines otherwise, no fee will be payable on the issue of any option under the ESOP. The exercise price for each option (payable on exercise of the option) will be determined by the Board at the time of issue of the option.
Options
Options issued under the ESOP may be exercised, once they are vested, at any time within two years from the date on which they vest. Other than continuous service with the Company, there are no performance conditions which must be met prior to the vesting or exercise of options.
In February 2007, M2 introduced an Executive Management Team Share Option Plan (‘ESOP’). The purpose of the ESOP was to provide an avenue for the alignment of Executive objectives with those of shareholders in terms of achieving capital gains, and to
Options are not generally transferable (and only with Board approval) and cease to be exercisable at the end of the exercise period or within a specified time after the cessation of the Executive’s employment (which time depends on the circumstances of the cessation).
M2 An nua l Re p ort 2 01 1 - re mune rat ion r e port
> align the interests of Executives with those of shareholders;
23
“The Company’s performance has remained strong and consistent over the last five reporting periods.
Details of Director and Executive Remuneration The following tables outline the remuneration received by key management personnel (including directors and those persons having authority and responsibility for planning, directing and controlling the major activities for the Company) for the financial year ended 30 June 2011. A comparison with the financial year ended 30 June 2010 is also included. No payments were made to key management personnel before they took office as part of the consideration for the person agreeing to hold office. Table 1: Directors’ remuneration for financial year ended 30 June 2011 Short Term
An option holder may not attend and vote at annual general meetings and other shareholder meetings and is not entitled to participate in any rights issues unless the options have been exercised. Any bonus issue will proportionately increase the number of options held by any Executive who has been granted options.
Salary & Cash STI (3) Fees (1)
The Company does not have a policy prohibiting or allowing Executives to enter into arrangements to protect the value of unvested long-term incentive awards (such as Options). Details of options held and exercised by Executives during the financial year:
M2 An nua l Re p ort 2 01 1 - R e mune rat ion R e p ort
Executives
24
Number of Options ganted during FY11
Number of Options held (not yet exercised)
Number of options exercised
Value of Options exercised ($)
Post Employment
$
$
Nonmonetary Benefits $
Superannuation
$
Other post employment benefits $
% Performance Related
$
% (2)
29.3 -
Craig Farrow Chairman
2011 2010
206,666 168,333
85,500 -
-
-
- 292,166 - 168,333
Max Bowen Non-Executive Director
2011 2010
46,667 45,000
-
-
-
-
46,667 45,000
-
John Hynd Non-Executive Director
2011 2010
51,667 48,750
-
-
-
-
51,667 48,750
-
Michael Simmons Non-Executive Director
2011 2010
50,000 27,500
-
-
-
-
50,000 27,500
-
Dennis Basheer(4) Non-Executive Director
2011 2010
15,000 45,000
-
-
-
-
15,000 45,000
-
TOTALS
2011 2010
370,000 334,583
85,500 -
-
-
- 455,500 - 334,583
-
Vaughan Bowen Managing Director/CEO
-
-
-
-
Steve Wicks Group Sales Director
-
175,000
75,000
131,250
Darryl Inns Chief Financial Officer
-
175,000
75,000
131,250
Terry Doyle Wholesale Director
-
175,000
198,000
189,675
Geoff Horth Chief Operating Officer
-
250,000
-
-
Matthew Hobbs Chief Information Officer
-
250,000
50,000
35,000
(1) Includes all amounts paid and accrued to companies related to the director, for director services.
Michael Speglic Commercial Director
-
250,000
50,000
35,000
(3) Includes an amount for fees relating to services while acting in the capacity as Executive Chairman
Kellie Dean Company Secretary and Legal Affairs
-
250,000
50,000
35,000
There were no options granted to Executives during the financial year.
Total
(2) Based upon the value of the cash STI (4) Mr Basheer resigned as a director on 29 October 2010
Employment Contracts
Short Term
Salary & Fees (1)
Cash STI (7)
$
$
Post Employment
Share-based Payment Options (1)
Non- Superannuation Other post monetary employment Benefits benefits $ $ $
Total
% Performance Related
$
% (6)
$
% (2)
The following terms are contained in all employment contracts for the persons disclosed in Table 2: Duration of contract:
1 year, renewable for a further 3 month term (rolling) until new term is agreed or agreement is terminated
Period of notice required to terminate contract:
3 months
Termination payments:
If contract is terminated by the Company prior to the expiry of its term, the executive is entitled to a payment equal to the amount of remuneration due under the contract (other than for serious misconduct)
Vaughan Bowen 2011 Managing 2010 Director/CEO
600,000 137,500 35,763
25,000
-
-
798,263
17.2
562,179 100,000 40,121
48,774
-
-
-
751,074
13.3
Steve Wicks Group Sales Director
2011
300,000 100,000 12,937
25,000
-
40,347
20.9
256,833
40,000 26,058
25,000
-
22,218
8.4 6.0
478,284
2010
370,109
10.8
Darryl Inns Chief Financial Officer
2011
300,000
40,000 26,057
25,000
-
40,347
431,404
9.3
2010
255,756
50,000 32,002
25,000
-
22,218
9.4 5.8
384,976
13.0
No proceedings have been brought on behalf of M2, nor has any application been made in respect of the Company under s.237 of the Corporations Act 2001.
Terry Doyle Wholesale Director (5)
2011
230,000
45,000
9,071
23,125
-
40,347 11.6
347,543
12.9
Non-Audit Services
2010
232,602
42,750
9,576
22,365
-
22,218
6.7
329,511
13.0
Geoff Horth 2011 Chief Operating 2010 Officer
350,000
90,000 26,730
25,625
-
40,347
16.9
50,000
4,674
26,965
-
22,218
7.6 5.3
532,701
312,115
415,972
12.0
Matthew Hobbs(3) 2011 Chief Information 2010 Officer (4)
246,154
41,500
-
20,415
-
40,347 11.6
348,416
11.9
298,310
15,468
-
-
-
22,218
6.6
335,996
4.6
Michael Speglic 2011 Commercial 2010 Director
205,962
50,000
-
19,940
-
40,347 12.8
316,249
15.8
149,077
-
867
13,397
-
22,218 12.0
185,559
-
2011
144,998
21,000
-
18,090
-
40,347 18.0
224,435
9.4
2010
143,724
15,000
-
14,963
-
29,589 14.6
203,276
7.4
2011 2,377,114 525,000 110,558 2010 2,210,596 313,218 113,298
182,195 176,464
-
Kellie Dean Company Secretary and Legal Affairs TOTALS
282,429 162,897
8.1 3,477,295 5.4 2,976,473
(1) The remuneration value ascribed to share options has been calculated in accordance with AASB 2 Share-based Payment, whereby the fair value of options determined at grant date is spread evenly (and recognised as an expense) over the vesting period. There were no alternations to the terms and conditions of options issued as remuneration since their grant date. (2) Based upon the value of the cash STI. (3) Includes amounts paid to a company (in which Matthew Hobbs is a director) for services. (4) Matthew Hobbs ceased employment with the company on 29 July 2011. (5) Terry Doyle ceased employment with the company on 29 July 2011. (6) Percentage of total remuneration consisting of options. (7) All Executives received 100% of their Short Term Incentive in the period, which based on individual agreements is between 15% and 30% of the individual’s base salary.
Proceedings On Behalf Of The Company
During the year, M2’s auditors, Ernst & Young, did not provide any non-audit services to the Company.
Auditor’s Independence Declaration The auditor’s independence declaration, made under section 307C of the Corporations Act 2001 is included on page 26 of this report.
Rounding Off Of Amounts M2 is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998 and in accordance with that Class Order, amounts in the Directors’ Report and the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. Signed in accordance with a resolution of the directors made pursuant to Section 298(2) of the Corporations Act 2001. On behalf of the directors
Vaughan Bowen Managing Director/CEO Melbourne, 26 August 2011
M2 An nua l Re p ort 2 01 1 - R e mune rat ion R e p ort
Table 2: Executive Remuneration for financial year ended 30 June 2011
25
Auditor’s Independence Declaration
Auditor’s Independence Declaration to the Directors of M2 Telecommunications Group Limited
M2 An nua l Re p ort 2 01 1 - Au ditor’ s I nd e p e nd e nce Dec larati on
In relation to our audit of the financial report of M2 Telecommunications Group Limited for the financial year ended 30 June 2011, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.
26
Ernst & Young
David Shewring Partner 26 August 2011
Liability limited by a scheme approved under Professional Standards Legislation
Corporate Governance Statement
During the financial year ended 30 June 2011, M2 believes it achieved reasonable compliance with the recommendations based on M2’s circumstances, its size and activities. Where recommendations have not been implemented, a full explanation is disclosed, based upon the “if not, why not” approach adopted by the Council. Niazi Jabeer, ITS Support Manager
M2 Telecommunications Group Ltd (‘M2’ or ‘the Company’) is a strong advocate for corporate governance. We believe in transparency, accountability and integrity for the benefit of our shareholders, employees, customers and all other interested stakeholders.
Over the course of the 2010/2011 financial year, M2 has reviewed its corporate governance program in light of the changes to the ASX Guidelines, which were adopted by the ASX Corporate Governance Council in June 2010. As a result, the Board has introduced and amended policies to reflect matters relating to share trading, gender diversity, board selection and analyst briefings. M2 is pleased to be an “early adopter” of many of these changes and recognises the value and importance of maintaining a strong corporate governance framework that assists the Company in its growth phase. This Statement is dated 26 August 2011.
Principle 1: Lay solid foundations for management and oversight The Board of Directors is accountable to shareholders for the proper management of the business and affairs of M2. The Board and executives use their diverse skills to work together to consistently operate in the best interests of the Company.
The Board has confirmed its role and responsibilities in a written charter. They undertake the following functions and responsibilities: > approve, monitor and modify the strategic direction of M2; > ensure the principles of corporate governance are upheld and consistently reviewed; > monitor the performance of Executives; > ratify the appointment or removal of the Managing Director/CEO and the Company Secretary; > ensure that appropriate risk management systems, internal control and reporting systems are in place and are operating effectively; > approve and monitor financial results; > approve decisions concerning acquisitions and capital, including capital restructures and dividend policies of M2; and > comply with the reporting and other requirements of the law. The Board has delegated the daily financial and operational management to executives, who are responsible to the Board. They too operate in the interests of the Company and all its stakeholders. During the reporting period, Executives’ performance was assessed in accordance with the process disclosed within the Director’s Report (for performance during the financial year ended 30 June 2010). Executive performance for the 2010/2011 financial year will be formally assessed in September 2011.
The Nomination and Remuneration Committee is responsible for ensuring that Board and executive performance is assessed, and its effectiveness in improving deliverable outcomes.
Principle 2: Structure the Board to add value M2’s Board comprises five directors: Chairman, Managing Director/CEO and three non-executive directors. Board Size and Composition M2 is confident its current Board size is adequate, in reference to the size and structure of the Company and it allows the Board to effectively and efficiently discharge its role and responsibilities. The Board has adopted a Diversity Policy, which sets out M2’s commitment to the principles of diversity within its Board and wider team member base. The Board recognises the benefit that it and the Company gains from having a diverse range of individuals and skill sets within its composition. A range of perspectives is imperative to making good and balanced decisions that are in the interests of the Company as a whole, including shareholders, team members, customers and other stakeholders. Skills, Experience & Expertise The skills, experience and expertise relevant to the position of director, held by each of M2’s directors at the date of this Statement, is detailed in the Directors’ Report.
M2 An nua l Re p ort 2 01 1 - C orp orate Governa nce S tate m e nt
M2 continually reviews and refines its corporate governance policies and charters in light of the Corporate Governance Principles and Recommendations, as developed by the ASX Corporate Governance Council (‘ASX Guidelines’ or ‘recommendations’).
27
Term of Office The term of office for each director during the reporting year is detailed in the Directors’ Report. Director Independence An independent director is a non-executive director who is not a member of management and who is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgment.
M2 An nua l Re p ort 2 01 1 - C orp orate Governa nce S tate m e nt
In considering whether a director is independent, the Board has regard to the series of relationships affecting independence, as outlined in Box 2.1 in Principle 2, and the interests disclosed by them. Based upon this information, the following table outlines the independent status of each M2 director during the reporting period.
28
Director
Title
Independent
Reason
Craig Farrow
Chairman
Partial
Independent from management and free of any material(2) business or other relationship. However, from May 2010 to mid August 2010, Mr Farrow acted in the capacity of Executive Chairman, during Vaughan Bowen’s long service leave.
Vaughan Bowen
Managing Director/CEO
No
Employed in an executive capacity and a substantial shareholder of the Company.
Max Bowen
Non-Executive Director
No
Former substantial shareholder of the Company, and father of Vaughan Bowen.
John Hynd
Non-Executive Director
Yes
Independent from management and free of any material(2) business or other relationship.
Michael Simmons
Non-Executive Director
Yes
Independent from management and free of any material(2) business or other relationship.
Dennis Basheer (1)
Non-Executive Director
Yes
Independent from management and free of any material(2) business or other relationship.
(1) Mr Basheer resigned as a director on 29 October 2010 (2) The Company considers materiality in the context of annual consolidated revenue
Kellie Dean, Company Secretary
During the financial year, the Chair of M2, Mr Craig Farrow, is classed as a “partial- independent”
Executives supply the Board with information and
the Nomination and Remuneration Committee
reports on a regular basis as part of Board reporting.
Charter. The meetings and attendance of the Board
The directors are entitled to request additional
Committees are detailed in the Directors’ Report.
information and are encouraged to contact an
Share Trading M2’s policy in the trading of securities regulates dealings by the Company’s directors, executives
executive where further information or clarification
Evaluating Board Performance
and employees in shares issued by M2. Consistent
is required.
The Nomination and Remuneration Committee is
The Company Secretary is appointed by and reports
responsible for the establishment of process for
all of M2’s directors, executives and employees are
person to act in the capacity as Executive Chairman (and in this capacity was paid $20,000). Generally,
to the Board on all corporate governance issues.
Mr Farrow is responsible for the leadership of the
Ms Dean is responsible for the provision of
leadership in the execution of any review.
Board and for the efficient organisation and conduct
timeframes and information to enable the Board to
The Board undertook an evaluation in May
of the Board’s functioning and in all other respects
effectively discharge its duties and responsibilities.
2011, with all directors providing input on the
would be classed as ‘independent’.
All directors, and Board committees, have access to
effectiveness of board processes, meetings, board
Ms Dean to assist them in carrying out their role.
composition and performance and reporting. This
director (in accordance with ASX Guidelines). During Vaughan Bowen’s long service leave from May 2010 to August 2010, Mr Farrow was the most appropriate
Separate Role of Chair & CEO In accordance with ASX Guidelines, the role of the Chair and Managing Director/CEO is not exercised by the same individual, with Craig Farrow acting as Chair for the Company, and Vaughan Bowen as Managing Director/CEO. The Chair and CEO have clear lines of responsibility and accountability. However, as noted above, for a short period during the financial year, Mr Farrow acted in the capacity as Executive Chairman, during Vaughan Bowen’s long service leave. Independent Advice & Access to Company
took the form of a questionnaire, with directors
information which concerns M2. The policy also prohibits Key Management Personnel from trading in securities during the following “black-out” periods: > between 1 January each year until such time as the half year financial results of the Company are
The selection and appointment process of future
such matters individually with the Chairman.
released to ASX; and
directors is deemed to be the responsibility of the
The Company has implemented an education policy
whole Board, in accordance with the provisions
for its directors, with each director having access
the full year financial results of the Company are
of the Board Selection Policy. However, M2 has
to an allowance of $2,000 per year for the purpose
released to ASX.
established a Nomination and Remuneration
of attending and/or participating in professional
Committee for the purpose of identifying potential
development activities relevant to their duties as a
Gender Diversity
candidates for Board selection. In nominating
director.
As noted above, the Board has adopted a Diversity
candidates, the Committee shall take into consideration such factors as judgement, skill, diversity and experience and also the extent to which the candidate would be a desirable addition
Each member of the Board and the Board
During the financial year, the Nomination and
concerning any aspect of the Company’s operation
whilst in possession of unpublished price sensitive
having an opportunity to discuss and comment on
to the Board and any Board Committee.
and other professional advice, at M2’s expense,
prohibited from trading in the Company’s shares
Nomination and Remuneration Committee
Secretary
Committees has the right to seek independent legal
Board evaluation, with the Chairman providing
with legal prohibitions relating to insider trading,
Remuneration Committee consisted of three (independent) non-executive directors: Craig Farrow (Chair), John Hynd and Dennis Basheer.
Principle 3: Promote ethical and responsible decision making Code of Conduct All directors, executives and employees of M2 are expected to act with integrity and objectivity, striving at all times to enhance the reputation and performance of the Company. A Code of Conduct
> between 1 July of each year until such time as
Policy which sets out the Board and the Company’s commitment and objectives in respect of diversity, and more specifically gender diversity. Diversity at M2 is valued and encouraged and the Company recognises the benefit that it gains from having a diverse range of individuals and backgrounds involved in the management of its organisation and its business activities.
has been established, which guides directors,
The Board has set gender objectives in the interests
or undertakings, if it is considered necessary for the
The role and responsibilities of the Nomination and
executives and employees in the performance of
of achieving good corporate governance in a
execution of their functions and responsibilities.
Remuneration Committee are detailed in
their duties.
dynamic and evolving industry.
M2 An nua l Re p ort 2 01 1 - C orp orate Governa nce S tate m e nt
Chairman
29
They are as follows: Objective
Target Date
Board:
When it is appropriate to expand the Board or replace an existing director
At least one of the next two director appointments desirably should be female, with the appropriate skills and attributes Executive Team and Senior Management Team:
Annually
To improve or at least maintain current male/female ratio statistics.
M2 An nua l Re p ort 2 01 1 - C orp orate Governa nce S tate m e nt
The Board will assess the achievement towards the above objectives in July 2012, 12 months from the policy’s implementation, and will disclose the results to shareholders in the 2012 Annual Report.
30
In accordance with the provisions of the ASX Guidelines, the proportion of female directors, executives, senior management, and team members at M2 as at the date of this Statement are as follows: Role
By Number
By Percentage
Female Directors
0
0%
Female Executives
1
12.5%
Female Senior Management
4
50%
Female Team Members
200
41%
JoAnne Johnstone, Customer Activations Team; Krista Pentecost, Collections Officer; Kelvin Prince, Operations Manager of the Company’s financial position. The Board also
The Audit & Risk Charter details the Committee’s
principles of continuous disclosure are upheld and
undertakes to monitor and assess the integrity of the
role and responsibilities, composition, structure and
maintained. They ensure ASX and media releases are
financial reports.
membership requirements. Further, it also contains
timely, reviewed, do not omit any material information
information on the procedures for the selection
and that they are factual and presented in a clear and
and appointment of the external auditor and for the
balanced way.
Audit & Risk Committee M2’s Audit & Risk Committee is responsible for reviewing the Company’s policies and procedures for
The meetings and attendance of the Audit & Risk
compliance with international reporting standards;
Committee are detailed in the Directors’ Report.
reviewing audit plans; accounting policies and the
M2 is committed to safeguarding the integrity of its financial reporting. Structures and procedures are in place to ensure the truthful and factual presentation
Principle 6: Respect the rights of shareholders M2 recognises the importance of this principle and will at all times strive to communicate regularly and
independence of external auditors. It also works
Principle 5: Make timely and balanced disclosure
closely with the Company’s internal audit function, to
In compliance with the continuous disclosure
The investor relations section of M2’s website clearly
review and assess the controls, procedures and risks
requirements of the Corporations Act 2001 and ASX
details and provides links to all of M2’s ASX and
around business activities and functions.
Listing Rules, M2 is committed to the principles of
company releases, general meeting information,
timely and balanced disclosure through the adoption
financial reports and investor presentations. This is
and adherence of a comprehensive Continuous
updated regularly to ensure shareholders have ready
Disclosure and Communications Policy.
access to Company information.
qualifications and experience is outlined in the
M2’s Managing Director and Company Secretary carry
M2’s Continuous Disclosure and Communications
Directors’ Report.
the responsibility and accountability to ensure the
Policy promotes positive communication with
integrity of the financial reports and ensuring the
Principle 4: Safeguard integrity in financial reporting
rotation of external audit engagement partners.
During the reporting year, the Audit & Risk Committee consisted of three non-executive directors, Michael Simmons (Chair), Craig Farrow and John Hynd. Their
clearly with shareholders.
Shareholders are encouraged to attend and participate at general meetings. They must also vote on the appointment and aggregate remuneration of directors, the granting of options and shares to directors and changes to M2’s Constitution. M2 will arrange for its external auditors to always attend the Annual General Meeting and to be readily available to answer shareholder’s questions about the conduct of the audit and the preparations and content of the auditor’s report.
Principle 7: Recognise and manage risk The Board, together with executives, constantly seeks to identify, monitor and mitigate risk. The Board has adopted a Risk Management Policy, which documents the Company’s commitment to risk management and sets out the risk management framework that M2 operates. This framework includes the development and maintenance of a risk register with associated delegation and reporting mechanisms. The Audit & Risk Committee has delegated authority to oversee the risk management framework, providing reporting to the Board on a periodic basis.
Risk management controls are further embedded in M2’s management and reporting systems, including an annual insurance program, business continuity, internal audit, annual budgeting and forecasting, due diligence and strategic planning. During the reporting period, the Board received relevant reports on the risk register and also reports on particular risks within business divisions. In the interests of continuous improvement and to ensure that the risk management frameworks works within M2’s growing business, further developments and enhancements on the risk register and reporting take place on a periodic basis. Following a reporting period, M2‘s Managing Director and Chief Financial Officer are required to state to the Board, in writing, that:
The Remuneration Report details and discloses the annual remuneration for key management personnel of M2. M2 has established a Nomination and Remuneration Committee to assist the Board to adopt and review remuneration policies which will: > enable M2 to attract and retain directors (executive and non-executive) and executives who will create sustainable value for shareholders and other stakeholders; and, > fairly and responsibly reward executives and directors, having regard to the performance of the Group, the performance of the individual and the external compensation environment.
> the integrity of financial statements is founded on a sound system of risk management and internal compliance and control; and, > M2’s risk management and internal compliance and control system is operating efficiently and effectively in all material aspects. During the reporting period, the Board received the assurance from the Managing Director and Chief Financial Officer, for the year ended 30 June 2010 and the half-year period ended 31 December 2010.
Principle 8: Remunerate fairly and responsibly M2’s current remuneration practices are set to enable the Company to attract and retain highly talented and motivated directors, executives and employees.
The role and responsibilities of the Nomination and Remuneration Committee are detailed in the Nomination and Remuneration Committee Charter. As mentioned previously, this Committee consisted of three non-executive directors, Craig Farrow (Chair), John Hynd and Dennis Basheer. Details relating to the meetings held during the financial year are contained within the Directors’ Report. Remunerations arrangements for non-executive directors and executives are distinct, as described within the Remuneration Report. In particular, non-executive directors receive fees for their director services, they do not receive equity or bonus compensation, nor are they are entitled to retirement or termination benefits. M2 An nua l Re p ort 2 01 1 - C orp orate Governa nce S tate m e nt
shareholders, outlining the Company’s commitment to its obligations relating to the communication of price sensitive information. This policy was amended in March 2011 to reflect the changes made to the ASX Guidelines in respect of analyst briefings. M2 maintains a strict policy in relation to disclosure of information during such briefings (with all investor presentations released to the market) and will consider, where practical and cost effective, webcasting or other forms of communication to allow all shareholders an opportunity to participate in significant group briefings.
Philip Cranley, Collections Manager
31
M2 An nua l Re p ort 2 01 1 – C orp orat e Gov e rn an ce State me nt
M2 & Corporate Social Responsibility
32
Consolidated Statement of Comprehensive Income
34
Consolidated Statement of Financial Position
35
Consolidated Statement of Changes in Equity
36
Consolidated Statement of Cash Flow
37
Notes to the Consolidated Financial Statements
38
1: Corporate Information 2: Summary of Significant Accounting Policies 3: Financial Risk Management Objectives and Policies 4: Significant Accounting Judgements, Estimates and Assumptions 5: Operating Segments 6: Revenue and Expenses 7: Income Tax 8: Dividends Paid and Proposed 9: Earnings Per Share 10: Cash and Cash Equivalents 11: Trade Receivables 12: Inventories 13: Other Assets 14: Plant and Equipment 15: Intangible Assets And Goodwill 16: Trade and Other Payables 17: Provisions 18: Interest Bearing Loans And Borrowings 19: Deferred Consideration 20: Contributed Equity 21: Related Party Disclosure 22: Key Management Personnel 23: Share-Based Payment Plans 24: Business Combinations 25: Commitments 26: Contingencies 27: Events After Balance Date 28: Information Relating to M2 Telecommunications Ltd (“The Parent Entity”) 29: Auditor’s Remuneration
38 38 50 52 53 55 55 57 57 58 58 59 59 60 60 62 62 63 63 63 64 64 66 68 70 70 70 70 70
M2 An nua l Re p ort 2 01 1 – F IN A NC IA L S TATE MENTS
Financial Statements
33
Consolidated Statement of Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2011 Note Revenue
6
Cost of Sales Gross profit
$000
426,847
406,111
(322,335)
(317,000)
104,512
89,111
6
986
258
Employee benefits expenses
6
(37,854)
(39,338)
Depreciation and amortisation
6
(6,024)
(5,086)
23
(282)
(307)
6
(19,078)
(18,314)
6
(1,852)
(2,244)
40,408
24,080
7
(12,776)
(8,011)
Profit after tax
27,632
16,069
Net profit and total comprehensive income for the period
27,632
16,069
Other expenses Financing costs Profit before income tax M2 Annua l Re p o rt 20 1 1 – C o ns o li dat e d S tat e m e n t o f C om pr e he n siv e I n c om e
2010
$000
Other income
Share based payments
34
2011
Income tax expense
Net profit and total comprehensive income for the period is attributable to: - Non-controlling interest - Owners of the parent
(52)
-
27,684
16,069
27,632
16,069
Earnings per share for profit attributable to the ordinary equity of the holders of the parent: - Basic earnings per share (cents)
9
22.56
14.49
- Diluted earnings per share (cents)
9
22.23
14.10
The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. Comparative figures have been restated due to the finalisation of provisional amounts from the business combination in prior year of Clever Communications Australia Ltd.
ASSETS Current Assets Cash and cash equivalents Trade receivables Inventories Other current assets Total Current Assets Non-Current Assets Other receivables Deferred income tax asset Plant and equipment Intangible assets and goodwill Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Interest-bearing loans and borrowings Deferred consideration Income tax payable Provisions Total Current Liabilities Non-Current Liabilities Interest-bearing loans and borrowings Deferred consideration Deferred tax liability Provisions Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained earnings Parent interests
Note
2011 $000
2010 $000
10 11 12 13
12,542 51,135 362 10,875 74,914
15,064 55,752 338 7,312 78,466
36 6,397 3,421 116,615 126,469 201,383
62 6,747 3,720 70,457 80,986 159,452
16 18 19 7 17
57,477 12,488 6,193 5,389 3,682 85,229
54,225 5,129 2,930 413 3,584 66,281
18 19 7 17
17,252 4,627 502 22,381 107,610 93,773
11,445 2,980 1,274 470 16,169 82,450 77,002
66,761 332 26,725 93,818 (45) 93,773
62,936 288 13,778 77,002 77,002
7 14 15
Non-controlling interests TOTAL EQUITY The above Statement of Financial Position should be read in conjunction with the accompanying notes. Comparative figures have been restated due to the finalisation of provisional amounts from the business combination in prior year of Clever Communications Australia Ltd.
M2 Annua l Re p o rt 20 1 1 – C o ns o li dat e d S tat e m e n t o f F i nan cia l P osit i o n
Consolidated Statement of Financial Position as at 30 JUNE 2011
35
Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2011 Note At 1 July 2010 Profit for the period Options exercised
Noncontrolling interest
Total
$000
$000
Retained earnings
$000
$000
$000
$000
$000
62,936
13,778
342
(54)
77,002
-
77,002
-
27,684
-
-
27,684
(52)
27,632
62,936
41,462
342
(54)
104,686
(52)
104,634
1,242
-
(214)
-
1,028
-
1,028
-
-
282
-
282
-
282
Net translation during the year
-
-
-
(24)
(24)
-
(24)
Shares issued
-
-
-
-
-
7
7
-
(12,114)
-
-
(12,114)
-
(12,114)
2,623
(2,623)
-
-
-
-
-
Dividend reinvestment plan
(40)
-
-
-
(40)
-
(40)
At 30 June 2011
66,761
26,725
410
(78)
93,818
(45)
93,773
At 1 July 2009
41,331
6,485
714
(19)
48,511
-
48,511
-
16,069
-
-
16,069
-
16,069
41,331
22,554
714
(19)
64,580
-
64,580
-
-
307
-
307
-
307
-
35
-
(35)
-
-
-
22,100
-
(679)
-
21,421
-
21,421
(495)
-
-
-
(495)
-
(495)
-
(8,811)
-
-
(8,811)
-
(8,811)
62,936
13,778
342
(54)
77,002
-
77,002
Deferred tax adjustment M2 Annua l Re p o rt 20 1 1 – C o ns o li dat e d S tat e m e n t o f C ha n g e s i n E q ui t y
Owners of the parent
Ordinary shares
Share option reserves
Dividends paid
36
Foreign currency translation reserve
Employee equity benefits reserve
Profit for the period Share option reserves Currency translation reserve adjustment Shares issued Transaction costs on shares issued Dividends paid At 30 June 2010
The above statement of changes in equity should be read in conjunction with the accompanying notes. Comparative figures have been restated due to the finalisation of provisional amounts from the business combination in prior year of Clever Communications Australia Ltd.
Consolidated Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2011 Note
2011
2010
$000
$000
CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees
425,598
399,134
(380,974)
(377,962)
1,065
258
Interest paid
(1,851)
(2,244)
Income tax paid
(4,097)
(5,880)
Net cash flows from operating activities
39,741
13,306
Interest received
Purchase of property, plant and equipment Purchase of intangibles Payment of deferred consideration Net cash flows used in investing activities
(1,188)
(867)
(37,245)
(4,647)
(5,910)
(11,603)
(44,343)
(17,117)
(6,923)
(10,430)
CASH FLOWS FROM FINANCING ACTIVITIES Repayment of borrowings Proceeds from issue of shares Proceeds from borrowings Dividends paid Net cash flows from financing activities
1,028
20,376
20,089
10,500
(12,114)
(8,261)
2,080
12,185
Net (decrease)/increase in cash and cash equivalents
(2,522)
8,374
Cash and cash equivalents at beginning of period
15,064
6,690
Cash and cash equivalents at end of period
12,542
15,064
The above statement of cash flow should be read in conjunction with the accompanying notes.
M2 Annua l Re p o rt 20 1 1 – C o ns o li dat e d S tat e m e n t o f Cas h F l ow s
CASH FLOWS FROM INVESTING ACTIVITIES
37
Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 1: CORPORATE INFORMATION The consolidated financial report of M2 Telecommunications Group Ltd (the “Company”, “M2”, “the Group”) for the year ended 30 June 2011 was authorised for issue in accordance with a resolution of the directors on 26 August 2011. M2 is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX).
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated. (b) Statement of compliance
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan cia l S tat e m e n t s
The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
38
The Group has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of 1 July 2010: > AASB 2009-5 Further Amendments to Australian Accounting Standards arising from Annual Improvements Project [AASBs 5, 8, 101, 117, 118, 136 & 139] > AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions [AASB 2] > AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues [AASB 132] > AASB 2010-3 Amendments to Australian Accounting Standards arising from Annual Improvements Project [AASBs 3, 7, 121, 128, 131, 132 & 139] > Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments None of the above Standards resulted in a change in accounting policies. The accounting policies adopted are consistent with those of the previous financial year.
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Statement of compliance (continued) Accounting Standards and Interpretations issued but not yet effective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual period ended 30 June 2011 are outlined below: Reference
Title
Summary
Application date of standard
Impact on Group financial report
Application date for Group
AASB 9
Financial Instruments
AASB 9 includes requirements for the classification and measurement of financial assets resulting from the first part of Phase 1 of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement (AASB 139 Financial Instruments: Recognition and Measurement). These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes from AASB 139 are described below.
1 January 2015
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2013
1 January 2015
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2013
1 January 2011
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2011
(b) AASB 9 allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. (c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. AASB 2009-11
AASB 124 (Revised)
Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12]
These amendments arise from the issuance of AASB 9 Financial Instruments that sets out requirements for the classification and measurement of financial assets. The requirements in AASB 9 form part of the first phase of the International Accounting Standards Board’s project to replace IAS 39 Financial Instruments: Recognition and Measurement.
Related Party Disclosures (December 2009)
The revised AASB 124 simplifies the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition, including:
This Standard shall be applied when AASB 9 is applied.
(a) the definition now identifies a subsidiary and an associate with the same investor as related parties of each other; (b) entities significantly influenced by one person and entities significantly influenced by a close member of the family of that person are no longer related parties of each other; and (c) the definition now identifies that, whenever a person or entity has both joint control over a second entity and joint control or significant influence over a third party, the second and third entities are related to each other.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
(a) Financial assets are classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. This replaces the numerous categories of financial assets in AASB 139, each of which had its own classification criteria.
39
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Statement of compliance (continued) Reference
Title
Summary
Application date of standard
Impact on Group financial report
Application date for Group
AASB 1053
Application of Tiers of Australian Accounting Standards
This Standard establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements:
1 July 2013
The Group is a Tier 1 entity and will comply with Tier 1 reporting requirements.
1 July 2013
1 July 2011
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2011
1 January 2011
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2011
(a) Tier 1: Australian Accounting Standards (b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. The following entities apply Tier 1 requirements in preparing general purpose financial statements: (a) For-profit entities in the private sector that have public accountability (as defined in this Standard)
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan cia l S tat e m e n t s
(b) The Australian Government and State, Territory and Local Governments
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The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: (a) For-profit private sector entities that do not have public accountability (b) All not-for-profit private sector entities Public sector entities other than the Australian Government and State, Territory and Local Governments. AASB 1054
Australian Additional Disclosures
This standard is as a consequence of phase 1 of the joint Trans-Tasman Convergence project of the AASB and FRSB. This standard relocates all Australian specific disclosures from other standards to one place and revises disclosures in the following areas: (a) Compliance with Australian Accounting Standards (b) The statutory basis or reporting framework for financial statements (c) Whether the financial statements are general purpose or special purpose (d) Audit fees (e) Imputation credits
AASB 2010-4
Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101, AASB 134 and Interpretation 13]
Emphasises the interaction between quantitative and qualitative AASB 7 disclosures and the nature and extent of risks associated with financial instruments. Clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. Provides guidance to illustrate how to apply disclosure principles in AASB 134 for significant events and transactions. Clarify that when the fair value of award credits is measured based on the value of the awards for which they could be redeemed, the amount of discounts or incentives otherwise granted to customers not participating in the award credit scheme, is to be taken into account.
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reference
Title
Summary
Application date of standard
Impact on Group financial report
Application date for Group
AASB 2010-5
Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042]
This Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRS by the IASB.
1 January 2011
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2011
AASB 2010-6
Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets [AASB 1 & AASB 7]
The amendments increase the disclosure requirements for transactions involving transfers of financial assets. Disclosures require enhancements to the existing disclosures in IFRS 7 where an asset is transferred but is not derecognised and introduce new disclosures for assets that are derecognised but the entity continues to have a continuing exposure to the asset after the sale.
1 July 2011
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2011
AASB 2010-7
Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023, & 1038 and interpretations 2, 5, 10, 12, 19 & 127]
1 January 2013 The requirements for classifying and measuring financial liabilities were added to AASB 9. The existing requirements for the classification of financial liabilities and the ability to use the fair value option have been retained. However, where the fair value option is used for financial liabilities the change in fair value is accounted for as follows:
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2013
Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence project [AASB 1, AASB 5, AASB 101, AASB 107, AASB 108, AASB 121, AASB 128, AASB 132, AASB 134, Interpretation 2, 112, & 113]
This Standard makes amendments to many Australian Accounting Standards, removing the disclosures which have been relocated to AASB 1054.
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2011
AASB 2011-1
These amendments have no major impact on the requirements of the amended pronouncements.
> The change attributable to changes in credit risk are presented in other comprehensive income (OCI) > The remaining change is presented in profit or loss If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss.
1 July 2011
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(b) Statement of compliance (continued)
41
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Statement of compliance (continued) Reference
Title
Summary
Application date of standard
Impact on Group financial report
Application date for Group
IFRS
Consolidated Financial Statements
IFRS 10 establishes a new control model that applies to all entities. It replaces parts of IAS 27 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and SIC12 Consolidation –Special Purpose Entities.
1 January 2013
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2013
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The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. This is likely to lead to more entities being consolidated into the group.
42
IFRS
Joint Arrangements
IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly- controlled Entities – Non-monetary Contributions by Ventures. IFRS 11 uses the principle of control in IFRS 10 to define joint control, and therefore the determination of whether joint control exists may change. In addition IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the venturers a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. Joint ventures that give the venturers a right to the net assets is accounted for using the equity method. This may result in a change in the accounting for the joint arrangements held by the group.
1 January 2013
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2013
IFRS
Disclosure of Interests in Other Entities
IFRS 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates 1 January 2013 and structured entities. New disclosures have been introduced about the judgements made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests.
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2013
IFRS
Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for determining the fair value of assets and liabilities. IFRS 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value under IFRS when fair value is required or permitted by IFRS. Application of this definition may result in different fair values being determined for the relevant assets.
1 January 2013
The Group has not yet fully assessed the impact of the changes but expects the impact on the financial statements to be minimal.
1 July 2013
IFRS 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined.
FOR THE YEAR ENDED 30 JUNE 2011
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (c) Basis of consolidation The consolidated financial statements comprise the financial statements of M2 Telecommunications Group Ltd and its subsidiaries as at and for the period ended 30 June each year (“the Group”). Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Investments in subsidiaries held by M2 Telecommunications Group Ltd are accounted for at cost in the separate financial statements of the parent entity less any impairment charges. Dividends received from subsidiaries are recorded as a component of other revenues in the separate income statement of the parent entity, and do not impact the recorded cost of the investment. Upon receipt of dividend payments from subsidiaries, the parent will assess whether any indicators of impairment of the carrying value of the investment in the subsidiary exist. Where such indicators exist, to the extent that the carrying value of the investment exceeds its recoverable amount, an impairment loss is recognised. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. The acquisition method of accounting involves recognising at acquisition date, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The identifiable assets acquired and the liabilities assumed are measured at their acquisition date fair values (see note 2(d)). The difference between the above items and the fair value of the consideration (including the fair value of any pre-existing investment in the acquiree) is goodwill or a discount on acquisition. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Non-controlling interests are allocated their share of net profit after tax in the statement of comprehensive income and are presented within equity in the consolidated statement of financial position, separately from the equity of the owners of the parent. Losses are attributed to the non-controlling interest even if that results in a deficit balance. A change in the ownership interest of a subsidiary that does not result in a loss of control is accounted for as an equity transaction. (d) Business combinations Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity issued by the acquirer, and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred, and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with AASB 139 either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Notes to the Consolidated Financial Statements
43
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Operating segments An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity) whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the level of segment information presented to the board of directors. Operating segments have been identified based on the information provided to the chief operating decision makers – being the executive management team.
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Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately.
44
(f) Foreign currency translation Functional and presentation currency Both the functional and presentation currency of M2 Telecommunications Group Ltd and its Australian subsidiaries are Australian dollars ($). The New Zealand subsidiary’s functional currency is New Zealand dollars which is translated to the presentation currency (see below for consolidated reporting). Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange at the reporting date. Translation of Group Companies’ functional currency to presentation currency The results of the New Zealand subsidiary are translated into Australian dollars (presentation currency) as at the date of each transaction. Assets and liabilities are translated at exchange rates prevailing at reporting date. Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity. On consolidation, exchange differences arising from the translation of the net investment in the New Zealand subsidiary are taken to the foreign currency translation reserve. If the New Zealand subsidiary were sold, the proportionate share of exchange differences would be transferred out of equity and recognised in the statement of comprehensive income.
(g) Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and shortterm deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the statement of cash flow, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Bank overdrafts are included within interest–bearing loans and borrowings in current liabilities on the statement of financial position. (h) Trade receivables Trade receivables, which generally have 14-60 day terms, are recognised initially at fair value and subsequently measured at amortised cost which is the original invoice amount less an allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Debts more than 90 days are reviewed by management. Financial difficulties of the debtor, default payments and information provided by collection agents are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. (i) Inventories Inventories are valued at the lower of cost and net realisable value. Costs are accounted for on a first-in, first-out basis. Cost of finished goods comprise of cost of direct materials assigned on the basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. (j) Investments and other financial assets Investments and financial assets in the scope of AASB 139 Financial instruments: Recognition and Measurement are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired or originated. Designation is re-evaluated at each financial year end, but there are restrictions on reclassifying to other categories. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transactions costs.
FOR THE YEAR ENDED 30 JUNE 2011
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (j) Investments and other financial assets (continued) Recognition and derecognition All regular way purchases and sales of financial assets are recognised on the trade date i.e., the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the market place. Financial assets are derecognised when the right to receive cash flows from the financial assets has expired or when the entity transfers substantially all the risks and rewards of the financial assets. If the entity neither retains nor transfers substantially all of the risks and rewards, it derecognises the asset if it has transferred control of the assets. Subsequent measurement - Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. These are included in current assets, except for those with maturities greater than 12 months after reporting date, which are classified as non-current. (k) Plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. All other repairs and maintenance are recognised in profit or loss as incurred. Depreciation is calculated on a straight-line basis over the estimated useful life of the specific assets as follows: Plant and equipment – over 2 to 10 years Motor vehicles – over 4 years, determined by the life of the lease Leased equipment – over 2 to 5 years, determined by the life of the lease The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. Derecognition An item of plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in statement of comprehensive income in the year the asset is derecognised. (l) Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. Group as a lessee Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the Statement of Comprehensive Income on a straight-line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability. (m) Impairment of non-financial assets other than goodwill and indefinite intangibles Non-financial assets other than goodwill and indefinite life intangibles are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Group conducts an annual internal review of asset values, which is used as a source of information to assess for any indicators of impairment. External factors, such as changes in expected future processes, technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Notes to the Consolidated Financial Statements
45
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Goodwill and intangibles Goodwill Goodwill acquired in a business combination is initially measured at cost of the business combination being the excess of the consideration transferred over the fair value of the Group’s net identifiable assets acquired and liabilities assumed. If this consideration transferred is lower than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised in profit or loss.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
46
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes, and is not larger than an operating segment determined in accordance with AASB 8. Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cashgenerating units) to which the goodwill relates. The Group performs its impairment testing annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired, using discounted cash flows under the value in use methodology. Further details on the methodology and assumptions used are outline in note 15. When the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. Impairment losses recognised for goodwill are not subsequently reversed. Intangibles Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of these intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over their useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with finite useful life is reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for
prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite useful lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset. Trademarks, licenses and customer contracts are amortised over the period of expected future sales from the related asset. Software purchased is amortised over a period of between 2 years and 10 years, being the estimated useful life of the asset. Brands have indefinite useful lives. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at cash-generating unit level consistent with the methodology outlined for goodwill above. Such intangibles are not amortised. The useful life of an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. Software includes capitalised development costs. Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised over the period of expected benefit from the related project. The carrying value of an intangible asset arising from development expenditure is tested for impairment annually when the asset is not yet available for use or more frequently when an indication of impairment arises during the reporting period. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised. Expenditures on advertising and promotional expenses are recognised as a component of marketing expense in the statement of comprehensive income when the Group has either the right to access the goods or has received the services. (o) Trade and other payables Trade and other payables are carried at amortised cost and due to their short-term nature they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.
FOR THE YEAR ENDED 30 JUNE 2011
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (p) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalised as part of the cost of that asset. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. The Group does not currently hold qualifying assets but, if it did, the borrowing costs directly attributable with this asset would be capitalised (including any other associated costs directly attributable to the borrowing and temporary investment income earned on the borrowing).
within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. (r) Share-based payment transactions Equity settled transactions The Group has provided benefits to its employees in the form of share-based payments, whereby employees rendered services in exchange for shares or rights over shares (equity-settled transactions). There are currently two plans in place to provide these benefits: > the Employee Share Option Plan (ESOP) which provides benefits to directors, senior executives and selected employees
(q) Provisions and employee leave benefits
> the Employee Share Loan Plan (ESLP) which provides benefits to selected employees, excluding KMP
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using a binomial model; further details are given in note 23.
When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement.
The cost of equity-settled transactions is recognised, together with a corresponding increase in the equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period) ending on the date on which the relevant employees become fully entitled to the award (the vesting date).
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs.
At each subsequent reporting date until vesting, the cumulative charge to the statement of comprehensive income is the product of:
Employee leave benefits (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled
(i) The grant date fair value of the award (ii) The current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met (iii) The expired portion of the vesting period.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Notes to the Consolidated Financial Statements
47
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (r) Share-based payment transactions (continued) The charge to the Statement of Comprehensive Income for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding entry to equity. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided that all other conditions are satisfied.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
If the terms of an equity-settled are modified, as a minimum an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the sharebased payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.
48
Revenue for equipment sales is recognised when the device is delivered to the end customer and the sale is considered complete. Commission income Commissions are received as incentives from upstream suppliers for connecting new customers. Revenue from such commissions is deferred and recognised over a period of life in line with the average period related to the customers’ contracts. Licence fees Licence fees are brought to account as revenue in accordance with the terms of the licence agreement when substantially all obligations arising from the licence arrangement have been fulfilled. Interest
If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.
Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (see note 9).
(u) Income tax and other taxes
Shares in the Group reacquired on-market and held by the ESLP are classified and disclosed as reserved shares and deducted from equity. (s) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. (t) Revenue recognition Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Rendering of services The Group principally obtains revenue from providing the following telecommunication services: fixed wire, mobile, data services and equipment sales. Products and services may be sold separately or in bundled packages. Revenue for fixed wire, mobile and data services are recognised as revenue, as services are performed. Revenue from services provided, but unbilled, are accrued at end of each period and unearned revenue (revenue billed in advance) for services to be provided in future periods is deferred.
Current tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary difference except: > When the deferred liabilities arise from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. > When the taxable temporary difference is associated with investments in subsidiaries, associates or interest in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
FOR THE YEAR ENDED 30 JUNE 2011
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (u) Income tax and other taxes (continued) Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: > When the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. > When the deductible temporary differences is associated with investments in subsidiaries, associates and interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.
the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognized as amounts receivable from or payable to other entities in the Group via an intercompany account. Details of the tax funding agreement are detailed in note 7. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognized as a contribution to (or distribution from) wholly-owned tax consolidated entities. Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: > When the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable. > Receivables and payables are stated with the amount of GST included.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Tax consolidation legislation
(v) Earnings per share Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element.
M2 Telecommunications Group Ltd and its wholly-owned Australian controlled entities implemented the tax consolidation legislation as of 1 July 2004.
Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for:
The head entity, M2 Telecommunications Group Ltd, and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the “stand-alone taxpayer” approach in determining the appropriate amount of current taxes arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.
> The after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses.
In addition to its own current and deferred tax amounts, M2 Telecommunications Group Ltd also recognizes
> Costs of servicing equity (other than dividends) and preference share dividends.
> Other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Notes to the Consolidated Financial Statements
49
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(a) Interest rate risk
(w) Customer loyalty programme (continued)
The Group’s exposure to market interest rates relates primarily to the Group’s long-term debt obligations. The level of debt is disclosed in note 18.
In certain circumstances, for every dollar spent on certain types of phone calls or plans by the customer, up to 15% of the eligible calls or plans can be redeemed for travel booked through M2 Travel. The customer has up to 60 days to redeem their travel dollars upon termination or expiration of their contract, after which the travel dollars are forfeited. For dollars earned by the customers, the Group defers a portion of the revenue and recognises a liability at fair value to fulfil its obligation to supply the redemption. When the obligation to supply the travel dollars is fulfilled the deferred revenue is recognised in the profit or loss in the period in which the obligation was fulfilled and the liability is extinguished.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
(x) Deferred acquisition cost
50
At the reporting date, the Group has the following mix of financial assets and liabilities exposed to Australian variable interest rate risk:
Financial assets Cash and cash equivalents Financial liabilities Interest-bearing loans and borrowings Net exposure
2011
2010
$000
$000
12,542
15,064
(29,740) (17,198)
(16,574) (1,510)
Deferred acquisition cost pertains to upfront commissions paid to internal and external sales personnel upon acquiring new service contracts. Upfront commissions paid to internal and external sales personnel are initially recognised at cost in the statement of financial position as Other Assets (note 13) and subsequently amortized over the average term of the customer’s contract which is 24 months. The amortization is included in cost of sales.
The Group constantly analyses its interest rate exposure. Within this analysis, consideration is given to potential renewals of existing positions and alternative financing. In addition, the Group has sound and prudent interest rate risk management policies which include an interest rate risk philosophy governing the extent to which the Group is willing to assume interest rate risk and explicit and prudent limits on the Group’s rate risk exposure.
3: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date.
The Group’s principal financial instruments comprise receivables, payables, bank loans and overdrafts, finance leases, and cash and short-term deposits.
At 30 June 2011, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit would have been affected as follows: Post tax profit higher/(lower)
Risk Exposures and Responses
2011
2010
The Group manages its exposure to key financial risks in accordance with the Group’s financial risk management policy. The objective of the policy is to support the delivery of the Group’s financial targets whilst protecting future financial security.
$000
$000
(172) 86
(15) 8
The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk and credit risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. Such methods include monitoring levels of exposure to interest rate risk and assessments of market forecasts for interest rate. Aging analyses and monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored through the development of future rolling cash flow forecasts. The Board reviews and agrees policies for managing each of these risks as summarised below. Primary responsibility for identification and control of financial risks rests with the Audit and Risk Management Committee under the authority of the Board. The Board reviews and agrees policies for managing each of the risks identified below, including setting of limits for credit allowances and future cash flow forecast projections.
Consolidated +1% (100 basis points) -.5% (50 basis points)
The movements in profit are due to higher/lower interest costs from variable rate debt and cash balances. The sensitivity is higher in 2011 than in 2010 due to the increase in borrowings resulting from the draw-down on the Group’s available debt facilities in order to fund the Clear Telecoms acquisition. Significant assumptions used in the interest rate sensitivity analysis include: > Reasonably possible movements in interest rates were determined based on the Group’s current credit rating and mix of debt in Australia, relationships with financial institutions, the level of debt that is expected to be renewed as well as a review of the last two year’s historical movements and economic forecaster’s expectations.
FOR THE YEAR ENDED 30 JUNE 2011
3: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (a) Interest rate risk (continued) > The net exposure at reporting date is representative of what the Group is expecting to be exposed to in the next twelve months from balance sheet date. (b) Credit risk Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents and trade and other receivables. The Group’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these financial assets (as outlined in each applicable note). The Group does not hold any credit derivatives to offset its credit exposure. The Group trades only with recognised, credit-worthy third parties, and as such collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. Risk limits are set for each individual customer in accordance with parameters set by the board. These risk limits are regularly monitored. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. There are no significant concentrations of credit risk within the Group.
However, where the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Group can be required to pay. When the Group is committed to make amounts available in instalments, each instalment is allocated to the earliest period in which the Group is required to pay. The risks implied from the values shown in the table below, reflect a balanced view of cash inflows and outflows. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in ongoing operations such as plant and equipment and investments in working capital (e.g., inventories and trade receivables). Liquid non-derivative assets such as cash and receivables are considered in the Group’s overall liquidity risk. The Group ensures that sufficient liquid assets are available to meet all the required short-term cash payments. < 6 months 6-12 months
1-5 years
> 5 years
TOTAL
$000
$000
$000
$000
$000
Cash and cash equivalents
12,542
-
-
-
12,542
Trade and other receivables
51,135
-
-
-
51,135
63,677
-
-
-
63,677
(57,477)
-
-
-
(57,477)
(5,500)
(6,000)
(18,240)
-
(29,740)
(62,977)
(6,000)
(18,240)
-
(87,217)
700
(6,000)
(18,240)
-
(23,540)
Year ended 30 June 2011 Liquid financial assets
Financial Liabilities Trade and other payables Interest bearing loans and borrowings
(c) Liquidity risk Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet their obligations to repay their financial liabilities as and when they fall due.
Net inflow/(outflow)
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of credit facilities, bank loans, finance leases and committed available credit lines.
Year ended 30 June 2010
The Group minimises liquidity risk by maintaining a significant level of cash and cash equivalents as well as ensuring the Group has access to the use of credit facilities as required. The Group monitors total cash inflows and outflows expected on a monthly basis.
Cash and cash equivalents
15,064
-
-
-
15,064
Trade and other receivables
55,752
-
-
-
55,752
70,816
-
-
-
70,816
Non-derivative financial liabilities
Financial Liabilities (54,225)
-
-
-
(54,225)
(2,629)
(2,500)
(11,445)
-
(16,574)
(56,854)
(2,500)
(11,445)
-
(70,799)
13,962
(2,500)
(11,445)
-
17
The following liquidity risk disclosures reflect all contractually fixed pay-offs, repayments and interest resulting from recognised financial liabilities as of 30 June 2011. For the other obligations, the respective undiscounted cash flows for the respective upcoming fiscal years are presented. The timing of cash flows for liabilities is based on the contractual terms of the underlying contract.
Liquid financial assets
Trade and other payables Interest bearing loans and borrowings Net inflow/(outflow)
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Notes to the Consolidated Financial Statements
51
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
4: SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
(a) Significant accounting judgements
52
Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise those temporary differences. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits over the next four years. Impairment of non-financial assets other than goodwill and indefinite life intangibles The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. These include product performance, technology, economic and political environments and future product expectations. If an impairment trigger exists, the recoverable amount of the asset is determined. Taxation The Group’s accounting policy for taxation requires management’s judgement as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgement is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognized on the statement of financial position. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognized only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits.
Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These depend on estimates of future carrier costs, commissions and sales volumes, operating costs, restoration costs, capital expenditure, dividends and other capital management transactions. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognized on the statement of financial position and the amount of other tax losses and temporary differences not yet recognized. In such circumstances, some or all of the carrying amounts of recognized deferred tax asset and liabilities may require adjustment, resulting in a corresponding credit or charge to the statement of comprehensive income. (b) Significant accounting estimates and assumptions Impairment of trade and other receivables Management reviews its trade and other receivables for objective evidence of impairment regularly. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or significant delay in payments are considered objective evidence that a receivable is impaired. In determining this, management makes judgement as to whether there is observable data indicating that there has been a significant change in the payment ability of the debtor, or whether there have been significant changes with adverse effect in the technological, market, economic or legal environment in which the debtor operates in. Where there is objective evidence of impairment, management makes judgements as to whether an impairment loss should be recorded as an expense. In determining this, management uses estimates based on historical loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between the estimated loss and actual loss experience. Impairment of goodwill and intangibles with indefinite useful lives The Group determines whether goodwill and intangibles with indefinite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating units, using a value in use discounted cash flow methodology, to which the goodwill and intangibles with indefinite useful lives are allocated. 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 with the assistance of an external valuer using a binomial 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.
FOR THE YEAR ENDED 30 JUNE 2011
4: SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued)
5: OPERATING SEGMENTS
Estimation of useful lives of plant and equipment
Identification of reportable segments
The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. Increasing an asset’s expected life or its residual value would result in a reduced depreciation charge in the consolidated income statement.
The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive management team (chief operating decision makers) in assessing performance and in determining the allocation of resources.
The useful lives and residual values of Group assets are determined by management at the time the asset is acquired and reviewed annually for appropriateness. The lives are based on historical experience with similar assets as well as anticipation of future events which may impact their life such as changes in technology. Furthermore network infrastructure is only depreciated over a period that extends beyond the expiry of the associated licence under which the operator provides telecommunications services if there is a reasonable expectation of renewal or an alternative future use for the asset.
The operating segments are identified by management based on the manner in which the product is sold, whether Retail or Wholesale. Discrete financial information about each of these operating businesses is reported to the executive management team on at least a monthly basis.
Historically, changes in useful lives and residual values have not resulted in material changes to the Group’s depreciation charge. Estimation of useful lives of intangible assets The useful life used to amortise intangible assets relates to the future performance of the assets acquired and management’s judgement of the period over which economic benefit will be derived from the asset. The basis for determining the useful life for the most significant categories of intangible assets is as follows: > Licences fees. The estimated useful life is generally the term of the licence unless there is a presumption of renewal at negligible cost. Using the licence term reflects the period over which the Group will receive economic benefit. For technology specific licences with a presumption of renewal at negligible cost, the estimated useful economic life reflects the Group’s expectation of the period over which the Group will continue to receive economic benefit from the licence. The economic lives are periodically reviewed taking into consideration such factors as changes in technology. Historically, any changes to economic lives have not been material following these reviews. > Customer bases. The estimated useful life principally reflects management’s view of the average economic life of the customer base and is assessed by reference to customer churn rates. An increase in churn rates may lead to a reduction in the estimated useful life and an increase in the amortisation charge. Historically, changes to the estimated useful lives have not had a significant impact on the Group’s results and financial position. > Capitalised software. The useful life is determined by management at the time the software is acquired and brought into use and is regularly reviewed for appropriateness. For computer software licences, the useful life represents management’s view of expected benefits over which the Group will receive benefits from the software, but not exceeding the licence term. For unique software products controlled by the Group, the life is based on historical experience with similar products as well as anticipation of future events which may impact their life such as changes in technology. Historically, changes in useful lives have not resulted in material changes to the Group’s amortisation charge.
The reportable segments are based on aggregated operating segments determined by the similarity of the products produced and sold and/or the services provided, as these are the sources of the Group’s major risks and have the most effect on the rates of return. Types of products and services The Group has two operating segments, Retail and Wholesale. The Group’s risks and rates of return are affected predominantly by differences in the markets served by these business units. The Retail business segment offers unique packaged telecommunications services, targeted particularly to small and medium sized enterprises, offering fixed line voice services, including line rental services, mobile voice and data services, terrestrial dial-up and high speed broadband internet services as well as mobile telephone hardware. The Wholesale business segment offers the full suite of fixed line voice services, including line rental services, mobile voice and data services, terrestrial dial-up and high speed broadband internet services and mobile telephone hardware to the telecommunications reseller market at wholesale rates. Accounting policies and inter-segment transactions The accounting policies used by the Group in reporting segments internally are the same as those contained in note 2 to the accounts and in the prior periods except as detailed below: Corporate charges Corporate charges comprise non-segmental expenses incurred by the various business functions that support both Retail and Wholesale operations. Some of these business functions include IT, finance, facilities and equipment, commercial, and head office. Except for head office charges, all other corporate charges are allocated to each business segment on proportionate basis linked to segment revenue so as to determine a segment result. Head office charges remain unallocated due to the difficulty in obtaining a reliable measurement of amounts that can be reasonably allocated between Retail and Wholesale.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Notes to the Consolidated Financial Statements
53
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
5: OPERATING SEGMENTS (continued)
Retail
Income tax expenses Income tax expense is calculated based on the segment operating net profit using a notional charge of 30% (2010: 30%). No effect is given for taxable or deductible temporary differences. Unallocated items It is the Group’s policy that if items of revenue and expenses are not allocated to operating segments, then any associated assets and liabilities are also not allocated to segments. This is to avoid asymmetrical allocations within segments which management believe would be inconsistent.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
The following tables present revenue and profit information for the years ended 30 June 2011 and 30 June 2010.
54
Retail
Revenue Sales to external customers Inter-segment sales Total segment revenue
Wholesale
Total
2011 $000
2010 $000
2011 $000
2010 $000
2011 $000
2010 $000
257,883 257,883
251,451 24,911 276,362
168,964 168,964
154,660 3,290 157,950
426,847 -
406,111 28,201
426,847
434,312
-
(28,201)
Inter-segment elimination Total revenue per the statement of comprehensive income
426,847
406,111
Segment net operating profit after tax
23,024
Reconciliation of segment net profit after tax to net profit before tax Income tax expense - current and deferred Corporate charges - unallocated Net profit before tax per the statement of comprehensive income
16,992
6,368
2,361
29,392
19,353
12,776
8,011
(1,760)
(3,284)
40,408
24,080
Total
2011
2010
2011
2010
2011
2010
2011
2010
$000
$000
$000
$000
$000
$000
$000
Depreciation
1,439
1,427
4
100
-
-
1,443
1,527
Amortisation
4,188
2,801
393
671
-
-
4,581
3,472
10,969
8,309
3,066
913
(4,395)
(3,247)
9,640
5,975
Income tax expense - current
Segment assets and liabilities as of 30 June 2011 and 30 June 2010 are as follows: Retail
Segment assets Segment operating assets
Wholesale
Total
2011 $000
2010 $000
2011 $000
2010 $000
2011 $000
2010 $000
169,268
126,358
31,015
32,744
200,283
159,102
744 356
76 274
201,383
159,452
72,024
66,974
28,650
16,250
6,936
(774)
107,610
82,450
Working capital - Corporate Other Total assets per the statement of financial position Segment liabilities Segment operating liabilities Bank loan Other Total liabilities per the statement of financial position
Result
Unallocated
$000
Major customer The Group has no significant clients that individually account for more than 10% of external revenue.
Wholesale
67,138
50,950
4,886
16,024
FOR THE YEAR ENDED 30 JUNE 2011
6: REVENUE AND EXPENSES
(a) Revenue Rendering of services License fees (b) Other income Loss on sale of asset Interest income (c) Employee benefits expense Wages and salaries Defined contribution superannuation expense Annual leave provision Long service leave provision (d) Depreciation and amortisation Depreciation Amortisation of patents and licenses Amortisation of customer contracts (e) Other expenses Selling and marketing Business development Facilities and equipment Corporate Professional fees Bank fees Bad debts Minimum lease payments - operating lease Other (f) Finance Costs Finance charges payable under finance leases and hire purchase contracts Finance charges payable on bank loan
7: INCOME TAX 2011 $000
2010 $000
426,085 762
405,220 891
426,847
406,111
(79) 1,065
258
Current income tax
986
258
Adjustments in respect of current income tax of previous years
(a) Income tax expense The major components of income tax expense are: 2011 $000
2010 $000
9,640
5,251
-
724
3,136
2,036
12,776
8,011
Statement of comprehensive income: Curent income tax charge Deferred income tax
32,507 2,704 2,433 210
34,576 2,765 1,481 516
Income tax expense reported in the statement of comprehensive income
37,854
39,338
(b) Numerical reconciliation between aggregate tax expense recognised in the statement of comprehensive income and tax expense calculated per the statutory income tax rate
1,443 837 3,744
1,527 1,093 2,466
A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable tax rate is as follows:
6,024
5,086
Accounting profit before income tax
40,408
24,080
1,134 1,981 2,528 1,486 2,591 472 4,726 3,504 656
1,137 1,973 3,667 582 2,169 372 4,149 3,412 853
At the Group’s statutory income tax rate of 30% (2010: 30%) Adjustments in respect of current income tax of previous years Non-temporary differences Share based payments Losses carried forward Other
12,122
7,224
Aggregate income tax expense
19,078
18,314
111 1,741
99 2,145
1,852
2,244
Relating to origination and reversal of temporary differences
-
724
973
1,217
85
92
(652)
(1,246)
248
-
12,776
8,011
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Notes to the Consolidated Financial Statements
55
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
7: INCOME TAX (continued)
Deferred income tax at 30 June relates to the following: Statement of financial position
(c) Recognised deferred tax assets and liabilities 2011 Current Income Tax $000
2011 Deferred Income Tax $000
2010 Current Income Tax $000
2010 Deferred Income Tax $000
(413) (9,640)
5,473 (3,136)
437 (5,975)
7,578 (2,363)
-
-
-
286
4,664
-
5,125
-
Acquisitions
-
(567)
-
-
Other
-
-
-
(28)
(5,389)
1,770
(413)
5,473
Opening balance Charged to income Charged to equity
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Other payments
56
Closing balance Tax expense in statement of comprehensive income Amounts recognised in the statement of financial position: Deferred tax asset Deferred tax liability
12,776
8,011
2011 $000 Deferred tax assets Plant and equipment Trade receivables
6,747
(4,627)
(1,274)
1,770
5,473
The deferred income tax expense directly charged to equity disclosed above pertains to transaction costs on issue of shares.
255
205
1,353
860
152
81
Trade and other payables
1,048
97
Other provisions
1,522
1,221
Intangibles
198
286
Tax losses and temporary differences
1,869
3,997
Gross deferred tax assets
6,397
6,747
21
48
Transaction cost on issue of shares
Deferred tax liabilities Plant and equipment
6,397
2010 $000
Other assets - deferred acquisition cost
2,620
-
Intangibles
1,986
1,226
Gross deferred tax liabilities
4,627
1,274
FOR THE YEAR ENDED 30 JUNE 2011
7: INCOME TAX (continued)
8: DIVIDENDS PAID AND PROPOSED 2011 $000
(d) Tax consolidation Members of the tax consolidated group and the tax-sharing agreement
(a) Recognised amounts
M2 Telecommunications Group Ltd and its 100% owned Australian subsidiaries formed a tax consolidated group with effect from 1 July 2004. M2 Telecommunications Group Ltd is the head entity of the tax consolidated group. Members of the Group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote.
Declared and paid during the year
Tax effect accounting by members of the tax consolidated group Measurement method adopted under AASB Interpretation 1052 Tax Consolidated Accounting
2010 $000
Dividends on ordinary shares: Final franked dividend for 2010: 5.0 cents (2009: 3.0 cents)
6,112
3,308
Interim franked dividend for 2011: 7.0 cents (2010: 5.0 cents)
8,625
5,503
14,737
8,811
11,125
6,076
(b) Unrecognised amounts Dividends on ordinary shares: Final franked dividend for 2011: 9.0 cents (2010: 5.0 cents)
The head entity and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the stand-alone taxpayer approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes. The nature of the tax funding agreement is discussed further below.
After the reporting date, the above dividend was declared. This amount has not been recognised as a liability as at 30 June 2011 but will be brought to account during the 2012 financial year.
In addition to its current and deferred tax amounts, the head entity also recognises current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.
9: EARNINGS PER SHARE
The tax rate at which paid dividends have been franked is 30% (2010: 30%). Dividends proposed will be franked at the rate of 30% (2010: 30%).
The following reflects the information used in the basic and diluted earnings per share computations:
Nature of the tax funding agreement Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement requires payments to/from the head entity to be recognised via an inter-entity receivable/(payable) which is at call. To the extent that there is a difference between the amount charged under the tax funding agreement and the allocation under AASB Interpretation 1052, the head entity accounts for these as equity transactions with the subsidiaries.
2011 $000
2010 $000
27,684
16,069
(a) Earnings used in calculating earnings per share For basic and diluted earnings per share: Net profit attributable to ordinary equity holders of the parent (b) Weighted average number of shares Weighted average number of ordinary shares for basic earnings per share
‘000
‘000
122,694
110,909
Effect of dilution: Share options Weighted average number of ordinary shares adjusted for the effect of dilution
1,849
3,020
124,543
113,929
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Notes to the Consolidated Financial Statements
57
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
9: EARNINGS PER SHARE (continued)
(b) Reconciliation of net profit after tax to net cash flows from operations
There have been no transactions (e.g., share options) excluded from the calculation of diluted earnings per share that could potentially dilute basic earnings per share in the future because they are antidilutive for either of the periods presented. There have been no transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of these financial statements.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
58
27,632
16,069
6,024
5,086
282
307
79
-
(372)
-
(7,021)
-
4,617
(6,977)
Changes in assets and liabilities (Increase)/decrease in trade receivables (Increase)/decrease in inventories
2011
2010
Increase/(decrease) in trade and other payables
$000
$000
Increase/(decrease) in provisions
11,009 1,533
13,390 1,674
12,542
15,064
Increase/(decrease) in current income tax payable (Increase)/decrease in deferred tax asset Increase/(decrease) in deferred tax liability Net cash flow from operating activities
(24)
1,106
(3,563)
(4,232)
26
58
3,252
(229)
130
(13)
4,976
353
350
2,327
3,353
(549)
39,741
13,306
(c) Non-cash financing and investing activities
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following at 30 June:
Cash at bank and in hand
Loss on sale of plant and equipment
(Increase)/decrease in other receivables
(a) Reconciliation to statement of cash flows
Short-term deposits
Share based payments
(Increase)/decrease in other assets
10: CASH AND CASH EQUIVALENTS
Short-term deposits
Depreciation and amortisation
Non cash acquisition items
Options granted to employees (including KMP) as described in note 22 are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent they are dilutive. These options have not been included in the determination of basic earnings per share.
2010 $000
Adjustments for :
Other revenue
(c) Information on the classification of securities
Cash at bank and in hand
Net profit
2011 $000
2011
2010
$000
$000
11,009 1,533
13,390 1,674
12,542
15,064
Cash at bank earns interest at floating rates based on daily bank deposit rates. Included within short-term deposits is an amount of $1.5 million (2010: $1.6 million) which is held in trust for the Phone & Fly travel dollars loyalty program. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.
Issue of shares under ESOP (note 23)
282
307
Dividend reinvestment plan (note 20)
2,623
550
43
244
2011 $000
2010 $000
55,646 (4,511)
58,419 (2,667)
51,135
55,752
Purchase of plant and equipment under finance lease (note 14)
11: TRADE RECEIVABLES
Trade receivables Allowance for impairment loss (a)
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
11: TRADE RECEIVABLES (continued)
(b) Fair value and credit risk Due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value.
Trade receivables are non-interest bearing and are generally on 14-60 day terms. A provision for impairment loss is made when there is objective evidence that a trade receivable is impaired. An impairment loss of $4.7 million (2010: $4.1 million) has been recognised by the Group in the current year. This amount has been included in the distribution expense item. No individual amount within the impairment allowance is material. Movements in the provision for impairment loss were as follows: 2011
2010
The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables to special purpose entities. (c) Interest rate risk Detail regarding interest risk exposure is disclosed in note 3.
12: INVENTORIES
$000
$000
2011
2010
At 1 July
2,667
$000
$000
Charge for the year
4,726
1,833 4,149
Finished goods (at cost)
362
338
Amounts written off
(2,882)
(3,315)
Total inventories at the lower of cost and net realisable value
362
338
4,511
2,667
At 30 June
At 30 June, the ageing analysis of trade receivables is as follows: 2011
2010
Gross
Allowance
Gross
Allowance
$000
$000
$000
$000
31 - 60 days
34,901 6,698
54 129
41,784 8,461
4 6
61 - 90 days
6,153
161
1,781
128
91 days and over
7,894
4,167
6,393
2,529
Closing balance
55,646
4,511
58,419
2,667
Consolidated Current
Trade receivables that are past due but not considered impaired amounted to $9.7 million (2010: $5.5 million). Each operating unit has been in direct contact with the relevant debtor and is satisfied that the payment will be received in full. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due.
Inventory recognised as expense for the year ended 30 June 2011 totalled $5.3 million (2010: $6.0 million) for the Group. This expense has been included in cost of sales in the Statement of Comprehensive Income.
13: OTHER ASSETS
Bartercard trade balance Prepayments Security deposit Deferred aquisition cost Other
2011
2010
$000
$000
252
397
1,331
1,834
108
1,220
8,734
3,792
450
69
10,875
7,312
Bartercard is a program which allows customers to pay a percentage of their bills with barter dollars. Bartercard trade balance refers to those receivables from such customers.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
(a) Allowance for impairment loss
59
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
14: PLANT AND EQUIPMENT
15: INTANGIBLE ASSETS AND GOODWILL
The reconciliation of carrying amounts at beginning and end of the period are as follows:
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Cost At 1 July Additions Disposals and write-offs Other At 30 June
60
2011 $000
2010 $000
8,912 1,188 (116) -
8,573 1,110 (550) (221)
9,984
8,912
(a) Reconciliation of carrying amounts at the beginning and end of the period Trademarks & Licenses $000
Customer Contracts $000
Brands $000
Goodwill $000
Total $000
At 1 July 2010, Net of accumulated amortisation and impairment Additions
1,335
4,311
1,503
63,308
70,457
Software
8,200
-
-
-
8,200
-
5,990
-
36,590
42,580
8,200
5,990
-
36,590
50,780
-
-
-
314
314
(355)
-
-
-
(355)
Amortisation charge for the year
(837)
(3,744)
-
-
(4,581)
8,343
6,557
1,503
100,212
116,615
11,182
13,852
1,503
100,212
126,749
(2,839)
(7,295)
-
-
(10,134)
8,343
6,557
1,503
100,212
116,615
Year ended 30 June 2011
Accumulated Depreciation At 1 July Depreciation charge for the year Disposals and write-offs Other At 30 June
5,192 1,443 (72) -
3,790 1,527 (117) (8)
6,563
5,192
Total additions Adjustments to fair value from provisional accounts Write-offs
NET BOOK VALUE
3,421
3,720
At 30 June 2011,
Plant and equipment with carrying amount of $221,000 (2010: $308,000) for the Group are pledged as securities for non-current liabilities as disclosed in note 18.
Acquisitions
Net of accumulated amortisation and impairment At 30 June 2011 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount
FOR THE YEAR ENDED 30 JUNE 2011
15: INTANGIBLE ASSETS AND GOODWILL (continued) Trademarks & Licenses $000 Year ended 30 June 2010 At 1 July 2009, Net of accumulated amortisation and impairment Additions Software Provisional premium on acquisitions Total additions Adjustments to fair value from provisional accounts Amortisation charge for the year At 30 June 2010, Net of accumulated amortisation and impairment At 30 June 2010 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount
Customer Contracts $000
Brands Brands $000
Goodwill $000
Total $000
835
5,587
1,503
59,256
67,181
1,593 -
1,298
-
3,709
1,593 5,007
1,593
1,298
-
3,709
6,600
-
(108)
-
343
235
(1,093)
(2,466)
-
-
(3,559)
1,335
4,311
1,503
63,308
70,457
4,203
8,230
1,503
63,308
77,244
(2,868)
(3,919)
-
-
(6,787)
1,335
4,311
1,503
63,308
70,457
(b) Description of the Group’s intangible assets and goodwill Trademarks and licences The Messagemate license is the right to exploit certain intellectual property acquired in connection with the acquisition of the Messagemate business. In September 2003 the rights were assigned to a third party for a fixed amount of consideration receivable over a period. The asset is amortised over the period of the contract, being 8 years. Software purchased in the normal course of business is amortised over a 2 to 10 year period. Customer contracts Customer contracts are acquired through the acquisition of businesses and are amortised over a 2 to 4 year period.
Brands are acquired through the acquisition of businesses and have indefinite useful lives. Brands are not amortised but are subject to impairment testing on an annual basis or whenever there is an indication of impairment. Goodwill After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of impairment. (c) Impairment tests for goodwill and intangibles with indefinite useful lives Description of cash generating units and other relevant information Goodwill acquired through business combinations has been allocated to and are tested at the level of their respective cash generating units for impairment testing as follows: > Retail cash generating unit > Wholesale cash generating unit The recoverable amount of the cash generating units has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by senior management covering a five year period. The pre-tax, risk-adjusted discount rate applied to cash flow projections is 13% (2010: 13% to 16%). The same discount rates are applied to both retail and wholesale segments. The long-term growth rate used to extrapolate the cash flows of the retail and wholesale sales units beyond the five-year period is 2.5%. The senior management of both units believes the growth rate is justified based on the acquisitions during the financial year, which resulted in increased customer base. Carrying amount of goodwill allocated to each of the cash generating units 2011 $000
2010 $000
Cash generating units Retail cash generating units
85,202
47,955
Wholesale cash generating units
15,010
15,010
100,212
62,965
Total Goodwill
Brands are wholly allocated to the retail cash generating units.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Notes to the Consolidated Financial Statements
61
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
15: INTANGIBLE ASSETS AND GOODWILL (continued)
17: PROVISIONS
Key assumptions used in value in use calculations for the cash generating units for 30 June 2011 and 30 June 2010 The following describes each key assumption on which management has based its cash flow projections when determining the value in use of the above mentioned cash generating units: > Budgeted gross margins – the basis used to determine the value assigned to the budgeted gross margin is the average gross margin achieved in the year immediately before the budgeted year adjusted for the budgeted growth.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
> Budgeted overheads – the basis used to determine the value assigned to the budgeted overheads is the average overheads achieved in the year immediately before the budgeted year adjusted for budgeted increase.
62
> Discount rates – discount rates reflect management’s estimate of the time value of money and the risks specific to each unit. This is the benchmark used by management to assess operating performance and to evaluate future investment proposals. In determining appropriate discount rates for each unit, regard has been given to the yield on a ten-year government bond at the beginning of the budgeted year and a risk premium. > Growth rate estimates – the basis used for growth rates reflect management’s estimate, determined by future investment in sales generation methods and by growth rates achieved within the previous period.
16: TRADE AND OTHER PAYABLES 2010 $000
23,375 3,436
20,956 12,528
Withholding tax payable
345
254
Goods and services tax payable
846
931
6,270
6,243
15,789
6,040
Accrued expenses
Unearned income Deferred commission revenue Other payables
7,416
7,273
57,477
54,225
Trade and other payables are non-interest bearing and are normally settled on 30-day terms. Due to the short-term nature of these payables, their carrying value is assumed to approximate their fair value. Information regarding interest rate and liquidity risk exposure is set out in note 3.
2010 $000
Annual leave
2,067
2,009
Long-service leave
1,615
1,575
3,682
3,584
Current
Non-Current Annual leave Long-service leave
-
-
502
470
502
470
4,184
4,054
Refer to note 2(q) for the relevant accounting policy and a discussion of significant estimations and assumptions applied in the measurement of these provisions. Movements in provisions during the financial year are set out below: Employee benefits $000 At 1 July 2010
2011 $000 Trade payables
2011 $000
Arising during the year Utilised At 30 June 2011
4,054 2,643 (2,513) 4,184
FOR THE YEAR ENDED 30 JUNE 2011
18: INTEREST BEARING LOANS AND BORROWINGS
20: CONTRIBUTED EQUITY 2011 $000
2010 $000
988
129
11,500
5,000
12,488
5,129
102
195
17,150
11,250
17,252
11,445
Current Obligations under finance leases and hire purchase contracts (note 25) Bank loans
Ordinary shares - issued and fully paid
Non-Current Obligations under finance leases and hire purchase contracts (note 25) Bank loans
66,761
62,936
No. (‘000)
$000
108,462
41,331
11,111
20,000
1,629
1,550
320
550
Movements in ordinary shares on issue
(a) Fair values The carrying amounts of the Group’s current and non-current borrowings approximate their fair values.
At 30 June 2009 Share issue due to share placement Share issue due to exercise of share options Transaction costs
-
(495)
At 30 June 2010
121,522 1,198
62,936 1,242
897
2,623
Share issue due to exercise of share options Share issue due to dividend reinvestment plan
(b) Interest rate and liquidity risk
Adjustments
Details regarding interest rate and liquidity risk are disclosed in note 3.
At 30 June 2011
(c) Defaults and breaches
-
(40)
123,617
66,761
Capital management
During the current and prior years, there were no defaults or breaches on any of the loans.
When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity.
(d) Assets pledged as security Bank borrowings are secured by fixed and floating charges over the business assets of the entities within the Group. Business assets include debtors (less than 90 days), inventory and plant and equipment.
19: DEFERRED CONSIDERATION
Non-current
2010 $000
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
Share issue due to dividend reinvestment plan
Current
2011 $000
2011 $000
2010 $000
6,193 -
2,930 2,980
6,193
5,910
Management are constantly adjusting the capital structure to take advantage of favourable costs of capital or high returns on assets. As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. During 2011, management paid dividends of $14.7 million (2010: $8.8 million). The Group is not subject to externally imposed capital requirements.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Notes to the Consolidated Financial Statements
63
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
21: RELATED PARTY DISCLOSURE
Terms and conditions of transactions with related parties Outstanding balances at year-end are unsecured, interest free and settlement occurs in cash.
(a) Subsidiaries The consolidated financial statements include the financial statements of M2 Telecommunications Group Ltd and the subsidiaries listed in the following table.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Country of
64
Name
incorporation
M2 Telecommunications Pty Ltd
Australia
M2 Mobile Services Pty Ltd
Australia
M2 NZ Limited
New Zealand
% Equity interest
Investment $000
2011
2010
2011
2010
100 100
100 100
2,955 -
2,955 -
70
100
-
-
100
-
-
Orion Telecommunications Ltd
Australia
100
Southern Cross Telco Pty Ltd
Australia
100
100
-
-
People Telecom Pty Ltd
Australia
100
100
-
-
Swiftel Broadband Pty Ltd
Australia
100
100
-
-
Swiftel Communications Pty Ltd
Australia
100
100
-
-
People Telecommunications Pty Ltd
Australia
100
100
-
-
People Mobile Pty Ltd
Australia
100
100
-
-
M2 Clear Pty Ltd
Australia
100
-
-
-
M2 Viptel Pty Ltd
Australia
100
-
-
-
M2 Loyalty Programs Pty Ltd
Australia
100
100
-
-
M2 Wholesale Pty Ltd
Australia
100
100
-
-
M2 Wholesale Services Pty Ltd
Australia
100
100
-
-
Wholesale Communications Group Pty Ltd Australia
100
100
-
-
M2 Commander Pty Ltd
Australia
100
100
-
-
M2 Business Solutions Pty Ltd
Australia
51
51
-
-
2,955
2,955
(b) Ultimate parent M2 Telecommunications Group Ltd is the ultimate parent entity. (c) Key management personnel (KMP) Details relating to KMP, including remuneration paid, are included in note 22. (d) Transactions with related parties Refer to note 22(d) for the total amount of transactions that were entered into with related parties for the relevant financial year.
Allowance for impairment loss on trade receivables For the year ended 30 June 2011, the Group has not made any allowance for doubtful debts relating to amounts owed by related parties as there were very little indicators to trigger such action (2010:$nil). An impairment assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates to determine whether there is objective evidence that a related party receivable is impaired. When such objective evidence exists, the Group recognises an allowance for the impairment loss.
22: KEY MANAGEMENT PERSONNEL (a) Compensation for key management personnel
Short-term employee benefits Post employment benefits Share-based payment Total compensation
2011 $000
2010 $000
3,468 182
2,972 176
282
163
3,932
3,311
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011w
22: KEY MANAGEMENT PERSONNEL (continued) (b) Option holdings of key management personnel 30 June 2011 Directors Craig Farrow Vaughan Bowen Max Bowen John Hynd Michael Simmons Dennis Basheer (1) Executives Steve Wicks Darryl Inns Terry Doyle (2) Geoff Horth Matthew Hobbs (3) Michael Speglic Kellie Dean Total 30 June 2010 Directors Craig Farrow Vaughan Bowen Max Bowen Dennis Basheer (1) John Hynd Michael Simmons Executives Steve Wicks Darryl Inns Terry Doyle (2) Geoff Horth Matthew Hobbs (3) Michael Speglic Kellie Dean Total
Balance at 1 July 2010
Granted as remuneration
Options exercised
Net change
Balance at 30 June 2011
-
-
-
-
-
250,000 250,000 373,000 250,000 300,000 300,000 300,000 2,023,000
-
75,000 75,000 198,000 50,000 50,000 50,000 498,000
(75,000) (75,000) (198,000) (50,000) (50,000) (50,000) (498,000)
175,000 175,000 175,000 250,000 250,000 250,000 250,000 1,525,000
Balance at 1 July 2009
Granted as remuneration
Options exercised
Net change
Balance at 30 June 2010
-
-
-
-
-
500,000 350,000 175,000 50,000 50,000 1,125,000
250,000 250,000 250,000 250,000 250,000 250,000 250,000 1,750,000
(500,000) (227,000) (125,000) (852,000)
250,000 (250,000) 23,000 250,000 125,000 250,000 250,000 898,000
250,000 250,000 373,000 250,000 300,000 300,000 300,000 2,023,000
(1) Mr Basheer resigned as a director on 29 October 2010. (3) Mr Hobbs ceased employment with the Company on 29 July 2011. (2) Mr Doyle ceased employment with the Company on 29 July 2011.
30 June 2011
Balance at 1 July 2010
Granted as remuneration
On exercise of options
Net change
Balance at 30 June 2011
Directors Craig Farrow Vaughan Bowen Max Bowen John Hynd Michael Simmons Dennis Basheer (1)
958,522 10,935,641 32,274 2,832,524 3,591 5,044,906
-
-
(375,742) (2,559,000) (500,000) 6,000 (250,000)
582,780 8,376,641 32,274 2,332,524 9,591 4,794,906
Executives Steve Wicks Darryl Inns Terry Doyle (2) Geoff Horth Matthew Hobbs (3) Michael Speglic Kellie Dean Total
2,780,996 589,333 227,000 44,500 1,000 23,450,287
-
75,000 75,000 198,000 50,000 50,000 50,000 498,000
(938,913) (306,655) (12,000) (4,936,310)
1,842,083 282,678 215,000 44,500 1,000 18,513,977
30 June 2010
Balance at 1 July 2009
Granted as remuneration
On exercise of options
Net change
Balance at 30 June 2010
Directors Craig Farrow Vaughan Bowen Max Bowen Dennis Basheer (1) John Hynd Michael Simmons
1,028,000 13,388,570 32,274 5,244,906 2,832,524 -
-
-
(69,478) (2,452,929) (200,000) 3,591
958,522 10,935,641 32,274 5,044,906 2,832,524 3,591
Executives Steve Wicks Darryl Inns Terry Doyle (2) Geoff Horth Matthew Hobbs (3) Michael Speglic Kellie Dean Total
3,347,291 139,166 56,512 26,069,243
-
500,000 227,000 125,000 852,000
(566,295) 450,167 227,000 44,500 (55,512) (2,618,956)
2,780,996 589,333 227,000 44,500 1,000 23,450,287
All KMP balances include spouse shareholdings. (1) Mr Basheer resigned as a director on 29 October 2010. (2) Mr Doyle ceased employment with the Company on 29 July 2011. (3) Mr Hobbs ceased employment with the Company on 29 July 2011.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
(c) Shareholdings of key management personnel
65
Notes to the Consolidated Financial Statements
22: KEY MANAGEMENT PERSONNEL (continued)
(b) Types of share-based payment plans
(d) Other transactions and balances with key management personnel and their related parties
Employee Share Option (ESOP)
The following table provides the total amount of transactions that were entered into with related parties for the relevant financial year.
In February 2007, M2 introduced the M2 Executive Management Team Share Option Plan, and later in May 2009 this was extended to selected employees. The purpose of the ESOP was to provide an avenue for the alignment of Executive and employee objectives with those of shareholders, and to provide an additional element to Executive and employee remuneration that was competitive to the external compensation environment. The issue of options under ESOP further allows an opportunity for the Board to reward Executives and employees for their performance in a given period.
Directors Craig Farrow (1) Max Bowen (2) Dennis Basheer (3) John Hynd
(4)
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Michael Simmons (6)
66
FOR THE YEAR ENDED 30 JUNE 2011
Executive Matthew Hobbs (5)
Sales to related parties
Purchases from related parties
$000
$000
2011 2010 2011 2010 2011 2010 2011 2010 2011 2010
32 17 3 4 9 1 5 5 1 -
2 174 285 -
2011 2010
-
1
(1) Telecommunications services were provided to Brentnalls SA and Petcraky Pty Ltd on commercial terms. Mr Farrow is a director of both companies. (2) Telecommunications services were provided to MGB Holdings Pty Ltd on commercial terms. Mr Bowen is a director of MGB Holdings Pty Ltd. (3) Sales commissions were paid and telecommunications services were provided to Dennis N Basheer Nominees on commercial terms. Telecommunications services were provided to M2SA Pty Ltd on commercial terms. Mr Basheer is a director of both companies. Mr. Basheer retired as director of M2 on 29 October 2010. (4) Telecommunications services were provided to Hynd & Co Pty Ltd on commercial terms. Mr Hynd is a director of the firm Hynd & Co Pty Ltd. (5) Services were paid to Devine Media Photography on commercial terms. Mr. Hobbs is a director of Devine Media Photography. Mr. Hobbs ceased employment with the Company on 29 July 2011. (6) Telecommunications services were provided to Luab Pty Ltd (Simmons family company) on commercial terms.
All senior Executives and selected employees of M2 were eligible to participate in the ESOP. However, the issue of options under the ESOP to Executive directors is subject to approval by M2 shareholders. Under the ESOP, Executives and selected employees may be offered options to acquire M2 Shares. Any shares issued under the ESOP consequent upon exercise of the options will rank equally with all other M2 Shares and application will be made for them to be quoted on ASX. No application will be made for the options to be quoted on ASX. Options issued under the ESOP vest (and may only then be exercised) one, two and three years (as determined by the M2 Board) after they are offered to the eligible Executive or employee. Unless the M2 Board determines otherwise, no fee will be payable on the issue of any option under the ESOP. The exercise price for each option (payable on exercise of the option) will be determined by the Board at the time of issue of the option. Options issued under the ESOP may be exercised, once they are vested, at any time within two years from the date on which they vest. Other than continuous service conditions with the Company, there are no performance conditions which must be met prior to the vesting or exercise of options. Options are not generally transferable (and only with board approval) and cease to be exercisable at the end of the exercise period or within a specified time after the cessation of the Executive’s or employee’s employment (which time depends on the circumstances of the cessation).
23: SHARE-BASED PAYMENT PLANS (a) Recognised share-based payment expenses The expense recognised for employee services received during the year is shown in the table below: 2011 $000
2010 $000
- M2 Executive Management Team Share Option Plan (ESOP)
282
307
Total expense arising from share-based payment transactions
282
307
Expense arising from equity-settled share-based payment transactions
The share-based payment plans are described below. There have been no cancellations or modifications to any of the plans during 2011.
An option holder may not attend and vote at annual general meetings and other shareholder meetings and is not entitled to participate in any rights issues unless the options have been exercised. Any bonus issue will proportionately increase the number of options held by any Executive or employee who has been granted options.
FOR THE YEAR ENDED 30 JUNE 2011
23: SHARE-BASED PAYMENT PLANS (continued)
(c) Summaries of options granted under ESOP
Employee share plan (ESP)
The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, share options issued during the year:
In April 2007 M2 introduced the ESP to reward the loyalty of employees. All employees of M2, both full-time and permanent part-time, were eligible to participate in the ESP, in which M2 shares were offered at the discretion of M2 Management and the M2 Board. The issue of M2 shares under the ESP is further subject to the approval of the M2 shareholders.
Outstanding at the beginning of the year
2011 No.
2011 WAEP
2010 No.
2010 WAEP
$1.363 -
2,925,000 1,750,000
$0.592 $1.860
A summary of the ESP is as follows:
Granted during the year
3,020,000 -
(i) Under the ESP, eligible employees were offered M2 shares. The shares issued under the ESP ranked equally with all other M2 shares and application was made for them to be quoted on the ASX.
Exercised during the year
(1,171,000)
$0.858
(1,655,000)
$0.527
Outstanding at the end of the year
1,849,000
$1.386
3,020,000
$1.363
(ii) The shares were offered to eligible employees at the average weighted closing market price of M2 share’s sold on the ASX during the five business days immediately before invitations to eligible employees were announced or issued.
26,500 options were exercised before 30 June 2010 and shares were issued subsequent to the year end. These options have been included in the movement in financial year 2010.
(iii) The maximum number of shares that may be offered to an eligible employee in any twelve month period is 20,000 M2 shares.
(i) 324,000 options over ordinary shares with an exercise price of $0.70 each, exercisable upon meeting the above conditions and until 8 May 2012.
(iv) Eligible employees have paid for the shares offered out of their own funds or M2 has provided them with an interest-free, limited recourse loan to finance up to the full cost of the shares.
(ii) 1,525,000 executive options with exercise price ranging from $1.75 to $1.95, exercisable until dates ranging from 1 January 2011 to 1 January 2015.
(v) Eligible employees who have paid for the shares offered out of their own funds may deal with them as they wish. (vi) Eligible employees who took up the offer of the loan did so on the following terms: a. The loan is required to be repaid within twenty years after the date of allotment of the shares, or upon the employee ceasing employment with M2; b. The loan may be repaid in full or part at any time prior to the repayment date; c. All cash dividends will be put towards repayment of the loan;
The outstanding balance as at 30 June 2011 is represented by:
(d) Weighted average remaining contractual life The weighted average remaining contractual life for the share options outstanding as at 30 June 2011 is 2 years (2010: 2 years). (e) Range of exercise price The range of exercise prices for all options outstanding at the end of the financial year was $0.70 to $1.95 (2010: $0.475 to $1.95).
d. The employee cannot sell the shares until the loan has been repaid; e. If the loan becomes repayable M2 may sell the employee’s shares to repay the loan but if the sale proceeds are insufficient to repay the loan then the employee is released from further liability.
(f) Weighted average fair value There were no options granted during the financial year.
(vii) The employee may attend and vote at annual general meetings and other shareholder meetings and is entitled to participate in any bonus or rights issues.
(g) Option pricing model: ESOP
There were no grants of ESP during the financial year 2011 or 2010.
The fair value of the equity-settled share options granted under the ESOP is estimated as at the grant date using a Binomial Model taking into account the terms and conditions upon which the options were granted.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Notes to the Consolidated Financial Statements
67
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
23: SHARE-BASED PAYMENT PLANS (continued)
Key factors contributing to the $4.1 million goodwill are the synergies existing within the acquired business, and the synergies expected to be achieved as a result of combining with the rest of the retail segment.
The following table lists the inputs to the Binomial Model used for the year ended 30 June:
Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Option exercise price ($) Weighted average share price at measurement date ($) Model used
ESOP 2011
ESOP 2010
3.93% 46.62% 5.05% 3 years $1.75, $1.85, $1.95 $1.40
3.93% 46.62% 5.05% 3 years $1.75, $1.85, $1.95 $1.40
Binomial
Binomial
24: BUSINESS COMBINATIONS
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan cia l S tat e m e n t s
68
In May 2010, People Telecommunications Pty Ltd, a wholly owned subsidiary of M2, acquired the selected business assets of Clever Communications Australia Ltd (“Clever”) for $4.8 million, comprised of an upfront and deferred payment. The acquisition of selected Clever business assets, which includes off-net fixed, mobile and data and virtual private network SMB customer contracts, complements the Group’s core focus on SMB. The fair values of the identifiable assets and liabilities of Clever as of the date of acquisition were: Provisional
Final
$000
$000
1,298 -
1,090 (327)
(7)
(7)
1,291 3,709
756 4,052
5,000
4,808
Deferred consideration
1,250
1,058
Cash paid
3,750
3,750
Total cost of the combination
5,000
4,808
Deferred tax liability Provisions Fair value of identifiable net assets Goodwill arising from acquisition
In November 2010, M2 Commander Pty Ltd completed the acquisition of customer contracts of Coast to Coast Telecoms Pty Ltd for a consideration of $180,000 paid by offsetting against amount owed to M2. Black and White Acquisition In November 2010, the Group acquired certain assets of Black and White Group Limited (“B & W”). The purchase was completed via issue of shares of M2 NZ Limited (“M2NZ”) at total consideration of $10,537 to B & W shareholders. Following the issue of shares, the ownership structure of M2NZ is 70% owned by the Group and 30% owned by B & W. Bell Networks Acquisition
Clever Communications Acquisition
Intangible assets
Coast to Coast Acquisition
Cost of the combination:
In August 2010, People Telecommunications Pty Ltd, a wholly owned subsidiary of M2, completed the acquisition of the business assets of Bell Networks Voice & Data Pty Ltd (“Bell”) for a final determined consideration of $3.7 million payable in cash, comprised of an upfront and deferred payment, which is subject to certain conditions relating to the performance of the assets over an agreed period. The principal assets acquired were the SMB customer contracts of Bell. No bonus consideration was paid to Bell post-completion. The fair values of the identifiable assets and liabilities of Bell as of the date of acquisition were: Provisional
Final
$000
$000
Deferred tax asset
1,300 -
1,300 83
Deferred tax liability
(390)
(390)
Fair value of identifiable net assets
910 2,749
993 2,666
3,659
3,659
2,075
2,075
Intangible assets
Goodwill arising from acquisition
Cost of the combination: Cash paid - upfront payment
160
160
Payment adjustments
1,424
1,424
Total cost of the combination
3,659
3,659
Cash paid - deferred payment
FOR THE YEAR ENDED 30 JUNE 2011
24: BUSINESS COMBINATIONS (continued) Key factors contributing to the $2.7 million goodwill are the synergies existing within the acquired business, and the synergies expected to be achieved as a result of combining with the retail segment. Clear Telecoms Acquisition
Key factors contributing to the $26.7 million goodwill are the synergies existing within the acquired business, and the synergies expected to be achieved as a result of combining with the rest of the retail segment. Austar Acquisition In February 2011, Southern Cross Telco Ltd (“SCT”) a wholly-owned subsidiary of M2, had entered into an asset sale deed with Austar United Mobility Ltd (“Austar”) to acquire certain assets of Austar. The principal assets acquired are mobile customer contracts and related customer records.
In February 2011, the Group acquired all of the business assets of Clear Telecoms (Aust) Pty Ltd (“Clear”) comprising of all customer contracts, operating systems, brands and all other related intellectual property. The transaction involves a net cash consideration of $24.5 million payable over 3 payment tranches. The first tranche is payable immediately while the remaining tranches are payable in September 2011 and March 2012. The amount of the remaining tranches is subject to minimum performance milestones being achieved. A variable bonus consideration may also be payable in the event that specific performance milestones are exceeded. The consideration for the Clear assets is funded by a draw-down on M2’s available debt facilities. The bonus consideration, which is based on gross profit performance, has been accrued and included in deferred consideration (note 19). The fair values of the identifiable assets and liabilities of Clear as of the date of acquisition were:
The net cash consideration paid to Austar is approximately $2 million (less applicable adjustments) payable in cash. The fair values of the identifiable assets and liabilities of Austar as of the date of acquisition were: Final $000 Intangible assets Deferred tax liabilities Fair value of identifiable net assets Goodwill arising from acquisition
Final $000 Deferred tax assets Plant and equipment
1,193 52
Intangible assets
4,152
Deferred tax liabilities
(1,246)
Provisions
(3,976)
Fair value of identifiable net assets
175 26,689
Goodwill arising from acquisition
26,864 Cost of the combination: Cash paid Deferred consideration Total cost of the combination
20,671 6,193 26,864
528 (158) 370 1,453 1,823
Cost of the combination: Cash paid
1,823
Total cost of the combination
1,823
Key factors contributing to the $1.5 million goodwill are the synergies existing within the acquired business, and the synergies expected to be achieved as a result of combining with the rest of the retail segment. Edirect Assets Acquisition In April 2011, the Group acquired assets of mobile service reseller, Edirect Pty Ltd (Receivers and Managers Appointed )(“Edirect”). The principal assets acquired are active contracts of more than 50,000 post-paid mobile phone customers. In addition, the Group has entered into a separate agreement to acquire the operating assets and systems presently used to service the Edirect customer base. Total consideration for the acquisition is $5.9 million.
M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
Notes to the Consolidated Financial Statements
69
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 30 JUNE 2011
24: BUSINESS COMBINATIONS (continued)
26: CONTINGENCIES
The fair values of the identifiable assets and liabilities of Edirect as of the date of acquisition were:
There are no contingent assets or liabilities as at Statement of Financial Position date. Final $000 5,931
Fair value of identifiable net assets Goodwill arising from acquisition
5,931 Cost of the combination: Total consideration Total cost of the combination
5,931 5,931
27: EVENTS AFTER BALANCE DATE On 1 July 2011, M2 commenced operation of the M2 Employee Share Plan (Salary Sacrifice) which allows eligible team members to salary sacrifice a portion of their salary in order to acquire M2 shares. The shares will be issued or acquired on-market on a quarterly basis, commencing October 2011. On 26 August 2011, the directors declared a final dividend on ordinary shares in respect of the 2011 financial year. The total amount of the dividend is $11,125,459, which represents a fully franked dividend of 9 cents per share (on shares issued as at 30 June 2011). This final dividend will be paid to shareholders on 28 October 2011.
28: INFORMATION RELATING TO M2 TELECOMMUNICATIONS LTD (“the parent entity”) 25: COMMITMENTS M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan cia l S tat e m e n t s
Leasing commitments
70
Current assets
Operating lease commitments – Group as lessee
Total assets
The Group has entered into commercial leases on offices and certain plant and equipment. Future minimum lease payments under non-cancellable operating leases as at 30 June 2011 are as follows: 2011 $000 Within one year After one year but not more than five years After more than five years Total minimum lease payments
1,505 2,589 4,094
2010 $000 3,037 5,389 539 8,965
Finance lease and hire purchase commitments – Group as lessee These lease contracts expire within one to four years. Future minimum lease payments under finance lease and hire purchase contracts as at 30 June 2011 are as follows: 2011 $000
2010 $000
Within one year After one year but not more than five years
1,052 109
156 117
Total minimum lease payments Less amounts representing finance charges
1,161 (71) 1,090
273 (24) 249
Present value of minimum lease payments
2011 $000
2010 $000
1,891 107,841
109 80,767
Current liabilities
18,424
4,226
Total liabilities
35,586
15,476
Issued capital
66,761
62,936
5,084
2,014
410
342
Total shareholders’ equity
72,255
65,292
Profit or loss and total comprehensive income of the parent entity
17,798
9,333
2011 $
2010 $
264,550
249,750
264,550
249,750
Retained earnings Equity Reserves
The parent entity has no commitments or contingencies as of reporting date.
29: AUDITOR’S REMUNERATION The auditor of M2 Telecommunications Group Ltd is Ernst & Young.
Amounts received or due and receivable by Ernst & Young (Australia) for: - An audit or review of the financial report of the entity and any other entity within the consolidated group
Directors’ Declaration In accordance with a resolution of the directors of M2 Telecommunications Group Ltd: 1. In the opinion of the directors: (a) The financial statements, notes and the additional disclosures included in the directors’ report designated as audited, of the Company and of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2011 and of their performance for the year ended on that date. (ii) Complying with Accounting Standards and Corporations Regulations 2001. (b) The financial statements and notes comply with International Financial Reporting Standards as disclosed in note 2(b). (c) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2011. On behalf of the directors
Melbourne, 26 August 2011
M2 Annua l Re p o rt 20 1 1 – Dir e c to rs ’ De cl arat i o n
Vaughan Bowen Managing Director/CEO
71
Independent Audit Report
Independent auditor’s report to the members of M2 Telecommunications Group Limited
Auditor’s Opinion In our opinion:
1.
Report on the Financial Report We have audited the accompanying financial report of M2 Telecommunications Group Limited, which comprises the consolidated statement of financial position as at 30 June 2011, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.
2.
the financial report of M2 Telecommunication Group Limited is in accordance with the Corporations Act 2001, including: i
giving a true and fair view of the consolidated entity’s financial position at 30 June 2011 and of its performance for the year ended on that date; and
ii
complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.
the financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board
M2 Annua l Re p o rt 20 1 1 – I nd e pe nd en t Au d i t R ep o rt
Directors’ Responsibility for the Financial Report
72
The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2 (b) the directors also state, that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Report on the Remuneration Report
Auditor’s Responsibility
In our opinion the Remuneration Report of M2 Telecommunications Group Limited for the year ended 30 June 2011, complies with section 300A of the Corporations Act 2001.
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report.
Liability limited by a scheme approved under Professional Standards Legislation
We have audited the Remuneration Report included in pages 22 to 25 of the directors’ report for the year ended 30 June 2011. 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.
Auditor’s Opinion
Ernst & Young
David Shewring Partner Melbourne 26 August 2011
ASX Additional Information (b) Substantial Shareholders
Additional information required by the Australian Securities Exchange Ltd listing rules and now shown elsewhere in this report is as follows. This information is current as at 24 August 2011.
Names of the Company’s substantial shareholders and the number of ordinary securities they hold a relevant interest in, as disclosed in the latest substantial holdings notices provided to the Company:
(i) Ordinary share capital 123,731,285 fully paid ordinary shares are held by 3,973 shareholders. (ii) Options 1,734,000 options are held by 15 individual option holders.
Fully Paid Ordinary Shares
No of Holders
100,001 and Over
92,207,593
91
10,001 to 100,000
21,623,102
796
5,001 to 10,000
4,904,674
641
1,001 to 5,000
4,574,473
1,653
421,443
792
123,731,285
3,973
8094
121
1 to 1,000 Total Unmarketable Parcels
Name of registered holder(s)
Number of ordinary shares
% issued capital
Hunter Hall Investment Management Limited
JP Morgan Nominees Australia Limited
12,385,958
10.06
Cornish Group Investments Pty Ltd
10,250,000
8.34
8,370,737
6.8
8,246,661
6.746
Cornish Group Investments Pty Ltd
The numbers of shareholders, by size of holding, in each class are: Range
Name of substantial shareholder
Talston Pty Ltd UBS Wealth Management Australia Limited Vaughan Bowen
Vaughan Bowen (VG Bowen Family Trust) Vaughan Bowen (Bowen Family Super Fund) Vaughan Bowen
National Australia Bank Limited
MLC Investments Limited National Nomineed Limited National Australia Bank Limited MLC Wealth Management Ltd Navigator Australia Ltd Cogent Nominees Pty Ltd NABInvest Managed Investments Limited
M2 Annua l Re p o rt 20 1 1 – AS X Ad d i t i o na l I nf o rmat i o n
(a) Distribution of equity holders of securities
73
ASX Additional Information
(c) Twenty Largest Shareholders
Voting Rights – Ordinary Shares
Names of M2’s 20 largest shareholders of ordinary shares and the percentage of capital each holds:
By virtue of the Company’s Constitution, outlined in clause 10, voting rights for ordinary shares are:
Ordinary Shares
Number
Fully Paid Percentage
18,341,162
14.82%
NATIONAL NOMINEES LIMITED
9,703,481
7.84%
COGENT NOMINEES PTY LIMITED
7,698,904
6.22%
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
7,329,647
5.92%
7,119,000
5.75%
4,356,105
3.52%
4,311,177
3.48%
J P MORGAN NOMINEES AUSTRALIA LIMITED
MR VAUGHAN BOWEN
V G BOWEN FAMILY
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED DENNIS N BASHEER SUPERANNUATION PTY LTD
CORNISH GROUP INVESTMENTS PTY LTD
2,715,053
2.19%
THIRTY FOURTH ZULU PTY LTD
1,962,878
1.59%
1,500,000
1.21%
WICKS GROUP PTY LTD
WICKS FAMILY
1,467,169
1.19%
MR VAUGHAN GARFIELD BOWEN & MRS CAROLINA NUNN
1,185,071
0.96%
CITICORP NOMINEES PTY LIMITED
1,150,210
0.93%
MR MARCELLO BARBARO
1,040,365
0.84%
M2 Annua l Re p o rt 20 1 1 – A S X A d di t i on a l I n f o rmat i on
EMTEL PTY LTD
74
REVEN PTY LIMITED
998,592
0.81%
HYLAND SECURITIES PTY LTD
920,000
0.74%
MR EDMOND WING KIN CHEUNG & MRS ELIZA SIU LING CHEUNG
833,177
0.67%
800,000
0.65%
WYATT PTY LTD AUST EXECUTOR TRUSTEES NSW LTD
723,590
0.58%
NASHAR PTY LTD
713,395
0.58%
TOTAL
74,868,976
60.51%
Balance of Register
48,862,309
39.49%
123,731,285
100.00%
Grand TOTAL
(1) on a show of hands, every Member present, in person or by proxy, attorney or representative, has one vote; and (2) on a poll every Member has: (i) one vote for each fully paid share; and (ii) for each partly paid share held by the Member, a fraction of a vote equivalent to the proportion which the amount paid (not credited) is of the total amounts paid and payable (excluding amounts credited) on the share. Restricted Securities There are no restricted securities on issue. On-Market Buy-Back There is no on-market share buy-back in operation.
Corporate Directory Corporate Directory
Auditor
M2 Telecommunications Group Ltd ACN 091 575 021 ABN 74 091 575 021
Ernst & Young 8 Exhibition Strett Melbourne, VIC 3000
M2 is a publicly listed company, limited by shares. It is incorporated and domiciled in Australia.
Principal Legal Advisors
Registered Office Level 10, 60 City Road Southbank, VIC 3000
Lander & Rogers Lawyers Level 12, 600 Bourke Street Melbourne, VIC 3000
Bankers
Telephone: 03 9674 6555 Facsimile: 03 9674 6599 Web: www.m2.com.au
Bank of Western Australia Ltd (BankWest) Westpac Banking Corporation Ltd
Stock Exchange
Link Market Services Limited Level 4, 333 Collins Street Melbourne, VIC 3000
Australian Securities Exchange Ltd (ASX) Issuer code: MTU
Chairman Managing Director / CEO Non Executive Director Non Executive Director Non Executive Director
Company Secretary Kellie Dean
M2 Annua l Re p o rt 20 1 1 – C o rpo rat e Dir e c tory
Telephone: 02 8280 7111 or 1300 554 474 www.linkmarketservices.com.au
Directors Craig Farrow Vaughan Bowen Max Bowen John Hynd Michael Simmons
Share Registry
75
76 M2 Annua l Re p o rt 20 1 1 – Not e s to t he C o ns o li dat e d F i nan c i a l S tat e m e n t s
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Photographers: John Warren, Warren Photography, www.warrenphotography.com.au Rohan Smith, Online Marketing Executive Andrew Barnard, M2 Telecom Credit Management Officer Creative Design: ADMAD, www.admad.com.au