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Macquarie Telecom annual report 2008 oad A 6000 delaide Terrace erth W #35-00 West Gateway 189720 Singapore 65 6580 7383 T 0011 65 6580 7388 F 0011 Singapore R Beach 150 Perth 10 Level A 251 P T (08) 9229 0000 F (08) 9229 0088

Canberra 7 Level Street Clarke 54 Marcus T 2600 AC Canberra T (02) 6257 6277 F (02) 6257 7188 Brisbane 10 Level 26 Wharf Street Brisbane QLD 4000 2300 T (07) 3874 2388 F (07) 3874 oad A 5000 delaide S Toll Free numbers Free Toll 653 053 T 1800 373 676 F 1800 T (08) 8363 9700 F (08) 8363 9788 Adelaide 297 Pirie Street A Melbourne VIC 3004 Melbourne T (03) 9206 6800 F (03) 9206 6888 Melbourne 1 Level Kilda R St 441

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Intellicentre 16 Level 477 Pitt Street NSW 2000 Sydney T (02) 8204 5100 F (02) 8204 5188 Hobart Street 49 Davey Hobart T 0000 T (03) 6214 0888 F (03) 6214

Sydney 20 Level Street 2 Market NSW 2000 Sydney 7777 T (02) 8221 7788 F (02) 8221 macquarietelecom.com COMPANY INFORMATION Thank you for your continued investment. CONTENTS Macquarie Telecom delivers a range of hosting, data, Company Snapshot 1 voice and mobile services specifically to the business Company Highlights 2 and government market. Over the years, we’ve listened Financial Highlights 4 to what businesses really want from their telco. As Chairman’s Message 6 you’d expect, every one is different. That’s why we DIRECTORS MACQUARIE ASSIST ENVIRONMENT NOTE Chief Executive’s Message 8 Robert Kaye T 1800 789 999 This report is printed haven’t built our business around “one size fits all”. Chairman on environmentally Board of Directors 10 David Tudehope SHARE REGISTRY responsible paper Financial Statements 12 Chief Executive stock, Life Recycled, Registries Limited Aidan Tudehope using organic inks. Level 2 Managing Director 207 Kent Street Life Recycled paper – Hosting Sydney NSW 2000 stock contains 50% Stephen Butler T 1300 737 760 post consumer waste Non-Executive Director F 1300 653 459 and 50% FSC (Forest John Palfreyman Stewardship Council) Non-Executive Director AUDITOR certified fibre sourced from sustainable, well COMPANY SECRETARIES PricewaterhouseCoopers managed forests. Life Michael Simmonds Recycled is Elemental BANKERS Albert Koolmees Chlorine Free (ECF) and Australia and New Zealand is manufactured under R EGISTERED OFFICE Banking Group Limited the Environmental Management System Level 20 SOLICITORS ISO 14001. 2 Market Street Sydney NSW 2000 Gilbert & Tobin

NOTICE OF ANNUAL GENERAL MEETING INTERNET ADDRESS Notice is hereby given that the Annual macquarietelecom.com General Meeting of the members of Macquarie Telecom Group Limited will be held at the Museum of Sydney Auditorium (at the corner of Phillip and Bridge Streets) in Sydney on Friday, 28 November 2008 at 9.00am.

Macquarie Telecom Group Limited ACN 056 712 228 Design by War Design Studios

MACQUARIE TELECOM ANNUAL REPORT 2008 65 COMPANY SNAPSHOT Macquarie Telecom at a glance.

Hosting Division Data Network Division Macquarie Telecom’s Hosting division focuses Macquarie Telecom’s Data Network division provides on providing secure, scalable, high-availability, reliable and secure IP data network services. We offer fully managed hosting services for our customers’ the highest level of network service availability and critical applications. For more information on optimum network solutions to support our customers’ Macquarie Telecom’s Hosting division visit business application environments. For more information macquarietelecom.com/hosting on Macquarie Telecom’s Data Network division visit macquarietelecom.com/data

Voice Division MOBILES Division Macquarie Telecom’s Voice division delivers secure, Macquarie Telecom’s Mobiles division provides tailored flexible and cost-effective telephony solutions mobile solutions together with a wide range of developed to meet the specific business requirements enhanced management, reporting and cost control of our customers, to maximise productive use of tools that enable our customers to effectively manage telecommunications and to control unnecessary and control their mobile fleet and its expenditure. spending. For more information on Macquarie Telecom’s For more information on Macquarie Telecom’s Mobiles Voice division visit macquarietelecom.com/voice division visit macquarietelecom.com/mobile

Macquarie Telecom Annual Report 2008 1 COMPANY highlights

$13.8M Macquarie Telecom achieved a full-year EBITDA (earnings before interest, tax, depreciation and amortisation) profit of $13.8 million for the 12 months ended 30 June 2008.

Up 22% The EBITDA result was a 22% improvement on the 12 months ended 30 June 2007 (“corresponding period”). The result was within guidance given at the half year.

Up 56% Data & Hosting EBITDA profit rose 56% to $9.4 million, boosted by a strong performance from the Hosting business.

33.2% Data & Hosting revenue now represents 33.2% of total revenue as the mix change towards higher margin business continues.

Up 7.3% Mobile revenue rose 7.3% to $28.3 million with continued growth in sophisticated mobile data products. Mobiles recorded an EBITDA profit of $1.6 million up from $0.7 million in the previous corresponding period.

$22.6M Macquarie Telecom maintains a healthy balance sheet with cash and cash equivalents of $22.6 million, having generated strong operating cash flows of $18.8 million.

2 COMPANY highlights Third consecutive year of EBITDA growth.

08 $13.8M 07 $11.3M 06 $4.5M 05 $0.6M

Macquarie Telecom Annual Report 2008 3 FINANCIAL HIGHLIGHTS

EBITDA profit improvement of 22% Operating cash flow of $18.8 million All lines of business profitable at EBITDA* Revenue mix continues to improve

2008 financial summary For the year ended 30 June 2008, in $m

2008 2007 2006 2005 Service revenue 244.9 254.6 249.0 230.5 EBITDA 13.8 11.3 4.5 0.6 EBIT (1.7) (4.1) (9.3) (10.9) Net loss after tax (1.2) (3.6) (6.4) (10.9) Operating cash flow 18.8 14.3 1.9 5.3 Gross margin % 38.6% 34.3% 33.4% 32.3%

2008 operating results by business area For the year ended 30 June 2008, in $m

Revenue EBITDA

Data & Hosting Services 81.2 9.4 Voice Services 125.1 8.2 Mobiles 28.3 1.6 Singapore 10.3 0.1 Corporate Office** 0.0 (5.5) Total 244.9 13.8

* Excluding Corporate Office ** The Corporate Office figure represents overhead costs associated with Macquarie Telecom’s corporate and regulatory activities.

4 FINANCIAL HIGHLIGHTS Profitable growth.

EBITDA

2008 $13.8M 2007 $11.3M 2006 $4.5M 2005 $0.6M

Operating cash flow

2008 $18.8M 2007 $14.3M 2006 $1.9M 2005 $5.3M

Service revenue

2008 $244.9M 2007 $254.6M 2006 $249.0M 2005 $230.5M

Gross margin

2008 38.6% 2007 34.3% 2006 33.4% 2005 32.3%

Macquarie Telecom Annual Report 2008 5 Chairman’s Message

In 2008, Macquarie Telecom continued to improve its financial performance as the benefits from our strategic investment programs in infrastructure, IP-based products, services, data and security expertise have been realised. Combined with our differentiated accountable service offering and our world-class management tools, we are confident that we have a platform for continued growth.

“In 2008 we have enjoyed a Genuine momentum exists within the business and During 2008, Macquarie Telecom’s Data & Hosting continuation of the momentum built our results confirm that we are not only delivering on business continued to grow in both revenue and in previous periods, with the Hosting our strategy, but that it is successfully positioning profitability.O f particular note was the strong business firmly establishing itself as the company for sustainable profitable growth. We performance of our Hosting business, which focuses the market leader in mission critical have now achieved our third consecutive increase in on the design, sourcing and delivery of dedicated application hosting.” year-on-year EBITDA profit which reflects the translation hosting solutions for critical online applications. of these investment programs into increased profitability, In 2008, we have enjoyed a continuation of the especially in our higher margin Data & Hosting business. momentum which has been building over previous periods, with the Hosting business firmly Supporting this profitable growth has been the ongoing establishing itself as the market leader in mission progress we have made in becoming an integral part critical application hosting. of our customers’ businesses, as we assist them in adapting to change. In our continued pursuit of an Our established Voice business continues to deliver ongoing strategy of differentiation, we are committed significant profits to the Company even though the to ensuring that we provide our customers with higher voice services market again came under intense price levels of service through personal accountability, as well pressure. Our reliance on voice service revenue continues as offering them the management tools they require to to decline, as the mix in our business shifts towards manage their communication needs. higher margin businesses, in particular Data & Hosting.

6 Chairman’s Message Delivering on strategy.

MOMENTUM ONLINE POSITION Genuine momentum During 2008, Macquarie Macquarie Telecom exists within the business Telecom’s Data & Hosting is positioned well for business continued to the future grow in both revenue and profitability

Macquarie Telecom’s Mobiles business unit also Our focus in the year ahead remains on the execution performed well, increasing revenue and more than of the strategies we have outlined in the past few years. doubling its EBITDA contribution during 2008. Our We will continue investing in our core infrastructure and mobile operations are a key part of Macquarie Telecom’s portfolio of security, hosting and IP-based products to ability to bundle solutions to customers across all areas enhance our competitive position, whilst maintaining of telecommunications, and this gains importance as a disciplined approach to execution and operational we see more of our customers embracing mobile data efficiency.W e expect profitability in fiscal year 2009 solutions as part of their communications strategy. to continue on a solid growth path as our investments increasingly deliver profit. Macquarie Telecom ended the 2008 financial year in a healthy financial position. With cash and cash equivalents We enter the new financial year confident that our of $22.6 million on hand as at 30 June, strong operating strategies are working and that there is genuine momentum cash flow of $18.8 million generated by our increased in place to grow Macquarie Telecom’s market share in the profitability, and additional funding capacity in place, evolving and converging telecommunications market. Macquarie Telecom is positioned well for the future.

Robert Kaye Chairman

Macquarie Telecom Annual Report 2008 7 ChIEF EXECUTIVE’s Message

In 2008, the Company achieved an EBITDA result of $13.8 million for the year, in line with expectations and representing a 22% improvement on the previous corresponding period. This strong result supports the strategic direction we have taken and we expect profitability in fiscal 2009 to continue on a solid growth path as our investments continue to increasingly deliver benefits.

“Data & Hosting EBITDA rose to Total service revenue was $245 million with our revenue Online applications have become increasingly essential $9.4 million, a significant improvement mix continuing to improve and our higher margin to the success of business and government organisations. from the $6.0 million reported businesses once again making increased contributions to Dedicated hosting solutions must be secure and reliable for the previous year.” total service revenue year-on-year. Data & Hosting now as well as offering flexibility and scalability. Our solutions contributes more than 33% of total service revenue are housed in our purpose-built data centre that which directly reflects the strategic investments we have integrates with our IP data, voice and mobile networks made in the past and are continuing to make. The voice providing the infrastructure, protection and proven services market again came under intense price pressure processes to cost-effectively meet our customers’ reinforcing Macquarie Telecom’s ongoing strategy to hosting requirements. reduce reliance on voice service revenue and focus on The Hosting business continued to win new contracts our higher-margin businesses. with clients including PBL Media Pty Ltd, Carsguide.com.au Revenue from Data & Hosting, which provides data and one of the world’s fastest growing social networking networking and hosting services to Australian business sites Habbo Hotel. With a continued focus on and government customers, increased 12.7% to differentiation through personal, accountable service $81.2 million, with the Hosting business performing delivery, we look forward to further growth for this strongly. Data & Hosting EBITDA rose to $9.4 million, a exciting and highly accredited operation. significant improvement from the $6.0 million reported Macquarie Telecom’s traditional Voice business generated for the previous year. revenue of $125 million, down 13.8% on the previous This marked improvement in Data & Hosting profitability period. EBITDA from voice services decreased from is a direct result of the investments that we have made. $10.7 million in the previous corresponding period to Our business grade high-availability data networks provide $8.2 million. The Voice business revenue reduction was our customers with solutions designed to deliver enhanced primarily attributable to continued industry-wide price performance and security whilst supporting their pressure and the cessation of provision of wholesale business application environment. Our world-class data services to other carriers. Macquarie Telecom will centre provides the environment for our customers to continue to defend its voice revenue and profitability have access to our highly skilled professionals, increased whilst increasing our focus on higher margin areas such flexibility, secure scalable infrastructure and guaranteed as Data & Hosting. service levels for mission critical online applications.

8 ChIEF EXECUTIVE’s Message Building momentum.

CONTRIBUTION LEADERSHIP GROWTH Data & Hosting now Macquarie Telecom has We remain confident contributes more than maintained its leadership that the momentum we 33% of total service role in policy debates have created will lead revenue and regulatory processes to sustainable profitable growth in 2009 and beyond

Another important element of our full-service offering Our focus in the year ahead is to continue to execute is Mobiles, where revenue rose 7.3% to $28.3 million on our strategy of growing our higher margin businesses with continued growth in sophisticated and secure by leveraging the investments we have made and by mobile data products as more of our customers continuing to deliver exceptional service to our customers. begin to embrace these applications into their core In 2008, we have demonstrated that this strategy is communications environment. Mobiles recorded an working and we remain confident that the momentum EBITDA profit of $1.6 million up from $0.7 million in the we have created will lead to sustainable profitable previous period. growth in 2009 and beyond. The key regulatory issues for the sector in 2009 revolve None of the achievements outlined would have around design and implementation of the Federal been possible without the support and dedication Government’s National Broadband Network. Macquarie of Macquarie Telecom’s staff, and the loyalty and Telecom is a founding member and shareholder in the contribution of our business partners and customers. Terria consortium (formerly G9) bidding for the National On behalf of the Board and management, I thank Broadband Network that aims to bring higher speed them for their continuing efforts and support. data services to more households and businesses. An “open access” pro-competition model is being favoured by the Government and the Terria model conforms to this approach. David Tudehope It is a given that Australian consumers generally, and Chief Executive businesses in particular, benefit from vibrant competitive markets. Macquarie Telecom’s ongoing “pro-competition” advocacy has also been directed toward greater regulatory certainty around pricing for both fixed-line and mobile services.

Macquarie Telecom Annual Report 2008 9 board of directors

We will continue investing in our core infrastructure and in our portfolio of security, hosting and IP-based products to enhance our competitive position, whilst maintaining a disciplined approach to working smarter and increasing efficiency.

Robert Kaye David Tudehope Aidan Tudehope Stephen Butler John Palfreyman Chairman Chief Executive Managing Director – Hosting Non-executive DirectOR Non-executive Director Robert is Chairman of David is Chief Executive Aidan is the Managing Stephen joined the John’s career spans Macquarie and was and co-founder of Director – Hosting and Board on 26 July 2004 more than 20 years in appointed as a director Macquarie and has been a co-founder of Macquarie and is a member of the IT industry. He was in 2001. He was British director since 1992. He is and has been a director the Audit and Risk executive chairman of Telecom’s director of responsible for overseeing since 1992. Aidan is Management Committee 90East Inc, an Australian market and business the general management responsible for the Hosting and the Corporate supplier of managed development for the and strategic direction business, including its Governance, Nomination security services to federal Australasian region, a of the Company, and is Gateway service. He and Remuneration government agencies, former managing director actively involved in the has been instrumental Committee. He has held until the company’s of British Telecom’s Company’s participation in the development of board positions with successful trade sale in Australian operations, in regulatory issues. Macquarie’s Singaporean, PowerTel and WilTel early 2004. Previously John and a director of Clear David was a former data networking and Communications Australia, was managing director of Communications Ltd member of the Minister Intellicentre strategies. and advisory board Baltimore Technologies in New Zealand, until for Telecommunication’s Prior to taking on the positions with Newbridge (Asia Pacific), the region’s retirement in June 2002. Australian Information leadership of the Hosting Networks, Argon Networks dominant supplier of Robert has held CEO Economy Advisory Council. business, Aidan was the and Edge Broadband Ltd. public key infrastructure positions in the past He was previously a Chief Operating Officer, Stephen is currently a based e-commerce with several major IT&T director of the Service responsible for the design division director within the and enterprise security companies. Robert is Providers’ Industry and delivery of operational Infrastructure Technology systems. He holds a chairman of the Corporate Association. David holds excellence within Group of Macquarie Bachelor of Commerce Governance, Nomination a Bachelor of Commerce Macquarie. Aidan Group Limited (an entity degree and qualified as and Remuneration degree. He is a member holds a Bachelor of unrelated to Macquarie a chartered accountant Committee and a member of the Corporate Commerce degree. Telecom). He was formerly in 1982. John joined the of the Audit and Risk Governance, Nomination chief executive officer Board on 26 July 2004 and Management Committee. and Remuneration of PowerTel Limited, is chairman of the Audit Committee. a position he held for and Risk Management more than three years Committee and a until 2003. During this member of the Corporate time, Stephen led the Governance, Nomination transformation of PowerTel and Remuneration from a construction Committee. focused company to a customer service company, driving revenue growth and achieving positive operating cash flow. Stephen holds a Bachelor of Science (Electrical Engineering) degree.

10 board of directors Our focus in the year ahead remains on the execution of the strategies we have outlined in the past few years.

Macquarie Telecom Annual Report 2008 11 Contents Directors’ Report 13 Corporate Governance Statement 22 Income Statement 25 Balance Sheet 26 Statement of Changes in Equity 27 Cash Flow Statement 28 Notes to the Financial Statements 29 Directors’ Declaration 59 Independent Auditor’s Report 60 Auditor’s Independence Declaration 62 ASX Additional Information 63

12 directors’ report

Your directors submit their report for the year ended Aidan Tudehope 30 June 2008. (Managing Director – Hosting), age 36 Directors Aidan is the Managing Director – Hosting and co- founder of Macquarie and has been a director since The names and details of the directors of Macquarie 1992. Aidan is responsible for the Hosting business, Telecom Group Limited (“Macquarie” or the “Company”) including its Gateway service. He has been instrumental in office during the financial year and until the date of in the development of Macquarie’s Singaporean, data this report are as follows. Directors were in office for this networking and Intellicentre strategies. Prior to taking entire period unless otherwise stated. on the leadership of the Hosting business, Aidan was Names, qualifications, experience and special the Chief Operating Officer, responsible for the design responsibilities and delivery of operational excellence within Macquarie. Aidan holds a Bachelor of Commerce degree. Robert Kaye (Chairman), age 70 Stephen Butler (Non-Executive Director), age 41 Robert is Chairman of Macquarie and was appointed as a director in 2001. He was British Telecom’s Stephen joined the Board on 26 July 2004 and is a director of market and business development for the member of the Audit and Risk Management Committee Australasian region, a former managing director of British and the Corporate Governance, Nomination and Telecom’s Australian operations, and a director of Clear Remuneration Committee. He has held board positions Communications Ltd in New Zealand, until retirement in with PowerTel and WilTel Communications Australia, June 2002. Robert has held CEO positions in the past with and advisory board positions with Newbridge Networks, several major IT&T companies. Robert is chairman of the Argon Networks and Edge Broadband Ltd. Stephen is Corporate Governance, Nomination and Remuneration currently a division director within the Infrastructure Committee and a member of the Audit and Risk Technology Group of Macquarie Group Limited (an Management Committee. entity unrelated to Macquarie Telecom). He was formerly chief executive officer of PowerTel Limited, a position he David Tudehope held for more than three years until 2003. During this (Chief Executive), age 41 time, Stephen led the transformation of PowerTel from David is Chief Executive and co-founder of Macquarie a construction focused company to a customer service and has been a director since 1992. He is responsible company, driving revenue growth and achieving positive for overseeing the general management and strategic operating cash flow. Stephen holds a Bachelor of Science direction of the Company, and is actively involved in the (Electrical Engineering) degree. Company’s participation in regulatory issues. David was a John Palfreyman former member of the Minister for Telecommunication’s (Non-Executive Director), age 49 Australian Information Economy Advisory Council. He was previously a director of the Service Providers’ Industry John’s career spans more than 20 years in the IT industry. Association. David holds a Bachelor of Commerce He was executive chairman of 90East Inc, an Australian degree. He is a member of the Corporate Governance, supplier of managed security services to federal Nomination and Remuneration Committee. government agencies, until the company’s successful trade sale in early 2004. Previously John was managing director of Baltimore Technologies (Asia Pacific), the region’s dominant supplier of public key infrastructure based e-commerce and enterprise security systems. He holds a Bachelor of Commerce degree and qualified as a chartered accountant in 1982. John joined the Board on 26 July 2004 and is chairman of the Audit and Risk Management Committee and a member of the Corporate Governance, Nomination and Remuneration Committee.

Macquarie Telecom Annual Report 2008 13 directors’ report

Directors’ interests in the shares and options of the Independent professional advice Company and related bodies corporate Directors and board committees have the right, in As at the date of this report, the interests of the directors connection with their duties and responsibilities, to in the shares and options of the Company and related seek independent professional advice at the Company’s bodies corporate were as follows: expense. Prior written approval of the Chairman is required, but this will not be unreasonably withheld. (a) D Tudehope and A Tudehope collectively wholly own Claiward Pty Ltd, an entity which holds 12,501,390 Principal activities (61%) of the ordinary shares of Macquarie. The relevant Macquarie is the head entity of a consolidated group ownership interests in Claiward Pty Ltd are held by comprising Macquarie Telecom Pty Limited (“MT”), Semark Pty Ltd at 84% and Fenton Australia Pty Ltd at Macquarie Telecom Services Pty Limited (“MTS”), 16%. The shares in these latter companies are held by Macquarie Telecom Carrier Services Pty Limited (“MTCS”), D Tudehope and A Tudehope respectively; Macquarie Telecom Network Carrier Services Pty Limited (b) a director-related entity of D Tudehope and A Tudehope (“MTNCS”) and Macquarie Telecom Pte Limited. holds 7,183 ordinary shares issued under the Employee The principal activities of the consolidated entity were Discretionary Share Plan and Share Purchase Plan; the provision of telecommunication and hosting services (c) a director-related entity of D Tudehope holds 300,149 to corporate and government customers within Australia ordinary shares; and Singapore. (d) r Kaye holds an interest in 40,000 options over ordinary There have been no significant changes in the nature of shares. A director related entity of R Kaye holds 5,000 activities during the year. ordinary shares;

(e) S Butler holds an interest in 40,000 options over ordinary 2007 2006 shares and 7,500 ordinary shares; and Earnings per share cents cents (f) J Palfreyman holds an interest in 40,000 options over Basic loss per share (5.7) (17.4) ordinary shares. A director-related entity of J Palfreyman Diluted loss per share (5.7) (17.4) holds 10,000 ordinary shares. Company Secretaries Dividends There were no dividends recommended or paid on Michael Simmonds, age 42 ordinary shares during the year (2007: nil). Michael was appointed as Company Secretary of the Company in March 2006. Prior to this he held a number Review and results of operations of positions as finance director in theUK . Michael has The consolidated entity achieved earnings before been a chartered accountant for over 15 years. interest, tax, depreciation and amortisation (EBITDA) of Albert Koolmees, age 45 $13.8 million in the year ended 30 June 2008, up from Albert was appointed as Company Secretary of the $11.3 million in the corresponding period. Company in November 2001. Prior to this he held the The following tables summarise the revenue and EBITDA role of general counsel and company secretary of Spike performance of Macquarie Telecom’s major lines of Networks Limited for a period of over two years. Albert business for the past three comparable reporting periods. has been a lawyer for over 15 years.

14 directors’ report

Revenue (A$ million) Full Year 2008 Full Year 2007 Full Year 2006 Voice 125.1 145.1 149.3 Data & Hosting 81.2 72.1 66.7 Asia 10.3 11.0 11.9 Mobiles 28.3 26.4 21.0 TOTAL 244.9 254.6 249.0 EBITDA (A$ million) Full Year 2008 Full Year 2007 Full Year 2006 Voice 8.2 10.7 8.1 Data & Hosting 9.4 6.0 0.8 Asia 0.1 0.2 0.3 Mobiles 1.6 0.7 0.5 Corporate Office (5.5) (6.3) (5.2) TOTAL 13.8 11.3 4.5 In the 12 months to 30 June 2008, Macquarie Telecom Significant changes in the state of affairs delivered revenue improvements across its Data & There were no significant changes in the state of affairs Hosting and Mobiles businesses. Total service revenue during the year ended 30 June 2008. was $244.9 million, a decrease of 3.8% compared to the corresponding period. Significant events after the balance date Macquarie Telecom’s Data & Hosting business, which There were no significant events after the balance date. provides secure, high-availability hosting solutions for Likely developments and expected results companies with online applications, mission critical to their business, continued to perform strongly. The directors believe, on reasonable grounds, that to include in this report detailed information regarding The Data & Hosting business generated an EBITDA profit likely developments in the operations of the consolidated of $9.4 million, up 56% on the corresponding period. entity and the expected results of those operations in Data & Hosting now represents 33.2% of Macquarie years after the current year would be likely to result in Telecom’s revenue. unreasonable prejudice to the Company. Accordingly, Mobiles revenue rose 7.3% to $28.3 million with this information has not been included in this report. continued growth in sophisticated mobile data products. Further developments by the time of the Annual General Mobile is an important element of Macquarie Telecom’s Meeting will be reported in the Chairman’s address to strategy of offering bundled solutions to customers that meeting. across all areas of telecommunications. Mobiles recorded Share options an EBITDA profit of $1.6 million up from $0.7 million in the previous corresponding period. Details of options on issue at 30 June 2008 and movements in options on issue during the year are Macquarie Telecom’s established Voice business included in Note 18 to the financial statements. generated revenue of $125.1 million, down 13.8% from the corresponding period, and delivered an EBITDA Indemnification and insurance of directors and officers profit of $8.2 million down from $10.7 million in 2007. During the year, the Company paid premiums in respect The Voice services market again came under intense of a contract insuring all the directors of Macquarie price pressure, reinforcing Macquarie Telecom’s ongoing against costs incurred in defending proceedings for strategy to reduce reliance on Voice service revenue conduct involving: and focus on higher margin businesses, such as Data & Hosting. (a) a wilful breach of duty; or Capital expenditure for the full year was $13.0 million, (b) a contravention of sections 182 or 183 of the up from $12.1 million in 2007. Corporations Act 2001, as permitted by section 199B of the Corporations Act 2001. Macquarie Telecom has generated operating cash flows of $18.8 million and held cash and cash equivalents of The contract of insurance prohibits disclosure of the $22.6 million as at 30 June 2008. nature of the liability and the amount of the premiums. The consolidated entity employed 339 employees at 30 June 2008 (2007: 352 employees).

Macquarie Telecom Annual Report 2008 15 directors’ report

Remuneration Report (audited) was at the Annual General Meeting held on 26 November 2003 when shareholders approved an aggregate This report outlines the remuneration arrangements in remuneration of $500,000 per year. place for directors and executives of Macquarie. The amount of aggregate remuneration sought to be Remuneration philosophy approved by shareholders and the manner in which The performance of the Company depends upon the it is apportioned amongst non-executive directors is quality of its directors and senior managers. To prosper, reviewed annually. The Board considers advice from the Company must attract, motivate and retain highly external consultants as well as the fees paid to non- skilled directors and executives. executive directors of comparable companies when undertaking the annual review process. To this end, the Company embodies the following principles in its remuneration framework: Each non-executive director receives a fee for being a director of the Company. No additional fee is paid for – provide competitive rewards to attract high calibre each Board committee on which a director sits. senior managers; The non-executive directors of the Company may hold – link senior manager rewards to shareholder value; shares and options over shares in the Company. – significant portion of senior manager remuneration The issue of any options to non-executive directors must “at risk”, dependent upon meeting predetermined be approved by shareholders in general meeting. performance benchmarks; and The remuneration of non-executive directors for the – establish appropriate, demanding performing hurdles period ending 30 June 2008 is detailed in the table on in relation to variable senior manager remuneration. page 18 of this report. Responsibility for evaluating the Board’s performance falls to the Corporate Governance, Nomination and Senior manager and executive director remuneration Remuneration Committee. The performance of key Objective executives is evaluated by the Chief Executive and Managing Director – Hosting and, where considered The Company aims to reward senior managers with a level appropriate, the Board as a whole. of mix of remuneration commensurate with their position and responsibilities within the Company so as to: Remuneration link to performance – reward senior managers for Company, business unit and Macquarie’s remuneration philosophy directly aligns a individual performance against targets set by reference percentage of short-term incentives, such as bonuses, to appropriate benchmarks; and all long-term incentives granted to employees with key business outcomes such as investment returns, – align the interests of the executives with those of the Company profit growth and total shareholder return. shareholders; – link reward with the strategic goals and performance of Remuneration structure the Company; and In accordance with best practice corporate governance, the structure of non-executive director and senior – ensure total remuneration is competitive by market manager remuneration is separate and distinct. standards.

Non-executive director remuneration Structure Objective Service agreements have been entered into with each of the Chief Executive and the Managing Director – Hosting, The Board seeks to set aggregate remuneration at a level but not with any other senior managers, each of whom which provides the Company with the ability to attract is employed under the terms of a letter of appointment. and retain non-executive directors of the highest calibre, Details of the service agreements are provided on page 18. whilst incurring a cost which is acceptable to shareholders. Remuneration for all senior managers consists of the Structure following key elements: The Company’s constitution and the ASX Listing Rules – Fixed remuneration specify that the aggregate remuneration of non- – Variable remuneration executive directors will be determined from time to time by a general meeting. An amount not exceeding the – Short Term Incentive (“STI”); and amount determined is then divided between the non- – Long Term Incentive (“LTI”). executive directors as agreed. The latest determination

16 directors’ report

Fixed remuneration On a half-yearly basis, after consideration of performance against KPIs, an overall performance rating for the Objective Company is approved by the Corporate Governance, The level of fixed remuneration is set so as to provide a Nomination and Remuneration Committee. The base level of remuneration, which is both appropriate to individual performance of each senior manager is also the position and is competitive in the market. rated and taken into account when determining the amount, if any, of the STI component to be paid to each Fixed remuneration of the Chief Executive and senior manager. Managing Director – Hosting is reviewed annually by the Corporate Governance, Nomination and Remuneration Variable pay – Long Term Incentive (“LTI”) Committee and the process consists of a review of Company-wide and individual performance, relevant Objective comparative remuneration in the market and internally The objective of the LTI plan is to reward senior managers and, where appropriate, external advice on policies and in a manner which aligns this element of remuneration practices. The Committee has access to external advice with the creation of shareholder wealth. independent of management. As such, LTI grants are made to senior managers who Structure are able to influence the generation of shareholders’ wealth and thus have a direct impact on the Company’s Senior managers are given the opportunity to receive performance against the relevant long-term performance their fixed (primary) remuneration in certain forms hurdle. including cash and allowances such as motor vehicle allowances. It is intended that the manner of payment Structure chosen will be optimal for the recipient without creating undue cost for the Company. LTI grants to senior managers are delivered in the form of options and discretionary shares. The fixed remuneration component of the key management personnel is detailed on page 18. Service agreements The Chief Executive and the Managing Director – Hosting Variable remuneration – Short Term Incentive (“STI”) are each employed under a service agreement. The Objective current agreements commenced in August 1999 and continue until terminated by either the Company or The objective of the STI program is to link the the Chief Executive or the Managing Director – Hosting achievement of the Company’s operational targets (as the case may be). Under the terms of the present with the remuneration received by the senior managers agreements: charged with meeting those targets. The total potential STI available is set at a level so as to provide – each of the Chief Executive and the Managing Director – sufficient incentive to the senior manager to achieve Hosting may resign from his position and thus terminate the operational targets and such that the cost to the their agreement by giving six months’ written notice; Company is reasonable in the circumstances. – The Company may terminate the agreements by providing six months’ written notice or provide Structure payment in lieu of the notice period, based on the fixed Actual STI payments granted to each senior manager component of the Chief Executive or the Managing depend on the extent to which specific operating Director – Hosting’s remuneration (as the case may be). targets set at the beginning of the financial year are The Company may also terminate the agreements on a met. The operational targets consist of a number of Key lesser period of notice if, for example, the Chief Executive Performance Indicators (KPIs) covering both financial and or the Managing Director – Hosting (as the case may be) non-financial measures of performance. Typically included become incapacitated. are measures such as contribution to profit, operational – The Company may terminate the agreements at any time performance and staff management. The Company has without notice if serious misconduct has occurred. Where predetermined benchmarks, which must be met in order termination with cause occurs the Chief Executive or the to trigger payments under the STI scheme. Managing Director – Hosting (as the case may be) is only entitled to that portion of remuneration which is fixed, and only up to the date of termination.

Macquarie Telecom Annual Report 2008 17 directors’ report

Remuneration Report (cont’d) Remuneration of Key Management Personnel for the year ended 30 June 2008: Short term Long term Post Termin- % Share Total employ- ation Bonus based performance Primary and bonus ment benefits granted payments Total related Non- Salary Cash monetary Super-

Directors and fees bonus benefits(i) Other(ii) annuation Options(iii) R Kaye – Chairman 2008 150,000 – – – 9,847 – – 9,897 169,744 5.8% 2007 150,000 – – – 12,686 – – 5,219 167,905 3.1% D Tudehope – Chief Executive 2008 384,261 144,035 1,796 36,155 13,129 – 94.5% – 579,376 24.9% 2007 354,234 93,666 (67,760) 28,113 12,686 – 63.7% – 420,939 22.3% A Tudehope – Managing Director – Hosting 2008 365,962 91,240 23,322 36,155 13,129 – 94.5% – 529,808 17.2% 2007 337,365 59,334 7,171 28,113 12,686 – 63.5% – 444,669 13.3% S Butler – Non-Executive Director(iv) 2008 139,750 – – – 10,615 – – – 150,365 0.0% 2007 90,000 – – – 8,100 – – 4,558 102,658 4.4% J Palfreyman – Non-Executive Director(iv) 2008 181,625 – – – – – – – 181,625 0.0% 2007 139,974 – – – – – – 4,558 144,532 3.2% Total Directors’ Remuneration 2008 1,221,598 235,275 25,118 72,310 46,720 – 9,897 1,610,918 2007 1,071,573 153,000 (60,589) 56,226 46,158 – 14,335 1,280,703

Short term Long term Post Termin- % Share Total employ- ation Bonus based performance Primary and bonus ment benefits granted payments Total related Non- Salary Cash monetary Super-

Other Key Management Personnel and fees bonus benefits(i) Other(ii) annuation Options(iii) C Greig – Marketing Director 2008 282,274 129,660 27,423 19,204 13,129 – 106.5% 2,054 473,744 27.8% 2007 277,949 81,586 22,164 16,308 12,686 – 67.1% 2,745 413,438 20.4% M Krishnapillai* – Group Executive Carrier & Strategy 2008 233,949 55,465 (36,455) 20,007 10,228 – 104.1% – 283,194 19.6% 2007 240,932 100,040 (9,492) 23,443 12,686 – 73.7% 1,656 369,265 27.5% G Noble – Group Executive Data Networks & CTO 2008 243,968 71,572 13,402 17,000 13,129 – 86.4% 727 359,798 20.1% 2007 240,442 69,601 6,900 17,327 12,686 – 76.3% 1,163 348,119 20.3% L Morgan – President & Managing Director Asia 2008 311,150 139,191 9,008 9,340 – – 94.1% 21,876 490,565 32.8% 2007 80,870 39,097 4,587 2,469 – – 100% 4,701 131,724 33.2% M Simmonds – Chief Financial Officer 2008 237,367 62,902 4,163 5,000 13,129 – 88.9% 5,307 327,868 20.8% 2007 220,062 49,001 (368) – 12,686 – 79.4% 986 282,367 17.7% G Thomson** – Commercial Director 2008 235,001 44,556 (37,199) 15,486 9,847 154,862 45.7% – 422,553 10.5% 2007 292,180 101,375 9,409 15,288 12,686 – 81.1% 1,656 432,594 23.8% Total Other Key Management Personnel Remuneration 2008 1,543,709 503,346 (19,658) 86,037 59,462 154,862 29,964 2,357,722 2007 1,352,435 440,700 33,200 74,835 63,430 – 12,907 1,977,507

Details of shares issued to and held by key management personnel are disclosed in Note 25 to the financial statements. The terms “director” and “executive officer” have been treated as mutually exclusive for the purposes of this disclosure. The elements of emoluments have been determined on the basis of the cost to the Company and the consolidated entity. Executives are those directly accountable and responsible for the operational management and strategic direction of the Company and the consolidated entity. All directors are paid through subsidiary entities.

* Resigned 4 April 2008. ** Resigned 7 March 2008.

18 directors’ report

Short term Long term Post Termin- % Share Total employ- ation Bonus based performance Primary and bonus ment benefits granted payments Total related Non- Salary Cash monetary Super-

(i) The category “Non-Monetary Benefits” represent amounts accrued or released in respect of annual leave and long service leave.

(ii) The category “Other” includes the value of any non-cash benefits provided including expatriate package costs and motor vehicle allowances.

(iii) The directors have issued options over ordinary shares to a number of eligible employees. The terms of the Employee Option Plan stipulate that options will vest over certain timeframes. The plan is designed to encourage superior performance and provide opportunity to all eligible employees to participate in the future success of the Company.

whilst LTIs may include discretionary shares, no such shares have been issued either in this financial year or the previous year.

(iv) J Palfreyman was paid $83,525 (2007: $41,874) and S Butler was paid $49,750 (2007: nil) for the provision of consulting services to the consolidated entity. All amounts paid were on normal commercial terms and conditions and at market rates.

Macquarie Telecom Annual Report 2008 19 directors’ report

Remuneration Report (cont’d) Equity compensation: granted and vested during the year During the financial year there were nil options granted as equity compensation to directors and key management personnel (2007: 132,500) Vested Granted Terms and conditions for each grant Value per option Exercise at grant price per date share First exercise Last exercise Number Number Grant date $ $ date date Directors S Butler 40,000 – 22 Dec 2004 0.53 1.90 29 Nov 2006 29 Nov 2009 R Kaye – 40,000 19 Dec 2006 0.48 0.94 28 Nov 2008 28 Nov 2011 J Palfreyman 40,000 – 22 Dec 2004 0.53 1.90 29 Nov 2006 29 Nov 2009 Total 80,000 40,000 Other Key Management Personnel C Greig – 2,500 23 Apr 2007 0.53 0.97 23 Apr 2009 23 Apr 2012 C Greig 10,000 – 1 Feb 2005 0.37 2.00 31 Jan 2007 31 Jan 2010 L Morgan – 50,000 23 Apr 2007 0.52 0.98 1 Jul 2008 23 Apr 2012 G Noble 10,000 – 1 Feb 2005 0.37 2.00 31 Jan 2007 31 Jan 2010 M Simmonds – 20,000 23 Apr 2007 0.53 0.97 23 Apr 2009 23 Apr 2012 Total 20,000 72,500 Details of director related interests in shares and other director related transactions are included in Note 27.

Option holdings of Key Management Personnel Granted Net as remun- Options change Vested and exercisable Balance eration exercised other Balance at 30 June 2008 Not 1 July 30 June vested nor Vested and 2007 2008 Total exercisable exercisable Directors R Kaye 40,000 – – – 40,000 40,000 40,000 – D Tudehope 10,500 – – (10,500) – – – – A Tudehope 10,500 – – (10,500) – – – – S Butler 40,000 – – – 40,000 40,000 – 40,000 J Palfreyman 40,000 – – – 40,000 40,000 – 40,000 Executives C Greig 32,500 – – (20,000) 12,500 12,500 2,500 10,000 M Krishnapillai* 41,000 – – (41,000) – – – – G Noble 31,000 – – (21,000) 10,000 10,000 – 10,000 L Morgan 50,000 – – – 50,000 50,000 50,000 – M Simmonds 20,000 – – – 20,000 20,000 20,000 – G Thomson* 40,000 – – (40,000) – – – – Total 355,500 – – (143,000) 212,500 212,500 112,500 100,000 * Ceased employment during the year.

20 directors’ report

Directors’ meetings The numbers of meetings of directors, including meetings of committees of directors, held during the year and the number of meetings attended by each director were as follows: Meetings of Committees Directors’ Audit and Corporate Governance, Meetings Risk Management Nomination and Remuneration Number of meetings held: 17 6 2 Number of meetings attended: R Kaye 17 6 2 D Tudehope 15 – 1 A Tudehope 17 – – S Butler 17 6 2 J Palfreyman 16 5 2

As at the date of this report, the Company had an Audit Non-audit services and Risk Management Committee and a Corporate Taxation advice and compliance work was provided Governance, Nomination and Remuneration Committee. by the entity’s auditor, PricewaterhouseCoopers. The The members of the Audit and Risk Management directors are satisfied that the provision of non-audit Committee are J Palfreyman, S Butler and R Kaye. services is compatible with the general standard of The members of the Corporate Governance, Nomination independence for auditors imposed by the Corporations and Remuneration Committee are R Kaye, S Butler, Act. The nature and scope of each type of non-audit J Palfreyman and D Tudehope. service provided means that auditor independence was not compromised. Rounding PricewaterhouseCoopers received or is due to receive the The amounts contained in this report and in the financial following amounts for the provision of non-audit services: report have been rounded to the nearest $1,000 (where $62,670 (2007: $23,000). rounding is applicable) under the option available to the Company under ASIC Class Order 98/100. The Company is Signed in accordance with a resolution of the directors: an entity to which the Class Order applies.

Audit independence and non-audit services Refer to page 62 for the independence declaration from David Tudehope our auditor, PricewaterhouseCoopers. Chief Executive Sydney, 27 August 2008

Macquarie Telecom Annual Report 2008 21 CORPORATE GOVERNANCE STATEMENT

Introduction – reviewing and approving remuneration of the Chief Executive and the Managing Director – Hosting; The Board is responsible for the corporate governance practices of the Company. The major processes by which – reviewing and approving remuneration policies for senior the Board fulfils that responsibility are described in this management; and statement. – ensuring best practice corporate governance. The Board considers that except to the extent expressly The responsibility for the day-to-day operation and indicated in this statement, those corporate governance administration of the Company has been delegated to practices comply with the ASX Corporate Governance the Chief Executive and the executive team. The Board Council’s (“ASXCGC”) Principles of Good Corporate ensures that this team is appropriately qualified and Governance and Best Practice Recommendations, dated experienced. The Board is also responsible for ensuring 31 March 2003. Also, except to the extent expressly that management’s objectives and activities are aligned indicated in this statement, those practices were followed with the expectations and risks identified by the Board. throughout the year. All persons who are invited and agree to act as a director A copy of the Audit and Risk Management Committee do so by a formal notice of consent. Non-executive Charter and the Company’s Code of Conduct are directors have received formal letters of appointment. available in the corporate governance section of the Each of the executive directors is party to a formal Company’s website at www.macquarietelecom.com, executive service agreement with the Company. together with all other information which the ASXCGC recommends be made publicly available. Directors are appointed to Board committees by formal resolution of the Board. Principle 1 Principle 2 Lay solid foundations for management and oversight by the Board Structure the Board to add value The Board acts on behalf of and is accountable to the The Board has adopted a policy of ensuring that it is shareholders. The expectations of shareholders together composed of a majority of non-executive directors with with regulatory and ethical expectations and obligations an appropriate mix of skills to provide the necessary are taken into consideration when defining the Board’s breadth and depth of knowledge and experience. Each responsibilities. of the current non-executive directors is an independent director for the purposes of the criteria for independence The Board’s key responsibilities are: outlined by the ASXCGC. The Chairman is selected from – establishing, monitoring and modifying the Company’s the non-executive directors and appointed by the Board. corporate strategies; The same person does not exercise the roles of Chairman – monitoring the performance of management; and Chief Executive. The Board has agreed the division of responsibilities between these roles. That division – reporting to shareholders and the market; is sufficiently clear and understood as to not require a – ensuring that appropriate risk management systems, formal statement of position. internal control and reporting systems and compliance Information about the directors, including their frameworks are in place and are operating effectively; qualifications, experience and special responsibilities, – monitoring financial results; appears in the Directors’ Report. – reviewing business results and monitoring budgetary Principle 3 control and corrective actions (if required); Promote ethical and responsible decision making – authorising and monitoring budgets and major The Board is committed to the highest standards of investments and strategic commitments; conduct. To ensure that the Board, management and employees have guidance in the performance of their – monitoring Board composition, director selection and duties, the Board has adopted a Code of Conduct Board processes and performance; that reinforces the requirement that the business be – reviewing the performance of the Chief Executive, the conducted ethically and with professionalism. Managing Director – Hosting and senior management; In order to guard against the misuse of price sensitive – endorsing key executive appointments and ensuring information, the Board has established a share trading executive succession planning; policy relating to the Board, senior managers and other employees dealing in the Company’s shares.

22 CORPORATE GOVERNANCE STATEMENT

Principle 4 The Board approves all releases that are made to ASX Limited. Safeguard integrity in financial reporting The Chief Executive and the Chief Financial Officer The Company Secretary is responsible for have stated to the Board in writing that the Company’s communications with the ASX. financial reports present a true and fair view, in all Principle 6 material respects, of the Company’s financial condition and operational results and are in accordance with Respect the rights of shareholders relevant accounting standards. In addition to complying with its continuous disclosure obligations under the ASX Listing Rules, the Company The Board has established an Audit and Risk Management ensures that shareholders are kept informed in a variety Committee, which operates under a Charter approved by of other ways: the Board in September 2003 and amended by the Board in August 2006. Each of the members of the Committee – shareholders can gain access to information about is an independent director. The names of the members the Company, including Annual Reports and financial of the Committee and their attendances at meetings of statements, half-year financial statements, Board the Committee appear in the Directors’ Report. commentaries on those financial statements, information provided to analysts during briefings on those financial The Chief Executive, Chief Financial Officer, Managing statements, notices of meeting and explanatory materials Director – Hosting, Company Secretary, the Business and all relevant announcements made to the market, Risk Manager and the external auditor attend meetings through the website at www.macquarietelecom.com; at the discretion of the Committee. The Committee also meets privately with the external auditor without – in conducting analyst briefings, theC ompany takes care management present. to ensure that any information provided to analysts is made available to the market prior to it being provided to Minutes of all Committee meetings are provided to analysts; the Board. – the principal method of communication with The Board has delegated to the Committee responsibility shareholders is through the provision of the Annual for making recommendations on the appointment, Report and financial statements, the half-year financial evaluation and dismissal of the external auditor, setting statements and Annual General Meetings. Shareholders its fees and ensuring that the auditor reports to the are encouraged to use these meetings to ask questions Committee and the Board. on any matters related to the Company, its business and The Company is committed to audit independence. the performance of that business; and The Committee reviews the independence and – the Company requests the external auditor to attend objectivity of the external auditors. Those reviews include: the Annual General Meeting and be available to answer – seeking confirmation that the auditor is, in their questions about the conduct of the audit and the professional judgement, independent of the Company. preparation and content of the auditor’s report. The external auditor, PricewaterhouseCoopers, has Principle 7 declared its independence to the Board; and Recognise and manage risk – considering whether, taken as a whole, the various The Board is responsible for ensuring that the Company relationships between the Company and the external has in place a system of risk management and internal auditor impair the auditor’s judgement or independence. compliance and control that effectively safeguards assets The Committee is satisfied that the existing relationships and enhances the value of shareholders’ investments. between the Company and the external auditor do not give rise to any such impairment. The Board has adopted a formal risk management strategy and policy. In addition, the Company has The Company’s audit engagement partners will rotate established a formal framework for risk management and every five years. internal compliance, which includes the establishment Principle 5 of an internal business risk management function. The Audit and Risk Management Committee is responsible Make timely and balanced disclosure for reviewing and reporting to the Board on the The Board has adopted a formal continuous disclosure effectiveness of the Company’s management of risk, plan, the object of which is to ensure that material including systems for internal controls. information is identified and disclosed in a timely manner. The Board is advised of any notifiable events.I n addition, The assets of the Company and its controlled entities are the Board has developed a guidance paper on the insured under a comprehensive insurance program which Company’s disclosure obligations, which is intended to is reviewed annually. provide guidance for all managers on those obligations.

Macquarie Telecom Annual Report 2008 23 CORPORATE GOVERNANCE STATEMENT

The Chief Executive and the Chief Financial Officer have New directors receive special briefings from stated to the Board in writing that: management to assist them to rapidly understand the Company’s business and issues. Time is allocated at Board – the integrity of financial statements is founded on and Committee meetings for continuing education on a sound system of risk management and internal significant issues facing theC ompany and changes to the compliance and control which implements the policies regulatory environment. adopted by the Board; and Principle 9 – the Company’s risk management and internal compliance and control system, in so far as it relates to financial Remunerate fairly and responsibly reporting risk, is operating efficiently and effectively in The functions of the Corporate Governance, Nomination all material respects. and Remuneration Committee include reviewing the remuneration arrangements for non-executive and Principle 8 executive directors and reviewing and approving Encourage enhanced performance the issue of shares and options under the Company’s The performance of the Board, including its Committees, employee share and option plans. The Committee also and of individual directors and key executives is reviewed reviews remuneration for the senior management team on a regular basis. and monitors, reviews and makes recommendations to the Board as to the remuneration policies of the In the case of the Board and individual directors, Company generally. The name of the members of the performance is evaluated largely having regard to the Committee and their attendances at meetings of the Board’s key responsibilities listed above. Committee appear in the Directors’ Report. In the case of executive directors and other key Non-executive directors receive fees determined by executives, performance is evaluated against both the Board, but within the aggregate limits approved by quantitative and qualitative indicators. shareholders at general meetings of the Company. Responsibility for evaluating the Board’s performance The remuneration of senior managers consists of a falls to the Corporate Governance, Nomination and combination of fixed and variable (at risk) remuneration. Remuneration Committee. The performance of key The bonus paid to a senior manager is based on a review executives is evaluated by the Chief Executive and of the individual manager’s performance. Managing Director – Hosting and, where considered appropriate, the Board as a whole. Details of shares and options issued to employees of controlled entities of the Company are included in Directors have the right, in connection with their duties Note 22 to the financial statements. and responsibilities as directors, to: Principle 10 – have access to the Company Secretaries, whose appointment and removal is a matter for decision by Recognise the legitimate interests of stakeholders the Board as a whole; and The Company had in place during the year a Code of Conduct that sets out the behaviour required of directors – seek independent professional advice at the Company’s and employees. The Code provides a mechanism to expense. Prior written approval of the Chairman is enable employees to report breaches of the Code required, but this will not be unreasonably withheld. without any fear of retribution. The Board and senior In addition, directors are provided with detailed managers are responsible for monitoring compliance financial information and reports by management on a with and dealing with breaches of the Code. monthly basis, and have the right to request additional information where they consider that the information supplied by management is insufficient to support informed decision making.

24 income STATEMENT year ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 Notes $’000 $’000 $’000 $’000 Revenue and other income 3 246,015 255,525 – – Expenses 3 (246,592) (258,752) (103) (230)

Loss before income tax and finance costs (577) (3,227) (103) (230) Finance costs (806) (1,012) – –

Loss before income tax (1,383) (4,239) (103) (230) Income tax benefit 5 218 645 24 61

Net loss attributable to members 19(b) (1,165) (3,594) (79) (169)

cents cents Basic loss per share 24 (5.7) (17.4) Diluted loss per share 24 (5.7) (17.4)

The above income statement should be read in conjunction with the accompanying notes.

Macquarie Telecom Annual Report 2008 25 balance sheeT AS AT 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 Notes $’000 $’000 $’000 $’000 Current assets Cash and cash equivalents 6 22,558 19,998 6 6 Receivables 7 18,815 18,604 2,498 14,779 Accrued income 8 10,876 16,803 – – Other financial assets 9 1,402 1,246 – – Other 10 1,815 1,492 – – Total current assets 55,466 58,143 2,504 14,785 Non-current assets Other financial assets 11 – – 47,360 32,360 Plant and equipment 12 27,563 29,729 – – Deferred tax assets 5 7,309 6,617 173 3,775 Other 13 2,171 2,474 – – Total non-current assets 37,043 38,820 47,533 36,135 Total assets 92,509 96,963 50,037 50,920 Current liabilities Payables 14 41,909 42,514 2,295 3,437 Borrowings 15 1,845 3,008 – – Current tax liabilities 5 314 – 314 – Provisions 16 506 381 – – Other 17 95 149 – – Total current liabilities 44,669 46,052 2,609 3,437 Non-current liabilities Borrowings 15 1,772 3,617 – – Deferred tax liabilities 5 11 60 – – Provisions 16 1,169 1,046 – – Other 17 1,550 1,702 – – Total non-current liabilities 4,502 6,425 – – Total liabilities 49,171 52,477 2,609 3,437 Net assets 43,338 44,486 47,428 47,483 Equity Contributed equity 18 87,025 87,025 87,025 87,025 Reserves 19 4 (13) 120 96 Accumulated losses 19 (43,691) (42,526) (39,717) (39,638) Total equity 43,338 44,486 47,428 47,483

The above balance sheet should be read in conjunction with the accompanying notes.

26 STATEMENT of changes in equity year ended 30 June 2008

Accum- Contributed Reserves ulated Equity (Note 19) losses Total $’000 $’000 $’000 $’000 Consolidated At 1 July 2006 87,025 214 (38,932) 48,307 Currency translation difference – (257) – (257) Total income and expense for the period recognised directly in equity – (257) – (257) Loss for the period – – (3,594) (3,594) Total recognised expense for the year – – (3,594) (3,594) Share based payments expense – 30 – 30 At 1 July 2007 87,025 (13) (42,526) 44,486 Currency translation difference – (7) – (7) Total income and expense for the period recognised directly in equity – (7) – (7) Loss for the period – – (1,165) (1,165) Total recognised expense for the year – – (1,165) (1,165) Share based payments expense – 24 – 24 At 30 June 2008 87,025 4 (43,691) 43,338

Parent entity At 1 July 2006 87,025 66 (39,469) 47,622 Total income and expense for the period recognised directly in equity – – – – Loss for the period – – (169) (169) Total recognised expense for the year – – (169) (169) Share based payments expense – 30 – 30 At 1 July 2007 87,025 96 (39,638) 47,483 Total income and expense for the period recognised directly in equity – – – – Loss for the period – – (79) (79) Total recognised expense for the year – – (79) (79) Share based payments expense – 24 – 24 At 30 June 2008 87,025 120 (39,717) 47,428

The above statement of changes in equity should be read in conjunction with the accompanying notes.

Macquarie Telecom Annual Report 2008 27 cash flow statement year ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 Notes $’000 $’000 $’000 $’000 Cash flows from operating activities Receipts from customers 273,197 277,967 – – Payments to suppliers and employees (249,664) (258,397) – – Interest received 1,067 903 – – Interest paid (806) (1,012) – – Goods and services tax paid (5,043) (5,209) – – Net cash flows from operating activities 20(a) 18,751 14,252 – – Cash flows from investing activities Acquisition of non-current assets (13,030) (11,870) – – Proceeds from sale of non-current assets 3 – – – Proceeds from/(payments for) other financial assets (156) 738 – – Net cash flows used in investing activities (13,183) (11,132) – – Cash flows from financing activities Proceeds from finance leases – 3,505 – – Purchase of shares – – (15,000) – Repayment of finance lease principal (3,008) (2,582) – – (Advances to)/payments from related parties – – 15,000 – Net cash flows from/(used in) financing activities (3,008) 923 – – Net increase in cash held 2,560 4,043 – – Cash and cash equivalents at the beginning of the financial year 19,998 15,955 6 6 Cash and cash equivalents at the end of year 20(b) 22,558 19,998 6 6

The above cash flow statement should be read in conjunction with the accompanying notes.

28 notes to the financial statementS at 30 June 2008

1. BASIS OF PREPARATION OF THE FINANCIAL REPORT (b) Significant accounting judgements, estimates and assumptions (a) Corporate information In preparing the financial report the consolidated entity The financial report of Macquarie TelecomG roup Limited is required to make estimates and assumptions about (“Macquarie” or the “Company”) for the year ended carrying values of assets and liabilities. The key estimates 30 June 2008 was authorised for issue in accordance with and accounting judgements for Macquarie relate to a resolution of directors on 27 August 2008. income taxes, revenue recognition and the depreciation Macquarie is the head entity of a consolidated group of non-current assets. These estimates and assumptions comprising Macquarie Telecom Pty Limited (“MT”), are based on historical experience and various other Macquarie Telecom Services Pty Limited (“MTS”), factors that are believed to be reasonable under the Macquarie Telecom Carrier Services Pty Limited (“MTCS”), circumstances. Actual results may differ from these Macquarie Telecom Network Carrier Services Pty Limited estimates. The estimates and underlying assumptions are (“MTNCS”) and Macquarie Telecom Pte Limited. reviewed on an ongoing basis. Macquarie is a company limited by shares incorporated (c) Foreign currencies in Australia whose shares are publicly traded on the ASX. Translation of foreign currency transactions Transactions denominated in a foreign currency are The nature of the operations and principal activities of translated at the rates in existence at the date of the the Group are described in Note 28. transactions. (b) Basis of preparation Exchange gains and losses are brought to account in The financial report is a general purpose financial determining the net profit or loss for the year. report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Amounts payable to and by the entities within the Australian Accounting Standards. consolidated entity that are outstanding at balance date and are denominated in foreign currencies have been The financial report has been prepared in accordance converted to local currency using rates of exchange with the historical cost convention except for equity- ruling at the end of the year. based payments that have been measured at fair value. Translation of financial reports of overseas operation Compliance with IFRS The functional and presentation currency of the parent Australian Accounting standards include Australian company and its Australian subsidiaries is Australian equivalents to International Financial Reporting Standards dollars. The functional currency of the overseas subsidiary (“AIFRS”). Compliance with AIFRS ensures that this is Singapore dollars. As at the reporting date the assets financial report complies with International Financial and liabilities of the overseas subsidiary are translated into Reporting Standards (“IFRS”). the presentation currency of the consolidated entity. The 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES financial reports of the overseas subsidiary are translated using the spot rate for balance sheet items and the (a) Principles of consolidation average rate for the profit and loss with any exchange The consolidated financial statements are those of the differences taken directly to the foreign currency consolidated entity, comprising Macquarie and all entities translation reserve. Foreign currency differences on intra- that Macquarie controlled during the year and at balance group investments, including long-term loans, are also sheet date. Consolidation is based on control, which is the taken through the foreign currency translation reserve. power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. (d) Plant and equipment Cost and valuation The financial statements of subsidiaries are prepared for Plant and equipment is stated at cost less accumulated the same reporting period as that of the parent entity, depreciation and any impairment in value. Plant and using consistent accounting policies. All intercompany equipment includes costs in relation to Information balances and transactions have been eliminated in full. Technology (“IT”) development and infrastructure development projects where future benefits are probable to exceed these costs.

Macquarie Telecom Annual Report 2008 29 notes to the financial statementS at 30 June 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES An allowance for doubtful debts is made when there is (cont’d) objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified. Depreciation Depreciation is calculated on a straight-line basis on all Receivables from related parties are recognised at plant and equipment commencing from the time the amortised cost. asset is ready for use. Other receivables are recognised at cost. 2008 2007 (i) Other financial assets Major depreciation periods are: Bank deposits are measured at their nominal amount. Plant and equipment 1 to 10 years 1 to 10 years Investments in subsidiaries are recorded at the lower Leasehold improvements are amortised over the lease of cost and net recoverable amount. term. (j) Accrued income (e) Transmission capacity Accrued income represents the estimated amounts of Expenditure, relating to the acquisition of transmission unbilled services provided to all customers as at the balance capacity, is capitalised to the extent that it is expected date after taking into account all discounts as applicable. to provide future economic benefits to theC ompany. (k) Payables Capitalised expenditure less rebates are amortised over Liabilities for carrier suppliers (trade creditors) are carried the period in which the related benefits are expected at the net amount the consolidated entity expects to be realised. to have to pay each carrier, in respect of the services (f) Impairment of assets received. At each reporting date, the consolidated entity assesses Liabilities for other trade creditors and other amounts are whether there is any indication that an asset may be carried at cost which is the fair value of the consideration impaired. Where an indicator of impairment exists, the to be paid in the future for goods and services received, consolidated entity makes a formal estimate of recoverable whether or not billed to the consolidated entity. amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired Payables to related parties are carried at amortised cost. and is written down to its recoverable amount. (l) Leases Recoverable amount is the greater of fair value less costs Leases are classified at their inception as either operating to sell and value in use. It is determined for an individual or finance leases based on the economic substance asset, unless the asset’s value in use can not be estimated of the agreement so as to reflect the risks and benefits to be close to its fair value less costs to sell and it does incidental to ownership. not generate cash inflows that are largely independent Operating leases of those from other assets or groups of assets, in which The minimum lease payments of operating leases, case, the recoverable amount is determined for the cash- where the lessor effectively retains substantially all of generating unit to which the asset belongs. the risks and benefits of ownership of the leased item, In assessing value in use, the estimated future cash flows are recognised as an expense on a straight-line basis. are discounted to their present value using a pre-tax In the event that lease incentives are received to enter discount rate that reflects current market assessments of into non-cancellable operating leases, such incentives the time value of money and the risks specific to the asset. are recognised as a liability. Lease payments are allocated Impairment losses are recognised in the income statement. between rental expenses, reduction of the liability and, where appropriate, interest expense over the term (g) Cash and cash equivalents of the lease. Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term Finance leases deposits with an original maturity of three months or less. Leases which effectively transfer substantially all of the risks and benefits incidental to ownership of the leased For the purposes of the Cash Flow Statement, cash and item to the consolidated entity are capitalised at the fair cash equivalents consist of cash and cash equivalents as value of the leased property or, if lower, at the present defined above, net of outstanding bank overdrafts. value of the minimum lease payments and disclosed (h) Trade and other receivables as property, plant and equipment under lease. A lease Trade receivables are recognised and carried at original liability of equal value is also recognised. invoice amount, less a provision for any uncollectible debts. Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. Minimum lease payments are allocated between interest expense and reduction of the lease liability.

30 notes to the financial statementS at 30 June 2008

(m)Employee benefits (o) Contributed equity The liability for employees’ benefits to wages, salaries, Issued capital is recognised at the fair value of the bonuses and annual leave is accrued to balance date consideration received by the Company. based on the consolidated entity’s present obligation Any transaction costs arising on the issue of ordinary to pay resulting from employees’ services provided. shares are recognised directly in equity as a reduction The liability for employees’ benefits to long service of the share proceeds received. leave is provided to balance date based on the present value of the estimated future cash flows to be paid by (p) Revenue recognition the consolidated entity resulting from the employees’ Revenue is recognised to the extent that it is probable services provided. that the economic benefits will flow to the entity and the revenue can be reliably measured. The following (n) Share-based payment transactions specific recognition criteria must also be met before The consolidated entity provides benefits to employees, revenue is recognised: including directors, in the form of share-based payment transactions. Service revenue Service revenue is recognised when the The cost of these equity-settled transactions with telecommunication services have been provided to employees is measured by reference to the fair value the customer. Revenue is recognised net of customer at the date at which they are granted. The fair value discounts and allowances. is determined by an external valuer using a Binomial option pricing model for those options subject to Interest performance hurdles. Revenue is recognised as it accrues using the effective interest method. This is a method of calculating the The cost of equity-settled transactions is recognised, amortised cost of a financial asset and allocating the together with a corresponding increase in equity, over the interest income over the relevant period using the period in which the performance conditions are fulfilled, effective interest rate, which is the rate that exactly ending on the date on which the relevant employees discounts estimated future cash receipts through the become fully entitled to the award (Vesting Date). expected life of the financial asset to the net carrying The cumulative expense recognised for equity-settled amount of the financial asset. transactions at each reporting date until vesting reflects ( q ) Ta x e s (i) the extent to which the vesting period has expired; Income taxes and (ii) the number of awards that, in the opinion of Deferred income tax is provided on all temporary the directors, will vest ultimately. This opinion is formed differences at the balance sheet date between the tax based on the best available information at balance date. base of assets and liabilities and their carrying amount for No adjustment is made for the likelihood of market financial reporting purposes. performance conditions being met as the effect of those conditions is included in the determination of fair value The deferred income tax is recognised for all taxable at grant date. temporary differences except where the deferred income tax liability arises from the initial recognition of No expense is recognised for awards that do not vest an asset or liability in a transaction that is not a business ultimately, except for awards where vesting is conditional combination and, at the time of the transaction, affects upon a market condition. neither the accounting profit nor taxable profit or loss. The consolidated entity has applied the requirements Deferred tax assets are recognised for deductible of AASB 1 First-time Adoption of Australian Equivalents temporary differences and unused tax losses only if it is to International Financial Reporting Standards in respect probable that future taxable amounts will be available to of equity-settled awards and has applied AASB 2 Share utilise those temporary differences and losses. Based Payments only to equity instruments granted after 7 November 2002 that had not vested on or before Deferred income tax is determined using tax rates and 1 January 2006. laws that have been enacted or substantially enacted as at the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred liability is settled.

Macquarie Telecom Annual Report 2008 31 notes to the financial statementS at 30 June 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (r) Borrowings (cont’d) Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently Tax consolidation legislation measured at amortised cost. Any difference between Macquarie Telecom Group Limited and its wholly owned proceeds (net of transaction costs) and the redemption Australian controlled entities have implemented the tax amount is recognised in the income statement over the period consolidation legislation. of the borrowings using the effective interest rate method. The head entity, Macquarie Telecom Group Limited, and Borrowings are removed from the balance sheet when the controlled entities in the tax consolidation group, the obligation specified in the contract is discharged, account for their own current and deferred tax amounts. cancelled or expired. The difference between the These tax amounts are measured as if each entity in the carrying amount of a financial liability that has been tax consolidated group continues to be a stand-alone extinguished or transferred to another party and the taxpayer in its own right. consideration paid, including any non-cash assets In addition to its own current and deferred tax amounts, transferred or liabilities assumed, is recognised in other Macquarie Telecom Group Limited also recognises income or other expenses. the current tax liabilities or assets and the deferred tax Borrowings are classified as current liabilities unless the assets arising from unused tax losses and unused tax Group has an unconditional right to defer settlement credits assumed from controlled entities in the tax of the liability for at least 12 months after the balance consolidated group. sheet date. Assets or liabilities arising under tax funding agreements (s) Borrowing costs with the tax consolidated entities are recognised as Borrowing costs incurred in relation to the arrangement amounts receivable from or payable to other entities of borrowings are capitalised and amortised on a straight- in the Group. Details of the tax funding agreement are line basis over the term of the facility. All other borrowing disclosed in Note 5. costs are recognised as an expense when incurred. Any differences between the amounts assumed and (t) Segment reporting amounts receivable or payable under the tax funding A business segment is identified for a group of assets agreement are recognised as a contribution to (or and operations engaged in providing services that are distribution from) wholly owned tax consolidated entities. subject to risks and returns that are different to those Goods and services tax (GST) of other business segments. A geographical segment is Revenues, expenses and assets are recognised net of identified when products or services are provided within the amount of GST except: a particular economic environment subject to risks and returns that are different from those of segments – where the GST incurred on a purchase of goods and operating in other economic environments. services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost (u) Provisions of acquisition of the asset or as part of the expense item Provisions are recognised when the Group has a present as applicable; and legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required – receivables and payables are stated with the amount to settle the obligation and the amount has been reliably of GST included. estimated. Provisions are not recognised for future The net amount of GST recoverable from, or payable to, operating losses. the taxation authority is included as part of receivables Provisions are measured at the present value of or payables in the balance sheet. management’s best estimate of the expenditure required Cash flows are included in theC ash Flow Statement to settle the present obligation at the balance sheet date. on a gross basis and the GST component of cash flows The discount rate used to determine the present value arising from investing and financing activities, which is reflects current market assessment of the time value of recoverable from, or payable to, the taxation authority money and the risks specific to the liability. are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

32 notes to the financial statementS at 30 June 2008

(v) Earnings per share Revised AASB 123 Borrowing Costs and AASB 2007-6 Basic earnings per share Amendment to Australian Accounting Standards arising Basic earnings per share is calculated by dividing the from AASB 123 [AASB 1, AASB 101, AASB 107, AASB 111, profit attributable to equity holders of the company, AASB 116 & AASB 138 and Interpretations 1 & 2] excluding any costs of servicing equity other than Revised AASB 123 is applicable to annual reporting ordinary shares, by the weighted average number of periods commencing on or after 1 January 2009. It has shares outstanding during the financial year. removed the option to expense all borrowing costs and when adopted will require the capitalisation of all Diluted earnings per share borrowing costs directly attributable to the acquisition, Diluted earning per share adjusts the figures used in the construction or production of a qualifying asset. determination of basic earnings per share to take into There will be no impact on the financial report of the account the after income tax effect of interest and other consolidated entity, as the consolidated entity already financing costs associated with dilutive potential ordinary capitalises borrowing costs relating to qualifying assets. shares and the weighted average number of shares assumed to have been issued for no consideration in Revised AASB 101 Presentation of Financial Statements, relation to dilutive potential ordinary shares. AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101 and AASB 2007-10 (w)Rounding of amounts Further amendments to Australian Accounting Standards Amounts contained in the financial report have been arising from AASB 101. rounded to the nearest $1,000, where rounding is A revised AASB 101 was issued in September 2007 and applicable, under the option available to the Company is applicable for annual reporting periods commencing under ASIC Class Order 98/100. The Company is an entity on or after 1 January 2009. It requires the presentation to which the Class Order applies. of a statement of comprehensive income and makes (x) New accounting standards and interpretations changes to the statement of changes in equity, but will AASB7 Financial Instruments Disclosures has been not affect any of the amounts recognised in the financial adopted effective 1 July 2007 with prior year statements. comparatives included. The Group has not adopted the standards early. In addition, certain new accounting standards and (y) Comparatives UIG interpretations have been published that are not Prior year comparatives have been restated were mandatory for 30 June 2008 reporting periods. The necessary to conform with current presentation. Consolidated entity’s assessment of the impact of these new standards and interpretations are set out below. AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Standards arising from AASB 8 AASB 8 and AASB 2007-3 are effective for annual reporting periods commencing on or after 1 January 2009. AASB 8 will result in significant change in the approach to segment reporting, as it requires adoption of a “management approach” to reporting on financial performance. The consolidated entity has not adopted the standards early. Application of AASB 8 may result in different segments, segment results and different types of information being reported in the segment note of the financial report. However, at this stage, it is not expected to affect any amounts recognised in the financial statements.

Macquarie Telecom Annual Report 2008 33 notes to the financial statementS at 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 3. REVENUE AND EXPENSES (a) Revenue and other income Revenue Revenue from services 244,894 254,607 – – Other income Interest 1,121 918 – – Total other income 1,121 918 – – Total revenue and other income 246,015 255,525 – –

(b) Expenses Amortisation of non-current assets Leasehold improvements 204 304 – – Transmission capacity 303 303 – – Depreciation of non-current assets Plant and equipment 14,942 14,775 – – Total depreciation and amortisation expense 15,449 15,382 – – Net loss on disposal of plant and equipment 47 11 – – Bad and doubtful debts – trade debtors 780 1,306 – – Operating lease rental 3,168 3,222 – – Employment costs 53,144 50,796 24 30 Carrier costs 155,991 172,318 – – Other 18,013 15,717 79 200 231,143 243,370 103 230 Total expenses 246,592 258,752 103 230

4. DIVIDENDS PAID OR PROVIDED FOR ON ORDINARY SHARES (a) There were no dividends proposed or paid during the year (2007: nil). – – – – (b) Franking account balance The amount of franking credits available for the subsequent financial year are: – franking account balance as at the end of the financial year at 30% – – – – – – – –

5. income tax (a) Income tax expense Current tax 314 – – – Deferred tax (532) (645) (24) (61) (218) (645) (24) (61)

Deferred income tax (revenue) expense included in income tax expense comprises: Decrease/(increase) in deferred tax assets 4,331 (208) (24) (61) (Decrease)/increase in deferred tax liabilities (4,863) (437) – – (532) (645) (24) (61)

34 notes to the financial statementS at 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 (b) Numerical reconciliation of income tax expense to prima facie tax payable Loss from continuing operations before income tax expense (1,383) (4,239) (103) (230) Tax at the Australian tax rate of 30% (2007: 30%) (415) (1,272) (31) (69) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Singapore tax losses not brought to account 305 280 – – Difference in overseas tax rates 203 189 – – Expenditure not allowable for income tax purposes 137 126 7 8 Decrease/(increase) in foreign tax credits carried forward 139 358 – – Adjustment to tax in respect of prior years (511) – – – Other (76) (326) – – Income tax (revenue) expense (218) (645) (24) (61) Non-current assets – deferred tax assets The balance comprises temporary differences attributable to: Tax losses – 3,629 – 3,629 Foreign tax credits (“FTC”) 165 96 165 96 Accelerated depreciation for accounting purposes 6,086 4,596 – – 6,251 8,321 165 3,725 Employee benefits 958 855 – – Accrued expenses 1,044 3,133 8 50 Provisions for doubtful debts and credit notes 703 857 – – Other assets 90 – – – Fringe benefits tax 42 44 – – Subtotal other 2,837 4,889 8 50 Total deferred tax assets 9,088 13,210 173 3,775 Set-off of deferred tax liabilities pursuant to set-off provisions (1,779) (6,593) – – Net deferred tax assets 7,309 6,617 173 3,775

Accelerated Tax losses FTC depreciation Other Total Movements – Consolidated At 1 July 2006 4,235 1,090 3,348 4,965 13,638 Charged to the income statement (606) (358) 1,248 (76) 208 Charged to withholding tax provision – (636) – – (636) At 30 June 2007 3,629 96 4,596 4,889 13,210 Charged/(credited) to the income statement (3,629) (140) 1,490 (2,052) (4,331) Charged to withholding tax provision – 209 – – 209 At 30 June 2008 – 165 6,086 2,837 9,088 Movements – Parent At 1 July 2006 4,235 1,821 – 33 6,089 Charged/(credited) to the income statement 44 – – 17 61 Charged directly to intercompany (650) (1,725) – – (2,375) At 30 June 2007 3,629 96 – 50 3,775 Charged/(credited) to the income statement 66 – – (42) 24 Charged to intercompany (3,695) 69 – – (3,626) At 30 June 2008 – 165 – 8 173

Macquarie Telecom Annual Report 2008 35 notes to the financial statementS at 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 5. income tax (cont’d) Non-current liabilities – deferred tax liabilities The balance comprises temporary differences attributable to: Accrued income – 4,793 – – Prepayments – – – – Accelerated depreciation for tax purposes 1,670 1,570 – – 1,670 6,363 – – Other debtors 84 171 – – Accrued expenses 36 119 – – Subtotal other 120 290 – – Total deferred tax liabilities 1,790 6,653 – – Set-off of deferred tax liabilities pursuant to set-off provisions (1,779) (6,593) – – Net deferred tax liabilities 11 60 – –

Accrued Prepay- Accelerated Income ments depreciation Other Total Movements – Consolidated At 1 July 2006 4,755 12 1,865 458 7,090 Charged/(credited) to the income statement 38 (12) (295) (168) (437) At 30 June 2007 4,793 – 1,570 290 6,653 Charged/(credited) to the income statement (4,793) – 100 (170) (4,863) At 30 June 2008 – – 1,670 120 1,790

Movements – Parent At 1 July 2006 – – – – – Charged/(credited) to the income statement – – – – – At 30 June 2007 – – – – – Charged/(credited) to the income statement – – – – – At 30 June 2008 – – – – –

Tax consolidation Macquarie and its 100% owned Australian resident subsidiaries have formed a tax consolidated group with effect from 1 July 2002. Macquarie is the head entity of the tax consolidated group. The agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax obligations. At balance date, the possibility of default is remote. Tax effect accounting by members of the tax consolidated group Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group in accordance with their accounting profit/(loss) for the period, while deferred taxes are allocated to members of the tax consolidated group in accordance with AASB 112 Income Taxes and UIG 1052 Tax Consolidation Accounting.

36 notes to the financial statementS at 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 Notes $’000 $’000 $’000 $’000 6. cash and cash equivalents Cash at bank and in hand 22,558 19,998 6 6

7. RECEIVABLES Current Trade debtors 19,936 18,229 – – Provision for doubtful debts (1,786) (1,762) – – Provision for credit notes (1,698) (1,106) – – Receipts due from trade debt purchase facility 20(d) 1,923 2,487 – – Other receivables 440 756 – – Receivable from related parties – wholly owned group 27(b) – – 2,498 14,779 18,815 18,604 2,498 14,779 (a) australian dollar equivalents Australian dollar equivalent of amounts receivable in foreign currencies not effectively hedged: – Singapore dollars 521 585 – – (b) Terms and conditions relating to the above financial instruments: (i) Sales are on 14 day terms; (ii) Details of the terms and conditions of related party receivables are set out in Note 27(b); and (iii) Details of impairment of trade receivables are set out in Note 30(b). (c) provision for doubtful debts/credit notes At 1 July (2,868) (3,387) – – Amounts written off 1,343 2,312 – – Additional amounts provided (1,981) (1,793) – – Provisions released 22 – – – At 30 June (3,484) (2,868) – –

8. ACCRUED INCOME Accrued income 10,876 16,803 – –

9. CURRENT OTHER FINANCIAL ASSETS Bank deposits 1,402 1,246 – –

(a) Terms and conditions relating to the above financial instruments: (i) Short-term deposits include interest bearing term deposit accounts for facilities existing at 30 June 2008 and effective interest rates of 0.83% to 7.3% (2007: 0.67% to 5.4%) per annum. These bank deposits are held by financial institutions as security against bank guarantees for rental bonds.

10. OTHER CURRENT ASSETS Prepayments 1,815 1,492 – –

Macquarie Telecom Annual Report 2008 37 notes to the financial statementS at 30 June 2008

Parent Entity 2008 2007 $’000 $’000 11. NON-CURRENT ASSETS – OTHER FINANCIAL ASSETS Interests in subsidiaries Percentage of equity interest held by the consolidated entity Country of 2008 2007 Name incorporation % % Macquarie Telecom Pty Limited – ordinary shares Australia (a) 100 100 32,360 32,360 Macquarie Telecom Services Pty Limited – ordinary shares Australia (a) 100 100 – – Macquarie Telecom Carrier Services Pty Limited – ordinary shares Australia (a) 100 100 – – Macquarie Telecom Network Carrier Services Pty Limited – ordinary shares Australia (a) 100 100 – – Macquarie Telecom Pte Ltd – ordinary shares Singapore (a) 100 100 15,000 – 47,360 32,360

The directors believe the investments in, and advances to (Note 7), these subsidiaries are fully recoverable based upon the estimated present value of net cash flows expected to be derived from the underlying businesses. On 18 March 2008, the Company acquired one additional share of the issued capital of Macquarie Telecom Pte Ltd for a total consideration of $15 million. (a) Entities subject to Class Order relief Pursuant to Class Order 98/1418, relief has been granted to Macquarie Telecom Pty Limited, Macquarie Telecom Services Pty Limited, Macquarie Telecom Network Carrier Services Pty Limited and Macquarie Telecom Carrier Services Pty Limited from the Corporations Act 2001 requirements for preparation, audit and lodgement of their financial reports. As a condition of the Class Order, Macquarie Telecom, Macquarie Telecom Pty Limited, Macquarie Telecom Services Pty Limited, Macquarie Telecom Carrier Services Pty Limited, Macquarie Telecom Network Carrier Services Pty Limited and Macquarie Telecom Pte Ltd (the “Closed Group”) entered into a Deed of Cross Guarantee on 28 June 2005. The effect of the deed is that Macquarie has guaranteed to pay any deficiency in the event of winding up of any of its controlled entities. The controlled entities have also given a similar guarantee in the event that Macquarie is wound up. The consolidated statement of financial performance, statement of financial position and statement of cash flows of the entities that are members of the Closed Group are the same as those presented for the consolidated group and have therefore not been repeated.

38 notes to the financial statementS at 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 12. PLANT AND EQUIPMENT Leasehold improvements At cost 1,245 2,041 – – Accumulated amortisation (599) (1,709) – – 646 332 – – Plant and equipment At cost 66,441 65,187 – – Accumulated depreciation (41,804) (42,633) – – 24,637 22,554 – – Plant and equipment under lease At cost 12,015 12,015 – – Accumulated depreciation (9,735) (5,172) – – 2,280 6,843 – – Total written down amount 27,563 29,729 – – Reconciliations Reconciliation of the carrying amounts of plant and equipment at the beginning and end of the current financial year: Leasehold improvements Opening balance 332 595 – – Additions 568 41 – – Disposals (50) – – – Amortisation expense (204) (304) – – 646 332 – – Plant and equipment Opening balance 22,554 27,016 – – Additions 12,462 12,108 – – Disposals – (12) – – Transfer – (3,505) – – Depreciation expense (10,379) (13,053) – – 24,637 22,554 – – Plant and equipment under lease Opening balance 6,843 5,060 – – Transfers – 3,505 – – Depreciation expense (4,563) (1,722) – – 2,280 6,843 – –

During the year fully depreciated plant and equipment of $11.1 million were retired.

13. OTHER NON-CURRENT ASSETS Transmission capacity 5,000 5,000 – – Transmission capacity rebate (278) (278) – – Accumulated amortisation (2,551) (2,248) – – 2,171 2,474 – –

Macquarie Telecom Annual Report 2008 39 notes to the financial statementS at 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 Notes $’000 $’000 $’000 $’000 14. PAYABLES Current Trade creditors 23(a) 33,090 34,091 – – Other creditors and accruals 7,072 6,757 27 166 Annual leave entitlements 1,538 1,438 – – Withholding tax payable 209 228 – – Payable to related parties – wholly owned group 27(b) – – 2,268 3,271 41,909 42,514 2,295 3,437 (a) australian dollar equivalents Australian dollar equivalent of amounts payable in foreign currencies not effectively hedged: – Singapore dollars 878 475 – –

(b) included in trade creditors are amounts payable to various telecommunications carriers. As outlined in Note 23, the Company disputes certain charges levied by some of its carriers. Included in trade creditors are the amounts the Company believes are its obligations for the services provided, after a careful review of the carrier billings. (c) Terms and conditions relating to the above financial instruments: (i) Trade liabilities are normally settled on 30 to 60 day terms; and (ii) Details of the terms and conditions of related party payables are set out in Note 27(b).

15. BORROWINGS Current Obligations under finance leases 21(b) 1,845 3,008 – – Non-current Obligations under finance leases 21(b) 1,772 3,617 – –

16. PROVISIONS Current Employee benefits (a) 22 506 381 – – Non-current Employee benefits (a) 22 1,169 1,046 – –

(a) a reconciliation of the movements in the provision balances is shown below:

2008 2007 2008 2007 $’000 $’000 $’000 $’000 Long Service Leave At 1 July 1,427 1,311 – – Arising during the year 517 255 – – Utilised (269) (139) – – At 30 June 1,675 1,427 – –

Consolidated Parent Entity 2008 2007 2008 2007 Notes $’000 $’000 $’000 $’000 17. OTHER LIABILITIES Current Lease incentive 21(b) 95 149 – – Non-current Lease incentive 21(b) 1,550 1,702 – –

40 notes to the financial statementS at 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 Notes $’000 $’000 $’000 $’000 18. CONTRIBUTED EQUITY (a) Issued and paid up capital Ordinary shares fully paid (no par value) 87,025 87,025 87,025 87,025

2008 2007 Number 2008 Number 2007 of shares $ of shares $ (b) Movements in shares on issue Balance at beginning of year 20,608,621 87,025,435 20,608,621 87,025,435 Balance at end of year 20,608,621 87,025,435 20,608,621 87,025,435 (c) Share options Options over ordinary shares There were nil options over ordinary shares issued during the year. At the end of the year, there were 286,500 (2007: 611,500) unissued ordinary shares in respect of which options were outstanding. Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any related body corporate or in the interest issue of any other registered scheme. No share options are held by the parent entity or its subsidiaries (2007: nil).

Information with respect to the number of options issued by Macquarie Telecom Group Limited is as follows: 2008 2007 Weighted Weighted 2008 average 2007 average Number of exercise Number of exercise options price options price Balance at beginning of year 611,500 2.02 581,000 1.94 Granted – – 142,500 0.97 Forfeited (325,000) 1.42 (112,000) 1.60 Exercised – – – – Balance at end of year 286,500 2.18 611,500 1.77 Exercisable at end of year 164,000 3.09 423,000 2.02

The following table summarises information about total options outstanding and exercisable at 30 June 2008: Average Exercisable Exercise Outstanding option life number of Expiry price options (years) options date $14.40 15,000 1.24 15,000 27 Sep 2009 $1.90 80,000 1.42 80,000 29 Nov 2009 $2.00 69,000 1.59 69,000 31 Jan 2010 $0.94 40,000 3.41 – 28 Nov 2011 $0.98 50,000 3.78 – 10 Apr 2012 $0.97 32,500 3.82 – 23 Apr 2012 286,500 2.41 164,000

No options were exercised after year end. (d) Terms and conditions of contributed equity Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

Macquarie Telecom Annual Report 2008 41 notes to the financial statementS at 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 Notes $’000 $’000 $’000 $’000 19. OTHER RESERVES AND ACCUMULATED LOSSES Other reserves 19(a) 4 (13) 120 96 Accumulated losses 19(b) (43,691) (42,526) (39,717) (39,638) (a) Other Reserves (i) Nature and purpose of reserves The foreign currency translation reserve is used to record exchange differences arising from the translation of foreign subsidiaries. The employee equity benefits reserve is used to record the value of equity benefits provided to employees as part of their remuneration. Refer to Note 22 for further details of these plans. (ii) Movements in reserves Foreign currency translation reserve: Balance at beginning of year (109) 148 – – Gain/(loss) on translation of foreign controlled entity (7) (257) – – Balance at end of year (116) (109) – – Employee equity benefits reserve: Balance at beginning of year 96 66 96 66 Share-based payments 24 30 24 30 Balance at end of year 120 96 120 96 4 (13) 120 96 (b) Accumulated losses Balance at beginning of year (42,526) (38,932) (39,638) (39,469) Loss attributable to members (1,165) (3,594) (79) (169) Total available for appropriation (43,691) (42,526) (39,717) (39,638) Dividends paid or provided for – – – – Balance at end of year (43,691) (42,526) (39,717) (39,638)

20. STATEMENT OF CASH FLOWS (a) Reconciliation of the loss after income tax benefit/(expense) to the net cash flows from operating activities Loss after income tax benefit (1,165) (3,594) (79) (169) Amortisation of non-current assets 507 607 – – Depreciation of non-current assets 14,942 14,775 – – Loss/(profit) on sale of plant and equipment 47 11 – – Share based payments expense 24 30 24 30 Net foreign currency gains (7) (257) – – Changes in assets and liabilities Trade receivables (527) 53 – – Other receivables 316 442 – – Related party receivables – – (2,719) (1,739) Accrued income 5,927 16 – – Prepayments (323) 413 – – Deferred tax assets (692) 74 3,602 2,314 Trade and other creditors (605) 1,892 (139) 56 Related party payables – – (1,003) (492) Other liabilities (206) (243) – – Current tax liabilities 314 – 314 – Deferred tax liabilities (49) (83) – – Provision for employee benefits 248 116 – – Net cash flow from operating activities 18,751 14,252 – –

42 notes to the financial statementS at 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 Notes $’000 $’000 $’000 $’000 (b) Reconciliation of cash Cash balance comprises: – Cash on hand 6 22,558 19,998 6 6 22,558 19,998 6 6 (c) Non-cash investing activities There were no non-cash investing activities during the financial year. (d) Financing facilities available Total Facilities: – trade debt purchase facility 10,000 16,000 – – 10,000 16,000 – – Facilities used at reporting date: – trade debt purchase facility – – – – – – – – Facilities unused at reporting date: – trade debt purchase facility 10,000 16,000 – – 10,000 16,000 – – Total Facilities 10,000 16,000 – – Facilities used at reporting date – – – – Facilities unused at reporting date 10,000 16,000 – –

Trade debt purchase facility During the financial year 2006, the consolidated entity entered into an agreement with an unrelated third party for the purchase of its trade debts. The facility was renegotiated and renewed in the current financial year. Upon acceptance, funds were made available to the consolidated entity of an amount not exceeding the facility limit of $10 million. At the reporting date the consolidated entity had not drawn down on the facility and was owed $1.9 million (2007: $2.5 million) in debtor receipts. The facility term is two years and is subject to floating interest rates based on the bank bill swap reference rate plus a margin. The facility is subject to meeting financial covenants on a rolling six month basis which are reviewed each month by the third party. Under the agreement the consolidated entity has been appointed as agent to manage, collect and enforce all purchased trade debts. If, on any day, the receipts from debtors exceed the amount the consolidated entity has drawn down against the facility limit, that amount is required to be remitted to the consolidated entity on the next business day.

Macquarie Telecom Annual Report 2008 43 notes to the financial statementS at 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 21. eXPENDITURE COMMITMENTS (a) Capital expenditure commitments Estimated capital expenditure contracted for at balance date but not provided for: Not later than one year 291 1,173 – – Payable later than one year – – – – 291 1,173 – – (b) Lease expenditure commitments Operating leases All operating leases relate to premises, parking spaces and office equipment in various locations and have a lease term of between six months and six years. There are no restrictions placed upon the lessee by entering into these leases.

Minimum lease payments: Not later than one year 3,321 2,189 – – Later than one year and not later than five years 8,864 7,033 – – Later than five years 2,538 4,158 – – 14,723 13,380 – – Aggregate expenditure commitments comprise: Amounts provided for: Lease incentive liability – current 95 149 – – Lease incentive liability – non-current 1,550 1,702 – – Amounts not provided for: Rental commitments 14,723 13,380 – – 16,368 15,231 – – Finance lease and hire purchase commitments The consolidated entity leases various plant and equipment with a carrying amount of $2.3 million under finance leases expiring within two years subject to interest rates between 7% and 11%.

Minimum lease payments: Not later than one year 2,088 3,480 – – Later than one year and not later than five years 1,878 3,966 – – Later than five years – – – – Total minimum lease payments 3,966 7,446 – – Less future finance charges (349) (821) – – Total lease liability 3,617 6,625 – – Aggregate expenditure commitments comprise: Amounts provided for: Lease liabilities – current 1,845 3,008 – – Lease liabilities – non-current 1,772 3,617 – – 3,617 6,625 – –

44 notes to the financial statementS at 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 22. EMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTS Employee benefits The aggregate employee benefits liability is comprised of: Accrued wages, salaries, annual leave and on costs 5,126 3,823 – – Provisions (current) 506 381 – – Provisions (non-current) 1,169 1,046 – – 6,801 5,250 – –

Employee share schemes During the year, there were nil options (2007: 102,500) issued under the Employee Option Plan to eligible The consolidated entity has adopted the following three employees. At 30 June 2008, there were 151,500 (2007: employee share plans: 476,500) options on issue under this plan. During the (a) employee Option Plan; year, nil options were exercised (2007: nil) and 325,000 (2007: 72,000) options were forfeited or expired. (b) Discretionary Share Plan; and During the year, there were nil shares (2007: nil) issued (c) Share Purchase Plan. under the Discretionary Share Plan to eligible employees, Full-time and part-time employees of Macquarie or its and nil shares (2007: nil) issued under the Share Purchase subsidiaries are eligible to participate in these plans at Plan. Ordinary shares issued under the Discretionary the discretion of the directors. Directors, both executive Share Plan are not disposable for two years from the and non-executive, are also eligible to participate in date of issuance, and are forfeited upon termination of the plans. However, their participation is subject to the employment with Macquarie. Ordinary shares issued Corporations Act 2001 and the ASX Listing Rules. The under the Share Purchase Plan are not disposable until plans are administered by the Board, which determines the earlier of the date of termination of employment with the directors or employees that will be made offers to Macquarie, or three years from the date of issuance. participate in the plans and the terms of those offers. The market value of Macquarie shares closed at $0.71 on There are currently 339 employees and directors eligible 30 June 2008. for these plans. No other equities in any of the entities within the Each of the plans contains provisions dealing with matters consolidated entity were acquired by or issued to such as administration of the plans, variation of the plan employees during the year in relation to any other rules, and termination or suspension of the plans. The ownership based remuneration scheme. plans are subject to the overriding application of the Corporations Act 2001 and the ASX Listing Rules. The maximum contractual life of each option granted is six years. There are no cash settlement alternatives. The plans restrict the total number of shares issued under all of the plans, including as a result of the exercise of options, in the previous five years and the number of unexercised options issued to no more than 5% of the issued share capital of Macquarie.

Macquarie Telecom Annual Report 2008 45 notes to the financial statementS at 30 June 2008

22. EMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTS (cont’d) Information in respect to the number of options granted under the Employee Option Plan is as follows: 2008 2007 2008 Weighted 2007 Weighted Number average Number average of exercise of exercise options price options price Balance at beginning of year 476,500 1.42 446,000 1.55 Granted – – 102,500 0.97 Forfeited / Expired (325,000) 1.42 (72,000) 1.54 Exercised – – – – Balance at end of year 151,500 1.44 476,500 1.42 Exercisable at end of year 69,000 2.00 328,000 1.48 (a) Options held at the beginning of the reporting period The following table summarises information about the options held by employees as at 1 July 2007. Weighted average exercise Number price of options Grant date Vesting date Expiry date $ 262,000 6 May 2002 1 July 2004 and 1 July 2007 1.40 1 July 2005 20,000 18 June 2003 17 June 2006 and 17 June 2008 1.40 17 June 2007 92,000 1 February 2005 31 January 2007 and 31 January 2010 2.00 31 January 2008 50,000 23 April 2007 1 July 2008 10 April 2010 0.98 52,500 23 April 2007 23 April 2009 23 April 2012 0.97 476,500

(b) Options granted during the reporting period There were nil options granted by the Company to employees during the year.

46 notes to the financial statementS at 30 June 2008

(d) Options held as at the end of the reporting period The following table summarises information about options held by the employees as at 30 June 2008: Weighted average exercise Number price of options Grant date Vesting date Expiry date $ 69,000 1 February 2005 31 January 2007 and 31 January 2010 2.00 31 January 2008 50,000 23 April 2007 1 July 2008 10 April 2010 0.98 32,500 23 April 2007 23 April 2009 23 April 2012 0.97 51,500 (e) Superannuation commitments MT makes contributions in accordance with the superannuation law in respect of each eligible employee. At the end of the financial year, contributions of up to 9% (2007: 9%) of employees’ salaries and wages are legally enforceable in Australia.

23. CONTINGENT LIABILITIES (c) The Company has provided a letter of ongoing financial support to Macquarie Telecom Pte Ltd (“MT Singapore”) a (a) The consolidated entity currently disputes certain wholly owned subsidiary of the Company, for the purpose charges levied by some of its suppliers which total of assisting MT Singapore to meet its liabilities as and $0.3 million (2007: $0.5 million) on the grounds of when they fall due, but only to the extent that money is incorrect billing, including that the services were not not otherwise made available to MT Singapore to meet provided to the consolidated entity or its customers, such liabilities. The period of the financial support and and services supplied were not in accordance with guarantee is until 26 February 2009. agreed criteria. The consolidated entity is currently in discussion with (d) MT was in dispute with a former wholesale customer each of the suppliers to resolve the disputes and Telkom over unpaid bills. In turn, Telkom lodged a claim expects that satisfactory solutions will be agreed. The against MT. Telkom appointed an administrator in April consolidated entity has recorded an amount in trade 2008 and subsequently went into voluntary liquidation. creditors, which excludes the disputed amounts. A Telstra (a secured creditor) appointed a receiver in contingent liability could exist for the difference between May 2008. The receiver subsequently provided formal the amount recorded in the trade creditors and the notification to MT that he does not propose to pursue negotiated settlement of these disputes, the extent of Telkom’s claim against the company. MT has also received which cannot currently be determined. formal notification from the liquidator that he does not propose to pursue Telkom’s claim against MT. (b) The Company has guaranteed MT’s performance, including payments owed, under various wholesale supply agreements between MT and Telstra Corporation Limited (“Telstra”). It is not practical to disclose the maximum amount payable under the guarantee.

Macquarie Telecom Annual Report 2008 47 notes to the financial statementS at 30 June 2008

Consolidated 2008 2007 $’000 $’000 24. EARNINGS PER SHARE Basic loss per share (cents per share) (5.7) (17.4) Diluted loss per share (cents per share) (5.7) (17.4)

2008 2007 $’000 $’000 The following reflects the loss and share data used in the calculations of basic and diluted loss per share: Net loss attributable to members (1,165) (3,594) Loss used in calculating basic and diluted loss per share (1,165) (3,594)

2008 2007 Number of Number of shares shares Weighted average number of ordinary shares used in calculating basic loss per share 20,608,621 20,608,621 Effect of dilutive securities: Share options – – Adjusted weighted average number of ordinary shares used in calculating diluted loss per share: 20,608,621 20,608,621 Number of options that are not dilutive and not included in the calculation of diluted loss per share – Options over ordinary shares 286,500 611,500

Since the end of the financial year, no ordinary shares have been issued upon the exercise of options.

48 notes to the financial statementS at 30 June 2008

25. KEY MANAGEMENT PERSONNEL DISCLOSURES (b) Compensation of Key Management Personnel (a) Details of Key Management Personnel (i) Compensation policy Key management personnel of the consolidated group The Corporate Governance, Nomination and are defined as those persons having the authority and Remuneration Committee comprises all the non- responsibility for planning, directing and controlling executive directors and the Chief Executive. Its main activities of the entity, directly or indirectly. responsibilities are to review all matters relating to the Directors: appointment, retirement and performance of the Board, the Board Committees and the Chief Executive and R Kaye Chairman Managing Director – Hosting of the Company. D Tudehope chief Executive A Tudehope Managing Director – Hosting The Committee addresses the people management S Butler Non-executive director processes and reviews the remuneration arrangements J Palfreyman non-executive director for non-executive directors, executive directors and senior managers. The Committee also reviews and approves the issue of shares and options under the Other Key Management Personnel: Company’s share and option plans. The Managing C Greig Marketing Director Director – Hosting joins the Committee to determine the M Krishnapillai* group Executive, Carrier and remuneration policy for the senior management team. Strategy Further details of remuneration policy and service G Noble Group Executive, Convergent contracts in place are outlined in the Directors’ Report Programs under the heading “Remuneration Report”. L Morgan Managing Director – Asia M Simmonds chief Financial Officer G Thomson* commercial Director * Ceased employment during the financial year.

(ii) Compensation by category Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Short-term employee benefits 3,667,735 3,121,380 – – Post employment benefits 106,182 109,588 – – Termination payments 154,862 – – – Share-based payments 39,861 27,242 – – 3,968,640 3,258,210 – –

Information regarding individual directors’ and executives’ remuneration is provided in the Remuneration Report on pages 16 to 20.

Macquarie Telecom Annual Report 2008 49 notes to the financial statementS at 30 June 2008

25. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONT’D) (c) Shareholdings of Key Management Personnel Granted On Net Balance Balance as remun- exercise change 30 June 30 June 2008 Notes 1 July 2007 eration of options other 2008 Directors R Kaye 5,000 – – – 5,000 D Tudehope 24,042 – – – 24,042 A Tudehope 3,591 – – – 3,591 D & A Tudehope 27(c) 12,501,390 – – – 12,501,390 S Butler 7,500 – – – 7,500 J Palfreyman 10,000 – – – 10,000 Executives C Greig – – – – – M Krishnapillai* 7,183 – – – 7,183 L Morgan – – – 45,750 45,750 G Noble 21,835 – – – 21,835 M Simmonds – – – – – G Thomson* 6,133 – – – 6,133 Total 12,586,674 – – 45,750 12,632,424 * Ceased employment during the year.

All options and shareholdings referred above are ordinary shares in the Company.

(d) Shares issued on exercise of compensation options During the financial year there were no shares (2007: nil) issued to key management personnel on exercise of compensation options. (e) Other transactions and balances with Key Management Personnel Services Services provided by any related party have been disclosed in the Remuneration Report. Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 26. AUDITORS’ REMUNERATION The auditor of Macquarie is PricewaterhouseCoopers. Amounts received or due and receivable by the auditors of Macquarie for: – an audit or review of the financial report of the Company and any other entity in the consolidated entity 190,000 190,000 – – – other services in relation to the Company and any other entity in the consolidated entity 62,670 23,000 – – 252,670 213,000 – –

50 notes to the financial statementS at 30 June 2008

27. RELATED PARTY DISCLOSURES On 30 June 2008, the Company had a current receivable of $1,082,998 (2007: $797,716) due from Macquarie (a) The directors of Macquarie during the year were: Telecom Services Pty Limited (“MTS”) which was a result R Kaye of tax consolidations. D Tudehope On 30 June 2008, the Company had an amount payable to Macquarie Telecom Carrier Services Pty Limited A Tudehope (“MTCS”) of $2,268,065 (2007: $3,271,346) which was a S Butler result of tax consolidations. J Palfreyman (c) Equity instruments of directors (b) The following related party transactions occurred Interests in the equity instruments of entities in the during the financial year: consolidated entity held by directors of the reporting entity and their director-related entities at 30 June 2008, Transactions with related parties in the wholly being the number of instruments held, were: owned group (i) D Tudehope and A Tudehope collectively wholly own Business Development Agreement Claiward Pty Ltd, an entity which owns 61% (2007: On 29 June 1998, the Company entered into a 61%) of the ordinary shares of Macquarie. The relevant Business Development Agreement with its wholly ownership interests in Claiward Pty Ltd are held by owned subsidiary, MT. Under this agreement, the Semark Pty Ltd at 84% and Fenton Australia Pty Ltd at Company can charge MT a fee for the provisionof 16%. The shares in these latter companies are held by services to customers and can be charged a D Tudehope and A Tudehope respectively; management fee by MT for servicing any customers contracted to the Company. (ii) 7,183 ordinary shares were on issue to a director-related entity of D Tudehope and A Tudehope; No such fees were levied during the current financial year (2007: nil). (iii) 300,149 ordinary shares were on issue to a director- related entity of D Tudehope; Tax consolidation Effective 1 July 2002, for the purposes of income (iv) 5,000 ordinary shares were on issue to a director-related taxation, Macquarie and its 100% owned Australian entity of R Kaye. R Kaye also has an interest in 40,000 subsidiaries have formed a tax consolidated group. options over ordinary shares; Members of the group have entered into a tax sharing (v) S Butler has an interest in 40,000 options over ordinary arrangement in order to allocate income tax expense shares and 7,500 ordinary shares; and to the wholly owned Australian subsidiaries based on their accounting profit/(loss) for the period.I n addition, (vi) 10,000 ordinary shares were on issue to a director-related the agreement provides for the allocation of income entity of J Palfreyman. J Palfreyman also has an interest in tax liabilities between the entities should the head entity 40,000 options over ordinary shares. default on its tax payment obligations. There have been no changes in equity instruments of Amounts due from/payable to wholly owned entities directors during the year. On 30 June 2008, the Company had a current receivable (d) Terms and conditions of $1,414,987 (2007: $13,981,688) due from MT, which was a result of tax consolidations and advances made All transactions with key management personnel were to MT in relation to normal commercial transactions, made on normal commercial terms and conditions and at including the repayment of $15,000,000 of advances. market rates.

Macquarie Telecom Annual Report 2008 51 notes to the financial statementS at 30 June 2008

28. SEGMENT INFORMATION Segment description The consolidated entity operates in three primary business segments. The voice segment relates to the provision of voice telecommunications services to Australian corporate, Australian government and Singapore corporate customers. The Data & Hosting segment relates to the provision of services utilising the Macquarie data network and data hosting facility to Australian corporate, Australian government customers and Singapore corporate customers. The Mobiles segment relates to the provision of mobile telecommunications services to Australian corporate and Australian government customers. Transfer prices between business segments are set at an arm’s length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment result include transfers between business segments. Those transfers have been eliminated on consolidation. Geographically, the consolidated entity operates in two locations – Australia and Singapore. Segment accounting policies Segment accounting policies are the same as the consolidated entity’s policies described in Note 2. Segment information on primary business segments Voice Data & Hosting Mobiles Consolidated 2008 2007 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Revenue Sales to customers outside the consolidated entity 132,864 156,149 83,722 72,075 28,308 26,383 244,894 254,607 Other revenues from customers outside the consolidated entity – – – – – – – – Segment revenue 132,864 156,149 83,722 72,075 28,308 26,383 244,894 254,607 Unallocated revenue 1,121 918 Total consolidated revenue 246,015 255,525 Results Segment result before income tax 8,764 8,069 (4,177) (6,485) 1,545 573 6,132 2,157 Unallocated expenses (6,709) (5,384) Consolidated entity loss before income tax and finance costs (577) (3,227) Finance costs (806) (1,012) Consolidated entity loss before income tax (1,383) (4,239) Income tax benefit/(expense) 218 645 Consolidated entity loss after income tax (1,165) (3,594)

52 notes to the financial statementS at 30 June 2008

Segment information on primary business segments

Voice Data & Hosting Mobiles Consolidated 2008 2007 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Assets Segment assets 33,990 39,599 46,160 43,496 7,746 6,528 87,896 89,623 Unallocated assets 4,613 7,340 Total assets 92,509 96,963 Liabilities Segment liabilities 24,934 30,026 17,270 15,506 5,382 5,291 47,586 50,823 Unallocated liabilities 1,585 1,654 Total liabilities 49,171 52,477 Other segment information Acquisition of plant and equipment, intangible assets and other non-current assets 395 904 10,185 9,432 30 34 10,610 10,370 Unallocated acquisitions 2,420 1,779 Total acquisitions 13,030 12,149 Depreciation 689 313 12,025 12,211 69 88 12,783 12,612 Unallocated depreciation 2,159 2,163 Total depreciation 14,942 14,775 Amortisation – – 303 303 – – 303 303 Unallocated amortisation 204 304 Total amortisation 507 607

Voice Data & Hosting Mobiles Unallocated Consolidated 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Cash flow information Net cash from operating activities 12,498 13,397 9,887 7,061 2,295 1,227 (5,929) (7,433) 18,751 14,252 Net cash flow from investing activities (395) (904) (10,185) (9,153) (30) (34) (2,573) (1,041) (13,183) (11,132) Net cash flow from financing activities – – – – – – (3,008) 923 (3,008) 923

Segment information on secondary geographic segments

Australia Singapore Consolidated 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000 Segment revenue 235,772 244,495 10,243 11,030 246,015 255,525 Segment assets 88,383 93,078 4,126 3,885 92,509 96,963 Other segment information Acquisition of plant and equipment, intangible assets and other non-current assets 12,642 11,910 388 239 13,030 12,149

Macquarie Telecom Annual Report 2008 53 notes to the financial statementS at 30 June 2008

29. FINANCIAL RISK MANAGEMENT OBJECTIVES Interest rate risk AND POLICIES The consolidated entity is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. The consolidated entity’s principal financial instruments The risk is managed by maintaining an appropriate mix comprise receivables financing, finance leases, hire between fixed and floating rate borrowings. purchase contracts, cash and short-term deposits. Liquidity risk The main purpose of these financial instruments is to The consolidated entity’s objective is to maintain a provide additional funding capacity for the consolidated balance between continuity of funding and flexibility entity’s operations. through use of receivables financing, finance leases and The consolidated entity has various other financial hire purchase contracts. instruments such as trade debtors and trade creditors, Credit risk which arise directly from its operations. Information regarding the consolidated entity’s credit The main risks arising from the consolidated entity’s risk policies and objectives is set out in Note 30(b). financial instruments are interest rate risk, liquidity risk, Foreign exchange risk credit risk and foreign exchange risk. The Board reviews The consolidated entity is exposed to changes in foreign and agrees policies for managing each of these risks and exchange risk in relation to the earnings of its Singapore they are summarised below. based subsidiary, which have not been hedged on the basis of its significance to the Group’s results.

30. FINANCIAL RISK MANAGEMENT The carrying amounts of the parent entity’s financial assets and liabilities are denominated in Australian dollars. The consolidated entity and the parent entity hold the following financial instruments: Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Financial assets Cash and cash equivalents 22,558 19,998 6 6 Trade and other receivables 18,815 18,604 2,498 14,779 Accrued income 10,876 16,803 – – Other current assets 1,815 1,492 – – Other financial assets 1,402 1,246 – – 55,466 58,143 2,504 14,785 Financial liabilities Trade and other payables 41,909 42,514 2,295 3,437 41,909 42,514 2,295 3,437

54 notes to the financial statementS at 30 June 2008

(a) Market risk (i) Foreign exchange risk The consolidated entity operates primarily in Australia and Singapore and is exposed to foreign exchange risk arising mainly from its Singapore operation. Commercial transactions in Australia and Singapore are mainly in AUD and SGD respectively. Foreign currency transactions are not significant to the consolidated operations.A s such, the consolidated entity chooses not to hedge its foreign exchange risk using forward exchange contracts. The consolidated entity’s exposure to foreign currency risk at the reporting date was as follows: 2008 2007 $’000 $’000 $’000 $’000 USD SGD USD SGD Cash and cash equivalents 646 1,106 1,560 Trade and other receivables 258 264 103 436 Other current assets – 72 – 43 Accrued income – 737 – 825 Other financial assets 177 65 209 65 Trade and other payables (649) (1,591) (176) (1,479)

Consolidated entity sensitivity Based on the financial instruments held at 30 June 2008, had the Australian dollar weakened/strengthened by 10% against the Singapore dollar with all other variables held constant, the consolidated entity’s post-tax profit for the year would have been $121,000 higher/$99,000 lower (2007: $176,000 higher/$144,000 lower) mainly as a result of foreign exchange gains/losses on translation of Singapore denominated financial instruments as detailed in the above table. Parent entity sensitivity The carrying amounts of the parent entity’s financial assets and liabilities are denominated inA ustralian dollars. Hence, no exchange loss/gain is expected on translation of financial instruments held by the parent entity. (ii) Interest rate risk The consolidated entity’s and parent entity’s main interest risk arising from cash and cash equivalents with banks. The consolidated entity’s borrowings are at fixed interest rates. Based on the cash and cash equivalents at 30 June 2008, if interest rates had changed by +/- 10% from the year end rates with all other variables held constant, post-tax profit would have been $160,000 higher/lower (2007: $117,000 higher/lower) as a result of higher/lower interest income from these financial assets. (iii) Other price risk Neither the consolidated entity nor parent entity carries any other price risk.

Macquarie Telecom Annual Report 2008 55 notes to the financial statementS at 30 June 2008

30. FINANCIAL RISK MANAGEMENT (Cont’d) (iv) Cash flow and fair value interest rate risk The consolidated entity’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at the balance date, are as follows:

Fixed interest rate Fixed interest rate Fixed interest rate Total carrying Weighted average Floating maturing in maturing in maturing in Non-interest amount as per effective interest rate 1 year or less over 1 to 5 years more than 5 years bearing the Balance Sheet interest rate 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 % pa % pa (i) Financial assets Cash 22,558 19,998 – – – – – – – – 22,558 19,998 6.69 5.51 Receivables – trade – – – – – – – – 18,375 17,848 18,375 17,848 n/a n/A Accrued income – – – – – – – – 10,876 16,803 10,876 16,803 n/a n/A Other financial assets 1,402 1,246 – – – – – – – – 1,402 1,246 5.55 4.82 Other – current – – – – – – – – 1,815 1,492 1,815 1,492 n/a n/A Total financial assets 23,960 21,244 – – – – – 31,066 36,143 55,026 57,387 (ii) Financial liabilities Payables – – – – – – – – 41,909 42,514 41,909 42,514 n/a n/A Total financial liabilities – – – – – – – – 41,909 42,514 41,909 42,514 n/a n/A N/A – Not applicable for non-interest bearing financial instruments.

56 notes to the financial statementS at 30 June 2008

Macquarie Telecom Annual Report 2008 57 notes to the financial statementS at 30 June 2008

30. FINANCIAL RISK MANAGEMENT (Cont’d) (b) Credit risk Credit risk is managed on a consolidated entity basis. Credit risk arises from cash and cash equivalents, deposits with financial institutions, as well as credit exposures to customers including receivable and committed transactions. Customers are assessed for their creditworthiness by using a third party credit rating agency. If there are no independent credit ratings available, credit risk is assessed by taking into account the financial position of the company, past experience and other factors. The consolidated entity mitigates the credit risk of the top 20 customers through trade credit insurance. The credit quality of the financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised on pages 56 and 57. Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Trade receivables Group 1 14,349 14,328 – – Group 2 5,587 3,901 – – Provision for doubtful debts (1,786) (1,762) – – 18,150 16,467 – – Group 1 aged 0–60 days including past due, but not impaired. Group 2 aged 60+ days including some impaired amounts for which provision has been made. (c) Liquidity risk Financing arrangement The consolidated entity manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Surplus funds are generally invested on investment account. The consolidated entity had access to the following undrawn borrowing facilities at the reporting date Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Receivables financing 10,000 16,000 – – 10,000 16,000 – –

Maturities of financial liabilities The table below analyses the consolidated entity’s and parent entity’s financial liabilities. Total Between Between contr- Less than 6–12 1 and 2 2 and 5 Over actual 6 months months years years 5 years cash flow $’000 $’000 $’000 $’000 $’000 $’000 Consolidated entity at 30 June 2008 Non-interest bearing 41,909 – – – – 41,909 Variable rate – – – – – – Fixed rate – – – – – – 41,909 – – – – 41,909 Parent entity at 30 June 2008 Non-interest bearing – – 2,295 – – 2,295 Variable rate – – – – – – Fixed rate – – – – – – – – 2,295 – – 2,295

(d) Fair value estimation The carrying value of all financial instruments is assumed to approximate their fair value given their short-term nature.

58 directors’ declaration

directors’ declaration (2) This declaration has been made after receiving the declarations required to be made to the directors in In accordance with a resolution of the directors of accordance with section 295A of the Corporations Act Macquarie Telecom Group Limited, we state that: 2001 for the financial period ending 30 June 2008. (1) in the opinion of the directors: (3) in the opinion of the directors, as at the date of this (a) the financial report, the additional disclosures declaration, there are reasonable grounds to believe that included in the directors’ report designated as the members of the Closed Group identified inN ote 11 audited, and notes of the Company and of the will be able to meet any obligations or liabilities to which consolidated entity are in accordance with the they are or may become subject, by virtue of the Deed Corporations Act 2001, including: of Cross Guarantee. (i) giving a true and fair view of the Company’s and On behalf of the Board: the consolidated entity’s financial position as at 30 June 2008 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and Corporations Regulations 2001; and David Tudehope (b) there are reasonable grounds to believe that the Chief Executive Company will be able to pay its debts as and when Sydney, 27 August 2008 they become due and payable.

Macquarie Telecom Annual Report 2008 59 INDEPENDENT AUDITOR’S REPORT

Independent Auditor’s Report to the Members Auditor’s responsibility of Macquarie Telecom Group Limited Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in Report on the financial report accordance with Australian Auditing Standards. These We have audited the accompanying financial report of Auditing Standards require that we comply with relevant Macquarie Telecom Group Limited, which comprises ethical requirements relating to audit engagements the balance sheet as at 30 June 2008, and the income and plan and perform the audit to obtain reasonable statement, statement of changes in equity and cash flow assurance whether the financial report is free from statement for the year ended on that date, a summary material misstatement. of significant accounting policies, other explanatory notes and the directors’ declaration for Macquarie Telecom An audit involves performing procedures to obtain audit Group Limited (the consolidated entity). The consolidated evidence about the amounts and disclosures in the entity comprises Macquarie Telecom Group Limited (the financial report. The procedures selected depend on the Company) and the entities it controlled at the year’s end. auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether Directors’ responsibility for the financial report due to fraud or error. In making those risk assessments, The directors of the Company are responsible for the the auditor considers internal control relevant to the preparation and fair presentation of the financial report entity’s preparation and fair presentation of the financial in accordance with Australian Accounting Standards report in order to design audit procedures that are (including the Australian Accounting Interpretations) appropriate in the circumstances, but not for the purpose and the Corporations Act 2001. This responsibility of expressing an opinion on the effectiveness of the includes establishing and maintaining internal controls entity’s internal control. An audit also includes evaluating relevant to the preparation and fair presentation of the the appropriateness of accounting policies used and the financial report that is free from material misstatement, reasonableness of accounting estimates made by the whether due to fraud or error; selecting and applying directors, as well as evaluating the overall presentation appropriate accounting policies; and making accounting of the financial report. estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Our procedures include reading the other information in Accounting Standard AASB 101 Presentation of Financial the Annual Report to determine whether it contains any Statements, that compliance with the Australian material inconsistencies with the financial report. equivalents to International Financial Reporting Standards For further explanation of an audit, visit our website ensures that the financial report, comprising the financial http://www.pwc.com/au/financialstatementaudit. statements and notes, complies with International Financial Reporting Standards. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Liability limited by a scheme approved under Professional Standards Legislation.

60 INDEPENDENT AUDITOR’S REPORT

Independence Auditor’s opinion In conducting our audit, we have complied with the In our opinion, the Remuneration Report of Macquarie independence requirements of the Corporations Act 2001. Telecom Group Limited for the year ended 30 June 2008, complies with section 300A of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial report of Macquarie TelecomG roup Limited is in accordance with the Corporations Act 2001, including: PricewaterhouseCoopers (i) giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2008 and of their 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; and Wayne Andrews (b) the financial report complies with International Financial Partner Reporting Standards as disclosed in Note 1. Sydney Report on the Remuneration Report 27 August 2008 We have audited the Remuneration Report included in pages 16 to 20 of the directors’ report for the year ended 30 June 2008. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Macquarie Telecom Annual Report 2008 61 AUDITOR’S INDEPENDENCE DECLARATION

AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of Macquarie Telecom Group Limited for the year ended 30 June 2008, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Macquarie Telecom Group Limited and the entities it controlled during the period.

PricewaterhouseCoopers

Wayne Andrews Partner Sydney 27 August 2008

62 ASX additional information

Additional information required by the Australian Securities Exchange and not shown elsewhere in the Annual Report as follows: The shareholder information set out below was applicable as at 22 September 2008.

A. Distribution of Equity Securities Analysis of numbers of equity security holders by size of holding: ESP DSP Share Discretionary Ordinary Shares Purchase Plan Share Plan Shares Options Shares Shares 1 – 1,000 385 17 56 27 1,001 – 5,000 223 4 – 20 5,001 – 10,000 50 6 – 8 10,001 – 100,000 47 6 – – 100,001 and over 11 – – – 716 33 56 55 The number of shareholders holding less than a marketable parcel of shares 246 56 9

B. Equity Security Holders Twenty largest shareholders The names of the twenty largest holders of quoted shares at 22 September 2008: Quoted Ordinary Shares Number of shares % Held 1 claiward Pty Limited 12,501,390 60.66% 2 powertel Limited 2,067,000 10.03% 3 citicorp Nominees Pty Limited 1,081,120 5.25% 4 carrier International Pty Limited 704,392 3.42% 5 cogent Nominees Pty Limited 355,880 1.73% 6 Ms Elizabeth Dibbs 279,699 1.36% 7 Dupain Holdings Pty Limited 252,591 1.23% 8 elmarco Pty Ltd 144,973 0.70% 9 Mrs Emma Jane Gracey 142,500 0.69% 10 national Nominees Limited 128,676 0.62% 11 Mr Richard Mews & Mrs Wee Khoon Mews 121,184 0.59% 12 Mr John Priest 100,000 0.49% 13 Jadig Superannuation Pty Ltd 100,000 0.49% 14 Mr Neville Clyde Martin & Mrs Lauren Carol Martin 96,000 0.47% 15 Mr Mladen Marusic 88,535 0.43% 16 Mrs Vicky Teoh 85,001 0.41% 17 Mr Yang Yang 83,386 0.40% 18 Mr Richard Ewan Mews 69,293 0.34% 19 Mr Robert Brydon Rudd 60,000 0.29% 20 Mr Mark John Michael Ditchfield 53,000 0.26% 18,514,620 89.84%

Macquarie Telecom Annual Report 2008 63 ASX additional information

Unquoted Equity Holders Number on issue number of holders Share Purchase Plan Shares 6,873 56 Discretionary Share Plan Shares 124,400 55 Options issued under the Employee Option Plan 151,500 29 Options issued to directors to take up ordinary shares 120,000 3 Options issued to Terablake Pty Ltd to take up ordinary shares 15,000 1

C. Substantial Shareholders Substantial holders in the company are set out below:

O ordinary Shares Number shares % held 1 claiward Pty Limited 12,501,390 60.66% 2 powertel Limited 2,067,000 10.03% The Company has not received any substantial shareholding notices in accordance with section 671B of the Corporations Act 2001 during the year.

D. Voting Rights All ordinary shares carry one vote per share without restriction.

64 COMPANY INFORMATION Thank you for your continued investment. CONTENTS Macquarie Telecom delivers a range of hosting, data, Company Snapshot 1 voice and mobile services specifically to the business Company Highlights 2 and government market. Over the years, we’ve listened Financial Highlights 4 to what businesses really want from their telco. As Chairman’s Message 6 you’d expect, every one is different. That’s why we DIRECTORS MACQUARIE ASSIST ENVIRONMENT NOTE Chief Executive’s Message 8 Robert Kaye T 1800 789 999 This report is printed haven’t built our business around “one size fits all”. Chairman on environmentally Board of Directors 10 David Tudehope SHARE REGISTRY responsible paper Financial Statements 12 Chief Executive stock, Life Recycled, Registries Limited Aidan Tudehope using organic inks. Level 2 Managing Director 207 Kent Street Life Recycled paper – Hosting Sydney NSW 2000 stock contains 50% Stephen Butler T 1300 737 760 post consumer waste Non-Executive Director F 1300 653 459 and 50% FSC (Forest John Palfreyman Stewardship Council) Non-Executive Director AUDITOR certified fibre sourced from sustainable, well COMPANY SECRETARIES PricewaterhouseCoopers managed forests. Life Michael Simmonds Recycled is Elemental BANKERS Albert Koolmees Chlorine Free (ECF) and Australia and New Zealand is manufactured under R EGISTERED OFFICE Banking Group Limited the Environmental Management System Level 20 SOLICITORS ISO 14001. 2 Market Street Sydney NSW 2000 Gilbert & Tobin

Macquarie Telecom Group Limited ACN 056 712 228 Design by War Design Studios

MACQUARIE TELECOM ANNUAL REPORT 2008 65

t 2008 epor lear nnual R m Teleco Macquarie A C direction

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Sydney 20 Level Street 2 Market NSW 2000 Sydney 7777 T (02) 8221 7788 F (02) 8221 macquarietelecom.com