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2007 Annual Report of EFTel Limited

Annual Report 2008

Annual Report of EFTel Limited

Corporate Directory 01

CEO’s Report 02

Directors’ Report 04

Corporate Governance Statement 13

Financial Report 16

Directors’ Declaration 59

Independent Auditor’s Report 60

Additional Information 62

2008 Annual Report EFTel Limited

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Directors

Simon Ehrenfeld - Chief Executive Officer

Russell Collett Jeremy Cousins Jurgen Steinert Paul Stevenage

Company Secretary

John Raftis

Notice of Annual General Meeting

The annual general meeting of EFTel Limited will be held at:

The Theatrette QV1 Level 2, 250 St George’s Terrace Perth

Time: 9.30am Date: Friday 21 November 2008

Registered Office

Level 8 QV1 Building 250 St Georges Terrace Perth WA 6000 Ph: (08) 9420 9999 Fax: (08) 9481 4777 ACN 073 238 178 ABN 47 073 238 178 www.eftel.com

Share Register

Computershare Investor Services Pty Limited Level 2, 45 St Georges Terrace Perth WA 6000 Ph: (08) 9323 2000 Fax: (08) 9323 2033

Auditor

Deloitte Touche Tohmatsu QV Building 180 Lonsdale Street Melbourne VIC 3000

Solicitors

Allens Arthur Robinson 530 Collins Street Melbourne VIC 3000

Bankers

Westpac 109 St Georges Terrace Perth WA 6000

Stock Exchange Listing

EFTel Limited shares are listed on the Australian Stock Exchange. ASX code: EFT

CORPORATE DIRECTORY


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CEO’S REPORT

2007-08 has been a year of improving both the profitability and industry profile of EFTel Ltd. Building upon the rapid growth experienced during 2006-07, your company undertook sustainable revenue and cost management programmes.

These initiatives have resulted in

6% organic revenue growth in 2007-08 while many competitors suffered flat or shrinking revenues.

The fifth consecutive year of positive operating cash flow.

a 65% boost in EBITDA to $2.6M.

a $1M turnaround in Net Profit.

The result of all of this is that EFTel was able to declare a fully franked maiden dividend. Record numbers of customers are now being serviced.

Last year we reported that EFTel had been engaging in reasonably quiet yet thorough preparation for future developments. We reported that bold investments aimed at meeting the challenges of both cost and innovation were being actively worked upon.

We also reported that we had further strengthened our understanding of where the telecommunications market was headed in Australia and that we were laying out the necessary foundations. The results have since emerged for investors to see.

More than 6 months after EFTel promoted VDSL2 as the next big thing in Australian broadband, VDSL2 has become been dominant in discussion at telecommunications conferences, industry forums and in the Fibre to the Node debate.

Over the last year, EFTel has been invited to address broadband conferences, to contribute to the round table discussions on ratification in Australia, and to comment to a raft of media outlets, all on VDSL2.

At the time of writing, EFTel has completed the building of its BroadbandNext network in over 50 telephone exchanges. This network supports a range of technologies such as ADSL2+, and will support VDSL2 when it is ratified in Australia. It will lower the company’s cost of goods and reduce its dependency on Telstra.

Under the stewardship of the current Board your company continues to make substantial progress in numerous other areas.

In the last year:

EFTel reignited the merger and acquisitions programme. EFTel recently announced the acquisition of the Concept Group, boosting revenues by $3M p.a.

EFTel issued unlisted options. This will assist with both the raising of project capital and the retention of key employees on salaries which are comparatively modest by industry standards, while keeping their interests aligned with your interests.

EFTel developed a state-of the-art support facility at Cyberjaya, in the heart of Kuala Lumpur’s Multimedia Super Corridor.

EFTel’s flagship broadband brand, aaNet, achieved a 5 star customer satisfaction rating in PC Authority, outperforming almost every company in the industry. In the 2008 Australian Broadband Survey, a staggering 90% of customers said they would recommend the brand, compared with less than 50% for the major telcos.

As a preferred supplier to the Victorian Government, EFTel has successfully grown its number of government contracts.

The results of many tough decisions from the past are coming into plain view. Earlier this month, The West Australian newspaper reported that EFTel’s improved results have gone against this year’s reporting trend.

The perseverance of your management team has ensured that your company has moved in a few years from a struggling enterprise with a $2m balance sheet to a Top 10 national Internet provider with a $16m balance sheet, that is also now in the Top 500 listed companies by revenue.

Of course we have not ignored the current state of the Australian stock market. In the small retail telco sector alone, we have seen shares lose 90% or more of their value in 2 short years. We have easily outperformed our sector, and trust that our philosophy of building a solid business rather than blue sky will ultimately bring greater value to shareholders as the market recovers.

We thank you for your investment in EFTel.

Simon Ehrenfeld MBA MMR Chief Executive Officer


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DIRECTORS’ REPORT

Your directors present their report on the company and its controlled entities for the financial year ended 30 June 2008.

Directors

The names of directors in office at any time during or since the end of the year are:

Russell Collett

Simon Ehrenfeld

Jurgen Steinert

Daniel Ehrenfeld (retired 25 October 2007)

Glenn Darlington (retired 27 November 2007)

Paul Stevenage

Jeremy Cousins (appointed 11 December 2007

Gregory Searle (appointed 27 September 2007 and retired 27 November 2007)

Directors have been in office since the start of the financial year to the date of this report unless otherwise stated.

Company Secretary

John Raftis held the position of company secretary throughout the financial year.

Principal Activities

The principal activities of the economic entity during the financial year were:

Telecommunications and supply of internet services;

There were no significant changes in the nature of the economic entity’s principal activities during the financial year.

Operating Results

The consolidated profit of the economic entity after providing for income tax of $270k (2007: Loss of $751k).

Dividends Paid or Recommended

Dividends paid or declared for payment are as follows:

Ordinary dividend as recommended in last year’s report Nil

Interim ordinary dividend with record date of 8 September 2008 0.1c per share

Ordinary dividend as recommended in this year’s report Nil

Review of Operations

Significant events during the 2007-08 Reporting Period:

Implementation of Small Holding Sale Facility and Top-Up Facility for Shareholders.

Commencement of rollout of BroadbandNext network with the installation of MSAN (Multi-Service Access Node) infrastructure that has the capability of providing VDSL2 services.

Announcement of EFTel’s maiden dividend of 0.1c per share.

Significant events since the end of the Reporting Period:

Acquisition of Concept Group.

On 8 September 2008, EFTel announced the acquisition of the internet business of Concept Networks and the acquisition of the CGOC (Malaysia). Consideration for the acquisition consists of 8,350,000 shares plus a deferred cash component of $965,000. The Concept Group has revenues in excess of $4 million including approximately $1 million for services provided to EFTel.

Issue of Options to Key Employees.

The company issued 12,503,500 share options (exercisable at 6 cents) to key employees. The options expire on 31 December 2009.

There has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years.

Financial Position

The net assets of the economic entity were $15.85m at 30 June 2008 ($15.74m at 30 June 2007). During the period, the company undertook a significant investment in infrastructure and committed to an initial programme for the installation of MSAN (Multi Service Access Node) equipment into 70 exchanges. This infrastructure will allow the company to implement substantial savings in the supply of broadband internet services.

With five years of positive operating cash flow, and expected substantial reductions in the costs of supplying services, the company has funded this investment initially out of operating cash flow.

The directors believe the group is in a strong and stable financial position to expand and grow its current operations.

Significant Changes in State of Affairs

The following significant changes in the state of affairs of the parent entity occurred during the financial year:

Acquisition of Equipment for the BroadbandNext Network.

Assumption of liabilities associated with funding the BroadbandNext network.

Future Developments

Disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this report.

i.

ii.


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Information on Board Members

Simon Ehrenfeld MBA MMR MANAGING DIRECTOR (Age 41)

Simon is the CEO of EFTel Limited (formerly Datafast Telecommunications Ltd). He holds a Master of Business Administration degree with 5 Dux awards from the University of Western Australia, as well as a Masters in Management Research.

Simon is a former State President and Honorary Life Member of the Young Liberal Movement of Australia. He has served as Managing Director of various ISPs in the EFTel group for 12 years.

Simon serves as a member of the nomination committee, the remuneration committee and the stakeholder relations committee.

Jurgen Steinert MACS PCP GAICD EXECUTIVE DIRECTOR (Age 37)

Jurgen is the Chief Technical Officer of EFTel and has a strong technical knowledge in addition to his background in management. Jurgen previously served as the Director of Finance and Resources.

He is a certified member of the Australian Computer Society, as well as a member of the Institute of Company Directors. Originally starting with Southwest Internet Systems, he has been with ISPs in the group for 12 years.

Jurgen serves as a member of the nomination committee and the audit committee.

Russell Collett Dip.R.E.M NON-EXECUTIVE DIRECTOR (Age 44)

Russell is a Licensed Real estate Agent, Auctioneer, and Business Agent. He is the Managing Director of Collett Realty.com. Russell has over 20 years management experience.

Russell serves as a member of the nomination committee and the audit committee, and as chairman of the stakeholder relations committee.

Paul Stevenage ASA NON-EXECUTIVE DIRECTOR (Age 39)

Paul is the National Finance Manager for Woolworths Ltd. His previous roles include Group Commercial Manager for ACM, the largest division of Boral Ltd, State Commercial Manager for Mayne Nickless and Financial Controller with BGC. Paul is a former Lions Youth of the Year, Commonwealth of Nations Youth of the Year, and Murdoch University Guild President. He holds a Bachelor of Commerce degree.

Paul serves as chairman of the remuneration committee, the audit committee, and the nomination committee.

Jeremy Cousins NON-EXECUTIVE DIRECTOR (Age 41)

Jeremy has over 20 years experience in a variety of commercial roles, including 9 years in the internet and telecommunications industry. He has served at the highest executive levels of EFTel Limited and, having most recently served as Commercial Relations Manager prior to becoming a Non-executive Director in 2007.

Jeremy serves as a member of the nomination committee.

John Raftis CPA ACIS COMPANY SECRETARY (Age 38)

John is a Business graduate of Curtin University. He completed his CPA with one of the highest rankings in the country. He also holds a Graduate Diploma in company secretarial practice with Chartered Secretaries Australia, including a Dux Award in Corporate Governance. John has 18 years of industry-based accounting experience. John is the Chief Financial Officer and has been with ISPs in the group for 8 years.

John serves as secretary to the audit committee.

DIRECTORS’ REPORT


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DIRECTORS’ REPORT

REMUNERATION REPORT

This report details the nature and amount of remuneration for each director of EFTel Limited and for the executives receiving the highest remuneration.

Remuneration Policy

Overview

The remuneration policy of EFTel Limited has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering incentives based on key performance areas affecting the economic entity’s financial results. The board of EFTel Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best executives and directors to run and manage the economic entity, as well as create goal congruence between directors, executives and shareholders.

The remuneration policy, setting the terms and conditions for the executive directors was developed by the remuneration committee. The remuneration committee reviews the packages of the top 5 executives as well as all non-executive directors and the company secretary. It undertakes this process annually by reference to the economic entity’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries.

The remuneration framework in place for 2007-08 was produced by a three member remuneration committee during 2006-07. Due to the downsizing of the Board which occurred in late 2007, the remuneration committee currently comprises two members, including the managing director. As a result of this change, it is the practice of the remuneration committee to refer any resolution to increase the remuneration entitlements of the managing director to the Board. No resolutions of this nature were referred or required to be referred during 2007-08.

The board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The remuneration committee determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting.

The non-executive directors receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. The executive directors and other specified executives receive a superannuation guarantee contribution required by the government, which is currently 9%, and are entitled to receive up to a further 3% matched by the company on a dollar for dollar basis for voluntary superannuation contributions. Directors and all other employees are able to enter into salary sacrifice arrangements for their superannuation and eligible equipment such as laptop computers.

The directors are employed on a continuous basis. Should the executive directors be terminated then they would receive a termination payment based upon their length of service and specified notice periods. The other key management personnel are employed on a continuous basis with specified notice periods required for termination of employment.

Company Performance, Shareholder Wealth and Directors’ and Executives’ Remuneration

The basis for determining the nature and amount of remuneration for board members and senior executives of the economic entity is as follows:

The performance of executives is measured against criteria set by the remuneration committee. All bonuses and incentives must be linked to predetermined performance criteria. The policy is designed to attract and retain the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth. The company has an excellent record of key executive retention and this is viewed as one of its main strengths.

The remuneration policy has been tailored to increase goal congruence between shareholders, directors and executives. There have been two methods applied in achieving this aim. These are the payment of a performance bonus based on key performance indicators, in cash, and/or the payment of bonuses in the form of an issue of shares, to the directors and a number of executives.

The remuneration committee has set bonuses to encourage achievement of specific goals that have been given a high level of importance in relation to the future growth and profitability of the economic entity. The remuneration committee will review the performance bonuses to gauge their effectiveness against achievement of the set goals, and adjust future years’ incentives as they see fit, to ensure use of the most cost effective and efficient methods.


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Performance Based Remuneration

Various remuneration packages include a performance-based component, consisting of key performance indicators (KPIs). The intention of this programme is to align the goals of directors and executives with that of the business and shareholders. The KPIs are set annually. The KPIs are targeted in areas the board believes hold greater potential for group expansion and profit.

Performance in relation to the KPIs is assessed annually, with bonuses being awarded depending on the number and deemed difficulty of the KPIs achieved. Following the assessment, the KPIs are reviewed by the remuneration committee in light of the desired and actual outcomes, and their efficiency is assessed in relation to the group’s goals. In determining whether or not a KPI has been achieved, EFTel bases the assessment on both audited figures and information recorded in the company’s customer service systems.

The telecommunications sector faces increasingly competitive issues in key areas, with customer numbers affected by churn and market maturation, pressures on profitability, and challenges to improving shareholder value, all prevailing phenomena in the sector. These issues have combined with significantly rising costs in the Australian labour market, particularly in Western Australia where most of the senior executives are based.

The company has met these challenges by giving some consideration to the reviewing of base salaries to account for market pressures, while offering the majority of potential additional remuneration in the form of incentives based on improving the key areas.

The company rewards its senior executives with incentive-based remuneration based on achieving ambitious performance targets for three key indicators – number of active accounts, EBITDA and share price. For achieving each of these targets in 2007-08, the incentives were capped at $85,000 spread across all senior executives, of which no more than 60% could be paid to the executive directors. To achieve the full incentive bonus in each

category, the company was required to increase the number of active accounts by 20%, increase EBITDA by 20%, and increase the share price by 100%. The number of active accounts is measured on information recorded in the company’s customer service systems. EBITDA is measured on comparisons of audited figures between financial years. Share price is measured by the weighted average price in the month following release of the Annual Report. The amount of each incentive bonus is scaled back for partial achievement of targets. For each item where the previous year’s result was successfully maintained but not improved upon, no incentive bonus was payable. The senior executives were responsible as a group for working towards these targets. The senior executives also had individual KPI incentives for which a combined limit of $85,000 was payable across all senior executives, and of which no more than 60% could be paid to the executive directors. For each KPI incentive the managing director was limited to 30% of the bonus. For 2008-09, the share price incentive was abolished and replaced by the issue of options to key employees. This change had three principal benefits: (i) reducing the company’s potential commitment by $85,000pa (ii) encouraging the retention of key employees, and (iii) creating a potential new source of capital to help fund the company’s projects. Neither the executive directors nor the non-executive directors have received any options, and the share price incentive for the executive directors has been abolished without replacement or compensation.

Additional incentive bonuses for exceeding the performance targets in 2007-08 applied in the event that the KPI target for any category was exceeded. The only growth target to be exceeded was EBITDA growth, which was rewarded at 6% of EBITDA above target, representing a total cost of less than $42,000. EBITDA is measured on comparisons of audited figures between financial years. The additional incentive bonus stated are the collective total payable across the remuneration packages of all senior executives, of which no more than 60% could be paid to the executive directors, and no more than 30% to the managing

Company Performance and Earnings Per Share

A-GAAP A-IFRS A-IFRS A-IFRS A-IFRS

2004 2005 2006 2007 2008

Total Revenue ($’000) 18,604 26,958¹ 26,210 34,431 36,427

Earnings before Interest, Taxation, Depreciation & Amortisation ($’000) 3,161 3,956 3,143 1,591 2,623

Net Profit After Tax ($’000) (727) 1,594 799 (746) 270

Earnings Per Share (cents) (0.070) 1.084 0.506 (0.473) 0.171

Dividends per share (cents) - - - - 0.1

Share price at the start of the year (cents) 5.0² 16.0² 13.0² 6.1 8.4

Share price at the end of the year (cents) 16.0² 13.0² 6.1 8.4 5.6

¹ Includes $431,250 from sale of mining tenements ² Share price adjusted for 1 for 10 consolidation in December 2005

DIRECTORS’ REPORT


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DIRECTORS’ REPORT

director. It is considered that the issue of options to key employees provides sufficient incentive for EBITDA targets to be exceeded going forward. Consequently, for 2008-09, there is no additional incentive bonus scheme, and it has been abolished without replacement or compensation, saving the company further potential costs.

The current incentive scheme is viewed as effective. The company has required its senior executives to cope with fewer supporting resources. This has resulted in a continued reduction in labour costs as a proportion of revenue, as well as a more narrowed focus on achievement in the key areas. Over the 2007-08 financial year there was substantial improvement in the EBITDA performance of the company. The subsequent increase in Net Profit After Tax has allowed the company to announce its maiden dividend for shareholders. It is also viewed that the remuneration focus needs to support a continuation of the current improvements so that the company can continue to pay dividends and enhance sustainable shareholder wealth.

Details of short term incentives paid to executive management are as follows:

Bonus $ % of Maximum Bonus Paid % Not Achieved in year

Simon Ehrenfeld 43,009 46.9% 53.2%

Jurgen Steinert 22,656 47.6% 52.4%

John Lane 10,388 50.9% 49.1%

Luke MacKinnon 16,183 47.6% 52.4%

John Raftis 10,898 53.4% 46.6%

Richard Swancott 9,710 47.6% 52.4%

The remuneration for each director and each of the 5 executive officers of the consolidated entity receiving the highest remuneration during the year was as follows:

2008

Short-term employee benefits Post-employment Share-based payment

TotalSalary &

Fees Bonus Non- Monetary Other Superannuation Other Shares Options

$ $ $ $ $ $ $ $ $

Glenn Darlington¹ 16,606 - - - 1,494 - - - 18,100

Simon Ehrenfeld 251,835 43,009 1,748 - 40,462 - - - 337,054

Russell Collett 24,129 - - - 2,172 - - - 26,301

Jeremy Cousins² 12,981 - - - 1,168 - - - 14,149

Daniel Ehrenfeld³ 63,760 - - - 5,738 - - - 69,498

Greg Searle4 4,230 - - - 380 - - - 4,610

Jurgen Steinert 148,425 22,656 4,213 - 48,826 - - - 224,120

Paul Stevenage 24,129 - - - 2,172 - - - 26,301

546,095 65,665 5,961 - 102,412 - - - 720,133

¹ The remuneration was for the period from 1 July 2007 to 27 November 2007 ² The remuneration was for the period from 11 December 2007 to 30 June 2008 ³ The remuneration was for the period from 1 July 2007 to 25 October 2007 4 The remuneration is payable for the period from 27 September 2007 to 27 November 2007


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2007

Short-term employee benefits Post-employment Share-based paymentTotal

Salary & Fees Bonus Non-

Monetary Other Superannuation Other Shares Options

$ $ $ $ $ $ $ $ $

Glenn Darlington¹ 16,723 - - - 1,505 - - - 18,228

Simon Ehrenfeld 236,716 - - - 26,963 - - - 263,679

Russell Collett 21,096 - - - 1,898 - - - 22,994

Daniel Ehrenfeld 94,751 - - - 8,527 - - - 103,278

Juliette Reay² 10,835 - - - 975 - - - 11,810

Greg Searle³ - - 9,199 - 4,232 - - - 13,431

Jurgen Steinert 139,340 - 4,773 - 37,495 - - - 181,608

Paul Stevenage 21,096 - - - 1,898 - - - 22,994

540,557 - 13,972 - 83,493 - - - 638,022

¹ The remuneration was for the period from 20 December 2006 to 30 June 2007 ² The remuneration was for the period from 1 July 2006 to 23 December 2006 ³ The remuneration was for the period from 1 July 2006 to 19 January 2007

2008

Short-term employee benefits Post-employment Share-based payment Total

Salary & Fees Bonus Non-

Monetary Other Superannuation Other Shares Options

$ $ $ $ $ $ $ $ $

John Lane 132,599 10,388 - - 20,785 - - - 163,772

Luke MacKinnon 159,529 16,183 800 - 15,866 - - - 192,378

John Raftis 148,075 10,898 1,681 - 23,356 - - - 184,010

Paul Rolfe 101,201 - - - 9,309 - - - 110,510

Richard Swancott 119,673 9,710 - - 11,644 - - - 141,027

661,077 47,179 2,481 - 80,960 - - - 791,697

2007

Short-term employee benefits Post-employment Share-based paymentTotalSalary &

Fees Bonus Non- Monetary Other Superannuation Other Shares Options

$ $ $ $ $ $ $ $ $

Jeremy Cousins 141,289 - - - 18,887 - - - 160,176

John Lane 139,574 - - - 18,534 - - - 158,108

Luke MacKinnon 145,295 - 4,037 - 13,439 - - - 162,771

John Raftis 139,898 - - - 18,934 - - - 158,832

Richard Swancott 117,953 - - - 10,539 - - - 128,492

684,009 - 4,037 - 80,333 - - - 768,379

DIRECTORS’ REPORT


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DIRECTORS’ REPORT

Performance Income as a Proportion of Total Remuneration

Executive directors and executives are offered performance based bonuses based on set monetary figures, rather than proportions of their salary. The remuneration committee has set bonuses to encourage achievement of specific goals that have been given a high level of importance in relation to the future growth and profitability of the economic entity. The remuneration committee will review the performance bonuses to gauge their effectiveness against achievement of the set goals, and adjust future years’ incentives as they see fit, to ensure use of the most cost effective and efficient methods.

Shares and Options Issued as Part of Remuneration for the Year Ended 30 June 2008

No shares or options were issued to directors and executives as part of remunerations for the year ended 30 June 2008.

Employment Contracts of Directors and Senior Executives

The employment conditions of the Chief Executive Officer, Simon Ehrenfeld, the executive director, Mr Jurgen Steinert, and specified executives are formalised in contracts of employment. All executives are permanent employees.

Termination Costs

Senior Executives can fall into one of six bands in determining the cost to the company in the event that their employment is terminated, according to the following schedule:

Band Position and Length of Service Termination Benefit Additional Benefit for Termination by Company

A Service for periods less than Bands B- F Nil 1 week per year of continuous full-time employment

B

5 years of Senior Management service and 7 Years continuous full-time employment OR

3 years Executive Director service and 5 Years continuous full-time employment OR

1 year of Managing Director service and 3 Years continuous full-time employment

i.

ii.

iii.

1 months’ salary 1 week per year of continuous full-time employment

C



3 years Managing Director service and 5 Years continuous full-time employment

i.

ii.

iii.

2 months’ salary 1 week per year of continuous full-time employment

D




i.

ii.

iii.

2 months’ salary 2 weeks per year of continuous full-time employment

E



i.

ii.3 months’ salary 2 weeks per year of continuous full-

time employment

F10 years Managing Director service and 15 Years continuous full-time employment

i.4 months’ salary 2 weeks per year of continuous full-

time employment

The following criteria apply to the Termination Costs Schedule:

The sum of the Termination Benefit and the Additional Benefit for Termination by the Company is limited to 12 months’ salary.

Length of Service in the capacity of Senior Management, Executive Director, or Managing Director refers to service to EFTel Ltd (formerly Datafast Telecommunications Ltd) and EFTel More Than Broadband Pty Ltd (formerly EFTel Pty Ltd).

Length of Continuous Full-time Employment relates to service to EFTel Ltd and/or any of its subsidiaries.

In any instance where the Termination Benefits are calculated to be an amount less than the Minimum Conditions of Employment, the Minimum Conditions of Employment prevail.

1.

2.

3.

4.


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Termination Cost bands and Notice Periods are as per the following table:

Executive Classification BandTermination Notice Period Required

Length of Full-time Continuous Employment

Simon Ehrenfeld Managing Director E* 3 months 12 years

John Lane Senior Management B 2 months 7 years

Luke MacKinnon Senior Management A 2 months 13 years

John Raftis Senior Management B 3 months 8 years

Jurgen Steinert Executive Director D* 2 months 12 years

Richard Swancott Senior Management A 2 months 7 years

* Under agreements that existed prior to the current schedule being set, for voluntary or mutually agreed termination, Mr S Ehrenfeld is entitled to an additional three months salary and no cap, and Mr J Steinert is entitled to an additional two months and no cap.

Meetings of Directors

During the financial year, 13 meetings of directors (excluding committees of directors) were held. Attendances by each director during the year were as follows:

BOARD MEETINGS AUDIT COMMITTEE REMUNERATION COMMITTEE

Number eligible to

attend

Number Attended

Number eligible to

attend

Number Attended

Number eligible to

attend

Number Attended

Glenn Darlington 6 6

Simon Ehrenfeld 13 13 2 2

Russell Collett 13 12 2 2

Jeremy Cousins 6 6

Daniel Ehrenfeld 6 6

Greg Searle 1 1

Jurgen Steinert 13 13 2 2

Paul Stevenage 13 13 2 2 2 2

Directors’ Shareholdings

The following table sets out each director’s relevant interest in shares of the company as at the date of this report:

Fully Paid Ordinary Shares

Number

Directors

Russell Collett 43,000

Jeremy Cousins¹ 23,515,785

Simon Ehrenfeld1 28,667,824

Jurgen Steinert 6,124,590

Paul Stevenage 100,000

¹Mr Jeremy Cousins and Mr Simon Ehrenfeld are directors of Paradox Investments Pty Ltd and Northlink Holdings Pty Ltd, companies that held 18,041,857 and 1,373,928 shares in EFTel respectively.

DIRECTORS’ REPORT


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DIRECTORS’ REPORT

Indemnifying Officers or Auditor

The company has entered into an agreement to pay insurance premiums to indemnify directors and officers against any payment they shall become legally obligated to make arising out of claims made against them in their capacity as directors or officers of the company. The total annual premium is $13,890.00.

EFTel has not entered into any arrangement to indemnify the auditors.

OptionsAs at 30 June 2008, the unissued ordinary shares of EFTel Limited under option are as follows:

Grant Date Date of Expiry Exercise Price Number under Option

15-June-2000 16-June-2010 $2.00 100,000

During the year ended 30 June 2008, no ordinary shares of EFTel Limited were issued on the exercise of options granted under the EFTel Employee Option Plan.

No person entitled to exercise the option had or has any right by virtue of the option to participate in any share issue of any other body corporate.

Proceedings on Behalf of Company

No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings.

The company was not a party to any such proceedings during the year.

Non-audit Services

The board of directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons:

all non-audit services are reviewed and approved by the audit committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and

the nature of the services provided do not compromise the general principles relating to auditor independence as set out in the APES110: Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board.

There were not any fees for non-audit services paid/payable to the external auditors during the year ended 30 June 2008.

Auditor’s Independence Declaration

The lead auditor’s independence declaration for the year ended 30 June 2008 has been received and can be found on page 12 of the directors’ report.

Rounding off of Amounts

The company is an entity to which ASIC Class Order 98/100 dated 10 July 1998 applies and, accordingly, amounts in the financial statements and directors’ report have been rounded to the nearest thousand dollars.

Signed in accordance with a resolution of the Board of Directors made pursuant to s. 298(2) of the Corporations Act 2001.

Simon Ehrenfeld Director

Dated this 26th day of September 2008.


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DX: 111 Tel: +61 (0) 3 9208 7000 Fax: 9208 7001 www.deloitte.com.au

Dear Board Members EFTel Limited

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of EFTel Limited.

As lead audit partner for the audit of the financial statements of EFTel Limited for the financial year ended 30 June 2008, I declare that to the best of my knowledge and belief, there have been no contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

(ii) any applicable code of professional conduct in relation to the audit.

Yours sincerely

DELOITTE TOUCHE TOHMATSU

Alison Brown PartnerChartered Accountants Melbourne, 26 September 2008

The Board of Directors EFTel Limited Level 8, 250 St Georges Tce PERTH WA 6000


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EFTel Limited produces its Corporate Governance guidelines giving consideration to the Principles of Good Corporate Governance and Best Practice Recommendations of the ASX Corporate Governance Council.

1. ROLE OF THE BOARD AND MANAGEMENT

The Board of Directors is responsible to shareholders for the overall corporate governance of the company. This responsibility includes:

reviewing and determining the company’s strategic direction, the annual budget and financial plans;

overseeing and monitoring organisational performance and the achievement of the company’s strategic goals and objectives;

enhancing and protecting the reputation of the organisation;

appointing, monitoring and rewarding the managing director;

approving all significant business transactions, including acquisitions and significant capital expenditure;

ensuring the significant risks facing the company and its controlled entities have been identified and appropriate and adequate control, monitoring and reporting mechanisms are put in place;

monitoring and approving financial and other reporting including continuous disclosure reporting; and

reporting to shareholders

In accordance with the Principles of Good Corporate Governance and Best Practice Recommendations of the ASX Corporate Governance Council, the roles of chairman and managing director were separated in December 2006. With the growth in size of the organisation, this separation of duties has allowed the managing director to add additional value in his executive role.

The managing director is accountable to the board for the management of the company within the policy and authority levels prescribed by the board. He has the authority to approve capital expenditure and business transactions within limits set by the board.

2. COMPOSITION OF THE BOARD

The company presently has three non-executive directors, two of whom are considered by the board to be independent in terms of the Council’s definition of independent director, and two executive directors. The names of the directors of the company in office at the date of this Statement are set out on page 3 of this Annual Report.

Directors have the right to seek independent professional advice at the company’s expense in the furtherance of their duties as directors. Written approval must be obtained from the chairman prior to incurring any expense on behalf of the company.

In addition, the board has established an audit committee to assist it in discharging its responsibilities. The responsibilities of that committee of the board are set out later in this Statement. It is the board’s policy that the audit committee should be entitled to obtain independent professional or other advice at the cost of the

company and to obtain such resources and information from the group, including direct access to employees of and advisers to the group, as it may require.

The board is balanced in its composition with each current director bringing a range of complementary skills and experience to the company as indicated on page 4 of this Annual Report. The board will consider the appointment of further directors if it is felt that additional expertise is required in specific areas, or when an outstanding candidate is identified.

The board has established a nomination committee. The responsibilities of the committee are set out later in this statement. The committee is comprised of the current directors. It is chaired by Mr Paul Stevenage, who is an independent director.

3. ETHICAL AND RESPONSIBLE DECISION-MAKING

It continues to be the policy of the company for directors, officers and employees to act with the utmost integrity, objectivity and in compliance with the letter and the spirit of the law and company policies.

EFTel Ltd allows employees and directors to own and trade securities in the company under the following guidelines:

All employees and directors are required to notify the company secretary of any acquisition or disposal of company securities within 5 working days of the transaction occurring.

All directors’ notifications are to be tabled at the subsequent Board meeting.

No trading in company securities is permitted within six weeks of the scheduled Australian Stock Exchange (ASX) announcements of the company’s preliminary results for the half-year and full financial year.

In periods not covered by (3), trading in company securities is only permitted within the four weeks subsequent to:

any scheduled ASX announcements, or

any ASX announcements made under the continuous disclosure requirements.

4. INTEGRITY OF FINANCIAL REPORTING

EFTel’s managing director and chief financial officer report in writing to the audit committee that the consolidated financial statements of EFTel and its controlled entities for each half and full financial year present a true and fair view, in all material respects, of the group’s financial condition and operational results and are in accordance with accounting standards.

An audit committee was established during the 2004 financial year. The current members of the EFTel audit committee are Mr Russell Collett, Mr Jurgen Steinert and Mr Paul Stevenage. The committee is comprised of a majority of independent directors. Mr Stevenage, who is an independent director, is the chairman of the committee. The objectives of the audit committee are to:

monitor the integrity of the company’s financial statements and any formal announcements relating to the company’s financial performance

investigate and resolve any disputes regarding financial reports between the external auditors and the management

i.

ii.

iii.

iv.

a)

b)

CORPORATE GOVERNANCE STATEMENT


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review the company’s internal financial controls and risk management systems

make recommendations to the board in relation to the appointment of the external auditor and to approve the remuneration and terms of engagement of the external auditor

review and monitor the independence of the external auditor and overall effectiveness of the audit process

report to the board on all matters and note any items of concern or areas where improvement is needed, and make recommendations as to how those concerns can be resolved.

5. CONTINUOUS DISCLOSURE TO ASX

The board of directors is responsible for monitoring compliance with ASX Listing Rule disclosure requirements. Announcements are circulated to board members before they are released to the ASX. The company secretary is responsible, under the ASX Listing Rules, for all communications with the ASX. The managing director and company secretary regularly discuss issues relating to the company’s continuous disclosure obligations.

6. COMMUNICATION WITH SHAREHOLDERS

It is the policy of the company to communicate with shareholders and other stakeholders in an open, regular and timely manner so that the market has sufficient information to make informed investment decisions on the operations and results of the company. Mechanisms used to communicate with shareholders include:

regular shareholder communications such as the Annual Report and the Half-Yearly Report (unless a shareholder has elected not to receive same);

shareholder access to communications through the use of information technology, e.g. the EFTel website

The board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and understanding of the company’s strategy and goals. It is also the company’s practice is to ensure the group’s external auditor attends the AGM.

7. RISK MANAGEMENT

The board is responsible for the oversight of the group’s risk management and control framework. The audit committee assists the board in fulfilling its responsibilities in this regard by reviewing the financial and reporting aspects of the framework.

Responsibility for control and risk management at different sites is delegated to the appropriate individual within the group with the managing director having ultimate responsibility to the board for the risk management and control framework.

Arrangements put in place by the board to monitor risk management include:

regular reporting to the board in respect of operations and the financial position of the group;

circulation to the board of the minutes of each meeting of the audit committee; and

presentations to the board by appropriate managers and/or independent advisors, where necessary on the nature of

particular risks and details of the measures which have been or can be adopted to manage or mitigate the risk.

EFTel’s managing director and chief financial officer report in writing to the audit committee that:

the statement given in accordance with Council’s best practice recommendation 4.1 is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board; and

the company’s risk management and internal compliance and control framework is operating efficiently and effectively in all material respects.

8. PERFORMANCE

The board is equipped with the necessary skills and experience to successfully implement the current strategy of he company. In order to achieve this, the board is to:

assess the necessary and desirable competencies of board members

review board succession plans

evaluate the board’s performance

appoint and recommend the removal of directors

appoint and remove the company secretary

set the appropriate size of the board within the terms of the company’s constitution

set the composition of the board with regard to executive directors, non-executive directors and independent directors.

facilitate continuing education programmes

The board is responsible for the appointment of the managing director and conducts reviews of his performance.

9. REMUNERATION

The company’s policies relating to directors’ and senior executives’ remuneration and the level of their remuneration are set out in the Directors’ Report on page 5 of this Annual Report and Note 4 to the full financial report.

A remuneration committee was established during the 2004 financial year. The committee comprises Mr Paul Stevenage and Mr Simon Ehrenfeld. The committee is chaired by Mr Stevenage.

The role of the remuneration committee is to:

Review and recommend to the Board as appropriate Remuneration policy, including:

Employee share plans

Incentive schemes

Superannuation

Determine the broad structure and objectives of the remuneration policy and its relationship to company performance.

Determine:

the remuneration of all directors

the fees of the company secretary

the remuneration of executives who earn above a threshold set by the Board from time to time.

1.

2.

3.

1.

2.

3.


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It is the traditional practice of the board to appoint at least two non-executive directors to the remuneration committee. Whenever the committee comprises only one non-executive director, any proposal to increase remuneration for the executive directors on the committee are referred to the board.

The fees payable to individual non-executive directors have been determined by the board within the aggregate sum of $150,000 per annum provided for under clause 21.1 of the constitution. That aggregate sum can only be increased with the prior approval of the shareholders of the company at a general meeting. A non-executive director is entitled to a refund of approved expenditure and may also receive payments for consultancy work contracted for and performed on the company’s behalf. The remuneration levels of executive directors are determined by the remuneration committee after taking into consideration those that apply to similar positions in comparable companies in Australia.

10. INTERESTS OF STAKEHOLDERS

EFTel conducts its business within the policies set to promote ethical and responsible decision-making, and in accordance with the group’s core values. EFTel values the role that stakeholders play in the business and has created a Stakeholder Relations Committee consisting of Mr Russell Collett and Mr Simon Ehrenfeld. The committee is chaired by Mr Collett and its role is to:

undertake stakeholder related activities as directed by the Full Board that require appropriate and effective mediation.

develop policies of mediation that are designed to meet the needs of the company and its stakeholders, with the aim of enhancing corporate and individual relationships.

conduct reviews and make subsequent recommendations to the board in relation to stakeholder issues and negotiations and any other matter determined by the full board.

Corporate Governance

Unless disclosed above, all the best practice recommendations of the ASX Corporate Governance Council have been applied for the entire financial year ended 30 June 2008.


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FINANCIAL REPORT

Income statement for the financial year ended 30 June 2008Consolidated Company

Note2008 2007 2008 2007

$’000 $’000 $’000 $’000

Revenue 2 35,946 34,142 21,947 18,249

Other income 2 481 289 473 269

Communication expenses (24,106) (21,489) (16,051) (12,738)

Employee benefits expenses (6,883) (7,788) (2,847) (2,856)

Occupancy expenses (780) (1,027) (403) (574)

Depreciation and amortisation expenses (1,785) (2,239) (794) (1,251)

Finance costs (182) (148) (182) (144)

Other expenses (2,034) (2,536) (1,594) (1,168)

Profit/(loss) before income tax expense 2 657 (796) 549 (213)

Income tax benefit/(expense) 3 (387) 50 (255) (78)

Profit/(loss) for the period 270 (746) 294 (291)

Profit/(loss) attributable to members of EFTel Limited 270 (746) 294 (291)

Earnings per share:

Basic (cents per share) 20 0.171 (0.473)

Diluted (cents per share) 20 0.171 (0.473)

The notes following the financial statements form part of the financial report.


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FINANCIAL REPORT

Balance sheet as at 30 June 2008Consolidated Company

Note2008 2007 2008 2007

$’000 $’000 $’000 $’000

Current assets

Cash and cash equivalents 27 2,242 2,451 1,990 2,375

Trade and other receivables 6 3,242 2,251 1,574 6,342

Other 7 875 882 537 234

Total current assets 6,359 5,584 4,101 8,951

Non-current assets

Trade and other receivables 6 - - 4,882 -

Other financial assets 8 1 1 14,294 14,294

Property, plant and equipment 9 7,247 1,826 6,808 801

Deferred tax assets 3 3,195 3,495 2,405 2,535

Goodwill 10 12,556 12,556 1,321 1,321

Other intangible assets 11 1,515 2,189 864 1,140

Total non-current assets 24,514 20,329 30,574 20,398

Total assets 30,873 25,913 34,675 29,349

Current liabilities

Trade and other payables 12 9,996 4,994 8,772 3,454

Borrowings 13 13 1,726 13 1,726

Current tax payables 3 421 386 421 386

Provisions 14 372 381 - -

Deferred revenue 15 2,144 1,954 1,087 844

Total current liabilities 12,946 9,441 10,293 6,410

Non-current liabilities

Borrowings 16 1,750 137 1,750 137

Provisions 17 326 335 - -

Total non-current liabilities 2,076 734 1,750 444

Total liabilities 15,022 10,175 12,043 6,854

Net assets 15,851 15,738 22,632 22,495

Equity

Issued capital 18 37,708 37,708 37,708 37,708

Accumulated losses 19 (21,857) (21,970) (15,076) (15,213)

Parent entity interest 15,851 15,738 22,632 22,495

Total equity 15,851 15,738 22,632 22,495



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FINANCIAL REPORT

Statement of changes in equity for the financial year ended 30 June 2008Consolidated Company

Issued Capital Accum Losses Total Equity Issued Capital Accum Losses Total Equity

$’000 $’000 $’000 $’000 $’000 $’000

Balance at 1 July 2006 37,708 (21,224) 16,484 37,708 (14,922) 22,786

Loss for the year - (746) (746) - (291) (291)

Balance at 30 June 2007 37,708 (21,970) 15,738 37,708 (15,213) 22,495

Profit for the year - 270 270 - 294 294

Payment of dividends (Note 21) - (157) (157) - (157) (157)

At 30 June 2008 37,708 (21,857) 15,851 37,708 (15,076) 22,632


Cash flow statement for the financial year ended 30 June 2008Consolidated Company

Note 2008 2007 2008 2007

$’000 $’000 $’000 $’000

Cash flows from operating activities

Receipts from customers 39,648 39,560 24,575 33,355

Payments to suppliers and employees (37,492) (36,914) (22,594) (30,657)

Interest and other costs of finance paid (182) (148) (182) (144)

Income taxes paid (51) (833) (51) (833)

Net cash provided by operating activities 27(c) 1,923 1,665 1,748 1,721

Cash flows from investing activities

Interest received 114 140 106 140

Payment for property, plant and equipment (2,097) (1,151) (2,090) (529)

Proceeds from sale of property, plant and equipment - - - -

Payment for businesses 27(b) - (1,815) - (1,815)

Other (49) (115) (49) (115)

Net cash (used in) investing activities (2,032) (2,941) (2,033) (2,319)

Cash flows from financing activities

Proceeds from issues of equity securities - - - -

Payment for share consolidation - - - -

Payment for share issue costs - - - -

Proceeds from borrowings 1,750 2,002 1,750 2,002

Repayment of borrowings (1,850) (484) (1,850) (467)

Net cash provided by/(used in) financing activities (100) 1,518 (100) 1,535

Net increase in cash and cash equivalents (209) 242 (385) 937

Cash and cash equivalents at the beginning of the financial year 2,451 2,209 2,375 1,438

Cash and cash equivalents at the end of the financial year 27(a) 2,242 2,451 1,990 2,375



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FINANCIAL REPORT

1. Summary of accounting policies

Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law.

The financial report includes the separate financial statements of the company and the consolidated financial statements of the Group. Accounting Standards include Australian equivalents to International Financial Reporting Standards (‘A-IFRS’). Compliance with A-IFRS ensures that the financial statements and notes of the company and the Group comply with International Financial Reporting Standards (‘IFRS’).

The financial statements were authorised for issue by the directors on 26 September 2008.

Basis of preparation

The financial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars.

Going Concern

The financial report has been prepared on the going concern basis, which assumes continuity of normal business activities and realisation of assets and the settlement of liabilities in the ordinary course of business.

The consolidated entity achieved an EBITDA of $2.624m and a net profit after tax of $270k. The cash flow from operating activities was $1.923m. This is the fifth consecutive year of positive operating cash flow.

The working capital position as at 30th June 2008 for the consolidated entity results in a deficit of Current Liabilities over Current Assets of $6.587m (2007: $3.857m).

The main contributing factors to this deficiency are:

The recognition of $4.01m of capital expenditure in trade and other payables for the BroadbandNext network infrastructure project which is expected to result in increased profits and cash flows.

Deferred revenue of $2.14m. Deferred revenue is services invoiced in advance and as such is a non-cash liability.

The ability of the company to continue as a going concern is dependent on its ability to:

Generate sufficient cash flows from operations to meet its financial obligations

Continue profitable trading operations and

Obtain additional funds from capital raising or banking finance in the second half of 2008-09. The manner and extent of any fundraising exercise will be dependent upon the cash flow generated from operations and is anticipated to be in the range of $1m to $2m. The company has low levels of financing debt and the Board considers that there is no impediment to obtaining these funds as and when they are needed.

In practice, the company intends raising a greater level of funds than the minimum required in order to further expand its BroadbandNext network. The effect of this overall exercise will be to replace current debt with non-current debt or equity as well as generate further improvements to operating cash flows. The directors have commenced preliminary discussions with financial institutions and expect to be able to raise the necessary funds.

At the date of this report and having considered the above position, the directors are confident that the company will be able to continue as a going concern. In the absence of any capital raising or banking finance, there may be uncertainty as to whether the company will continue as a going concern and, therefore, whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.

The financial report does not include adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the company not continue as a going concern.

The company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated.

The following significant accounting policies have been adopted in the preparation and presentation of the financial report:

Principles of consolidation

The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the consolidated entity, being the company (the parent entity) and its subsidiaries as defined in Accounting Standard AASB 127 ‘Consolidated and Separate Financial Statements’. A list of subsidiaries appears in note 24 to the financial statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements.

a)


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FINANCIAL REPORT

On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If, after reassessment, the fair values of the identifiable net assets acquired exceeds the cost of acquisition, the deficiency is credited to profit and loss in the period of acquisition.

The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised. The consolidated financial statements include the information and results of each subsidiary from the date on which the company obtains control and until such time as the company ceases to control such entity. In preparing the consolidated financial statements, all intercompany balances and transactions, and unrealised profits arising within the consolidated entity are eliminated in full.

Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:

where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or

for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.

Revenue recognition

Sale of goods Revenue from the sale of goods is recognised when the consolidated entity has transferred to the buyer the significant risks and rewards of ownership of the goods.

Rendering of services

Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. The stage of completion of the contract is determined as follows:

installation fees are recognised on completion of the installation

internet and telephony service fees are recognised by reference to the period of time for which the service has been supplied.

excess usage charges for internet services and telephony call charges are recognised in arrears at the time the charges are raised

Dividend and interest revenue

Dividend revenue is recognised when the shareholder’s right to receive payment has been established. Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

Income tax

Current tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

Deferred tax

Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, branches, associates and joint ventures except where the consolidated entity is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

b)

i.

ii.

c)

d)


21

FINANCIAL REPORT

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the consolidated entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the company/consolidated entity intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the period

Current and deferred tax is recognised as an expense or income in the income statement, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess.

Tax consolidation

The company and all its wholly-owned Australian resident entities have formed a tax consolidated group under Australian taxation law from 7 January 2003. EFTel Limited is the head entity in the tax-consolidated group. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the company (as head entity in the tax-consolidated group).

The EFTel group has entered into a Tax Funding and Sharing Agreement between the entities in the tax-consolidated group. Therefore amounts are recognised as payable to or receivable by the company and each member of the group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement. Further information about the tax funding arrangement is detailed in note 4 to the financial statements. Where the tax contribution amount recognised by each member of the tax-consolidated group for a particular period is different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax credits in respect of that period, the difference is recognised as a contribution from (or distribution to) equity participants.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, cash in banks and investments in money market instruments, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.

Financial assets

Investments are recognised and derecognised on trade date where purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs.

Subsequent to initial recognition, investments in subsidiaries are measured at cost. Subsequent to initial recognition, investments in associates are accounted for under the equity method in the consolidated financial statements and the cost method in the company financial statements.

Other financial assets are classified as either financial assets ‘at fair value through profit or loss’, ‘held-to-maturity’ investments, ‘available-for-sale’ financial assets, or ‘loans and receivables’, and are measured at amortised cost or at fair value with changes in fair value recorded in equity, according to their classification. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Loans and receivables

Trade receivables, loans, and other receivables are recorded at amortised cost less impairment.

Property, plant and equipment

Plant and equipment, leasehold improvements and equipment under finance lease are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition.

Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation is calculated on a straight line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method. The estimated useful lives, residual values and depreciation method is reviewed at the end of each annual reporting period.

e)

f)

g)


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FINANCIAL REPORT

The following estimated useful lives are used in the calculation of depreciation:

Leasehold improvements 5

Plant and equipment 5 - 7

Equipment under finance lease 5

Borrowings costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period which they are incurred.

Leased assets

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Consolidated entity as lessee

Assets held under finance leases are initially recognised at their fair value or, if lower, at amounts equal to the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the consolidated entitys general policy on borrowing costs.

Finance leased assets are amortised on a straight line basis over the estimated useful life of the asset.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Goodwill

Goodwill, representing the excess of the cost of acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities acquired, is recognised as an asset and not amortised, but tested for impairment annually and whenever there is an indication that the goodwill may be impaired. Any impairment is recognised immediately in profit or loss and is not subsequently reversed. Refer also note 1(l).

Intangible assets

Patents, trademarks and licences

Patents, trademarks and licences are recorded at cost less impairment. EFTel has acquired the domain broadband.com.au and regards this as having an indefinite useful life. In determining the useful life of the domain the following factors have been taken in to consideration:

the expected usage of the asset;

changes in the market demand for the products or services output from the asset.

EFTel reviews the carrying amounts of these assets on an annual basis to determine whether there is any indication that those assets have suffered an impairment loss.

Software

Software is recorded at cost less amortisation and impairment. Software is amortised over 3 years.

Internally generated software arising from internal development is recognised if, and only if, all of the following are demonstrated:

how the intangible asset will generate probable future economic benefits;

the ability to measure reliably the expenditure attributable to the intangible asset during its development.

Internally-generated software are stated at cost less accumulated amortisation and impairment, and are amortised on a straight-line basis over 3 years.

h)

i)

j)

k)


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FINANCIAL REPORT

Research and development costs

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred.

An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated:

the technical feasibility of completing the intangible asset so that it will be available for use or sale;

the intention to complete the intangible asset and use or sell it;

the ability to use or sell the intangible asset;

how the intangible asset will generate probable future economic benefits;

the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

the ability to measure reliably the expenditure attributable to the intangible asset during its development.

Internally-generated intangible assets are stated at cost less accumulated amortisation and impairment, and are amortised on a straight-line basis over their useful lives.

Purchased customer bases

Purchased customer bases represent the purchase price allocated to the existing customer base acquired. The purchased customer bases are recorded at cost less amortisation and impairment. Customer bases are amortised over the estimated customer attrition of the related customer base, which is 5 years.

Intangible assets acquired in a business combination

All potential intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be measured reliably.

Impairment of assets

At each reporting date, the consolidated entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Goodwill, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. An impairment of goodwill is not subsequently reversed.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase.

Employee benefits

Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably.

Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to reporting date.

Defined contribution plans

Contributions to defined contribution superannuation plans are expensed when incurred.

l)

m)


24

FINANCIAL REPORT

Provisions

Provisions are recognised when the consolidated entity has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present value of those cashflows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably.

Payables

Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services.

Accounting standards not yet effective

Standards and Interpretations in issue not yet adopted

At the date of authorisation of the financial report, the following Standards and Interpretations listed below were in issue but not yet effective:

Initial application of the following Standards will not affect any of the amounts recognised in the financial report, but will change the disclosures presently made in relation to the consolidated entity’s and the company’s financial report:

Standard Effective for annual reporting periods beginning on or after

Expected to be initially applied in the financial year ending

AASB 101 ‘Presentation of Financial Statements’ (revised September 2007), AASB 2007-8 ‘Amendments to Australian Accounting Standards arising from AASB 101’

1-Jan-09 30-Jun-10

AASB 8 ‘Operating Segments’, AASB 2007-3 ‘Amendments to Australian Accounting Standards arising from AASB 8’

1-Jan-09 30-Jun-10

Initial application of the following Standards and Interpretations is not expected to have any material impact on the financial report of the Group and the company:

Standard/Interpretation Effective for annual reporting periods beginning on or after


AASB 123 ‘Borrowing Costs’ (revised), AASB 2007-6 ‘Amendments to Australian Accounting Standards arising from AASB 123’

1-Jan-09 30-Jun-10

AASB 3 ‘Business Combinations’ (2008), AASB 127 ‘Consolidated and Separate Financial Statements’ and AASB 2008-3 ‘Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127’

AASB 3 (business combinations occurring after the beginning of annual reporting periods beginning 1 July 2009), AASB 127 and AASB 2008-3 (1 July 2009)

30-Jun-10

AASB 2008-1 ‘Amendments to Australian Accounting Standard - Share-based Payments: Vesting Conditions and Cancellations’

1-Jul-08 30-Jun-09

AASB 2008-2 ‘Amendments to Australian Accounting Standards - Puttable Financial Instruments and Obligations arising on Liquidation’

1-Jul-08 30-Jun-09

AASB Interpretation 13 ‘Customer Loyalty Programmes’ 1-Jul-08 30-Jun-09

n)

o)

p)


25

FINANCIAL REPORT

The initial application of the expected issue of an Australian equivalent accounting standard to the following standard is not expected to have a material impact on the financial report of the Group and the company:

Standard/Interpretation Effective for annual reporting periods beginning on or after


AASB 2008-5 ‘Amendments to Australian Accounting Standards arising from the Annual Improvements Project’

1-Jan-09 30-Jun-10

AASB 2008-6 ‘Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project’

1-Jul-09 30-Jun-10

AASB 2008-7 ‘Amendments to Australian Accounting Standards - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate’

1-Jan-09 30-Jun-10

AASB Interpretation 15 ‘Agreements for the Construction of Real Estate’

1-Jan-09 30-Jun-10

AASB Interpretation 16 ‘Hedges of a Net Investment in a Foreign Operation’

1-Oct-08 30-Jun-10

Adoption of new and revised Accounting Standards

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effectively for the current annual reporting period. Details of the impact of the adoption of these new accounting standards are set out in the individual accounting policy notes set out below. The Group has also adopted the following Standards as listed below which only impacted on the Group’s financial statements with respect to disclosure.

AASB 101 ‘Presentation of Financial Statements’ (revised October 2006)

AASB 7 ‘Financial Instruments: Disclosures’

Critical accounting judgements

In the application of A-IFRS management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgments. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of A-IFRS that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

The accounting policies set out above have been applied in preparing the financial statements for the year ended 30 June 2008 and the comparative information presented in these financial statements for the year ended 30 June 2008.

q)


26

FINANCIAL REPORT

2. Profit from operationsConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Revenue and other incomea)

Revenue from continuing operations consisted of the following items:

Revenue from the rendering of services 35,946 34,142 21,947 18,249

Interest revenue from bank deposit 114 140 106 140

Other income 367 149 367 129

36,427 34,431 22,420 18,518

Profit before income tax b)

Profit before income tax has been arrived at after charging the following expenses. The line items below combine amounts attributable to continuing operations:

Cost of sales 24,106 21,489 16,051 12,738

Loss on disposal of property, plant and equipment - 8 - -

Finance costs:

Related parties - - - -

Interest from loans 138 119 138 119

Interest from finance leases 34 22 34 22

Other 10 7 10 3

Total interest expense 182 148 182 144

Net bad and doubtful debts arising from:

Trade debtors 257 556 (13) 106

Other related parties (279) 141 - -

Total bad and doubtful debts (22) 697 (13) 106

Depreciation of non-current assets 1,062 1,560 469 971

Amortisation of non-current assets 723 679 325 280

Total depreciation and amortisation 1,785 2,239 794 1,251

Post employment expense

Defined contribution plan 490 582 168 312

490 582 168 312

Operating lease rental expenses:

Minimum lease payments 431 571 223 306


27

FINANCIAL REPORT

3. Income taxesConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Income tax recognised in profit or lossa)

Tax expense comprises:

Current tax expense 87 121 125 42

Deferred tax expense/(income) relating to the origination and reversal of temporary differences 300 (171) 130 55

Benefit of tax losses utilised by subsidiary members of the tax consolidated group - - - (19)

Total tax expense/(benefit) 387 (50) 255 78

The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows:

Profit from operations 657 (796) 549 (213)

Income tax expense calculated at 30% 197 (239) 165 (64)

Non-deductible expenses 190 189 90 66

Non-assessable income - - - -

Adjustments recognised in the current year in relation to the current tax of prior years - - - 76

Income tax attributable to entity 387 (50) 255 78

The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period.

The group has booked carried forward tax losses based on future cash flow projections indicating future profits and the probability that future tax payments will be required to be paid.

Current tax liabilitiesb)

Current tax payables:

Income tax payable attributable to:

Parent entity - -

Other 421 386 421 386

421 386 421 386

Deferred tax balances c)

Deferred tax assets comprise:

Provisions 209 196 - -

Allowance for doubtful debts 584 719 58 9

Other 40 20 30 12

Tax Losses 2,754 2,822 2,754 2,821

3,587 3,757 2,842 2,842

Deferred tax liabilities comprise:

Tax allowances relating to property, plant and equipment 172 86 217 131

Other 220 176 220 176

392 262 437 307


28

FINANCIAL REPORT

3. Income taxes (cont’d)Taxable and deductible temporary differences arise from the following:

2008

Consolidated

Opening balance

Charged to income

Charged to equity

Acquisitions/ disposals

Exchange differences

Changes in tax rate

Closing balance

$’000 $’000 $’000 $’000 $’000 $’000 $’000

Deferred tax liabilities:

Tax allowances relating to property, plant and equipment

86 86 - - - - 172

Other 176 44 - - - - 220

262 130 - - - - 392

Deferred tax assets:

Provisions 196 13 - - - - 209

Provision for doubtful debts 719 (135) - - - - 584

Other 20 20 - - - - 40

Tax Losses 2,822 (68) 2,754

3,757 (170) - - - - 3,587

2007

Consolidated

Opening balance

Charged to income

Charged to equity



Changes in tax rate

Closing balance

$’000 $’000 $’000 $’000 $’000 $’000 $’000



293 (207) - - - - 86

Other 114 62 - - - - 176

407 (145) - - - - 262


Provisions 139 57 - - - - 196

Provision for doubtful debts 685 34 - - - - 719

Other 55 (35) - - - - 20

Tax Losses 2,852 (30) 2,822

3,731 26 - - - - 3,757


29

FINANCIAL REPORT

3. Income taxes (cont’d)

2008

Company

Opening balance

Charged to income

Charged to equity



Changes in tax rate

Closing balance

$’000 $’000 $’000 $’000 $’000 $’000 $’000



131 86 - - - - 217

Other 176 44 - - - - 220

307 130 - - - - 437


Provision for doubtful debts 9 49 - - - - 58

Other 12 18 - - - - 30

Tax Losses 2,821 (67) 2,754

2,842 - - - - - 2,842

2007

Company

Opening balance

Charged to income

Charged to equity



Changes in tax rate

Closing balance

$’000 $’000 $’000 $’000 $’000 $’000 $’000



289 (158) - - - - 131

Other - 176 - - - - 176

289 18 - - - - 307


Provision for doubtful debts 13 (4) - - - - 9

Other 16 (4) - - - - 12

Tax Losses 2,852 (31) 2,821

2,881 (39) - - - - 2,842

Tax consolidation

Relevance of tax consolidation to the consolidated entity

The company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 7 January 2003 and are therefore taxed as a single entity from that date.

Nature of tax funding arrangements and tax sharing agreements

Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax-sharing agreement with the head entity. Under the terms of the tax funding arrangement, each of the entities in the tax-consolidated group will agree to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable from or payable to other entities in the tax-consolidated group.

The tax sharing agreement between members of the tax-consolidated group will provide for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations.


30

FINANCIAL REPORT

4. Key management personnel remunerationThe directors of EFTel Limited during the year were:

Glenn Darlington Chairman (Retired as Chairman on 27 November 2007)

Simon Ehrenfeld Managing Director and Chief Executive Officer

Russell Collett Non-Executive Director

Jeremy Cousins Non-Executive Director (Appointed as Director on 11 December 2007)

Daniel Ehrenfeld Executive Director (Retired as Director on 25 October 2007)

Greg Searle Non-Executive Director (Appointed as Director on 27 September 2007 and retired as Director on 27 November 2007)

Jurgen Steinert Executive Director and Chief Technical Officer

Paul Stevenage Non-Executive Director

The other key management personnel of EFTel Limited during the year were:

John Lane General Manager

Luke MacKinnon Major Projects Manager

John Raftis Chief Financial Officer and Company Secretary

Paul Rolfe Network Manager

Richard Swancott Sales & Marketing Manager

Key management personnel remunerationa)

The aggregate compensation of the key management personnel of the consolidated entity and company is set out below:

Consolidated Company

2008 2007 2008 2007

$ $ $ $

Short-term employee benefits 1,328,458 1,242,575 1,328,458 1,242,575

Post-employment benefits 183,372 163,826 183,372 163,826

Share-based payment - - - -

Total 1,511,830 1,406,401 1,511,830 1,406,401

All employees are employed through EFTel More Than Broadband Pty Ltd (formerly EFTel Pty Ltd) a 100% owned subsidiary of EFTel Limited.


31

FINANCIAL REPORT

4. Directors’ remuneration

2008

Short-term employee benefits Post-employmentShare-based

paymentTotal

Salary & fees BonusNon-

MonetaryOther Superannuation Other Shares

$ $ $ $ $ $ $ $

Glenn Darlington1 16,606 - - - 1,494 - - 18,100

Simon Ehrenfeld 251,835 43,009 1,748 - 40,462 - - 337,054

Russell Collett 24,129 - - - 2,172 - - 26,301

Jeremy Cousins2 12,981 - - - 1,168 - - 14,149

Daniel Ehrenfeld3 63,760 - - - 5,738 - - 69,498

Greg Searle4 4,230 - - - 380 - - 4,610

Jurgen Steinert 148,425 22,656 4,213 - 48,826 - - 224,120

Paul Stevenage 24,129 - - - 2,172 - - 26,301

Total 546,095 65,665 5,961 - 102,412 - - 720,133 1The remuneration was for the period from 1 July 2007 to 27 November 2007 2The remuneration was for the period from 11 December 2007 to 30 June 2008 3The remuneration was for the period from 1 July 2007 to 25 October 2007 4The remuneration was for the period from 27 September 2007 to 27 November 2007

2007


paymentTotal



$ $ $ $ $ $ $ $

Glenn Darlington1 16,723 - - - 1,505 - - 18,228

Simon Ehrenfeld 236,716 - - - 26,963 - - 263,679

Russell Collett 21,096 - - - 1,898 - - 22,994

Daniel Ehrenfeld 94,751 - - - 8,527 - - 103,278

Juliette Reay2 10,835 - - - 975 - - 11,810

Greg Searle3 - - 9,199 - 4,232 - - 13,431

Jurgen Steinert 139,340 - 4,773 - 37,495 - - 181,608

Paul Stevenage 21,096 - - - 1,898 - - 22,994

Total 540,557 - 13,972 - 83,493 - - 638,022 1The remuneration was for the period from 20 December 2006 to 30 June 2007 2The remuneration was for the period from 1 July 2006 to 23 December 2006 3The remuneration was for the period from 1July 2006 to 19 January 2007


32

FINANCIAL REPORT

4. Directors’ remuneration (cont’d)Other key management personnel remuneration

2008


paymentTotal



$ $ $ $ $ $ $ $

John Lane 132,599 10,388 - - 20,785 - - 163,772

Luke MacKinnon 159,529 16,183 800 - 15,866 - - 192,378

John Raftis 148,075 10,898 1,681 - 23,356 - - 184,010

Paul Rolfe 101,201 - - - 9,309 - - 110,510

Richard Swancott 119,673 9,710 - - 11,644 - - 141,027

Total 661,077 47,179 2,481 - 80,960 - - 791,697

2007


paymentTotal



$ $ $ $ $ $ $ $

Jeremy Cousins 141,289 - - - 18,887 - - 160,176

John Lane 139,574 - - - 18,534 - - 158,108

Luke MacKinnon 145,295 - 4,037 - 13,439 - - 162,771

John Raftis 139,898 - - - 18,934 - - 158,832

Richard Swancott 117,953 - - - 10,539 - - 128,492

Total 684,009 - 4,037 - 80,333 - - 768,379


33

FINANCIAL REPORT

5. Remuneration of auditorsConsolidated Company

2008 2007 2008 2007

$ $ $ $

Audit or review of the financial report 87,321 87,981 87,321 87,981

87,321 87,981 87,321 87,981

The auditor of the consolidated entity is Deloitte Touche Tohmatsu.

6. Trade and other receivablesConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Current

Trade receivables 4,943 4,211 1,662 1,493

Allowance for doubtful debts (1,701) (1,960) (194) (367)

3,242 2,251 1,468 1,126

Other receivables:

Wholly-owned subsidiaries - - 106 5,216

Associate companies 246 436 - -

Allowance for doubtful debts associate companies (246) (436) - -

- - 106 5,216

3,242 2,251 1,574 6,342

Non-current

Other receivables:

Wholly-owned subsidiaries - - 4,882 -

- - 4,882 -

Trade receivables are generally on 10 to 30 day terms and other receivables are generally on 30 day terms. A provision has been made for estimated irrecoverable trade receivable amounts arising from the past sale of goods and rendering of services, determined by reference to past recovery experience.

The concentration of credit risk is reduced due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the provision for doubtful debts.

The parent entity holds receivables with wholly owned subsidiaries. Contracted payment plans are in force and interest of 7.5% is charged on any outstanding amount. The entity regularly reviews the recoverability of these balances by assessing the current and future cash flows of the subsidiaries. The Directors believe that due to the expected cash flows to be received from the BroadbandNext project together with continued organic growth within the business, the subsidiaries will continue to meet the contracted payments and interest as required.


34

FINANCIAL REPORT

6. Trade and other receivables (cont’d)Consolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Ageing of past due but not impaired

30 - 60 days 146 147 40 48

60 - 90 days 81 117 17 42

90+ days 1,099 874 280 367

Total 1,326 1,138 337 457

Movement in the allowance for doubtful debts

Balance at the beginning of the year 1,960 1,915 347 45

Amounts written off as uncollectible (427) (655) (250) (196)

Reallocation for debts for associated company (89) - - -

Movement in the allowance for doubtful debts 257 700 97 498

Unwind of discount - - - -

Balance at the end of the year 1,701 1,960 194 347


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Age of impaired trade receivables

60 - 90 days - - - -

90+ days 1,701 1,960 194 367

Total 1,701 1,960 194 367

Trade receivables greater than 30 days are assessed and then provided for based on estimated irrecoverable amounts from the sale of goods and rendering of services, determined by reference to past default experience. All other customers where evidence exists to suggest that the collection of the receivable is in question will be provided for to the extent that the Group believes that the balance is irrecoverable. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Group does not hold any collateral over these balances.


35

FINANCIAL REPORT

7. Other current assetsConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Prepayments 752 789 414 70

Others 123 93 123 164

875 882 537 234

8. Other non-current financial assetsConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Investments carried at cost:

Non-current

Investments in associates 1 1 - -

Investments in subsidiaries - - 14,294 14,294

1 1 14,294 14,294


36

FINANCIAL REPORT

9. Property, plant and equipmentConsolidated

Leasehold improvements at

cost

Plant and equipment at cost

Equipment under finance lease at cost

Total

$’000 $’000 $’000 $’000

Gross carrying amount

Balance at 1 July 2006 167 9,413 1,256 10,836

Additions 4 618 - 622

Disposals - (148) - (148)

Acquisitions through business combinations - 451 - 451

Balance at 30 June 2007 171 10,334 1,256 11,761

Additions - 6,495 - 6,495

Equipment Write Down (40) (6,832) (566) (7,438)

Disposals - (180) - (180)

Balance at 30 June 2008 131 9,817 690 10,638

Accumulated depreciation/ amortisation and impairment

Balance at 1 July 2006 (71) (7,660) (784) (8,515)

Disposals - 140 - 140

Depreciation expense (24) (1,357) (179) (1,560)

Balance at 30 June 2007 (95) (8,877) (963) (9,935)

Disposals - 180 - 180

Equipment Write Down 31 6,840 565 7,436

Write Off expenses (2) (6) (2) (10)

Depreciation expense (24) (866) (172) (1,062)

Balance at 30 June 2008 (90) (2,729) (572) (3,391)

Net book value

As at 30 June 2007 76 1,457 293 1,826

As at 30 June 2008 41 7,088 118 7,247


37

FINANCIAL REPORT

9. Property, plant and equipment (cont’d)Company

Leasehold improvements at

cost

Plant and equipment at cost

Equipment under finance lease at cost

Total

$’000 $’000 $’000 $’000


Balance at 1 July 2006 - 3,432 797 4,229

Additions - 451 - 451

Disposals - - - -

Balance at 30 June 2007 - 3,883 797 4,680

Additions - 6,495 - 6,495

Equipment Write Down - (3,060) (508) (3,568)

Disposals - - - -

Balance at 30 June 2008 - 7,318 289 7,607

Accumulated depreciation/ amortisation and impairment

Balance at 1 July 2006 - (2,499) (409) (2,908)

Disposals - - - -

Depreciation expense - (812) (159) (971)

Balance at 30 June 2007 - (3,311) (568) (3,879)

Disposals - - - -

Equipment Write Down - 3,055 505 3,560

Write off expenses - (9) (2) (11)

Depreciation expense - (361) (108) (469)

Balance at 30 June 2008 - (626) (173) (799)

Net book value

As at 30 June 2007 - 572 229 801

As at 30 June 2008 - 6,692 116 6,808


38

FINANCIAL REPORT

10. GoodwillConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Net book value

Balance at beginning of financial year 12,556 11,157 1,321 -

Amounts recognised from business combinations occurring in previous year

Stamp Duty and Legal Fees - 78 - -

Additional amounts recognised from business combinations occurring during the period - 1,321 1321

Balance at end of financial year 12,556 12,556 1,321 1321

(i) During the financial year, EFTel Limited completed impairment testing of goodwill and determined that the carrying value of goodwill is recoverable.

The recoverable amount of goodwill is determined based on a value in use model. The underlying factors for calculating the impairment testing are based on past experience and expectations for the future. These include a pre tax discount rate of 13.1% and cash flow projections based on the budget for 2008 and a growth rate of 5% over 5 years.

Allocation of goodwill to cash-generating units

Goodwill has been allocated, for impairment testing purposes, to one individual cash-generating unit-being the national telecommunications network, through which all revenue is generated. The company operates in one geographical region in one business segment being the telecommunications industry.


39

FINANCIAL REPORT

11. Other intangible assets Consolidated

SoftwarePatents /

TrademarksCustomer

BasesTotal

$’000 $’000 $’000 $’000


Balance at 1 July 2006 142 45 2,094 2,281

Additions 77 - - 77

Additions from internal developments 115 - - 115

Acquisitions through business combinations - - 1,060 1,060

Balance at 30 June 2007 334 45 3,154 3,533

Additions 3 - - 3


Balance at 30 June 2008 383 45 3,154 3,582

Accumulated amortisation and impairment

Balance at 1 July 2006 (19) - (647) (666)

Amortisation expense (68) - (610) (678)

Balance at 30 June 2007 (87) - (1,257) (1,344)


Balance at 30 June 2008 (200) - (1,867) (2,067)

Net book value

As at 30 June 2007 247 45 1,897 2,189

As at 30 June 2008 183 45 1,287 1,515


40

FINANCIAL REPORT

11. Other intangible assets (cont’d)Company

SoftwarePatents /

TrademarksCustomer

BasesTotal

$’000 $’000 $’000 $’000


Balance at 1 July 2006 142 45 - 187

Additions 77 - 1,060 1,137


Balance at 30 June 2007 334 45 1,060 1,439

Additions 3 - - 3


Balance at 30 June 2008 383 45 1,060 1,488

Accumulated amortisation and impairment

Balance at 1 July 2006 (19) - - (19)


Balance at 30 June 2007 (87) - (212) (299)


Balance at 30 June 2008 (200) - (424) (624)

Net book value

As at 30 June 2007 247 45 848 1,140

As at 30 June 2008 183 45 636 864


41

FINANCIAL REPORT

12. Current trade and other payablesConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Trade payables 4,865 3,909 4,439 3,044

Sundry creditors and accrued expenses 4,865 843 4,231 325

Other payables 266 242 102 85

9,996 4,994 8,772 3,454

1Terms of major suppliers are typically 30 days.

13. Current borrowingsConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Secured - at amortised cost

Lease liability 13 151 13 151

Bank loan1 - 1,575 - 1,575

13 1,726 13 1,726 1EFTel had a facility with Westpac to fund acquisitions. Borrowings were repayable in quarterly instalments of principal and interest (9.25%p.a.) over a 4 year period from drawdown. Westpac had a fixed and floating charge over a number of the group entities as security for the facility. As at 30 June 2008 this loan had been fully repaid.

14. Current provisionsConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Employee benefits 372 381 - -

372 381 - -

15. Other current liabilitiesConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Deferred revenue 2,144 1,954 1087 844

2,144 1,954 1087 844


42

FINANCIAL REPORT

16. Non-current borrowingsConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Secured

Lease liability - 137 - 137

Vendor financing facility1 1,750 - 1,750 -

1,750 137 1,750 137 1EFTel has a facility with a vendor to fund plant and equipment for the BroadbandNext network project. The borrowings are repayable by 30 June 2010 with interest being paid at a rate of 7.5% p.a. fixed from drawdown. The vendor has a registered fixed charge over equipment to the value of the loan as security for the facility.

17. Non-current provisionsConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Employee benefits 326 335 - -

326 335 - -

18. Issued capitalConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

157,837,521 fully paid ordinary shares 37,708 37,708 37,708 37,708

(2007: 157,837,521)

37,708 37,708 37,708 37,708

Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the company does not have a limited amount of authorised capital and issued shares do not have a par value.


43

FINANCIAL REPORT

18. Issued capital (cont’d)2008 2007

No. $’000 No. $’000

Fully paid ordinary shares

Balance at beginning of financial year 157,837,521 37,708 157,837,521 37,708

Costs relating to share consolidation - - - -

Costs relating to share issues - - - -

Share-based payment expense - - - -

Balance at end of financial year 157,837,521 37,708 157,837,521 37,708

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

Share options

No options were issued or exercised or remain outstanding relating to the EFTel employee option plan.

At 30 June 2008, there were 100,000 unissued ordinary shares for which options were outstanding. These options have an exercise price of $2 and expiry date of 16 June 2010. None of these options are held by the current directors, key management personnel or employees.

19. Accumulated lossesConsolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Balance at beginning of financial year (21,970) (21,224) (15,213) (14,922)

Net profit attributable to members of the parent entity 270 (746) 294 (291)

Dividends provided for (157) - (157) -

Balance at end of financial year (21,857) (21,970) (15,076) (15,213)


44

FINANCIAL REPORT

20. Earnings per share Consolidated

2008 2007

Cents per share Cents per share

Basic earnings per share:

From continuing operations 0.171 (0.473)

Total basic earnings per share 0.171 (0.473)

Diluted earnings per share:

From continuing operations 0.171 (0.473)

Total diluted earnings per share 0.171 (0.473)

Basic earnings per share

The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:

2008 2007

$’000 $’000

Earnings (a) 270 (746)

2008 2007

No.’000 No.’000

Weighted average number of ordinary shares for the purposes of basic earnings per share 157,838 157,838

Earnings used in the calculation of total basic earnings per share and basic earnings per share from continuing operations reconcile to net profit in the income statement as follows:

a)

Consolidated

2008 2007

$’000 $’000

Net profit 270 (746)

Other - -

Earnings used in the calculation of basic EPS 270 (746)

Earnings used in the calculation of basic EPS from continuing operations 270 (746)


45

FINANCIAL REPORT

Diluted earnings per share

The earnings and weighted average number of ordinary shares used in the calculation of diluted earnings per share are as follows:

2008 2007

$’000 $’000

Earnings (a) 270 (746)

2008 2007

No. ‘000 No. ‘000

Weighted average number of ordinary shares used in the calculation of basic EPS 157,838 157,838

Shares deemed to be issued for no consideration in respect of:

Share Options 100 -

Weighted average number of ordinary shares used in the calculation of diluted EPS 157,938 157,838

(a) Earnings used in the calculation of total diluted earnings per share and diluted earnings per share from continuing operations reconcile to net profit in the income statement as follows:

2008 2007

$’000 $’000

Net profit 270 (746)

Earnings used in the calculation of diluted EPS 270 (746)

Earnings used in the calculation of diluted EPS from continuing operations 270 (746)

(b) The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows:

2008 2007

No. ‘000 No. ‘000

Weighted average number of ordinary shares used in the calculation of basic EPS 157,838 157,838

Weighted average number of ordinary shares used in the calculation of diluted EPS 157,938 157,838


46

FINANCIAL REPORT

21. Dividends2008 2007

Cents per share

Total $’000

Cents per share

Total $’000

Interim dividends:

Fully franked at a 30% tax rate 0.1 157 - -

On 26 June 2008, the directors announced a fully franked interim dividend of 0.1 cents per share to the holders of fully paid ordinary shares in respect of the financial year ended 30 June 2008. The record date for the dividend is 8th September 2008 and it will be paid to shareholders on 25 September 2008. The total estimated dividend to be paid is $157,000.

Company

2008 2007

$’000 $’000

Adjusted franking account balance 954 954

Impact on franking account balance of dividends not recognised (67) -

Income tax consequences of unrecognised dividends - -

22. Contingent liabilities and contingent assetsContingent liabilities

Court Proceedings

An entity in the consolidated entity is a defendant in a legal action involving the alleged non-payment of executive bonuses, director’s fees and other remuneration.


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Contingent liabilities

Court proceedings 30 - - -

30 - - -


47

FINANCIAL REPORT

23. LeasesFinance leases

Leasing arrangements

Finance leases relate to plant and equipment with lease terms of between 3 and 4 years. The borrowings on the finance leases are secured by the assets financed. The consolidated entity retains ownership of the plant and equipment at the conclusion of the lease agreement.

Finance lease liabilities

Minimum future lease paymentsPresent value of minimum future lease

payments

Consolidated Company Consolidated Company

2008 2007 2008 2007 2008 2007 2008 2007

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

No later than 1 year 14 174 14 174 14 174 14 174

Later than 1 year and not later than 5 years - 155 - 155 - 143 - 143

Minimum lease payments1 14 329 14 329 14 317 14 317

Less future finance charges (1) (41) (1) (41) (1) (39) (1) (39)

Present value of minimum lease payments 13 288 13 288 13 278 13 278

Included in the financial statements as:

Current borrowings (note 13) 13 151 13 151

Non-current borrowings (note 16) - 137 - 137

13 288 13 288

1Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual.

Operating leases

Leasing arrangements

Operating leases relate to property, plant and equipment with lease terms between 1 and 5 years. The majority of operating lease contracts contain market review clauses in the event that the consolidated entity exercises its option to renew. The consolidated entity does not have an option to purchase the leased asset at the expiry of the lease period.


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Non-cancellable operating leases contracted for but not capitalised in the financial statements

Not longer than 1 year 193 412 75 75

Longer than 1 year and not longer than 5 years 46 459 45 62

239 871 120 137


48

FINANCIAL REPORT

24. Subsidiaries

Name of entityCountry of

incorporationOwnership interest

2008 2007

% %

Parent entity

EFTel Limited

Subsidiaries

Datafast Telecommunications Pty Ltd Australia 100% 100%

Datafast (Sites) Pty Ltd Australia 100% 100%

Datafast (Melbourne Central) Pty Ltd Australia 100% 100%

Business Technologies Pty Ltd Australia 100% 100%

Network Technology Pty Ltd Australia 100% 100%

Northvoice Communications Pty Ltd Australia 100% 100%

VivaNET Pty Ltd Australia 100% 100%

Viva.com Pty Ltd Australia 100% 100%

Vivanet Australia Pty Ltd Australia 100% 100%

EFTel More Than Broadband Pty Ltd Australia 100% 100%

Tower.Net Pty Ltd Australia 100% 100%

Spacenet Holdings Pty Ltd Australia 100% 100%

Xcomm (WA) Pty Ltd Australia 100% 100%

Q-Net Australia Pty Ltd Australia 100% 100%

Quality Internet Services Pty Ltd Australia 100% 100%

EFTel Radio Pty Ltd Australia 100% 100%

EFTel Tasmania Pty Ltd Australia 100% 100%

Southern Star Technologies Pty Ltd Australia 100% 100%

EFTel Rural Pty Ltd Australia 100% 100%

Keypoint Pty Ltd Australia 100% 100%

Paradox Digital Pty Ltd Australia 99.99% 99.99%

Planet Netcom Pty Ltd Australia 100% 100%

Planet Netcom Radioworx Pty Ltd Australia 100% 100%

M Power Technologies Pty Ltd Australia 100% 100%


49

FINANCIAL REPORT

25. Related party disclosuresEquity interests in related parties Equity interests in subsidiaries

Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 24 to the financial statements.

Equity interests in other related parties

EFTel More Than Broadband Pty Ltd, a 100% owned subsidiary of EFTel Limited, holds 49% of the ordinary share capital of Fleet Broadband Holdings Pty Ltd. The principal business of Fleet Broadband Holdings Pty Ltd is in retail internet services.

Key management personnel

Details of key management personnel compensation are disclosed on note 4 to the financial statements.

Loan disclosures

EFTel Limited did not provide any loan facilities to directors or executives during the year.

Key management personnel equity holdings

Number of shares in which Parent Entity Directors and other key management personnel have a direct or indirect interest:

Balance 01/07/2007

Received as Remuneration

Shares issued as a result of Option exercised

Change in recognition of director/ executive

holdings due to appointment, retirement or resignation

Net Change Other*

Balance 30/06/2008

Directors

Russell Collett 43,000 - - - - 43,000

Glenn Darlington1 - - - - - -

Daniel Ehrenfeld2 15,444,585 - - (15,444,585) - -

Simon Ehrenfeld5 27,492,983 - - - 1,010,768 28,503,751

Jeremy Cousins4 5 - - - 22,865,017 615,768 23,480,785

Greg Searle3 - - - - - -

Jurgen Steinert 6,068,962 - - - 55,628 6,124,590

Paul Stevenage 100,000 - - - - 100,000

Other key management personnel

Jeremy Cousins4 5 21,380,017 - - (21,380,017) - -

John Lane 988,272 - - 796,111 1,784,383

Luke MacKinnon 7,270,613 - - (199,947) 7,070,666

John Raftis 999,000 - - 726,000 1,725,000

Paul Rolfe - - - 3,905,466 100,000 4,005,466

Richard Swancott - - - - -

* Net change other refers to shares purchased or sold during the financial year.1Mr Glenn Darlington retired as Chairman on 27 November 2007. 2Mr Daniel Ehrenfeld retired as Director on 25 October 2007. 3Mr Greg Searle was appointed as Director on 27 September 2007 and retired as Director on 27 November 2007. 4Mr Jeremy Cousins was appointed as Director on 11 December 2007. 5Mr Jeremy Cousins and Mr Simon Ehrenfeld are directors of Paradox Investments Pty Ltd and Northlink Holdings Pty Ltd, companies that held 17,441,857 and 1,388,160 shares in EFTel respectively. The total of these shares are included in the holdings of both Mr Ehrenfeld and Mr Cousins.

a)

b)

c)

d)


50

FINANCIAL REPORT

25. Related party disclosures (cont’d)

Balance 01/07/2006

Received as Remuneration

Shares issued as a result of Option exercised

Change in recognition of director/ executive

holdings due to appointment, retirement or resignation

Net Change Other*

Balance 30/06/2007

Directors

Russell Collett 43,000 - - - - 43,000

Glenn Darlington1 - - - - - -

Daniel Ehrenfeld 13,945,960 - - - 1,498,625 15,444,585

Simon Ehrenfeld5 25,514,823 - - - 1,978,160 27,492,983

Juliette Reay2 43,000 - - (43,000) - -

Greg Searle3 3,348,478 - - (3,348,478) - -

Jurgen Steinert 4,268,962 - - - 1,800,000 6,068,962

Paul Stevenage 70,000 - - - 30,000 100,000

Other key management personnel

Matthew Bretherton4 19,147,028 (19,147,028) - -

Jeremy Cousins5 19,476,857 - - 1,903,160 21,380,017

John Lane 863,272 - - 125,000 988,272

Luke MacKinnon 7,270,613 - - - 7,270,613

John Raftis 821,103 - - 177,897 999,000

Richard Swancott - - - - -

* Net change other refers to shares purchased or sold during the financial year.1Mr Glenn Darlington was appointed as Director on 20 December 2006. 2Ms Juliette Reay retired as Director on 23 December 2006 3Mr Greg Searle retired as Director on 19 January 2007. 4Mr Matthew Bretherton resigned as of 2 June 2006. 5Mr Jeremy Cousins and Mr Simon Ehrenfeld are directors of Paradox Investments Pty Ltd and Northlink Holdings Pty Ltd, companies that held 17,441,857 and 1,388,160 shares in EFTel respectively. The total of these shares are included in the holdings of both Mr Ehrenfeld and Mr Cousins.


51

FINANCIAL REPORT

25. Related party disclosures (cont’d)Other transactions with specified directors

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

The profit from operations includes the following items of revenue and expense that resulted from transactions with specified directors or their personally related entities:

e)

Consolidated

2008 2007

$ $

Internet services sold to Lasar Software & Computers1 57,290 43,397

Internet Services sold to Karumax Pty Ltd2 2,023 1,537

Internet services sold to Skyglow Holdings Pty Ltd3 2,815 14,200

Total recognised as revenue 62,128 59,134

Reseller commission paid to Skyglow Holdings Pty Ltd3 2,685 2,775

Consultancy fees paid to Kourion Investments4 - 16,875

Total recognised as expenses 2,685 19,650

Total assets arising from transactions with specified directors or their personally related entities as at reporting date:

Plant & equipment purchased from Lasar Software & Computers1 - 767

Accounts receivable due from Lasar Software & Computers1 230 -

Accounts receivable due from Skyglow Holdings Pty Ltd3 4,963 9,510 1Lasar Software & Computers is a company of which Jurgen Steinert is a director. EFTel purchases computer supplies and equipment from, and sells internet and telephony services to Lasar Software & Computers. 2Karumax Pty Ltd, of which Russell Collett is a director, purchases internet services from EFTel. 3Skyglow Holdings Pty Ltd, of which Daniel Ehrenfeld is a director, operates a chain of computer retail stores. EFTel sells internet services to Skyglow and Skyglow acts as a reseller of EFTel internet services and receives commission for actual sales. 4Kourion Investments, of which Greg Searle is a director, provided consultancy services to EFTel.

All transactions entered into above with directors are done at arms length and are at rates no more favourable than any other customers.

Transactions with other related parties

The profit from operations includes the following items of revenue and expense that resulted from transactions with associated entities:

f)

Consolidated

2008 2007

$ $

Fees charged to Fleet Broadband Holdings Pty Ltd and its subsidiaries, including Fleet Global Pty Ltd and Fleet Internet SA Pty Ltd - 141,077

ADSL services charged to Fleet Global - 37,819

Total recognised as revenue - 178,896

Allowance for doubtful debts in respect of receivables from Fleet Broadband Holdings Pty Ltd and its subsidiaries (277,264) 141,077

Total recognised as expenses (277,264) 141,077


52

FINANCIAL REPORT

26. Subsequent events

On 8 September 2008, EFTel Limited announced the acquisition of the Internet business of Concept Networks and the acquisition of CGoC Malaysia. The consideration for the acquisitions consist of 8.35m shares and a deferred cash component of $965,000.

Concept Group of Companies has revenue in excess of $4m including approximately $1m for services provided to EFTel Limited.

Due to the timing of the acquisition it is impracticable to provide further detail of the acquisition in this financial report.


53

FINANCIAL REPORT

27. Notes to the cash flow statementReconciliation of cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the balance sheet as follows:

a)


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Cash and cash equivalents 2,242 2,451 1,990 2,375

Bank overdraft - - - -

2,242 2,451 1,990 2,375

Businesses acquired During the financial year businesses were acquired, details of the acquisition are as follows (note 24):

b)

Consideration

Cash and cash equivalents - 1,815 - 1,815

Ordinary shares - - - -

Deferred purchase consideration - - - -

- 1,815 - 1,815

Net cash outflow on acquisition

Cash and cash equivalents consideration - 1,815 - 1,815

Less cash and cash equivalent balances acquired

- 1,815 - 1,815

Reconciliation of profit for the period to net cash flows from operating activitiesc)


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Profit for the period 270 (746) 294 (291)

(Gain)/loss on sale or disposal of non-current assets - 8 - -

Depreciation and amortisation of non-current assets 1,785 2,239 794 1,251

Equity settled share-based payment - - - -

Interest income received and receivable (114) (140) (106) (140)

Increase/(decrease) in current tax liability 35 (712) 35 (712)

Increase/(decrease) in deferred tax balances 300 (171) 130 57


54

FINANCIAL REPORT

27. Notes to the cash flow statement (cont’d)Consolidated Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Changes in net assets and liabilities, net of effects from acquisition and disposal of businesses:

(Increase)/decrease in assets:

Trade and term receivables (991) 318 (114) 89

Other operating assets 7 (268) (303) 198

Increase/(decrease) in liabilities:

Trade creditors and accruals 459 1,292 775 1,287

Trade Creditors associated with acquisitions - (644) - (644)

Provisions (18) 252 - -

Deferred revenue 190 237 243 626

Net cash from operating activities 1,923 1,665 1,748 1,721

Financing facilitiesd)

Westpac financing facility for acquisitions with a fixed and floating charge over various group entities:

amount used - 1,575 - 1,575

amount unused - 1,425 - 1,425

- 3,000 - 3,000

Vendor financing facility with a fixed charge over equipment purchased:

amount used 1,750 - 1,750 -

amount unused 250 - 250 -

2,000 - 2,000 -


55

FINANCIAL REPORT

28. Financial instrumentsCapital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.

The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 13 and 15, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital and retained earnings as disclosed in notes 18 and 19 respectively.

The consolidated entity operates its capital in a manner such that surplus cash is invested into infrastructure, to lower costs and increase profit, or the acquisition of competitor businesses, to increase revenue and profit. It is expected that the increased profit generated by the consolidated entity due to the investment in the BroadbandNext network infrastructure will support the commitments undertaken to fund the infrastructure.

Operating cash flows are used to maintain and expand the group’s assets, as well as to make the routine outflows of tax, dividends and repayment of maturing debt. The Group monitors cash flows and performs cash flow forecasts on a regular basis.

The Group’s policy is to borrow centrally, using a variety of capital market issues and borrowing facilities, to meet anticipated funding requirements.

None of the Group’s entities are subject to externally imposed capital requirements.

Gearing ratio

The Group’s Audit Committee and Board of Directors reviews the capital structure numerous times throughout the year. As a part of this review the committee’s consider the cost of capital and the risks associated with each class of capital.

The gearing ratio at year end was as follows:


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Financial assets

Debt (i) 1,763 1,863 1,763 1,863

Cash and cash equivalents (2,242) (2,451) (1,990) (2,375)

Net debt (479) (588) (227) (512)

Equity (ii) 15,851 15,738 22,632 22,495

Net debt to equity ratio (3.0%) (3.7%) (1.0%) (2.3%)

Debt is defined as long-term and short-term borrowings, as detailed in note 13 and 15

Equity includes all capital and retained earnings

i.

ii.

a)


56

FINANCIAL REPORT

28. Financial instruments (cont’d)Categories of financial instrumentsb)


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Financial assets

Loans and receivables 3,242 2,251 6,456 6,342

Cash and cash equivalents 2,242 2,451 1,990 2,375

Financial liabilities

Amortised cost:

Trade Payables 9,730 4,752 8,670 3,369

Other Payables 266 242 102 85

Financial Leases 13 288 13 288

Loan - Westpac Bank - 1,575 - 1,575

Vendor facility 1,750 - 1,750 -

At the reporting date there are no significant concentrations of credit risk relating to loans and receivables at fair value through profit or loss. The carrying amount reflected above represents the company’s and the Group’s maximum exposure to credit risk for such loan and receivables.

Foreign currency risk management

The consolidated entity is exposed to foreign exchange fluctuations in relation to the purchase of network equipment (US Dollars) and the payment of customer support call centre staff in Malaysia (Malaysian Ringgit). Exchange rate exposures are managed within approved policy parameters.

c)


2008 2007 2008 2007

$’000 $’000 $’000 $’000

US Dollars 1,993 - 1,993 -

At reporting date, if the foreign currency rate had been $0.05 higher or lower and all other variables were held constant, the Group and company’s net profit would increase by $114k (2007: $nil) and decrease by $102k (2007: $nil) respectively. This is due to the Group’s and company’s exposure to foreign current movements on the above transaction.

Interest rate risk

The company and the Group is exposed to minimal interest rate risk as it borrows funds at fixed interest rates. The risk is managed by the Group by maintaining an fixed interest bearing liabilities. The Directors believe that as all interest bearing liabilities are at fixed rate then the Group is not at risk of varying interest rates.

d)


57

FINANCIAL REPORT

28. Financial instruments (cont’d)Liquidity risk management

The board of directors have ultimate responsibility for the management of liquidity risk. The group manages the risk by maintaining adequate cash reserves and continuously monitoring cash flows and through the implementation of cash flow forecasts which are reviewed by the Board of Directors at least monthly.

The following tables detail the company’s and Group’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date of which the Group can be required to pay. The table includes both interest and principal cash flows:

e)

Consolidated

Weighted average effective

interest rate

Less than 1 month

1-3 months3 months - 1

year1-5 years 5+ years 5+ years

% $’000 $’000 $’000 $’000 $’000 $’000

2008

Non-interest bearing - 924 5,061 4011 - - -

Finance lease liabilities 12.30% 14 - - - - -

Fixed interest rate instruments 7.50% - 37 98 1,882 - -

938 5,098 4,109 1,882 - -

2007

Non-interest bearing - 375 4,619 - - - -

Finance lease liabilities 8.50% - 44 130 143 - -

Fixed interest rate instruments 8.97% - 224 1,492 - - -

375 4,887 1,622 143 - -

Company

Weighted average effective

interest rate

Less than 1 month

1-3 months3 months - 1

year1-5 years 5+ years 5+ years

% $’000 $’000 $’000 $’000 $’000 $’000

2008

Non-interest bearing - 477 4284 4011

Finance lease liabilities 12.30% 14 - - - - -

Fixed interest rate instruments 7.50% - 37 98 1,882 - -

14 37 98 1,882 - -

2007

Non-interest bearing

Finance lease liabilities 8.50% - 44 130 143 - -

Fixed interest rate instruments 8.97% - 224 1,492 - - -

- 268 1,622 143 - -


58

FINANCIAL REPORT

28. Financial instruments (cont’d)Credit risk management

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is the carrying amount, net of any provisions for doubtful debts of those assets, as disclosed in the balance sheet and notes to the financial statements.

The consolidated entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered in to by the consolidated entity.

Fair values

The carrying amount of cash, cash equivalents and short-term investments approximates fair value because of their short term to maturity. The carrying amount of trade receivables and trade payables approximate fair value.

The fair values of other loans and amounts due are recorded at the face value as the loans are subject to interest charges and agreed repayment schedules.

For other assets and other liabilities the fair value approximates their carrying value.

No financial assets and financial liabilities are readily traded on organised markets.

Refer to note 1(f) for the financial assets policies.

29. Segment informationThe consolidated entity operates solely in the Telecommunications industry in Australia.

30. Company Details

EFTel Limited is a publicly listed company, incorporated and operating in Australia. The registered office and principal place of business is at Level 8, QV1 Building, 250 St George’s Terrace, Perth, WA 6000.

f)

g)


59

DIRECTORS’ DECLARATION

The directors declare that:

in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable;

in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and

the directors have been given the declarations required by s.295A of the Corporations Act 2001.

Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.

On behalf of the Directors

Simon Ehrenfeld Director

Dated this 26th day of September 2008

a)

b)

c)


60

Liability limited by a scheme approved under Professional Standards Legislation.

Deloitte Touche Tohmatsu ABN 74 490 121 060

180 Lonsdale Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia

DX: 111 Tel: +61 (0) 3 9208 7000 Fax: 9208 7001 www.deloitte.com.au

Independent Auditor’s Report to the Members of EFTel Limited

We have audited the accompanying financial report of EFTel Limited, which comprises the balance sheet as at 30 June 2008, and the income statement, cash flow statement and statement of changes in equity for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 16 to 59.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the consolidated financial statements and notes comply with International Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. 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.

INDEPENDENT AUDITOR’S REPORT


61

Auditor’s Independence Declaration

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s Opinion

In our opinion, the financial report of EFTel Limited is in accordance with the CorporationsAct 2001, including:

(a) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2008 and of their performance for the year ended on that date; and

(b) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.

Material Uncertainty Regarding Continuation as a Going Concern

Without qualifying our opinion, we draw attention to Note 1 in the financial report which indicates that the consolidated entity’s current liabilities exceeded its current assets by $6,587,000. This condition, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty which may cast significant doubt about the consolidated entity’s ability to continue as a going concern and whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 5 to 10 of the directors’ report for the year ended 30 June 2008. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s Opinion

In our opinion the Remuneration Report of EFTel Limited for the year ended 30 June 2008, complies with section 300A of the Corporations Act 2001.

DELOITTE TOUCHE TOHMATSU

Alison Brown PartnerChartered Accountants Melbourne, 26 September 2008

INDEPENDENT AUDITOR’S REPORT


62

ADDITIONAL INFORMATION

EFTel Ltd - Distribution of Holders of Equity Securities as at 31 August 2008

Size of Holding Number of Shareholders Number of Ordinary Fully Paid Shares

1 - 1,000 280 109,746

1,001 - 5,000 229 588,949

5,001 - 10,000 290 2,320,398

10,001 - 100,000 525 17,406,084

100,001 - 9,999,999,999 112 137,412,344

Total 1,436 157,837,521

Unmarketable Parcels

The number of shares held in shareholdings with less than marketable parcels is 1,800,516.

EFTel Ltd - Substantial Shareholders as at 31 August 2008

Shareholder Number of Ordinary Fully Paid Shares Percentage of Issued Ordinary Capital Held

Paradox Investments Pty Ltd 17,441,857 11.05

Thooruna Pty Ltd 16,832,089 10.66

Mr Daniel Ehrenfeld 14,714,585 9.32

Mr Simon Ehrenfeld 9,087,966 5.76


63

ADDITIONAL INFORMATION

EFTel Limited - Top 20 Shareholders - 31 August 2008

RANK SHAREHOLDERNUMBER OF ORDINARY

FULLY PAID SHARESPERCENTAGE OF ISSUED ORDINARY CAPITAL HELD

1 PARADOX INVESTMENTS PTY LTD 17,441,857 11.05

2 THOORUNA PTY LTD 16,832,089 10.66

3 MR DANIEL EHRENFELD 14,714,585 9.32

4 MR SIMON EHRENFELD 9,087,966 5.76

5 OSPIN PTY LTD 7,347,491 4.66

6 MR LUKE MACKINNON 7,070,666 4.48

7 JENESTA PTY LTD (THE STEINERT FAMILY TRUST) 6,081,590 3.85

8 MR PAUL ROLFE 4,005,466 2.54

9 MR JEREMY COUSINS 3,015,000 1.91

10 MRS NORMA EHRENFELD 2,852,273 1.81

11 TENDWORD PTY LTD (D FAWCETT SUPER PLAN A/C) 2,500,000 1.58

12 IN THE CBD PTY LTD 2,300,000 1.46

13 THOORUNA PTY LTD (THOORUNA S/F A/C) 2,202,051 1.40

14 NORTHLINK HOLDINGS PTY LTD (PARADOX INVESTMENTS S/F A/C) 1,973,928 1.25

15 MR JOHN LANE 1,784,383 1.13

16 MOUNTAINVIEW RETREAT RETIREMENT VILLAGE PTY LTD 1,779,477 1.13

17 ALLJEN PTY LTD (THE EHRENFELD FAMILY A/C) 1,700,000 1.08

18 MR JOHN RAFTIS 1,580,000 1.00

19 MR PHILIP WILTON 1,307,890 0.83

20 MR KURT EHRENFELD 1,137,500 0.72

106,714,212 67.61

TOTAL NUMBER OF ISSUED ORDINARY SHARES 157,837,521 100.00

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8/250 st georges terrace, perth 6000 tel. 1300 550 550 fax. 1300 368 200 web. www.eftel.com.au

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