AWESOME CUSTOMER SERVICE 2 INITIATE AND EMBRACE POSITIVE CHANGE Photograph by Lynton Haggett, Contact Centre Team Leader. PASSION FOR WHAT WE DO
Photograph by Maria Galeano, Customer Service Manager. 3 SHARE IDEAS AND WORK TOGETHER FOR A BETTER RESULT
IMAGINE A BETTER WAY 4 CELEBRATING 1993 - 2013 TWENTY YEARS ON OUR VISION IS STILL TO LEAD THE INDUSTRY WITH PRODUCTS THAT HARNESS THE POTENTIAL OF THE 5 INTERNET AND TO STAND APART FROM THE REST WITH OUR AWARD-WINNING CUSTOMER SERVICE. 6 CONTENTS ABOUT US 8 CHAIRMAN’S REVIEW 14
MANAGING DIRECTOR’S REPORT 20
BOARD OF DIRECTORS 28 7 EXECUTIVE MANAGEMENT TEAM 32 DIRECTORS’ REPORT 37 REMUNERATION REPORT 44 AUDITOR’S INDEPENDENCE DECLARATION 61 CORPORATE GOVERNANCE STATEMENT 63 CORPORATE SUSTAINABILITY 70 FINANCIAL REPORT 75 8
ABOUT US iiNET STARTED OUT IN A PERTH SUBURBAN 9 GARAGE IN 1993. AS WE CELEBRATE OUR 20-YEAR ANNIVERSARY, iiNET HAS GROWN TO BE A TRULY NATIONAL BRAND. TODAY, iiNET IS THE CLEAR NUMBER TWO DSL BROADBAND PROVIDER IN AUSTRALIA – WITH SERVICES NOW EXTENDING ACROSS TELEPHONY, TELEVISION AND MOBILE. OUR CUSTOMERS CONTINUE TO BE THE CORNERSTONE OF OUR PHILOSOPHY.
iiNet employs more than 2,000 staff across three countries – 80 10 per cent of whom are employed to directly service our 900,000 customers. We maintain our own super-fast broadband network and support over 1.7 million broadband, telephony and Internet Protocol TV (IPTV) services nationwide.
The company has a long history of innovation, being one of the first competitors to build a national ADSL iiNetwork in 2005, the first to offer Naked DSL nationally in 2007, and the first to offer true IPTV in 2010. iiNet was also a launch partner for the National Broadband Network, and now has more than 20,000 customers connected to super-fast NBN services.
As we approach our twentieth birthday, we are proud that our customers continue to be the cornerstone of our philosophy. From our early days in the garage, iiNet has helped people connect and get the most out of their technology.
Twenty years on and not much has changed; our vision is to lead the industry with products that harness the potential of the Internet, and to stand apart from the rest with our award-winning customer service.
Photograph by Maria Galeano, Customer Service Manager. Photograph by Lynton Haggett, Contact Centre BEST Team Leader. BROADBAND AWARDS ISP
■ iiNet and Internode won at the ACOMM Awards 2013, winning Commitment to Customer Service, Partnership for Growth (iiNet & CSIRO) and Innovation for Internode’s IPv6 program.
■ Best Home/Remote Agent category in the Contact Centre World Awards 2013, APAC division – the second year in a row iiNet has won gold in the APAC division. GOLD AT THE
■ Bronze in the Contact Centre World Awards 2012 for Best Home/ CONTACT CENTRE Remote Agent Program – World Division. WORLD AWARDS ■ Two top honours at the Roy Morgan Customer Satisfaction Awards for 2012. iiNet picked up the Home Phone Provider of the Year award while Internode won the Home Internet Service Provider of the Year award for the second year in a row.
■ Best Broadband ISP in the 2012 Lifehacker and Gizmodo Awards, 11 taking out both the Reader’s choice awards and the Editor’s Picks.
■ CeBIT.AU Business Award 2013 for Service Distinction, recognising iiNet’s awesome customer service not only on the phone but also in person in the iiStore.
■ At the Australian Teleservices Association Awards in 2013, iiNet’s Melbourne contact centre wins Contact Centre of the Year for Full CSIA LARGE Time Employees (FTE) 150 plus category for Victoria, and iiNet’s Perth BUSINESS Contact Centre wins in the FTE 150 plus category for WA. AWARD ■ iiNet won Bronze for its FY12-13 Annual Report in the Australasian Reporting Awards 2013.
■ Merit award for Budii™ at the 22nd Annual WA Information TWO TOP Technology and Telecommunications Awards (WAiTTA) 2013. HONOURS AT THE ■ WA Large Business award in the Customer Service Institute of ROY MORGAN Australia (CSIA) Awards 2012, as well as being highlycommended for CUSTOMER its Work from Home program. SATISFACTION ■ Silver medal for the Large Category in the National Customer Service Excellence Awards 2012. AWARDS MEMORY LANE 1993 1997 2000 iiNET COMMENCES iiNET MODEMS GO iiNET INTRODUCES BUSINESS DIGITAL BROADBAND iiNet becomes the first organisation in WA to iiNet introduces its first digital modems. iiNet launches various broadband offer dialup Internet access to the public. The Not only are these smaller (with 60 digital services, giving customers more options initial modems are a combination of 2,400 modems fitting into the space occupied by to get online - Cable Internet Access, and 14,400bps and the price is $25/month 16 of the superseded analogue modems) Cityspan Wireless Internet Access and flat rate. but also faster. This provides a significant ADSL Internet Access. competitive advantage to the company, as it is one of the first in WA to adopt such technology.
12 2007 2009 2010 THE NAKED REVOLUTION THE PHONE AND CRACKING THE MILLION iiNet leads the pack in November as the INTERNET ARE ONE - iiNet becomes the 2nd biggest ADSL first national provider of Naked DSL. Naked HALLELUJAH FOR BOBTM provider in Australia! Total customer delivers broadband without a landline phone, numbers double over only two years to meaning customers can wave goodbye to Around the iiNet offices, waiting for reach a total 1.3 million services in 2010. phone line rentals. BoBTM to launch is like waiting for a birth. On August 16, he enters the world at GO FETCH! After months of research (and late nights), approximately 500 grams. After the success of BoBTM, iiNet moves to iiNet’s lovable Irishman ‘Finn’ bursts on to revolutionise TV by becoming the first ISP the scene in Manifesto - iiNet’s first major to offer FetchTV. advertising campaign. 13 ■ The NBN arrives in Perth and iiNet celebrates by hitting 15,000 NBN customers across Australia.
■ iiNet Limited’s shares are officially listed on the S&P ASX 200. The shares continue to climb in popularity and are traded more than ever before. 2013 ■ BudiiTM, iiNet’s comprehensive NBN-ready, entertainment and network hub, home smartphone, and tablet all-in-one package is introduced to the world.
iinet.net.au/about/history 14
CHAIRMAN’S MICHAEL REVIEW SMITH THE PAST TWELVE MONTHS HAVE SEEN CONTINUED GROWTH LEVERAGING OUR iiNet has yet again produced a record breaking result SCALE, INNOVATION during the past financial year.
AND MARKET In an increasingly competitive market for LEADING SERVICE telecommunications services in Australia, iiNet’s 15 financial performance over the twelve months AND REPUTATION, ended 30 June 2013 (FY13) reflects: RE-AFFIRMING THAT ■ our culture of providing excellent customer WE ARE THE CLEAR service; ■ our desire to continue to challenge the status NUMBER TWO IN quo in providing the sector’s leading DSL BROADBAND IN innovation and brand; and AUSTRALIA. ■ our continued ability to successfully integrate acquisitions to build scale. On 21 December 2012, we entered the S&P/ASX 200 Index, Earnings before interest, tax, depreciation and amortisation reflecting the significant improvement in the Company’s share (EBITDA*) was up 29% to $187 million. This growth reflected liquidity. This is a major milestone for the Company since its listing increased revenues and growing margins, the benefits of on the ASX 15 years ago, and a stark contrast from iiNet’s humble acquisition synergies flowing through, lower operating costs, suburban garage beginnings in 1993. Such a feat is in no small the benefits of economies of scale and a rebate of $8 million part due to the dedication of our entire team, the loyalty of our relating to Internal Interconnection Charges (IIC) in prior periods customer base and the ongoing support of our shareholders. recognised in December 2012. It was also an exceptional year for share price performance, increasing 101% over the financial year to close at $6.20 on 30 *Refer to page 42 for profit before tax reconciliation to EBITDA. June 2013.
Importantly, we have strengthened our position as the clear number two broadband DSL provider and the third largest iiNET TOTAL provider of residential fixed broadband services in Australia, REVENUE following the acquisitions of TransACT and Internode. We now supply over 1.7 million broadband, telephony, mobile, Internet ($m) 16 Protocol TV (IPTV) and other services to over 900,000 broadband subscribers.
FY13 has also seen continued low levels of churn, further development of our market leading products for residential and business customers, increasing brand awareness, and continued growth in the company’s small business customers, leading to iiNet’s best ever financial result.
Another record year of revenue and earnings Revenue was up 13% to $941 million reflecting recent acquisitions, continued growth in our product range and number of services per customer, growth in our small business segment, and continued low levels of churn. FY09 418 FY10 474 FY11 699 FY12 831 FY13 941 ANOTHER RECORD YEAR OF REVENUE AND EARNINGS
EARNINGS PER SHARE (CENTS)
17 FY09 16.9 FY10 22.8 FY11 22.0 FY12 23.9 FY13 37.8 Continued increase in dividends Leveraging iiNet’s scale Your Board has declared a total dividend for the 2013 financial year of 19.0 This year we have seen significant synergy benefits and cost reduction cents per share fully franked, up 36% on FY12’s total dividend. This is not flowing from the integration of TransACT and Internode. We have only due to the earnings growth, strong cash flows and robust balance strengthened our position as the clear number two DSL broadband provider, sheet for the last twelve months, but also reflects the Board’s confidence and have continued to expand our presence in the small business market. regarding iiNet’s current direction and potential for further growth. The small business team has performed strongly delivering substantial The continued dividend growth is a result of management’s successful revenue growth over the past twelve months, in a market that is not yet execution of iiNet’s focused growth strategy and the ongoing fully penetrated and has substantial growth opportunities available to iiNet. commitment of the Board to maximise shareholder value. Our return on equity is up 6% to 20% in FY13 highlighting the increased We are also pleased to announce an increase in targeted dividends going returns being derived from our increased scale. forward, with our targeted dividend payout ratio now set at 50% to 60% of normalised net profit after tax. This will provide even greater returns Leading service and product innovation and the rollout of to shareholders while preserving flexibility and capacity for major capital the National Broadband Network (NBN) expenditure projects or other potential merger and acquisition activity Over the past 12 months, we have continued to respond to customers’ that may arise in future years. evolving needs with innovative service and product development, further delivering on our commitment to making it simple for all Australians to connect across both our own network and on the NBN.
We are extremely proud to be the first in the industry to launch NBN 18 DIVIDENDS FY13 services across all available NBN technologies. We have the necessary (CENTS PER scale, network and technology capabilities to take full advantage of the opportunities that the NBN represents, and we are excited to be able to SHARE) lead our existing customers and potential new customers through this exciting change.
FY12 Continued investment in product and service innovation is essential to maintain our leading challenger position in the sector and we are heavily FY11 11 focused on our goal to increase our service per customer ratio, to reduce our customer churn even further and drive new organic growth. We are aiming to reach our near-term goal of three products per customer as soon as possible. FY10 8 FINAL
FY09 7 Regulatory improvements In May 2013, the ACCC announced its final access determination INTERIM in relation to wholesale ADSL services. While this provided a small
6 financial improvement for iiNet, we were disappointed with the ACCC 5 determination on a number of fronts, with the wholesale pricing determined suggesting less than efficient costs when compared to iiNet’s 8 own cost for the provision of DSL ports. Accordingly, we continue to lobby 6
5 strongly for a better pricing structure that will deliver true competition and better services for regional Australian broadband customers. 3 3 With the transition to the NBN, we believe there will be a future level playing field in terms of the competitive environment, as all providers are subject to the same wholesale pricing, and customers benefit from enhanced products and customer service. Regional Australians will benefit most from this change.
Acquisition of Adam Internet Holdings Pty Ltd group (Adam Internet) Your Board and management continue to seek value-creating opportunities to add scale to iiNet through acquisitions that deliver enduring growth and accretive returns for shareholders. We were THE INTEGRITY WITH pleased to announce the recent completion of the acquisition of Adam Internet on 30 August 2013 for $60 million. WHICH iiNET STAFF
This acquisition gives iiNet further national scale, cements its competitive position in the South Australian market and provides further revenue and APPROACH THEIR synergy growth opportunities in FY14 and beyond. We are pleased to welcome the Adam Internet staff to the iiNet family and look forward ROLES PERPETUATES to jointly maximising the opportunity this acquisition presents in the coming months. OUR CONFIDENCE THAT iiNet’s growth has been a real team effort THE COMPANY IS IN 19 iiNet employs over 2,000 staff across three countries. There is no doubt that their diligent commitment and professionalism is the reason we are EXCELLENT HANDS AND known for the industry’s highest customer service levels. iiNet’s FY13 financial and operating performance is unquestionably a IS WELL POSITIONED reflection of the calibre of our staff and their tireless efforts. On behalf of the Board, I would like to thank Managing Director Michael Malone and TO CONTINUE TO BUILD the entire team at iiNet for all your hard work and dedication over the past twelve months. The integrity with which iiNet staff approach their ON THE CURRENT roles perpetuates our confidence that the company is in excellent hands and is well positioned to continue to build on the current momentum into FY14. MOMENTUM INTO FY14.
I would also like to thank my fellow Directors for their invaluable contribution to the company’s direction and success over the last twelve months.
Lastly, and most importantly, I would like to thank you, our shareholders, for your ongoing support. We are pleased to share our achievements with you this year, and look forward to continued growth and success as we execute the company’s strategy and further increase shareholder value. 20
MANAGING DIRECTOR’S MICHAEL REPORT MALONE OUR INDUSTRY LEADING CUSTOMER SERVICE COMBINED WITH MARKET LEADING RESIDENTIAL AND BUSINESS PRODUCTS iiNet again produced a record-breaking financial 21 AND A SUCCESSFUL result over FY13. These results reflect the strong ACQUISITION fundamentals of iiNet’s business built over the past TRACK-RECORD, 20 years and focused on service, brand, innovation and scale. The company’s performance further PLACE US IN A UNIQUE highlights iiNet’s ability to deliver to both our POSITION TO GROW. customers and our shareholders. WE HAVE NEVER BEEN BETTER PLACED. Another record year NPAT ($m) FY13 saw growing revenues and improved margins following the successful integrations of Internode and TransACT that were acquired in FY12. iiNet has achieved strong growth in EBITDA and net profit after tax (NPAT) both up on last year. As well as this, the company has increased returns to shareholders.
Comparing the FY13 results to FY12: ■ Group revenue was up 13% to $941 million; ■ Business revenue was up 53% to $183 million; ■ Reported EBITDA was up 29% to $187 million; ■ Reported NPAT was up 64% to $61 million; ■ Earnings per share was up 58% to 37.8 cents per share. FY09 26 FY10 35 FY11 33 FY12 37 FY13 61
22 EBITDA ($m)* *Refer to page 42 Reflecting the Board’s confidence in iiNet’s future growth for profit before tax reconciliation to EBITDA. outlook and strong growth in cashflow, the Company declared a fully franked total dividend for FY13 of 19.0 cents per share, up 36% on FY12.
The company’s strong cashflows have also enabled us to continue to pursue attractive and strategic acquisitions that have delivered immediate accretion in earnings while still being able to quickly pay down the debt associated with those acquisitions. Indeed, iiNet repaid net bank borrowings of $40 million in FY13.
Your Board and management team have been focused on building long term shareholder value. As a result our shareholders have benefited from the successful execution of our focused strategy that has seen consistent growth in total shareholder returns over the past five years. Taking into account share price appreciation and dividends, iiNet has generated an average increase in Total Shareholder Return (TSR) of 44% per annum in each of the past five years. FY09 67 FY10 77 FY11 98 FY12 145 FY13 187 LEADING THE INDUSTRY IN CUSTOMER SERVICE.
Excellent customer service is the core goal of our business. Our experienced and engaged staff continue to dedicate all their efforts to delivering fantastic results for our customers.
Industry competition continues to be fierce and our customer service strategy differentiates us from others. We thrive on this level of competition, and have consistently maintained our track record of the highest service levels in the industry for a number of years. We also directed significant effort and resources to lifting the level of service where needed to the iiNet standard for those customers that have joined iiNet through our corporate acquisitions. iiNet’s customer satisfaction as measured by our Net Promoter Score 23 (NPS) continued to stay over 55% through FY13, reaching 60% for the first time in June 2013. This keeps our customer churn at industry low levels, despite the high competitive pressure within our market.
We were also rewarded with a number of industry best-service awards during FY13 including: ■ Best Home/Remote Agent category in the Contact Centre World Awards 2013, APAC division – the second year in a row iiNet has won gold in the APAC division;
■ Two top honours at the Roy Morgan Customer Satisfaction Awards for 2012. iiNet picked up the Home Phone Provider of the Year award while Internode won the Home Internet Service Provider of the Year award for the second year in a row; and
■ iiNet and Internode won at the ACOMM Awards 2013, winning Commitment to Customer Service, Partnership for Growth (iiNet & CSIRO) and Innovation for Internode’s IPv6 program. 24
OUR BRAND CONTINUES TO RESONATE Photograph by Brigitte Riffis, System Analyst. Our brand continues to resonate Scale is critical in an increasingly competitive market This year we have successfully increased brand awareness, differentiating iiNet has consistently grown over the past few years and we have ourselves through service excellence and cool new products. Our efforts strengthened our position as the clear number two DSL broadband have extended our brand reach, helping us gather momentum in new provider following the successful acquisitions of TransACT, Internode and markets and increasing customer sales and retention. others before them.
Consistent advertising continues to focus on our core brand message Having grown very fast through a number of successful acquisitions, of ‘Life Upgraded’, underpinned by what matters most to our different our focus over the past 12 months has been on successfully integrating brands and customer types. Campaign messages have been aligned TransACT and Internode, and putting in place the processes to allow us with retail offers targeted at event based and life stage triggers, to to leverage the scale that we have now built. We are driving substantial improve engagement with our brand in a way that drives high purchase synergy benefits and improving margins from our scaled platform, and probability and encourages switching behaviour. These steps are viewed our focus is to now drive that scale further to realise the substantial as fundamental to driving positive organic growth across the group. strategic benefits from the acquisitions we have done to date.
We entered the new financial year with the announcement on 5th August TM We want to be our customers’ best Budii 2013 that we were acquiring the ISP business of Adam Internet in South Product innovation, across both our residential and small business Australia for $60 million. The acquisition completed on 30th August 2013 segments, is vital to staying at the forefront of Australia’s cementing our strong position in the South Australian market and adding telecommunications industry and providing our customers with the 70,000 new broadband customers to the iiNet group. The transaction will 25 best possible experience. With over 840,000 connected households provide immediate further accretion for shareholders in FY14. and businesses at the end of FY13, we have been successfully increasing the average number of products per customer to 2.23 over the past 12 months, reducing churn and driving new revenue and margin growth.
We continued to innovate and launch new products over the past year to support this growth. We have expanded our mobile product set with WE ARE DRIVING the introduction of the latest Samsung Galaxy mobile handset, tablet and camera range, offering a unique and flexible range of pick-n-mix pricing options. We have also launched the latest new addition to our SUBSTANTIAL SYNERGY modem range called BudiiTM, and have upgraded iiNet’s IPTV service in combination with our partners at Fetch TV. BENEFITS AND IMPROVING
On the business front we are innovating with new value added services MARGINS FROM OUR like cloud hosting, and have focused on developing our processes and people to tap into the potential of this market segment. SCALED PLATFORM. Our small business customer base is no longer small! We have seen substantial revenue growth over the past 12 months for our small business customer base as we capture the latent market potential in a sector that has historically been underserviced by our competitors.
Business customer revenues grew 53% to $183 million in the year, demonstrating that this is an exciting customer market for iiNet, leveraging the strengths we have built up in the residential sector – brand, products and customer service.
BUSINESS REVENUE ($m)
MANAGING DIRECTOR’S REPORT DIRECTOR’S MANAGING NBN IS 26 COMING
The NBN presents an exciting opportunity for iiNet and our customers, and we were the first telecommunications company to be ready to operate in an NBN world. While the details of the Federal Coalition’s NBN plan are yet to be fully defined, we are excited by the intended faster rollout which will change how customers can use the internet and the services that iiNet and other companies can provide. FY09 25 FY10 37 FY11 57 FY12 120 FY13 183
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET We have taken full advantage of our capabilities to be the first ii to launch NBN services across all access technologies including fibre, satellite and wireless as well as multicast IPTV services over The core of our small business offering revolves around great the NBN. We have the necessary scale, network and technology bundled services and value. Our broad IP-based product and capabilities to thrive as the industry continues to evolve. services range provide the small business market with the ability to transform out-dated and costly historic telecommunications services managed by them, to more effective and cheaper hosted services managed by us. AN EXCITING YEAR AHEAD.
The future is bright as we look toward FY14. We have laid down strong foundations following our successful acquisition 27 track-record, culture of excellent customer service, market leading product suite for retail and business customers and increasing market awareness.
We are in a unique position to grow in a very competitive market place. Our focus for the next 12 months is on leveraging the platform we have in place to drive further benefits for our customers and shareholders. As the number two DSL broadband provider in Australia there is substantial opportunity to grow over the next 12 months. We have over 900,000 customers that now trust us with their multiple services, an exciting growing small business customer base that we can expand further and opportunities on many fronts as the NBN continues to roll out across Australia.
On behalf of the management team and staff, I would like to close by thanking you, our shareholders, for your continued support. The 2013 financial year was another fantastic year in terms of iiNet’s development – we have come a long way from my garage 20 years ago. FY14 promises to be even more exciting as we look to build on the very strong foundations laid over the past 5 years. 28
BOARD OF DIRECTORS MICHAEL SMITH MICHAEL MALONE Chairman and Non-Executive Director, FAICD, FAMI, Managing Director, B.Sc, DipEd, FAIM, FAICD, FACS CMC, FAIM TERM OF OFFICE TERM OF OFFICE ■ Director since 14 March 1995 ■ Director since 19 September 2007 ■ Independent: No (Executive) ■ Chairman since 19 November 2007 ■ Independent: Yes EXPERIENCE AND DIRECTORSHIPS Back in 1993, fresh from university, Michael Malone founded WA’s first EXPERIENCE AND DIRECTORSHIPS Internet Service Provider (ISP), iiNet, in the garage of his family home. Since Michael began his career with TVW Limited, after which he joined Perth then Michael has led the rapid growth which has seen iiNet grow from its advertising agency, McAuliffe & Goff. In 1979, he formed The Marketing humble beginnings, into the second largest broadband DSL ISP in Australia. Centre where he sat as Managing Director for over 30 years, providing Having been involved in the Internet industry since inception, Michael has strategic marketing advice to leading Australian and international been a founding board member of various industry and consumer bodies. companies. Michael is the current Managing Director of strategic From residing as President of the WA Internet Association from 1996 marketing consultancy firm Black House. to 2002, to sitting as a board member and Chairman of the .au Domain Michael currently chairs Synergy and Verve, the Australian Institute of Administration, to being one of the founders of Electronic Frontiers Company Directors and the Lionel Samson Sadleirs Group. He holds a Australia (EFA). Deputy Chairman post with Automotive Holdings Group to which he was 29 Michael is currently on the board of Scitech in Perth and was previously the appointed 7 February 2011 and is a non-executive director of 7-Eleven Deputy Chairman of Autism West. Australia PL , a chain of 600 convenience stores on Australia’s east coast. Prior to his appointment as Chairman he was the WA President of the Michael has been recognised with a raft of industry accolades. In 2006 he Australian Institute of Company Directors and a member of the national was the winner of the Business News Award for the most outstanding board. He has been made a fellow of the Australian Marketing Institute, business leader in WA under the age of 40. In the same year he was named Australian Institute of Management and the Institute of Management Young Leader of the Year in the JML Australia Human Capital Leadership Consultants. He is also a Board member of Giving West and Creative Awards. 2009 saw Michael pick up CEO of the Year in the Australian Partnerships Australia, an executive member of the American Marketing Telecom Awards and National Customer Service CEO of the Year in Association, a chartered management consultant and member of the the CSIA’s Australian Service Excellence Awards. Michael was named a Institute of Management Consultants. finalist for WA Citizen of the Year and in 2011 he won the Ernst & Young Entrepreneur of the Year Award. Michael was formerly Chairman and Director of the West Coast Eagles, Scotch College and The Perth International Arts Festival. He steered Michael remains passionately committed to the transformative benefits of Indian Pacific Ltd as a director and has presided previously as WA State the Internet and still holds the founding belief that has driven iiNet since President of the Australian Marketing Institute and a member on its Federal inception - that awesome customer service is good for business. Board. Other past board positions included Chairman of the Pearling Industry Advisory Committee and of Barking Gecko Theatre Company. COMMITTEE MEMBERSHIP Attends all committee meetings. COMMITTEE MEMBERSHIP Member of the Remuneration and Nomination Committee and of the Audit and Risk Committee.
PAUL DAVID BROAD GRANT Non-Executive Director, B.Comm Non-Executive Director, B.Comm, (Hons), M.Comm (Econ) ACA, GAICD
TERM OF OFFICE TERM OF OFFICE ■ Director since 6 June 2006 ■ Director since 12 October 2006 ■ Independent: Yes ■ Independent: Yes
EXPERIENCE AND DIRECTORSHIPS EXPERIENCE AND DIRECTORSHIPS YOUR Paul was previously the Chief Executive Officer David is a Chartered Accountant with significant of one of Australia’s largest telecommunications public company experience spanning a range BOARD AND companies, AAPT from May 2007 until July of corporate and divisional financial roles with 2011. He assumed this key position after Telecom Goodman Fielder Limited and Iluka Resources BOARD OF DIRECTORS OF BOARD MANAGEMENT New Zealand acquired 100% of PowerTel in Limited, where he was Chief Financial Officer January 2007. until February 2007. David was appointed a 30 director of Amalgamated Holdings Limited on Paul was Managing Director of PowerTel from CONTINUE TO 25 July 2013, an ASX listed cinema, resort and November 2004 and was the former Managing hotel business. David was formerly a director Director of Energy Australia from 1997 to SEEK VALUE- of Consolidated Rutile Limited and was a 2004. Prior to this, he was Managing Director founding director of Trans-Tasman Resources of Sydney Water from 1993 to 1997 where he Ltd, a private equity backed iron ore exploration CREATING introduced significant cultural and commercial company based in New Zealand. change, leading to its incorporation in 1995. OPPORTUNITIES. Paul had previously implemented similar reform As Chairman of iiNet’s Audit and Risk during his tenure as Managing Director of the Committee, David brings expertise in financial Hunter Water Corporation. process and discipline as well as corporate
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET governance and risk management.
ii Paul is currently Managing Director and CEO of Snowy Hydro Limited and Chairman of the Board COMMITTEE MEMBERSHIP of the Hunter Development Corporation. He Chairman of the Audit and Risk Committee. was previously a Director of Community Telco Australia and a Non-Executive Director of KUTh Energy Limited. COMMITTEE MEMBERSHIP Member of the Remuneration and Nomination Committee.
SIMON PETER LOUISE HACKETT JAMES MCCANN Non-Executive Director, B.Sci Non-Executive Director, Non-Executive Director, Master of (App Maths), FACS, FAICD BA, FAICD Management (MGSM), FAICD, FAIM, FRSA TERM OF OFFICE TERM OF OFFICE TERM OF OFFICE ■ Resigned as an employee 16 August 2012 ■ Director since 28 November 2003 ■ Director since 14 April 2011 and appointed as Director since that date. ■ Independent: Yes ■ Independent: Yes ■ Independent: No
EXPERIENCE AND DIRECTORSHIPS EXPERIENCE AND DIRECTORSHIPS EXPERIENCE AND DIRECTORSHIPS Simon has worked on the development of the Peter’s experience includes 21 years as a board Louise has over 25 years experience in media, Internet since its early days in Australia. He was a member and a range of Australian publicly publishing and market research in Australia, part of the national university team that created listed companies. In addition, Peter has 16 years across Asia Pacific and internationally. the Australian Academic and Research Network experience in Chief Executive Officer roles, Louise has former experience as the Chief (AARNet) - the first emergence of the internet in including Computer Power Group Limited, Executive Officer for Asia and Managing Partner Australia. Ainsworth Game Technology Limited, and Adcorp Australia Limited, a publicly listed media for Australia for Hall & Partners, a specialist 31 In 1991 Simon founded Internode and grew it and communications company. brand and communications market research to become the largest privately held Australian agency. She also was Chairman and Chief broadband company. During his time at Peter is a Non-Executive Director of Macquarie Executive Officer at Research International Internode, Simon was the recipient of numerous Telecom Ltd and has played a leading role (ANZ), Chief Executive Officer of OzTAM Pty Ltd industry awards. Simon agreed to sell Internode in launching Ninefold an Australian Cloud and has served as the Industry President and to iiNet in December 2011, and continued as Technology business where he is currently Vice President for The Association of Market and Internode Managing Director until his transition to Chairman. Peter is also a successful investor in Social Research Organisations. She also served the iiNet board in August 2012. a number of Australian Technology and Social as Director for the International Advertising Media businesses, including the leading Australian Associations Australian Chapter and is also a Simon is a fellow of the Australian Computer group buying site JumpOnIt which was sold to Non-Executive Director of The Brain Bank. Society and has held board positions with the US based LivingSocial in January 2012. Adelaide Fringe, m.Net Corporation and the Louise has also held executive positions with Australian Network for Art and Technology Peter has a particular interest in building high the Ten Network, Dawson Magazine and senior (ANAT). He was a founding director of the performance teams and is one of the judges for production positions with the Australian Internet Society of Australia and the founding the annual Aon Hewitt Best Employers program. Broadcasting Corporation. president of the South Australian Internet COMMITTEE MEMBERSHIP COMMITTEE MEMBERSHIP Association. Member of the Remuneration and Nomination Chairman of the Remuneration and Nomination Committee (previously Chairman until Committee from 17 March 2013 (Member from 17 March 2013). 20 February 2013). Member of the Audit and Risk Committee. 32
EXECUTIVE MANAGEMENT TEAM GREG DAVID STEVE BADER BUCKINGHAM DALBY Chief Business Officer, Chief Financial Officer and Company Chief Regulatory Officer M.Sc TM, MBA Secretary, B.Eng, ACA, GAICD
Greg has worked in the Information and David joined iiNet in January 2008, as Chief Steve joined iiNet in 2003 and has over 40 years Communication Technology industry for Financial Officer and Company Secretary. He experience in the telecomunications industry. 33 over 20 years. He has Masters degrees in manages the preparation of the Company’s As Chief Regulatory Officer for iiNet, Steve’s Telecommunications Management and Business statutory financial reports, the Company’s risk responsibilities include managing interaction Administration and has worked in the IT industry policy, business development and analysis, with regulatory authorities, licencing and across Asia, the Middle East and Europe. Since credit management, internal audit and company copyright matters, as well as government joining iiNet as Chief Technology Officer over secretarial services. David was previously and media relations. He is a director of iiNet’s nine years ago, Greg has led the deployment of based in the United Kingdom where he held a carrier subsidiary Chime Communications Australia’s largest independent ADSL2+, VoIP and number of senior financial roles from 1997 at Pty Ltd and has been a board member of the IPTV networks. With iiNet’s increased strategic Virgin Media, the UK’s largest residential ISP and telecommunications Industry Ombudsman focus on building its presence in the small Cable TV operator. David trained as a Chartered since late 2006. Steve is active on a number of business, corporate and government sector, Accountant with PriceWaterhouseCoopers in national bodies including the Communications Greg was appointed to the position of Chief London and Perth, and became a member of the Alliance and the Coalition of Competitive Business Officer in May 2012. Institute of Chartered Accountants in England Carriers. Prior to joining iiNet, Steve held various EXECUTIVE and Wales in 1993. senior roles at Telstra. MANAGEMENT TEAM
MARYNA JOHN FEWSTER LINDSAY Chief Customer Officer Chief Technology Officer, MACS
Maryna joined iiNet in 2003 when iiNet acquired John leads the development and operation 34 ihug, where she was the GM Corporate Services. of new Internet technologies across the iiNet Today, she is responsible for ensuring that group. Originally joining Internode in 2000 as every iiNet customer gets the best possible Technology Operations Manager, John has held experience. Her role incorporates Customer various roles including General Manager of Service, Human Resources, Information Regulatory and Corporate Affairs until the end Technology, Administration, Business of 2011. In May 2012, following the acquisition Improvement, Marketing and Customer of Internode by iiNet, John moved up to the Retention. Under Maryna’s management, iiNet position of Chief Technology Officer for the embraced NPS, Net Promoter Score, as the key iiNet Group. One of his greatest achievements measure for all staff, ensuring that everyone has been the development of Internode’s across the entire business is keenly focused on international network. He led the push to customer feedback every day. This has allowed extend its national First Tier Network to the US the business to grow to more than 2,000 staff to ensure Internode, and now iiNet, has end-to- today, while still retaining the culture and end independence for delivering business-class customer focus of a small business. broadband to customers. John also represents the industry as a Board member of the Internet Industry Association. 35 36
Photograph by Caleb Cheng, Web Designer. DIRECTORS’ REPORT 37 YOUR DIRECTORS PRESENT THEIR REPORT ON THE CONSOLIDATED ENTITY (“THE GROUP”) CONSISTING OF iiNET LIMITED (“iiNET”) AND THE ENTITIES IT CONTROLLED AT THE END OF, OR DURING THE YEAR ENDED 30 JUNE 2013. DIRECTORS
The following persons were directors of iiNet Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: ■ M. Smith (Chairman) ■ S. Hackett – Appointed 16 August 2012 Details of each director’s qualifications, roles, ■ M. Malone (Managing Director) ■ P. James responsibilities and other listed company ■ P. Broad ■ L. McCann directorships are detailed on pages 28 – 31. ■ D. Grant
Interest in the shares and options of the Company and related bodies Corporate As at the date of this report, the interest of the directors in the shares of iiNet Limited were as follows:
Director Number of ordinary shares
M. Smith 270,429 M. Malone 9,012,162 P. Broad 48,596 D. Grant 86,000 DIRECTORS’ REPORT REPORT DIRECTORS’ S. Hackett 6,036,332 P. James 35,000 38 L. McCann 21,500 Total 15,510,019
Company secretary D. Buckingham – see page 33 for the biography of the company secretary.
Dividends Cents per share $’000
Total dividends declared for the 2013 financial year 19 30,635 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii Dividends paid in the year Final dividend paid for the 2012 financial year 8 12,878 Interim dividend paid for the 2013 financial year 8 12,899 Total 16 25,777
Principal activities During the year the principal activities of the Group consisted of the provision of internet and telephony services in Australia. There have been no significant changes in the nature of these activities during the year. OPERATING AND FINANCIAL REVIEW GROUP OVERVIEW iiNet was founded in 1993 and listed on the Australian Securities Exchange in 1999. Michael Malone was one of the two original founders of the business and is the current Managing Director of the iiNet Group.
A detailed overview and a review of the Groups operations are included in the Chairman’s review and Managing Director’s Report.
Business Strategy iiNet’s business strategy is to lead the market with products that harness the potential of the internet and then differentiate with award-winning customer service.
STRENGTHEN FRONT LINE
CAPABILITIES REPORT DIRECTORS’ Cross sell after excellent 39 service. Address customer service pain points. Expand KNOW THE DEVELOP NEW and leverage techii™. CUSTOMER OFFERINGS Use customer segmentation Grow broadband subscribers and insights to offer current with compelling bundles, and potential customers leading in NBN and customer improved products and led innovations. Launch and services. grow Jiva. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii
The Board and senior management use a combination of financial and operational key performance indicators (KPIs) to measure and monitor performance, which are inherently linked to the objectives of the Group. Directors receive the KPIs for review prior to each Board meeting, allowing all directors to monitor the Group’s performance. Directors’ Report – continued
Key Performance Indicatorr Rationale link to objectives
Revenue Growth
Everything we do at iiNet is about ensuring our customers receive excellent service. Leading the Net Promoter Score (NPS) industry on customer service and low churn is key to the achievement of long term sustainable value. NPS is iiNet’s KPI for quality of service. A reduction in churn is key to cost-effectively retaining our customer base and can be achieved Reduced Churn through excellent customer service and increasing products per customer.
Broadband is our core product to customers and broadband customer growth is key to the Group Broadband Subscribers and the NBN achievement of long term sustainable value. NBN represents the biggest future opportunity for opportunity growth of core broadband services. Strengthening customer loyalty to the Group’s brands through a deeper relationship with our Products Per Customer Growth awesome products, leading to incremental revenue growth, higher customer satisfaction and lower churn. Expanding our business products to provide complete telecommunications solutions and
DIRECTORS’ REPORT REPORT DIRECTORS’ Business Sector Growth capitalising on the growth opportunities presented in the business sector. Continuing to lead the telecommunications industry consolidation will enable iiNet to build further Mergers & Acquisitions Growth 40 scale, identify cost efficiencies through synergies and provide earnings growth opportunities.
Cost Reduction
Achieving synergies on business simplification will lead to scale/operating efficiencies for the Business Simplification and Integration business.
Network and Operating Expenditure Efficiency A key contributor to financial growth and ultimately increased return for shareholders.
Financial Returns
Group EBITDA Growth Strong financial growth will allow iiNet to reinvest in further growth and increase scale in the sector. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii Compound Annual Growth Rate of Earnings Per Share Growth in earnings per share will deliver strong and sustainable shareholder value.
Total Shareholder Return (TSR) Reflecting our focus on providing strong, absolute returns to shareholders. Directors’ Report – continued OPERATING RESULTS FOR THE YEAR Risks Revenue was up 13% to $940,990k (2012: $831,225k). The increase in While the roll-out of the NBN presents an excellent opportunity to gain revenue was attributable to the following: traction in a new market, it also increases the competitiveness of the ■ Continued expansion of the services provided to existing residential industry by opening the market to potential new competitors and provides and business broadband customers; and the same opportunities for Telstra and other competitors to increase their ■ A full year’s contribution from the acquisition of the TransACT Group own market share. Telstra’s dominance in the telecommunications market, and Internode Pty Ltd against only seven months and five months with their substantially larger customer base and marketing resources, respectively for the comparative financial period. presents challenges to iiNet’s ability to gain market share. However by being first to market with services across all NBN technologies, leading on Profit for the year increased 64% to $60,938k (2012: $37,054k). The increase product and differentiating on service we believe that the NBN presents a was attributable to a number of factors including: significant opportunity for the Group. ■ The revenue increase and contributions from the acquisitions identified above; ■ Associated acquisition synergies to the Group plus other ongoing RISKS operating cost savings; ■ A rebate of $5,663k (net of tax) for the year ended 30 June 2013 relating to excess Internal Interconnection Charges (IIC) in prior periods Increased Telstra market Changes to the recognised in December 2012; and competition dominance NBN planned ■ In June 2012, retrospective amended legislation in relation to Rights roll-out 41 to Future Income Tax was substantially enacted preventing iiNet from claiming income tax deductions for all of the cost base allocated to its previously acquired subscriber bases. This amended legislation increased the Company’s income tax expense by $7,804k in FY2012. Directors’ Report – continued Risk management EBITDA is not a financial measure recognised by International Financial Please refer to the Corporate Governance Statement for further detail. Reporting Standards (IFRS). The measure has been included in our review Sustainability reporting because it is the closest approximation to net cash flows from operating activities from the Consolidated Statement of Comprehensive Income. Please refer to the Corporate Sustainability section for further detail. EBITDA has been calculated using inputs measured in accordance with IFRS Environmental regulation and performance as follows: The operations of the Group are not subject to any significant 30 June 30 June environmental regulations. 2013 2012 Significant changes in the state of affairs Profit before tax to EBITDA reconciliation $’000 $’000 Total equity increased by $37,693k to $324,342k (2012: $286,649k). The Profit before income tax 83,241 63,009 movement was largely the result of increased profits. There were no other Add: Depreciation and amortisation expense 82,045 65,458 significant changes in the state of affairs during the year ended 30 June 2013. Add: Finance costs net of interest revenue 21,723 16,378 Reported earnings before interest, 187,009 144,845 Matters subsequent to the end of the financial year taxation, depreciation and amortisation On 20 August 2013, the Group declared a fully franked final dividend of 11.0 DIRECTORS’ REPORT REPORT DIRECTORS’ cents per share with respect to the financial year ended 30 June 2013. The Review of financial condition dividend had a record date of 2 September 2013 and a payment date of 27 September 2013. 42 During the year the Group produced net cash inflows from operating activities of $138,270k (2012: $100,912k). A significant amount of this On 5 August 2013, iiNet Limited entered into a binding agreement to has been reinvested in the network, with $31,651k spent on plant and acquire Adam Internet and associated companies for $60 million cash equipment (2012: $40,927k). There was also an $83,247k net cash outflow consideration. Completion of the acquisition occurred on 30 August 2013. (2012: $80,856k – inflow) from financing activities, primarily driven by net debt facility repayments of $40,000k (2012: $121,047k net drawdowns) and Likely developments and expected results dividend payments of $25,777k (2012: $20,312k). A detailed review of the Group’s activities and prospects is contained in the Chairman’s Review and the Managing Director’s Report. The gearing ratio for the Group for the year ended 30 June 2013 was 54% (2012: 77%), as measured by net debt divided by total equity. The Group’s Share options bank facility consists of a $330 million revolving cash advance facility. (i) Unissued shares
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET Interest on the facility is recognised at the aggregate of the base rate plus a ii As at the date of this report and the reporting date, there were no unissued variable margin indexed to the Group gearing ratio. During the current and ordinary shares under options. Refer to note 27 of the financial statements prior year, there were no defaults or breaches relating to the utilised bank for further details of the options outstanding. Option holders do not have facility. any rights by virtue of the options they hold, to vote or participate in any Hedging is undertaken whenever necessary to manage financial risk share issue of the Company or any related body corporate. exposures and comply with banking arrangements, through the use of (ii) Shares issued as a result of the exercise of options interest rate swap contracts and foreign exchange contracts. During the financial year, employees and executives have exercised options to acquire 270,000 fully paid ordinary shares in the Company at a weighted average exercise price of $2.00 per share. Directors’ Report – continued Rounding Indemnification and insurance of directors and officers The Company is of the kind referred to in Class Order 98/100, issued by the Australian Securities and Investment Commission, relating to the During the year the Company paid a premium in respect of a contract “rounding” of amounts in the Directors’ Report. Amounts in the Directors’ insuring the directors, officers and Company Secretary of the Company Report and in the financial report have been rounded in accordance with and all related bodies corporate, against liabilities incurred in acting in that class order to the nearest thousand dollars or in certain cases the such capacities, to the extent permitted under the Corporations Act 2001. nearest dollar. The contract prohibits the disclosure of the nature of the liabilities or the amount of the premium. Auditor independence declaration Meetings of directors A copy of the auditor’s independence declaration as required under section
The number of meetings of the Company’s Board of directors and of each 307C of the Corporations Act 2001 is set out on page 61. Board committee held during the year ended 30 June 2013, and the number of meetings attended by each director, were as follows: Non-audit services The following non-audit services were provided by the Group’s auditor, Meeting of Committees Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for audits Remuneration Full meetings Audit and Risk imposed by the Corporation Act 2001. The nature and scope of each type
and Nomination REPORT DIRECTORS’ of directors Committee of non-audit service provided was such that auditor independence was not Committee compromised. Director A B A B A B 43 Ernst & Young received or are due to receive the following amounts for the M. Smith 10 10 5 5 5 5 provision of non-audit services: M. Malone 9 10 * * * * 2013 P. James 10 10 * * 5 5 $ S. Hackett 10 10 * * * * Assurance related and due diligence services 192,527 P. Broad 10 10 * * 5 5 Total 192,527 D. Grant 9 10 5 5 * * L. McCann 10 10 5 5 2 2
A = Number of meetings attended. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
B = Number of meetings held during the time the director held office. ii * = Not a member of the relevant committee. DEAR SHAREHOLDER
The 2013 financial year has seen an exceptional year of performance for iiNet. Through organic and inorganic revenue growth and leveraging synergies from recent acquisitions, iiNet has produced record results. iiNet has experienced strong financial performance with revenue up by 13%, net profit after tax up 64%, operating cash flows up 37% and 36% growth in total dividends.
The delivery of this strong performance is a direct result of the hard work 44 and dedication of our people. The Managing Director and executive team have been pivotal to this success. Our remuneration framework is designed 1. A MESSAGE FROM to retain these key executives, recognise the individual contributions of our people and motivate them to achieve strong performance aligned to our THE REMUNERATION business strategy and shareholder interests.
AND NOMINATION The Board is committed to ensuring the remuneration framework is tied to delivering the business strategy and creating enduring shareholder value COMMITTEE. over the long term. During the year, the Board made a number of decisions in support of this objective, including:
REMUNERATION REPORT AUDITED Directors’ Report - Remuneration Report – audited - continued
■ Continuing to set challenging performance measures for Short Term philosophy of ensuring the fixed and STI components of remuneration are Incentive (STI) and Long Term Incentive (LTI) components of positioned at or below the median of the comparator group. However, remuneration to ensure achievement of the business strategy over where challenging performance hurdles are achieved, the LTI component both the short and long term; positions the total remuneration of the executives at the 75th percentile of the comparator group. This is in line with the iiNet remuneration ■ Reviewed the overall remuneration framework as the iiNet business philosophy of placing greater emphasis on the “at risk” components of rapidly grows and evolves, and the current market position of iiNet’s executive remuneration; and remuneration for executives and management to ensure alignment with business objectives and shareholder wealth creation. ■ Actively engaged with shareholders and shareholder representatives
to consult and seek their feedback on iiNet’s remuneration practices 2013 LTI award and reporting to understand how we can best represent that in our The Board conducted an extensive review of iiNet’s LTI plan during the year. remuneration report. Consequently, we have made changes to the format and content with the aim of being clear, transparent The aim of the review was to ensure it remains effective and continues to and concise with a greater focus on demonstrating the link between meet the purpose of the plan, being to retain high quality key executives and remuneration and performance at iiNet to shareholders. drive the achievement of sustainable long term growth for shareholders. Subsequently, the Board approved a 2013 LTI grant under the LTI Plan. The key Challenging performance measures for ‘at risk’ STI components of hurdle for the grant is a challenging absolute TSR performance target of at DIRECTORS’ REPORT REPORT DIRECTORS’ remuneration least 20% per annum measured over the three year performance period 1 July 2012 to 30 June 2015. This performance hurdle directly rewards executives for The STI component of remuneration is focused on a balanced scorecard an increase in shareholder wealth, focusing the executives on long term share 45 approach, with financial and non-financial measures focused on delivery price growth. of the critical business objectives of iiNet. The executive must meet a minimum threshold hurdle level across all measures of the scorecard I hope you find the report useful and I encourage you to provide feedback on before they can receive an STI payment. the development of our remuneration practices and reporting, and thank you for your continued support. The performance hurdles are based on achievement of customer net promoter score, growth in customers and products per customer, financial Yours sincerely, profit growth, launching new products and delivering the integration targets for recently acquired businesses. These hurdles are focused on internal performance measures which, if achieved, lead to business
objectives being met. 2013 REPORT ANNUAL NET ii
Comprehensive Benchmarking Review Louise McCann In the 2013 financial year, the Board recognised that iiNet is growing Chairman, Remuneration & Nomination Committee rapidly and that the remuneration framework needs to evolve to ensure it remains effective. The Board therefore commissioned a comprehensive benchmarking review of the executives’ remuneration across fixed pay, STI and LTI. The findings of the report are consistent with iiNet’s remuneration Directors’ Report - Remuneration Report – audited - continued EARNINGS PER This remuneration report explains our approach to executive remuneration, performance and remuneration outcomes, for iiNet and its Key SHARE (CENTS) Management Personnel (KMP) for the year ended 30 June 2013.
1.1 Key management personnel KMP encompasses all directors, as well as those executives who have specific responsibility for planning, directing and controlling material activities of the Group. In this report, “Executives” refers to the KMP excluding the Non-Executive Directors.
The information provided in this remuneration report has been audited as required by Section 308 (3C) of the Corporations Act 2001.
List of KMP
Directors
Michael Smith Chairman and Non - Executive Director DIRECTORS’ REPORT REPORT DIRECTORS’ FY13 37.8 FY09 16.9 Michael Malone Managing Director FY10 22.8 FY11 22.0 FY12 23.9 46 Paul Broad Non - Executive Director David Grant Non - Executive Director Simon Hackett Non - Executive Director (from 16 August 2012) SHARE PRICE Peter James Non - Executive Director Louise McCann Non - Executive Director 7 * 2013 Executives 6 +319% Greg Bader Chief Business Officer 5
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET David Buckingham Chief Financial Officer and Company Secretary ii Maryna Fewster Chief Customer Officer ($) 4 2012 2010 John Lindsay Chief Technology Officer 2011 3
1.2 iiNet Performance 2009 2 iiNet’s remuneration framework operates to tie the remuneration received by executives to increased shareholder wealth over the longer term. 1 JUNE 2009 - JUNE 2013 A summary of key iiNet performance metrics and 5 year share price history is as follows: * Calculation from 1 July 2008 to 30 June 2013 47 THE BOARD IS COMMITTED TO ENSURING THE REMUNERATION FRAMEWORK IS TIED TO DELIVERING THE BUSINESS STRATEGY AND CREATING ENDURING SHAREHOLDER VALUE OVER THE LONG TERM. Directors’ Report - Remuneration Report – audited - continued 2. REMUNERATION GOVERNANCE
2.1 Role of the Remuneration and Nomination Committee The Remuneration and Nomination Committee is responsible for ensuring iiNet has remuneration strategies and frameworks that fairly and responsibly reward executives and non-executive directors with regard for performance, the law and corporate governance.
Further detail on the Remuneration and Nomination Committee’s responsibilities is set out in its Charter available at: http://investor.iinet.net.au/irm/content/pdf/remuneration.pdf
The Remuneration and Nomination Committee continuously strives to ensure iiNet’s remuneration strategy and outcomes are directly connected to its
business strategy and performance supporting increased shareholder wealth over the long term.
The Committee comprises four independent non-executive Directors: Louise McCann (Chairman appointed 17 March 2013), Peter James (former Chairman), Paul Broad and Michael Smith.
2.2 Use of independent remuneration consultants The Remuneration and Nomination Committee seeks advice and market data from independent remuneration consultants as required. The Committee has DIRECTORS’ REPORT REPORT DIRECTORS’ protocols in place to ensure that any advice is provided in an appropriate manner and is free from undue influence of management. The Committee received advice from the following consultants during the year: 48 Consultant Type of advice Fee
KPMG Remuneration reporting $24,300 PwC LTI structuring and benchmarking on remuneration $126,068
Neither KPMG nor PwC provided “remuneration recommendations” for the purposes of the Corporations Act. PwC provided LTI structure advice and benchmarking of executive and non-executive remuneration and KPMG provided advice on executive remuneration reporting including current market practices.
2.3 iiNet’s share trading policy
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET The iiNet Share Trading Policy imposes trading restrictions on all iiNet employees who are considered to be in possession of “inside information” and ii additional restrictions in the form of trading windows for executives. Executives and members of the executive management team are prohibited from trading in Company shares, except in a 30-day period following seven days after the release of the final and half-yearly results. These trading restrictions are subject to discretion exercised by the Chairman.
iiNet prohibits KMP from entering into contracts to hedge their exposure to the iiNet shares or options awarded as part of their remuneration package.
Directors’ Report - Remuneration Report – audited - continued 3. EXECUTIVE REMUNERATION 3.1 Executive Remuneration Strategy The Board has established a remuneration strategy that supports and drives the achievement of iiNet’s business strategy. The Board is confident the remuneration framework aligns the Executives with shareholder interests. iiNet is a business that is heavily focused on key performance indicators and rewards its people at all levels on achievement of those KPIs. The Board is currently focused on investing in growth and achieving synergies.
The below diagram shows how the remuneration strategy and framework align with the achievement of iiNet’s business strategy and ultimately achieves sustainable long term wealth creation for shareholders.
To lead the market with products that harness the potential of the internet and then differentiate with iiNet Business Strategy award-winning customer service.
Align executive reward with achievement of business Remuneration Strategy Retain key executive talent strategic objectives iiNet has enjoyed significant growth year on year, delivering Challenging Key Performance Indicators (KPIs) focused on on its focused strategy through a consistent, committed and financial and non-financial measures. highly talented Executive team. REPORT DIRECTORS’ Short term and long term components of remuneration ‘at risk’ are based on performance and outcomes. 49 Remuneration Framework Fixed remuneration Short term incentive (STI) Long Term Incentive (LTI)
Set at no more than market median for Aligned to the achievement of iiNet’s Aligned to the achievement of increased similar sized organisations by reference business objectives measured over the shareholder wealth over the long term. to market capitalisation, using external short term (12 months). Focused on external performance benchmark data. Balanced scorecard approach focusing measures such as: Consideration is given to the employee’s on financial and non-financial KPIs based ■ Compound annual growth rate of experience and skills. on specific individual performance goals earnings per share consisting of: ■ Customer service measured by Net ■ Customer service measured by Net Promoter Score and reduced churn Promoter Score NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ■ Financial objectives measured by ■ Product per customer growth ii EBITDA ■ Business sector growth ■ Customer and product growth ■ Network & operating expenditure measured by subscribers and efficiency products per customer ■ Mergers & acquisitions growth ■ Business integration measured by synergy targets ■ Total shareholder return
The Board benchmarks and positions executive remuneration levels at or below 50th percentile of market for fixed and STI outcomes but targets total remuneration at the 75th percentile if the maximum LTI vests resulting in increased shareholder wealth. Benchmarking is provided by external expert advisors. Directors’ Report - Remuneration Report – audited - continued 3.2 Managing Director Remuneration
Fixed remuneration Long term incentive
$516,470 per annum. The Managing Director is a significant shareholder in iiNet and is well aligned Fixed remuneration is reviewed annually by the Board by reference to to shareholders. market data. The quantum of the award is determined by reference to market data and Benchmarking undertaken during the financial year indicated the Managing the Board’s philosophy of paying at or below median for the fixed base and Director’s fixed remuneration is positioned below the 50th percentile STI and providing a significant LTI “at risk” to reward the achievement of
of similar size companies. The Board determined no increase to fixed longer term shareholder wealth. remuneration during the year, reflecting iiNet’s remuneration strategy 2013 outcomes of focusing on the long term - rewarding long term business success and increase in shareholder value. No LTI vested during the 2013 year. Amounts for long term performance bonus and rights shown in the Short term incentive statutory remuneration table at 3.6 reflect the amortised accounting expense for the 2012 and 2013 LTI awards which do not vest until 2014 and DIRECTORS’ REPORT REPORT DIRECTORS’ STI opportunity of $285,000 (maximum opportunity $445,312) subject 2015. to KPIs determined by the Board at the commencement of the year. KPIs 2013 award 50 directly relate to iiNet’s business strategy (see 3.1 Executive Remuneration Strategy). 358,739 phantom rights (award fair value approximately $1.10m) will be paid in shares or in cash equal to the value of shares calculated using the 30 STI opportunity is reviewed annually by the Board by reference to day VWAP immediately prior to vesting date (at the Board’s discretion) if a market data. Total Shareholder Return of 20% per annum is achieved over the three year Benchmarking undertaken during the financial year indicated the Managing performance period 1 July 2012 to 30 June 2015. Director’s STI opportunity is positioned below the 50th percentile of similar Additional detail on the structure of the LTI is set out at 3.5. size companies. The Board determined no increase to STI opportunity during the year, reflecting iiNet’s remuneration strategy of focusing on 2012 award the long term - rewarding long term business success and increase in The 2012 LTI grant is for the performance period 1 July 2011 to 1 July 2014. shareholder value. The award of $1.71 million ($570,000 per year) will only be paid if a minimum NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii The 2013 STI is $374,062, (131% of the target opportunity). More detail of the gateway of 15% Compound Annual Growth Rate (CAGR) of EPS is achieved, performance against specific KPIs is set out at 3.4. plus the achievement of other specific KPI targets including reduced churn, increased products per customer, subscriber growth, business division revenue growth, key new product growth, network and operating expenditure efficiency and M&A growth.
If stretch targets for each KPI are achieved, in addition to an EPS accretion CAGR target of 20%, then the maximum payout can rise to $5.13 million for the 3 year performance period.
Additional detail on the structure of the LTI is set out at 3.5. Directors’ Report - Remuneration Report – audited - continued 3.3 About iiNet’s KMP Short term incentive
Objective Assessment of performance
The iiNet STI plan is designed to reward Executives for the achievement of Managing Director objectives tightly linked to iiNet’s business strategy focusing on growth and The Remuneration and Nomination Committee assesses the Managing consolidation. Director’s performance against the KPIs set at the beginning of the year and recommends the STI payment outcome to the Board for approval. Participation Other Executives
All executives and employees. The Remuneration and Nomination Committee reviews and approves the performance assessment and STI payments for the other Executives on the recommendation of the Managing Director. STI opportunity
The maximum STI available to each Executive is set at a level based on role, Payment method responsibilities and market data for the achievement of stretching targets against specific KPIs. The maximum STI opportunity for each executive STI payments are delivered as a cash bonus. REPORT DIRECTORS’ is listed at 3.4 as an absolute dollar amount and as a percentage of the executive’s fixed base. 51
Performance period
The STI performance period is from 1 July 2012 to 30 June 2013. STI payments are made in August 2013 after assessment of performance by the Board.
Link between performance and reward
Each year KPIs are selected using a balanced scorecard approach of both financial and non-financial measures of performance. KPIs are selected NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
based on what needs to be achieved over the 12 month period to achieve ii the business strategy over the longer term. These KPIs are the drivers of shareholder value creation.
All KPIs are based on the long term business strategy but are adjusted to reflect individual Executive roles.
Further details of the KPIs used to assess 2013 performance and the outcomes are set out at 3.4. Directors’ Report - Remuneration Report – audited - continued 3.4 2013 STI performance and outcomes 2013 has been a year of strong performance and the remuneration outcomes reflect this. Outstanding customer service and satisfaction as measured by Net Promoter Score is a primary objective of the Group as the business strategy is built around the growth and retention of the customer base. This focus underpins each of the KPIs.
The specific KPIs and the outcomes achieved for FY13, for the Managing Director are set out in the following table:
Objective Rationale link to strategy Measurement Weighting 2013 outcome
Net Promoter Score Everything we do at iiNet is about ensuring our customers Measured by net 15% $42,750 100% (NPS) receive excellent service. Leading the industry on promoter score “NPS” customer service and low churn is key to the achievement of long term sustainable value. Group Broadband Broadband customer growth is key to the achievement of Broadband subscribers 20% $92,625 163% Subscribers long term sustainable value. Closing Mobile Voice Continued innovation on production and diversification Mobile subscribers 15% $53,437 125% and Mobile Broadband will lead to increased products per customer and DIRECTORS’ REPORT REPORT DIRECTORS’ increased revenue and margins per customer. Group FY13 EBITDA Strong financial growth will lead to sustainable returns to EBITDA 25% $114,000 160% 52 shareholders. Business Simplification Achieving synergies on business simplification will lead to Synergy $ targets 25% $71,250 100% and Integration cost/operating efficiencies for the business. Total 100% $374,062 131%
2013 STI bonus pool outcomes The maximum combined cash bonus pool available to be paid to the executive team for the 2013 financial year was $925,312 (2012: $738,985) and the minimum is nil. For the 2013 financial year, 85% (2012: 92%) of this bonus amount was achieved by the executives. The KPIs for other executives are a subset of the Managing Director’s KPIs above. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii Executive Target STI opportunity As a % of fixed Actual STI outcome % Achieved % Forfeited
M. Malone 285,000 71% 374,062 131% nil G. Bader 100,000 25% 86,250 86% 14% D. Buckingham 100,000 32% 116,250 116% nil M. Fewster 100,000 32% 116,250 116% nil J. Lindsay 100,000 26% 90,000 90% 10% Total 685,000 782,812 Directors’ Report - Remuneration Report – audited - continued 3.5 KMP Long Term Incentive Plan Objective The iiNet long term incentive plan is designed to directly link executive rewards to the growth in long term shareholder wealth by focusing on a mix of key financial and operating performance criteria:
■ The Board’s focus is to ensure the performance measures of the iiNet long term incentive plan are appropriate and reflect the developing business strategy. This involves ensuring that the grants made under the long term incentive plan continue to reflect that developing business strategy.
■ For the performance period 1 July 2010 to 30 June 2013, the performance measure is a gateway of EPS accretion of 15% plus additional KPIs based on strategic operational goals. In 2013, the Board decided to focus executives on an additional overlay of share price growth and accordingly for the performance period 1 July 2012 to 30 June 2015, absolute TSR of 20% was introduced as the performance target.
53 1 July 30 June 30 June 30 June 30 June 30 June 2010 2011 2012 2013 2014 2015
EPS & STRATEGIC 2012 GRANT OPERATIONAL GROWTH
2013 GRANT ABSOLUTE TSR
Photograph by Akil Madan, Senior Programmer. Directors’ Report - Remuneration Report – audited - continued The Board, therefore, set challenging levels of performance to be achieved with a minimum annual TSR of 15% required before any performance rights 2013 iiNet Long Term Incentive award vest and a stretching 20% as the base target. iiNet determined this level of Objective performance was required after analysis of the following: ■ Required cost of equity for iiNet shareholders The 2013 iiNet long term incentive grant is designed to directly link ■ Estimate of future share price, dividends and implied returns executive rewards to the growth in long term shareholder wealth. ■ Analysis of historical TSR performance of iiNet and other high-performing companies. Instrument A stretch level of 25% TSR per annum is also available giving Executives the Performance rights to acquire ordinary iiNet shares. opportunity to increase the number of performance rights by 50%.
Definition of TSR Quantum TSR means total shareholder return including dividends of iiNet over the 358,739 performance rights granted to each participating Executive (refer Performance Period. section 3.6). TSR measures the return received by shareholders from holding shares in
iiNet over a particular period and is calculated by taking into account the DIRECTORS’ REPORT REPORT DIRECTORS’ Link between performance and reward growth in share price over the period as well as the dividends and other distributions received during that period. The formula for calculating TSR is 54 The Board has selected absolute TSR as the performance hurdle for the shown below: 2013 LTI grant. This hurdle directly rewards executives for focusing on increasing shareholder wealth through business strategies that will result (Share Price at TSR End Date) – (Share Price at TSR State Date) + in share price growth. ($ Dividends Reinvested) It was determined that a simple absolute TSR, rather than relative TSR, was the most appropriate measure for the 2013 LTI grant as part of the existing LTI plan. Absolute TSR was chosen because of the lack of sufficient peer Share Price at TSR State Date group comparators to iiNet in the Australian market. Other peer companies within the Australian telecommunications sector are of a different scale or The Share Price at TSR Start Date is the volume weighted average share different stage in the company life cycle to iiNet. price (VWAP) for the 30 days up to and including 1 July 2012; and NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii The Share Price at TSR End Date will be the VWAP for the 30 days up to and including the last day of the performance period. Directors’ Report - Remuneration Report – audited - continued
Performance period Vesting schedule
All performance rights are subject to an overall 3 year performance period Performance rights will only vest if the following TSR performance is under which executives must remain employed until 30 June 2015. achieved for each performance period:
The performance rights are divided into three tranches for performance TSR performance Vesting outcome testing:
■ Tranche 1 Up to 15% per annum Nil 119,580 of performance rights are assessed against performance over 15% per annum 75%
the period 1 July 2012 – 30 June 2013 15% to 20% per annum Pro-rata vesting from 75% - 100% ■ Tranche 2 20% per annum 100% 119,580 of performance rights are assessed against performance over 20% to 25% per annum Pro-rata vesting from 100% - 150% the period 1 July 2012 – 30 June 2014 25% per annum and above 150% ■ Tranche 3 Performance for Tranches 1 and 2 will be assessed at the end of the relevant 119,579 of performance rights are assessed against performance over REPORT DIRECTORS’ the period 1 July 2012 – 30 June 2015 performance period. The performance rights meeting the performance condition will only become exercisable at 30 June 2015 if the Executive This structure drives a continual focus on the achievement of a consistent remains employed. 55 TSR over the 3 year performance period.
Termination of employment Grant date fair value 1 All unvested performance rights lapse immediately on termination Per performance right – Tranche 1: $3.71, Tranche 2: $2.87, Tranche 3: $2.39 with Board discretion to allow vesting in situations such as redundancy, (Approximately $1,073,000 per participant). retirement, permanent incapacity and death.
1 Fair value calculated at grant date: 23 October 2012. All vested performance rights are required to be exercised within 30 days of termination unless employment is terminated for cause where all vested
performance rights are cancelled immediately. 2013 REPORT ANNUAL NET ii Directors’ Report - Remuneration Report – audited - continued 2012 iiNet Long Term Incentive award
Objective Link between performance and reward
The 2012 iiNet long term incentive grant is designed to directly link Gateway of EPS accretion CAGR of 15% must be met before any payment executive rewards to the drivers of growth in long term shareholder is made. Additional KPIs must be met based on objectives directly linked to wealth. the achievement of business strategy.
Level of reward can be increased if stretching KPIs and EPS accretion CAGR Instrument up to 20% are achieved.
Performance rights to acquire ordinary iiNet shares (Managing Director only The Managing Director’s plan targets are detailed on the following page, has right to cash award). other executives targets are based on a subset of these targets relevant to their areas of responsibility. Quantum Termination of employment Managing Director
DIRECTORS’ REPORT REPORT DIRECTORS’ Cash pool value $1.71 million (maximum $5.13 million based on stretch All unvested performance rights lapse immediately on termination targets being achieved and a minimum of nil). with Board discretion to allow vesting in situations such as redundancy, 56 retirement, permanent incapacity and death. Other participating Executives Pool value per individual $600,000 (maximum $1.8 million based on stretch All vested performance rights are required to be exercised within 30 days targets being achieved). of termination unless employment is terminated for cause where all vested performance rights are cancelled immediately. Final pool value determines number of performance rights granted.
Grant date fair value
$2.8167 per performance right on grant date of 1 July 2011.
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii Performance period
1 July 2011 to 30 June 2014 (vesting occurs on 30 September 2014 (50%) and 31 December 2014 (50%)).
Directors’ Report - Remuneration Report – audited - continued 2012 Long Term Incentive Award Managing Director’s Targets
Target/Measure Weighting Dollar Value of Performance Rights
Targets Base Target Payout 100% Stretch Target Payout 150%
CAGR EPS 16.7% $285,000 $427,500 Achieve Group net promoter score (NPS) 16.7% $285,000 $427,500 Grow products per customer ratio 16.7% $285,000 $427,500
Grow broadband subscribers 10% $171,000 $277,875 Grow business sector revenue 10% $171,000 $277,875 Grow mobile customer base 10% $171,000 $277,875 Deliver integration synergies 10% $171,000 $171,000 Deliver inorganic financial growth 10% $171,000 $277,875
Total $1,710,000 $2,565,000 REPORT DIRECTORS’ Accelerators* 57 EPS Accretion CAGR 17.5% (150% of total) $2,565,000 $3,847,500 EPS Accretion CAGR 20.0% (200% of total) $3,420,000 $5,130,000
* The CAGR accelerators have to be met for any increased award to be made, i.e. no pro-rata increase is available between target levels.
Legacy option plan: Executive & Director 2008 The options issued to an executive and director in the 2008 financial year were issued on the basis that 50 percent of the total number issued will vest on the 18 month and 36 month anniversary dates following their issue. The options have a 5 year life and can be exercised any time after they have vested. The exercise price is set at the prevailing market price of the Company’s ordinary shares at the time of the issue of the options. There are no other performance conditions attached. Shares issued on exercise of share options during the 2012 financial year were as follows: NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii
Executive Value of options exercised during the year (i) $ Shares issued (no.) Paid per share ($)
M. Smith $740,000 200,000 $2.00 D. Buckingham $256,200 70,000 $2.01
(i) Intrinsic value has been applied on exercise date as the basis of measurement.
No share options were granted to or forfeited by Executives in the 2013 financial year. Directors’ Report - Remuneration Report – audited - continued 3.6 Statutory remuneration tables ($) The following table of executives’ remuneration has been prepared in accordance with accounting standards and the Corporations Act 2001 requirements. The amounts shown are equal to the amount expensed in the company’s financial statements.
Year Short term Long term Post- Termination Share-based Total employment payments
KMP Salary & fees Cash bonus Non-monetary Long service Performance Superannuation Termination Performance Total Performance leave bonus (i) payments rights (ii) related %
M. Malone 2013 423,069 374,062 76,931 10,681 527,719 16,470 - 365,117 1,794,049 71%
2012 394,004 274,312 57,149 44,935 508,505 15,775 - - 1,294,680 60%
G. Bader 2013 293,061 86,250 22,939 14,647 - 16,470 - 550,281 983,648 65%
2012 277,589 79,500 33,950 5,569 - 15,775 - 178,279 590,662 44%
DIRECTORS’ REPORT REPORT DIRECTORS’ D. Buckingham 2013 308,583 116,250 10,167 30,685 - 16,470 - 550,281 1,032,436 65%
58 2012 282,447 86,450 22,437 4,913 - 15,775 - 175,469 587,491 45%
M. Fewster 2013 318,546 116,250 16,454 10,079 - 16,470 - 550,281 1,028,080 65%
2012 295,140 84,787 12,245 10,728 - 15,775 - 175,665 594,340 44%
S. Hackett (iii) 2013 31,154 - - - - 6,194 - - 37,348 -
2012 114,090 50,000 4,179 181,684 - 10,644 - - 360,597 14%
J. Lindsay (iv) 2013 299,057 90,000 943 31,004 - 16,470 - - 437,474 21%
2012 108,571 103,985 - 70,568 - 9,771 - - 292,895 36% NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii Total 2013 1,673,470 782,812 127,434 97,096 527,719 88,544 - 2,015,960 5,313,035 63%
Total 2012 1,471,841 679,034 129,960 318,397 508,505 83,515 - 529,413 3,720,665 46%
(i) Includes value of performance bonus estimated to be paid out in cash under the 2012 LTI grant. (ii) Performance rights awarded to executives under the 2009, 2012 and 2013 LTI grants, except the Managing Director who received equity settled performance rights under 2013 LTI grant only. (iii) Became a KMP on 1 February 2012, which ceased on 16 August 2012 upon appointment to the Board. (iv) Became a KMP on 22 May 2012. Directors’ Report - Remuneration Report – audited - continued Remuneration components as a proportion of total remuneration paid or expensed The following table reflects the fixed base, STI and LTI calculated in accordance with the accounting standards as a proportion of the total.
KMP Fixed (i) STI (ii) LTI (iii) Total
M. Malone 29.4% 20.8% 49.8% 100% G. Bader 35.3% 8.8% 55.9% 100% D. Buckingham 35.4% 11.3% 53.3% 100%
M. Fewster 35.2% 11.3% 53.5% 100% S. Hackett 100.0% - - 100% J. Lindsay 79.4% 20.6% - 100%
(i) Fixed equals the percentage of remuneration consisting of salary and fees, non-monetary benefits, termination payments, long service leave and superannuation. (ii) STI equals the percentage of remuneration consisting of cash bonus that was paid in respect of the year. (iii) LTI equals the percentage of remuneration consisting of the value of performance rights and bonuses that was expensed to the statement of comprehensive income. REPORT DIRECTORS’
3.7 Executive contracts and termination arrangements 59 Employment contracts The key conditions of the Managing Director and executives’ service agreements are outlined below:
Name Agreement Agreement expire Notice of termination by company(i) Employee commence notice M. Malone 28 July 2006 No expiry, continuous agreement 6 months (or payment in lieu of notice) 12 weeks G. Bader 6 August 2007 No expiry, continuous agreement 6 months (or payment in lieu of notice) 12 weeks D. Buckingham 7 December 2007 No expiry, continuous agreement 6 months (or payment in lieu of notice) 12 weeks NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
M. Fewster 24 July 2007 No expiry, continuous agreement 6 months (or payment in lieu of notice) 12 weeks ii S. Hackett 5 November 2010 Ended 16 August 2012 upon appointment to the Board 6 months (or payment in lieu of notice) 12 weeks J. Lindsay 18 May 2012 No expiry, continuous agreement 6 months (or payment in lieu of notice) 12 weeks
(i) Company notice increased by 1 week if executive is over age of 45 and has completed 2 years service. Directors’ Report - Remuneration Report – audited - continued 4.3 Non-executive Directors’ remuneration details ($)
4. NON-EXECUTIVE DIRECTORS’ Non- Year Board and Superannuation Total REMUNERATION Executive Committee Directors Fees The Board sets Non-executive Director remuneration at a level which M. Smith 2013 179,769 15,089 194,858 enables the attraction and retention of directors of the highest 2012 155,769 14,019 169,788 calibre, while incurring a cost which is acceptable to shareholders. The remuneration of the Non-executive Directors is determined by the Board P. Broad 2013 89,923 8,093 98,016 on recommendation from the Remuneration and Nomination Committee 2012 83,077 7,477 90,554 within a maximum fee pool.
D. Grant 2013 104,923 9,443 114,366 Non-executive Directors receive a base fee and statutory superannuation 2012 98,654 8,879 107,533 contributions. Non-executive Directors do not receive any performance S. Hackett 2013 75,643 6,944 82,587 based pay. 2012 - - - 4.1 Fee Pool P. James 2013 94,731 8,526 103,257 The maximum amount of fees that can be paid to Non-executive Directors 2012 88,269 7,944 96,213 DIRECTORS’ REPORT REPORT DIRECTORS’ is capped by a pool approved by shareholders. At the 2012 Annual General Meeting, shareholders approved the current fee pool of $900,000 per annum. L. McCann 2013 90,115 8,110 98,225
60 4.2 Directors’ 2013 Fee Structure 2012 80,904 7,281 88,185 Prior to 2012, board and committee fees had not been increased since Total 2013 635,104 56,205 691,309 November 2008. In determining the appropriate level of fees, the Board Total 2012 506,673 45,600 552,273 obtained independent market data from PwC. The iiNet fees were compared to a comparator group based on similar sized companies to iiNet, excluding resources and real estate companies. The benchmarking review indicated the iiNet directors’ fee levels to be positioned between the 25th and 50th End of Remuneration Report (audited). percentile of the comparator group. As a result of this review, the Board approved an increase to the iiNet board and committee fees to reflect the increased responsibilities and workload of the directors since 2008. Signed in accordance with a resolution of the directors. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii The following table outlines the main Board and Committee fees as at 30 June 2013.
Chair fee Member fee
Board $85,000 $85,000 Michael Smith Audit and Risk Committee $20,000 $10,000 Chairman Remuneration and Nomination Committee $10,000 $5,000 24 September 2013
Directors’ Report - Remuneration Report – audited - continued AUDITOR’S INDEPENDENCE DECLARATION
DIRECTORS’ REPORT REPORT DIRECTORS’
61 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 62 CORPORATE GOVERNANCE
STATEMENT 63 The Board of Directors of iiNet Limited is responsible for and committed to ensuring that the Company complies with the ASX Corporate Governance Council’s Guide “Corporate Governance Principles and Recommendations”.
Through the continual pursuit of the highest standards of corporate governance, iiNet is able to respect the following values to which it publicly subscribes:
■ To endeavour to provide staff with a challenging, rewarding and safe working environment; ■ To deliver quality products, excellent service and value for money to customers; ■ To take a responsible and ethical approach to the conduct of our business; and ■ To maximise the value of shareholders’ investment in the Company.
iiNet Limited corporate governance practices were in place throughout the year ended 30 June 2013. Various corporate governance practices are discussed within this statement. For further information on corporate governance policies adopted by iiNet Limited, refer to our website:
http://investor.iinet.net.au/IRM/content/corporategovernance.html Corporate Governance Statement - continued material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the appropriate base amount. Qualitative factors The Board of Directors considered include whether the relationship is strategically important, the Role of the Board and Board Charter competitive landscape, the nature of the relationship and the contractual The Board has adopted a formal charter that details the functions and or other arrangements governing it. responsibilities of the Board. The Board Charter can be viewed on the Company’s website. The Board of iiNet is charged with the following overall The Board considers the diversity of existing and potential directors. The responsibilities: Board’s policy is to seek a diverse range of directors who have a range of ages, genders and ethnicity which mirrors the environment in which iiNet (a) Charting the direction, strategies and financial objectives for the operates. Company and monitoring the implementation of those policies, In accordance with the established criteria for assessing independence
strategies and financial objectives; and above, and the materiality thresholds set, the following directors of (b) Monitoring compliance with regulatory requirements and ethical iiNet Limited, shown together with their respective terms in office, are standards. In addition, the following more prescriptive tasks have considered to be independent: been assigned to the Board: Name & position at 30 June 2013 Term of office (i) Appointing and monitoring the performance of directors and officers, including the Managing Director, the Chief Peter James – Non-Executive Director 9 years & 7 months
DIRECTORS’ REPORT REPORT DIRECTORS’ Financial Officer and the Company Secretary; Paul Broad – Non-Executive Director 7 years & 1 month (ii) Providing input to and approving strategic plans and David Grant – Non-Executive Director 6 years & 8 months 64 objectives, and approving the annual operating and capital Michael Smith – Non-Executive Director 5 years & 9 months budgets; Louise McCann – Non-Executive Director 2 year & 2 months (iii) Monitoring systems that assess performance against the above; and Simon Hackett – Non-Executive Director 10 months
(iv) Approving and monitoring processes that monitor and limit risk, provide financial control and accountability as well as to ensure accurate and timely financial reporting.
Structure of the Board The skills, experience and expertise of each director in office at the date of NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii the annual report is included in the Directors’ Report. Directors of iiNet are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement.
In the context of director independence, materiality is considered from both the Company and individual director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal to or less than 5% of the appropriate base amount. It is presumed to be Corporate Governance Statement - continued Risk management Audit and Risk Committee The Board has established a formal policy for risk management and a framework for monitoring and managing material business risks on The Board has established an Audit and Risk Committee, which operates an ongoing basis. The governance of this policy has been delegated to under a charter approved by the Board. It is the Board’s responsibility to the Audit and Risk Committee. The Audit and Risk Committee reviews ensure that an effective internal control framework exists within the the material business risks determined and reported by executive Company. This includes internal controls to deal with the effectiveness and management on a regular basis and ensures that an effective, integrated efficiency of significant business processes, the safeguarding of assets, the and comprehensive risk management system and process is being operated maintenance of proper accounting records, and the reliability of financial by management. information for inclusion in financial reports, as well as non-financial considerations such as benchmarking of key operational processes. The Remuneration and Nomination Committee
Board has delegated responsibility for establishing and maintaining a The Board has established a Remuneration and Nomination Committee, framework of internal control as well as establishing ethical standards and which operates under a charter approved by the Board. The committee’s managing the Company’s risk management policies to the committee. main responsibilities are delegated to it by the Board and include reviewing remuneration policies and practices of employees, executives and directors The members of the Audit and Risk Term of office as described in the Remuneration Report. Further information regarding committee during the year were: iiNet’s Remuneration and Nomination Committee charter can be found on David Grant (Chairman) – Member for the full year the Company’s website, www.iinet.net.au.
Independent Non-Executive Director REPORT DIRECTORS’ Michael Smith – The members of the Remuneration Term of office Member for the full year and Nomination committee during Independent Non-Executive Director 65 Louise McCann – the year were: Member for the full year Independent Non-Executive Director Louise McCann (Chairman*) – Member since February 2013 Independent Non-Executive Director Peter James - Member for the full year Qualifications of the Audit and Risk Committee members Independent Non-Executive Director continuing at the date of this report: Paul Broad – Member for the full year David Grant (Committee Chairman), a Chartered Accountant, has Independent Non-Executive Director significant commercial and financial experience having held senior financial Michael Smith – Member for the full year roles within several ASX listed companies and is currently on the Audit Independent Non-Executive Director Committee of Amalgamated Holdings Limited.
* Chairman since 17 March 2013. 2013 REPORT ANNUAL NET Louise McCann has extensive experience in public company management ii and has formerly held a number of board positions in publicly held companies.
Michael Smith has significant marketing and management experience and has served as Chairman on the Board of various well known organisations and is the Chairman of the Automotive Holdings Group Audit and Risk Management Committee.
For details on the number of meetings of the Audit and Risk Committee held during the year and the attendees at those meetings, refer to page 43. Corporate Governance Statement - continued ■ Flexible work practices including flexible hours, work from home opportunities and a parental leave return-to-work program. Diversity We believe the diversity of our employees is an asset. Diversity is part of our ■ Annual remuneration benchmarking, including equity reporting. identity and an integral part of our strong workplace culture. Gender Diversity iiNet recognises the differences in each of our team members, their individual capability and the value they offer through their varied ■ Increasing gender diversity in senior positions; iiNet is aiming for 30% experiences and backgrounds. female representation (on a FTE basis) on the board and in executive management positions across the entire group. Diversity in iiNet goes beyond the standard boundaries of gender, ethnicity, age, religion, disability and culture. We also celebrate the sub-cultures that ■ Delivering an annual assessment of Board and executive management gender diversity objectives to the remuneration and nomination have helped define the brand from our humble beginnings – our geeks, our gamers, our trekkies and all the other unique individuals that have brought committee. something to make iiNet distinctive. ■ Enhancements to the existing culture survey next financial year to introduce reporting capability by gender and inclusion of a specific Background gender diversity question, to be measured by way of Net Promoter At iiNet, we are committed to both providing employees with equal Score. employment opportunities and a workplace that is free from any ■ Newly acquired companies give iiNet an opportunity to grow our
DIRECTORS’ REPORT REPORT DIRECTORS’ harassment, discrimination and workplace bullying. diverse workplace profile. To ensure any adverse impacts on our iiNet’s Equal Opportunity Policy sets the expectations of our Board, gender diversity objectives are addressed, we are committed to the 66 executive management and employees in their interactions with each other progressive introduction of the iiNet Group’s Equal Opportunity Policy and any client, contractor, supplier, customer or relevant third party to the and diversity approach for all newly acquired companies. iiNet business. ■ The recent acquisitions, TransACT and Internode, have had an adverse In addition to these general obligations iiNet also has specific reporting impact on iiNet Group representation of females. iiNet has introduced obligations regarding gender equality in the workplace under the Workplace its Equal Opportunity Policy and practices to these acquired businesses Gender Equality Act 2012 (Cth), and diversity in the workplace under the ASX to increase group wide gender diversity for the future. Corporate Governance Principles. Current performance against iiNet’s Diversity objectives: The key elements of the diversity objectives for iiNet are as follows:
Diverse Workforce 30 June 2013 30 June 2012
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ■ Annual assessment of diversity objectives and performance against Female Male Female Male ii Gender representation objectives to the iiNet remuneration and nomination committee. (%) (%) (%) (%)
■ Establishing a baseline analysis of cultural background through a Board representation 17% 83% 17% 83% diversity questionnaire (including ethnicity and disability), which Executive management commenced as part of our onboarding process this year. 20% 80% 20% 80% team representation ■ Continued emphasis on providing a consistent approach to: Group representation 30% 70% 34% 66% ■ Recruitment and selection practices, including targeted recruitment practices and shortlisting practices. Corporate Governance Statement - continued Adherence to the Guide on Best Practice Recommendations
Principle and recommendation Compliance
1 Lay solid foundations for management and oversight 1.1 Establish and disclose the functions reserved to the Board and those delegated to senior executives. 1.2 Disclose the process for evaluating the performance of senior executives. 1.3 Companies should provide the information indicated in the guide to reporting on Principle 1.
2 Structure the Board to add value 2.1 A majority of the Board should be independent directors. 2.2 The chair should be an independent director. 2.3 The roles of chairperson and chief executive officer should not be exercised by the same individual. 2.4 The Board should establish a nomination committee. 2.5 Companies should disclose the process for evaluating the performance of the Board, its committees and individual directors. DIRECTORS’ REPORT REPORT DIRECTORS’ 2.6 Companies should provide the information indicated in the guide to reporting on Principle 2. 3 Promote ethical and responsible decision making 67 3.1 Companies should establish a code of conduct and disclose the code or a summary of the code as to: 3.1.1 The practices necessary to maintain confidence in the Company’s integrity. 3.1.2 The practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders. 3.1.3 The responsibility and accountability of individuals for reporting and investigating reports of unethical practices. 3.2 Companies should establish and disclose a policy concerning diversity. The policy should include requirements for the Board to establish measurable objectives for achieving gender diversity for the Board to assess annually both the objectives and progress in achieving them. 3.3 Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the Board in accordance with the diversity policy and progress towards achieving them. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 3.4 Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board. 3.5 Companies should provide the information indicated in the guide to reporting on Principle 3. Corporate Governance Statement - continued
Principle and recommendation Compliance
4 Safeguard integrity in financial reporting 4.1 The Board should establish an audit committee. 4.2 Structure the audit committee so that it consists of: ■ only non-executive directors; ■ a majority of independent directors; ■ an independent chair, who is not chair of the Board; and
■ has at least three members. 4.3 The audit committee should have a formal charter. 4.4 Companies should provide the information indicated in the guide to reporting on Principle 4. 5 Make timely and balanced disclosure Companies should establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure
DIRECTORS’ REPORT REPORT DIRECTORS’ 5.1 requirements and to ensure accountability at a senior management level for that compliance and disclose a summary of those policies. 68 5.2 Companies should provide the information indicated in the guide to reporting on Principle 5. 6 Respect the rights of shareholders 6.1 Companies should design and disclose a communications policy to promote effective communications with shareholders and encourage their participation at general meetings. 6.2 Companies should provide the information indicated in the guide to reporting on Principle 6. 7 Recognise and manage risk 7.1 Companies should establish and disclose a summary of the policies for the oversight and management of material business risks. 7.2 Companies should design and implement a risk management and internal control system to manage the Company’s material business risks and report on their effectiveness. 7.3 The Board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act 2001 is founded on a sound system of risk management and internal control and that it is operating effectively in all material respects in relation to financial reporting risks. 7.4 Companies should provide the information indicated in the guide to reporting on Principle 7. Corporate Governance Statement - continued
Principle and recommendation Compliance
8 Remunerate fairly and responsibly 8.1 The Board should establish a remuneration committee. The remuneration committee should be structured so that it: ■ consists of a majority of independent directors; 8.2 ■ is chaired by an independent chair; and ■ has at least three members. 8.3 Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executives, directors and senior executives. 8.4 Companies should provide the information indicated in the guide to reporting on Principle 8.
69
Photograph by Victoria Recaido, Senior Customer Service Representative. 70
Parkfield Primary School. CORPORATE Photo courtesy of The West Australian. SUSTAINABILITY FOR iiNET, BEING PART OF A COMMUNITY IS NOT ABOUT JUST MAKING AN APPEARANCE. WE CREATE MEANINGFUL RELATIONSHIPS ACROSS OUR LOCAL COMMUNITY AND WORK TOGETHER TO BUILD A BETTER FUTURE. IT IS ABOUT DOING WHAT WE CAN BECAUSE WE KNOW WE CAN MAKE AN IMPACT. 71
IN THE COMMUNITY GIVE Throughout 2012-13 iiNet staff clocked over 300 hours volunteering for a range of initiatives. From saving lives by helping out the Australian Red Cross, to working alongside the Australian PARTICIPATE Business and Community Network to mentor primary and high school students, and wrapping Christmas presents to support underprivileged kids, staff partnered with organisations to BE ACTIVE support our community. iiNet’s staff involvement is based around four pillars of focus: BE KIND GIVE PARTICIPATE
Each year iiNet staff elect twelve charities that mean something to iiNet staff partner with the Australian Business and Community them. Every Friday, staff fundraise for these organisations and last Network (ABCN) to mentor primary and high school students. Perth year raised in excess of $30,000. Special one off events like Pancake staff have been volunteering at local schools since 2008 and this Day, St Patricks Day and Stress Down Day also contribute to the iiNet year staff based in Adelaide, Canberra and Melbourne joined the Give program. program.
Over the last financial year we’re proud to have supported the Through ABCN, iiNet volunteers visit schools to improve reading Leukaemia Foundation, Autism West and the Australian Red Cross, and literacy skills through the ABCN’s Spark program. Alongside among many others. this, ABCN’s GOALS program has introduced staff to mentoring and coaching roles, helping students from high schools around the country to consider options in building their careers.
72 iiNET SCHOOLS’ WISH LIST WINNER EMBRACES TECHNOLOGY FOR EDUCATION
Parkfield Primary School teacher Katheryn iiNet exec, Steve Dalby made a visit to the school to present the Perks was all smiles when she accepted winner’s cheque and then surprised the school with a bonus iPad, a $5,000 cheque from iiNet and the West courtesy of iiNet. While Steve was there, Katheryn provided a short Australian newspaper, on behalf of her school. demonstration of some of the applications used by the Parkfield Year Two children. She demonstrated how the school was successfully The competition, which iiNet sponsored in exploiting the iPads to motivate the kids and improve literacy and association with ‘The West’ required primary numeracy outcomes. school communities to send in coupons snipped from the daily newspaper. Each Steve Dalby and Amongst other things, the iPads are being used by the Year Twos to school was asked to include a wish as a part Katheryn Perks. research topics for report writing – reports that still had to be done of its entry, explaining how the prize-money the ‘old-fashioned’ way with pencil and paper. An app called Popplet would be used. helped to structure the research questions each child needed to answer and (using the iPad camera) taking a photo of the obligatory There was no hesitation on Katheryn and the school’s part – they drawing in the report. Subsequently (say on parent night) holding the were already successfully using iPads, following a trial to improve camera over the report (as a scanner) triggered the Aurasma app to literacy and numeracy at the school. The only thing in the way of provide the details of the research material sourced by the child for extending the benefits of the trial was the number of iPads available to that report. Pretty cool. the kids. The big plan: win the competition, buy more iPads! BE ACTIVE BE KIND
In 2012-13 iiNet staff took part in nearly 30 walks, runs and other Through the iiNet Community Partnerships program: fitness events all over Australia, New Zealand and Cape Town. ■ The iiNet executive group allocates up to $20,000 of funding to grass roots community organisations including schools and local Highlights include the Million Paws Walk, City 2 Surf in Sydney and sporting groups. Perth and Tough Mudder endurance races. iiNet staff have never ■ The in-kind program provides free Wi-Fi for approximately 20 been so fit (relatively). not-for-profit organisations. ■ iINet also provides direct or in-kind support to a range of local community groups. These include Lifeline WA (see box), Princess Margaret Hospital (see box), Murdoch University Foundation, Autism West and the Autism CRC.
SPONSORSHIPS COMMUNITY PARTNERSHIPS 73 Hawthorn Hawks Lifeline WA iiNet joined the Hawks family as a Principal Partner in 2013. iiNet is the technology partner of Lifeline WA’s Crisis Support Chat. Hawthorn is one of the biggest and most successful sporting clubs This online web chat service was extended nationally last year so in Australia with over 63,000 members and even more supporters. those in need can access a Lifeline professional. It is another avenue Like us, Hawthorn Football Club has a passion for innovation and of real time support for people who are overwhelmed and having we’re proud to back a team who lead by doing things in new and difficulty coping or staying safe. different ways. Princess Margaret Hospital Perth Arena iiNet has a proud partnership with the Princess Margaret Hospital iiNet is a proud founding partner of Perth Arena, WA’s newest home Foundation, which sees the PMH Megazone upgraded with five brand of live entertainment, music and sport. Perth Arena embraces new computer pods with super-fast internet connections. The pods technology as much as we do and iiNet upgrades the visit of each allow families access to the ‘net while they’re in hospital with their patron by providing free Wi-Fi at the venue as well as supporting the sick children, helping them stay connected to friends and family and Perth Arena App. on top of bills. 74 FINANCIAL REPORT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 76 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 77 75 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 78
CONSOLIDATED STATEMENT OF CASH FLOWS 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 80 DIRECTORS’ DECLARATION 137 INDEPENDENT AUDITOR’S REPORT 138 SHAREHOLDERS’ STATISTICS 139 SHAREHOLDER INFORMATION 140 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Consolidated 2013 2012 Note $’000 $’000 Revenue Rendering of services 916,810 814,726 Sale of hardware 23,174 15,315 Other revenue 5 (a) 1,006 1,184 Total revenue 940,990 831,225
Other income 5 (b) 1,081 8,061 Network and carrier costs (494,672) (477,387) Employee expenses 5 (c) (144,526) (110,684) Marketing expenses (34,833) (24,986) Occupancy costs (27,621) (23,836) Corporate expenses (44,491) (49,291) Depreciation and amortisation expense 5 (d) (82,045) (65,458) FINANCIAL REPORT REPORT FINANCIAL Finance costs 5 (e) (22,729) (17,562) Other costs (7,913) (7,073) 76 Profit before income tax 83,241 63,009 Income tax expense 6 (22,303) (25,955) Profit for the year 60,938 37,054
Other Comprehensive Income Items that may be reclassified subsequently to profit or loss Cash flow hedges: Loss taken to equity (247) (447) Income tax on items of other comprehensive income 74 134 Other comprehensive loss for the year, net of tax (173) (313) Total comprehensive income for the year 60,765 36,741 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii Profit attributable to owners of the company 60,938 37,054 Total comprehensive income attributable to the owners of the company 60,765 36,741
Earnings per share for profit attributable to the ordinary equity holders of the company 20 Cents Cents Basic earnings per share 37.8 23.9 Diluted earnings per share 37.6 23.9
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Consolidated 2013 2012 Note $’000 $’000 Assets Current assets Cash and cash equivalents 22(a) 12,369 6,606 Trade and other receivables 7 74,962 70,836 Prepayments 6,409 5,228 Inventory 8 18,469 7,579 Non-current assets held for sale 33 9,288 - Derivative financial instruments 29 1,171 -
Total current assets 122,668 90,249
Non-current assets Plant and equipment 9 164,413 179,364 Intangible assets and goodwill 10 531,008 486,622 Derivative financial instruments 29 7,291 - Deferred tax assets 6(d) 702 235 Other Assets 11 40 Total non-current assets 703,425 666,261 FINANCIAL REPORT REPORT FINANCIAL Total assets 826,093 756,510
Liabilities Current liabilities 77 Trade and other payables 11 96,660 84,498 Unearned revenue 54,451 51,929 Interest bearing loans and borrowings 12 2,017 2,355 Indefeasible right of use lease liability 13 14,621 12,565 Income tax payable 12,755 9,034 Provisions 14 377 484 Employee benefit liability 26 11,963 12,113 Derivative financial instruments 29 401 632 Total current liabilities 193,245 173,610
Non-current Liabilities Interest bearing loans and borrowings 15 184,475 225,931 Indefeasible right of use lease liability 16 119,344 61,135 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
Deferred tax liabilities 6(d) 3,333 7,473 ii Provisions 17 524 525 Employee benefit liability 26 830 1,187 Total non-current liabilities 308,506 296,251 Total liabilities 501,751 469,861 Net assets 324,342 286,649
Equity Issued capital 18 251,069 250,528 Retained earnings 19(a) 66,938 31,777 Other reserves 19(b) 6,335 4,344 Total equity 324,342 286,649
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Consolidated
Issued Retained Employee Cash Flow Total Capital Earnings Equity Hedge Benefits Reserve Reserve $’000 $’000 $’000 $’000 $’000 At 30 June 2011 223,557 15,035 4,042 (128) 242,506 Profit for the year - 37,054 - - 37,054 Other comprehensive loss - - - (313) (313) Total comprehensive income for the year - 37,054 - (313) 36,741
Transactions with owners in their capacity as owners: Issue of share capital 36,321 - - - 36,321 Re-purchase of share capital (9,350) - - - (9,350) Share-based payments - - 743 - 743 Dividends paid - (20,312) - - (20,312) At 30 June 2012 250,528 31,777 4,785 (441) 286,649 FINANCIAL REPORT REPORT FINANCIAL Profit for the year - 60,938 - - 60,938 Other comprehensive loss - - - (173) (173) 78 Total comprehensive income for the year - 60,938 - (173) 60,765
Transactions with owners in their capacity as owners: Issue of share capital 541 - - - 541 Share-based payments - - 2,164 - 2,164 Dividends paid - (25,777) - - (25,777) At 30 June 2013 251,069 66,938 6,949 (614) 324,342
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii CONSOLIDATED STATEMENT OF CASH FLOWS
Consolidated 2013 2012 Note $’000 $’000 Cash flows from operating activities Receipts from customers 1,030,823 949,917 Payments to suppliers and employees (851,367) (818,317) Interest received 1,006 1,230 Interest and other costs of finance paid (20,135) (16,124) Income tax paid (22,057) (13,144)
Costs incurred on acquisition of subsidiary - (2,650) Net cash inflows from operating activities 22(c) 138,270 100,912
Cash flows from investing activities Payment for the establishment of exchange space - (2,118) Payment for subscriber acquisition costs (4,927) (4,651) Purchase of plant and equipment (31,651) (40,927)
Payment of project development and other intangible costs (12,682) (8,513) REPORT FINANCIAL Proceeds from sale of plant and equipment - 5,380 Payment for acquisition of subscriber bases - (826) 79 Acquisition of subsidiary, net of cash acquired - (129,005) Net cash flows used in investing activities (49,260) (180,660)
Cash flows from financing activities Proceeds from issue of shares 541 103 Proceeds from borrowings 5,000 158,100 Payment for share buy-back - (9,350) Repayment of borrowings (45,000) (37,053) Payment for transaction costs related to borrowings (2,870) (592) Payment of IRU and finance lease liabilities (15,141) (10,040)
Equity dividends paid (25,777) (20,312) 2013 REPORT ANNUAL NET ii Net cash flows from/(used in) financing activities (83,247) 80,856
Net increase in cash 5,763 1,108 Cash and cash equivalents at the beginning of year 6,606 5,498 Cash and cash equivalents at the end of the year 22(a) 12,369 6,606
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 1. CORPORATE INFORMATION (ii) New Accounting Standards and Interpretations The accounting policies adopted are consistent with those of the previous The financial report of iiNet Limited for the year ended 30 June 2013 was financial year except that the Group has adopted all Australian Accounting authorised for issue in accordance with a resolution of the directors on 24 Standards and Interpretations mandatory for annual periods beginning on September 2013. or before 1 July 2012, including:
iiNet Limited (“the Company”) is a for profit entity limited by shares and AASB 2011-9 Amendments to Australian Accounting Standards – incorporated and domiciled in Australia whose shares are publicly traded Presentation of Other Comprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, on the Australian Securities Exchange (“ASX”) and is the ultimate parent 132, 133, 134, 1039 & 1049]. entity in the Group. The consolidated financial report for the year ended 30 June 2013 comprises the Company and its controlled entities (“the Group”). This Standard requires entities to group items presented in other The nature of the operations and principal activities of iiNet Limited and its comprehensive income on the basis of whether they might be reclassified
subsidiaries are described in the Directors’ Report. subsequently to profit or loss and those that will not.
The adoption of new and amended standards and interpretations had no 2. SIGNIFICANT ACCOUNTING POLICIES impact on the financial position or performance of the Group.
(a) Statement of compliance (iii) New Accounting Standards and Interpretations issued but not yet The financial report is a general purpose financial report which has been effective
FINANCIAL REPORT REPORT FINANCIAL prepared in accordance with the requirements of the Corporation Act 2001, Australian Accounting Standards and Interpretations that have been issued Australian Accounting Standards and other authoritative pronouncements or amended but are not yet effective and have not been adopted by the of the Australian Accounting Standards Board (“AASB”). The financial report 80 Group for the annual reporting period ended 30 June 2013 are detailed complies with Australian Accounting Standards and International Financial below. Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. AASB 9 Financial Instruments (Effective 1 July 2015) AASB 9 includes requirements for the classification and measurement (b) Basis of preparation of financial assets. It was further amended by AASB 2010-7 to reflect The financial report is presented in Australian Dollars. The financial report amendments to the accounting for financial liabilities. is prepared on the historical cost basis, except for derivative financial instruments which are measured at fair value. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of The Company is of the kind referred to in Class Order 98/100, issued by AASB 139. The main changes are described below: the Australian Securities and Investment Commission, relating to the NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii “rounding” of amounts in the financial report. Amounts in the financial ■ Financial assets that are debt instruments will be classified based on (1) report have been rounded in accordance with that class order to the the objective of the entity’s business model for managing the financial nearest thousand dollars, or in certain cases the nearest dollar. assets; (2) the characteristics of the contractual cash flows.
(i) Critical accounting judgements and estimates ■ An irrevocable election can be made on initial recognition to present gains and losses on investments in equity instruments that are not held The preparation of the financial report requires the use of certain critical for trading in other comprehensive income. Dividends in respect of accounting estimates. It also requires management to exercise its these investments that are a return on investment can be recognised judgement in the process of applying the Group’s accounting policies. The in profit or loss and there is no impairment or recycling on disposal of areas involving a higher degree of judgement or complexity, or areas where the instrument. assumptions and estimates are significant to the financial statements are disclosed in note 3. 2. Significant accounting policies – continued that give the venturers a right to the net assets are accounted for using the equity method. ■ Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly The adoption of AASB 11 is not expected to have any impact on the Group’s reduces a measurement or recognition inconsistency that would arise as it does not hold any interests in joint arrangements. from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. AASB 12 Disclosure of Interest in Other Entities (Effective 1 July 2013)
■ Where the fair value option is used for financial liabilities the change AASB 12 includes all disclosures relating to an entity’s interests in in fair value is to be accounted for as follows: the change attributable subsidiaries, joint arrangements, associates and structured entities. to changes in credit risk are presented in other comprehensive income New disclosures have been introduced about the judgements made and the remaining change is presented in profit or loss. If this approach by management to determine whether control exists, and to require summarised information about joint arrangements, associates and
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. structured entities and subsidiaries with non-controlling interests.
The adoption of AASB 9 is not expected to have a significant impact on Based on the Group’s current assessment the adoption of AASB 12 is the Group’s financial assets and liabilities. expected to require additional disclosure but will not have a significant impact on the financial statements. AASB 10 Consolidated Financial Statements (Effective 1 July 2013) AASB 10 establishes a new control model that applies to all entities. It AASB 13 Fair Value Measurement (Effective 1 July 2013) replaces parts of AASB 127 Consolidated and Separate Financial Statements AASB 13 establishes a single source of guidance for determining the fair REPORT FINANCIAL dealing with the accounting for consolidated financial statements and value of assets and liabilities. AASB 13 does not change when an entity UIG-112 Consolidation – Special Purpose Entities. The new control model is required to use fair value, but rather, provides guidance on how to 81 broadens the situations when an entity is considered to be controlled by determine fair value when fair value is required or permitted. Application of another entity and includes new guidance for applying the model to specific this definition may result in different fair values being determined for the situations, including when acting as a manager may give control, the impact relevant assets. AASB 13 also expands the disclosure requirements for all of potential voting rights and when holding less than a majority voting assets or liabilities carried at fair value. This includes information about the rights may give control. assumptions made and the qualitative impact of those assumptions on the fair value determined. The adoption of AASB 10 is not expected to have a significant impact on the Group’s current accounting for interests in subsidiaries given that all The Group is currently reviewing its methodologies in determining fair subsidiaries are wholly owned. values. The impact of the adoption of AASB 13 has yet to be determined.
AASB 11 Joint Arrangements (Effective 1 July 2013) AASB 119 Employee Benefits (Effective 1 July 2013) NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET AASB 11 replaces AASB 131 Interests in Joint Ventures and UIG-113 The revised standard changes the definition of short-term employee ii Jointly- controlled Entities - Non-monetary Contributions by Ventures. benefits. The distinction between short-term and other long-term AASB 11 uses the principle of control in AASB 10 to define joint control, employee benefits is now based on whether the benefits are expected to and therefore the determination of whether joint control exists may be settled wholly within 12 months after the reporting date. change. In addition it removes the option to account for jointly controlled The impact of the adoption of AASB 119 is expected to be limited to possible entities using proportionate consolidation. Instead, accounting for a joint reclassifications between short term and long term employee benefits arrangement is dependent on the nature of the rights and obligations resulting in insignificant measurement differences. arising from the arrangement. Joint operations that give the venturers a right to the underlying assets and obligations themselves are accounted for by recognising the share of those assets and obligations. Joint ventures 2. Significant accounting policies – continued intercompany balances and transactions, income and expenses and profit and loss resulting from intra-group transactions have been eliminated AASB 2012-5 Amendments to Australian Accounting Standards arising from in full. Subsidiaries are consolidated from the date on which control is Annual Improvements 2009-2011 Cycle (Effective 1 July 2013) transferred to the Group and cease to be consolidated from the date on AASB 2012-5 makes amendments resulting from the 2009-2011 Annual which control is transferred out of the Group. Improvements Cycle. The Standard addresses a range of improvements, including the following; repeat application of AASB 1 is permitted (AASB (d) Business combinations 1) and clarification of the competitive information requirements when an Subsequent to 1 July 2009 entity provides a third balance sheet (AASB 101 Presentation of Financial The acquisition method of accounting is used to account for all business Statements). combinations. The consideration transferred comprises the fair value of AASB 2011-4 Amendments to Australian Accounting Standards to remove the assets transferred, the liabilities incurred, the equity interest issued individual Key Management Personnel disclosure requirements (Effective 1 by the acquirer and the amount of any non-controlling interest in the July 2013) acquiree. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the This amendment deletes from AASB 124 Related Party Disclosures proportionate share of the acquiree’s net identifiable assets. Acquisition individual key management personnel disclosure requirements for related costs are expensed as incurred. disclosing entities that are not companies. When the Group acquires a business, it assesses the financial assets AASB 2012-9 Amendments to AASB 1048 arising from the withdrawal of
FINANCIAL REPORT REPORT FINANCIAL and liabilities assumed for appropriate classification and designation in Australian Interpretation 1039 (Effective 1 July 2013) accordance with the contractual terms, economic conditions, the Group’s This amendment amends AASB 1048 Interpretation of Standards to 82 operating or accounting policies and other pertinent conditions as at the evidence the withdrawal of Australian Interpretation 1039 Substantive acquisition date. If the business combination is achieved in stages, the Enactment of Major Tax Bills in Australia. acquisition date fair value of the acquirer’s previously held equity interest in Interpretation 21 Levies (Effective 1 July 2014) the acquiree is remeasured at fair value as at the acquisition date through profit or loss. This interpretation confirms that a liability to pay a levy is only recognised when the activity that triggers the payment occurs. Applying the going Any contingent consideration to be transferred by the acquirer is concern assumption does not create a constructive obligation. recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the The above four amendments and interpretations are not expected to have a scope of AASB 139 Financial Instruments: Recognition and Measurement, significant impact on the Group’s financial statements. is measured at fair value with changes in fair value recognised either (c) Basis of consolidation through profit or loss or as a change to other comprehensive income. If the NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii contingent consideration is not within the scope of AASB 139, it is measured The consolidated financial statements comprise the financial statements in accordance with the appropriate AASB. Contingent consideration that of the Group as at 30 June each year. Subsidiaries are those entities over is classified as equity is not remeasured and subsequent settlement is which the Group has the power to govern the financial and operating accounted for within equity. policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or The excess of the aggregate of the consideration transferred, the amount convertible are considered when assessing whether a Group controls of any non-controlling interest in the acquiree and the acquisition date another entity. The financial statements of subsidiaries are prepared fair value of any previous equity interest in the acquiree over the fair value for the same reporting period as the parent company, using consistent of the Group’s share of the net identifiable assets acquired is recorded as accounting policies. In preparing the consolidated financial statements, all goodwill. If those amounts are less than the fair value of the net identifiable 2. Significant accounting policies – continued Financial difficulties of the debtor, default payments or debt more than 120 days overdue are considered evidence of impairment. The amount of the assets of the subsidiary acquired and the measurement of all amounts has impairment loss is the receivable carrying amount compared to the present been reviewed, the difference is recognised directly in the Statement of value of estimated future cash flows, discounted at the original effective Comprehensive Income as a bargain purchase. interest rate. Prior to 1 July 2009 (h) Inventory Business combinations were accounted for using the purchase method. Inventories are initially measured and recorded at cost on a first-in, Transaction costs directly attributable to the acquisition formed part of the first-out basis and are subsequently valued at the lower of cost and net acquisition costs. realisable value. Net realisable value is the estimated selling price in the (e) Foreign currency translation ordinary course of business, less estimated costs of completion and the
The functional and presentation currency of iiNet Limited is Australian estimated costs necessary to make the sale. Dollars. The functional currency of its subsidiaries is Australian Dollars. (i) Investments and other financial assets Transactions in foreign currencies are initially recorded in the functional Investment and financial assets within the scope of AASB 139 Financial currency by applying the exchange rate ruling at the date of the Instruments: Recognition and Measurement are categorised as either transaction. Monetary assets and liabilities denominated in foreign financial assets at fair value through the Statement of Comprehensive currencies are retranslated at the foreign exchange rate ruling at the Income, loans and receivables, held to maturity investments, or available- reporting date. Foreign exchange differences arising on translation are for-sale financial assets. The classification depends on the purpose for REPORT FINANCIAL recognised in the Statement of Comprehensive Income. Non-monetary which the investments were acquired. When financial assets are recognised items are measured in terms of historical cost in a foreign currency and are initially they are measured at fair value, plus, in the case of assets not 83 translated using the exchange rate as at the date of the initial transaction. at fair value through the Statement of Comprehensive Income, directly attributable transaction costs. All regular way purchases and sales of (f) Cash and cash equivalents financial assets are recognised on the trade date, i.e. the date that the Cash and cash equivalents comprise cash balances and short-term deposits Group commits to purchase the asset. Regular way purchases or sales are that are readily convertible to known amounts of cash and are subject to an purchases or sales of financial assets under contracts that require delivery insignificant risk of change in value and generally have a maturity of three of the assets within the period established generally by regulation or months or less. convention in the market place. Financial assets are de-recognised when the right to receive cash flows from the financial assets have expired For the purpose of the Statement of Cash Flows, cash and cash equivalents or have been transferred. Loans and receivables are non-derivative consist of cash as defined above, net of outstanding bank overdrafts. Bank financial assets with fixed or determinable payments that are not quoted overdrafts are included within interest bearing loans and borrowings in in an active market. Such assets are carried at amortised cost using the NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET current liabilities in the Statement of Financial Position. effective interest method. Gains and losses are recognised in Statement of ii (g) Trade and other receivables Comprehensive Income when the loans and receivables are de-recognised or impaired, as well as through the amortisation process. The Group does Trade receivables, which generally have a 30 day term, are recognised not hold any financial assets or investments classified as held to maturity initially at fair value and subsequently measured at amortised cost using investments or available for sale securities. the effective interest rate method, less allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis. Individual debts that are known to be uncollectable are written off when identified. An allowance for impairment is recognised when there is objective evidence that the Group will not be able to collect the receivable. 2. Significant accounting policies – continued transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating (j) Plant and equipment leases. Finance leases are capitalised at the inception of the lease at the fair Plant and equipment and leasehold improvements are stated at cost value of the leased asset or, if lower, at the present value of the minimum less accumulated depreciation and any accumulated impairment losses. lease payments. Lease payments are apportioned between the finance Historical costs include expenditure that is directly attributable to the charges and reduction of the lease liability so as to achieve a constant rate acquisition of the items. Subsequent costs are included in the assets’ of interest on the remaining balance of the liability. Assets under finance carrying amount or recognised as a separate asset as appropriate, only leases are depreciated over the shorter of the estimated useful life of when it is probable that future economic benefits associated with the the asset and the lease term if there is no reasonable certainty that the item will flow to the Group and can be measured reliably. All other repairs Group will obtain ownership by the end of the lease term. Operating lease and maintenance are charged to the Statement of Comprehensive Income payments are recognised as an expense in the Statement of Comprehensive during the reporting period in which they are incurred. Income on a straight-line basis over the lease term. Lease incentives are recognised as a liability when received and subsequently reduced by Depreciation is calculated on a straight-line basis over the estimated useful allocating lease payments between rental expense and reduction of the life of the asset as follows: liability. ■ Plant and equipment: 2 – 5 years; ■ Network Infrastructure assets: 5 – 40 years; The Group is party to a number of international bandwidth capacity supply agreements which contains elements of a lease. The lease components ■ Equipment under finance lease: 3 – 15 years or over the lease term; and
FINANCIAL REPORT REPORT FINANCIAL of these agreements have been classified as indefeasible right of use (IRU) Leasehold improvements: 3 - 15 years or over the lease term. ■ finance leases where it meets the criteria for such classification. The assets’ residual values, useful lives and amortisation methods are 84 When the Group is a lessor, leases are classified as either finance leases reviewed, and adjusted if appropriate, at each reporting date. An asset’s or operating leases. Under a finance lease, substantially all the risks and carrying amount is written down immediately to its recoverable amount rewards incidental to legal ownership are transferred to the lessee. In if the asset’s carrying amount is greater than its estimated recoverable contrast, an operating lease exists where the leased assets are allocated to amount. Gains and losses on disposals are determined by comparing the lessor. In its capacity as a lessor, the Group recognises the assets held proceeds with carrying amounts. These are included in the Statement of under finance leases in the Statement of Financial Position, as loans at an Comprehensive Income. amount equal to the net investment in the lease. The recognition of finance An item of plant and equipment is de-recognised upon disposal or when no income is based on a pattern of reflecting a constant periodic return on the further economic benefits are expected from its use or disposal. Any gain Group’s net investment in the finance leases. or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is (l) Impairment of non-financial assets other than goodwill
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET Assets that have finite useful lives are reviewed for impairment whenever ii included in the Statement of Comprehensive Income in the year the asset is de-recognised. events or changes in circumstances indicate that the carrying amount may not be recoverable. The Group conducts an annual internal review (k) Leases of asset values, which is used as a source of information to assess for any The determination of whether an arrangement is or contains a lease is indicators of impairment. External factors such as changes in technology based on the substance of the arrangement and requires an assessment of and economic conditions are also monitored to assess for indicators of whether the fulfillment of the arrangement is dependent upon the use of impairment. If any indication of impairment exists, an estimate of the assets a specific asset or assets and the arrangement conveys a right to use the recoverable amount is calculated. asset. Leases are classified as finance leases when the terms of the lease 2. Significant accounting policies – continued less applicable selling costs at the reporting date. Pre-tax discount rates are used to discount the cash flow to present value. For further details on An impairment loss is recognised for the amount by which the asset’s the methodology and assumptions used please refer to note 10. carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset’s fair value less cost to sell and value in use. For When the recoverable amount of the CGU is less than the carrying amount, the purpose of assessing impairment, assets are grouped at the lowest an impairment loss is recognised. When goodwill forms part of the CGU levels for which there are separately identifiable cash flows that are largely and an operation within that unit is disposed of, the goodwill associated independent of the cash inflows from other assets or Groups of assets with the operation disposed of is included in the carrying amount of the (cash generating units). Non-financial assets other than goodwill that operation when determining the gain or loss on disposal of the operation. suffered impairment are tested for possible reversal of the impairment Goodwill disposed of in this manner is measured based on the relative whenever events or changes in circumstances indicate that the impairment values of the operation disposed of and the portion of the CGU retained. may have reversed. Impairment losses recognised for goodwill are not subsequently reversed.
(m) Goodwill (n) Intangible assets other than goodwill Goodwill acquired in a business combination is initially measured at the Intangible assets acquired separately or in a business combination are cost of the business combination, being the excess of the consideration initially measured at cost. The cost of an intangible asset acquired in a transferred over the fair value of the Group’s net identifiable assets business combination is its fair value at the date of acquisition. Following acquired and the liabilities assumed. If this consideration transferred is initial recognition, intangible assets are carried at cost less any accumulated lower than the fair value of the net identifiable assets of the subsidiary
amortisation and any accumulated impairment losses. Intangible assets, REPORT FINANCIAL acquired, the difference is recognised in the Statement of Comprehensive excluding capitalised development costs and subscriber acquisition costs, Income. Following initial recognition, goodwill is measured at cost less which are created within the business, are not capitalised and recognised in accumulated impairment losses. profit or loss as incurred. 85
Goodwill is reviewed for impairment annually or more frequently if events The useful lives of these intangible assets are assessed to be either finite or changes in circumstances indicate that the carrying value may be or indefinite. Intangible assets with finite useful lives are amortised over impaired. For the purpose of impairment testing, goodwill acquired in a the useful life and assessed for impairment whenever there is an indication business combination is allocated to each of the Group’s cash generating that the intangible asset may be impaired. The amortisation period and the units (CGUs) that are expected to benefit from the synergies of the amortisation method for an intangible asset with a finite useful life are combination. The units to which goodwill is allocated are as follows: reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits ■ iiNet CGU – representing the applicable assets and liabilities of the iiNet embodied in the asset are accounted for by changing the amortisation Group including Westnet Pty Ltd; period or method, as appropriate, which is a change in accounting estimate.
■ Internode CGU – representing Internode Pty Ltd as a standalone cash 2013 REPORT ANNUAL NET ii generating unit. Intangible assets with indefinite useful lives are tested for impairment annually, either individually or at the cash generating unit level. Such Impairment is determined by assessing the recoverable amount of the CGU, intangibles are not amortised. The useful life of an intangible asset with to which the goodwill relates. The Group performs its impairment testing an indefinite useful life is reviewed each reporting period to determine each financial year and calculates the recoverable amount of each CGU to whether the indefinite useful life assessment continues to be supportable. which goodwill has been allocated using fair value less cost to sell based If not, the change in useful life assessment from indefinite to finite is on discounted cash flow methodology. This method calculates the best accounted for as a change in an accounting estimate and is thus accounted estimate that an independent third party would pay to purchase the CGU, for on a prospective basis. No intangible assets with indefinite useful lives are held other than goodwill which is discussed in note 2(m). 2. Significant accounting policies – continued (i) Research and development costs Research costs are expensed as incurred. Costs incurred on development projects are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can be measured reliably. Expenditure capitalised comprises all directly attributable costs including costs of materials, services and direct labour. Other development expenditure that do not meet these criteria are recognised as an expense as incurred. The carrying value of an intangible asset arising from development expenditure is tested for impairment when an indication of impairment arises during the period.
(ii) A summary of the policies applied to the Group’s intangible assets are as follows:
Development Software Licenses Subscriber Bases Subscriber Patents and Beneficial Costs Acquisition Cost Trademarks Lease Contract including IRUs Useful life Finite Finite Finite Finite Finite Finite Amortisation Straight line over Straight line over Straight line over Straight line over Straight line over Straight line over method the period of the the period of the the period of the the period of the the period of the the period of the expected benefit expected benefit expected benefit expected benefit expected benefit expected benefit
FINANCIAL REPORT REPORT FINANCIAL Amortisation period 2 – 5 years 2 – 3 years 5 years 2 years 5 years Lease Term Acquired (A) IG A A A A A 86 or internally generated (IG) Impairment testing When an indicator When an indicator When an indicator When an indicator When an indicator When an indicator of impairment of impairment of impairment of impairment of impairment of impairment exists exists exists exists exists exists
Gains or losses arising from de-recognition of an intangible asset are measured as the difference between net disposal proceeds and the carrying amount of the asset, and are recognised in the Statement of Comprehensive Income when the asset is de-recognised.
(o) Pension plans
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET The Group’s commitment to pension plans is limited to making contributions in accordance with the minimum statutory requirements. There are no legal ii or constructive obligations to pay further contributions if the funds do not hold sufficient assets to pay all employee benefits relating to current and past employee services. Contributions to defined contribution plans are recorded as an expense in the Statement of Comprehensive Income as the contributions become payable.
(p) Trade and other payables Trade payables and other payables are carried at amortised cost and 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. (ii) Long service leave 2. Significant accounting policies – continued The liability for long service leave is recognised and measured as the (q) Interest bearing loans and borrowings present value of expected future payments to be made in respect of Interest bearing loans and borrowings are recognised initially at fair value, services provided by employees up to the reporting date. Consideration net of transaction cost incurred. Subsequent to initial recognition, interest is given to expected future wage and salary levels, experience of bearing borrowings are measured at amortised cost using the effective employee departures, and periods of service. Expected future payments interest method. Borrowings are classified as current liabilities unless the are discounted using market yields at the reporting date on national Group has an unconditional right to defer settlement of the liability for at government bonds with terms to maturity and currencies that match, as least 12 months after the reporting date. closely as possible, the estimated future cash outflows.
Borrowing costs directly attributable to the acquisition, construction or (iii) Long term incentive plan – Managing Director 2012 grant production of qualifying assets are capitalised as part of the cost of the The gross base pool LTI for the Managing Director is determined at grant asset. All other borrowing costs are expensed in the period they occur. date and discounted to its present value at the risk free interest rate Borrowing costs consist of interest and other costs that an entity incurs in of 3.7%, adjusted for the relevant terms and conditions upon which the connection with the borrowing of funds. specific performance rights are granted. The present value of the award is recognised in the Statement of Comprehensive Income over the vesting (r) Provisions period, together with an interest accretion expense, resulting in an increase A provision is recognised in the Statement of Financial Position when the in the related provision. At each reporting date, the current best estimate Group has a present legal or constructive obligation as a result of a past
of the total value of the award will be re-assessed based on the likelihood REPORT FINANCIAL event and it is probable that an outflow of resources embodying economic of the Managing Director achieving his objectives. All changes in the liability benefits will be required to settle the obligation and a reliable estimate can are recognised in the Statement of Comprehensive Income. be made of the amount of the obligation. 87 (t) Share-based payment transactions Provisions are measured at the present value of management’s best (i) Share option plans estimate of the expenditure required to settle the present obligation using a discounted cash flow methodology. If the effect of the time value of The Group provides benefits to employees (including KMP) in the form of money is material, the provision is discounted using a current pre-tax rate share-based payments, whereby employees render services in exchange that reflects current market assessments of the time value of money and for share options or rights over shares (“equity-settled transactions”). The where appropriate, the risks specific to the liability. The increase in the Group has used the LTI share plan to provide these benefits. provision resulting from the passage of time is recognised in finance costs. The 2005 iiNet employee option plan provides benefits to executives and (s) Employee benefits eligible employees. Options have been issued to specified directors and executives outside this plan. These are accounted for on the same basis as (i) Wages, salaries, annual leave and sick leave NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
those options issued from the 2005 iiNet employee share option plan. The ii Liabilities for wages and salaries, including non-monetary benefits, annual cost of these equity-settled transactions for employees is measured by leave and accumulating sick leave expected to be settled within 12 months reference to the fair value of the equity instrument at the date they were of the reporting date are recognised in respect of employees’ services up granted. The fair value is determined by an external valuer using the Black- to the reporting date. They are measured at the amounts due to be paid Scholes model simulation and Monte Carlo model simulations, further when the liabilities are settled. Liabilities for non-accumulating sick leave details of which are given in note 27. In valuing equity-settled transactions, are recognised when the leave is taken and are measured at the rates paid no account is taken of any vesting conditions, other than conditions linked or payable. to the price of the shares of iiNet Limited (market conditions) if applicable. 2. Significant accounting policies – continued corporate objectives over the long term. The plan grants are accounted for as follows: The cost of equity-settled transactions is recognised together with a corresponding increase in equity, over the period in which the performance 2012 Grant (Executives other than the Managing Director) and/or service conditions are fulfilled (the vesting period), ending on the The 2012 grant commenced on 1 July 2011 and has a 3-year performance date on which the relevant employees become fully entitled to the award period, with a subsequent retention period of 3 to 6 months. A base pool (the vesting date). LTI value is determined for each executive at the start of each performance At each subsequent reporting date until vesting, the cumulative charge to period. Each ‘performance right’ represents an executive right to receive the Statement of Comprehensive Income is the product of: one iiNet share in the future for no consideration, subject to meeting the specific performance targets. The fair value of the equity-settled ■ the grant date fair value of the award; performance rights to be awarded is calculated at the grant date and
■ the current best estimate of the number of awards that will vest, recognised in the Statement of Comprehensive Income, together with a taking into account such factors as the likelihood of employee corresponding increase in equity, over the vesting period. The assessment turnover during the vesting period and the likelihood of non- date will be at the end of the performance period. At each reporting date market performance conditions being met; and the current best estimate of the total number of performance rights to be awarded will be re-assessed based on the likelihood of executives ■ the expired portion of the vesting period. achieving their objectives with all changes recognised in the Statement of The charge to the Statement of Comprehensive Income for the period Comprehensive Income. FINANCIAL REPORT REPORT FINANCIAL is the cumulative amount as calculated above less the amount already 2013 Grant (All executives, including Managing Director) charged in previous periods. There is a corresponding entry to equity. 88 Until an award has vested, any amounts recorded are contingent and will Under the 2013 grant executives have been allocated a fixed amount of be adjusted if more or fewer awards vest than were originally anticipated performance rights which are subject to 1, 2 and 3-year performance to do so. Any award subject to a market condition is considered to vest periods under which executives must remain employed until 30 June 2015. irrespective of whether or not that the market condition is fulfilled, Performance rights will only vest if the TSR performance is achieved for provided that all other conditions are satisfied. If the terms of the equity- each performance period. The grant-date fair value of the performance settled award are modified, as a minimum an expense is recognised as if the rights granted to executives is recognised as an employee expense, with terms had not been modified. An additional expense is recognised for any a corresponding increase in equity, over the period that the executive modification that increases the total fair value of the share-based payment becomes unconditionally entitled to the awards (vesting period). The arrangement, or is otherwise beneficial to the employee, as measured amount recognised as an expense is adjusted to reflect the number of at the date of modification. If an equity-settled award is cancelled, it is awards for which the related service conditions are expected to be met, treated as if it had vested on the date of cancellation, and any expense such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service condition at the vesting NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET not yet recognised for the award is recognised immediately. However, if ii a new award is substituted for the cancelled award and designated as a date. The grant-date fair value of the awards is measured to reflect market replacement award on the date it is granted, the cancelled and new award conditions and there is no true up for differences between expected and are treated as if they were a modification of the original award. The dilutive actual outcomes. effect, if any, of outstanding options is reflected as additional share dilution While the Managing Director’s phantom rights will be settled in cash or in the computation of diluted earnings per share. There is no impact from shares (at the Board’s discretion), the Group expects the award to be equity Group transactions as all employees are employed by the parent. settled and have accounted for it accordingly. If the award is subsequently (ii) Long term incentive share plan – equity-settled settled in cash (at the 30 day VWAP immediately prior to vesting date) it will be recognised as a reduction to issued capital. The Group established a share-based incentive plans to provide benefits to specific executives. The plan is designed to motivate executives to achieve 2. Significant accounting policies – continued (w) Derivative financial instruments and hedging (u) Contributed equity The Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to manage its risks associated with Ordinary shares are classified as equity. Incremental costs directly foreign currency and interest rate fluctuations. Such derivative financial attributable to the issue of new shares or options are shown in equity as a instruments are initially recognised at fair value on the date on which a deduction, net of tax, from the proceeds. derivative contract is entered into and are subsequently remeasured to fair (v) Revenue recognition value. Derivatives are carried as assets when their fair value is positive and Revenue is recognised and measured at the fair value of the consideration as liabilities when their fair value is negative. Any gains or losses arising from received or receivable to the extent it is probable that the economic changes in the fair value of derivatives, except for those that qualify for benefits will flow to the Group and the revenue can be reliably measured. hedge accounting, are taken to the Statement of Comprehensive Income. The following specific recognition criteria must also be met before revenue The fair values of forward currency contracts are calculated by reference to is recognised: current forward exchange rates. The fair values of interest rate swaps are determined using valuation techniques that discount cash flows to present (i) Rendering of services value using current market interest rates. Hedges that meet the strict Revenue from the provision of telecommunications services includes criteria for hedge accounting are accounted for as follows: the provision of internet and data services and other services, such as Cash flow hedges telephone calls. The Group records revenue earned from: Cash flow hedges are hedges of the Group’s exposure to variability in cash ■ internet and data services over the period of service provided; and flows that are either attributable to a particular risk associated with a REPORT FINANCIAL recognised asset or liability or a highly probable forecast transaction or the ■ telephone calls on completion of the call. foreign currency risk in an unrecognised firm commitment. The effective 89 Unearned revenue represents the component of cash received from the portion of the gain or loss on the hedging instrument is recognised customer for the period from reporting date to the expiry date of the directly in Other Comprehensive Income, while the ineffective portion is customer’s subscription in advance of their subscription period. recognised in the Statement of Comprehensive Income. Amounts taken to Other Comprehensive Income are transferred to the Statement of (ii) Sale of hardware Comprehensive Income when the hedged transaction affects profit or Revenue is recognised when the significant risks and rewards of loss, such as when the hedged financial income or financial expense is ownership of the goods have passed to the customer and the revenue recognised, or when a forecast transaction occurs. Where the hedged can be measured reliably. Risks and rewards are considered passed to the item is the cost of a non-financial asset or non-financial liability, the customer at the time of delivery of the goods to the customer. amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability. The Group tests the designated cash (iii) Interest income
flow hedge for effectiveness and ineffectiveness at each reporting date 2013 REPORT ANNUAL NET ii Revenue is recognised as interest accrues using the effective interest both retrospectively and prospectively. If the hedge testing falls within method. This is a method of calculating the amortised cost of a financial the 80-125% range, the hedge is considered highly effective and continues asset and allocating the interest income over the relevant period using the to be designated as a cash flow hedge. If the forecast transaction or firm effective interest rate, which is the rate that exactly discounts estimated commitment is no longer expected to occur, amounts recognised in equity future cash receipts through the expected life of the financial asset to the are transferred to the Statement of Comprehensive Income. net carrying amount of the financial asset. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked (due to it being ineffective), amounts previously recognised in Other Comprehensive Income remain in Other Comprehensive Income until the forecast transaction occurs. 2. Significant accounting policies – continued Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to off-set current tax assets against current tax (x) Tax liabilities and the deferred tax assets and liabilities relate to the same Tax expense comprises current and deferred tax. Current tax and deferred taxable entity and the same taxation authority. tax are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or other (iii) Tax consolidation legislation comprehensive income. iiNet Limited and its wholly-owned Australian controlled entities have elected to implement the requirements of the tax consolidation legislation. (i) Current tax The head entity, iiNet Limited and the controlled entities in the tax Current tax is the expected tax payable or receivable on the taxable income consolidated Group continue to account for their own current and deferred or loss for the year, using rates enacted or substantively enacted at the tax amounts. reporting date, and any adjustments to tax payable in respect of previous
years. Current tax payable also includes any tax liability arising from the (iv) Goods and service tax (GST) declaration of dividends. Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the (ii) Deferred tax taxation authority. In this case it is recognised as part of the cost of Deferred tax is recognised in respect of temporary differences between the acquisition of the asset or as part of the expense. Receivables and payables tax bases of assets and liabilities and their carrying amounts for financial are stated inclusive of the amount of GST receivable or payable. The net
FINANCIAL REPORT REPORT FINANCIAL reporting purposes. amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the Statement of Financial Deferred tax is not recognised for: 90 Position. Cash flows are presented on a gross basis. The GST components ■ temporary differences arising from the initial recognition of goodwill of cash flows arising from investing or financing activities which are or of an asset or liability in a transaction that is not a business recoverable from, or payable to the taxation authority, are presented as combination and, at the time of the transaction, affects neither the operating cash flows. accounting profit nor taxable profit or loss; or Commitments and contingencies are disclosed net of the amount of GST ■ temporary differences related to investments in subsidiaries and the recoverable from, or payable to, that taxation authority. timing of the reversal of the temporary differences can be controlled and it’s probable that the temporary differences will not reverse in the (y) Segmental reporting foreseeable future. An operating segment, is a distinguishable component of an entity that engages in business activities from which it may earn revenue and incur Deferred taxes are measured at the tax rates that are expected to be expenses, whose operating results are regularly reviewed by the Group’s applied to temporary differences when they reverse, using tax rates (and NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii chief operating decision maker to make decisions about how resources tax laws) enacted or substantially enacted at the reporting date. should be allocated to the segment and assess its performance and for Deferred tax assets are recognised for unused tax losses, tax credits and which discrete financial information is available. deductible temporary differences, to the extent that it is probable that Operating segments have been identified based on the information future taxable profits will be available against which they can be utilised. provided to the chief operating decision maker – being the executive The carrying amount of deferred tax assets is reviewed at each reporting management team of the iiNet Group. The Group aggregates two or more date and reduced to the extent that it is no longer probable that sufficient operating segments when they have similar economic characteristics, and taxable profit will be available to allow all or part of the deferred tax to be the segments are similar in each of the following respects: utilised. Unrecognised deferred 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. 2. Significant accounting policies – continued 3. SIGNIFICANT ACCOUNTING ■ nature of the products and services provided; JUDGEMENTS, ESTIMATES AND ■ nature of the production process; ASSUMPTIONS ■ type or class of customer for the products and services; ■ methods used to distribute the products or provide the services; and Management has identified the following critical accounting policies for which significant accounting judgements, estimates and assumptions ■ nature of the regulatory environment. are made. Actual results may differ from these estimates under different Operating segments that meet the quantitative criteria as prescribed by assumptions and conditions and may materially affect the financial results AASB 8 are reported separately. An operating segment that does not meet or the financial position reported in future periods. the quantitative criteria is still reported separately where the information Significant accounting judgements about the segment would be useful to the users of the financial statements. (i) Amortisation of intangible assets with finite useful lives In relation to the amortisation of intangibles with finite useful lives, Information relating to other business activities and operating segments, management’s judgements are used to determine the estimated useful below the quantitative criteria, as prescribed by AASB 8 are combined and lives. Details of the useful lives are disclosed in note 2 (n). disclosed in a separate category for “all other segments”. (ii) Capitalisation development costs (z) Earnings per share Development costs are only capitalised by the Group when it can REPORT FINANCIAL Basic earnings per share is calculated as net profit attributable to members demonstrate the technical feasibility of completing the asset so that the of the parent, adjusted to exclude costs of servicing equity (other than asset will be available for use or sale, how the asset will generate future dividends) divided by the weighted average number of ordinary shares, 91 economic benefits and the ability to measure reliably the expenditure adjusted for any bonus element. Diluted earnings per share is calculated as attributable to the intangible asset during its development. net profit attributable to members of the parent, adjusted for the cost of servicing equity (other than dividends) and the after tax effects of dividends (iii) Lease classification – Indefeasible Right of Use (“IRU”) and interest associated with dilutive potential ordinary shares that have Where the capacity purchased under IRU arrangements represents an been recognised as an expense, divided by weighted average number exclusive right over a separately identifiable asset, the Group has concluded of ordinary shares and dilutive ordinary shares adjusted for any bonus that these IRU arrangements contain a lease. The classification of the element. lease component of the IRU as an operating or finance lease is assessed in (aa) Non-current assets held for sale accordance with the Group’s stated accounting policy on leases. In the case of finance leases, the right of use asset is presented as an intangible asset. Non-current assets are classified as held for sale if carrying amounts will NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET be recovered principally through a sale transaction rather than through (iv) Taxation ii continuing use. Non-current assets and disposal groups classified as held Judgements are required in assessing whether deferred tax assets and for sale are measured at the lower of carrying amount and fair value less certain deferred tax liabilities are recognised on the Statement of Financial costs to sell. The criteria for held for sale classification is regarded as met Position. Deferred tax assets, including those arising from un-recouped tax only when the sale is highly probable and the asset or disposal group is losses, capital losses and temporary differences, are recognised only where available for immediate sale in its present condition. Management must be it is considered more likely than not that they will be recovered, which is committed to the sale, which should be expected to qualify for recognition dependent on the generation of sufficient future taxable profits. as a completed sale within one year from the date of classification.
Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale. 3. Significant accounting judgements, estimates and assumptions – 4. FINANCIAL RISK MANAGEMENT continued The Group’s activities expose it to a variety of financial risks. These include Judgements about the generation of future taxable profits and repatriation interest rate risk, liquidity risk, foreign currency risk and credit risk. The of retained earnings depend upon management’s estimates of future cash Group manages its exposure to these risks in accordance with its risk flows. These depend on estimates of future sales, cost of sales, operating management policy. This policy seeks to minimise the potential adverse costs, capital expenditure, dividends and other capital management effects these risks may have on the financial performance of the Group. transactions. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and The Group uses derivative financial instruments, such as foreign currency uncertainty, hence there is a possibility that changes in circumstances forward contracts and interest rate swaps, to manage the currency and will alter expectations, which may impact the amount of deferred tax interest rate risks that arise on the Group’s overseas activities and its assets and deferred tax liabilities recognised on the Statement of Financial sources of finance. Derivatives are used for risk management purposes and
Position and the amount of other tax losses and temporary differences not as trading or other speculative instruments. The Group uses different not yet recognised. In such circumstances, some or all of the carrying methods to measure the different types of risk to which it is exposed, amounts of recognised deferred tax assets and liabilities may require including sensitivity analysis in the case of interest rate and foreign adjustment, resulting in a corresponding credit or charge to the Statement exchange risk, ageing analysis for credit risk and cash flow forecasts for of Comprehensive Income. liquidity risk.
Significant accounting estimates and assumptions Risk management is carried out by executive management and the Audit FINANCIAL REPORT REPORT FINANCIAL (i) Impairment of goodwill and Risk Committee, both of whom act under the authority of the Board of The Group determines whether goodwill is impaired at least on an annual Directors. There have been no significant changes in the Group’s policy for 92 basis. This requires estimation of the recoverable amount of the cash managing interest rate risk, liquidity risk, foreign currency risk and credit generating units to which goodwill have been allocated. The assumptions risk from 30 June 2012. used in this estimation of recoverable amount and the amount of goodwill The Group’s financial assets and liabilities comprise cash and cash are discussed in note 10. equivalents, receivables, payables, bank loans, finance leases and (ii) Share-based payment transactions derivatives. 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 by an external valuer using a Black-Scholes model and Monte Carlo model simulation, using the assumptions detailed in note 27. The accounting estimates and NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the annual reporting period but may impact expenses and equity.
4. Financial risk management – continued Based on the results of the reviews performed, the Group considers its main interest rate risk arises from its variable interest rate (a) Interest rate risk exposure on its long term borrowings. To manage this risk the Group Interest rate risk is the risk that the fair value or future cash flows of a uses interest rate swaps. Such swaps have the economic effect of financial instrument will fluctuate because of changes in market interest converting borrowings from floating rates to fixed rates. Generally, rates. At the reporting date the Group had the following financial assets the Group raises long term borrowings at floating rates and swaps and liabilities exposed to Australian variable interest rates that are not them into fixed rates that are lower than those available if the Group designated in a cash flow hedge: had borrowed at fixed rates directly.
Consolidated Under the interest rate swap, the Group agrees with a financial institution to exchange at monthly intervals, the difference 2013 2012 between the fixed contract rates and floating-rate interest amounts $’000 $’000 calculated by reference to the agreed notional principal amount. At Financial Assets the reporting date, 46% (2012: 47%) of the Group’s bank loan facility Cash and cash equivalents 12,369 6,606 outstanding was at a variable rate of interest.
Financial Liabilities Bank loan (unhedged) 86,000 106,000
Borrowings and cash held at variable rates expose the Group to cash flow 93 interest rate risk. The Group’s policy to manage cash flow interest rate risk includes:
■ Performing sensitivity analysis, where the Group calculates the impact on profit for a defined interest rate shift;
■ Investigation into alternative financing and the renewal of existing borrowing positions to obtain more favourable terms; and
■ The use of interest rate swaps to ensure at least 50% of net debt is hedged to fixed interest rates.
Interest rate swap contracts outlined in note 29 are exposed to fair value movements if interest rates change. An analysis of maturities is provided in note 4 (b). Foreign currency forward contracts are exposed to fair value movements if interest rates change. An analysis of their fair value measurements is provided in note 4(e).
Photograph by Maria Galeano, Customer Service Manager. 4. Financial risk management – continued The following sensitivity analysis is based on the net cash flow interest rate exposure in existence at the reporting date. At 30 June 2013 if interest rates had moved as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows:
Consolidated Post tax profit Other Comprehensive Income Higher/(Lower) Higher/(Lower) 2013 2012 2013 2012 Judgements of reasonably possible movements: $’000 $’000 $’000 $’000
+ 0.25% (2012: + 0.50%) (129) (351) 250 337 - 0.25% (2012: - 0.25%) 129 176 (250) (168)
The movements in profit are due to higher / lower interest costs from variable rate debt and cash balances. The movement in other comprehensive income is due to an increase / decrease in the fair value of the derivative instrument designated as a cash flow hedge. Management consider +25 basis points and -25 basis points as reasonably possible movements for the next twelve months based on management’s expectations of future interest rate movements. FINANCIAL REPORT REPORT FINANCIAL (b) Liquidity risk Liquidity risk reflects the risk that the Group will have insufficient resources to meets its financial liabilities as they fall due. The Group’s strategy in managing 94 liquidity risk is to ensure that the Group has sufficient funds to meet all its potential liabilities as they fall due, in both normal and abnormal market and trading conditions. This ensures that the Group avoids any risk of incurring contractual penalties or damage to its reputation.
Cash flow is monitored on a daily basis to ensure the utilisation of current facilities is optimised, on a monthly basis to ensure that long term liquidity is maintained and on a long term projection basis for the purpose of identifying long term funding requirements. Management assesses the balance of capital and debt funding of the Group as part of its monthly internal reporting. The Group has access to undrawn borrowing facilities totalling $144 million (2012: $59 million) at reporting date. The remaining facility may be drawn down at any time. Details of the loan facility are provided in note 15 and 22(e).
The following tables analyse the Group’s financial liabilities and net and gross settled derivative financial instruments into the relevant maturity periods. Management has based the analysis on the contracted maturity terms included in the Group’s bank loans, finance lease and derivative financial instruments agreements. Maturity of the Group’s trade creditors is based on the payment terms to suppliers. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 4. Financial risk management – continued (i) 30 June 2013
Consolidated 6 months or 6 – 12 months 1 – 5 years After more less or less than 5 years $’000 $’000 $’000 $’000 Non-derivative financial liabilities Trade and other payables 96,660 - - -
Bank loan (principal and interest) 5,361 5,361 200,297 - Finance lease liabilities 1,894 135 671 - IRU lease liabilities 6,981 7,640 96,549 22,795 Total non-derivative financial liabilities 110,896 13,136 297,517 22,795
Derivative financial liabilities REPORT FINANCIAL Interest rate swap (settled net) 95 41 41 - 95 Foreign currency forward contracts (settled gross) - Outflow 11,129 10,458 88,869 2,526 - Inflow (11,541) (11,047) (96,240) (2,728) Total derivative financial liabilities (317) (548) (7,330) (202) Total 110,579 12,588 290,187 22,593 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 4. Financial risk management – continued (ii) 30 June 2012
Consolidated 6 months or 6 – 12 months 1 – 5 years After more less or less than 5 years $’000 $’000 $’000 $’000 Non-derivative financial liabilities Trade and other payables 84,498 - - -
Bank loan (principal and interest) 6,983 6,983 246,950 - Finance lease liabilities 1,590 433 1,081 - IRU lease liabilities 8,116 8,116 42,666 - Total non-derivative financial liabilities 101,187 15,532 290,697 -
FINANCIAL REPORT REPORT FINANCIAL Derivative financial liabilities Interest rate swap (settled net) 357 62 - - 96 Foreign currency forward contracts (settled gross) - Outflow 4,685 3,904 - - - Inflow (4,585) (3,786) - - Total derivative financial liabilities 457 180 - - Total 101,644 15,712 290,697 -
Refer to note 29 for details relating to the Group’s derivative financial instruments.
(c) Foreign currency risk NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii Foreign exchange risk arises from recognised financial assets and liabilities denominated in a currency other than Australian Dollars and future commercial transactions that will require the Group to make payment for services in currencies other than Australian Dollars. Foreign currency risk is measured using sensitivity analysis and cash flow forecasting.
The Group operates internationally through its call centre operations in New Zealand and South Africa. It also regularly enters into international bandwidth supply agreements and other inventory supply agreements with overseas vendors. The Group is therefore exposed to foreign currency risk arising mainly from the United States Dollar (USD), New Zealand Dollar (NZD) and the South African Rand (ZAR).
The Group considers its key foreign currency exposures to relate to its international bandwidth supply agreements denominated in USD and costs associated with its call centre operations in South Africa denominated in ZAR. 4. Financial risk management – continued In July 2012 the Group entered into a new international capacity supply agreement with Southern Cross Cables Limited. The lease component of this agreement has been accounted for as a USD denominated IRU finance lease. Whilst the USD is considered a stable currency the significant contract value, and resulting liability recognised in the Statement of Financial Position, creates a material USD exposure for the Group. Furthermore the Group’s call centre operations in South Africa is also considered a key risk due to the high value of current and forecast South African Rand transactions and the volatile nature of that currency.
The Group has managed its exposure to the risks identified above by entering into forward exchange contracts. Details of the forward exchange contracts are disclosed in note 29. Hedge accounting has been applied to each forward exchange contract. These contracts are subject to fair value movements through Other Comprehensive Income as the exchange rates fluctuate against the Australian Dollar.
The Group considers its exposure to fluctuations in the NZD and the USD (other than the IRU finance lease identified above) not to be a significant risk due to the relatively low value of transactions and the relative stability of these currencies. In this regard the Group has chosen not to enter into forward exchange contracts to manage its NZD and residual USD exposures.
Consolidated
2013 2012 REPORT FINANCIAL $’000 $’000 USD ZAR NZD USD ZAR NZD 97 The Group’s exposure Cash at bank 2 804 45 - 795 16 to foreign currency risk at the reporting Trade payables (2,621) (824) (100) (632) (1,749) (172) date, expressed in IRU liability (Southern Cross) (86,697) - - - - - Australian dollars, is Statement of Financial Position exposure (89,316) (20) (55) (632) (954) (156) as follows: Highly probable forecast and contracted transactions (17,783) (8,034) - - (7,701) -
Total Foreign Currency exposure (107,099) (8,054) (55) (632) (8,655) (156) Forward exchange contracts 104,493 8,838 - - 8,471 -
Net exposure (2,606) 784 (55) (632) (184) (156) 2013 REPORT ANNUAL NET ii 4. Financial risk management – continued
Consolidated At 30 June 2013, if exchange rates had Post tax profit Other Comprehensive Income moved as illustrated in Higher/(Lower) Higher/(Lower) the table below, with Judgements of reasonably possible 2013 2012 2013 2012 all other variables movements: $’000 $’000 $’000 $’000 held constant, post tax profit would Exchange rate movement have been affected as + 10% (2012: + 10%) (400) (74) (1,204) (745) follows: - 10% (2012: - 10%) 488 90 1,472 678
The movements in profit are due to the appreciation/depreciation of the exchange rates impacting foreign currency cash and trade payable balances. Profit sensitivity is higher in 2013 due to higher foreign currency trade payables held by the Group as at 30 June 2013. There is also an impact on Other Comprehensive Income due to the application of hedge accounting for the USD and ZAR and the US Dollar forward exchange contracts.
FINANCIAL REPORT REPORT FINANCIAL Management considers +10% and -10% as reasonable possible movements for the next twelve months based on management’s expectations of future South African Rand, New Zealand Dollar and US Dollar exchange rate movements.
98 (d) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group’s credit risk arises from its financial assets which include cash and cash equivalents, deposits held with financial institutions, derivative financial instruments and trade receivable balances from customers.
Customer credit risk is managed by the Group’s credit team subject to established policies, procedures and controls relating to credit risk management. Other debtor balances which arise from transactions outside the usual operating activities of the Group and related party receivables do not contain impaired assets and are not past due date. For further information about the Group’s trade receivables and other debtors refer to note 7.
It is the Group’s policy to only enter into derivative contracts and hold its cash and deposits with high credit quality financial institutions that have a credit rating of A and above as assessed by Standard and Poor’s. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii In the 2013 and 2012 financial years the Group has not requested any collateral to limit its exposure to credit risk nor has the Group securitised its trade and other receivables. The maximum exposure to credit risk is equal to the carrying amount of the asset and in the case of derivatives, their fair value. Exposure at the reporting date is addressed in each applicable note to the financial statements. There are no significant concentrations of credit risk within the Group as at 30 June 2013 or 30 June 2012. 4. Financial risk management – continued (e) Fair value of financial instruments AASB 7 Financial Instruments: Disclosures, which requires disclosure of fair value measurement inputs by level using the following fair value measurement hierarchy:
(a) Quoted prices in active markets (Level 1); (b) Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (Level 2); and (c) Inputs that are not based on observable market data (Level 3).e.
30 June 2013 30 June 2012
Level 2 Total Level 2 Total $’000 $’000 $’000 $’000 The following table Derivative financial asset analyses the Group’s
financial assets and Foreign currency forward – cash flow hedge 8,462 8,462 - - REPORT FINANCIAL liabilities measured and recognised at fair 99 value. Derivative financial liabilities Foreign currency forward contracts – cash flow hedge (225) (225) (213) (213) Interest rate swap contracts – cash flow hedge (176) (176) (419) (419)
Total 8,061 8,061 (632) (632)
The derivative contracts held by the Group are not traded on a recognised exchange and therefore their fair value has been determined using valuation techniques which are based on observable inputs such as forward interest and foreign currency rates. The fair values of foreign currency forward contracts have been calculated by reference to forward market exchange rates for contracts with similar maturity profiles. The fair values of interest rate swap NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET contracts are based on the present value of the estimated future cash flows. ii 5. REVENUE AND EXPENSES Consolidated 2013 2012 $’000 $’000 (a) Other revenue Bank and other interest received 1,006 1,184
(b) Other income Includes the following: Commissions received 272 400 Gain on acquisition (refer note 30) - 3,279
(c) Employee expenses Wages and salaries 127,721 98,650 Superannuation expense 9,320 7,003 Expense arising from share-based payments 2,164 743
FINANCIAL REPORT REPORT FINANCIAL Other employee benefits expense 5,321 4,288 Total 144,526 110,684 100 (d) Depreciation and amortisation expense Plant, equipment and leasehold improvements 41,864 35,337 Subscriber acquisition costs 4,674 4,988 Capitalised development costs 4,084 1,763 Subscriber bases 11,363 10,988 Indefeasible right of use assets 12,388 6,936 Software, licenses and other intangible assets 7,672 5,446 Total 82,045 65,458 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii (e) Finance costs Bank and other interest charges 12,062 12,878 Finance lease interest charges 71 84 Indefeasible right of use lease interest charges 8,738 3,726 Other borrowing costs 1,858 874 Total 22,729 17,562
(f) Lease payments included in the Statement of Comprehensive Income Minimum lease payments – operating leases 9,800 8,273 6. INCOME TAX (a) Income tax expense The major components of income tax expense recognised in the Statement of Comprehensive Income are:
Consolidated 2013 2012 $’000 $’000 Current tax expense Current income tax charge 26,812 18,357
Adjustments in respect of previous years 73 10 Adjustment for rights to future income tax - 3,029 Deferred tax expense Relating to the origination and reversal of temporary differences (3,703) (714) Adjustments in respect of previous years 1,030 498 FINANCIAL REPORT REPORT FINANCIAL Adjustment for rights to future income tax - 4,775 Recognition of tax losses (1,909) - 101 Total 22,303 25,955
(b) Amounts charged or credited directly to other comprehensive income Consolidated 2013 2012 $’000 $’000 (Loss) / gain on cash flow hedge (74) (134) Other - (28) NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET Total (74) (162) ii 6. Income tax – continued (c) Reconciliation between tax expense and pre-tax profit at the statutory rate A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows:
Consolidated 2013 2012 $’000 $’000 Profit before income tax 83,241 63,009
At the Group’s statutory income tax rate of 30% (2012: 30%) 24,972 18,903 Adjustments in respect of previous years 1,103 508 Non-taxable items - (1,588) Expenditure not allowable for income tax purposes 2,906 328 FINANCIAL REPORT REPORT FINANCIAL Income tax adjustments for rights to future income (i) - 7,804 Recognition of tax losses (1,909) - 102 Utilisation of tax losses (4,769) - Income tax expense 22,303 25,955
(i) Due to charges in the tax consolidation regime enacted in June 2012, the ability of the Group to claim tax deductions for the tax cost base allocated to prior year subscriber bases acquired, was significantly reduced. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 6. Income tax – continued
(d) Recognised deferred tax assets and liabilities Consolidated Deferred tax at 30 June relates to the following: 2013 2012 $’000 $’000 Statement of Financial Position Deferred tax liabilities Accelerated depreciation of plant and equipment for tax purposes (11,885) (15,160) Accelerated amortisation of intangible assets for tax purpose (6,299) (7,389) Gross deferred tax liabilities (18,184) (22,549)
Deferred tax assets Provisions 4,267 4,646 Creditors and accruals 1,779 2,349 Tax losses recognised 8,207 6,298 Other 1,300 2,018 Gross deferred tax assets 15,553 15,311 FINANCIAL REPORT REPORT FINANCIAL Net deferred tax liability (2,631) (7,238)
Deferred tax as represented on the Statement of Financial Position: 103 Deferred tax asset 702 235 Deferred tax liabilities (3,333) (7,473) Total (2,631) (7,238)
Statement of Comprehensive Income Deferred tax liabilities Accelerated depreciation of plant and equipment for tax purposes 3,275 (1,601) Accelerated amortisation of intangibles for tax purposes 1,090 2,926 Other - 54 Deferred tax assets Depreciation rate for tax purposes - (3,248) NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
Provisions (379) 1,423 ii Creditors and accruals (570) 2,217 Tax losses recognised 1,909 - Tax losses utilised (i) - (3,279) Other (743) (3,051) Deferred tax expense 4,582 (4,559)
(i) Relates to tax losses recognised as part of the gain on acquisition of TransACT which were subsequently utilised in the same period. e) Unrecognised deferred tax assets As at 30 June 2013, the iiNet Group has unrecognised tax losses of $24,157k (2012: $45,848k). 7. CURRENT ASSETS – TRADE AND OTHER RECEIVABLES
Consolidated 2013 2012 $’000 $’000 Trade and other receivables Trade receivables 74,846 68,467 Allowance for impairment loss (a) (3,632) (6,840) 71,214 61,627
Other receivables 3,748 9,209 Total 74,962 70,836
(a) Allowance for impairment loss Trade receivables are non-interest bearing and on 30 day terms. An allowance for impairment is recognised where there is objective evidence that the
FINANCIAL REPORT REPORT FINANCIAL trade receivable balance is impaired. Financial difficulties of the debtor, default payments or debts more than 120 days overdue are considered evidence of impairment. The allowance recognised excludes GST. Charges for impairment losses have been recognised in administrative expenses in the Statement of 104 Comprehensive Income.
Consolidated 2013 2012 Movement in the $’000 $’000 allowance for At 1 July 6,840 4,208 impairment loss was as follows: Charge for the year 2,254 5,473
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET Utilised and released in the year (5,462) (2,841) ii At 30 June 3,632 6,840 7. Current assets – Trade and other receivables – continued (b) Ageing of trade receivables
Consolidated 2013 2012 $’000 $’000 Current debt (i) 53,182 43,473 At 30 June 2013 Past due not impaired (ii) 4,289 4,225 the ageing of Past due impaired (iii) 3,632 6,840 trade receivables, Total 61,103 54,538 excluding accrued income of $13,743k (2012: $13,929k), (i) Current debt within the 30 day term and therefore not past due or impaired. were as follows: (ii) Past due balances, where there is no evidence of impairment and therefore the debt is considered recoverable and has not yet been provided for.
(iii) Past due balances where there is evidence of impairment and therefore fully provided for. REPORT FINANCIAL
Other balances within trade and other receivables arise from transactions outside the usual operating activities of the 105 Group and are neither impaired nor past due. It is expected that these other balances will be received in full when due.
(c) Fair value and risk exposures The carrying value of trade and other receivables approximates their fair value. The maximum exposure to credit risk at the reporting date is the carrying value of receivables. No collateral is held relating to trade, other receivables or prepayments. Further details regarding the Group’s credit risk exposure are disclosed in note 4.
8. CURRENT ASSETS – INVENTORY Consolidated NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
2013 2012 ii $’000 $’000 Finished goods (at cost or net realisable value) 16,207 7,579 Work in progress (at cost or net realisable value) 2,262 - Total 18,469 7,579
Inventories recognised as an expense during the year ended 30 June 2013 amounted to $26,169k (2012: $17,494k). This expense has been included in the network and carrier costs line in the Statement of Comprehensive Income. 9. NON-CURRENT ASSETS – PLANT AND EQUIPMENT Reconciliation of carrying amounts at the beginning and end of the period
(i) At 30 June 2013 Plant and Leasehold Total Equipment Improvements Consolidated $’000 $’000 $’000 Cost Balance at 1 July 2012 302,958 17,207 320,165 Additions 41,410 - 41,410
Reclassification to non-current assets held for sale (refer note 33) (10,564) - (10,564) Reclassification to inventory (refer note 8) (2,262) - (2,262) Other reallocations (1,853) (1,094) (2,947) Balance at 30 June 2013 329,689 16,113 345,802 FINANCIAL REPORT REPORT FINANCIAL Accumulated Depreciation 106 Balance at 1 July 2012 (133,982) (6,819) (140,801) Depreciation expense (40,421) (1,443) (41,864) Reclassification to non-current assets and inventory held for sale (refer note 33) 1,276 - 1,276 Balance at 30 June 2013 (173,127) (8,262) (181,389)
Net Book Value At 30 June 2013 156,562 7,851 164,413 At 30 June 2012 168,976 10,388 179,364 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 9. Non-current assets – Plant and equipment – continued
(ii) At 30 June 2012 Plant and Leasehold Total Equipment Improvements Consolidated $’000 $’000 $’000 Cost Balance at 1 July 2011 179,017 10,472 189,489 Acquisitions 91,246 6,687 97,933
Additions 37,123 72 37,195 Disposals (4,428) (24) (4,452) Balance at 30 June 2012 302,958 17,207 320,165
Accumulated Depreciation FINANCIAL REPORT REPORT FINANCIAL Balance at 1 July 2011 (101,518) (5,976) (107,494) Depreciation expense (34,486) (851) (35,337) 107 Disposals 2,022 8 2,030 Balance at 30 June 2012 (133,982) (6,819) (140,801)
Net Book Value At 30 June 2012 168,976 10,388 179,364 At 30 June 2011 77,499 4,496 81,995
The net book value of Plant and Equipment held under finance leases at 30 June 2013 totals $1,370k (2012: $nil). NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii Assets are encumbered to the extent disclosed in note 15. 10. NON-CURRENT ASSETS – INTANGIBLE ASSETS AND GOODWILL (a) Reconciliation of carrying amounts at the beginning and end of the period
(i) At 30 June 2013 Subscriber Development Subscriber Goodwill # IRU Asset* Software, Total Acquisition Costs ^ Bases # Licenses & Cost # Other Assets # Consolidated $’000 $’000 $’000 $’000 $’000 $’000 $’000 Cost Balance at 1 July 2012 24,632 19,066 111,977 344,374 94,505 22,556 617,110 Additions 4,927 5,218 - 138 62,356 8,981 81,620 Reallocations - 433 - - - 2,514 2,947 Balance at 30 June 2013 29,559 24,717 111,977 344,512 156,861 34,051 701,677
Accumulated Amortisation FINANCIAL REPORT REPORT FINANCIAL Balance at 1 July 2012 (19,658) (8,388) (81,508) - (6,936) (13,998) (130,488) Amortisation (4,674) (4,084) (11,363) - (12,388) (7,672) (40,181) 108 Balance at 30 June 2013 (24,332) (12,472) (92,871) - (19,324) (21,670) (170,669)
Net Book Value At 30 June 2013 5,227 12,245 19,106 344,512 137,537 12,381 531,008 At 30 June 2012 4,974 10,678 30,469 344,374 87,569 8,558 486,622
^ Internally generated # Acquired externally or purchased as part of a business combination * IRU Assets are under a finance lease NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 10. Non-current assets – Intangible assets and goodwill – continued
(ii) At 30 June 2012 Subscriber Development Subscriber Goodwill # IRU Asset* Software, Total Acquisition Costs ^ Bases # Licenses & Cost # Other Assets # Consolidated $’000 $’000 $’000 $’000 $’000 $’000 $’000 Cost Balance at 1 July 2011 20,494 11,175 104,651 257,185 - 12,410 405,915 Acquisitions - 2,310 6,500 87,189 23,414 1,678 121,091 Reallocations - - - - 12,798 - 12,798
Additions 4,138 5,710 826 - 58,293 8,528 77,495 Disposals - (129) - - - (60) (189) Balance at 30 June 2012 24,632 19,066 111,977 344,374 94,505 22,556 617,110
Accumulated Amortisation FINANCIAL REPORT REPORT FINANCIAL Balance at 1 July 2011 (14,670) (6,613) (70,520) - - (8,580) (100,383) Amortisation (4,988) (1,762) (10,988) - (6,936) (5,447) (30,121) 109 Disposal - (13) - - - 29 16 Balance at 30 June 2012 (19,658) (8,388) (81,508) - (6,936) (13,998) (130,488)
Net Book Value At 30 June 2012 4,974 10,678 30,469 344,374 87,569 8,558 486,622 At 30 June 2011 5,824 4,562 34,131 257,185 - 3,830 305,532
^ Internally generated NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
# Acquired externally or purchased as part of a business combination ii * IRU Assets are under a finance lease
Software, licenses and other intangible assets includes software licenses held under finance leases with a net book value totalling $1,823k (2012: $2,378k). operate in the Telecommunications Industry in Australia and provide 10. Non-current assets – Intangible assets and goodwill – continued equivalent products and services in the same markets, the risk specific (b) Goodwill impairment tests to each unit are comparable and therefore a discount rate of 12.5% is (i) Description of the cash generating unit and other information applicable to all CGUs. Goodwill acquired through business combinations has been allocated to Based on the results of the tests undertaken no impairment losses have three cash generating units (CGUs) for impairment testing. In the 2012 been recognised in relation to goodwill in the 2013 or 2012 financial years. financial year, iiNet, Netspace and AAPT have been aggregated into one CGU, the iiNet CGU, as they no longer generate independent cash flows. (ii) Key assumptions used in the fair value less cost to sell for the CGUs for the year ended 30 June 2013 The aggregate carrying amounts of goodwill allocated to CGUs are as The models used in the calculation of fair value less cost to sell for the CGUs follows: are sensitive to the following key assumptions:
■ Subscriber growth rates; Consolidated ■ Gross margins; and 2013 2012 ■ Discount rates. $’000 $’000 Subscriber numbers are trends from historical data and are adjusted for iiNet 257,185 257,185 churn and growth estimates based on the respective products life cycle, Internode 87,327 87,189 market trends and the expected future product mix. Subscriber growth is FINANCIAL REPORT REPORT FINANCIAL Total 344,512 344,374 anticipated to be generated by organic growth calculated using historical trends from past experience and market trends from external industry 110 information. The annual impairment test undertaken at 31 May 2013 involved determining the recoverable amount of each CGU based on their fair value Gross margins are based on historical and projected future average revenue less cost to sell and comparing it to the CGU’s carrying amount. Fair value per user (ARPU) and average cost per user (ACPU) and the current and reflects the best estimate of the amount that an independent third party projected future product mix. ARPUs are forecasted to remain at their would pay to purchase the CGUs, less related selling costs. Carrying value current levels or change depending on expected product pricing and or reflects goodwill and the other identifiable assets and liabilities that can be service offered. ACPUs are forecasted to inflate at a forecast CPI rate or allocated to each CGU and that generate the CGU’s cash flows. adjusted for variations to supplier contracts and market pricing. Overall gross margins for each CGU are forecasted to remain largely stable, in line Fair value has been calculated using discounted future cash flows which with the market forecasts. includes a terminal value calculated in accordance with the Gordon Growth model using a long-term perpetuity growth rate of 0%. The valuation is (iii) Sensitivity to changes in assumptions for the CGUs NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii based on cash flow projections over a five year period using assumptions With regard to the assessment of the fair value less cost to sell of the CGUs, that represent management’s best estimate of the range of business and management consider that no reasonably possible change in any of the key economic conditions at this time. The valuations have been reviewed and assumptions in (ii) above would significantly erode the headroom calculated approved by the Board of iiNet Limited. and cause the carrying value of any CGU to exceed its recoverable amount. This assurance has been obtained by the analysis performed in the fair value less Discount rates are calculated using a weighted average cost of capital cost to sell model whereby management assessed the results of the Group method which is based on market data, reflects the time value of money not meeting subscriber growth targets, applying the highest reasonable and includes a risk premium to account for current economic conditions. possible discount rates and lowest reasonable possible gross margins. The pre-tax discount rates applied to the undiscounted cash flows were 12.5% (2012: 14%) for all CGUs. Management consider that, as all CGUs 11. CURRENT LIABILITIES – TRADE AND 13. CURRENT LIABILITIES – INDEFEASIBLE OTHER PAYABLES RIGHT OF USE LEASE LIABILITY
Consolidated Consolidated 2013 2012 2013 2012 $’000 $’000 $’000 $’000 Trade creditors 89,213 80,440 Indefeasible right of use lease liability 14,621 12,565 Other payables and accruals 5,380 1,450 Total 14,621 12,565 GST payable 2,067 2,608
In July 2012 the Group entered into a new international capacity supply Total 96,660 84,498 agreement. The lease component of this agreement has been accounted for as an IRU finance lease.
Fair value and risk exposures Due to the short term nature of trade and other payables, their carrying value approximates their fair value. Details regarding the Group’s foreign 14. CURRENT LIABILITIES – PROVISIONS exchange and liquidity risk exposure are set out in note 4. REPORT FINANCIAL
Consolidated 111 2013 2012 12. CURRENT LIABILITIES – INTEREST $’000 $’000 BEARING LOANS AND BORROWINGS Make good leased premises 55 305 Other 322 179 Consolidated Total 377 484
2013 2012 For a description of the nature and timing of cash flows associated with the $’000 $’000 above provisions, refer to 14 (a) and (b). Finance lease obligations 2,017 2,355
Total 2,017 2,355 2013 REPORT ANNUAL NET ii
Refer to note 15(a) for the terms and conditions relating to the finance lease obligations. The carrying amounts of the Group’s current borrowings approximate their fair value. Detail regarding the Group’s interest rate and liquidity risk exposure is disclosed in note 4. 14. Current liabilities – Provisions – continued a) Movement in provisions The movement in each class of provision (including non-current) during the financial year is as follows:
(i) At 30 June 2013 Make good leased Other Total premises Consolidated Total $’000 At 1 July 2012 830 179 1,009
Arising during the year - 1,347 1,347 Utilised or unused amounts reversed (251) (1,204) (1,455) At 30 June 2013 579 322 901 Disclosed as follows: Current 55 322 377
FINANCIAL REPORT REPORT FINANCIAL Non-current 524 - 524 Total 579 322 901 112
(b) Nature and timing of provisions (i) Make good leased premises The provision for make good of leased premises relates to a provision identified as part of the Netspace acquisition. The provision relates to the contractual commitment to restore leased premises to a non-altered, pre fit-out state at the end of the relevant lease term.
(ii) Other Other provisions include a provision for fringe benefits tax. The provision is expected to be utilised in the 2014 financial year. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 15. NON-CURRENT LIABILITIES – 16. NON-CURRENT LIABILITIES – INTEREST BEARING LOANS AND INDEFEASIBLE RIGHT OF USE LIABILITY BORROWINGS Consolidated
Consolidated 2013 2012 $’000 $’000 2013 2012 Indefeasible right of use lease liability 119,344 61,135 $’000 $’000 Bank facility 183,792 224,804 Total 119,344 61,135
Finance lease obligations 683 1,127 In July 2012 the Group entered into a new international capacity supply
Total 184,475 225,931 agreement. The lease component of this agreement has been accounted for as an IRU finance lease. The carrying value of the IRU liability (a) Terms and conditions approximates its fair value. The Group’s bank facility consist of a $330,000k revolving cash advance facility. Interest on the facility is recognised at the aggregate of the base rate plus a variable margin indexed to the Group bank gearing ratio. The facility consists of two parts, Facility A with a margin percentage range of 17. NON-CURRENT LIABILITIES – REPORT FINANCIAL 2.35% to 2.65% per annum and Facility B with a margin percentage range of PROVISIONS 2.50% to 2.80%. Facility A and B matures in October 2015 and October 2016 113 respectively and continues to be secured by a fixed and floating charge over the assets of the Group. Consolidated
During the current and prior year, there were no defaults or breaches 2013 2012 relating to the utilised bank facility. Total current and non-current $’000 $’000 borrowings include secured liabilities of $186,000k (2012: $226,000k) for Make good leased premises 524 525 the Group and Company. Refer to note 22(e) for a breakdown of the Group’s Total 524 525 utilised and unutilised facilities. For a description of the nature and timing of the cash flows associated with The finance lease obligations consist of several finance leases with lease the above provisions, refer to note 14 (a) and (b). terms up to a period of 3 years. The finance lease liabilities are secured on NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
the assets to which they relate and have maturity dates of November 2014. ii Refer to note 23.
(b) Fair value and risk exposures The carrying amounts of the Group’s non-current borrowings approximate their fair value. Details regarding the Group’s exposure to interest rate risk and liquidity risk are disclosed in note 4. 18. CONTRIBUTED EQUITY
(a) Ordinary shares Consolidated and Company 2013 2013 2012 2012 No. $’000 No. $’000 Issued and fully paid 161,238,847 251,069 160,968,847 250,528
Movement in shares on issue: At 1 July 160,968,847 250,528 152,149,598 223,557
Share buy-back (i) - - (3,876,500) (9,350) Exercise of share options (ii) 270,000 541 139,521 103 LTI shares issued (iii) - - 483,564 - Shares issued (iv) - - 12,072,664 36,218 At 30 June 161,238,847 251,069 160,968,847 250,528 FINANCIAL REPORT REPORT FINANCIAL
(i) On 15 August 2011 iiNet announced that it would undertake a share buy-back of up to 5% of issued capital from 29 August 2011 through to 15 August 2012. The total number of shares the company acquired during the buy-back was 3,876,500. All shares bought back have been cancelled by the company. No shares were bought back during the 2013 114 financial year. (ii) 270,000 (2012: 139,521) options were exercised in FY13 under various iiNet employee share option plans. Consideration received is recognised in issued capital. (iii) Shares issued under the Group’s Executive Long Term Incentive Scheme (LTI). (iv) Shares issued as part of the acquisition of Internode Pty Ltd.
Fully paid ordinary shares carry one vote per share and the right to dividends. The shares have no par value.
(b) Capital management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, in order to provide enduring returns for shareholders, benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares, buy-back shares, increase or decrease the Group’s long term debt and adjust the tenure of long term debt.
The Company paid dividends of $25,777k during 2013 (2012: $20,312k). For further details on dividends paid and proposed, please refer to note 21(a).
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total equity. Net debt is calculated as total interest bearing loans and borrowings less cash and cash equivalents. 18. Contributed equity – continued (b) Movements in Consolidated other reserves were as The gearing ratio based on continuing operations at 30 June 2013 and 2012 follows: Cash Flow Employee Total was as follows: Hedge Equity Reserve Benefits Consolidated $’000 $’000 $’000 Balance at 1 July 2011 (128) 4,042 3,914 2013 2012 Loss on cash flow hedge $’000 $’000 (313) - (313) taken to equity net of tax Total borrowings excluding IRUs 186,492 228,286 Share-based payments - 743 743 Less cash and cash equivalents (12,369) (6,606) Balance at 30 June 2012 (441) 4,785 4,344 Net Debt 174,123 221,680 Loss on cash flow hedge (173) - (173) Total Equity 324,342 286,649 taken to equity net of tax Gearing Ratio 54% 77% Share-based payments - 2,164 2,164
Balance at 30 June 2013 (614) 6,949 6,335 The movement in the gearing ratio when compared to the prior financial
year is due to a decrease in overall borrowings due to debt repayments REPORT FINANCIAL during the year. (c) Nature and purposes of reserves 115 (i) The cash flow hedge reserve records the effective portion of the cumulative net change in fair value of hedging instruments that are 19. RETAINED EARNINGS AND OTHER determined to be effective hedges, pending subsequent recognition of the RESERVES hedged cash flows. (ii) The employee equity benefits reserve records the value of the share- (a) Movements in retained earnings Consolidated based payments provided to employees and key management personnel, were as follows: 2013 2012 as part of their remuneration. Refer to note 27 for further details of these $’000 $’000 share-based payment plans. Balance at 1 July 31,777 15,035
Net profit 60,938 37,054 2013 REPORT ANNUAL NET ii Dividends paid (25,777) (20,312) Balance at 30 June 66,938 31,777 20. EARNINGS PER SHARE
Consolidated 2013 2012 $’000 $’000 Net profit attributable to ordinary equity holders of the Company 60,938 37,054 Earnings and weighted average Weighted average number of shares Number Number number of ordinary ‘000 ‘000 shares used in Weighted average number of ordinary shares for basic earnings per share 161,171 154,734 calculating basic and
Add effect of dilution diluted earnings per share are: - Share options (i) 29 73 - Shares allocable under the LTI plan 824 - Weighted average number of ordinary shares for diluted earnings per share 162,024 154,807
(i) Options granted to employees including key management personnel 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. FINANCIAL REPORT REPORT FINANCIAL
There were no contingently issuable performance rights which were excluded from the calculation of diluted earnings per share that could potentially dilute 116 basic earnings per share in the future (2012: 1,001,169 rights as they were anti-dilutive). There have been no transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary share or potential shares outstanding between the reporting date and the date of completion of these financial statements.
21. DIVIDENDS PAID AND PROPOSED
(a) Recognised and un-recognised amount Consolidated and Company Cents per 2013 Cents per 2012 share $’000 share $’000 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii Recognised amounts Current year fully franked interim dividend 8.0 12,899 6.0 9,660 Previous year fully franked final dividend 8.0 12,878 7.0 10,652 Total 16.0 25,777 13.0 20,312
Unrecognised amounts Current year fully franked final dividend (i) 11.0 17,736
(i) The final dividend was declared on the 20 August 2013. The amount has not been recognised as a liability in the 2013 financial year but will be brought into account in the 2014 financial year. 21. Dividends paid and proposed - continued
(b) Franking credit balance 2013 2012 $’000 $’000 Franking account balance as at the end of the financial year at 30% (2012: 30%) 35,857 30,672 The amount of Franking debits arising from the payment of the final dividends during the financial year (5,519) (4,565) franking credits available for the Franking debits arising from the payment of the interim dividends during the financial year (5,528) (4,140) subsequent financial Franking debits arising from the refund of income tax receivable during the financial year (3,161) (5,176) year is: Franking credits arising from the payment of income tax payable during the financial year 24,650 19,066
Franking debits transferred from acquired entities during the financial year 2,437 - Total 48,736 35,857
2013 2012 $’000 $’000 The amount of Franking credits that will arise from the payment of income tax payable as at the end of 12,997 6,006 FINANCIAL REPORT REPORT FINANCIAL franking credits the financial year available for future Impact of franking debits that will arise from the payment of recommended final dividends (7,601) (5,519) reporting periods is: for the end of the financial year 117 Total 54,132 36,344
(c) Tax rates The tax rate at which paid dividends have been franked is 30% (2012: 30%). Dividends proposed will be franked at the rate of 30% (2012: 30%).
22. STATEMENT OF CASH FLOWS RECONCILIATION NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii (a) Cash and cash equivalents Consolidated 2013 2012 The Cash and cash $’000 $’000 equivalents balance comprises: Cash at bank 12,119 5,574 Short term deposits 250 1,032 Total 12,369 6,606 22. Statement of cash flows reconciliation - continued
(b) Cash balances not available for use Cash security deposits totalling $82k (2012: $78k) relating to bank guarantees are not available for immediate use and have been disclosed in other debtors.
(c) Reconciliation of net profit after tax to net cash flows from operations Consolidated 2013 2012 $’000 $’000 Profit for the year 60,938 37,054 Adjustments to reconcile profit after tax to net cash flows:
Depreciation and amortisation 82,045 65,458 (Gain)/loss on sale of property, plant and equipment (54) 100 Bad debts and doubtful debt provision 5,027 4,985 Foreign exchange (gains)/losses - 1,056 Share-based payments expense 2,164 743
FINANCIAL REPORT REPORT FINANCIAL Net finance costs 21,723 16,378 Tax expense 22,303 25,955 118
Working capital adjustments: Change in inventory (14,688) (2,511) Change in trade and other receivables (9,194) (7,586) Change in prepayments (1,181) 3,815 Change in trade and other payables 9,203 (14,946) Change in provisions and employee benefits 386 (309) Change in unearned revenue 784 1,448
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET Others - (40) ii Cash generated from operating activities 179,456 131,600
Interest received 1,006 1,230 Interest paid (20,135) (16,124) Tax paid (22,057) (13,144) Cost incurred on acquisition of subsidiary - (2,650) Net cash inflows from operating activities 138,270 100,912 22. Statement of cash flows reconciliation - continued
(d) Non-cash financing and investing activities During the year the Group acquired IRU assets of $62,356k, plant and equipment of $1,908k and intangible assets of $1,517k by way of new finance leases.
(e) Finance facilities Consolidated
The Group has the 2013 2012 following bank $’000 $’000 facilities available for Facility utilised 186,000 226,000 future use: Facility unutilised 144,000 59,000
Total 330,000 285,000
23. COMMITMENTS AND CONTINGENCIES FINANCIAL REPORT REPORT FINANCIAL (a) Capital expenditure commitments Consolidated The Group had the following contractual 2013 2012 119 obligations $’000 $’000 relating to capital Plant and equipment - within 1 year 11,400 12,370 expenditure at the Plant and equipment - Later than 1 year but not later than 5 years 3,413 10,142 reporting date: Total 14,813 22,512
The contractual commitments relate to site establishment and installation costs. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 23. Commitments and contingencies - continued
(b) Finance lease commitments The Group has used finance leases to acquire software licenses and plant and equipment. Future minimum lease payments under the purchase contracts together with the present value of the net minimum lease payments are as follows:
Consolidated 2013 2012 $’000 $’000 Within 1 year 25,527 20,498
After 1 year but not more than 5 years 119,874 54,855 More than 5 years 24,911 26,100 Total minimum lease payments 170,312 101,453 Less amounts representing finance charges (33,647) (24,271) Present value of minimum lease payments 136,665 77,182 FINANCIAL REPORT REPORT FINANCIAL
Included in the financial statements as: 120 Current liabilities – interest bearing loans and borrowings (note 12) 2,017 2,355 Current liabilities – indefeasible right of use lease liability (note 13) 14,621 12,565 Non-current liabilities – interest bearing loan and borrowings (note 15) 683 1,127 Non-current liabilities – indefeasible right of use lease liability (note 16) 119,344 61,135 Total 136,665 77,182
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 23. Commitments and contingencies - continued
(c) Operating lease commitments Operating leases relate to premises with lease terms remaining between 1 and 10 years and international bandwidth capacity supply agreements. The consolidated entity does not have an option to purchase the leased assets at the expiry of the lease term.
Consolidated Future minimum 2013 2012 rentals payable under $’000 $’000 non-cancellable Within 1 year 17,398 17,734 operating leases as
at the 30 June are as After 1 year not more than 5 years 27,993 41,774 follows: After more than 5 years 4,069 9,528 Total 49,460 69,036
(d) Other expenditure commitments FINANCIAL REPORT REPORT FINANCIAL
Consolidated The Group had 121 the following 2013 2012 other operating $’000 $’000 expenditure Within 1 year 21,398 44,383 commitments at the After 1 year not more than 5 years 9,245 21,192 reporting date: Total 30,643 65,575
The other expenditure commitments relate to exchange building access costs, tele-housing peering costs and dark fibre access costs.
(e) Contingencies 2013 REPORT ANNUAL NET ii The Group has issued a number of guarantees totalling $24,056k (2012:$18,256k) for various operational and legal purposes. It is not expected that these will be called upon. 24. AUDITOR’S REMUNERATION
The auditor of the Group is Ernst & Young.
Consolidated
Amounts received or 2013 2012 due and receivable by Ernst & Young for: Audit and review of the annual report of the entity 569,000 771,812 Non-audit services 192,527 500,375 Total 761,527 1,272,187
25. KEY MANAGEMENT PERSONNEL
a) Compensation of key management personnel Consolidated FINANCIAL REPORT REPORT FINANCIAL 2013 2012 $’000 $’000 122 Short-term employee benefits 2,583,716 2,280,835 Long-term employee benefits 624,815 826,902 Post-employment benefits 88,544 83,515 Termination benefits - - Share-based payments 2,015,960 529,413 Total 5,313,035 3,720,665 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 25. Key management personnel - continued
(b) Option and right holdings of key management personnel The movement during the reporting period in the number of options over ordinary shares in iiNet Limited, held directly, indirectly or beneficially, by each key management person, including their related parties is as follows:
30 June 2013 Held at Granted as Options Net change Held at Vested & Not vested 1 July 2012 remuneration exercised other 30 June 2013 exercisable (i) Directors M. Smith 200,000 - (200,000) - - - -
Executives M. Malone - 358,739 - - 358,739 - 358,739 G. Bader 213,015 358,739 - - 571,754 - 571,754 D. Buckingham 283,015 358,739 (70,000) - 571,754 - 571,754 M. Fewster 213,015 358,739 - - 571,754 - 571,754 FINANCIAL REPORT REPORT FINANCIAL Total 909,045 1,434,956 (270,000) - 2,074,001 - 2,074,001
(i) Relates to LTI 2013 grant of performance rights 123
30 June 2012 Held at Granted as Options Net change Held at Vested & Not vested 1 July 2012 remuneration exercised other 30 June 2013 exercisable (i) Directors M. Smith 200,000 - - - 200,000 200,000 - Executives G. Bader 70,000 213,015 (70,000) - 213,015 - 213,015 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET D. Buckingham 70,000 213,015 - - 283,015 70,000 213,015 ii M. Fewster - 213,015 - - 213,015 - 213,015 Total 340,000 639,045 (70,000) - 909,045 270,000 639,045
(i) Relates to LTI 2012 grant of performance rights 25. Key management personnel - continued
(c) Loans to key management personnel As at the date of this report no loans have been entered into between the Group and any of its key management personnel. Refer to note 28(d) for details of transactions with director related entities.
(d) Shareholdings of key management personnel The movement during the reporting period in the number of ordinary shares in iiNet Limited held directly, indirectly or beneficially, by each key management person including their related parties is as follows:
30 June 2013 Held at Granted as On exercise of Net change other Held at
1 July 2012 remuneration options 30 June 2013 Directors M. Smith 70,429 - 200,000 - 270,429 M. Malone 18,012,162 - - (4,000,000) 14,012,162 P. Broad 48,596 - - - 48,596
FINANCIAL REPORT REPORT FINANCIAL D. Grant 83,000 - - 3,000 86,000 S. Hackett 12,072,664 - - - 12,072,664 124 P. James 35,000 - - - 35,000 L McCann 8,000 - - 5,000 13,000 Executives G. Bader 392,406 - - (75,000) 317,406 M. Fewster 193,096 - - (188,743) 4,353 D. Buckingham 146,150 - 70,000 (135,522) 80,628 J. Lindsay - - - 55,000 55,000 Total 31,061,503 - 270,000 (4,336,265) 26,995,238 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 25. Key management personnel - continued
30 June 2012 Held at Granted as On exercise of Net change other Held at 1 July 2011 remuneration options 30 June 2012 Directors M. Smith 65,003 - - 5,426 70,429 M. Malone 18,012,162 - - - 18,012,162 D. Grant 63,000 - - 20,000 83,000 P. James 35,000 - - - 35,000
P. Broad 18,596 - - 30,000 48,596 L McCann - - - 8,000 8,000 Executives G. Bader 282,834 139,572 70,000 (100,000) 392,406 M. Fewster 70,158 122,938 - - 193,096
D. Buckingham 80,628 130,522 - (65,000) 146,150 REPORT FINANCIAL J. Lindsay - - - - - S. Hackett (ii) - - - 12,072,664 12,072,664 125 Total 18,627,381 393,032 70,000 11,971,090 31,061,503
(i) Granted under the 2009 LTI share plan. (ii) Shares issued as part of the consideration paid for Internode.
All equity transactions with key management personnel other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the Group would have adopted at arm’s length. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii 26. EMPLOYEE BENEFITS
Consolidated 2013 2012 $’000 $’000 Provision for annual leave 6,982 7,367 Provision for long service leave 5,527 5,718 Provision for alternative leave 284 215 Aggregate employee benefit provision 12,793 13,300
The provision for Movement in employee benefit provision: employee benefits at Balance at 1 July 13,300 5,953 30 June are detailed as follows: Arising during the year 9,493 6,675 Utilised or unused amounts reversed (10,000) (7,202) FINANCIAL REPORT REPORT FINANCIAL Acquisition of subsidiary - 7,874 126 Balance at 30 June 12,793 13,300
Disclosed as follows: Current liability 11,963 12,113 Non-current liability 830 1,187 Total 12,793 13,300
Refer to note 2(s) for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of the provision above. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii Accrued wages and salaries between the last pay date and 30 June 2013 of $4,380k (2012: $4,658k) are included within the other payables and accruals as disclosed in note 11. 27. SHARE-BASED PAYMENT PLANS AND OTHER LONG TERM INCENTIVE PLANS (a) Recognised share-based payment expenses
Consolidated The expense recognised for 2013 2012 employee services $’000 $’000 received during the Expense arising from equity-settled share-based payment arrangements year is shown in the - Performance rights under LTI plans 2,164 743 table as follows: Total 2,164 743
(b) Share-based payment option plans on issue in the current and prior financial years The share-based payment option plans are described below. Any cancellations or modifications to the existing plans and details of the new plans are detailed therein. For all the options detailed below, each option on exercise is convertible into one ordinary share. The shares issued will rank equally in all respects with existing shares. FINANCIAL REPORT REPORT FINANCIAL
Plan title Eligibility Vestment and expiry 127
Director Options 2008 (Opt 21) Offered to a specified director The options were issued in two tranches. The options have an exercise price of $2.00. 50% of the options issued are exercisable after 18 months from the date of issue with the balance exercisable 36 months from the date of issue. The options have a 5 year life and can be exercised at any time after they have vested. The options issued lapse if the director to whom they were issued ceases to be a director of the Company or any associated entity.
Executive Options 2008 (Opt 22) Offered to a specified executive The options were issued in two tranches. The options have an exercise price of NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
$2.01. ii 50% of the options issued are exercisable after 18 months from the date of issue with the balance exercisable 36 months from the date of issue. The options have a 5 year life and can be exercised at any time after they have vested. The options issued lapse if the executive to whom they were issued ceases to be an executive of the Company or any associated entity. 27. Share-based payment plans and other long term incentive plans – continued
(i) Summary of options on issue at reporting date The following table illustrates the number (No.), weighted average exercise prices (WAEP) of and, movements in, share options issued during the year:
2013 2012
No. WAEP (cents) No. WAEP (cents)
On issue at 1 July 270,000 200.3 389,000 163.5 Forfeited/expired - -
Exercised (270,000) 200.3 (119,000) 80.0 On issue at 30 June - - 270,000 200.3
Vested - - 270,000 200.3 Unvested - - - - FINANCIAL REPORT REPORT FINANCIAL On issue at 30 June - - 270,000 200.3
128 There were no outstanding options at 30 June 2013. Details of the outstanding options as at the 30 June 2012 and the range of exercise prices relating to those balances are presented below:
2012
Plan/Series No. on issue Vested, Unvested Excercise price Expiry date unexcercised (cents) Director Options 2008 (Opt 21) 200,000 200,000 - 200 19/11/12 Executive Options 2008 (Opt 22) 70,000 70,000 - 201 21/01/13 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii Total 270,000 270,000 - 27. Share-based payment plans and other long term incentive plans – continued
(ii) Weighted average remaining contractual life The weighted average remaining contractual life of the share options outstanding as at 30 June 2013 is 0 years (2012: 0.44 years).
(ii) Weighted average fair value No options were granted during the 2013 and 2012 financial years.
(iii) Measurement of fair values The fair value of the equity-settled options granted and outstanding at 30 June 2012 was calculated at the grant date using Black-Scholes models. The models took into account the relevant terms and conditions upon which the specific options were granted.
Weighted Risk free Expected life Expected Exercise price average share Plan / Series interest rate of the options volatility (%) (cents) price at grant (%) (months) The following table date (cents) lists the inputs used Director Options 2008 (Opt 21) 65.0 6.60 60 200 171 in the measurement Executive Options 2008 (Opt 22) 65.0 6.60 60 201 233
of the fair values at REPORT FINANCIAL grant date: The expected volatility has been determined with reference to the historical trading of the Company’s shares on the ASX. 129 The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome.
(c) LTI share-based payment plans
2012 LTI share grant (i) Details of the grant A base pool LTI dollar value is determined for each executive at the start of each performance period. Each ‘Performance Right’ represents an executive right to receive one iiNet share in the future for no consideration or, in the case of the Managing Director, cash, subject to meeting the specific performance targets. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii At the end of the performance period, the value of the allocated pool receivable by an executive will be calculated as a percentage of each individual’s base pool LTI value approved at the start of the performance period. This percentage will be determined by the Board’s Remuneration and Nomination Committee based on their performance against long term targets. The final allocable pool LTI dollar value awarded to an executive will be translated into Performance Rights at the iiNet weighted volume share price. The period over which the iiNet weighted volume share price is calculated, will be determined and approved by the Board’s Remuneration and Nomination Committee immediately after the allocation point. If the weighted share price used results in a change in the number of Performance Rights received, the change in value of the award measured at grant date fair value, is recognised as an adjustment and taken to the Statement of Comprehensive Income. 50% of the Performance Rights earned vests 3 months after the conclusion of the performance period with the remaining 50% vesting 6 months after the conclusion of the performance period. At the release date the earned Performance Rights are rewarded in equity to executive managers and in cash to the Managing Director. 27. Share-based payment plans and other long term incentive plans – continued
On termination of the employment of an executive by the Group, the Terms and conditions relating to the grant are summarised in the table below. unvested Performance Rights lapse immediately. On voluntary resignation by an executive, unvested Performance Rights lapse immediately while Tranche 1 Tranche 2 Tranche 3 vested Performance Rights are required to be exercised within 30 days of termination. On redundancy, retrenchment, retirement, permanent Number of incapacity, death or non-renewal of a fixed term contract of employment, instruments unvested Performance Rights will lapse unless otherwise determined by - Director 119,580 119,580 119,579 the Board while vested Performance Rights are required to be exercised - Executives 358,740 358,740 358,737 within 90 days of termination. - Total 478,320 478,320 478,316
(ii) Measurement of fair values 1 July 2012 – 1 July 2012 – 1 July 2012 – Performance period Equity-settled transactions 30 June 2013 30 June 2014 30 June 2015 The fair value of the equity-settled performance rights to be awarded Performance TSR (i) TSR (i) TSR (i) to the executive managers is calculated at the grant date. This was measure determined to be $2.8167 which has not been adjusted for dividends, Vesting period 3 years 3 years 3 years vesting conditions and other rights. Fair value at grant
FINANCIAL REPORT REPORT FINANCIAL $3.71 $2.87 $2.39 Cash bonus date (ii) The award to be granted to the Managing Director will be paid out in cash. 130 (i) Performance Rights vest based on predetermined levels of TSR Performance. Refer Accordingly, it is recognised as a bonus provision calculated as the base pool to page 55 of the Remuneration Report for details relating to the vesting schedule. LTI dollar value discounted to present value adjusted for the relevant terms (ii) Refer table below for key inputs used in the measurement of the grant date fair value. and conditions upon which the award is granted. On termination of employment all unvested performance rights lapse immediately with Board discretion to allow vesting situations such as 2013 LTI share grant redundancy, retirement, permanent incapacity and death. All vested (i) Details of the grant performance rights are required to be exercised within 30 days of The 2013 iiNet long term incentive grant is designed to directly link termination unless employment is terminated for cause where all vested executive rewards to the growth in long term shareholder wealth. On 23 performance rights are cancelled immediately. October 2012 the Group granted a fixed number of Performance Rights to (ii) Measurement of fair values eligible executives in 3 tranches. Each ‘Performance Right’ represents an
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET The inputs used in the measurement of the fair values at grant date of the ii executive right to receive one iiNet share in the future for no consideration subject to meeting the specific performance targets. The Board has 2013 LTI equity-settled share-based payment grant were as follows: selected absolute TSR as the performance hurdle for the 2013 LTI grant. This hurdle directly rewards executives for focusing on increasing shareholder Share price at grant date $3.88 wealth through business strategies that will result in share price growth. Volatility 30% The Board set challenging levels of performance to be achieved with a Dividend yield 4% minimum annual TSR of 15% required before any performance rights vest and a stretching 20% as the base target. A stretch level of 25% TSR per Risk free rate 2.57% annum is also available giving executives the opportunity to increase the These inputs along with the TSR hurdle probability were incorporated into number of performance rights by 50%. the measurement of the fair value through Monte Carlo simulation analysis. 28. RELATED PARTY DISCLOSURE
(a) Subsidiaries The consolidated financial statements include the financial statements of iiNet Limited and those entities detailed in the table following.
Controlled entities Name Country of Ownership Interest % Ownership Interest % Incorporation 2013 2012 iHug Pty Ltd+ Australia 100 100 Connect West Pty Ltd+ Australia 100 100
Chime Communications Pty Ltd+ Australia 100 100 iiNet Labs Pty Ltd (i) + Australia 100 100 iiNet (OzEmail) Pty Ltd+ Australia 100 100 Westnet Pty Ltd+ Australia 100 100 iiNet New Zealand AKL Ltd+ New Zealand 100 100
Netspace Online Systems Pty Ltd+ Australia 100 100 REPORT FINANCIAL Trimar Unit Trust Australia 100 100 Aspry Unit Trust Australia 100 100 131 Netspace Networks Pty Ltd+ Australia 100 100 Jiva Pty Ltd (ii) + Australia 100 100 Aspry Pty Limited+ Australia 100 100 Netspace Communications Pty Ltd+ Australia 100 100 TransACT Communications Pty Ltd+ Australia 100 100 TransACT Victoria Holdings Pty Ltd+ Australia 100 100 TransACT Broadcasting Pty Ltd+ Australia 100 100 TransACT Capital Communications Pty Ltd+ Australia 100 100 Transflicks Pty Ltd+ Australia 100 100 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii ACN 088 889 230 Pty Ltd+ Australia 100 100 Cable Licence Holdings Pty Ltd+ Australia 100 100 TransACT Victoria Communications Pty Ltd+ Australia 100 100 Neighbourhood Cable Unit Trust Australia 100 100 Internode Pty Ltd+ Australia 100 100 Agile Pty Ltd+ Australia 100 100
(i) Formerly known as Netscapade Pty Ltd (ii) Formerly known as Spacecentre Pty Ltd 28. Related party disclosure – continued (g) Transaction with related parties The following table provides the total amount of transactions that were (b) Ultimate parent entered into with related parties for the years ended 30 June 2013 and 30 iiNet Limited is the ultimate Australian parent entity and the ultimate June 2012: parent of the Group. Year Sales Purchases Other (c) Closed Group $‘000 $‘000 transactions Pursuant to Class Order 98/1418, relief has been granted to those $‘000 subsidiaries marked with a “+” from the Corporations Act 2001 Director related requirements for preparation, audit and lodgement of their financial entities reports. As a condition of the Class Order, iiNet Limited and its subsidiaries Amcom (the Closed Group) entered into a Deed of Cross Guarantee. The effect of Telecommunications 2013 - - - the Deed is that iiNet Limited has guaranteed to pay any deficiency in the Limited (i) event of the winding up of any of those subsidiaries. Those subsidiaries have 2012 - 1,391 - also given a similar guarantee in the event that iiNet Limited is wound up. The financial performance and position of the Consolidated Group reflects that of the Closed Group. Total 2013 - - - (d) Transactions with director related entities Total 2012 - 1,391 - FINANCIAL REPORT REPORT FINANCIAL The consolidated Group provides and receives internet services from (i) Amcom Telecommunications Limited, a Company of which Mr. Grist is a director, certain director related entities. Sales to and purchases from these entities made an in-specie distribution of its 20.4% shareholding in iiNet Limited on 18 August 132 are made at normal market prices and on normal commercial terms. 2011 and no longer owns any of the ordinary shares in iiNet Limited. Mr Grist ceased Outstanding balances at year end are unsecured, interest free and will be to be a director of iiNet Limited on 7 September 2011. settled in cash. Refer to (g) below.
(e) Other related parties transactions Photograph by Stephen Singh, Senior The Group provides internet services to the directors, employees and other Customer Service Representative. related parties. These services are provided at normal market prices and on normal commercial terms.
(f) Key management personnel Details relating to key management personnel, including remuneration NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii paid, are included in note 25. 29. DERIVATIVE FINANCIAL INSTRUMENTS The swap contracts are settled on a net basis each month. The settlement dates coincide with the dates on which interest is payable on the underlying Consolidated debt and the swaps are therefore considered highly effective. The gain or loss from measuring the interest rate swap contracts to their fair value 2013 2012 is recognised in equity to the extent that the hedges are effective. The $’000 $’000 effective portion of the hedge recognised in other comprehensive income Current Assets as a gain was $242k, before income tax, in 2013 (2012: loss of $505k). Forward foreign exchange contracts – cash 1,171 - (ii) Forward exchange contracts – cash flow hedge flow hedge The expenditure arising from both the Group’s call centre operations in South Africa and IRU obligations are required to be settled in South African Non-current Assets Rand and United States Dollars respectively. In order to protect against
Forward foreign exchange contracts – cash 7,291 - unfavourable exchange rate movements, the Group has entered into flow hedge forward exchange contracts. The Group has applied hedge accounting for the following forward exchange contracts. Total Assets 8,462 - Currency Total notional amount Contract Average Current Liabilities of the contracts ($’000) Expiry (i) exchange rate
Forward foreign exchange contracts – cash ZAR $8,498 28 May 2014 $0.104:ZAR1 REPORT FINANCIAL (225) (213) flow hedge USD $51,650 16 July 2018 $1.053:USD1 Interest rate swap contracts – cash flow (176) (419) USD $52,606 16 July 2018 $1.073:USD1 133 hedge (i) Consists of a series of contracts expiring at various dates, with this being the expiry Total Liabilities (401) (632) date of the last contract in the series.
The settlements of the contracts are timed to mature when payments are Total 8,061 (632) scheduled to be made and are therefore considered to be highly effective. Contracts are settled gross. The effective portion of the hedges recognised (a) Instruments used by the Group in other comprehensive income was a loss of $489k, before income tax, The Group is party to derivative financial instruments in the normal course of (2012: gain of $58k). business to manage exposures to fluctuations in interest and foreign exchange The total loss taken to other comprehensive income in 2013 in relation to rates in accordance with the Group’s financial risk management policy. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
the cash flow hedges was $247k, before income tax, (2012: $447k). ii (i) Interest rate swap contract – cash flow hedge During the year ended 30 June 2013 net gains of $7,957k (2012: net losses The Group’s bank facility is a variable interest rate facility. It is Group policy of $405k) have been reclassified from the hedge reserve to the Statement to protect a portion of the bank facility from exposure to fluctuations of Comprehensive Income. This includes a gain of $8,803k (2012: $nil) in interest rates. Accordingly the Group enters into interest rate swap relating to the revaluation of forward exchange contracts entered into for contracts, under which it receives interest at a variable rate and pays the purpose of hedging the Group’s exposure to the foreign currency risk interest at a fixed rate. The Group adopts hedge accounting to account associated with the IRU liability denominated in US dollars. The gain has off- for the swaps. At the reporting date, $86 million or 46% (2012: 47%) of the set a corresponding loss recognised in the Statement of Comprehensive Group’s bank loan facility outstanding was at a variable rate of interest. The Income following the revaluation of the IRU liability at spot at 30 June 2013. average fixed interest rate was 2.89% at 30 June 2013. 29. Derivative financial instruments – continued 2013 2012 Revenue $’000 $’000 (b) Risk exposures Internet related services 588,318 515,996 Details about the Group’s exposure to interest rate, liquidity, foreign currency and credit risk are provided in Note 4. The maximum exposure Telephony 289,157 267,323 to credit risk at the reporting date is the carrying amount of each class of Wholesale 3,643 5,153 derivative financial asset and liability mentioned above. Domains 17,736 7,872 Set up and sale of hardware 41,130 33,697 30. BUSINESS COMBINATIONS Other revenue 1,006 1,184
The following business combinations occurred in the prior year: Total revenue 940,990 831,225
■ The acquisition of the TransACT Group on 30 November 2011; and ■ The acquisition of Internode Pty Ltd on 31 January 2012. 32. PARENT ENTITY A gain on acquisition of the TransACT Group of $3,279k arose from deferred Key financial information relating to the parent entity (iiNet Limited tax assets relating to tax losses recognised. This has been recorded as a including the AAPT Consumer Division) is summarised below. measurement period adjustment in other income in 2012. For full details of
FINANCIAL REPORT REPORT FINANCIAL these business combinations, refer to the annual report for the year ended 2013 2012 30 June 2012. $’000 $’000
134 Refer to note 34 for a business combination arising subsequent to reporting Statement of Comprehensive Income date. Profit attributable to the owners of the 35,663 26,989 company 31. SEGMENT REPORTING Other comprehensive income (173) (313) Total comprehensive income attributable 35,490 26,676 The accounting policies used by the Group in reporting segment to the owners of the company information internally, is the same as those contained in note 2 to the financial statements. The iiNet Group has identified its operating segments Statement of Financial Position based on the internal management reporting that is used by the executive management team (the chief operating decision maker) in assessing Total current assets 78,040 44,638 performance and allocating resources.
NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET Total non-current assets 738,814 636,053 ii The iiNet Group, Internode and TransACT are operating segments within Total current liabilities (128,007) (98,843) the telecommunications sector in the Australian market and have been Total non-current Liabilities (425,108) (330,142) aggregated to one reportable segment given the similarity of the services provided, method in which services are delivered, types of customers and Net Assets 263,739 251,706 regulatory environment. Issued capital 251,069 250,528
The Group’s principle activity is the provision of Internet and telephony Accumulated profits/(losses) 6,701 (3,271) services to a wide range of residential, regional and corporate customers Other reserves 5,969 4,449 across Australia. As the Group is aggregated into one reportable segment, Total Equity 263,739 251,706 there are no inter-segment transactions. 32. Parent entity – continued iiNet Limited has recognised the following amounts as tax consolidation adjustments: Contractual obligations relating to capital expenditure of the Parent Entity amount to $2,748k at 30 June 2013. Tax effect accounting by members of the tax consolidated Group
The Parent Entity has issued a number of guarantees totalling $20,355k for Company various operational and legal purposes. It is not expected that these will be called upon. 2013 2012 $’000 $’000 (i) Members of the tax consolidated Group and the tax sharing arrangement Total (reduction) / increase to the tax 2,106 3,004 iiNet Limited and its 100% owned Australian resident subsidiaries formed a benefit of iiNet Limited tax consolidated Group from 1 July 2003. iiNet Limited is the head entity of Total increase / (reduction) to intercompany (2,106) (3,004) the tax consolidated Group. Members of the Group have entered into a tax assets of iiNet Limited sharing agreement that provides for the allocation of income tax liabilities Total - - 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. 33. NON-CURRENT ASSETS HELD FOR SALE
(ii) Tax effect accounting by members of the tax consolidated Group Consolidated REPORT FINANCIAL Tax expense/income, deferred tax liabilities and deferred tax assets arising 2013 2012 from temporary differences are recognised in the separate financial 135 statements of the members of the tax consolidated Group using the Group $’000 $’000 allocation method. Current tax liabilities and assets and deferred tax assets Current – assets classified as held for sale 9,288 - arising from unused tax losses and tax credits of the members of the tax Total 9,288 - consolidated Group are recognised by iiNet Limited, the head entity of the tax consolidated Group. On 22 May 2013 TransACT Capital Communications Pty Ltd, a wholly owned subsidiary of iiNet Limited, reached an agreement with NBN Co Limited for Members of the tax consolidated Group have entered into a tax funding the sale of TransACT’s fibre-to-the-premises (FTTP) network in the ACT agreement. Amounts are recognised as payable to or receivable by the region. The carrying amount of the FTTP network in this region, previously Company and each member of the consolidated Group in relation to the tax included in plant and equipment, has been reclassified to non-current contribution amounts paid or payable between the parent entity and other assets held for sale pending ACCC approval for completion to occur. members of the tax consolidated Group in accordance with this agreement. NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
Where the tax contribution amount recognised by each member of the ii tax consolidated Group for a particular period is different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax credits in respect of that period, the distribution is recognised as a contribution from (or distribution to) equity participants. 34. EVENTS AFTER THE REPORTING DATE
On 5 August 2013, iiNet Limited entered into a binding agreement to acquire 100% of Adam Internet and associated companies for $60 million cash consideration from iiNet’s existing bank facilities. Completion of the acquisition was on 30 August 2013.
The acquisition reinforces the company’s position as Australia’s second largest DSL Internet Service Provider (ISP) and the leading challenger in the telecommunications market. Due to the proximity of the transaction to the signing date of this report, the initial accounting for the business combination is incomplete at the time the Group’s financial statements
were authorised for issue. Accordingly, details of the financial effect of the business combination have not been disclosed.
On 20 August 2013, the Group declared a fully franked final dividend of 11.0 cents per share with respect to the financial year ended 30 June 2013. The dividend had a record date of 2 September 2013 and has a payment date of 27 September 2013. FINANCIAL REPORT REPORT FINANCIAL
136 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii DIRECTORS’ DECLARATION
In accordance with a resolution of the directors of iiNet Limited, I state that:
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 consolidated entity are in accordance with the Corporations Act 2001, including:
(i) Giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 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;
(b) The financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2; and
(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. 137 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 2013. 3. In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group comprising the Company and the controlled entities marked “+” as identified in note 28 will be able to meet any obligation or liabilities to which they are or may become subject to by virtue of the deed of cross guarantee referred to in note 28.
On behalf of the Board,
Michael Smith Chairman Perth, Western Australia, 24 September 2013
FINANCIAL REPORT REPORT FINANCIAL
138 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET ii SHAREHOLDERS’ STATISTICS
Additional information required by the Australian Stock Exchange Limited (c) Twenty largest holders of quoted and not shown elsewhere in this report is as follows. The information is equity securities Fully Paid current as at 16 September 2013.
(a) Distribution of equity securities Ordinary Shareholders Number Percentage 161,238,847 fully paid ordinary shares are held by 12,571 individual HSBC Custody Nominees (Australia) Limited 30,960,289 19.20% shareholders. All issued shares carry one vote per share and carry the rights J P Morgan Nominees Australia Limited 22,102,489 13.71% to dividends. National Nominees Limited 16,763,990 10.40% The number of shareholders, by size of holding, in each class is: Citicorp Nominees Pty Limited 9,604,131 5.96%
Fully paid ordinary Mr Simon Walter Hackett 6,036,332 3.74% shares J P Morgan Nominees Australia Limited 3,936,155 2.44% 1 – 1,000 4,929 (Cash Income A/C) 1,001 – 5,000 5,505 BNP Paribas Noms Pty Ltd 3,780,399 2.34% 5,001 – 10,000 1,308 Value Added Network Pty Limited 3,500,472 2.17% FINANCIAL REPORT REPORT FINANCIAL 10,001 – 100,000 781 Value Added Network Pty Ltd 2,966,679 1.84% 100,001 and over 48 Blue Call Pty Limited 2,364,931 1.47% 139 Total 12,571 Aust Executor Trustees SA Ltd 2,153,191 1.34% Citicorp Nominees Pty Limited (Colonial Holding less than a marketable parcel 247 1,375,323 0.85% First State Inv A/C) Bell Potter Nominees Ltd 1,352,055 0.84% (b) Substantial shareholders Fully Paid HSBC Custody Nominees (Australia) Limited 1,150,869 0.71% – A/C 3 Number Percentage AMP Life Limited 987,298 0.61% TPG 10,184,137 6.32% RBC Investor Services Australia Nominees 778,649 0.48% Perth Internet Limited 9,012,162 5.59% Pty Limited NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
HSBC Custody Nominees (Australia) Limited 582,515 0.36% ii Total 19,196,299 11.91% AJA Super IW Pty Ltd 500,000 0.31% Caveo Communications Pty Ltd 461,400 0.29% BNP Paribas Noms (NZ) Ltd 424,500 0.26% Total 111,781,667 69.33% SHAREHOLDER INFORMATION Annual General Meeting Tax and Dividend Payments The Annual General Meeting of iiNet Limited will be held at Level 2, 502 Hay For Australian registered shareholders who have not quoted their Tax File Street, Subiaco, Western Australia, on the 19 November 2013. Number (TFN) or Australian Business Number (ABN), iiNet will be required to deduct tax at the top marginal rate from the unfranked portion of any Stock Exchange Listing dividends paid to shareholders. If you have not yet provided your TFN/ABN, iiNet Limited shares are listed on the Australian Securities Exchange (“ASX”) you are able to do so by contacting the share registry or by registering and are traded under the code ‘IIN’. your TFN/ABN online. Dividends will be paid in Australian Dollars directly into your nominated bank account. If you have not nominated a bank Major Announcements account, a dividend cheque will be mailed to your address as recorded at iiNet immediately informs the ASX of anything that may affect the the share registry.
Company’s share price. All major Company announcements are available on the Company’s website following their release to the ASX. Investors Change of Name, Address or Banking Details can register on iiNet’s website to receive email alerts as and when media Shareholders who are issuer sponsored should advise the Share Registry releases and ASX announcements are posted. immediately of a change of name, address or banking details. Appropriate forms can be downloaded from the share registry. Shareholders who are Shareholder Enquiries CHESS sponsored should instruct their sponsoring broker to notify the Shareholders seeking information about their shareholding should contact FINANCIAL REPORT REPORT FINANCIAL Share Registry of any change. iiNet Limited Share Registry. Shareholders should have their Security holder reference number (SRN) or Holder Identification Number (HIN) available to iiNet’s Website 140 assist in responding to their enquiries. The share registry website allows iiNet’s investor website, http://investor.iinet.net.au/ provides investors shareholders direct access to their holding information and to make with a wide range of information regarding its activities and performance, changes to address and banking details online. including its annual reports, share price, interim and preliminary results, investor presentations, major news releases and other Company Share Register statements. Link Market Services Limited Ground Floor 178 St Georges Terrace Perth, Western Australia 6000
Telephone: +61 1300 275 410 NET ANNUAL REPORT 2013 2013 REPORT ANNUAL NET
ii Fascimile: +61 2 9287 0303 Email: [email protected] Website: www.linkmarketservices.com.au CORPORATE INFORMATION Chairman M. Smith
Managing Director M. Malone
Non-executive Directors P. James P. Broad D. Grant L. McCann S. Hackett
Chief Financial Officer and Company Secretary D. Buckingham 141
Registered Office and Principal place of business iiNet Limited Level 1, 502 Hay Street Subiaco Perth, Western Australia 6008
Telephone: 1300 275 410 Facsimile: 1300 785 632 Website: www.iinet.net.au
Auditor Ernst & Young
Photograph by Stuart Bridge, Commercial Manager. iiNET’S GROWTH HAS BEEN A REAL TEAM EFFORT