M2 Telecommunications Group Ltd – Annual Report 2011

M2 Telecommunications Group Ltd Annual Report 2011 www.m2.com.au

Creative Design: ADMAD, www.admad.com.au Photographers: John Warren, Warren Photography, www.warrenphotography.com.au Rohan Smith, People Telecom Marketing Executive Andrew Barnard, M2 Telecom Credit Management Officer Contents

Timeline 2

Chairman’s Letter 4

Managing Director / CEO’s Review 6

Case Studies 12

Directors’ Report 20

Remuneration Report (audited) 24

Corporate Governance Statement 29

Corporate Social Responsibility Statement 34

Consolidated Statement Of Comprehensive Income 36

Consolidated Statement Of Financial Position 37

Consolidated Statement Of Changes In Equity 38

Consolidated Statement Of Cash Flow 39

Notes To The Consolidated Financial Statements 40

Directors’ Declaration 71

Independent auditor’s report 72

ASX additional information 73

Corporate Directory 75 t 2011 t 2011 r l Repo a M2 Annu M2 1 Timeline

Delivering record increases in top and bottom lines since 2003. NE I EL IM T t 2011 - r l Repo a M2 Annu M2 2 3 M2 Annual Report 2011 - TIMELINE Chairman’s Letter

Dear Shareholder, following is a summary of the key highlights of FY11, > Declaration of interim and final (fully franked) not only in the year ahead but also for the medium a number of which are further elaborated upon in dividends of 7c and 9c respectively, a 60% to longer term. On behalf of the Board of M2 Telecommunications the Managing Director / CEO’s report which follows: increase on FY10. These were the Company’s 13th One of the Board’s core functions is succession Group Ltd (“M2”), I am pleased to present to you our and 14th consecutive dividends since listing on the Annual Report, for the period 1 July 2010 to 30 June > Consolidated revenues increased to $426.8 million planning of the CEO role. To this end, the Board ASX in October 2004; 2011 (“FY11”). from $406.1 million last year, an increase of 5%; was advised by Vaughan Bowen of his intention to > Expansion of the Company’s internal and external step aside from his current role as CEO / Managing I am genuinely thrilled to be delivering our > Earnings Before Interest, Tax, Depreciation sales channels, both in Australia and New Director and it was announced on 29 August 2011 shareholders the details of a year in which we have and Amortisation (EBITDA) of $48.3 million, as Zealand; that Vaughan will assume an Executive Director role improved M2’s EBITDA and NPAT by 54% and 72% compared with $31.4 million in the previous year, whilst Geoff Horth, M2’s present Chief Operating respectively. Given we operate in an industry in representing an EBITDA increase of 54%; > Selection and customisation of a new Company- Officer, will be appointed as CEO. Both changes will which on average low single digit growth is being wide Business Support System (“BSS”) scheduled > Net Profit After Tax (NPAT) increased by 71% from become effective at the conclusion of M2’s 2011 generated, this result is a stunning testament to the for phased implementation, commencing early the previous year to a new record high of $27.6 Annual General Meeting, on 28 October 2011. diligence and ingenuity of our team and the many FY12. million; hundreds of representatives across our national Over the past 12 years, Vaughan Bowen has proven dealer network. > Earnings Per Share (EPS) increased by 56% “This heightened focus on himself to be an outstanding CEO. Commencing in compared with the previous year, to 22.6c per the role at the time of the Company’s incorporation “This result is a stunning share; growth coupled with our in December 1999, Vaughan has grown M2 from a fledgling start-up to a large, profitable, respected testament to the diligence and > A number of sizable customer base acquisitions strengthened operating systems, member of the Australian telecommunications made late in the second half of the period, most ingenuity of our team.” provides cause for considerable industry, employing nearly 500 people across notably; Clear Telecoms (February 2011), Austar Australia and in New Zealand. Since its listing Mobile (February 2011) and Edirect (April 2011). optimism about M2’s prospects r This time last year I reported on the focus the on the ASX almost seven years ago, Vaughan has business had devoted to integration of its major The assets of New Zealand-based Black+White ette

L for future success...” steered the Company from a market capitalisation Limited were also acquired in November 2010; acquisitions from the previous year (People Telecom of $14 million to approximately $357 million at the n’s and Commander). This year I’m pleased to report on > Implementation of business-wide process Together with the announcement of FY11 results time of writing, an increase of over 2400%. a period which has been considerably less impacted

airma improvements and operating efficiencies, including on 29 August 2011, the Directors released financial by the need to integrate major acquisitions. Rather, Australian “on-shoring” of all recently acquired guidance for FY12, which forecasts another strong we took advantage of the opportunity to refine “Since its listing on the overseas-based customer support operations; year of earnings growth. Inherent within M2’s our operating processes and made a key strategic FY12 guidance is a sizable incremental investment ASX almost seven years t 2011 - Ch

r decision regarding the central operating system > Delivery of substantial increase in our “Net in its sales channels, expansion of our inside sales which will support our business into the future. We Promoter Score”, a recognised measure of ago, Vaughan has steered team and certain one-off costs associated with the l Repo

a also drove cost efficiencies into the business, across customer satisfaction, across all M2 brands; implementation of our new BSS. This heightened the Company from a market both our cost of goods and operating expense base. > Cash flows remained strong and gearing levels focus on growth coupled with our strengthened capitalisation of $14 million to

M2 Annu M2 Summarising the many achievements of such a busy remained very low in relation to borrowing operating systems provides cause for considerable 4 and productive year is indeed difficult. However, covenants; optimism about M2’s prospects for future success, approximately $357 million” The M2 Board would like to sincerely thank Vaughan for The Board is extremely pleased to be retaining his dedication and exceptional performance. Vaughan’s Vaughan in his new Executive Director role and as determination, in consultation with the Board, was that a continuing member of the M2 Board of Directors, M2’s prospects of continued future success were best demonstrating his continued commitment to M2 and served by a well managed transition of the day-to-day its future success. management of the Company. The Board conducted a Finally, on behalf of the Board, I would like to sincerely structured and thorough evaluation process and formed thank you for choosing to be a shareholder of our the strong and united view that Geoff possesses the Company and for your support during what has been a appropriate skills and experience to lead the next stage very successful and developmental year for M2. of M2’s evolution. Yours faithfully, In addition to a distinguished senior managerial career Geoff has proven himself to be an outstanding member of the M2 executive team for more than two years. After more than 20 years in the telecoms industry, Geoff assumed the role of COO at M2, where he presently has executive management Craig L Farrow responsibility for all operating divisions of the M2 Chairman Group. Geoff possesses exceptional capability to implement the systems, processes and organisational structure necessary to equip M2 to move to the next level in terms of scale whilst maintaining its lean, r hungry, “challenger” culture. ette L

“Geoff possesses the appropriate n’s

skills and experience to lead the airma next stage of M2’s evolution.” t 2011 - Ch

In his new role as Executive Director, Vaughan’s r principal responsibilities will be identifying and negotiating merger and acquisition opportunities, l Repo a continued active involvement with management of key supplier and capital markets relationships, whilst continuing to serve as a member of the M2 Board of Annu M2 Directors and ongoing advisor to the new CEO. Craig Farrow, Chairman 5 Managing Director/CEO’s Review

largely due to organic / underlying improvements “Infrastructure Light”: M2 ranks as by far the in the business as a whole, rather than relying largest of the light infrastructure operators. That heavily on contributions from businesses or assets is, the M2 core business model is one which acquired during the period. This illustrates that our leverages strategic wholesale supply relationships commitment to becoming a more efficient and more with the major telecommunications carriers (most profitable business, not just a bigger one, has been notably Telstra and Optus). These long-standing and realised during the year. sizable supply relationships enable M2 to deliver its customers a wide suite of telecoms services, remain In addition to the financial performance achievements technology agnostic and operate with particularly of FY11, some exceptional business improvements low capital expenditure. M2’s light infrastructure and foundations for future improvement were business model puts us in a strategically enviable delivered during the year. Amongst these were a position in advance of the deployment of the National stunning increase in our Net Promoter Score (“NPS”) Broadband Network (NBN), which is elaborated upon customer satisfaction rating (across all M2-owned in “M2 and the NBN” section which follows. brands), the “on-shoring” of all acquired customer service functions to our existing Australian-based “We are confident that we have contact centres, the expansion of our national sales dealer network and selection of a business-wide the team, sales channels and billing and customer management system. exceptional service offerings Vaughan Bowen, Managing Director / CEO The “Numbers that Matter” (opposite) provide a quick snap-shot of the key metrics of the M2 to take full advantage of our

The Year @ a Glance Hearty congratulations also are due to our expanding business at the end of FY11. The following sections fractional market share.” ew i dealer network, located all across the country and of this report provide a little more detail regarding As our Chairman’s letter clearly highlights, the the ingredients that collectively comprise M2 today, in New Zealand. Our dealer network is the “arms ’s Rev 2011 financial year (FY11) has been a year of SMB Focused: Whilst M2 does provide a complete

EO together with an insight into the key strategic and legs” that enable us to take our offerings to suite of services to the consumer/residential market outstanding achievement for M2. A year-on-year priorities and planned activities of note. prospective customers and they are trusted local (under our “Southern Cross Telco” brand) as well earnings increase in excess of 50% is something advisors to our tens of thousands of business as having a successful wholesale business (“M2 that, as a now relatively mature business (we The M2 Business Today customers. Wholesale”), it is the Small and Medium Business celebrate our 12th birthday this December!), we

t 2011 - MD / C (“SMB”) customer that over nearly 12 years we have r are incredibly proud to have delivered for our Our “place in the space” “...the 2011 financial year (FY11) learned to promote to and support with considerable shareholders. The Australian telecommunications industry

l Repo expertise. With a full suite of telco services, a a has been a year of outstanding comprises a diverse blend of more than 400 retail Our remarkable, adaptable, innovative team is, as national network of SMB sales channel partners and and wholesale service providers, targeting both the always, at the core of our sustained success and achievement for M2.” the highly recognisable and respected “Commander” mass market and specialist customer niches. M2 Annu M2 is to be congratulated for what has been achieved brand in our stable, we are well poised to continue during a year in which we have dramatically Perhaps the most pleasing aspect of the major M2’s unique place in the Australian telco landscape to expand our presently modest share of the SMB 6 outperformed our sector as a whole. lift in earnings delivered in FY11 is that it was is best illustrated through two stand-out features: market over the years to come. In revenue terms, M2 ranks as the 7th largest since opening our doors in 1999. We have markedly of Austar Mobile and Edirect have bolstered our today, each addressing particular niches, whether telecommunications company in Australia (and more expanded our SMB “footprint” over the last few residential customer base substantially. that is a specific regional, ethnic or industry target years, most particularly through a number of sizable importantly, we are higher up the order in profitability All retail customers within the M2 Group, whether market. M2 Wholesale not only provides competitive terms). Pleasingly, this represents only approximately acquisitions, including (most notably) People Telecom, they are SMB or consumer/residential, have available commercial arrangements to its wholesale customers Commander and Clear Telecoms. 1% of the total annual telecommunications industry to them a full suite of telecommunications services, but also seeks to at all times provide RSP’s with the revenues, providing sizable opportunity to make ranging from traditional fixed line voice services benefits of our own experience in building the M2 considerable inroads into our target markets. We are through to 3G mobile, mobile broadband, ADSL2 “...it is the SMB market business. This includes providing our RSP partners confident that we have the team, sales channels and broadband and a range of multi-location data services with access to M2 management and briefings by exceptional service offerings to take full advantage of which we have made our (“Virtual Private Networks”). team members from marketing, sales, collections and our fractional market share. central focus ever since Our M2 Wholesale business operational functions. Our retail business opening our doors in 1999.” M2 Wholesale provides small and medium sized retail M2 Wholesale has experienced solid growth over telecommunications service providers (“RSP’s”) with recent years and has been intensively focusing on Approximately two thirds of M2’s more than $400 Whilst we are not aggressively organically expanding million in recurring customer revenues falls within our a comprehensive range of services, purchased on a our presence in the consumer/residential market, our the systems and processes required to deliver our retail business. wholesale basis from M2 and then on-sold to their Southern Cross Telco brand is a specialist provider customers the operational tools and product range target retail customers. As the previous section highlighted, it is the SMB of a full suite of telecoms services to this market required to ensure their businesses remain competitive market which we have made our central focus ever segment. Recent acquisitions of the customers Over 200 RSP’s are within the M2 Wholesale stable in the fast-evolving telecoms industry.

The Numbers That Matter NPAT ew $27.6m i

EBITDA 72% increase Dividend ’s Rev

Revenue EO $48.3m Net Profit After Tax (NPAT) for 16c Team Members $426.8m 54% increase the year to 30 June 2011 EPS 60% increase 488 5% increase This is an outstanding NPAT Earnings Before Interest, Tax, 22.6c Combined interim and final increase of 71% on the 14% increase Consolidated M2 Group Depreciation and Amortisation dividend declared for the year

previous corresponding 56% increase t 2011 - MD / C

revenues for the year ended (EBITDA) for the year to to 30 June 2011. r The period saw a strong 14% period. NPAT has increased 30 June 2011. 30 June 2011. Earnings Per Share (EPS) for increase in our total number at a substantially greater M2 continues to deliver strong the year ended 30 June 2011. of team members across the This revenue growth Improved purchasing rate than revenue, also due l Repo

returns to shareholders, with a a country. Our talented and represents a 5% increase on arrangements and internal to improved purchasing This is a strong increase 60% increase in the combined dedicated team is, as always, the previous corresponding efficiencies implemented arrangements and internal of 56% on the previous dividend, year-on-year. A 9c

at the core of our success. period. Acquisitions were during the period drove the efficiencies. Underlying NPAT corresponding period. fully franked dividend was Annu M2 This growth is exceptional in completed late in the period sizeable growth in EBITDA (by is $31.3 million, an increase Underlying EPS is 25.3c, declared by the directors on light of the increases in EBITDA and as such contributed 54%) and EBITDA margin of 68% on the previous an increase of 52% on the 26 August 2011, M2’s 14th and NPAT (detail following). minimally to revenue. (more than 11%). corresponding period. previous corresponding period. consecutive dividend payment. 7 Our sales machines “We are committed to service Our Australian-based Contact Centres & the hunt for more “Promoters” We have often referred to the M2 business as “a excellence being a central sales company which happens to sell telecoms Whilst it seems that every day a news story appears services”. Whilst we are indeed a full-service telco, tenet of what defines the M2 about a company taking hundreds, sometimes with all of the operational and technical resources customer experience...” thousands of jobs off shore, we are pleased to be necessary to service our growing base of customers, bucking that trend. Through certain businesses M2 the “DNA” of M2 is very much built upon an As at the time of preparing this report, there were acquired over recent years we inherited existing aggressive, effective culture of selling our wares to approximately 500 committed individuals across off-shore customer service operations (in both Manila our target market – rather than simply waiting by the Australia and in New Zealand selling and supporting and India), yet in the last year we have returned every phone to take orders! M2’s retail service offerings, predominantly our single customer service job to our team in Australia. Commander and People Telecom dealers and agents. Whilst we have certainly been busy integrating We are absolutely proud to be supporting local jobs. Haydn Corbett, This expansive sales and service network is wholly our now much larger business over the last few However, our “on-shoring” motivation is driven most Southern Region Sales Manager focused on the SMB market and is armed with years, there has been marked expansion in both particularly by our firm and proven view that we service offerings which are specifically tailored to our internal and external sales channels and the can deliver a higher standard of service and skilled the requirements of this market. radically improved our performance in the most supporting marketing resources within our business. attention to our customers from our established telling of customer service survey questions, the In addition to our “field force”, we have made great customer support operations on Australian soil. It “Net Promoter Score” (NPS). The NPS measures gains in the performance of our “Inside Sales” is this service and expertise which will form a key customer satisfaction through the willingness of a operation over the last 12 months in particular. As differentiator of all telecoms companies both now customer to recommend our services to others. Very the name suggests, Inside Sales is a team within and into the future. We are committed to service pleasingly, we have made substantial year-on-year M2 through which we promote other products and excellence being a central tenet of what defines the gains across all of our brands, with our Southern services to our existing customers. During the last M2 customer experience and are in the final throws ew i Cross Telco brand having led the way with a NPS of year we have bolstered our Inside Sales team, each of developing a universal “Customer Promise” which +48, placing it amongst the best performers in the

’s Rev armed with offerings specifically designed to provide forces us to stand behind this goal.

EO our customers with compelling incentives to make industry today. us their “one stop shop” for their telco services. “It is this service and expertise Our Key Supplier Alliances which will form a key As a committed “Infrastructure Light” telco, M2 has

t 2011 - MD / C differentiator of all telecoms developed very strong and strategic relationships r companies both now and into with its key suppliers, which could be aptly

l Repo described as “Infrastructure Heavy”. It is this a the future.” difference in our business model to that of our main suppliers that creates (on the main) a cooperative

M2 Annu M2 The real evidence of the value we are delivering and supportive relationship, with M2 effectively Joshua Gill, to our customers from our locally-based service assisting our infrastructure-owning suppliers to 8 Corporate Account Manager centres is that over the last 12 months we have better “sweat” their assets. “We are very proud of our Clear Telecom: An established, sizable SMB customer Personally, I am genuinely excited about my new Ready, set, grow! base acquired in February 2011. Customer support Executive Director role, as it specifically captures the long-standing track-record of Over the last two years our team has been particularly operations located in Sydney and Perth. areas where I have been able to deliver the greatest focused on internal systems enhancement, sales performance with our suppliers, in Austar Mobile: A consumer mobile service customer value to the Company over recent years and in which channel expansion and business integration, following terms of our sustained growth and base acquired in February 2011. Previously a I expect to continue to do so over the changing and the large-scale acquisitions of People Telecom and the subsidiary of the Austar pay television business. challenging times that our industry faces over the Commander telecoms assets, together with a number of smaller customer bases. impeccable payment history.” Austar Mobile customers transferred to M2’s Southern years ahead. Similarly, I have every confidence in Cross Telco brand in May 2011. the job Geoff will do in his new role as CEO and look Very pleasingly, the year ahead (FY12) is one in which, Telstra Wholesale and Optus Wholesale are the forward to supporting him completely as he drives the within the business and across our dealer network, cornerstone wholesale suppliers to the M2 Group and Edirect: A consumer mobile services customer base, business forward over the years to come. we are intensely committed to setting in place all have been for many years. Through our strong growth acquired in April 2011. Customer service operations and associated scale increase over recent years, originally located in New Delhi, India, relocated to there has been a considerable expansion in the depth, M2’s Hobart customer support centre in June 2011. Geoff Horth, strength and commercial competitiveness of our Chief Operating Officer The Year ahead – Evolution, Investment, relationships with both Telstra and Optus. Improvement Additional important supply alliances are in place with other specialist providers of telecoms and related A change @ the top services, including AAPT, Globe Telecom and FlexiGroup. I assumed the role of Chief Executive Officer (CEO) / We are very proud of our long-standing track-record Managing Director at the time that we founded M2 in of performance with our suppliers, in terms of our 1999. After nearly 12 years in the role, I have made ew i sustained growth and impeccable payment history. the considered decision, in consultation with the

We look forward to building upon these excellent Board, to hand over the role of CEO at the conclusion ’s Rev foundations as the product and service offerings of this year’s Annual General Meeting on 28 October. EO required to service our customers evolve over time. Following a structured and thorough review process, the Board made the decision to appoint M2’s current Acquisitions in 2011 Chief Operating Officer (COO), Geoff Horth as M2’s new t 2011 - MD / C Since beginning a program of making strategic CEO. As stated in the Chairman’s Letter, I will then r acquisitions in 2007, our team has developed a immediately assume the role of Executive Director. l Repo core competency in the identification, negotiation, The changes in the roles performed by Geoff and a execution and integration of complementary myself represent a logical, evolutionary development in businesses and business assets. our executive structure, matching our respective skills Annu M2 During the course of FY11, M2 completed the to the tasks and challenges which our business will following notable acquisitions: need to address over the next phase of its growth. 9 strong balance sheet, capable of taking advantage businesses, with the remaining 7% to be services of strategic acquisitions which are able to be by a combination of wireless and satellite services executed on appropriate terms and we will continue at marginally lesser speeds. to actively pursue these prospects in FY12. “Being a proudly technology/ Introducing “Ninja” A Company-wide naming competition undertaken infrastructure agnostic telco, by our team saw “Ninja” selected as the name for M2 is in the enviable position of our new, universal business support system (“BSS”). Ninja is the result of more than a year-long selection not being faced with “stranded” process, in which we assessed more than fifty BSS network assets...” available measures to organically grow, both in > Engagement of an expanded network of alternatives from around the world. From a short list number of customers and in the number of products Commander sales agents across the country, we eventually selected a proven, next-generation Whilst the final form of the NBN is the subject of and services we provide to each customer. targeting underserviced geographies and areas BSS which is customised, deployed and supported ongoing political debate and a number of regulatory with high SMB presence by UK based company, Cerillion (www.cerillion.com). and other hurdles are still to be cleared, the NBN “...we are intensely committed has been deployed partially in Tasmania and more > Investment into specialist lead generation and After a number of months tailoring the system to recently across five mainland “trial sites” in both to setting in place all available appointment-setting activity, to further stimulate M2’s specific requirements, Ninja is now tested and metropolitan and regional areas. measures to organically grow...” incremental new customer acquisition by our ready to be deployed across the business to replace dealers and agents our legacy billing and customer support systems, Being a proudly technology/infrastructure agnostic many of which have been “inherited” through our telco, M2 is in the enviable position of not being A number of key growth-targeted initiatives > Investment into local area marketing, to further numerous acquisitions over recent years. faced with “stranded” network assets, nor the

ew will be implemented in FY12, all of which are stimulate sales activity in our target geographies i prospect of having to deal with rapidly declining aimed at further building upon what is still a very The impact of Ninja will be wide reaching in terms > Capitalising upon and adding to corporate margins through what is effectively a change of

’s Rev of cost efficiencies delivered across the business modest share of the SMB market place (sub 5%). EO alliances and affinity partnerships. M2 has and in providing a flexible, operationally efficient business model. Rather, we are an enthusiastic Spearheading these initiatives are: established “preferred telco” status with several solution for all of the services we presently provide wholesale access seeker of any new technology > Expansion of our Inside Sales team by nearly organisations, including: Capricorn Group to our customers as well as for all future services which can provide our customers with an enhanced (Australia’s largest automotive supplies buying service experience. To this end, M2 announced 30%, to ensure that our existing customers and solutions. group), the Real Estate Institute of Victoria (REIV) in early July that, through an alliance with Telstra t 2011 - MD / C are proactively made aware of the diverse and r and the Master Builders Association of Victoria M2 and the NBN Wholesale, it had begun connecting customers to expanding suite of products available within the (MBAV), amongst others the NBN in the mainland trial site locations.

l Repo As has been well publicised over the last few

a M2 stable In addition to our intensified organic growth focus, years, a Federal Government owned and operated In essence, the NBN provides a leveling of the > Commencing consolidation of our SMB brand acquisitions remain “on the radar” in FY12. We National Broadband Network (“NBN”) is earmarked proverbial playing field in the area of fixed line voice

M2 Annu M2 portfolio, with the established, respected have a number of target companies that fit our for deployment over the coming 8-10 years, and broadband services, the result of which will be Commander brand assuming an increasing national core business model and/or bring to the Company providing ultra-high-speed fibre-to-the-premises a more healthy competitive landscape where telcos 10 presence complementary products and services. M2 has a broadband to 93% of Australian households and are differentiated by the creativity of their offerings, the strength of their distribution and the quality of A final word their customer service. Pleasingly, this is a business I hope this summary of the year that was and our model that M2 has operated for more than a decade. plans for the year ahead, together with the detailed We feel M2 is “match fit” for the next phase of the financial information contained within the balance industry’s evolution and enthusiastically embrace the of this year’s Annual Report, illustrates to our opportunity to continue to innovate and enhance the shareholders the robust health of the M2 business way we find and support our growing customer base. and the basis for our optimism about the future. “The FY12 year is forecast to be As this will be my final CEO Report, I would like to say a sincere thanks to the amazing team that has another year where M2 expects built M2 from a fledgling start-up nearly 12 years to considerably outperform the ago to a large organization which employs nearly 500 team members, has more than 3500 shareholders telecoms sector in terms of and, most importantly, has developed a reputation earnings growth.” as a capable, successful and respected “challenger” telecoms company. Combining strong growth with I am confident that based on its solid foundations and Investment for the future under the leadership of Geoff Horth, supported by our The FY12 period is forecast to be another year where loyal and talented executive management team, M2’s M2 expects to considerably outperform the telecoms best days lay ahead. ew sector in terms of earnings growth. As described i earlier in this report, FY12 will see the Company ’s Rev make a sizable incremental investment into key areas EO which strengthen our position in our core target markets and add more fire power to our sales and marketing endeavours.

Additionally, the business is forecast to make a t 2011 - MD / C r number of business efficiency-led decisions in the

FY12 year, in particular relating to functions within l Repo a the business which will be consolidated through the introduction of the Ninja BSS. These decisions, whilst incurring once-off expense to the business in FY12, Annu M2 will ensure the business is operating on a leaner, more efficient operating cost base in FY13 and beyond. Cleide Pereira, Group Financial Controller 11 Customer profile Organisation: Chadstone Toyota www.chadstonetoyota.com.au Commander Telecom Solution: • Commander Phone System Maintenance – Samsung OfficeServ 7200 • Commander Office Phone Plan • Commander Mobile Plan Industry: Car Sales Benefits: • Improved network efficiency and performance • Ensured seamless, out-of-hours cutover to new network and system • Introduced IP telephony to seamlessly connect all three sites • Cost savings of up to 60% on both national and calls to mobiles compared to previous providers bill • Resulted in significant overall savings compared to previous provider y d tu S se a C r e d n mma t 2011 – Co r l Repo a M2 Annu M2 12 Chadstone Toyota – Commander Case Study

““The diversity of the About Chadstone Toyota “The move to Commander About Commander Commander solution has Chadstone Toyota is a well established supplier of motor had to be seamless; downtime Commander has been providing business communication vehicles to the Victorian market. They are committed to tools, connectivity, support and infrastructure solutions increased flexibility between offering quality vehicle purchases and a customer service was not an option for us. to Australian businesses for over 25 years. experience that is second to none. Since their inception sites and therefore has The company’s (Commander) Through its dedicated Commander Centre network, in 1990, the Melbourne-based company has undergone Commander provides leading edge telecommunications significant growth. As a result, the company required a ability to deliver a first-class resulted in greater staff solutions for Small to Medium Enterprise, backed by an communications provider to assist with the expansion efficiency and a higher level package for the modern business industry renowned technical and field workforce. and provide reliable, ongoing maintenance and support. Commander has developed market leading solutions of customer support. As a Chadstone Toyota currently operates out of one central solution was sensational”. to ensure your business thrives such as office and location, divided into three separate sites; Sales - for business owner I am pleased The Solution mobile telephony, IT hardware and software, Internet new, used and fleet Toyota vehicles - Parts & Accessories and network access, converged solutions, support my staff can now all work more and Service. Having been a satisfied Commander phone system and maintenance services and software licensing. customer since 2002, Chadstone Toyota approached effectively whilst guaranteeing Professional services include infrastructure solutions, The Challenge Commander for an overall communication solution. An software solutions, strategic consulting services and no business calls are missed”. in-depth, complimentary site survey was undertaken to AllThe launch of Toyota Australia’s new branding in managed services. identify the business needs and review current services. 2009 resulted in the rebrand and upgrade of major Graeme Ward The result; a complete business telecommunications For more information about Commander visit Toyota Dealerships throughout Australia with the Dealer Principal solution, tailored for Chadstone Toyota, with the www.commander.com aim of consolidating the company’s corporate identity y

convenience of one bill and local, reliable support. d Chadstone Toyota across metropolitan dealers. As a result of the upgrade, tu Toyota Chadstone constructed a new, double-story Following the consolidation of Chadstone Toyota’s S se

showroom which meant staff had a lot more ground to telecommunications services, savings were immediately a C r

cover between the sales yard, parts & accessories and identified. Graeme stated that “Commander technicians e d service centre. identified a number of unused services saving us once n

again on our monthly costs.” More importantly, staff mma Something had to be done to ensure all incoming calls flexibility and efficiency was increased. The pairing of were answered promptly so business was not missed. mobile extensions to desktop office phones allowed Communication downtime meant loss of income,

staff to be in the yard selling whilst taking inbound sales t 2011 - Co

therefore guaranteed maintenance response times were r enquiries. “We’re pleased the implementation of our of upmost importance. At the same time staff required Commander solution guaranteed no business was missed flexibility to be on site to perform their duties without l Repo and a greater level of customer service was achievable” a being desk-bound. says Graeme. M2 Annu M2 13 Customer profile Organisation: Allied Medical Group Koral Denholm www.alliedmgp.com.au People Telecom Solution: • Dedicated Account Manager • Consolidation of bills Industry: Medical Benefits: • Cut costs by $12,000 in total • Improved network efficiency and performance y d tu S se a C m o c ele T eople P t 2011 - r l Repo a M2 Annu M2 14 Allied Medical Group – People Telecom Case Study

“During our time with About Allied Medical Group The Solution About People Telecom People Telecom as our Allied Medical Group is a recognised leader in medical Following their transfer to People Telecom, Allied Established in 2000, People Telecom has earned a centre establishment and operation. Since its inception Medical Group experienced several improvements to reputation as a specialist provider of competitive telecommunications provider, in January 2005, Allied Medical Group has expanded their telecommunications solution. solutions and premium service to the Small to Medium its current centres and added many new clinics to its Enterprise markets. As one of Australia’s largest network we have built confidence in the A locally based Account Manager was appointed to group of quality centres. Allied Medical Group currently independent resellers, its suite of solutions include: fixed be available as their first point of contact. The People operates medical centres across Melbourne, Brisbane line, mobile, internet, corporate data and VPN services. ongoing support we receive Telecom Account Manager provided recommendations, and Adelaide. People Telecom takes pride in its Australian-based from our account manager. We solutions, project management and updated market customer contact centre offering access to responsive reviews to ensure their telecommunication service was The Challenge and trained staff. have enjoyed significant cost meeting the needs of the business. Allied Medical Group manages a number of clinics whilst savings with competitive and All services were consolidated onto one single bill, continually expanding their operations in Victoria and Let People Telecom turn services with clearly labelled cost centres and access to the customised pricing.” nationally. The operational challenge of rapid growth online billing portal ‘PeopleNet’. This allowed for easier into solutions for your business, requires specialist advice on Information Communication management of their services and record keeping. Koral Denholm and Technologies. visit www.peopletelecom.com.au Allied Medical Group In addition to the above benefits, there have been The difficulties the group faced were record keeping or call us today on 1300 558 888 significant cost savings for Allied Medical Group with issues based around multiple monthly accounts, no intra-account calls. Intra-account calls allow cost- uniformity with service labelling or cost centres. This y

effective calls between all of their medical centres, d made payment for statements difficult as their accounts tu

doctors and head office. Their personalised People S were being received sporadically. On top of this, there se

Telecom Account Management service also provides a was no online billing system to assist them in managing C

continued account reviews to determine where cost m

their usage. o savings can be improved. c

There was no single point of contact when there were ele T questions or problems with their telecommunication

service. Nor was there any project management when eople P implementing a new clinic, making the process difficult with no guarantees for assistance when needed. t 2011 - Consequently they were very unhappy with the service r that was being provided to them. l Repo a M2 Annu M2 15 16 • • Industry: • • • • • SCT Solution: www.totalnetworks.com.au Total NetworksPtyLtd/JamesCasey Organisation: Customer profile • M2 Annual Report 2011 – Southern Cross Telco Case Study Benefits:

Rebated foreachcustomerreferredtoSouthernCrossTelco One additionalline Two standardlines Fax line ADSL service Ensured customerwascreditedforloyalty service tailormadetosuitclient Seamless andhasslefreecustomer Cut billcostsby$450 IT supportandSales T otal Networks – Southern Cross Telco Case Study

“The pricing with Southern Introduction “We were looking for a provider For each customer referral, Southern Cross Telco has provided Total Networks with a credit, allowing the Based in Tasmania, Total Networks is a company Cross Telco is competitive and that offered valued for money, saved funds to be put to better use within his own that delivers a high level of service in several areas company. value for money not to mention of information technology. Their clients are offered excellent customer service and the high quality of customer competitive IT Solutions, allowing them to operate on a benefits like no other” “The money I have saved due to great prices and referral reliable computer infrastructure in today’s ever-changing credit is unbelievable. I refer Southern Cross Telco service I receive. I enjoy being business environment. The Solution because they are a good service provider not because of the credit, which is just an added bonus”. able to contact the sales team The owner of Total Networks, James Casey, prides After being a customer for less than twelve months, with at SCTELCO and speak with the his business on quality services, the development a total of five services, James was very happy with the About Southern Cross Telco of productive relationships with his clients, and the benefits and support that Southern Cross Telco provides. Southern Cross Telco is a nationwide telecommunications same representative every time flexibility to adapt to meet continuing changes in client’s Not only was a Southern Cross Telco solution catered to company that strives to place customers first. Offering needs and market trends. suit the Total Networks business, he found the service to - now that’s service.” a wide range of services including landline, mobile and In order to be reliable for their clients, it was essential be commendable – which, thanks to the Southern Cross data, Southern Cross Telco has all of your personal and for Total Networks to have a telecommunications Telco customer referral benefits, helped to further reduce James Halyer Casey small business communication options covered. Southern provider with a similar commitment to service and value. his telecommunications invoice. Business Owner Cross Telco offers all of the personalised service of a

In the process of building his client base and client small company with the bottom line savings of a large y Total Networks Pty Ltd d The Challenge relationships, James became aware of how unhappy tu

telecommunications company. S

James frequently faces complex problem solving for his clients were with their existing telecommunications se a clients and relies on his team of trained IT professionals service providers. He began to James refer his clients o C c

to be on the phone, internet or on site in order to maintain to Southern Cross Telco based solely on his own el T the Total Networks services and a happy working impressions and experience. “The referral to Southern oss

relationship with his clients. As the scale of his business Cross Telco was easy, the price difference and quality r

increased, James needed to find a way to minimise his of customer service was phenomenal. To me the referral n C r telecommunication costs. was simple”. outhe James needed a tailor-made solution appropriate to the Over the last ten months, Total Networks has referred S diverse needs of his business, which provided value and more than ten customers to Southern Cross Telco, all good service. of which have transferred due to the experience of and t 2011 - recommendation by James. “High quality customer r service is a priority to everyone and the team at Southern l Repo Cross Telco has consistently delivered”. a M2 Annu M2 17 Directors’ Report

Directors Vaughan G Bowen Federal Airports Corporation. Within the last three Managing Director & Chief Executive Officer years, Mr Bowen has held no other listed company The names and details of the directors of M2 during B Com, MAICD directorships. the financial year and at the date of this report are Appointed 14 February 2000 as follows: John S Hynd Mr V. Bowen co-founded M2 in late 1999. He Non-Executive Director Craig L Farrow was appointed Managing Director/CEO following LLB, MAICD Chairman incorporation, and has successfully steered M2 B Ec, Dip FS, CPMgr, SA Fin, FCA, FAICD Appointed 18 February 2000 from a start-up technology enterprise to its current Appointed director 18 February 2000 position as a fast growing and profitable national Mr Hynd is founding partner of Hynd & Co, a Appointed Chairman 28 April 2006 telecommunications company. In over 10 years commercial law firm in Adelaide. He has over of leading the Company, Mr Bowen’s innovative 30 years experience in commercial transactions, Mr Farrow is a founding partner of Brentnalls approach to branding, sales, alliance marketing corporate advice, corporate governance, insolvency SA, Chartered Accountants and former National and his proven ability to successfully execute and property development. A fellow of the Vaughan Bowen, Managing Director / CEO Chairman of the Brentnalls National Affiliation of complementary acquisitions has provided M2 with a Australian Taxation Institute and a former member Accounting Firms. He is Deputy President of the considerable competitive advantage and a respected of the Council of the Law Society of South Australia, Institute of Chartered Accountants in Australia, In compliance with the position in the telecommunications industry. He is Mr Hynd’s broad business experience provides M2 Chairman of Tonkin Consulting Engineers and AIRR a member of the Australian Institute of Company with valuable assistance with legal perspectives and provisions of the Corporations Holdings Limited. In addition, Mr Farrow is a director Directors and was named as a finalist in the strategic planning. and Board adviser to several private consulting and Entrepreneur of the Year Southern Region in 2004 Within the last three years, Mr Hynd has held no Act 2001, the directors of M2 trading enterprises across the agribusiness, software and 2009. Within the last three years, Mr Bowen other listed company directorships. and manufacturing sectors. Formerly Chairman of the T Telecommunications Group has held no other listed company directorships. R Institute of Chartered Accountant’s Public Practice Mr Hynd is a member of M2’s Audit & Risk EPO Ltd (‘M2’ or ‘the Company’) Advisory Committee, Mr Farrow is also highly Committee and is also a member of the Nomination ’ R Max G Bowen S

R & Remuneration Committee.

O awarded, including being a Fellow of the Governor’s Non Executive Director

T submit the following report for C

E Leadership Foundation and receiving the Institute Appointed 14 February 2000 the Company and its controlled of Chartered Accountants 1999 National President’s Michael Simmons Mr M. Bowen provides the Board with valuable Non-Executive Director Award for services to the Institute and the entities for the financial year experience gained in a management and business BCom FCPA ACIS profession. Within the last three years, Mr Farrow t 2011 - DIR career spanning more than four decades. Founding r ended 30 June 2011. has held no other listed company directorships. Appointed 26 November 2009 Chairman of M2, Mr Bowen spent over 20 years

l Repo Mr Farrow is Chair of M2’s Nomination and developing commercial property throughout Mr Simmons brings to the Board considerable

a Remuneration Committee and a member of the Audit Sydney and overseas. Over the last 10 years, Mr experience in the telecommunications sector, having & Risk Committee. Bowen has acted in a senior advisory capacity previously held the position of Chief Executive M2 Annu M2 to corporations and public utilities, including Officer of ASX-listed SP Telemedia Limited (“SPT PricewaterhouseCoopers, Optus, Sydney Olympic Group”, and now known as TPG Telecom Limited) 18 Village, Sydney Harbour Foreshore Authority and since its listing in 2001. Prior to listing, the SPT Group was a wholly owned subsidiary of the Company Secretary The Board of Directors Washington H. Soul Pattinson Limited controlled NBN Television Group. He served in executive roles for nearly Kellie Dean 26 years within the SPT/NBN Group of Companies, BA, LLB, Grad Dip App Corp Gov, ACIS, MAICD including as Chief Financial Officer and Chief Executive Appointed 30 November 2007 Officer. Following the acquisition of TPG Telecom Pty Ltd, Mr Simmons left the SPT Group to become the Ms Dean is responsible for all company secretarial Managing Director of TERRiA, a telecommunications matters, as well as legal affairs for the M2 Group. consortium of infrastructure based telecommunications Prior to her appointment, Ms Dean was Company carriers, formed to bid for the contract to build the Secretary for Orion Telecommunications Limited, National Broadband Network (NBN). which was acquired by M2 in October 2007. An associate of Chartered Secretaries Australia and Mr Simmons is Chair of M2’s Audit & Risk Committee. a member of the Australian Institute of Company Directors, Ms Dean has particular experience in Dennis N Basheer the areas of merger and acquisitions, corporate Non-Executive Director governance, compliance and risk management. Craig L Farrow, Chairman Max G Bowen, Non-Executive Director Appointed 14 February 2000 Former Audit Partners Resigned 29 October 2010 No directors or officers of M2 have been a partner or Mr Basheer is an experienced company director director of Ernst & Young, the Company’s auditor. with a focus on property development, project PRINCIPAL ACTIVITY management and franchise developments. Until late T R 2003, Mr Basheer served as an executive director of The principal activity of the consolidated entity during EPO

M2 and was involved in corporate and channel sales. the financial year was the supply of fixed line voice, ’ R S R

Following this time, Mr Basheer was an external mobile telecommunications and broadband data O T C sales dealer for M2, specialising in key alliance services within the Australian and New Zealand E partnerships. Within the last three years, Mr Basheer markets through its retail and wholesale operating held no other listed company directorships. divisions. t 2011 - DIR

During his directorship, Mr Basheer was a member of r Review Of Operations And Results M2’s Nomination & Remuneration Committee. John S Hynd, Non-Executive Director Michael Simmons, Non-Executive Director

Please refer to the Chairman’s Letter on page 4 and l Repo a Managing Director/CEO’s Review on page 6 for further details relating to M2’s operations and results for the 2010/2011 financial year. This information is Annu M2 to be read in conjunction with the Directors’ Report. 19 Likely Future Developments And Results

The directors expect that the financial performance of the business will remain strong in the 2011-2012 financial year, particularly through the anticipated continued growth in revenue and earnings as a result of organic growth and recent acquisitions.

Environmental Regulation And Performance

M2 is not subject to any significant environment regulation under any law of the Commonwealth or of a State or Territory.

Dividends

Details of dividends paid during the financial year and the final dividend declared for payment is as follows:

Payment Date Cents Per Share Franking Total Dividend Paid / Declared Dividends Paid Final dividend 29-October-2010 5.00 100% $6,111,910 Interim dividend 14-April-2011 7.00 100% $8,616,324 TOTAL 12.00 $14,728,234 Darryl Inns, Chief Financial Officer Dividend Declared Final dividend 28-October-2011 100% T

R Significant Changes In State Of Affairs Events After Balance Date Indemnities And Insurance

EPO In February 2011, M2 Clear Pty Ltd (‘M2 Clear’), On 1 July 2011, M2 commenced operation of the M2 During the financial year, M2 paid a premium in respect ’ R

S “On 26 August 2011, the

R a wholly owned subsidiary of M2, acquired the Employee Share Plan (Salary Sacrifice) which allows of a contract insuring the directors and officers of the O T

C directors declared a final E business assets of Clear Telecoms (Aust) Pty Ltd eligible team members to salary sacrifice a portion Company and any related body corporate against any (“Clear”) for a total cash consideration of $24.5 of their salary in order to acquire M2 shares. The liability that may arise from the carrying out of their dividend... of 9 cents per share.” million, comprised of an upfront payment and a shares will be issued or acquired on-market on a duties and responsibilities to the extent permitted by deferred payment schedule. The principal assets quarterly basis, commencing in October 2011. the Corporations Act 2001. The contract of insurance t 2011 - DIR r acquired were the small and medium business On 26 August 2011, the directors declared a final prohibits disclosure of the nature of the liability and the (“SMB”) customer contracts of Clear. amount of the premium.

l Repo dividend on ordinary shares in respect of the 2011 a In March 2011, M2 Viptel Pty Ltd (‘M2 Viptel’), a wholly financial year. The total amount of the dividend Directors are also subject to indemnification under owned subsidiary of M2, acquired the business assets is $11,125,459, which represents a fully franked the Company’s Constitution and are party to a Deed of M2 Annu M2 of Edirect Pty Ltd (‘Edirect’) for consideration equal to dividend of 9 cents per share (on shares issued as Indemnity and Access. $5.9 million. The principal assets acquired were the at 30 June 2011). This final dividend will be paid to 20 retail customer contracts of Edirect. shareholders on 28 October 2011. Directors’ Meetings Directors’ Shareholdings And Options

The number of directors’ meetings, including meetings of each Board committee held during the financial year The following table sets out the details of each director’s relevant interest in M2 shares and options (where and the number of meetings attended by each director is as follows: section 205G of the Corporations Act 2001 requires the director to notify ASX of that holding).

Director Board Meeting Audit & Risk Committee Nomination & Remuneration Shares held in M2 Telecommunications Group Ltd: Committee Eligible to Attended Eligible to Attended Eligible to Attended Directors Balance at Shares granted as On exercise Net change Balance at Attend Attend Attend 30 June 2010 remuneration of options 30 June 2010 Craig Farrow 14 14 4 4 2 2 Vaughan Bowen 14 13 - - - - Craig Farrow (3) 958,522 - - (375,742) 582,780 Max Bowen 14 14 - - - - Vaughan Bowen 10,929,737 - - (2,559,000) 8,370,737 Michael Simmons 14 13 4 4 - - Max Bowen 32,274 - - - 32,274 John Hynd 14 13 4 4 2 2 John Hynd 2,832,524 - - (500,000) 2,332,524 Dennis Basheer (1) 4 4 - - 1 1 Michael Simmons 3,591 - - 6,000 9,591 (1) Mr Basheer resigned as a director on 29 October 2010 Dennis Basheer (1) 5,044,906 - - (250,000) 4,794,906 TOTAL 19,801,554 - - (3,678,742) 16,122,812

(1) Mr Basheer resigned as a director on 29 October 2010

Options held in M2 Telecommunications Group Ltd: Currently there are no options held by any directors of M2. T R EPO ’ R S R O T C E t 2011 - DIR r l Repo a M2 Annu M2 21 Remuneration Report (Audited)

> Establish appropriate, demanding performance Each non-executive director receives fees for their hurdles for variable executive remuneration; and services. They also receive reimbursement of all reasonable and proper expenses incurred while > Establish clear distinction between non-executive director and other key management personnel carrying out their director duties. In addition, the remuneration. Board provides $2,000 each financial year for each director to utilise for the purpose of attending training Nomination and Remuneration Committee or professional development courses and events.

The Nomination and Remuneration Committee No proportion of non-executive directors’ fees is is responsible for determining and reviewing based upon performance nor are they entitled to remuneration arrangements for key management retirement or termination benefits. personnel. They assesses the appropriateness of the nature and amount of remuneration on a periodic The amount of aggregate remuneration and the manner basis by reference to relevant employment market in which it is apportioned amongst directors is reviewed conditions with the overall objective of ensuring annually. The Board considers individual director maximum stakeholder benefit from the retention of contributions and performance and the fees paid to high quality directors and other key management non-executive directors of comparable companies when Julian Barons, Billing Manager personnel. Specific details relating to the structure undertaking the annual review process. and membership of this Committee can be found in Non-executive directors have long been encouraged Board Policy the Corporate Governance Statement, immediately In accordance with s.300A by the Board to hold shares in the Company following the Directors’ Report.

t The performance of the Company depends upon the (purchased by the director on market). M2 considers

r of the Corporations Act 2001 quality of its key management personnel (which Remuneration Structure it good governance for directors to have a stake in epo r and Regulation 2M.0.03, the includes directors and executives). Remuneration the company on whose Board they sit.

on In accordance with best practice corporate i

t levels are set to enable M2 to attract and governance, the remuneration structure for non- The remuneration of non-executive directors for the ra following report outlines the retain appropriately qualified and experienced executive directors and other key management period ending 30 June 2011 is detailed in Table 1 on une personnel, who will create sustainable value for m

e remuneration arrangements for personnel is distinct. page 24 of this Report. r shareholders and other stakeholders. To this end, the key management personnel and Company embodies the following principles in its Non-executive director remuneration Other key management personnel remuneration remuneration framework: t 2011 - r relevant group and company In accordance with the Company’s Constitution and M2 aims to reward other key management personnel > Provide competitive rewards to attract high calibre ASX Listing Rules, the aggregate remuneration of executives for the financial year (‘Executives’) with a level and mix of remuneration l Repo personnel; non-executive directors shall be determined from a commensurate with their position and responsibilities time to time by a general meeting of shareholders. ended 30 June 2011. > Link executive rewards to shareholder value; within the Company. In addition, it aims to: An amount not exceeding the amount determined is

M2 Annu M2 > Have a significant portion of executive then divided between the directors as agreed. The > reward Executives for company, business unit remuneration ‘at risk’, dependent upon meeting current aggregate remuneration is set at $600,000 and individual performance against targets set by 22 pre-determined performance benchmarks; per year. reference to appropriate benchmarks; Remuneration Report

> align the interests of Executives with those of Variable Remuneration — Short Term The amount of annual STI available to each Executive provide an additional element to Executive remuneration shareholders; Incentive (STI) is subject to approval of the Nomination and that was competitive to the external compensation Remuneration Committee and the Board. Payments environment. The issue of options under ESOP > link rewards with the strategic goals and The objective of STIs is to link the achievement of made are usually delivered as a cash bonus in the further allows an opportunity for the Board to reward performance of the Company; and M2’s operational targets with the remuneration following reporting period. Executives for their performance in a given period. > ensure total remuneration is competitive by market received by the Executives responsible for meeting The amount of variable remuneration paid to All Executives of M2 are eligible to participate in the standards. those targets. The total potential STI available for each Executive is set at a level so as to provide Executives during the financial year is detailed in ESOP. However, the issue of options under the ESOP In determining the level and make-up of Executive to Executive directors is subject to approval by M2 sufficient incentive to the Executive to achieve the Table 2 on page 25. remuneration, the Nomination and Remuneration shareholders. operational targets and such that the cost to the Under the terms of each Executive’s STI Committee reviews market levels of remuneration Company is reasonable in the circumstances. arrangements, an STI payment is only made upon Under the ESOP, Executives may be offered options for comparable executive roles, from which the the Executive achieving specific operating targets to acquire M2 Shares. Any shares issued under the Committee makes its recommendations to the Board. Actual STI payments granted to an Executive depend on as outlined above and the Company achieving its ESOP consequent upon exercise of the options will rank It is the Committee’s policy that employment contracts the extent to which specific operating targets set at the pre-determined target relating to net profit after tax equally with all other M2 Shares and application will be are entered into with all Executives. beginning of the financial year are met. The operational (NPAT). As NPAT is used to calculate earnings per made for them to be quoted on the ASX. No application targets consist of a number of key performance Executive remuneration consists of the following key share (EPS), the following table outlines M2’s EPS will be made for the options to be quoted on the ASX. elements: indicators (KPIs) covering both financial and non- over the five year period from 1 July 2007 to 30 June Options issued under the ESOP vest (and may only then financial measures of performance. Typical measures > Fixed Remuneration 2011: be exercised) one, two and three years (as determined include contribution to net profit after tax, customer Year Cents per share by the M2 Board) after they were offered to the eligible > Variable Remuneration - Short-Term Incentive (‘STI’) service levels, risk management, product management, 2011 22.56 Executive. > Options completion of specific projects and leadership and 2010 14.49 Unless the M2 Board determines otherwise, no fee will t team contribution. Such KPIs are chosen as they are r The proportion of fixed and variable remuneration and be payable on the issue of any option under the ESOP. 2009 8.76 epo

representative of the key performance metrics of the r any issue of options is established for each Executive 2008 7.01 The exercise price for each option (payable on exercise on

business, which drive overall growth. i by the Nomination and Remuneration Committee and of the option) will be determined by the Board at the t 2007 4.00 approved by the Board. The Company has pre-determined benchmarks which time of issue of the option. ra une

must be met in order to trigger payments under the The Company’s performance has remained strong and m

Options issued under the ESOP may be exercised, once e

Fixed Remuneration r STI scheme. On an annual basis, after consideration consistent over the last five reporting periods. Executive they are vested, at any time within two years from the The level of fixed remuneration is set each year in of performance against KPIs, an overall performance STIs, as well as other remuneration arrangements, are date on which they vest. Other than continuous service reflective of the growth in shareholder return. accordance with the Board’s remuneration policy, the rating for the Executive is nominated by the Chairman with the Company, there are no performance conditions t 2011 - r Executive’s performance during the past financial year and/or the Managing Director/CEO and approved by which must be met prior to the vesting or exercise of and the external compensation environment. Executives Options options.

the Nomination and Remuneration Committee. This l Repo may also receive non-monetary benefits such as the a performance rating determines the amount, if any, of In February 2007, M2 introduced an Executive Options are not generally transferable (and only with provision of motor vehicles and car parking. the STI that is paid to an Executive. This method of Management Team Share Option Plan (‘ESOP’). The Board approval) and cease to be exercisable at the end

The amount of fixed remuneration paid to Executives assessing performance against KPIs ensures that the purpose of the ESOP was to provide an avenue for of the exercise period or within a specified time after Annu M2 during the financial year is detailed in Table 2 on STI granted to an Executive is based upon the actual the alignment of Executive objectives with those of the cessation of the Executive’s employment (which page 25. achievement of metrics. shareholders in terms of achieving capital gains, and to time depends on the circumstances of the cessation). 23 “The Company’s Details of Director and Executive Remuneration performance has The following tables outline the remuneration received by key management personnel (including directors and those persons having authority and responsibility for planning, directing and controlling the major activities for remained strong and the Company) for the financial year ended 30 June 2011. A comparison with the financial year ended 30 June consistent over the last 2010 is also included. five reporting periods. No payments were made to key management personnel before they took office as part of the consideration for the person agreeing to hold office.

Table 1: Directors’ remuneration for financial year ended 30 June 2011

Short Term Post Employment Total % Performance An option holder may not attend and vote at annual general meetings and other shareholder meetings and is Related not entitled to participate in any rights issues unless the options have been exercised. Any bonus issue will Salary & Cash STI (3) Non- Superannuation Other post Fees (1) monetary employment proportionately increase the number of options held by any Executive who has been granted options. Benefits benefits $ $ $ $ $ $ % (2) The Company does not have a policy prohibiting or allowing Executives to enter into arrangements to protect the Craig Farrow (1) 2011 206,666 85,500 - - - 292,166 29.3 value of unvested long-term incentive awards (such as Options). Chairman 2010 168,333 - - - - 168,333 - Max Bowen Details of options held and exercised by Executives during the financial year: 2011 46,667 - - - - 46,667 - Non-Executive 2010 45,000 - - - - 45,000 - Executives Number of Options Number of Options Number of options Value of Options Director ganted during FY11 (not yet exercised) exercised exercised ($) John Hynd 2011 51,667 - - - - 51,667 - Vaughan Bowen - - - Non-Executive - 2010 48,750 - - - - 48,750 - t t

r Managing Director/CEO Director Michael Simmons Steve Wicks - 175,000 75,000 131,250 2011 50,000 - - - - 50,000 - Non-Executive Group Sales Director 2010 27,500 - - - - 27,500 - on Repo i Director t Darryl Inns - 175,000 75,000 131,250

ra Dennis Basheer(4) Chief Financial Officer 2011 15,000 - - - - 15,000 -

une Non-Executive Terry Doyle - 175,000 198,000 2010 45,000 - - - - 45,000 - m 189,675 Director Wholesale Director 2011 370,000 85,500 - - - 455,500 - Geoff Horth - 250,000 - - TOTALS 2010 334,583 - - - - 334,583 - Chief Operating Officer t 2011 - Re r Matthew Hobbs - 250,000 50,000 35,000 (1) Includes all amounts paid and accrued to companies related to the director, for director services. Chief Information Officer (2) Based upon the value of the cash STI

l Repo Michael Speglic - 250,000 50,000 35,000 (3) Includes an amount for fees relating to services while acting in the capacity as Executive Chairman a Commercial Director (4) Mr Basheer resigned as a director on 29 October 2010 Kellie Dean - 250,000 50,000 35,000

M2 Annu M2 Company Secretary and Legal Affairs 24 There were no options granted to Executives during the financial year. Table 2: Executive Remuneration for financial year ended 30 June 2011 Employment Contracts

Short Term Post Employment Share-based Total % The following terms are contained in all employment contracts for the persons disclosed in Table 2: Payment Options (1) Performance Related Duration of contract: 1 year, renewable for a further 3 month term (rolling) until new term is Salary & Cash Non- Superannuation Other post Fees (1) STI (7) monetary employment agreed or agreement is terminated Benefits benefits $ $ $ $ $ $ % (6) $ % (2) Period of notice required to 3 months terminate contract: Vaughan Bowen 2011 600,000 137,500 35,763 25,000 - - 798,263 17.2 Managing Termination payments: If contract is terminated by the Company prior to the expiry of its term, the Director/CEO 2010 562,179 100,000 40,121 48,774 - - - 751,074 13.3 executive is entitled to a payment equal to the amount of remuneration due under the contract (other than for serious misconduct). Steve Wicks 2011 300,000 100,000 12,937 25,000 - 40,347 8.4 478,284 20.9 Group Sales Director 2010 256,833 40,000 26,058 25,000 - 22,218 6.0 370,109 10.8 Proceedings On Behalf Of The Company

Darryl Inns 2011 300,000 40,000 26,057 25,000 - 40,347 9.4 431,404 9.3 No proceedings have been brought on behalf of M2, nor has any application been made in respect of the Chief Financial Company under s.237 of the Corporations Act 2001. Officer 2010 255,756 50,000 32,002 25,000 - 22,218 5.8 384,976 13.0

Terry Doyle 2011 230,000 45,000 9,071 23,125 - 40,347 11.6 347,543 12.9 Non-Audit Services Wholesale (5) 2010 232,602 42,750 9,576 22,365 - 22,218 6.7 329,511 13.0 Director During the year, M2’s auditors, Ernst & Young, did not provide any non-audit services to the Company. Geoff Horth 2011 350,000 90,000 26,730 25,625 - 40,347 7.6 532,701 16.9 Chief Operating Auditor’s Independence Declaration Officer 2010 312,115 50,000 4,674 26,965 - 22,218 5.3 415,972 12.0

(3) The auditor’s independence declaration, made under section 307C of the Corporations Act 2001 is included on Matthew Hobbs 2011 246,154 41,500 - 20,415 - 40,347 11.6 348,416 11.9 Chief Information page 26 of this report. t r Officer(4) 2010 298,310 15,468 - - - 22,218 6.6 335,996 4.6 Rounding Off Of Amounts Michael Speglic 2011 205,962 50,000 - 19,940 - 40,347 12.8 316,249 15.8 Commercial Director 2010 149,077 - 867 13,397 - 22,218 12.0 185,559 - M2 is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998 and in accordance tion Repo with that Class Order, amounts in the Directors’ Report and the financial report are rounded off to the nearest ra

Kellie Dean une

Company 2011 144,998 21,000 - 18,090 - 40,347 18.0 224,435 9.4 thousand dollars, unless otherwise indicated. m Secretary and 2010 143,724 15,000 - 14,963 - 29,589 14.6 203,276 7.4 Legal Affairs Signed in accordance with a resolution of the directors made pursuant to Section 298(2) of the Corporations Act 2001. 2011 2,377,114 525,000 110,558 182,195 - 282,429 8.1 3,477,295 On behalf of the directors TOTALS t 2011 - Re 2010 2,210,596 313,218 113,298 176,464 - 162,897 5.4 2,976,473 r (1) The remuneration value ascribed to share options has been calculated in accordance with AASB 2 Share-based Payment, whereby

the fair value of options determined at grant date is spread evenly (and recognised as an expense) over the vesting period. There l Repo

were no alternations to the terms and conditions of options issued as remuneration since their grant date. a (2) Based upon the value of the cash STI. (3) Includes amounts paid to a company (in which Matthew Hobbs is a director) for services. (4) Matthew Hobbs ceased employment with the company on 29 July 2011.

(5) Terry Doyle ceased employment with the company on 29 July 2011. (6) Percentage of total remuneration consisting of options. Vaughan Bowen Annu M2 (7) All Executives received 100% of their Short Term Incentive in the period, which based on individual agreements is between 15% and 30% of the individual’s base salary. Managing Director/CEO Melbourne, 26 August 2011 25 Auditor’s Independence Declaration

Auditor’s Independence Declaration to the Directors of M2 Telecommunications Group Limited

In relation to our audit of the financial report of M2 Telecommunications Group Limited for the financial year ended 30 June 2011, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

on

i Ernst & Young t

ara l c e De

c

en

d David Shewring Partner 26 August 2011 epen d ’s In r o t di u t 2011 - A t 2011 - r l Repo a

M2 Annu M2

Liability limited by a scheme approved under Professional Standards Legislation 26 Corporate Governance Statement

M2 continually reviews and refines its corporate The Board has confirmed its role and responsibilities The Nomination and Remuneration Committee is governance policies and charters in light of in a written charter. They undertake the following responsible for ensuring that Board and executive the Corporate Governance Principles and functions and responsibilities: performance is assessed, and its effectiveness in Recommendations, as developed by the ASX improving deliverable outcomes. > approve, monitor and modify the strategic direction Corporate Governance Council (‘ASX Guidelines’ or of M2; ‘recommendations’). Principle 2: Structure the Board to add value > ensure the principles of corporate governance are During the financial year ended 30 June 2011, M2 M2’s Board comprises five directors: Chairman, upheld and consistently reviewed; believes it achieved reasonable compliance with Managing Director/CEO and three non-executive the recommendations based on M2’s circumstances, > monitor the performance of Executives; directors. its size and activities. Where recommendations have not been implemented, a full explanation is > ratify the appointment or removal of the Managing Board Size and Composition Director/CEO and the Company Secretary; disclosed, based upon the “if not, why not” approach M2 is confident its current Board size is adequate, in adopted by the Council. > ensure that appropriate risk management systems, reference to the size and structure of the Company Niazi Jabeer, ITS Support Manager Over the course of the 2010/2011 financial year, M2 internal control and reporting systems are in place and it allows the Board to effectively and efficiently has reviewed its corporate governance program in and are operating effectively; discharge its role and responsibilities. light of the changes to the ASX Guidelines, which The Board has adopted a Diversity Policy, which > approve and monitor financial results; M2 Telecommunications Group were adopted by the ASX Corporate Governance sets out M2’s commitment to the principles of ent Council in June 2010. As a result, the Board has > approve decisions concerning acquisitions and m

diversity within its Board and wider team member te

Ltd (‘M2’ or ‘the Company’) is a a introduced and amended policies to reflect matters capital, including capital restructures and dividend t base. The Board recognises the benefit that it and S e strong advocate for corporate relating to share trading, gender diversity, board policies of M2; and the Company gains from having a diverse range of c n a

selection and analyst briefings. M2 is pleased to individuals and skill sets within its composition. A n governance. We believe in > comply with the reporting and other requirements r be an “early adopter” of many of these changes and of the law. range of perspectives is imperative to making good transparency, accountability recognises the value and importance of maintaining and balanced decisions that are in the interests of a strong corporate governance framework that The Board has delegated the daily financial and te Gove and integrity for the benefit of the Company as a whole, including shareholders, ra assists the Company in its growth phase. operational management to executives, who are po

team members, customers and other stakeholders. r responsible to the Board. They too operate in the our shareholders, employees, This Statement is dated 26 August 2011. customers and all other interests of the Company and all its stakeholders. Skills, Experience & Expertise Principle 1: Lay solid foundations for During the reporting period, Executives’ The skills, experience and expertise relevant to the t 2011 - Co r interested stakeholders. management and oversight performance was assessed in accordance with position of director, held by each of M2’s directors

The Board of Directors is accountable to shareholders the process disclosed within the Director’s Report at the date of this Statement, is detailed in the l Repo a for the proper management of the business and (for performance during the financial year ended Directors’ Report. affairs of M2. The Board and executives use their 30 June 2010). Executive performance for the diverse skills to work together to consistently operate 2010/2011 financial year will be formally assessed Annu M2 in the best interests of the Company. in September 2011. 27 Term of Office

The term of office for each director during the reporting year is detailed in the Directors’ Report.

Director Independence

An independent director is a non-executive director who is not a member of management and who is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgment.

In considering whether a director is independent, the Board has regard to the series of relationships affecting independence, as outlined in Box 2.1 in Principle 2, and the interests disclosed by them. Based upon this information, the following table outlines the independent status of each M2 director during the reporting period.

Director Title Independent Reason

Craig Farrow Chairman Partial Independent from management and free of any material(2) business or other relationship. However, from May 2010 to mid August 2010, Mr Farrow acted in the capacity of Executive Chairman, during Vaughan Bowen’s long service leave.

Vaughan Bowen Managing No Employed in an executive capacity and a substantial ent

m Director/CEO shareholder of the Company. te a t

S Max Bowen Non-Executive No Former substantial shareholder of the Company, and father of e

c Director Vaughan Bowen. n

a (2) n John Hynd Non-Executive Yes Independent from management and free of any material r Director business or other relationship.

Michael Simmons Non-Executive Yes Independent from management and free of any material(2) te Gove Director business or other relationship. ra po r Dennis Basheer (1) Non-Executive Yes Independent from management and free of any material(2) Director business or other relationship.

(1) Mr Basheer resigned as a director on 29 October 2010 t 2011 - Co r (2) The Company considers materiality in the context of annual consolidated revenue l Repo a M2 Annu M2

28 Kellie Dean, Company Secretary Chairman Executives supply the Board with information and the Nomination and Remuneration Committee Share Trading reports on a regular basis as part of Board reporting. Charter. The meetings and attendance of the Board During the financial year, the Chair of M2, Mr Craig M2’s policy in the trading of securities regulates The directors are entitled to request additional Committees are detailed in the Directors’ Report. Farrow, is classed as a “partial- independent” dealings by the Company’s directors, executives information and are encouraged to contact an director (in accordance with ASX Guidelines). During and employees in shares issued by M2. Consistent executive where further information or clarification Evaluating Board Performance Vaughan Bowen’s long service leave from May 2010 with legal prohibitions relating to insider trading, is required. The Nomination and Remuneration Committee is to August 2010, Mr Farrow was the most appropriate all of M2’s directors, executives and employees are responsible for the establishment of process for person to act in the capacity as Executive Chairman The Company Secretary is appointed by and reports prohibited from trading in the Company’s shares Board evaluation, with the Chairman providing (and in this capacity was paid $20,000). Generally, to the Board on all corporate governance issues. whilst in possession of unpublished price sensitive leadership in the execution of any review. Mr Farrow is responsible for the leadership of the Ms Dean is responsible for the provision of information which concerns M2. timeframes and information to enable the Board to The Board undertook an evaluation in May Board and for the efficient organisation and conduct The policy also prohibits Key Management Personnel effectively discharge its duties and responsibilities. 2011, with all directors providing input on the of the Board’s functioning and in all other respects from trading in securities during the following All directors, and Board committees, have access to effectiveness of board processes, meetings, board would be classed as ‘independent’. “black-out” periods: Ms Dean to assist them in carrying out their role. composition and performance and reporting. This Separate Role of Chair & CEO took the form of a questionnaire, with directors > between 1 January each year until such time as Nomination and Remuneration Committee having an opportunity to discuss and comment on the half year financial results of the Company are In accordance with ASX Guidelines, the role of the

such matters individually with the Chairman. released to ASX; and Chair and Managing Director/CEO is not exercised The selection and appointment process of future ent by the same individual, with Craig Farrow acting directors is deemed to be the responsibility of the The Company has implemented an education policy > between 1 July of each year until such time as m te a

whole Board, in accordance with the provisions for its directors, with each director having access the full year financial results of the Company are t as Chair for the Company, and Vaughan Bowen as S e

of the Board Selection Policy. However, M2 has to an allowance of $2,000 per year for the purpose released to ASX. c

Managing Director/CEO. The Chair and CEO have n established a Nomination and Remuneration a of attending and/or participating in professional n

clear lines of responsibility and accountability. r Committee for the purpose of identifying potential Gender Diversity However, as noted above, for a short period during development activities relevant to their duties as a candidates for Board selection. In nominating director.

the financial year, Mr Farrow acted in the capacity as As noted above, the Board has adopted a Diversity te Gove

candidates, the Committee shall take into ra Executive Chairman, during Vaughan Bowen’s long Policy which sets out the Board and the Company’s

Principle 3: Promote ethical and responsible po

consideration such factors as judgement, skill, r service leave. commitment and objectives in respect of diversity, diversity and experience and also the extent to decision making and more specifically gender diversity. Diversity which the candidate would be a desirable addition Independent Advice & Access to Company Code of Conduct at M2 is valued and encouraged and the Company

to the Board and any Board Committee. t 2011 - Co

Secretary recognises the benefit that it gains from having r All directors, executives and employees of M2 a diverse range of individuals and backgrounds Each member of the Board and the Board During the financial year, the Nomination and

are expected to act with integrity and objectivity, l Repo

Remuneration Committee consisted of three involved in the management of its organisation and a Committees has the right to seek independent legal striving at all times to enhance the reputation and (independent) non-executive directors: Craig Farrow its business activities. and other professional advice, at M2’s expense, performance of the Company. A Code of Conduct (Chair), John Hynd and Dennis Basheer. concerning any aspect of the Company’s operation has been established, which guides directors, The Board has set gender objectives in the interests Annu M2 or undertakings, if it is considered necessary for the The role and responsibilities of the Nomination and executives and employees in the performance of of achieving good corporate governance in a execution of their functions and responsibilities. Remuneration Committee are detailed in their duties. dynamic and evolving industry. 29 They are as follows:

Objective Target Date Board: When it is appropriate to At least one of the next two expand the Board director appointments desirably or replace an should be female, with the existing director appropriate skills and attributes

Executive Team and Senior Annually Management Team: To improve or at least maintain current male/female ratio statistics.

The Board will assess the achievement towards the above objectives in July 2012, 12 months from the JoAnne Johnstone, Customer Activations Team; Krista Pentecost, Collections Officer; Kelvin Prince, Operations Manager policy’s implementation, and will disclose the results to shareholders in the 2012 Annual Report. of the Company’s financial position. The Board also The Audit & Risk Charter details the Committee’s principles of continuous disclosure are upheld and undertakes to monitor and assess the integrity of the role and responsibilities, composition, structure and maintained. They ensure ASX and media releases are

ent In accordance with the provisions of the ASX

m financial reports. membership requirements. Further, it also contains timely, reviewed, do not omit any material information

te Guidelines, the proportion of female directors, a

t information on the procedures for the selection and that they are factual and presented in a clear and S executives, senior management, and team members

e Audit & Risk Committee c and appointment of the external auditor and for the balanced way.

n at M2 as at the date of this Statement are as follows: a rotation of external audit engagement partners. n

r M2’s Audit & Risk Committee is responsible for Role By Number By Percentage Principle 6: Respect the rights of reviewing the Company’s policies and procedures for The meetings and attendance of the Audit & Risk Female Directors 0 0% shareholders

te Gove compliance with international reporting standards; Committee are detailed in the Directors’ Report.

ra Female 1 12.5% reviewing audit plans; accounting policies and the M2 recognises the importance of this principle and

po Executives r integrity of the financial reports and ensuring the Principle 5: Make timely and balanced will at all times strive to communicate regularly and Female Senior 4 50% independence of external auditors. It also works disclosure clearly with shareholders. Management closely with the Company’s internal audit function, to In compliance with the continuous disclosure The investor relations section of M2’s website clearly

t 2011 - Co Female Team 200 41% r review and assess the controls, procedures and risks requirements of the Corporations Act 2001 and ASX details and provides links to all of M2’s ASX and Members around business activities and functions. Listing Rules, M2 is committed to the principles of company releases, general meeting information, l Repo

a timely and balanced disclosure through the adoption financial reports and investor presentations. This is Principle 4: Safeguard integrity in financial During the reporting year, the Audit & Risk Committee and adherence of a comprehensive Continuous updated regularly to ensure shareholders have ready reporting consisted of three non-executive directors, Michael Disclosure and Communications Policy. access to Company information. M2 Annu M2 M2 is committed to safeguarding the integrity of its Simmons (Chair), Craig Farrow and John Hynd. Their financial reporting. Structures and procedures are in qualifications and experience is outlined in the M2’s Managing Director and Company Secretary carry M2’s Continuous Disclosure and Communications 30 place to ensure the truthful and factual presentation Directors’ Report. the responsibility and accountability to ensure the Policy promotes positive communication with shareholders, outlining the Company’s commitment Risk management controls are further embedded in The Remuneration Report details and discloses the The role and responsibilities of the Nomination to its obligations relating to the communication M2’s management and reporting systems, including annual remuneration for key management personnel and Remuneration Committee are detailed in the of price sensitive information. This policy was an annual insurance program, business continuity, of M2. Nomination and Remuneration Committee Charter. amended in March 2011 to reflect the changes internal audit, annual budgeting and forecasting, As mentioned previously, this Committee consisted M2 has established a Nomination and Remuneration made to the ASX Guidelines in respect of analyst due diligence and strategic planning. of three non-executive directors, Craig Farrow Committee to assist the Board to adopt and review briefings. M2 maintains a strict policy in relation to (Chair), John Hynd and Dennis Basheer. Details During the reporting period, the Board received remuneration policies which will: disclosure of information during such briefings (with relating to the meetings held during the financial relevant reports on the risk register and also reports all investor presentations released to the market) > enable M2 to attract and retain directors year are contained within the Directors’ Report. on particular risks within business divisions. In the and will consider, where practical and cost effective, (executive and non-executive) and executives who interests of continuous improvement and to ensure Remunerations arrangements for non-executive webcasting or other forms of communication to will create sustainable value for shareholders and that the risk management frameworks works within directors and executives are distinct, as described allow all shareholders an opportunity to participate other stakeholders; and, within the Remuneration Report. In particular, in significant group briefings. M2’s growing business, further developments and enhancements on the risk register and reporting take > fairly and responsibly reward executives and non-executive directors receive fees for their Shareholders are encouraged to attend and place on a periodic basis. directors, having regard to the performance of the director services, they do not receive equity or participate at general meetings. They must also vote Group, the performance of the individual and the bonus compensation, nor are they are entitled to on the appointment and aggregate remuneration Following a reporting period, M2‘s Managing external compensation environment. retirement or termination benefits. of directors, the granting of options and shares to Director and Chief Financial Officer are required to directors and changes to M2’s Constitution. state to the Board, in writing, that: ent

M2 will arrange for its external auditors to always > the integrity of financial statements is founded on m te a attend the Annual General Meeting and to be readily a sound system of risk management and internal t S e available to answer shareholder’s questions about compliance and control; and, c n the conduct of the audit and the preparations and a n

> M2’s risk management and internal compliance r content of the auditor’s report. and control system is operating efficiently and

Principle 7: Recognise and manage risk effectively in all material aspects. te Gove ra

During the reporting period, the Board received the po The Board, together with executives, constantly r seeks to identify, monitor and mitigate risk. assurance from the Managing Director and Chief Financial Officer, for the year ended 30 June 2010 The Board has adopted a Risk Management Policy, and the half-year period ended 31 December 2010. t 2011 - Co which documents the Company’s commitment to r risk management and sets out the risk management Principle 8: Remunerate fairly and framework that M2 operates. This framework includes l Repo responsibly a the development and maintenance of a risk register with associated delegation and reporting mechanisms. M2’s current remuneration practices are set to

The Audit & Risk Committee has delegated authority enable the Company to attract and retain highly Annu M2 to oversee the risk management framework, providing talented and motivated directors, executives reporting to the Board on a periodic basis. and employees. 31 Philip Cranley, Collections Manager 32 M2 Annual Report 2011 – Corporate Governance Statement M2 &Corporate S ocial Responsibility Financial Statements

Consolidated Statement of Comprehensive Income 34 Consolidated Statement of Financial Position 35 Consolidated Statement of Changes in Equity 36 Consolidated Statement of Cash Flow 37 Notes to the Consolidated Financial Statements 38 1: Corporate Information 38 2: Summary of Significant Accounting Policies 38 3: Financial Risk Management Objectives and Policies 50 4: Significant Accounting Judgements, Estimates and Assumptions 52 5: Operating Segments 53 6: Revenue and Expenses 55 7: Income Tax 55 8: Dividends Paid and Proposed 57 9: Earnings Per Share 57 10: Cash and Cash Equivalents 58 11: Trade Receivables 58 12: Inventories 59 13: Other Assets 59 14: Plant and Equipment 60

15: Intangible Assets And Goodwill 60 S

16: Trade and Other Payables 62 ENT M

17: Provisions 62 TE A 18: Interest Bearing Loans And Borrowings 63 T S 19: Deferred Consideration 63 L CIA N

20: Contributed Equity 63 A 21: Related Party Disclosure 64 N 22: Key Management Personnel 64 23: Share-Based Payment Plans 66 t 2011 – FI

24: Business Combinations 68 r 25: Commitments 70 l Repo

26: Contingencies 70 a 27: Events After Balance Date 70 28: Information Relating to M2 Telecommunications Ltd (“The Parent Entity”) 70 29: Auditor’s Remuneration 70 Annu M2 33 Consolidated Statement of Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2011

Note 2011 2010 $000 $000 Revenue 6 426,847 406,111 Cost of Sales (322,335) (317,000) Gross profit 104,512 89,111

Other income 6 986 258 Employee benefits expenses 6 (37,854) (39,338) Depreciation and amortisation 6 (6,024) (5,086) Share based payments 23 (282) (307) Other expenses 6 (19,078) (18,314) Financing costs 6 (1,852) (2,244) Profit before income tax 40,408 24,080

e Income tax expense 7 (12,776) (8,011) m o c Profit after tax 27,632 16,069 ve In si Net profit and total comprehensive income for the period 27,632 16,069 ehen r p m

Co Net profit and total comprehensive income for the period is attributable to: f - Non-controlling interest (52) - ent o

m - Owners of the parent 27,684 16,069 te a 27,632 16,069 ted St a d i Earnings per share for profit attributable to the ordinary equity of the holders of the parent: ol s - Basic earnings per share (cents) 9 22.56 14.49 - Diluted earnings per share (cents) 9 22.23 14.10

t 2011 – Con The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. r Comparative figures have been restated due to the finalisation of provisional amounts from the business combination in prior year of Clever Communications Australia Ltd. l Repo a M2 Annu M2 34 Consolidated Statement of Financial Position as at 30 JUNE 2011

Note 2011 2010 ASSETS $000 $000 Current Assets Cash and cash equivalents 10 12,542 15,064 Trade receivables 11 51,135 55,752 Inventories 12 362 338 Other current assets 13 10,875 7,312 Total Current Assets 74,914 78,466 Non-Current Assets Other receivables 36 62 Deferred income tax asset 7 6,397 6,747 Plant and equipment 14 3,421 3,720 Intangible assets and goodwill 15 116,615 70,457 Total Non-Current Assets 126,469 80,986 TOTAL ASSETS 201,383 159,452 LIABILITIES Current Liabilities

Trade and other payables 16 57,477 54,225 on i t

Interest-bearing loans and borrowings 18 12,488 5,129 si o

Deferred consideration 19 6,193 2,930 P l Income tax payable 7 5,389 413 cia n

Provisions 17 3,682 3,584 a n i

Total Current Liabilities 85,229 66,281 F f Non-Current Liabilities

Interest-bearing loans and borrowings 18 17,252 11,445 ent o m te

Deferred consideration 19 - 2,980 a Deferred tax liability 7 4,627 1,274

Provisions 17 502 470 ted St a d Total Non-Current Liabilities 22,381 16,169 i ol TOTAL LIABILITIES 107,610 82,450 s NET ASSETS 93,773 77,002 EQUITY Contributed equity 66,761 62,936 t 2011 – Con Reserves 332 288 r Retained earnings 26,725 13,778 l Repo Parent interests 93,818 77,002 a Non-controlling interests (45) - 93,773 77,002 TOTAL EQUITY Annu M2

The above Statement of Financial Position should be read in conjunction with the accompanying notes. Comparative figures have been restated due to the finalisation of provisional amounts from the business combination in prior year of Clever Communications Australia Ltd. 35 Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2011

Foreign Employee currency Non- Ordinary Retained equity benefits translation Owners of controlling Note shares earnings reserve reserve the parent interest Total $000 $000 $000 $000 $000 $000 $000 At 1 July 2010 62,936 13,778 342 (54) 77,002 - 77,002 Profit for the period - 27,684 - - 27,684 (52) 27,632 62,936 41,462 342 (54) 104,686 (52) 104,634 Options exercised 1,242 - (214) - 1,028 - 1,028 Share option reserves - - 282 - 282 - 282 Net translation during the year - - - (24) (24) - (24) Shares issued - - - - - 7 7 Dividends paid - (12,114) - - (12,114) - (12,114) Dividend reinvestment plan 2,623 (2,623) - - - - - Deferred tax adjustment (40) - - - (40) - (40)

y At 30 June 2011 66,761 26,725 410 (78) 93,818 (45) 93,773 t i qu E n i At 1 July 2009 41,331 6,485 714 (19) 48,511 - 48,511 s

nge Profit for the period - 16,069 - - 16,069 - 16,069 a

Ch 41,331 22,554 714 (19) 64,580 - 64,580 f Share option reserves - - 307 - 307 - 307 ent o m Currency translation reserve - 35 - (35) - - - te

a adjustment Shares issued 22,100 - (679) - 21,421 - 21,421 ted St a (495) - - - (495) - (495) d Transaction costs on shares issued i ol

s Dividends paid - (8,811) - - (8,811) - (8,811) At 30 June 2010 62,936 13,778 342 (54) 77,002 - 77,002

The above statement of changes in equity should be read in conjunction with the accompanying notes. t 2011 – Con

r Comparative figures have been restated due to the finalisation of provisional amounts from the business combination in prior year of Clever Communications Australia Ltd. l Repo a M2 Annu M2 36 Consolidated Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2011

Note 2011 2010 $000 $000 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 425,598 399,134 Payments to suppliers and employees (380,974) (377,962) Interest received 1,065 258 Interest paid (1,851) (2,244) Income tax paid (4,097) (5,880) Net cash flows from operating activities 39,741 13,306

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (1,188) (867) Purchase of intangibles (37,245) (4,647) Payment of deferred consideration (5,910) (11,603) Net cash flows used in investing activities (44,343) (17,117) s CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of borrowings (6,923) (10,430) h Flow as

Proceeds from issue of shares 1,028 20,376 C f Proceeds from borrowings 20,089 10,500 ent o

Dividends paid (12,114) (8,261) m te a Net cash flows from financing activities 2,080 12,185

Net (decrease)/increase in cash and cash equivalents (2,522) 8,374 ted St a d 15,064 6,690 i

Cash and cash equivalents at beginning of period ol s Cash and cash equivalents at end of period 12,542 15,064

The above statement of cash flow should be read in conjunction with the accompanying notes. t 2011 – Con r l Repo a M2 Annu M2 37 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

1: CORPORATE INFORMATION 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial report of M2 Telecommunications Group Ltd (the “Company”, “M2”, “the Group”) for (a) Basis of preparation the year ended 30 June 2011 was authorised for issue in accordance with a resolution of the directors on 26 August 2011. The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative M2 is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on the Australian Securities Exchange (ASX). a historical cost basis.

The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated.

(b) Statement of compliance

The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. s

ent The Group has adopted the following new and amended Australian Accounting Standards and AASB m

te Interpretations as of 1 July 2010: a

l St > AASB 2009-5 Further Amendments to Australian Accounting Standards arising from Annual Improvements cia

n Project [AASBs 5, 8, 101, 117, 118, 136 & 139] a n i > AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment ted F

a Transactions [AASB 2] d i ol s > AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues [AASB 132]

> AASB 2010-3 Amendments to Australian Accounting Standards arising from Annual Improvements Project [AASBs 3, 7, 121, 128, 131, 132 & 139] to the Con to s

ote > Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments N None of the above Standards resulted in a change in accounting policies. The accounting policies adopted are

t 2011 – consistent with those of the previous financial year. r l Repo a M2 Annu M2 38 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b) Statement of compliance (continued)

Accounting Standards and Interpretations issued but not yet effective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual period ended 30 June 2011 are outlined below:

Reference Title Summary Application date Impact on Group financial Application date of standard report for Group AASB 9 Financial Instruments AASB 9 includes requirements for the classification and measurement of financial assets resulting from 1 January 2015 The Group has not yet fully 1 July 2013 the first part of Phase 1 of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and assessed the impact of Measurement (AASB 139 Financial Instruments: Recognition and Measurement). These requirements the changes but expects improve and simplify the approach for classification and measurement of financial assets compared with the the impact on the financial requirements of AASB 139. The main changes from AASB 139 are described below. statements to be minimal. (a) Financial assets are classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. This replaces the numerous categories of financial assets in AASB 139, each of which had its own classification criteria. (b) AASB 9 allows an irrevocable election on initial recognition to present gains and losses on investments ents

in equity instruments that are not held for trading in other comprehensive income. Dividends in respect m

of these investments that are a return on investment can be recognised in profit or loss and there is no te a t

impairment or recycling on disposal of the instrument. S l a i

(c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition c n if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would a arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. ted Fin a AASB 2009-11 Amendments to Australian These amendments arise from the issuance of AASB 9 Financial Instruments that sets out requirements for 1 January 2015 The Group has not yet fully 1 July 2013 Accounting Standards arising the classification and measurement of financial assets. The requirements in AASB 9 form part of the first assessed the impact of from AASB 9 [AASB 1, 3, 4, 5, 7, phase of the International Accounting Standards Board’s project to replace IAS 39 Financial Instruments: the changes but expects 101, 102, 108, 112, 118, 121, 127, Recognition and Measurement. the impact on the financial 128, 131, 132, 136, 139, 1023 & statements to be minimal. 1038 and Interpretations 10 & 12] This Standard shall be applied when AASB 9 is applied. otes to the Consolid to otes AASB 124 Related Party Disclosures The revised AASB 124 simplifies the definition of a related party, clarifying its intended meaning and 1 January 2011 The Group has not yet fully 1 July 2011 N (Revised) (December 2009) eliminating inconsistencies from the definition, including: assessed the impact of the changes but expects

(a) the definition now identifies a subsidiary and an associate with the same investor as related parties of t 2011 – the impact on the financial r each other; statements to be minimal.

(b) entities significantly influenced by one person and entities significantly influenced by a close member of l Repo a the family of that person are no longer related parties of each other; and (c) the definition now identifies that, whenever a person or entity has both joint control over a second entity and joint control or significant influence over a third party, the second and third entities are related to Annu M2 each other. 39 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b) Statement of compliance (continued)

Reference Title Summary Application date Impact on Group financial Application date of standard report for Group AASB 1053 Application of Tiers of Australian This Standard establishes a differential financial reporting framework consisting of two Tiers of reporting 1 July 2013 The Group is a Tier 1 entity 1 July 2013 Accounting Standards requirements for preparing general purpose financial statements: and will comply with Tier 1 reporting requirements. (a) Tier 1: Australian Accounting Standards (b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. The following entities apply Tier 1 requirements in preparing general purpose financial statements: (a) For-profit entities in the private sector that have public accountability (as defined in this Standard) (b) The Australian Government and State, Territory and Local Governments

s The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: ent

m (a) For-profit private sector entities that do not have public accountability te a (b) All not-for-profit private sector entities l St Public sector entities other than the Australian Government and State, Territory and Local Governments. cia n a

n AASB 1054 Australian Additional Disclosures This standard is as a consequence of phase 1 of the joint Trans-Tasman Convergence project of the AASB and FRSB. 1 July 2011 The Group has not yet fully 1 July 2011 i assessed the impact of This standard relocates all Australian specific disclosures from other standards to one place and revises

ted F the changes but expects a disclosures in the following areas: d

i the impact on the financial ol

s (a) Compliance with Australian Accounting Standards statements to be minimal. (b) The statutory basis or reporting framework for financial statements (c) Whether the financial statements are general purpose or special purpose to the Con to s (d) Audit fees ote

N (e) Imputation credits AASB 2010-4 Further Amendments to Australian Emphasises the interaction between quantitative and qualitative AASB 7 disclosures and the nature and 1 January 2011 The Group has not yet fully 1 July 2011 Accounting Standards arising from extent of risks associated with financial instruments. assessed the impact of t 2011 – r the changes but expects the Annual Improvements Project Clarifies that an entity will present an analysis of other comprehensive income for each component of equity, the impact on the financial [AASB 1, AASB 7, AASB 101, either in the statement of changes in equity or in the notes to the financial statements. l Repo AASB 134 and Interpretation 13] statements to be minimal. a Provides guidance to illustrate how to apply disclosure principles in AASB 134 for significant events and transactions.

M2 Annu M2 Clarify that when the fair value of award credits is measured based on the value of the awards for which they could be redeemed, the amount of discounts or incentives otherwise granted to customers not 40 participating in the award credit scheme, is to be taken into account. Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b) Statement of compliance (continued)

Reference Title Summary Application date Impact on Group financial Application date of standard report for Group AASB 2010-5 Amendments to Australian This Standard makes numerous editorial amendments to a range of Australian Accounting Standards and 1 January 2011 The Group has not yet fully 1 July 2011 Accounting Standards [AASB 1, Interpretations, including amendments to reflect changes made to the text of IFRS by the IASB. assessed the impact of 3, 4, 5, 101, 107, 112, 118, 119, the changes but expects These amendments have no major impact on the requirements of the amended pronouncements. 121, 132, 133, 134, 137, 139, 140, the impact on the financial 1023 & 1038 and Interpretations statements to be minimal. 112, 115, 127, 132 & 1042]

AASB 2010-6 Amendments to Australian The amendments increase the disclosure requirements for transactions involving transfers of financial 1 July 2011 The Group has not yet fully 1 July 2011 Accounting Standards – assets. Disclosures require enhancements to the existing disclosures in IFRS 7 where an asset is transferred assessed the impact of Disclosures on Transfers of but is not derecognised and introduce new disclosures for assets that are derecognised but the entity the changes but expects Financial Assets [AASB 1 & continues to have a continuing exposure to the asset after the sale. the impact on the financial AASB 7] statements to be minimal.

AASB 2010-7 Amendments to Australian The requirements for classifying and measuring financial liabilities were added to AASB 9. The existing 1 January 2013 The Group has not yet fully 1 July 2013

Accounting Standards arising requirements for the classification of financial liabilities and the ability to use the fair value option have assessed the impact of ents m

from AASB 9 (December 2010) been retained. However, where the fair value option is used for financial liabilities the change in fair value is the changes but expects te a t

[AASB 1, 3, 4, 5, 7, 101, 102, 108, accounted for as follows: the impact on the financial S l

statements to be minimal. a 112, 118, 120, 121, 127, 128, 131, i

> The change attributable to changes in credit risk are presented in other comprehensive income (OCI) c 132, 136, 137, 139, 1023, & 1038 n a and interpretations 2, 5, 10, 12, > The remaining change is presented in profit or loss 19 & 127]

If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in ted Fin credit risk are also presented in profit or loss. a

AASB 2011-1 Amendments to Australian This Standard makes amendments to many Australian Accounting Standards, removing the disclosures 1 July 2011 The Group has not yet fully 1 July 2011 Accounting Standards arising which have been relocated to AASB 1054. assessed the impact of from the Trans-Tasman the changes but expects otes to the Consolid to otes Convergence project [AASB 1, the impact on the financial N AASB 5, AASB 101, AASB 107, statements to be minimal. AASB 108, AASB 121, AASB t 2011 –

128, AASB 132, AASB 134, r Interpretation 2, 112, & 113] l Repo a M2 Annu M2 41 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b) Statement of compliance (continued)

Reference Title Summary Application date Impact on Group financial Application date of standard report for Group IFRS Consolidated Financial IFRS 10 establishes a new control model that applies to all entities. It replaces parts of IAS 27 Consolidated 1 January 2013 The Group has not yet fully 1 July 2013 Statements and Separate Financial Statements dealing with the accounting for consolidated financial statements and SIC- assessed the impact of 12 Consolidation –Special Purpose Entities. the changes but expects the impact on the financial The new control model broadens the situations when an entity is considered to be controlled by another entity statements to be minimal. and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. This is likely to lead to more entities being consolidated into the group.

IFRS Joint Arrangements IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly- controlled Entities – Non-monetary 1 January 2013 The Group has not yet fully 1 July 2013 Contributions by Ventures. IFRS 11 uses the principle of control in IFRS 10 to define joint control, and therefore the assessed the impact of determination of whether joint control exists may change. In addition IFRS 11 removes the option to account for the changes but expects jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is the impact on the financial

s dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the statements to be minimal.

ent venturers a right to the underlying assets and obligations themselves is accounted for by recognising the share of m

te those assets and obligations. Joint ventures that give the venturers a right to the net assets is accounted for using a the equity method. This may result in a change in the accounting for the joint arrangements held by the group. l St

cia IFRS Disclosure of Interests in Other IFRS 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates 1 January 2013 The Group has not yet fully 1 July 2013 n a

n Entities and structured entities. New disclosures have been introduced about the judgements made by management assessed the impact of i to determine whether control exists, and to require summarised information about joint arrangements, the changes but expects

ted F associates and structured entities and subsidiaries with non-controlling interests. the impact on the financial a d

i statements to be minimal. ol s IFRS Fair Value Measurement IFRS 13 establishes a single source of guidance under IFRS for determining the fair value of assets and 1 January 2013 The Group has not yet fully 1 July 2013 liabilities. IFRS 13 does not change when an entity is required to use fair value, but rather, provides guidance assessed the impact of on how to determine fair value under IFRS when fair value is required or permitted by IFRS. Application of the changes but expects

to the Con to this definition may result in different fair values being determined for the relevant assets. the impact on the financial s statements to be minimal. ote IFRS 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This N includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. t 2011 – r l Repo a M2 Annu M2 42 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Non-controlling interests are allocated their share of net profit after tax in the statement of comprehensive income and are presented within equity in the consolidated statement of financial position, separately from the equity of the (c) Basis of consolidation owners of the parent.

The consolidated financial statements comprise the financial statements of M2 Telecommunications Group Losses are attributed to the non-controlling interest even if that results in a deficit balance. Ltd and its subsidiaries as at and for the period ended 30 June each year (“the Group”). Subsidiaries are all A change in the ownership interest of a subsidiary that does not result in a loss of control is accounted for as an those entities over which the Group has the power to govern the financial and operating policies so as to obtain equity transaction. benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity. (d) Business combinations The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, Business combinations are accounted for using the acquisition method. The consideration transferred in a business using consistent accounting policies. In preparing the consolidated financial statements, all intercompany combination shall be measured at fair value, which shall be calculated as the sum of the acquisition-date fair values balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends have been of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree eliminated in full. and the equity issued by the acquirer, and the amount of any non-controlling interest in the acquiree. For each Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the consolidated from the date on which control is transferred out of the Group. proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred, and included in administrative expenses. Investments in subsidiaries held by M2 Telecommunications Group Ltd are accounted for at cost in the separate ents m

financial statements of the parent entity less any impairment charges. Dividends received from subsidiaries are When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate te a t recorded as a component of other revenues in the separate income statement of the parent entity, and do not classification and designation in accordance with contractual terms, economic conditions, the Group’s operating S l a impact the recorded cost of the investment. Upon receipt of dividend payments from subsidiaries, the parent i or accounting policies and other pertinent conditions as at the acquisition date. This includes the separation of c n will assess whether any indicators of impairment of the carrying value of the investment in the subsidiary exist. embedded derivatives in host contracts by the acquiree. a Where such indicators exist, to the extent that the carrying value of the investment exceeds its recoverable

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition ted Fin amount, an impairment loss is recognised. a date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset The acquisition of subsidiaries is accounted for using the acquisition method of accounting. The acquisition or liability will be recognised in accordance with AASB 139 either in profit or loss or in other comprehensive method of accounting involves recognising at acquisition date, separately from goodwill, the identifiable income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The identifiable assets settled within equity. acquired and the liabilities assumed are measured at their acquisition date fair values (see note 2(d)). otes to the Consolid to otes The difference between the above items and the fair value of the consideration (including the fair value of any N pre-existing investment in the acquiree) is goodwill or a discount on acquisition. t 2011 –

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of r impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of l Repo the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other a assets or liabilities of the acquiree are assigned to those units. M2 Annu M2 43 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (g) Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short- (e) Operating segments term deposits with an original maturity of three months or less that are readily convertible to known amounts of An operating segment is a component of an entity that engages in business activities from which it may earn cash and which are subject to an insignificant risk of changes in value. revenues and incur expenses (including revenues and expenses relating to transactions with other components For the purposes of the statement of cash flow, cash and cash equivalents consist of cash and cash equivalents of the same entity) whose operating results are regularly reviewed by the entity’s chief operating decision maker as defined above, net of outstanding bank overdrafts. Bank overdrafts are included within interest–bearing to make decisions about resources to be allocated to the segment and assess its performance and for which loans and borrowings in current liabilities on the statement of financial position. discrete financial information is available. This includes start up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the level of segment (h) Trade receivables information presented to the board of directors. Trade receivables, which generally have 14-60 day terms, are recognised initially at fair value and subsequently Operating segments have been identified based on the information provided to the chief operating decision makers – measured at amortised cost which is the original invoice amount less an allowance for impairment. being the executive management team. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Debts more than 90 days (f) Foreign currency translation

ents are reviewed by management. Financial difficulties of the debtor, default payments and information provided m

te Functional and presentation currency by collection agents are considered objective evidence of impairment. The amount of the impairment loss is a t S the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the l Both the functional and presentation currency of M2 Telecommunications Group Ltd and its Australian a i

c original effective interest rate.

n subsidiaries are Australian dollars ($). The New Zealand subsidiary’s functional currency is New Zealand dollars a which is translated to the presentation currency (see below for consolidated reporting). (i) Inventories ted Fin

a Transactions and balances Inventories are valued at the lower of cost and net realisable value. Costs are accounted for on a first-in, first-out Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates basis. Cost of finished goods comprise of cost of direct materials assigned on the basis of weighted average costs. at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange at the reporting date. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Translation of Group Companies’ functional currency to presentation currency otes to the Consolid to otes N The results of the New Zealand subsidiary are translated into Australian dollars (presentation currency) as at the (j) Investments and other financial assets date of each transaction. Assets and liabilities are translated at exchange rates prevailing at reporting date. Investments and financial assets in the scope of AASB 139 Financial instruments: Recognition and Measurement t 2011 – r Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity. are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets. The classification depends on the purpose for which the

l Repo On consolidation, exchange differences arising from the translation of the net investment in the New Zealand a investments were acquired or originated. Designation is re-evaluated at each financial year end, but there are subsidiary are taken to the foreign currency translation reserve. If the New Zealand subsidiary were sold, the restrictions on reclassifying to other categories. proportionate share of exchange differences would be transferred out of equity and recognised in the statement M2 Annu M2 of comprehensive income. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments 44 not at fair value through profit or loss, directly attributable transactions costs. Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in statement of comprehensive income in the year the (j) Investments and other financial assets (continued) asset is derecognised.

Recognition and derecognition (l) Leases All regular way purchases and sales of financial assets are recognised on the trade date i.e., the date that The determination of whether an arrangement is or contains a lease is based on the substance of the the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the assets under contracts that require delivery of the assets within the period established generally by regulation or use of a specific asset or assets and the arrangement conveys a right to use the asset, even if that right is not convention in the market place. Financial assets are derecognised when the right to receive cash flows from the explicitly specified in an arrangement. financial assets has expired or when the entity transfers substantially all the risks and rewards of the financial assets. If the entity neither retains nor transfers substantially all of the risks and rewards, it derecognises the asset Group as a lessee if it has transferred control of the assets. Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of Subsequent measurement - Loans and receivables the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not at the present value of the minimum lease payments. Lease payments are apportioned between the finance quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well of the liability. Finance charges are recognised as an expense in profit or loss. ents as through the amortisation process. These are included in current assets, except for those with maturities Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease m te greater than 12 months after reporting date, which are classified as non-current. a term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. t S l a Operating lease payments are recognised as an expense in the Statement of Comprehensive Income on a i (k) Plant and equipment c n

straight-line basis over the lease term. Operating lease incentives are recognised as a liability when received a Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment and subsequently reduced by allocating lease payments between rental expense and reduction of the liability. losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the ted Fin a parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of (m) Impairment of non-financial assets other than goodwill and indefinite intangibles the plant and equipment as a replacement only if it is eligible for capitalisation. All other repairs and maintenance are Non-financial assets other than goodwill and indefinite life intangibles are tested for impairment whenever recognised in profit or loss as incurred. events or changes in circumstances indicate that the carrying amount may not be recoverable. Depreciation is calculated on a straight-line basis over the estimated useful life of the specific assets as follows: The Group conducts an annual internal review of asset values, which is used as a source of information to otes to the Consolid to otes

Plant and equipment – over 2 to 10 years assess for any indicators of impairment. External factors, such as changes in expected future processes, N Motor vehicles – over 4 years, determined by the life of the lease technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated. t 2011 –

Leased equipment – over 2 to 5 years, determined by the life of the lease r An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable

The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at l Repo

amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes a each financial year end. of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash

Derecognition inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Annu M2 An item of plant and equipment is derecognised upon disposal or when no further future economic benefits are Non-financial assets other than goodwill that suffered impairment are tested for possible reversal of the impairment expected from its use or disposal. whenever events or changes in circumstances indicate that the impairment may have reversed. 45 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite useful lives is recognised in profit or loss in (n) Goodwill and intangibles the expense category consistent with the function of the intangible asset.

Goodwill Trademarks, licenses and customer contracts are amortised over the period of expected future sales from the Goodwill acquired in a business combination is initially measured at cost of the business combination being the related asset. Software purchased is amortised over a period of between 2 years and 10 years, being the excess of the consideration transferred over the fair value of the Group’s net identifiable assets acquired and estimated useful life of the asset. liabilities assumed. If this consideration transferred is lower than the fair value of the net identifiable assets of the Brands have indefinite useful lives. Intangible assets with indefinite useful lives are tested for impairment subsidiary acquired, the difference is recognised in profit or loss. annually either individually or at cash-generating unit level consistent with the methodology outlined for After initial recognition, goodwill is measured at cost less any accumulated impairment losses. goodwill above. Such intangibles are not amortised. The useful life of an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to is thus accounted for on a prospective basis. benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group Software includes capitalised development costs. Research costs are expensed as incurred. An intangible asset arising are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated from development expenditure on an internal project is recognised only when the Group can demonstrate the technical represents the lowest level within the Group at which the goodwill is monitored for internal management feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and purposes, and is not larger than an operating segment determined in accordance with AASB 8. ents its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources m

te Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash- a to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset t S

l generating units) to which the goodwill relates. during its development. Following the initial recognition of the development expenditure, the cost model is applied a i c

n The Group performs its impairment testing annually, or more frequently if events or changes in circumstances requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any a indicate that the carrying value may be impaired, using discounted cash flows under the value in use expenditure so capitalised is amortised over the period of expected benefit from the related project.

ted Fin methodology. Further details on the methodology and assumptions used are outline in note 15.

a The carrying value of an intangible asset arising from development expenditure is tested for impairment annually When the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the when the asset is not yet available for use or more frequently when an indication of impairment arises during the carrying amount, an impairment loss is recognised. reporting period. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the Impairment losses recognised for goodwill are not subsequently reversed. net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is Intangibles

otes to the Consolid to otes derecognised. N Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of Expenditures on advertising and promotional expenses are recognised as a component of marketing expense in the an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following statement of comprehensive income when the Group has either the right to access the goods or has received the t 2011 – r initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated services. impairment losses. l Repo a The useful lives of these intangible assets are assessed to be either finite or indefinite. Intangible assets with (o) Trade and other payables finite lives are amortised over their useful life and tested for impairment whenever there is an indication that Trade and other payables are carried at amortised cost and due to their short-term nature they are not discounted. M2 Annu M2 the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are asset with finite useful life is reviewed at least at each financial year end. Changes in the expected useful life unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these 46 or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. (p) Interest-bearing loans and borrowings Expenses for sick leave are recognised when the leave is taken and are measured at the rates paid or payable. All loans and borrowings are initially recognised at the fair value of the consideration received less directly (ii) Long service leave attributable transaction costs. The liability for long service leave is recognised in the provision for employee benefits and measured as the After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost present value of expected future payments to be made in respect of services provided by employees up to the using the effective interest method. reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of using market yields at the reporting date on national government bonds with terms to maturity and currencies the liability for at least 12 months after the reporting date. that match, as closely as possible, the estimated future cash outflows. Borrowing costs (r) Share-based payment transactions Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalised Equity settled transactions as part of the cost of that asset. All other borrowing costs are expensed in the period they occur. Borrowing costs The Group has provided benefits to its employees in the form of share-based payments, whereby employees consist of interest and other costs that an entity incurs in connection with the borrowing of funds. The Group does rendered services in exchange for shares or rights over shares (equity-settled transactions). ents

not currently hold qualifying assets but, if it did, the borrowing costs directly attributable with this asset would be m There are currently two plans in place to provide these benefits: te capitalised (including any other associated costs directly attributable to the borrowing and temporary investment a t S income earned on the borrowing). > the Employee Share Option Plan (ESOP) which provides benefits to directors, senior executives and selected l a i

employees c n a (q) Provisions and employee leave benefits > the Employee Share Loan Plan (ESLP) which provides benefits to selected employees, excluding KMP ted Fin

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past The cost of these equity-settled transactions with employees is measured by reference to the fair value of the a event, it is probable that an outflow of resources embodying economic benefits will be required to settle the equity instruments at the date at which they are granted. The fair value is determined by an external valuer obligation and a reliable estimate can be made of the amount of the obligation. using a binomial model; further details are given in note 23.

When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the The cost of equity-settled transactions is recognised, together with a corresponding increase in the equity, over reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense the period in which the performance and/or service conditions are fulfilled (the vesting period) ending on the

relating to any provision is presented in the statement of comprehensive income net of any reimbursement. date on which the relevant employees become fully entitled to the award (the vesting date). the Consolid to otes N Provisions are measured at the present value of management’s best estimate of the expenditure required to settle At each subsequent reporting date until vesting, the cumulative charge to the statement of comprehensive income is the product of:

the present obligation at the reporting date. The discount rate used to determine the present value reflects current t 2011 – r market assessments of the time value of money and the risks specific to the liability. The increase in the provision (i) The grant date fair value of the award

resulting from the passage of time is recognised in finance costs. l Repo (ii) The current best estimate of the number of awards that will vest, taking into account such factors as the a Employee leave benefits likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met (i) Wages, salaries, annual leave and sick leave Annu M2 (iii) The expired portion of the vesting period. Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled 47 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue for equipment sales is recognised when the device is delivered to the end customer and the sale is considered complete. (r) Share-based payment transactions (continued) Commission income The charge to the Statement of Comprehensive Income for the period is the cumulative amount as calculated Commissions are received as incentives from upstream suppliers for connecting new customers. Revenue from above less the amounts already charged in previous periods. There is a corresponding entry to equity. such commissions is deferred and recognised over a period of life in line with the average period related to the Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards customers’ contracts. vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest Licence fees irrespective of whether or not that market condition is fulfilled, provided that all other conditions are satisfied. Licence fees are brought to account as revenue in accordance with the terms of the licence agreement when If the terms of an equity-settled are modified, as a minimum an expense is recognised as if the terms had not been substantially all obligations arising from the licence arrangement have been fulfilled. modified. An additional expense is recognised for any modification that increases the total fair value of the share- based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification. Interest If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the not yet recognised for the award is recognised immediately. However, if a new award is substituted for the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the award are treated as if they were a modification of the original award, as described in the previous paragraph. financial asset to the net carrying amount of the financial asset. ents m

te The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted

a (u) Income tax and other taxes t S earnings per share (see note 9). l a

i Current tax assets and liabilities for the current period are measured at the amount expected to be recovered c

n Shares in the Group reacquired on-market and held by the ESLP are classified and disclosed as reserved shares

a from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws and deducted from equity. used to compute the amount are those that are enacted or substantively enacted at the reporting date. ted Fin a (s) Contributed equity Management periodically evaluates positions taken in the tax returns with respect to situations in which Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are applicable tax regulations are subject to interpretation and establishes provisions where appropriate. shown in equity as a deduction, net of tax, from the proceeds. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. (t) Revenue recognition

otes to the Consolid to otes Deferred income tax liabilities are recognised for all taxable temporary difference except: N Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The > When the deferred liabilities arise from the initial recognition of goodwill or of an asset or liability in a following specific recognition criteria must also be met before revenue is recognised: transaction that is not a business combination and that, at the time of the transaction, affects neither the t 2011 – r accounting profit nor taxable profit or loss. Rendering of services l Repo

a > When the taxable temporary difference is associated with investments in subsidiaries, associates or interest The Group principally obtains revenue from providing the following telecommunication services: fixed wire, mobile, in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable data services and equipment sales. Products and services may be sold separately or in bundled packages. that the temporary difference will not reverse in the foreseeable future. M2 Annu M2 Revenue for fixed wire, mobile and data services are recognised as revenue, as services are performed. Revenue from services provided, but unbilled, are accrued at end of each period and unearned revenue (revenue billed in 48 advance) for services to be provided in future periods is deferred. Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. (u) Income tax and other taxes (continued) Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognized as Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax amounts receivable from or payable to other entities in the Group via an intercompany account. Details of the assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which tax funding agreement are detailed in note 7. the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be Any difference between the amounts assumed and amounts receivable or payable under the tax funding utilised, except: agreement are recognized as a contribution to (or distribution from) wholly-owned tax consolidated entities. > When the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the Other taxes transaction, affects neither the accounting profit nor taxable profit or loss. Revenues, expenses and assets are recognised net of the amount of GST except:

> When the deductible temporary differences is associated with investments in subsidiaries, associates and > When the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item that the temporary difference will reverse in the foreseeable future and taxable profit will be available against as applicable. which the temporary difference can be utilised. > Receivables and payables are stated with the amount of GST included. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables ents that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred m or payables in the statement of financial position. te a income tax asset to be utilised. t S l

Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows a i

Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent c arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority n that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. a are classified as operating cash flows.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year ted Fin Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the a when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or taxation authority. substantively enacted at the reporting date.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off (v) Earnings per share current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude taxable entity and the same taxation authority. any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted the Consolid to otes N Tax consolidation legislation average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for:

M2 Telecommunications Group Ltd and its wholly-owned Australian controlled entities implemented the tax t 2011 – r consolidation legislation as of 1 July 2004. > Costs of servicing equity (other than dividends) and preference share dividends. l Repo The head entity, M2 Telecommunications Group Ltd, and the controlled entities in the tax consolidated group > The after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been a continue to account for their own current and deferred tax amounts. The Group has applied the “stand-alone recognised as expenses.

taxpayer” approach in determining the appropriate amount of current taxes arising from unused tax losses and Annu M2 > Other non-discretionary changes in revenues or expenses during the period that would result from the dilution unused tax credits assumed from controlled entities in the tax consolidated group. of potential ordinary shares divided by the weighted average number of ordinary shares and dilutive potential In addition to its own current and deferred tax amounts, M2 Telecommunications Group Ltd also recognizes ordinary shares, adjusted for any bonus element. 49 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Interest rate risk The Group’s exposure to market interest rates relates primarily to the Group’s long-term debt obligations. The (w) Customer loyalty programme (continued) level of debt is disclosed in note 18. In certain circumstances, for every dollar spent on certain types of phone calls or plans by the customer, up to 15% of At the reporting date, the Group has the following mix of financial assets and liabilities exposed to Australian the eligible calls or plans can be redeemed for travel booked through M2 Travel. The customer has up to 60 days to variable interest rate risk: redeem their travel dollars upon termination or expiration of their contract, after which the travel dollars are forfeited. 2011 2010 For dollars earned by the customers, the Group defers a portion of the revenue and recognises a liability at fair $000 $000 value to fulfil its obligation to supply the redemption. Financial assets When the obligation to supply the travel dollars is fulfilled the deferred revenue is recognised in the profit or loss Cash and cash equivalents 12,542 15,064 in the period in which the obligation was fulfilled and the liability is extinguished. Financial liabilities Interest-bearing loans and borrowings (29,740) (16,574) (x) Deferred acquisition cost Net exposure (17,198) (1,510) Deferred acquisition cost pertains to upfront commissions paid to internal and external sales personnel upon The Group constantly analyses its interest rate exposure. Within this analysis, consideration is given to potential acquiring new service contracts. Upfront commissions paid to internal and external sales personnel are initially renewals of existing positions and alternative financing. In addition, the Group has sound and prudent interest recognised at cost in the statement of financial position as Other Assets (note 13) and subsequently amortized over rate risk management policies which include an interest rate risk philosophy governing the extent to which the ents

m the average term of the customer’s contract which is 24 months. The amortization is included in cost of sales. Group is willing to assume interest rate risk and explicit and prudent limits on the Group’s rate risk exposure. te a t S The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. l 3: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES a i c

n At 30 June 2011, if interest rates had moved, as illustrated in the table below, with all other variables held a The Group’s principal financial instruments comprise receivables, payables, bank loans and overdrafts, finance constant, post tax profit would have been affected as follows: leases, and cash and short-term deposits. ted Fin

a Post tax profit higher/(lower) Risk Exposures and Responses 2011 2010 The Group manages its exposure to key financial risks in accordance with the Group’s financial risk management $000 $000 policy. The objective of the policy is to support the delivery of the Group’s financial targets whilst protecting Consolidated future financial security. +1% (100 basis points) (172) (15) -.5% (50 basis points) 86 8 otes to the Consolid to otes

N The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk and credit risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. Such The movements in profit are due to higher/lower interest costs from variable rate debt and cash balances. The methods include monitoring levels of exposure to interest rate risk and assessments of market forecasts for

t 2011 – sensitivity is higher in 2011 than in 2010 due to the increase in borrowings resulting from the draw-down on the r interest rate. Aging analyses and monitoring of specific credit allowances are undertaken to manage credit risk. Group’s available debt facilities in order to fund the Clear Telecoms acquisition. Liquidity risk is monitored through the development of future rolling cash flow forecasts. l Repo

a Significant assumptions used in the interest rate sensitivity analysis include: The Board reviews and agrees policies for managing each of these risks as summarised below. > Reasonably possible movements in interest rates were determined based on the Group’s current credit rating and Primary responsibility for identification and control of financial risks rests with the Audit and Risk Management M2 Annu M2 mix of debt in Australia, relationships with financial institutions, the level of debt that is expected to be renewed Committee under the authority of the Board. The Board reviews and agrees policies for managing each of the as well as a review of the last two year’s historical movements and economic forecaster’s expectations. 50 risks identified below, including setting of limits for credit allowances and future cash flow forecast projections. Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

3: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) However, where the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Group can be required to pay. When the Group is committed to make amounts (a) Interest rate risk (continued) available in instalments, each instalment is allocated to the earliest period in which the Group is required to pay. > The net exposure at reporting date is representative of what the Group is expecting to be exposed to in the next The risks implied from the values shown in the table below, reflect a balanced view of cash inflows and twelve months from balance sheet date. outflows. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing (b) Credit risk of assets used in ongoing operations such as plant and equipment and investments in working capital (e.g., Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents and trade inventories and trade receivables). and other receivables. The Group’s exposure to credit risk arises from potential default of the counter party, with Liquid non-derivative assets such as cash and receivables are considered in the Group’s overall liquidity risk. a maximum exposure equal to the carrying amount of these financial assets (as outlined in each applicable note). The Group ensures that sufficient liquid assets are available to meet all the required short-term cash payments. The Group does not hold any credit derivatives to offset its credit exposure. < 6 months 6-12 months 1-5 years > 5 years TOTAL The Group trades only with recognised, credit-worthy third parties, and as such collateral is not requested nor is $000 $000 $000 $000 $000 it the Group’s policy to securitise its trade and other receivables. Year ended 30 June 2011 It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification Liquid financial assets procedures including an assessment of their independent credit rating, financial position, past experience and Cash and cash equivalents 12,542 - - - 12,542 industry reputation. Risk limits are set for each individual customer in accordance with parameters set by the Trade and other receivables 51,135 - - - 51,135 ents

board. These risk limits are regularly monitored. m

63,677 - - - 63,677 te a In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to t Financial Liabilities S l bad debts is not significant. a i

Trade and other payables (57,477) - - - (57,477) c n There are no significant concentrations of credit risk within the Group. a Interest bearing loans and borrowings (5,500) (6,000) (18,240) - (29,740)

(c) Liquidity risk (62,977) (6,000) (18,240) - (87,217) ted Fin a Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet their Net inflow/(outflow) 700 (6,000) (18,240) - (23,540) obligations to repay their financial liabilities as and when they fall due. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of Year ended 30 June 2010 credit facilities, bank loans, finance leases and committed available credit lines. Liquid financial assets Cash and cash equivalents 15,064 - - - 15,064 The Group minimises liquidity risk by maintaining a significant level of cash and cash equivalents as well as the Consolid to otes N ensuring the Group has access to the use of credit facilities as required. The Group monitors total cash inflows Trade and other receivables 55,752 - - - 55,752 and outflows expected on a monthly basis. 70,816 - - - 70,816 t 2011 – Non-derivative financial liabilities Financial Liabilities r Trade and other payables (54,225) - - - (54,225)

The following liquidity risk disclosures reflect all contractually fixed pay-offs, repayments and interest resulting l Repo a from recognised financial liabilities as of 30 June 2011. For the other obligations, the respective undiscounted Interest bearing loans and borrowings (2,629) (2,500) (11,445) - (16,574) cash flows for the respective upcoming fiscal years are presented. The timing of cash flows for liabilities is (56,854) (2,500) (11,445) - (70,799) based on the contractual terms of the underlying contract. Net inflow/(outflow) 13,962 (2,500) (11,445) - 17 Annu M2 51 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

4: SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These depend on estimates of future carrier costs, commissions and sales volumes, operating costs, The preparation of the financial statements requires management to make judgements, estimates and restoration costs, capital expenditure, dividends and other capital management transactions. Judgements are assumptions that affect the reported amounts in the financial statements. Management continually evaluates also required about the application of income tax legislation. These judgements and assumptions are subject its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, Management bases its judgements and estimates on historical experience and on other various factors it which may impact the amount of deferred tax assets and deferred tax liabilities recognized on the statement believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of of financial position and the amount of other tax losses and temporary differences not yet recognized. In such assets and liabilities that are not readily apparent from other sources. circumstances, some or all of the carrying amounts of recognized deferred tax asset and liabilities may require Management has identified the following critical accounting policies for which significant judgements, estimates adjustment, resulting in a corresponding credit or charge to the statement of comprehensive income. and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. (b) Significant accounting estimates and assumptions

Further details of the nature of these assumptions and conditions may be found in the relevant notes to the Impairment of trade and other receivables financial statements. Management reviews its trade and other receivables for objective evidence of impairment regularly. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or (a) Significant accounting judgements significant delay in payments are considered objective evidence that a receivable is impaired. In determining

ents Recovery of deferred tax assets this, management makes judgement as to whether there is observable data indicating that there has been a m

te significant change in the payment ability of the debtor, or whether there have been significant changes with a

t Deferred tax assets are recognised for deductible temporary differences as management considers that it S

l adverse effect in the technological, market, economic or legal environment in which the debtor operates in.

a is probable that future taxable profits will be available to utilise those temporary differences. Significant i c

n management judgement is required to determine the amount of deferred tax assets that can be recognised, a Where there is objective evidence of impairment, management makes judgements as to whether an impairment based upon the likely timing and the level of future taxable profits over the next four years. loss should be recorded as an expense. In determining this, management uses estimates based on historical

ted Fin loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for a Impairment of non-financial assets other than goodwill and indefinite life intangibles estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the between the estimated loss and actual loss experience. Group and to the particular asset that may lead to impairment. These include product performance, technology, economic and political environments and future product expectations. If an impairment trigger exists, the Impairment of goodwill and intangibles with indefinite useful lives recoverable amount of the asset is determined. The Group determines whether goodwill and intangibles with indefinite useful lives are impaired at least on an annual otes to the Consolid to otes

N basis. This requires an estimation of the recoverable amount of the cash-generating units, using a value in use Taxation discounted cash flow methodology, to which the goodwill and intangibles with indefinite useful lives are allocated. The Group’s accounting policy for taxation requires management’s judgement as to the types of arrangements t 2011 – r considered to be a tax on income in contrast to an operating cost. Judgement is also required in assessing Share-based payment transactions whether deferred tax assets and certain deferred tax liabilities are recognized on the statement of financial The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the l Repo a position. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary equity instruments at the date at which they are granted. The fair value is determined with the assistance of an differences, are recognized only where it is considered more likely than not that they will be recovered, which is external valuer using a binomial model. The accounting estimates and assumptions relating to equity-settled

M2 Annu M2 dependent on the generation of sufficient future taxable profits. share-based payments would have no impact on the carrying amounts of assets and liabilities within the next 52 annual reporting period but may impact expenses and equity. Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

4: SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued) 5: OPERATING SEGMENTS

Estimation of useful lives of plant and equipment Identification of reportable segments

The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected The Group has identified its operating segments based on the internal reports that are reviewed and used by the useful life and the expected residual value at the end of its life. Increasing an asset’s expected life or its residual executive management team (chief operating decision makers) in assessing performance and in determining the value would result in a reduced depreciation charge in the consolidated income statement. allocation of resources.

The useful lives and residual values of Group assets are determined by management at the time the asset is The operating segments are identified by management based on the manner in which the product is sold, acquired and reviewed annually for appropriateness. The lives are based on historical experience with similar whether Retail or Wholesale. Discrete financial information about each of these operating businesses is assets as well as anticipation of future events which may impact their life such as changes in technology. reported to the executive management team on at least a monthly basis. Furthermore network infrastructure is only depreciated over a period that extends beyond the expiry of the associated licence under which the operator provides telecommunications services if there is a reasonable The reportable segments are based on aggregated operating segments determined by the similarity of the expectation of renewal or an alternative future use for the asset. products produced and sold and/or the services provided, as these are the sources of the Group’s major risks and have the most effect on the rates of return. Historically, changes in useful lives and residual values have not resulted in material changes to the Group’s depreciation charge. Types of products and services

Estimation of useful lives of intangible assets The Group has two operating segments, Retail and Wholesale. The Group’s risks and rates of return are affected

predominantly by differences in the markets served by these business units. ents

The useful life used to amortise intangible assets relates to the future performance of the assets acquired and m te a management’s judgement of the period over which economic benefit will be derived from the asset. The basis for The Retail business segment offers unique packaged telecommunications services, targeted particularly to small t S

and medium sized enterprises, offering fixed line voice services, including line rental services, mobile voice and data l determining the useful life for the most significant categories of intangible assets is as follows: a i c

services, terrestrial dial-up and high speed broadband internet services as well as mobile telephone hardware. n > Licences fees. The estimated useful life is generally the term of the licence unless there is a presumption of a renewal at negligible cost. Using the licence term reflects the period over which the Group will receive economic The Wholesale business segment offers the full suite of fixed line voice services, including line rental services, ted Fin

benefit. For technology specific licences with a presumption of renewal at negligible cost, the estimated useful mobile voice and data services, terrestrial dial-up and high speed broadband internet services and mobile a economic life reflects the Group’s expectation of the period over which the Group will continue to receive economic telephone hardware to the telecommunications reseller market at wholesale rates. benefit from the licence. The economic lives are periodically reviewed taking into consideration such factors as Accounting policies and inter-segment transactions changes in technology. Historically, any changes to economic lives have not been material following these reviews. The accounting policies used by the Group in reporting segments internally are the same as those contained in > Customer bases. The estimated useful life principally reflects management’s view of the average economic note 2 to the accounts and in the prior periods except as detailed below: life of the customer base and is assessed by reference to customer churn rates. An increase in churn rates may the Consolid to otes N lead to a reduction in the estimated useful life and an increase in the amortisation charge. Historically, changes Corporate charges to the estimated useful lives have not had a significant impact on the Group’s results and financial position.

Corporate charges comprise non-segmental expenses incurred by the various business functions that support t 2011 – r > Capitalised software. The useful life is determined by management at the time the software is acquired both Retail and Wholesale operations. Some of these business functions include IT, finance, facilities and and brought into use and is regularly reviewed for appropriateness. For computer software licences, the useful equipment, commercial, and head office. l Repo life represents management’s view of expected benefits over which the Group will receive benefits from the a software, but not exceeding the licence term. For unique software products controlled by the Group, the life is Except for head office charges, all other corporate charges are allocated to each business segment on

based on historical experience with similar products as well as anticipation of future events which may impact proportionate basis linked to segment revenue so as to determine a segment result. Head office charges Annu M2 their life such as changes in technology. Historically, changes in useful lives have not resulted in material remain unallocated due to the difficulty in obtaining a reliable measurement of amounts that can be reasonably changes to the Group’s amortisation charge. allocated between Retail and Wholesale. 53 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

5: OPERATING SEGMENTS (continued) Retail Wholesale Unallocated Total

Income tax expenses 2011 2010 2011 2010 2011 2010 2011 2010 $000 $000 $000 $000 $000 $000 $000 $000 Income tax expense is calculated based on the segment operating net profit using a notional charge of 30% Depreciation 1,439 1,427 4 100 - - 1,443 1,527 (2010: 30%). No effect is given for taxable or deductible temporary differences. Amortisation 4,188 2,801 393 671 - - 4,581 3,472 Income tax expense Unallocated items 10,969 8,309 3,066 913 (4,395) (3,247) 9,640 5,975 - current It is the Group’s policy that if items of revenue and expenses are not allocated to operating segments, then any associated assets and liabilities are also not allocated to segments. This is to avoid asymmetrical allocations Segment assets and liabilities as of 30 June 2011 and 30 June 2010 are as follows: within segments which management believe would be inconsistent. Retail Wholesale Total Major customer 2011 2010 2011 2010 2011 2010 $000 $000 $000 $000 $000 $000 The Group has no significant clients that individually account for more than 10% of external revenue. Segment assets Segment operating assets 169,268 126,358 31,015 32,744 200,283 159,102 The following tables present revenue and profit information for the years ended 30 June 2011 and 30 June 2010.

Retail Wholesale Total Working capital - Corporate 744 76 ents m 2011 2010 2011 2010 2011 2010 Other 356 274 te a

t $000 $000 $000 $000 $000 $000 S Total assets per the statement

l 201,383 159,452

a of financial position

i Revenue c n

a Sales to external customers 257,883 251,451 168,964 154,660 426,847 406,111 Segment liabilities Inter-segment sales - 24,911 - 3,290 - 28,201 Segment operating liabilities 67,138 50,950 4,886 16,024 72,024 66,974 ted Fin Total segment revenue 257,883 276,362 168,964 157,950 426,847 434,312 a

Inter-segment elimination - (28,201) Bank loan 28,650 16,250 Total revenue per the statement 426,847 406,111 Other 6,936 (774) of comprehensive income Total liabilities per the statement 107,610 82,450 Result of financial position otes to the Consolid to otes

N Segment net operating 23,024 16,992 6,368 2,361 29,392 19,353 profit after tax t 2011 –

r Reconciliation of segment net profit after tax to net profit before tax

l Repo Income tax expense

a 12,776 8,011 - current and deferred Corporate charges - unallocated (1,760) (3,284)

M2 Annu M2 Net profit before tax per the statement of 40,408 24,080 54 comprehensive income Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

6: REVENUE AND EXPENSES 7: INCOME TAX 2011 2010 $000 $000 (a) Income tax expense (a) Revenue The major components of income tax expense are: Rendering of services 426,085 405,220 2011 2010 License fees 762 891 $000 $000 426,847 406,111 Statement of comprehensive income: (b) Other income Loss on sale of asset (79) - Current income tax Interest income 1,065 258 Curent income tax charge 9,640 5,251 986 258 Adjustments in respect of current income tax of previous years - 724 (c) Employee benefits expense Deferred income tax Wages and salaries 32,507 34,576 Relating to origination and reversal of temporary differences 3,136 2,036 2,704 2,765 Defined contribution superannuation expense Income tax expense reported in the statement of comprehensive income 12,776 8,011 Annual leave provision 2,433 1,481 Long service leave provision 210 516 37,854 39,338 (b) Numerical reconciliation between aggregate tax expense recognised in the statement of ents

(d) Depreciation and amortisation comprehensive income and tax expense calculated per the statutory income tax rate m te a

Depreciation 1,443 1,527 t A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the S Amortisation of patents and licenses 837 1,093 l a i

3,744 2,466 Group’s applicable tax rate is as follows: c

Amortisation of customer contracts n a 6,024 5,086 Accounting profit before income tax 40,408 24,080 (e) Other expenses ted Fin Selling and marketing 1,134 1,137 At the Group’s statutory income tax rate of 30% (2010: 30%) 12,122 7,224 a Business development 1,981 1,973 Adjustments in respect of current income tax of previous years - 724 2,528 3,667 Facilities and equipment Non-temporary differences 973 1,217 Corporate 1,486 582 Share based payments 85 92 Professional fees 2,591 2,169 (652) (1,246) Bank fees 472 372 Losses carried forward

Other 248 - the Consolid to otes Bad debts 4,726 4,149 N Minimum lease payments - operating lease 3,504 3,412 Aggregate income tax expense 12,776 8,011 Other 656 853 t 2011 –

19,078 18,314 r (f) Finance Costs l Repo

Finance charges payable under finance leases and hire purchase contracts 111 99 a Finance charges payable on bank loan 1,741 2,145 1,852 2,244 M2 Annu M2 55 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

7: INCOME TAX (continued) Deferred income tax at 30 June relates to the following:

(c) Recognised deferred tax assets and liabilities Statement of financial position 2011 2010 2011 2011 2010 2010 Current Deferred Current Deferred $000 $000 Income Tax Income Tax Income Tax Income Tax Deferred tax assets $000 $000 $000 $000 Plant and equipment 255 205 Opening balance (413) 5,473 437 7,578 Trade receivables 1,353 860 Charged to income (9,640) (3,136) (5,975) (2,363) Intangibles 152 81 Charged to equity - - - 286 Trade and other payables 1,048 97 Other payments 4,664 - 5,125 - Other provisions 1,522 1,221 Acquisitions - (567) - - Transaction cost on issue of shares 198 286 Other - - - (28) Tax losses and temporary differences 1,869 3,997 Closing balance (5,389) 1,770 (413) 5,473 Gross deferred tax assets 6,397 6,747 Tax expense in statement of comprehensive income 12,776 8,011 Deferred tax liabilities Amounts recognised in the Plant and equipment 21 48

ents statement of financial position: m 6,397 6,747 Other assets - deferred acquisition cost 2,620 - te Deferred tax asset a t 1,986 1,226 S Deferred tax liability (4,627) (1,274) Intangibles l a

i Gross deferred tax liabilities 4,627 1,274

c 1,770 5,473 n a

The deferred income tax expense directly charged to equity disclosed above pertains to transaction costs on ted Fin a issue of shares. otes to the Consolid to otes N t 2011 – r l Repo a M2 Annu M2 56 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

7: INCOME TAX (continued) 8: DIVIDENDS PAID AND PROPOSED 2011 2010 (d) Tax consolidation $000 $000 Members of the tax consolidated group and the tax-sharing agreement (a) Recognised amounts M2 Telecommunications Group Ltd and its 100% owned Australian subsidiaries formed a tax consolidated group Declared and paid during the year with effect from 1 July 2004. M2 Telecommunications Group Ltd is the head entity of the tax consolidated Dividends on ordinary shares: 6,112 3,308 group. Members of the Group have entered into a tax sharing agreement that provides for the allocation of Final franked dividend for 2010: 5.0 cents (2009: 3.0 cents) 8,625 5,503 income tax liabilities between the entities should the head entity default on its tax payment obligations. No Interim franked dividend for 2011: 7.0 cents (2010: 5.0 cents) amounts have been recognised in the financial statements in respect of this agreement on the basis that the 14,737 8,811 possibility of default is remote. (b) Unrecognised amounts Tax effect accounting by members of the tax consolidated group Dividends on ordinary shares: Final franked dividend for 2011: 9.0 cents (2010: 5.0 cents) 11,125 6,076 Measurement method adopted under AASB Interpretation 1052 Tax Consolidated Accounting

The head entity and the controlled entities in the tax consolidated group continue to account for their own After the reporting date, the above dividend was declared. This amount has not been recognised as a liability as current and deferred tax amounts. The Group has applied the stand-alone taxpayer approach in determining the at 30 June 2011 but will be brought to account during the 2012 financial year. ents appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. m The tax rate at which paid dividends have been franked is 30% (2010: 30%). te a t

The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad S l

Dividends proposed will be franked at the rate of 30% (2010: 30%). a principles in AASB 112 Income Taxes. The nature of the tax funding agreement is discussed further below. i c n In addition to its current and deferred tax amounts, the head entity also recognises current tax liabilities (or 9: EARNINGS PER SHARE a assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from ted Fin

The following reflects the information used in the basic and diluted earnings per share computations: a controlled entities in the tax consolidated group. 2011 2010 Nature of the tax funding agreement $000 $000 Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement (a) Earnings used in calculating earnings per share requires payments to/from the head entity to be recognised via an inter-entity receivable/(payable) which is at For basic and diluted earnings per share:

call. To the extent that there is a difference between the amount charged under the tax funding agreement and Net profit attributable to ordinary equity holders of the parent 27,684 16,069 the Consolid to otes N the allocation under AASB Interpretation 1052, the head entity accounts for these as equity transactions with the subsidiaries. (b) Weighted average number of shares t 2011 –

‘000 ‘000 r Weighted average number of ordinary shares for basic earnings per share 122,694 110,909 l Repo Effect of dilution: a Share options 1,849 3,020

Weighted average number of ordinary shares adjusted for the effect of dilution 124,543 113,929 Annu M2 57 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

9: EARNINGS PER SHARE (continued) (b) Reconciliation of net profit after tax to net cash flows from operations

There have been no transactions (e.g., share options) excluded from the calculation of diluted earnings per share 2011 2010 that could potentially dilute basic earnings per share in the future because they are antidilutive for either of the $000 $000 periods presented. Net profit 27,632 16,069 Adjustments for : There have been no transactions involving ordinary shares or potential ordinary shares that would significantly Depreciation and amortisation 6,024 5,086 change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and Share based payments 282 307 the date of completion of these financial statements. Loss on sale of plant and equipment 79 - Other revenue (372) - (c) Information on the classification of securities Non cash acquisition items (7,021) - Options granted to employees (including KMP) as described in note 22 are considered to be potential ordinary Changes in assets and liabilities shares and have been included in the determination of diluted earnings per share to the extent they are dilutive. (Increase)/decrease in trade receivables 4,617 (6,977) These options have not been included in the determination of basic earnings per share. (Increase)/decrease in inventories (24) 1,106 (Increase)/decrease in other assets (3,563) (4,232) 10: CASH AND CASH EQUIVALENTS (Increase)/decrease in other receivables 26 58 2011 2010 Increase/(decrease) in trade and other payables 3,252 (229) ents

m 130 (13) $000 $000 Increase/(decrease) in provisions te a

t Increase/(decrease) in current income tax payable 4,976 353

S Cash at bank and in hand 11,009 13,390 l 350 2,327

a (Increase)/decrease in deferred tax asset i Short-term deposits 1,533 1,674 c

n Increase/(decrease) in deferred tax liability 3,353 (549) a 12,542 15,064 Net cash flow from operating activities 39,741 13,306 ted Fin a (a) Reconciliation to statement of cash flows (c) Non-cash financing and investing activities Issue of shares under ESOP (note 23) 282 307 For the purposes of the statement of cash flows, cash and cash equivalents comprise the following at 30 June: Dividend reinvestment plan (note 20) 2,623 550 2011 2010 Purchase of plant and equipment under finance lease (note 14) 43 244 $000 $000

otes to the Consolid to otes Cash at bank and in hand 11,009 13,390 N Short-term deposits 1,533 1,674 11: TRADE RECEIVABLES 12,542 15,064 2011 2010 t 2011 – r $000 $000 Cash at bank earns interest at floating rates based on daily bank deposit rates.

l Repo Trade receivables 55,646 58,419 a Included within short-term deposits is an amount of $1.5 million (2010: $1.6 million) which is held in trust for the Allowance for impairment loss (a) (4,511) (2,667) Phone & Fly travel dollars loyalty program. 51,135 55,752 M2 Annu M2 Short-term deposits are made for varying periods of between one day and three months, depending on the 58 immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

11: TRADE RECEIVABLES (continued) (b) Fair value and credit risk Due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value. (a) Allowance for impairment loss The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it Trade receivables are non-interest bearing and are generally on 14-60 day terms. A provision for impairment the Group’s policy to transfer (on-sell) receivables to special purpose entities. loss is made when there is objective evidence that a trade receivable is impaired. An impairment loss of $4.7 million (2010: $4.1 million) has been recognised by the Group in the current year. This amount has been included (c) Interest rate risk in the distribution expense item. No individual amount within the impairment allowance is material. Detail regarding interest risk exposure is disclosed in note 3. Movements in the provision for impairment loss were as follows: 2011 2010 12: INVENTORIES $000 $000 2011 2010 At 1 July 2,667 1,833 $000 $000 Charge for the year 4,726 4,149 Finished goods (at cost) 362 338 Amounts written off (2,882) (3,315) Total inventories at the lower of cost and net realisable value 362 338 At 30 June 4,511 2,667 Inventory recognised as expense for the year ended 30 June 2011 totalled $5.3 million (2010: $6.0 million) for

the Group. This expense has been included in cost of sales in the Statement of Comprehensive Income. ents At 30 June, the ageing analysis of trade receivables is as follows: m te a t 2011 2010 13: OTHER ASSETS S l a

Gross Allowance Gross Allowance i c

2011 2010 n

Consolidated $000 $000 $000 $000 a $000 $000 Current 34,901 54 41,784 4

Bartercard trade balance 252 397 ted Fin 31 - 60 days 6,698 129 8,461 6 a Prepayments 1,331 1,834 61 - 90 days 6,153 161 1,781 128 Security deposit 108 1,220 91 days and over 7,894 4,167 6,393 2,529 Deferred aquisition cost 8,734 3,792 Closing balance 55,646 4,511 58,419 2,667 Other 450 69 Trade receivables that are past due but not considered impaired amounted to $9.7 million (2010: $5.5 million). 10,875 7,312 otes to the Consolid to otes Each operating unit has been in direct contact with the relevant debtor and is satisfied that the payment will be N Bartercard is a program which allows customers to pay a percentage of their bills with barter dollars. Bartercard received in full. trade balance refers to those receivables from such customers. t 2011 –

Other balances within trade and other receivables do not contain impaired assets and are not past due. It is r expected that these other balances will be received when due. l Repo a M2 Annu M2 59 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

14: PLANT AND EQUIPMENT 15: INTANGIBLE ASSETS AND GOODWILL

The reconciliation of carrying amounts at beginning and end of the period are as follows: (a) Reconciliation of carrying amounts at the beginning and end of the period 2011 2010 Trademarks Customer $000 $000 & Licenses Contracts Brands Goodwill Total Cost $000 $000 $000 $000 $000 At 1 July 8,912 8,573 Year ended 30 June 2011 Additions 1,188 1,110 At 1 July 2010, Disposals and write-offs (116) (550) Other - (221) Net of accumulated amortisation 1,335 4,311 1,503 63,308 70,457 and impairment At 30 June 9,984 8,912 Additions Software 8,200 - - - 8,200 Accumulated Depreciation - 5,990 - 36,590 42,580 At 1 July 5,192 3,790 Acquisitions Depreciation charge for the year 1,443 1,527 Total additions 8,200 5,990 - 36,590 50,780 (72) (117) Disposals and write-offs Adjustments to fair value from - - - 314 314 Other - (8) provisional accounts At 30 June 6,563 5,192 Write-offs (355) - - - (355) ents

m Amortisation charge for the year (837) (3,744) - - (4,581) te a t

S NET BOOK VALUE 3,421 3,720 At 30 June 2011, l a i Net of accumulated amortisation c

n 8,343 6,557 1,503 100,212 116,615

a Plant and equipment with carrying amount of $221,000 (2010: $308,000) for the Group are pledged as securities and impairment for non-current liabilities as disclosed in note 18. ted Fin

a At 30 June 2011 Cost (gross carrying amount) 11,182 13,852 1,503 100,212 126,749 Accumulated amortisation and (2,839) (7,295) - - (10,134) impairment Net carrying amount 8,343 6,557 1,503 100,212 116,615 otes to the Consolid to otes N t 2011 – r l Repo a M2 Annu M2 60 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

15: INTANGIBLE ASSETS AND GOODWILL (continued) Brands Brands are acquired through the acquisition of businesses and have indefinite useful lives. Brands are not amortised Trademarks Customer & Licenses Contracts Brands Goodwill Total but are subject to impairment testing on an annual basis or whenever there is an indication of impairment. $000 $000 $000 $000 $000 Goodwill Year ended 30 June 2010 After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated At 1 July 2009, impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or Net of accumulated amortisation 835 5,587 1,503 59,256 67,181 and impairment whenever there is an indication of impairment. Additions Software 1,593 - - - 1,593 (c) Impairment tests for goodwill and intangibles with indefinite useful lives Provisional premium on acquisitions - 1,298 - 3,709 5,007 Total additions 1,593 1,298 - 3,709 6,600 Description of cash generating units and other relevant information Goodwill acquired through business combinations has been allocated to and are tested at the level of their Adjustments to fair value from - (108) - 343 235 provisional accounts respective cash generating units for impairment testing as follows: Amortisation charge for the year (1,093) (2,466) - - (3,559) At 30 June 2010, > Retail cash generating unit Net of accumulated amortisation 1,335 4,311 1,503 63,308 70,457 > Wholesale cash generating unit and impairment ents m te

The recoverable amount of the cash generating units has been determined based on a value in use calculation using a t At 30 June 2010 S cash flow projections based on financial budgets approved by senior management covering a five year period. l a 4,203 8,230 1,503 63,308 77,244 i

Cost (gross carrying amount) c n

The pre-tax, risk-adjusted discount rate applied to cash flow projections is 13% (2010: 13% to 16%).The same a Accumulated amortisation and (2,868) (3,919) - - (6,787) impairment discount rates are applied to both retail and wholesale segments.

Net carrying amount 1,335 4,311 1,503 63,308 70,457 ted Fin The long-term growth rate used to extrapolate the cash flows of the retail and wholesale sales units beyond the a five-year period is 2.5%. The senior management of both units believes the growth rate is justified based on the (b) Description of the Group’s intangible assets and goodwill acquisitions during the financial year, which resulted in increased customer base. Trademarks and licences Carrying amount of goodwill allocated to each of the cash generating units The Messagemate license is the right to exploit certain intellectual property acquired in connection with the 2011 2010 otes to the Consolid to otes acquisition of the Messagemate business. In September 2003 the rights were assigned to a third party for a $000 $000 N fixed amount of consideration receivable over a period. The asset is amortised over the period of the contract, Cash generating units being 8 years. Retail cash generating units 85,202 47,955 t 2011 – r Software purchased in the normal course of business is amortised over a 2 to 10 year period. Wholesale cash generating units 15,010 15,010 l Repo

Total Goodwill 100,212 62,965 a Customer contracts Customer contracts are acquired through the acquisition of businesses and are amortised over a 2 to 4 year period. Brands are wholly allocated to the retail cash generating units. M2 Annu M2 61 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

15: INTANGIBLE ASSETS AND GOODWILL (continued) 17: PROVISIONS Key assumptions used in value in use calculations for the cash generating units for 30 June 2011 and 2011 2010 30 June 2010 $000 $000

The following describes each key assumption on which management has based its cash flow projections when Current determining the value in use of the above mentioned cash generating units: Annual leave 2,067 2,009 Long-service leave 1,615 1,575 > Budgeted gross margins – the basis used to determine the value assigned to the budgeted gross margin is the 3,682 3,584 average gross margin achieved in the year immediately before the budgeted year adjusted for the budgeted Non-Current growth. Annual leave - - > Budgeted overheads – the basis used to determine the value assigned to the budgeted overheads is the Long-service leave 502 470 average overheads achieved in the year immediately before the budgeted year adjusted for budgeted increase. 502 470 4,184 4,054 > Discount rates – discount rates reflect management’s estimate of the time value of money and the risks specific to each unit. This is the benchmark used by management to assess operating performance and to evaluate Refer to note 2(q) for the relevant accounting policy and a discussion of significant estimations and assumptions future investment proposals. In determining appropriate discount rates for each unit, regard has been given to applied in the measurement of these provisions. the yield on a ten-year government bond at the beginning of the budgeted year and a risk premium.

ents Movements in provisions during the financial year are set out below: m > Growth rate estimates – the basis used for growth rates reflect management’s estimate, determined by future te a t

S investment in sales generation methods and by growth rates achieved within the previous period. Employee benefits l a

i $000 c n a 16: TRADE AND OTHER PAYABLES At 1 July 2010 4,054 2011 2010 Arising during the year 2,643 ted Fin a $000 $000 Utilised (2,513) Trade payables 23,375 20,956 At 30 June 2011 4,184 Accrued expenses 3,436 12,528 Withholding tax payable 345 254 Goods and services tax payable 846 931 Unearned income 6,270 6,243 otes to the Consolid to otes N Deferred commission revenue 15,789 6,040 Other payables 7,416 7,273 t 2011 –

r 57,477 54,225

l Repo Trade and other payables are non-interest bearing and are normally settled on 30-day terms. a Due to the short-term nature of these payables, their carrying value is assumed to approximate their fair value.

M2 Annu M2 Information regarding interest rate and liquidity risk exposure is set out in note 3. 62 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

18: INTEREST BEARING LOANS AND BORROWINGS 20: CONTRIBUTED EQUITY 2011 2010 2011 2010 $000 $000 $000 $000 Current Ordinary shares - issued and fully paid 66,761 62,936 Obligations under finance leases and hire purchase contracts (note 25) 988 129 Bank loans 11,500 5,000 Fully paid ordinary shares carry one vote per share and carry the right to dividends. 12,488 5,129 No. (‘000) $000 Non-Current Movements in ordinary shares on issue Obligations under finance leases and hire purchase contracts (note 25) 102 195 At 30 June 2009 108,462 41,331 Bank loans 17,150 11,250 Share issue due to share placement 11,111 20,000 17,252 11,445 Share issue due to exercise of share options 1,629 1,550 Share issue due to dividend reinvestment plan 320 550 (a) Fair values Transaction costs - (495) At 30 June 2010 121,522 62,936 The carrying amounts of the Group’s current and non-current borrowings approximate their fair values. Share issue due to exercise of share options 1,198 1,242 Share issue due to dividend reinvestment plan 897 2,623 ents

(b) Interest rate and liquidity risk m Adjustments - (40) te a t

Details regarding interest rate and liquidity risk are disclosed in note 3. At 30 June 2011 123,617 66,761 S l a i c n

(c) Defaults and breaches a Capital management During the current and prior years, there were no defaults or breaches on any of the loans. When managing capital, management’s objective is to ensure the entity continues as a going concern as well ted Fin a as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to (d) Assets pledged as security maintain a capital structure that ensures the lowest cost of capital available to the entity. Bank borrowings are secured by fixed and floating charges over the business assets of the entities within the Management are constantly adjusting the capital structure to take advantage of favourable costs of capital or Group. Business assets include debtors (less than 90 days), inventory and plant and equipment. high returns on assets. As the market is constantly changing, management may change the amount of dividends

to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. the Consolid to otes

19: DEFERRED CONSIDERATION N 2011 2010 During 2011, management paid dividends of $14.7 million (2010: $8.8 million). $000 $000 t 2011 –

The Group is not subject to externally imposed capital requirements. r Current 6,193 2,930

Non-current - 2,980 l Repo a 6,193 5,910 M2 Annu M2 63 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

21: RELATED PARTY DISCLOSURE Terms and conditions of transactions with related parties Outstanding balances at year-end are unsecured, interest free and settlement occurs in cash. (a) Subsidiaries Allowance for impairment loss on trade receivables The consolidated financial statements include the financial statements of M2 Telecommunications Group Ltd and For the year ended 30 June 2011, the Group has not made any allowance for doubtful debts relating to amounts the subsidiaries listed in the following table. owed by related parties as there were very little indicators to trigger such action (2010:$nil). An impairment Country of % Equity interest Investment $000 assessment is undertaken each financial year by examining the financial position of the related party and the market Name incorporation 2011 2010 2011 2010 in which the related party operates to determine whether there is objective evidence that a related party receivable M2 Telecommunications Pty Ltd Australia 100 100 2,955 2,955 is impaired. When such objective evidence exists, the Group recognises an allowance for the impairment loss. M2 Mobile Services Pty Ltd Australia 100 100 - - M2 NZ Limited New Zealand 70 100 - - 22: KEY MANAGEMENT PERSONNEL Orion Telecommunications Ltd Australia 100 100 - - Southern Cross Telco Pty Ltd Australia 100 100 - - (a) Compensation for key management personnel People Telecom Pty Ltd Australia 100 100 - - 2011 2010 100 100 - - Swiftel Broadband Pty Ltd Australia $000 $000 Swiftel Communications Pty Ltd Australia 100 100 - - Short-term employee benefits 3,468 2,972 People Telecommunications Pty Ltd Australia 100 100 - - ents 182 176

m Post employment benefits People Mobile Pty Ltd Australia 100 100 - - te

a Share-based payment 282 163 t

S M2 Clear Pty Ltd Australia 100 - - -

l Total compensation 3,932 3,311 a i M2 Viptel Pty Ltd Australia 100 - - - c n

a M2 Loyalty Programs Pty Ltd Australia 100 100 - - M2 Wholesale Pty Ltd Australia 100 100 - - ted Fin

a M2 Wholesale Services Pty Ltd Australia 100 100 - - Wholesale Communications Group Pty Ltd Australia 100 100 - - M2 Commander Pty Ltd Australia 100 100 - - M2 Business Solutions Pty Ltd Australia 51 51 - - 2,955 2,955

otes to the Consolid to otes (b) Ultimate parent N M2 Telecommunications Group Ltd is the ultimate parent entity. t 2011 –

r (c) Key management personnel (KMP) Details relating to KMP, including remuneration paid, are included in note 22. l Repo a (d) Transactions with related parties

M2 Annu M2 Refer to note 22(d) for the total amount of transactions that were entered into with related parties for the 64 relevant financial year. Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011w

22: KEY MANAGEMENT PERSONNEL (continued) (c) Shareholdings of key management personnel (b) Option holdings of key management personnel Balance at Granted as On exercise of Balance at 30 June 2011 1 July 2010 remuneration options Net change 30 June 2011 Balance at Granted as Options Balance at Directors 30 June 2011 1 July 2010 remuneration exercised Net change 30 June 2011 Craig Farrow 958,522 - - (375,742) 582,780 Directors Vaughan Bowen 10,935,641 - - (2,559,000) 8,376,641 Craig Farrow - - - - - Max Bowen 32,274 - - - 32,274 Vaughan Bowen - - - - - John Hynd 2,832,524 - - (500,000) 2,332,524 Max Bowen - - - - - Michael Simmons 3,591 - - 6,000 9,591 John Hynd - - - - - Dennis Basheer (1) 5,044,906 - - (250,000) 4,794,906 Michael Simmons - - - - - Dennis Basheer (1) - - - - - Executives Steve Wicks 2,780,996 - 75,000 (938,913) 1,842,083 Executives Darryl Inns 589,333 - 75,000 (306,655) 282,678 Steve Wicks 250,000 - 75,000 (75,000) 175,000 Terry Doyle (2) 227,000 - 198,000 (12,000) 215,000 Darryl Inns 250,000 - 75,000 (75,000) 175,000 Geoff Horth 44,500 - - - 44,500 Terry Doyle (2) 373,000 - 198,000 (198,000) 175,000 Matthew Hobbs (3) 1,000 - 50,000 - 1,000 Geoff Horth 250,000 - - - 250,000 Michael Speglic - - 50,000 - - Matthew Hobbs (3) 300,000 - 50,000 (50,000) 250,000

Kellie Dean - - 50,000 - - ents

Michael Speglic 300,000 - 50,000 (50,000) 250,000 m Total 23,450,287 - 498,000 (4,936,310) 18,513,977 te

Kellie Dean 300,000 - 50,000 (50,000) 250,000 a t Total 2,023,000 - 498,000 (498,000) 1,525,000 S Balance at Granted as On exercise of Balance at l a i

30 June 2010 1 July 2009 remuneration options Net change 30 June 2010 c Balance at Granted as Options Balance at n Directors a 30 June 2010 1 July 2009 remuneration exercised Net change 30 June 2010 Craig Farrow 1,028,000 - - (69,478) 958,522 Directors ted Fin

Vaughan Bowen 13,388,570 - - (2,452,929) 10,935,641 a Craig Farrow - - - - - Max Bowen 32,274 - - - 32,274 Vaughan Bowen - - - - - Dennis Basheer (1) 5,244,906 - - (200,000) 5,044,906 Max Bowen - - - - - John Hynd 2,832,524 - - - 2,832,524 Dennis Basheer (1) - - - - - Michael Simmons - - - 3,591 3,591 John Hynd - - - - - Michael Simmons - - - - - Executives otes to the Consolid to otes

Steve Wicks 3,347,291 - - (566,295) 2,780,996 N Executives Darryl Inns 139,166 - 500,000 450,167 589,333 Steve Wicks - 250,000 - 250,000 250,000 Terry Doyle (2) - - 227,000 227,000 227,000

Darryl Inns 500,000 250,000 (500,000) (250,000) 250,000 t 2011 –

Geoff Horth - - - 44,500 44,500 r Terry Doyle (2) 350,000 250,000 (227,000) 23,000 373,000 Matthew Hobbs (3) 56,512 - 125,000 (55,512) 1,000 Geoff Horth - 250,000 - 250,000 250,000 l Repo

Michael Speglic - - - - - a Matthew Hobbs (3) 175,000 250,000 (125,000) 125,000 300,000 Kellie Dean - - - - - Michael Speglic 50,000 250,000 - 250,000 300,000 Total 26,069,243 - 852,000 (2,618,956) 23,450,287 Kellie Dean 50,000 250,000 - 250,000 300,000 M2 Annu M2 Total 1,125,000 1,750,000 (852,000) 898,000 2,023,000 All KMP balances include spouse shareholdings. (1) Mr Basheer resigned as a director on 29 October 2010. (1) Mr Basheer resigned as a director on 29 October 2010. (3) Mr Hobbs ceased employment with the Company on 29 July 2011. (2) Mr Doyle ceased employment with the Company on 29 July 2011. (2) Mr Doyle ceased employment with the Company on 29 July 2011. 65 (3) Mr Hobbs ceased employment with the Company on 29 July 2011. Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

22: KEY MANAGEMENT PERSONNEL (continued) (b) Types of share-based payment plans

(d) Other transactions and balances with key management personnel and their related parties Employee Share Option (ESOP) The following table provides the total amount of transactions that were entered into with related parties for the In February 2007, M2 introduced the M2 Executive Management Team Share Option Plan, and later in May 2009 relevant financial year. this was extended to selected employees. The purpose of the ESOP was to provide an avenue for the alignment Sales to related parties Purchases from related parties of Executive and employee objectives with those of shareholders, and to provide an additional element to $000 $000 Executive and employee remuneration that was competitive to the external compensation environment. The Directors issue of options under ESOP further allows an opportunity for the Board to reward Executives and employees for Craig Farrow (1) 2011 32 - their performance in a given period. 2010 17 2 All senior Executives and selected employees of M2 were eligible to participate in the ESOP. However, the issue Max Bowen (2) 2011 3 - 2010 4 - of options under the ESOP to Executive directors is subject to approval by M2 shareholders. Dennis Basheer (3) 2011 9 174 Under the ESOP, Executives and selected employees may be offered options to acquire M2 Shares. Any shares 2010 1 285 John Hynd (4) 2011 5 - issued under the ESOP consequent upon exercise of the options will rank equally with all other M2 Shares 2010 5 - and application will be made for them to be quoted on ASX. No application will be made for the options to be Michael Simmons (6) 2011 1 - quoted on ASX. 2010 - - ents

m Executive Options issued under the ESOP vest (and may only then be exercised) one, two and three years (as determined

te (5)

a Matthew Hobbs 2011 - -

t by the M2 Board) after they are offered to the eligible Executive or employee. S 2010 - 1 l a i Unless the M2 Board determines otherwise, no fee will be payable on the issue of any option under the ESOP. c

n (1) Telecommunications services were provided to Brentnalls SA and Petcraky Pty Ltd on commercial terms. Mr Farrow is a director of both companies. a (2) Telecommunications services were provided to MGB Holdings Pty Ltd on commercial terms. Mr Bowen is a director of MGB Holdings Pty Ltd. The exercise price for each option (payable on exercise of the option) will be determined by the Board at the (3) Sales commissions were paid and telecommunications services were provided to Dennis N Basheer Nominees on commercial terms. time of issue of the option. Telecommunications services were provided to M2SA Pty Ltd on commercial terms. Mr Basheer is a director of both companies. Mr. Basheer ted Fin

a retired as director of M2 on 29 October 2010. (4) Telecommunications services were provided to Hynd & Co Pty Ltd on commercial terms. Mr Hynd is a director of the firm Hynd & Co Pty Ltd. Options issued under the ESOP may be exercised, once they are vested, at any time within two years from the (5) Services were paid to Devine Media Photography on commercial terms. Mr. Hobbs is a director of Devine Media Photography. Mr. Hobbs date on which they vest. Other than continuous service conditions with the Company, there are no performance ceased employment with the Company on 29 July 2011. (6) Telecommunications services were provided to Luab Pty Ltd (Simmons family company) on commercial terms. conditions which must be met prior to the vesting or exercise of options.

23: SHARE-BASED PAYMENT PLANS Options are not generally transferable (and only with board approval) and cease to be exercisable at the end of the exercise period or within a specified time after the cessation of the Executive’s or employee’s employment otes to the Consolid to otes N (a) Recognised share-based payment expenses (which time depends on the circumstances of the cessation). The expense recognised for employee services received during the year is shown in the table below: An option holder may not attend and vote at annual general meetings and other shareholder meetings and is t 2011 – r 2011 2010 not entitled to participate in any rights issues unless the options have been exercised. Any bonus issue will $000 $000 proportionately increase the number of options held by any Executive or employee who has been granted options. l Repo

a Expense arising from equity-settled share-based payment transactions - M2 Executive Management Team Share Option Plan (ESOP) 282 307

M2 Annu M2 Total expense arising from share-based payment transactions 282 307 The share-based payment plans are described below. There have been no cancellations or modifications to any 66 of the plans during 2011. Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

23: SHARE-BASED PAYMENT PLANS (continued) (c) Summaries of options granted under ESOP Employee share plan (ESP) The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and In April 2007 M2 introduced the ESP to reward the loyalty of employees. All employees of M2, both full-time movements in, share options issued during the year: and permanent part-time, were eligible to participate in the ESP, in which M2 shares were offered at the 2011 2011 2010 2010 discretion of M2 Management and the M2 Board. The issue of M2 shares under the ESP is further subject to the No. WAEP No. WAEP approval of the M2 shareholders. Outstanding at the beginning of the year 3,020,000 $1.363 2,925,000 $0.592 A summary of the ESP is as follows: Granted during the year - - 1,750,000 $1.860 Exercised during the year (1,171,000) $0.858 (1,655,000) $0.527 (i) Under the ESP, eligible employees were offered M2 shares. The shares issued under the ESP ranked equally Outstanding at the end of the year 1,849,000 $1.386 3,020,000 $1.363 with all other M2 shares and application was made for them to be quoted on the ASX.

(ii) The shares were offered to eligible employees at the average weighted closing market price of M2 share’s 26,500 options were exercised before 30 June 2010 and shares were issued subsequent to the year end. These sold on the ASX during the five business days immediately before invitations to eligible employees were options have been included in the movement in financial year 2010. announced or issued. The outstanding balance as at 30 June 2011 is represented by:

(iii) The maximum number of shares that may be offered to an eligible employee in any twelve month period is (i) 324,000 options over ordinary shares with an exercise price of $0.70 each, exercisable upon meeting the above 20,000 M2 shares. conditions and until 8 May 2012. ents m

(iv) Eligible employees have paid for the shares offered out of their own funds or M2 has provided them with an te (ii) 1,525,000 executive options with exercise price ranging from $1.75 to $1.95, exercisable until dates ranging a t S

interest-free, limited recourse loan to finance up to the full cost of the shares. from 1 January 2011 to 1 January 2015. l a i c n

(v) Eligible employees who have paid for the shares offered out of their own funds may deal with them as they wish. a (d) Weighted average remaining contractual life (vi) Eligible employees who took up the offer of the loan did so on the following terms: ted Fin

The weighted average remaining contractual life for the share options outstanding as at 30 June 2011 is 2 years a a. The loan is required to be repaid within twenty years after the date of allotment of the shares, or upon (2010: 2 years). the employee ceasing employment with M2; (e) Range of exercise price b. The loan may be repaid in full or part at any time prior to the repayment date; The range of exercise prices for all options outstanding at the end of the financial year was $0.70 to $1.95 (2010: c. All cash dividends will be put towards repayment of the loan;

$0.475 to $1.95). the Consolid to otes d. The employee cannot sell the shares until the loan has been repaid; N (f) Weighted average fair value e. If the loan becomes repayable M2 may sell the employee’s shares to repay the loan but if the sale t 2011 – proceeds are insufficient to repay the loan then the employee is released from further liability. There were no options granted during the financial year. r

(vii) The employee may attend and vote at annual general meetings and other shareholder meetings and is l Repo (g) Option pricing model: ESOP a entitled to participate in any bonus or rights issues. The fair value of the equity-settled share options granted under the ESOP is estimated as at the grant date using

There were no grants of ESP during the financial year 2011 or 2010. Annu M2 a Binomial Model taking into account the terms and conditions upon which the options were granted. 67 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

23: SHARE-BASED PAYMENT PLANS (continued) Key factors contributing to the $4.1 million goodwill are the synergies existing within the acquired business, and The following table lists the inputs to the Binomial Model used for the year ended 30 June: the synergies expected to be achieved as a result of combining with the rest of the retail segment. ESOP ESOP Coast to Coast Acquisition 2011 2010 Dividend yield (%) 3.93% 3.93% In November 2010, M2 Commander Pty Ltd completed the acquisition of customer contracts of Coast to Coast Expected volatility (%) 46.62% 46.62% Telecoms Pty Ltd for a consideration of $180,000 paid by offsetting against amount owed to M2. Risk-free interest rate (%) 5.05% 5.05% Expected life of option (years) 3 years 3 years Black and White Acquisition Option exercise price ($) $1.75, $1.85, $1.95 $1.75, $1.85, $1.95 Weighted average share price at measurement date ($) $1.40 $1.40 In November 2010, the Group acquired certain assets of Black and White Group Limited (“B & W”). The Model used Binomial Binomial purchase was completed via issue of shares of M2 NZ Limited (“M2NZ”) at total consideration of $10,537 to B & W shareholders. Following the issue of shares, the ownership structure of M2NZ is 70% owned by the Group and 30% owned by B & W. 24: BUSINESS COMBINATIONS

Bell Networks Acquisition Clever Communications Acquisition

s In August 2010, People Telecommunications Pty Ltd, a wholly owned subsidiary of M2, completed the acquisition In May 2010, People Telecommunications Pty Ltd, a wholly owned subsidiary of M2, acquired the selected ent of the business assets of Bell Networks Voice & Data Pty Ltd (“Bell”) for a final determined consideration of $3.7 m business assets of Clever Communications Australia Ltd (“Clever”) for $4.8 million, comprised of an upfront and te

a million payable in cash, comprised of an upfront and deferred payment, which is subject to certain conditions deferred payment. The acquisition of selected Clever business assets, which includes off-net fixed, mobile and

l St relating to the performance of the assets over an agreed period. The principal assets acquired were the SMB data and virtual private network SMB customer contracts, complements the Group’s core focus on SMB. cia

n customer contracts of Bell. No bonus consideration was paid to Bell post-completion. a n

i The fair values of the identifiable assets and liabilities of Clever as of the date of acquisition were: The fair values of the identifiable assets and liabilities of Bell as of the date of acquisition were:

ted F Provisional Final a

d Provisional Final i $000 $000 ol

s $000 $000 Intangible assets 1,298 1,090 Intangible assets 1,300 1,300 Deferred tax liability - (327) Deferred tax asset - 83 Provisions (7) (7) to the Con to

s Deferred tax liability (390) (390) Fair value of identifiable net assets 1,291 756 ote

N Fair value of identifiable net assets 910 993 Goodwill arising from acquisition 3,709 4,052 Goodwill arising from acquisition 2,749 2,666 5,000 4,808 3,659 3,659 t 2011 – r Cost of the combination: Cost of the combination: l Repo Deferred consideration 1,250 1,058 a Cash paid - upfront payment 2,075 2,075 Cash paid 3,750 3,750 Cash paid - deferred payment 160 160 Total cost of the combination 5,000 4,808 M2 Annu M2 Payment adjustments 1,424 1,424 68 Total cost of the combination 3,659 3,659 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

24: BUSINESS COMBINATIONS (continued) Key factors contributing to the $26.7 million goodwill are the synergies existing within the acquired business, and the synergies expected to be achieved as a result of combining with the rest of the retail segment. Key factors contributing to the $2.7 million goodwill are the synergies existing within the acquired business, and the synergies expected to be achieved as a result of combining with the retail segment. Austar Acquisition

Clear Telecoms Acquisition In February 2011, Southern Cross Telco Ltd (“SCT”) a wholly-owned subsidiary of M2, had entered into an asset sale deed with Austar United Mobility Ltd (“Austar”) to acquire certain assets of Austar. The principal assets In February 2011, the Group acquired all of the business assets of Clear Telecoms (Aust) Pty Ltd (“Clear”) comprising of all customer contracts, operating systems, brands and all other related intellectual property. acquired are mobile customer contracts and related customer records. The transaction involves a net cash consideration of $24.5 million payable over 3 payment tranches. The first The net cash consideration paid to Austar is approximately $2 million (less applicable adjustments) payable in cash. tranche is payable immediately while the remaining tranches are payable in September 2011 and March 2012. The fair values of the identifiable assets and liabilities of Austar as of the date of acquisition were: The amount of the remaining tranches is subject to minimum performance milestones being achieved. Final A variable bonus consideration may also be payable in the event that specific performance milestones are $000 exceeded. The consideration for the Clear assets is funded by a draw-down on M2’s available debt facilities. Intangible assets 528 The bonus consideration, which is based on gross profit performance, has been accrued and included in deferred Deferred tax liabilities (158) consideration (note 19). Fair value of identifiable net assets 370 The fair values of the identifiable assets and liabilities of Clear as of the date of acquisition were: Goodwill arising from acquisition 1,453 ents Final m

1,823 te a t

$000 S l a

Cost of the combination: i

Deferred tax assets 1,193 c 1,823 n Cash paid a Plant and equipment 52 Intangible assets 4,152 Total cost of the combination 1,823 ted Fin Deferred tax liabilities (1,246) a Key factors contributing to the $1.5 million goodwill are the synergies existing within the acquired business, and Provisions (3,976) the synergies expected to be achieved as a result of combining with the rest of the retail segment. Fair value of identifiable net assets 175 26,689 Goodwill arising from acquisition Edirect Assets Acquisition 26,864 In April 2011, the Group acquired assets of mobile service reseller, Edirect Pty Ltd (Receivers and Managers otes to the Consolid to otes Cost of the combination: Appointed )(“Edirect”). The principal assets acquired are active contracts of more than 50,000 post-paid mobile N Cash paid 20,671 phone customers. In addition, the Group has entered into a separate agreement to acquire the operating assets

Deferred consideration 6,193 and systems presently used to service the Edirect customer base. t 2011 – r Total cost of the combination 26,864 Total consideration for the acquisition is $5.9 million. l Repo a M2 Annu M2 69 Notes to the Consolidated Financial Statements FOR THE YEAR ENDED 30 JUNE 2011

24: BUSINESS COMBINATIONS (continued) 26: CONTINGENCIES

The fair values of the identifiable assets and liabilities of Edirect as of the date of acquisition were: There are no contingent assets or liabilities as at Statement of Financial Position date. Final 27: EVENTS AFTER BALANCE DATE $000 Fair value of identifiable net assets - On 1 July 2011, M2 commenced operation of the M2 Employee Share Plan (Salary Sacrifice) which allows Goodwill arising from acquisition 5,931 eligible team members to salary sacrifice a portion of their salary in order to acquire M2 shares. The shares will 5,931 be issued or acquired on-market on a quarterly basis, commencing October 2011. On 26 August 2011, the directors declared a final dividend on ordinary shares in respect of the 2011 financial Cost of the combination: year. The total amount of the dividend is $11,125,459, which represents a fully franked dividend of 9 cents per 5,931 Total consideration share (on shares issued as at 30 June 2011). This final dividend will be paid to shareholders on 28 October 2011. Total cost of the combination 5,931 28: INFORMATION RELATING TO M2 TELECOMMUNICATIONS LTD (“the parent entity”) 25: COMMITMENTS 2011 2010 $000 $000 Leasing commitments s Current assets 1,891 109

ent Operating lease commitments – Group as lessee m Total assets 107,841 80,767 te a The Group has entered into commercial leases on offices and certain plant and equipment. Future minimum Current liabilities 18,424 4,226

l St lease payments under non-cancellable operating leases as at 30 June 2011 are as follows: Total liabilities 35,586 15,476 cia n

a 2011 2010 n i $000 $000 Issued capital 66,761 62,936

ted F 5,084 2,014 a Within one year 1,505 3,037 Retained earnings d i Equity Reserves 410 342 ol After one year but not more than five years 2,589 5,389 s After more than five years - 539 Total shareholders’ equity 72,255 65,292 Total minimum lease payments 4,094 8,965 Profit or loss and total comprehensive income of the parent entity 17,798 9,333 to the Con to s Finance lease and hire purchase commitments – Group as lessee

ote The parent entity has no commitments or contingencies as of reporting date. N These lease contracts expire within one to four years. Future minimum lease payments under finance lease and hire purchase contracts as at 30 June 2011 are as follows: 29: AUDITOR’S REMUNERATION t 2011 – r 2011 2010 The auditor of M2 Telecommunications Group Ltd is Ernst & Young. $000 $000

l Repo 2011 2010 a Within one year 1,052 156 $ $ After one year but not more than five years 109 117 Amounts received or due and receivable by Ernst & Young (Australia) for:

M2 Annu M2 Total minimum lease payments 1,161 273 - An audit or review of the financial report of the entity and any other entity 264,550 249,750 Less amounts representing finance charges (71) (24) within the consolidated group 70 Present value of minimum lease payments 1,090 249 264,550 249,750 Directors’ Declaration

In accordance with a resolution of the directors of M2 Telecommunications Group Ltd:

1. In the opinion of the directors:

(a) The financial statements, notes and the additional disclosures included in the directors’ report designated as audited, of the Company and of the consolidated entity are in accordance with the Corporations Act 2001, including:

(i) Giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2011 and of their performance for the year ended on that date.

(ii) Complying with Accounting Standards and Corporations Regulations 2001.

(b) The financial statements and notes comply with International Financial Reporting Standards as disclosed in note 2(b).

(c) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2011.

On behalf of the directors

Vaughan Bowen Managing Director/CEO on

Melbourne, 26 August 2011 i t ara l c e D

’ rs to c e Dir t 2011 – r l Repo a M2 Annu M2 71 Independent Audit Report

Independent auditor’s report to the members of M2 Telecommunications Auditor’s Opinion Group Limited In our opinion: 1. the financial report of M2 Telecommunication Group Limited is in accordance with the Corporations Act 2001, including: Report on the Financial Report i giving a true and fair view of the consolidated entity’s financial position at 30 June 2011 We have audited the accompanying financial report of M2 Telecommunications Group Limited, which and of its performance for the year ended on that date; and comprises the consolidated statement of financial position as at 30 June 2011, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement ii complying with Australian Accounting Standards (including the Australian Accounting of cash flows for the year ended on that date, a summary of significant accounting policies, other Interpretations) and the Corporations Regulations 2001. explanatory notes and the directors’ declaration of the consolidated entity comprising the company and

the entities it controlled at the year’s end or from time to time during the financial year. 2. the financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial Report on the Remuneration Report report in accordance with the Australian Accounting Standards (including the Australian Accounting We have audited the Remuneration Report included in pages 22 to 25 of the directors’ report for the year Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining ended 30 June 2011. The directors of the company are responsible for the preparation and presentation of the internal controls relevant to the preparation and fair presentation of the financial report that is free from Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to material misstatement, whether due to fraud or error; selecting and applying appropriate accounting express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian policies; and making accounting estimates that are reasonable in the circumstances. In Note 2 (b) the Auditing Standards. directors also state, that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. Auditor’s Opinion Auditor’s Responsibility In our opinion the Remuneration Report of M2 Telecommunications Group Limited for the year ended 30 June 2011, complies with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the financial report based on our audit. We conducted our

audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain

t

r reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

t Repo financial report. The procedures selected depend on our judgment, including the assessment of the risks of i material misstatement of the financial report, whether due to fraud or error. In making those risk

assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the Aud financial report in order to design audit procedures that are appropriate in the circumstances, but not for Ernst & Young the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. David Shewring Partner Independence Melbourne 26 August 2011

t 2011 – Independent In conducting our audit we have met the independence requirements of the Corporations Act 2001. We r have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report.

l Repo

a

M2 Annu M2

Liability limited by a scheme approved under Professional Standards Legislation 72 ASX Additional Information

Additional information required by the Australian Securities Exchange Ltd listing rules and now shown (b) Substantial Shareholders elsewhere in this report is as follows. This information is current as at 24 August 2011. Names of the Company’s substantial shareholders and the number of ordinary securities they hold a relevant interest in, as disclosed in the latest substantial holdings notices provided to the Company: (a) Distribution of equity holders of securities Name of substantial shareholder Name of registered holder(s) Number of % issued (i) Ordinary share capital ordinary capital 123,731,285 fully paid ordinary shares are held by 3,973 shareholders. shares (ii) Options Hunter Hall Investment Management JP Morgan Nominees Australia Limited 12,385,958 10.06 1,734,000 options are held by 15 individual option holders. Limited Cornish Group Investments Pty Ltd Cornish Group Investments Pty Ltd 10,250,000 8.34 The numbers of shareholders, by size of holding, in each class are: Talston Pty Ltd Range Fully Paid Ordinary Shares No of Holders UBS Wealth Management Australia Limited 100,001 and Over 92,207,593 91 Vaughan Bowen Vaughan Bowen (VG Bowen Family Trust) 8,370,737 6.8 10,001 to 100,000 21,623,102 796 Vaughan Bowen (Bowen Family Super Fund) 5,001 to 10,000 4,904,674 641 Vaughan Bowen 1,001 to 5,000 4,574,473 1,653 National Australia Bank Limited MLC Investments Limited 8,246,661 6.746 1 to 1,000 421,443 792 National Nomineed Limited Total 123,731,285 3,973 National Australia Bank Limited Unmarketable Parcels 8094 121 MLC Wealth Management Ltd Navigator Australia Ltd Cogent Nominees Pty Ltd tion NABInvest Managed Investments Limited rma nfo I l a Addition t 2011 – ASX t 2011 – r l Repo a M2 Annu M2 73 ASX Additional Information

(c) Twenty Largest Shareholders Voting Rights – Ordinary Shares

Names of M2’s 20 largest shareholders of ordinary shares and the percentage of capital each holds: By virtue of the Company’s Constitution, outlined in clause 10, voting rights for ordinary shares are:

Ordinary Shares Number Fully Paid (1) on a show of hands, every Member present, in person or by proxy, attorney or representative, has one vote; and Percentage J P MORGAN NOMINEES 18,341,162 14.82% (2) on a poll every Member has: AUSTRALIA LIMITED (i) one vote for each fully paid share; and NATIONAL NOMINEES LIMITED 9,703,481 7.84% (ii) for each partly paid share held by the Member, a fraction of a vote equivalent to the proportion which the COGENT NOMINEES PTY LIMITED 7,698,904 6.22% amount paid (not credited) is of the total amounts paid and payable (excluding amounts credited) on the UBS WEALTH MANAGEMENT 7,329,647 5.92% AUSTRALIA NOMINEES PTY LTD share. MR VAUGHAN BOWEN V G BOWEN FAMILY 7,119,000 5.75% Restricted Securities HSBC CUSTODY NOMINEES 4,356,105 3.52% (AUSTRALIA) LIMITED There are no restricted securities on issue. DENNIS N BASHEER 4,311,177 3.48% SUPERANNUATION PTY LTD On-Market Buy-Back

CORNISH GROUP INVESTMENTS PTY LTD 2,715,053 2.19% There is no on-market share buy-back in operation. THIRTY FOURTH ZULU PTY LTD 1,962,878 1.59% EMTEL PTY LTD 1,500,000 1.21% WICKS GROUP PTY LTD WICKS FAMILY 1,467,169 1.19% MR VAUGHAN GARFIELD BOWEN 1,185,071 0.96% on i & MRS CAROLINA NUNN t CITICORP NOMINEES PTY LIMITED 1,150,210 0.93% rma o f MR MARCELLO BARBARO 1,040,365 0.84% l In a REVEN PTY LIMITED 998,592 0.81% on i t i HYLAND SECURITIES PTY LTD 920,000 0.74% MR EDMOND WING KIN CHEUNG 833,177 0.67%

ASX Add ASX & MRS ELIZA SIU LING CHEUNG WYATT PTY LTD 800,000 0.65% AUST EXECUTOR TRUSTEES NSW LTD 723,590 0.58% t 2011 – r NASHAR PTY LTD 713,395 0.58% l Repo a TOTAL 74,868,976 60.51% Balance of Register 48,862,309 39.49% M2 Annu M2 74 Grand TOTAL 123,731,285 100.00% Corporate Directory

Corporate Directory Auditor M2 Telecommunications Group Ltd Ernst & Young ACN 091 575 021 8 Exhibition Strett ABN 74 091 575 021 Melbourne, VIC 3000

M2 is a publicly listed company, limited by shares. Principal Legal Advisors It is incorporated and domiciled in Australia. Lander & Rogers Lawyers Level 12, 600 Bourke Street Registered Office Melbourne, VIC 3000 Level 10, 60 City Road Southbank, VIC 3000 Bankers Telephone: 03 9674 6555 Bank of Western Australia Ltd (BankWest) Facsimile: 03 9674 6599 Westpac Banking Corporation Ltd Web: www.m2.com.au Share Registry Stock Exchange Link Market Services Limited Australian Securities Exchange Ltd (ASX) Level 4, 333 Collins Street Issuer code: MTU Melbourne, VIC 3000 Telephone: 02 8280 7111 or 1300 554 474 Directors www.linkmarketservices.com.au Craig Farrow Chairman Vaughan Bowen Managing Director / CEO Max Bowen Non Executive Director ry

John Hynd Non Executive Director to c Michael Simmons Non Executive Director e Dir te

Company Secretary ra po Kellie Dean r t 2011 – Co r l Repo a M2 Annu M2 75 This page intentionally left blank. ents m te a t S l a i c n a ted Fin a otes to the Consolid to otes N t 2011 – r l Repo a M2 Annu M2 76 www.m2.com.au

Photographers: John Warren, Warren Photography, www.warrenphotography.com.au Rohan Smith, Online Marketing Executive Andrew Barnard, M2 Telecom Credit Management Officer Creative Design: ADMAD, www.admad.com.au

M2 Telecommunications Group Ltd – Annual Report 2011

M2 Telecommunications Group Ltd Annual Report 2011