2006 Annual Report of EFTel Limited (formerly Datafast ... · effective and flexible alternative to other service providers, EFTel Limited is in a strong position to accelerate growth

2006 Annual Report of EFTel Limited (formerly Datafast Telecommunications Limited)

missionstatement 01

ceo’sreport 02

corporatedirectory 05

companyprofile 06

anything’spossible 10

directors’report 13

corporategovernancestatement 24

nationalmanagers&teamleaders 28

financialstatements 30

directors’declaration 68

auditor’sreport 70

additionalinformation 71

In the human body, the synapse allows neurons to form interconnected circuits, enabling sensory perception and communication with the systems of the body. As our new insignia, the synapse symbolises the connecting of people to their possibilities.

Our mission is to grow by enabling as many people as possible to communicate across their world. We achieve this through a commitment to teamwork, integrity and beneficial relationships.

EFTel 2006 Annual ReportPB EFTel Limited �

Your board takes great pleasure in presenting the

results for the 2005-06 financial year. It has been

another year of solid performance, and EFTel now ranks

among the most profitable and well run listed Internet

Service Providers in Australia. As recently reported in

the Australian Financial Review, we are now ranked in

the top 500 listed companies by revenue.

Each year, your Company becomes increasingly

distinguished in this sector by profitability and overall

financial health.

EFTel’s strategy has been repeatedly justified by solid

results as the telecommunications industry undergoes

significant change. Having made careful decisions

in relation to both infrastructure investment and

diversification strategies, the company has continued to

trade profitably by retaining focus on the fundamentals

of its core business – customer acquisition, servicing,

and relationships.

Earnings before interest, tax, depreciation, and

amortisation (EBITDA) stands at $3.15 million for the

2005-06 period. The company recorded a net profit

after tax of $0.8 million and has a record high net asset

position of $16.5 million. Having previously indicated

that balance sheet strength was a priority for the

company, management has continued to deliver on this

key commitment.

Our financial ratios are substantially stronger than

those typically enjoyed by most of our industry

counterparts. Our strategy to focus on this has proven

fruitful, with our announcement earlier this year that we

are partnering with Westpac to expand our acquisitions

programme.

Since the end of the reporting period, EFTel has

announced a number of acquisitions including aaNet,

the company’s largest ever broadband purchase. The

total number of active accounts on the EFTel network is

now at a record high 140,000.

ceo’s reportceo’s report

EFTel 2006 Annual Report2 EFTel Limited �EFTel 2006 Annual Report2 EFTel Limited �

Significant revenue growth is already being experienced

in 2006-07. During this period, the next generation of

broadband services known as ADSL2+ will be launched.

Full-service telephony is presently undergoing a trial

with a view to commercial launch by early 2007. Full

service will enable customers to obtain their phone

line and local calls through EFTel. These initiatives are

anticipated to contribute further to revenue growth,

as we capture an increasing share of our customers’

overall internet and telecommunications spend.

Other well-publicised initiatives include the broadband

over powerlines (BPL) trial being conducted with our

partners Aurora Energy in Tasmania, which is reliably

delivering high speed Internet at low cost.

As recently announced, we are also about to benefit

from access to the $60 million fund made available

through the Broadband Connect programme, an

Australian Government initiative to promote regional

broadband. The contracts governing this subsidy

programme were signed by EFTel and the Department

of Communications, Information Technology, and the

Arts (DCITA). As a company with a very large regional

customer footprint, EFTel is positioned to benefit

substantially from this funding initiative.

EFTel’s proud record is one of consistent, profitable

growth over several years, delivering significant

improvements in customer numbers and key financial

indicators. EFTel delivers a strong balance sheet and

healthy profits.

With the opportunity for both solid growth and income,

we remain determined at all times to be the type of

company in which people will invest with confidence.

Simon Ehrenfeld Chief Executive Officer

EFTel’s proud record is one of consistent, profitable growth over several years, delivering significant improvements in customer numbers and key financial indicators.”

“

...we are now ranked in the top 500 listed companies by revenue.”

“

ceo’s reportceo’s report

EFTel 2006 Annual Report2 EFTel Limited �EFTel 2006 Annual Report2 EFTel Limited �

EFTel 2006 Annual Report�

directors

Simon Ehrenfeld

(Chief Executive Officer)

Russell Collett

Daniel Ehrenfeld

Juliette Reay

Gregory Searle

Jurgen Steinert

Paul Stevenage

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: 10.00am

Date: Tuesday 28 November 2006

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

452 Johnston Street

Abbotsford VIC 3067

Ph: (03) 9415 5000 Fax: (03) 9473 2529

auditor

DTT Victoria*

QV Building

180 Lonsdale Street

Melbourne VIC 3000

* formerly BDO Melbourne.

solicitors

Allens Arthur Robinson

530 Collins Street

Melbourne VIC 3000

bankers

Westpac

109 St George’s Terrace

Perth WA 6000

corporate advisors

PricewaterhouseCoopers Securities Ltd.

250 St Georges Terrace

Perth WA 6000

stock exchange listing

EFTel Limited (formerly Datafast Telecommunications Limited)

shares are listed on the Australian Stock Exchange.

ASX code: EFT (formerly DFT)

corporate directory

EFTel Limited �

overview

EFTel Limited is one of Australia’s largest Internet Service Providers (ISPs). EFTel offers a range of services including: DSL, satellite and dial-up Internet

access, web hosting and telephony services to the retail and wholesale telecommunications markets. EFTel is listed on the Australian Stock Exchange

(ASX code:EFT).

EFTel’s services are delivered through a nationwide network of Points of Presence in all capital cities, as well as regional areas around Australia. The

network architecture and technology allows for the supply of voice, data or video services simultaneously, giving the capability to supply local and long

distance calls, high-speed data, Internet and video conferencing services to its customers. With a focus on serving customers, and offering a more cost

effective and flexible alternative to other service providers, EFTel Limited is in a strong position to accelerate growth.

EFTel is consolidating a solid reputation as a leading provider of competitively priced, premium Internet services. EFTel’s commitment to quality and

service is backed by technical competence and extensive industry experience with over 140,000 active accounts. EFTel offers a range of data and

telecommunications services directly to corporate and residential customers, and via a reseller program.

EFTel 2006 Annual Report6

Apart from the flagship EFTel retail brand, EFTel Limited operates a number of other brands and divisions:

DFT Wholesale Internet delivers Internet infrastructure solutions and supporting services to a quarter of Australia’s ISPs and channel

partners, allowing them to participate in the market without major investment in technical infrastructure or operating expertise.

Speak telephony offers low cost national, international and calls to mobiles from home and business phone lines.

EFTel Corporate provides professional high-speed connectivity, virtual private network and website development solutions. Customised

Internet solutions are backed by a nationwide network. EFTel Corporate’s expert consultants design solutions for specific business

requirements.

aaNet is an online discount brand with a greater self-serve focus. It is popular in online forums and makes a significant contribution to

the overall scale of the group’s broadband services.

company profile

EFTel Limited �

EFTel 2006 Annual Report�

EFTel’s history

more information

EFTel: visit www.eftel.com or call 1300 550 550

DFT Wholesale Internet: visit www.dft.net.au or call 1300 362 674

aaNet: visit www.aanet.com.au or call 1300 665 076

1999 Datafast commenced as a trunked radio network operator in Victoria. From 1999 to 2001, it developed

a 34Mb/s ATM backbone network in western Victoria. Ultimately the network extended to South

Australia, with a hub in Melbourne and links to other state capitals.

EFTel started as an Internet Service Provider (ISP) based in Perth, through a merger of several

established WA ISPs. 2000

2001 Datafast acquired a VoIP (Voice over Internet Protocol) telecommunications company, and VivaNET, a

wholesale ISP.

2002 EFTel merged into Datafast. This doubled the size of the company, providing significant economies of

scale, and extended broadband operations into four states.

2003 Through consolidation and other initiatives, EFTel significantly reduced its networking costs,

established a Layer-2 ADSL service, and extended the network to South Australia and the Northern

Territory. These initiatives helped the company to take advantage of industry consolidation and the

take-up of broadband internet access.

2004 KeyPoint merged into the group. This expanded the Victorian and Queensland customer bases and

extended broadband coverage to Tasmania, completing the national rollout.

NSW ISP Planet Netcom merged into the group, bringing the total customer base to over 100,000

active accounts and making the group one of Australia’s 10 largest ISPs.

The group posted record earnings and announced the Broadband over Power Lines (BPL) project. The

company officially changed its name from Datafast Telecommunications Ltd to EFTel Ltd.2005

The total number of active accounts on the EFTel network passed 140,000. The range of services

included dial-up, DSL, wireless and satellite Internet, as well as hosting, web development, wholesale

services, virtual private networking, VoIP and traditional telephony.

The company adopted ‘anything’s possible’ as its by-line.

2006

company profile

EFTel Limited �

It’s 8:30am and the familiar sounds of telephonic activity fill the air at

EFTel’s Sydney customer contact centre. Amidst all the buzz, you find Scott

Rutkowski (‘Scotty’) assisting Mr Stephens with his broadband connection.

This dialogue is more than your typical one-on-one phone conversation.

Scotty has never been able to see. However, advanced software empowers

Scotty to use his talents. The software reads the screen contents into one

earpiece at 300 words a minute while Scotty listens attentively to the client

with his other earpiece.

With seven years of successful service on the award winning Sydney helpdesk,

Scotty regularly meets the company’s performance targets.

“I enjoy the learning experience and especially the customer service.”

anything’spossible


Communication, the first of the great uses for electricity, began

with the telegraph invented by Samuel Morse around 1840, to be

followed by the telephone, radio and television. Thomas Edison

is famous for adding lighting in 1880, which was soon followed

by working electric motors and electric heating. Most recently, of

course, has come electronics and the computer revolution. In all

electricity has fundamentally transformed the way we live.

We can already see the dramatic effect it has on the way people

interact and how it has fed our want of faster and more convenient

methods of communicating.

With this in mind, and our inquisitive nature to drive us, EFTel

strives to embrace the opportunities that are presented as part of

this technology rich era. We are also committed to intelligently and

effectively managing our current investments - our network , our

team members, and our customers.

EFTel is pursuing investigations into technologies such as 3G

wireless communications, DSL2+, and Broadband over Power

Line technologies (BPL) and also targeting greater operational

efficiencies with new and highly advanced systems better able to

manage our IP bandwidth and offer Quality of Service (QoS).

The goal remains to deliver communication technologies that are

fulfilling the requirements of businesses and consumers. Mobility

has never before been so important in our busy lifestyles, and

it drives growing demand for IP entertainment and improved

communication methods.

Giving a commercial mind to this, EFTel continues to

embrace these opportunities as they are discovered. Your

Company has been one of the first Internet providers to be

involved in numerous technological developments, including

the provision of wireless internet, VoIP, BPL, QoS and

national coverage.

anything’spossible

EFTel Limited 11


director’s report

Your directors present their report on the company and its

controlled entities for the financial year ended 30 June 2006.

directors

Unless specified otherwise, these directors have been in office

since the start of the financial year to the date of this report:

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 and eliminating outside equity interests amounted

to $0.8m.

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: Nil

Ordinary dividend as recommended in this year’s report: Nil

review of operations

Significant events during the 2005-06 Reporting Period:

Change of company name from Datafast

Telecommunications Limited to EFTel Limited

Consolidation of shares at 1 for 10

Termination of merger negotiations with Chariot Limited

Commencement of trial of commercial rollout of Broadband

Over Power Lines (BPL)

Acquisition of the VianetAIP group of ISPs from Comdek Ltd

Acquisition of My Access

Signing with Westpac for $3m facility to fund further

acquisitions

Significant events since the end of the Reporting Period:

Acquisition of aaNet group of ISPs

Acquisition of Instant Communications

Signing with DCITA for access to Broadband Connect Funding

financial position

The net assets of the economic entity have increased by $5.5m

from 30 June 2005 to $16.5m in 2006. This increase is largely the

result of the following factors:

financial performance of the group; and

restating of goodwill carrying values due to the

implementation of AIFRS

recognition of the value of available tax losses due to

implementation of AIFRS

The economic entity’s strong financial position has enabled the

group to reduce its interest-bearing liabilities by $232,000 while

maintaining a healthy working capital ratio. The group’s working

capital, being current assets less current liabilities, has improved

by $319,000 between 2005 and 2006.

The directors believe the group is in a strong and stable financial

position to expand and grow its current operations.

Russell CollettSimon EhrenfeldGregory SearlePaul Stevenage

Daniel Ehrenfeld (appointed 24 May 2006)

Juliette ReayJurgen Steinert

directors’ report

EFTel Limited 13


significant changes in state of affairs

The following significant changes in the state of affairs of the

parent entity occurred during the financial year:

On 1 July 2005 the company acquired the businesses of

Vianet AIP from Comdek Limited.

On 1 August 2005 the company acquired 100% of M

Power Technologies Pty Ltd (trading as My Access).

after balance date events

On 14 July 2006, EFTel announced the acquisition of aaNet,

one of Australia’s fastest growing broadband communications

providers. The consideration comprises cash only and is partly

funded by the finance facility arranged with Westpac.

On 10 August 2006, EFTel announced the acquisition of Instant

Communications, a Queensland based ISP. The consideration

comprised cash only and was funded from working capital.

Except for the above acquisitions, no other matters or

circumstances have arisen since the end of the financial

year which significantly affected or may significantly affect

the operations of the economic entity, the results of those

operations, or the state of affairs of the economic entity in

future financial years.

i.

ii.

directors’ report

EFTel Limited 1�

information on board members

Daniel Ehrenfeld - EXECUTIVE DIRECTOR (Age 46)

Daniel has had 18 years experience in the IT industry, with particular experience in retail sales and

marketing. For the last 10 years he has been actively involved in numerous aspects of the ISP industry

including mergers, acquisitions, marketing and brand integrations. He was responsible for the creation and

development of Internet Express, which became part of the EFTel group in 2000.

Daniel serves as a member of the nomination committee and two special sub-committees of the board.

Russell Collett Dip.R.E.M. - DIRECTOR

(Age 42)

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 audit committee, the nomination committee, and a special sub-

committee of the board, and as chairman of the stakeholder relations committee.

Simon Ehrenfeld MBA - CHIEF EXECUTIVE OFFICER (Age 39)

Simon is the CEO of EFTel Limited (formerly Datafast Telecommunications Limited). He holds a Master of

Business Administration degree with 5 Dux awards from the University of Western Australia, where he has

also completed 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 10 years.

Simon serves as a member of the nomination committee, the remuneration committee and one special sub-

committee of the Board.

Paul Stevenage ASA - LEAD INDEPENDENT DIRECTOR (Age 37)

Paul is the Group Commercial Manager for ACM, the largest division of Boral Ltd with $2 billion turnover. His

previous roles include 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 and resides in Sydney.

Paul serves as a member and secretary of the remuneration committee, as chairman of the audit

committee, and as chairman of the nomination committee.

directors’ reportdirectors’ report


Juliette Reay Dip.Mgt. - DIRECTOR (Age 50)

Juliette is a Manager within the Department of Treasury and Finance. She has previously served as a

Manager in the Department of Consumer and Employment Protection, as an Executive Officer in the Ministry

of Premier and Cabinet, and as an Executive Advisor for the Australian Taxation Office.

Juliette was Chairman of the Liberal Party’s Parliamentary Candidate Selection Committee for 8 years, and

is a former Air Force NCO. She holds a Diploma of Management.

Juliette serves as a member of the audit committee and a special sub-committee of the board, member and

secretary of the nomination committee, and chairman of the remuneration committee.

Greg Searle B.App.Sc. - DIRECTOR (Age 52)

Greg is a veteran of the IT industry having built and sold several IT services businesses over the past 30

years. He has resided in Japan for a number of years and is engaged internationally as a both a technical

and strategic advisor. He has worked in both the public and private sectors during his career, and has

extensive experience in the implementation of Enterprise Wide Resource Management Systems, and the

development of internet based applications. His technical expertise was acknowledged in 1998 by winning

the “Best Legal Site on the Web” for the design and development of Netjustice. Greg holds a degree in

Applied Science from the University of Canberra.

Greg serves as a member of the audit committee and the nomination committee, and as secretary of a

special sub-committee of the board.

Jurgen Steinert GAICD - EXECUTIVE DIRECTOR (Age 35)

Jurgen is EFTel’s Director of Finance and Resources, and oversees the company’s Finance, Human Resources,

and Commercial Relations departments.

Jurgen previously served as the CTO of EFTel and has a strong technical knowledge in addition to his

background in management. He is a graduate of the Australian Institute of Company Directors. Originally

starting with Southwest Internet Systems, he has been with ISPs in the group for 11 years.

Jurgen serves as a member of the nomination committee.

John Raftis CPA ACIS - COMPANY SECRETARY (Age 37)

John is a Business graduate of Curtin University. He completed his CPA with one of the highest rankings in

the country. He is a Chartered Secretary, and holds a Graduate Diploma in company secretarial practice.

John has 16 years of industry-based accounting experience. John is the Group Financial Controller and has

been with ISPs in the group for 6 years.

John serves as secretary to the audit committee.


EFTel Limited 1�

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

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 executive

packages 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 board’s policy 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 and is based predominantly on

the performance of the revenue, gross profit, EBITDA, cash flow

and share price of the company. All bonuses and incentives

must be linked to predetermined performance criteria. The policy

is designed to attract the highest calibre of executives and

reward them for performance that results in long-term growth in

shareholder wealth.

The directors receive a superannuation guarantee contribution

required by the government, which is currently 9%, and do not

receive any other retirement benefits. Directors and all other

employees are able to enter into salary sacrifice arrangements

for their superannuation and eligible equipment such as laptop

computers.

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.

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. The

level set for each KPI is based on budgeted figures for the group.

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 audited

figures.

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

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.


EFTel 2006 Annual Report1�

2001 2002 2003 2004 2005 2006

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

Revenue 6,798 11,513 16,148 18,604 26,958 26,210

Net Profit -9,038 -4,647 -4,334 -727 1594 799

The figures from 2001 - 2004 are calculated under AGAAP and the 2005 - 2006 figures are calculated under A-IFRS.

The following table shows the gross revenue and profits of the group for the last 6 years:


EFTel Limited 1�

The remuneration for each director and the specified executive officers of the consolidated entity receiving the highest remuneration

during the year was as follows:

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 2006.

No shares or options were issued to directors and executives as

part of remunerations for the year ended 30 June 2006.

Employment Contracts of Directors and Senior Executives

The employment conditions of the Chief Executive Officer, Mr

Simon Ehrenfeld, the executive directors, Mr Jurgen Steinert and

Mr Daniel Ehrenfeld, and specified executives are formalised

in contracts of employment. All executives are permanent

employees.

Salary, Fees and Commissions

Superannuation Contribution

Cash Bonus Non-cash Benefits Options Total

$ $ $ $ $ $

directors

Simon Ehrenfeld 216,370 19,473 - - - 235,843

Russell Collett 21,901 1,971 - - - 23,872

Daniel Ehrenfeld* 2,685 242 - - - 2,927

Juliette Reay 21,901 1,971 - - - 23,872

Greg Searle 26,466 2,381 - - - 28,847

Jurgen Steinert 133,369 32,931 - - - 166,300

Paul Stevenage 23,858 2,147 - - - 26,005

446,550 61,116 - - - 507,666

*Remuneration from 24 May 2006 to 30 June 2006

specified executives

Matthew Bretherton** 102,270 13,335 - - - 115,625

Jeremy Cousins 113,478 17,548 - - - 131,026

John Lane 120,919 18,699 - - - 139,618

Luke MacKinnon 135,852 12,227 - - - 148,079

John Raftis 113,060 17,353 - - - 130,413

585,579 79,182 - - - 664,761

**Remuneration from 1 July 2005 to 2 June 2006



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 $27,780.

The company has not entered into any agreement to indemnify

the auditors.

options

At the date of this report, the unissued ordinary shares of EFTel

Limited under option are as follows:

Grant Date Date of Expiry Exercise PriceNumber under

Option

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

During the year ended 30 June 2006, 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.

meetings of directors

During the financial year, 17 meetings of directors (excluding committees of directors) were held. Attendances by each director during

the year were as follows:

BOARD MEETINGS

AUDIT COMMITTEE

REMUNERATION COMMITTEENOMINATION COMMITTEE

Number eligible

to attend

Number Attended

Number eligible

to attend

Number Attended

Number eligible

to attend

Number Attended

Number eligible

to attend

Number Attended

Simon Ehrenfeld 17 17 2 2

Russell Collett 17 17 5 5 2 2

Daniel Ehrenfeld 3 3

Juliette Reay 17 16 5 5 4 4 2 2

Greg Searle 17 15 5 4 2 2

Jurgen Steinert 17 16 2 2

Paul Stevenage 17 16 5 5 4 4 2 2

The board meets on a regular monthly basis. In addition, a number of special meetings have been convened, with a number of these

special meetings being called to deal with merger and acquisition opportunities.


EFTel Limited 21

No fees for non-audit services were paid/payable to the external

auditors during the year ended 30 June 2006:

auditor’s independence declaration

The lead auditor’s independence declaration for the year ended

30 June 2006 has been received and can be found on page 23.

rounding of amounts

The company is an entity to which ASIC Class Order 98/100

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.

Simon Ehrenfeld

Director

Dated this 2nd day of October 2006.




EFTel Limited 23

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

Due to the size of the organisation and to assist with the

efficiency of operations and cost-management, EFTel combined

the roles of Chairman and managing director, and appointed one

of its existing directors as lead independent director, during the

2004 year. This situation continues to be reviewed on an ongoing

basis so that as the organisation grows in size, responsibilities

may be divided to suit the increased demands. Currently the

company is seeking to separate the roles of Chairman and CEO,

and a sub-committee of the Board is actively searching for a

Chairman who can complement the existing skills of the Board.

The sub-committee is comprised of Mr Russell Collett, Mr Daniel

Ehrenfeld and Ms Juliette Reay.

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 four non-executive directors, the

majority of whom are considered by the board to be independent

in terms of the Council’s definition of independent director, and

three executive directors including the executive chairman. The

names of the directors of the company in office at the date of this

Statement are set out on page 13 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 advisors 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 16 and 17 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 company’s chairman, Mr Simon Ehrenfeld, is employed

in an executive capacity by the company as the CEO, and is

therefore not independent in terms of the Council’s definition

of independent director. The roles were combined during 2004

due to the size of the company and to assist with operating

efficiencies and cost management.

Mr Ehrenfeld has been a director of the company since December

2002 and was the managing director of one of its controlled

entities, EFTel Pty Ltd, for the prior three years. He has an

intimate knowledge of the internet industry and is committed to

providing the time necessary to effectively discharge his role as

chairman, taking into account his executive responsibilities for

the company and time commitments associated with his other

positions. The directors consider that Mr Ehrenfeld continues

to be capable of discharging his role as chairman but consider

that he is able to add additional value in his role as CEO if

the responsibilities of Chairman could be carried by another

individual.

The board has established a nomination committee. The

responsibilities of the committee are set out later in this

corporate governance statementcorporate governance statement


statement. The committee is comprised of the current directors.

It is chaired by Mr Paul Stevenage, who is the lead 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 group financial controller 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, Ms Juliette Reay, Mr Greg Searle and Mr

Paul Stevenage. The committee is comprised of a majority

of independent directors. Mr Stevenage, who is the lead

independent director, is the chairman of the committee. The

objectives of the audit committee are to:

1.

2.

3.

4.

a)

b)

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

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 and reviews

proposed announcements to ASX before they are released. The

company secretary is responsible, under the ASX Listing Rules,

for all communications with ASX. The executive chairperson/

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.


EFTel Limited 2�

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 group financial controller 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 created a nomination committee in 2006 to ensure that

the board is equipped with the necessary skills and experience to

successfully implement the current strategy of the company. In

order to achieve this, the committee is to:

assess the necessary and desirable competencies of board

members

review board succession plans

evaluate the board’s performance

make recommendations to the board for the appointment

and removal of directors

make recommendations to the board for the appointment

and removal of the Company Secretary

make recommendations to the board on the appropriate size

of the board

make recommendations to the board on the composition of

the board with regard to executive directors, non-executive

directors and independent directors.

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 20 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 Ms Juliette Reay, Mr

Paul Stevenage, both of whom are non-executive independent

directors, and Mr Simon Ehrenfeld. The committee is chaired by

Ms Reay.

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.

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

1.

2.

3.

1.

2.

3.



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, Mr Greg Searle, Mr Daniel Ehrenfeld 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 below, all the best practice recommendations of

the ASX Corporate Governance Council have been applied for the

entire financial year ended 30 June 2006.


EFTel Limited 2�

“Every day our team works the front line in developing new relationships with customers. By imparting our knowledge

throughout the sales process, we generate loyalty and create high value relationships.”

Greg Wheatley - Retail Sales

“Our aim is to maintain effective credit relations to ensure customer retention and effective risk management.”

Melissa White - Credit Management

“EFTel has evolved from the acquisition and integration of numerous smaller businesses, each adding something

unique to the whole picture. We gain the best of every ISP, whether that is technology, business models, or people. This

makes EFTel in a sense the cream of the crop.”

John Lane - General Manager

“Channel management is all about leverage. We find people who are good at sales anywhere in Australia and get them

working for our business. In this way we multiply our effort.”

Gary Dundon - Reseller Manager

“Our strategy is a multifaceted approach aimed at capturing the entire customer internet and telecommunications

spend of a growing customer base.”

Rick Swancott - Sales & Marketing Manager

“Our people give us our competitive advantage. We look for cultural as well as strategic fit in our efforts

to obtain and retain talented team members.”

Armanda Capelli - Staff Services

“As we have a profit objective, we don’t shop on price alone, but instead look at the total value of the strategic

partnership.”

Jeremy Cousins - Commercial Relations Manager

“Our wholesale activities benefit the business in two ways. They generate scale which assists profitability, and also

build industry knowledge“

Greg Ashmore - DFT Wholesale Manager

national managers & team leadersnational managers & team leaders

EFTel 2006 Annual Report2� EFTel Limited 2�EFTel 2006 Annual Report2� EFTel Limited 2�

“In the end it’s about good relationship management, combined with intelligently and profitably designed products.”

Carl Greenhalgh - EFTel Corporate Manager

“The network team aims for fast, reliable and secure network solutions that maximise customer retention and minimise

front-end support costs.”

Steven Wilton - Network Operations

“Customer service is not only the process of answering phones and taking directions, it is the ability to empower our

customers with more and more tools to self manage their services with EFTel. This will not only lead to increased

customer satisfaction but to real bottom line gains.”

Frank Starvaggi - Customer Access Manager

“The Information Systems team uses proven technologies to increase efficiency, reduce costs and deliver an industry

leading customer relationship and billing solution that offers reliability, integrity and timeliness.”

Kingsley Faulkner - Information Systems

“We continuously strive to align our business vision and our technical vision. With numerous emerging technologies,

careful and strategic choices are required.”

Luke MacKinnon - Technical Operations Manager

“The opportunities are endless. The real key is identifying them and focusing your time and effort on bringing

the right ones to fruition.”

Natanya Nagi - Marketing Department

“The timely supply and analysis of accurate information is crucial to making informed business decisions.”

Donna Loudon - Group Accountant

“Acquisitions are a low cost way of building revenue and extracting greater value from our existing assets. The key is

efficient management of the processes involved so that customers experience a smooth transition and benefit from the

new relationship.”

Paul Rolfe - Mergers & Acquisitions

national managers & team leadersnational managers & team leaders

EFTel 2006 Annual Report2� EFTel Limited 2�EFTel 2006 Annual Report2� EFTel Limited 2�

financial report


Income statement for the financial year ended 30 June 2006

Consolidated Company

Note2006 $’000

2005 $’000

2006 $’000

2005 $’000

Revenue 2 25,972 26,468 13,062 10,254

Other income 2 238 491 12 443

Communication expenses (12,222) (11,092) (10,280) (8,680)

Employee benefits expenses (7,376) (7,919) - (101)

Occupancy expenses (1,020) (1,334) (311) (471)

Depreciation and amortisation expenses (1,851) (1,554) (997) (849)

Finance costs (65) (182) (35) (66)

Other expenses (2,431) (2,658) (1,136) (1,002)

Profit/(loss) before income tax expense 2 1,245 2,220 315 (472)

Income tax expense 3 (446) (626) (91) 270

Profit/(loss) for the period 799 1,594 224 (202)

Profit/(loss) attributable to members of EFTel Limited 799 1,594 224 (202)

Earnings per share:

Basic (cents per share) 20 0.506 1.084

Diluted (cents per share) 20 0.506 1.084

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

financial report

EFTel Limited 31

Balance sheet as at 30 June 2006


Note2006 $’000

2005 $’000

2006 $’000

2005 $’000

Current assets

Cash and cash equivalents 27 2,209 2,004 1,438 164

Trade and other receivables 6 2,569 2,583 6,431 7,565

Other 7 614 545 432 516

Total current assets 5,392 5,132 8,301 8,245

Non-current assets

Other financial assets 8 1 3 14,216 12,687

Property, plant and equipment 9 2,321 3,339 1,321 2,134

Deferred tax assets 3 3,731 3,760 2,881 2,994

Goodwill 10 11,157 10,057 - -

Other intangible assets 11 1,615 1,342 168 56

Total non-current assets 18,825 18,501 18,586 17,871

Total assets 24,217 23,633 26,887 26,116

Current liabilities

Trade and other payables 12 3,466 3,817 2,118 1,928

Borrowings 13 248 409 231 104

Current tax payables 3 1,098 583 1,098 583

Provisions 14 534 557 50 60

Deferred revenue 15 1,717 1,756 218 164

Total current liabilities 7,063 7,122 3,715 2,839

Non-current liabilities

Borrowings 16 97 168 97 168

Deferred tax liabilities 3 407 506 289 529

Provisions 17 166 134 - -

Total non-current liabilities 670 808 386 697

Total liabilities 7,733 7,930 4,101 3,536

Net assets 16,484 15,703 22,786 22,580

Equity

Issued capital 18 37,708 37,726 37,708 37,726

Accumulated losses 19 (21,224) (22,023) (14,922) (15,146)

Parent entity interest 16,484 15,703 22,786 22,580

Total equity 16,484 15,703 22,786 22,580


financial report


Statement of changes in equity for the financial year ended 30 June 2006

Consolidated CompanyIssued Capital

$’000Accum Losses

$’000Total Equity

$’000Issued Capital

$’000Accum Losses

$’000Total Equity

$’000

Balance at 1 July 2004 34,176 (23,617) 10,559 34,176 (14,944) 19,232

Profit attributable to members of parent entity - 1,594 1,594 - (202) (202)

Shares issued during the year 1,460 - 1,460 1,460 - 1,460

Exercise of options 2,049 - 2,049 2,049 - 2,049

Issue costs (60) - (60) (60) - (60)

Share-based payment expense 101 - 101 101 - 101

Balance at 30 June 2005 37,726 (22,023) 15,703 37,726 (15,146) 22,580

Profit attributable to members of parent entity - 799 799 - 224 224

Consolidation costs (18) - (18) (18) - (18)

At 30 June 2006 37,708 (21,224) 16,484 37,708 (14,922) 22,786

Cash flow statement for the financial year ended 30 June 2006


Note 2006$’000

2005$’000

2006$’000

2005$’000

Cash flows from operating activities

Receipts from customers 29,965 26,437 14,336 10,865

Payments to suppliers and employees (27,987) (24,316) (11,605) (8,175)

Interest and other costs of finance paid (65) (182) (35) (66)

Net cash provided by operating activities 27(c) 1,913 1,939 2,696 2,624

Cash flows from investing activities

Interest received 70 60 12 12

Payment for property, plant and equipment (546) (586) (296) (357)

Proceeds from sale of property, plant and equipment

189 431 - 431

Payment for businesses 27(b) (1,220) (2,461) (1,220) (2,146)

Net cash (used in) investing activities (1,507) (2,556) (1,504) (2,060)

Cash flows from financing activities

Proceeds from issues of equity securities - 2,049 - 2,049

Payment for share consolidation (18) - (18) -

Payment for share issue costs - (60) - (60)

Proceeds from borrowings 179 118 179 -

Repayment of borrowings (362) (1,167) (79) (2,752)

Net cash provided by/(used in) financing activities (201) 940 82 (763)

Net increase in cash and cash equivalents 205 323 1,274 (199)

Cash and cash equivalents at the beginning of the financial year

2,004 1,681 164 363

Cash and cash equivalents at the end of the financial year

27(a) 2,209 2,004 1,438 164


financial report

EFTel Limited 33

1. Summary of accounting policiesStatement 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 Urgent Issues Group Interpretations, and complies with other requirements of the law. Accounting Standards include Australian equivalents to International Financial Reporting Standards (‘A-IFRS’). Compliance with the A-IFRS ensures that the consolidated financial statements and notes of the consolidated entity comply with International Financial Reporting Standards (‘IFRS’). The parent entity financial statements and notes also comply with IFRS except for the disclosure requirements in IAS 32 ‘Financial Instruments: Disclosure and Presentation’; as the Australian equivalent Accounting Standard, AASB 132 ‘Financial Instruments: Disclosure and Presentation’ does not require such disclosures to be presented by the parent entity where its separate financial statements are presented together with the consolidated financial statements of the consolidated entity.

The financial statements were authorised for issue by the directors on 2 October 2006.

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.

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 consolidated entity changed its accounting policies on 1 July 2005 to comply with A-IFRS. The transition to A-IFRS is accounted for in accordance with Accounting Standard AASB 1 ‘First-time Adoption of Australian Equivalents to International Financial Reporting Standards’, with 1 July 2004 as the date of transition. An explanation of how the transition from superseded policies to A-IFRS has affected the company’s and consolidated entity’s financial position, financial performance and cash flows is discussed in note 30.

The accounting policies set out below have been applied in preparing the financial statements for the year ended 30 June 2006, the comparative information presented in these financial statements for the year ended 30 June 2005, and in the preparation of the opening A-IFRS balance sheet at 1 July 2004 (as disclosed in note 30).

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

Borrowings Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the borrowing using the effective interest rate method.

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.

Employee benefits Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick 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.

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 into the following specified categories: financial assets ‘at fair value through profit or loss’, ‘held-to-maturity’ investments, ‘available-for-sale’ financial assets, and ‘loans and receivables’. 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.

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

a)

b)

c)

d)

e)

financial report


activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.

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(g).

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.

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

f)

g)

h)

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. 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 Relevance of tax consolidation to the consolidated entity The company and its wholly-owned Australian resident entities intend to form 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 intend to enter into a tax funding arrangement and a tax-sharing agreement with the head entity. The decision to tax consolidate has not yet been formally notified to the Australian Taxation Office. The head entity assumes all tax payable, with the carrying amount of investments in subsidiaries being increased by tax consolidation contributions and reduced by tax consolidation distributions. All impacts are fully eliminated on consolidation. 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.

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

i)

financial report

EFTel Limited 35

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. 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. 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.

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

j)

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 entity’s 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.

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.

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 23 to the financial statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements. 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.

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. The following estimated useful lives are used in the calculation of depreciation: • Leasehold improvements - 5 years • Plant and equipment - 5 years • Equipment under finance lease - 5 years

k)

l)

m)

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.

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. Dividend and interest revenue Dividend revenue is recognised on a receivable basis. Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

Share-based payments The fair value of shares issued as remuneration was based on the market price of the shares on the Australian Stock Exchange (“ASX”) as at the close of trading on each of the issue dates.

n)

o)

p)

Accounting standards not yet effective The Australian Accounting Standards Board (‘AASB’) released AASB 2005-9 ‘Amendments to Australian Accounting Standards’ in September 2005. AASB 2005-9 amends AASB 139 ‘Financial Instruments: Recognition and Measurement’ to require certain financial guarantee contracts to be recognised in accordance with AASB 139 at fair value, and to be subsequently measured at the higher of the amount recognised as a provision and the amount initially recognised less cumulative amortisation in accordance with the revenue recognition policies. The changes introduced by AASB 2005-9 apply to reporting periods beginning on or after 1 January 2006. These changes will first be applied by EFTel Limited for the Half Year Ending 31 December 2006. The impact of this change in accounting policy is not able to be reliably quantified at this time.

Financial instruments issued by the company Debt and equity instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. Transaction costs on the issue of equity instruments Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued. Interest and dividends Interest and dividends are classified as expenses or as distributions of profit consistent with the balance sheet classification of the related debt or equity instruments.

q)

r)

financial report

EFTel Limited 37


2006 $’000

2005 $’000

2006 $’000

2005 $’000

2. Profit from operations

(a) Revenue and other incomeRevenue from continuing operations consisted of the following items:

Revenue from the rendering of services 25,972 26,468 13,062 10,254

Other income:

Interest revenue 70 60 12 12

Gain on disposal of property, plant and equipment 168 431 - 431

26,210 26,959 13,074 10,697

(b) Profit before income tax 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 12,222 11,092 10,280 8,680

Finance costs:

Related parties 25 18 8 3

Other 40 164 27 63

Total interest expense 65 182 35 66

Net bad and doubtful debts arising from:

Trade debtors 318 259 - -

Other related parties 292 75 - 75

Total bad and doubtful debts 610 334 - 75

Depreciation of non-current assets 1,452 1,288 997 849

Amortisation of non-current assets 399 266 - -

Total depreciation and amortisation 1,851 1,554 997 849

Superannuation expense 602 583 - -

602 583 - -

Share based payment - 101 - 101

- 101 - 101

Movement in employee entitlements (74) 173 - -

(74) 173 - -

Operating lease rental expenses:

Minimum lease payments 545 107 36 9

financial report



2006 $’000

2005 $’000

2006 $’000

2005 $’000

3. Income taxes

(a) Income tax recognised in profit or loss

Tax expense comprises:

Current tax expense 515 583 241 -

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

(69) 43 (150) (270)

Total tax expense/(benefit) 446 626 91 (270)

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 1,245 2,220 315 (472)

Income tax expense calculated at 30% 374 666 94 (141)

Non-deductible expenses 117 88 - -

Non-assessable income (45) (128) (3) (129)

-

Income tax attributable to entity 446 626 91 (270)

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.


2006 $’000

2005 $’000

2006 $’000

2005 $’000

(b) Current tax liabilities

Current tax payables:

Income tax payable attributable to:

Parent entity 241 - 241 -

Entities in tax consolidated group 857 583 857 583

1,098 583 1,098 583

(c) Deferred tax balances

Deferred tax assets comprise:

Provisions 139 187 - -

Allowance for doubtful debts 685 547 13 13

Other 55 45 16 -

Tax Losses 2,852 2,981 2,852 2,981

3,731 3,760 2,881 2,994

Deferred tax liabilities comprise:

Tax allowances relating to property, plant and equipment 293 506 289 529

Other 114 - - -

407 506 289 529

financial report

EFTel Limited 39

3. Income taxes (cont’d)

Taxable and deductible temporary differences arise from the following:

2006

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

506 (213) 293

Other - 114 114

506 (99) - - - - 407

Deferred tax assets:

Provisions 187 (48) 139

Provision for doubtful debts 547 138 685

Other 45 10 55

779 100 - - - - 879

2005

Consolidated

Opening balance

Charged to income

Charged to equity



Changes in tax rate

Closing balance

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


569 (63) 506

569 (63) - - - - 506


Provisions 153 34 187

Provision for doubtful debts 557 (10) 547

Other 29 16 45

739 40 - - - - 779

2006

Company

Opening balance

Charged to income

Charged to equity



Changes in tax rate

Closing balance

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


529 (240) 289

529 (240) - - - - 289


Provision for doubtful debts 13 13

Other - 16 16

13 16 - - - - 29

financial report


3. Income taxes (cont’d)

2005

Company

Opening balance

Charged to income

Charged to equity



Changes in tax rate

Closing balance

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


699 (170) 529

699 (170) - - - - 529


Provision for doubtful debts 46 (33) 13

46 (33) - - - - 13

Tax consolidationRelevance of tax consolidation to the consolidated entity

The company and its wholly-owned Australian resident entities intend to form 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 intend to enter into a tax funding arrangement and a tax-sharing agreement with the head entity. The decision to tax consolidate has not yet been formally notified to the Australian Taxation Office. The head entity assumes all tax payable, with the carrying amount of investments in subsidiaries being increased by tax consolidation contributions and reduced by tax consolidation distributions. All impacts are fully eliminated on consolidation.

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.

financial report

EFTel Limited 41

4. Key management personnel remuneration

The specified directors of EFTel Limited during the year were:

Simon Ehrenfeld Chairman/CEO

Russell Collett Non-Executive Director

Daniel Ehrenfeld Executive Director (Appointed to Board 24 May 2006)

Juliette Reay Non-Executive Director

Greg Searle Non-Executive Director

Jurgen Steinert Finance & Resources Director

Paul Stevenage Non-Executive Director

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

Matthew Bretherton Projects Chairman & VOIP Manager (Resigned as of 2 June 2006)

Jeremy Cousins Purchasing Manager

John Lane General Manager

Luke MacKinnon Technical Operations Manager

John Raftis Group Financial Controller/Company secretary

(a) Key management personnel remuneration

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

Consolidated Company2006 $’000

2005 $’000

2006 $’000

2005 $’000

Short-term employee benefits 1,032,129 981,705 1,032,129 981,705

Post-employment benefits 140,298 115,434 140,298 115,434

Share-based payment - 100,920 - 100,920

1,172,427 1,198,059 1,172,427 1,198,059

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

financial report


Directors’ remuneration

2006Primary Post-employment Equity

Other TotalSalary & fees Bonus Non-Cash Superannuation

Prescribed benefits

Other Shares

$ $ $ $ $ $ $ $ $

Simon Ehrenfeld 216,370 19,473 235,843

Russell Collett 21,901 1,971 23,872

Daniel Ehrenfeld* 2,685 242 2,927

Juliette Reay 21,901 1,971 23,872

Greg Searle 26,466 2,381 28,847

Jurgen Steinert 133,369 32,931 166,300

Paul Stevenage 23,858 2,147 26,005

Total 446,550 61,116 507,666

• The remuneration was for the period from 24 May 2006 to 30 June 2006.

2005Primary Post-employment Equity Other

benefits*Total

Salary & fees Bonus Non-monetary SuperannuationPrescribed

benefitsOther Shares

$ $ $ $ $ $ $ $ $

Simon Ehrenfeld 198,297 17,847 8,170# 224,314

Russell Collett 20,940 1,885 8,170# 30,995

Juliette Reay 20,940 1,885 8,170# 30,995

Greg Searle 37,134 - 8,170# 45,304

Jurgen Steinert 133,830 12,045 8,170# 154,045

Paul Stevenage 23,584 2,123 8,170# 33,877

Total 434,725 35,785 49,020# 519,530

# The fair value of ordinary shares issued on 10 January 2005 as bonuses for the achievement of specific targets regarding EBITDA, revenue, gross profit and share price of the consolidated entity. The value stated was based on the market price of the shares on the Australian Stock Exchange as at close of trading on each of the issue dates.

financial report

EFTel Limited 43

Other key management personnel remuneration


benefits*Total



$ $ $ $ $ $ $ $ $

Matthew Bretherton^ 102,270 13,355 115,625

Jeremy Cousins 113,478 17,548 131,026

John Lane 120,919 18,699 139,618

Luke MacKinnon 135,852 12,227 148,079

John Raftis 113,060 17,353 130,413

Total 585,579 79,182 664,761

^ The remuneration was for the period from 1 July 2005 to 2 June 2006.


benefits*Total



$ $ $ $ $ $ $ $ $

Matthew Bretherton 97,388 1,000 21,558 119,946

Jeremy Cousins 97,922 10,000 13,938 121,860

John Lane 108,518 9,000 17,628 45,450# 180,596

Luke MacKinnon 124,250 4,944 12,431 141,625

John Raftis 83,958 10,000 14,094 6,450# 114,502

Total 512,036 30,000 4,944 79,649 51,900# 678,529

# The fair value of ordinary shares issued on 10 January 2005 as bonuses for the achievement of specific targets regarding EBITDA, revenue, gross profit and share price of the consolidated entity. The value stated was based on the market price of the shares on the Australian Stock Exchange as at close of trading on each of the issue dates.

financial report


(b) Remuneration policy

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 and approved by the board. The remuneration committee reviews executive packages 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 board’s policy 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 and is based predominantly on the performance of the revenue, gross profit, EBITDA, cash flow and share price of the company. All bonuses and incentives must be linked to predetermined performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth.

The directors receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. Directors and all other employees are able to enter into salary sacrifice arrangements for their superannuation and eligible equipment such as laptop computers.

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 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.

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. The level set for each KPI is based on budgeted figures for the group.

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 audited figures.

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

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.

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 2006

No shares or options were issued to directors and executives as part of remunerations for the year ended 30 June 2006.

Employment Contracts of Directors and Senior Executives

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

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.

financial report

EFTel Limited 45

Consolidated Company2006

$2005

$2006

$2005

$5. Remuneration of auditors

Audit or review of the financial report 68,420 65,795 68,420 65,795

68,420 65,795 68,420 65,795

The auditor of the consolidated entity is DTT Victoria.


2005 $’000

2006 $’000

2005 $’000

6. Current trade and other receivables

Trade receivables 4,383 4,093 830 837

Allowance for doubtful debts (1,915) (1,824) (45) (46)

2,468 2,269 785 791

Other receivables:

Wholly-owned subsidiaries - - 5,646 6,774

Associated companies 468 389 - -

Allowance for doubtful debts associated companies (367) (75) - -

101 314 5,646 6,774

2,569 2,583 6,431 7,565

Trade receivables are generally on 10 to 30 day terms and other receivables are generally on 30 day terms.


2005 $’000

2006 $’000

2005 $’000

7. Other current assets

Prepayments 614 545 432 516

614 545 432 516


2005 $’000

2006 $’000

2005 $’000

8. Other non-current financial assets

Shares at fair value - 2 - -

Equity accounted investment in associated entities 1 1 - -

Shares in controlled entities at cost - - 14,216 12,687

1 3 14,216 12,687

financial report


9. Property, plant and equipment

ConsolidatedLeasehold

improvements at cost

Plant and equipment at

cost

Equipment under finance lease at

costTotal

$’000 $’000 $’000 $’000

Gross carrying amount

Balance at 1 July 2004 64 7,846 971 8,881

Additions 96 290 213 599

Disposals - (77) - (77)

Acquisitions through business combinations - 1,203 - 1,203

Balance at 30 June 2005 160 9,262 1,184 10,606

Additions 7 356 72 435

Disposals - (205) - (205)

Balance at 30 June 2006 167 9,413 1,256 10,836

Accumulated depreciation/ amortisation and impairment

Balance at 1 July 2004 (33) (4,488) (477) (4,998)

Disposals - 77 - 77

Acquisitions through business combinations (1) (1,057) - (1,058)

Depreciation expense (13) (1,148) (127) (1,288)

Balance at 30 June 2005 (47) (6,616) (604) (7,267)

Disposals - 204 - 204

Depreciation expense (24) (1,248) (180) (1,452)

Balance at 30 June 2006 (71) (7,660) (784) (8,515)

Net book value

As at 30 June 2005 113 2,646 580 3,339

As at 30 June 2006 96 1,753 472 2,321

financial report

EFTel Limited 47

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

CompanyLeasehold

improvements at cost

Plant and equipment at

cost

Equipment under finance lease at

costTotal

$’000 $’000 $’000 $’000


Balance at 1 July 2004 - 3,420 512 3,932

Additions 88 213 301

Disposals (78) - (78)

Balance at 30 June 2005 - 3,430 725 4,155

Additions 112 72 184

Disposals (110) - (110)

Balance at 30 June 2006 - 3,432 797 4,229

Accumulated depreciation/ amortisation and impairment

Balance at 1 July 2004 - (1,098) (151) (1,249)

Disposals 77 - 77

Depreciation expense (747) (102) (849)

Balance at 30 June 2005 - (1,768) (253) (2,021)

Disposals 110 110

Depreciation expense (841) (156) (997)

Balance at 30 June 2006 - (2,499) (409) (2,908)

Net book value

As at 30 June 2005 - 1,662 472 2,134

As at 30 June 2006 - 933 388 1,321


2005 $’000

2006 $’000

2005 $’000

10. Goodwill

Net book value

Balance at beginning of financial year 10,057 7,164 - -

Additional amounts recognised from business combinations occurring during the period

1,100 2,893 - -

Balance at end of financial year 11,157 10,057 - -

(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 our expectations for the future. These include a pre tax discount rate of 19.5% and cash flow projections based on the budget for 2007 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.

financial report


11. Other intangible assets Consolidated

SoftwarePatents /

TrademarksCustomer Bases Total

$’000 $’000 $’000 $’000


Balance at 1 July 2004 24 - - 24

Additions - 45 - 45

Acquisitions through business combinations - - 1,552 1,552

Disposals (12) - - (12)

Balance at 30 June 2005 12 45 1,552 1,609

Additions 17 - - 17

Additions from internal developments 113 - 103 216

Acquisitions through business combinations - - 439 439

Balance at 30 June 2006 142 45 2,094 2,281

Accumulated amortisation and impairment

Balance at 1 July 2004 (4) - - (4)

Amortisation expense - - (266) (266)

Disposals 3 - - 3

Balance at 30 June 2005 (1) - (266) (267)

Amortisation expense (18) - (381) (399)

Balance at 30 June 2006 (19) - (647) (666)

Net book value

As at 30 June 2005 11 45 1,286 1,342

As at 30 June 2006 123 45 1,447 1,615

Consolidated

SoftwarePatents /

TrademarksCustomer Bases Total

$’000 $’000 $’000 $’000


Balance at 1 July 2004 24 - - 24

Additions - 45 - 45

Disposals (12) - - (12)

Balance at 30 June 2005 12 45 - 57

Additions 17 - - 17

Additions from internal developments 113 - - 113

Balance at 30 June 2006 142 45 - 187

Accumulated amortisation and impairment

Balance at 1 July 2004 (4) - - (4)

Disposals 3 - - 3

Balance at 30 June 2005 (1) - - (1)

Amortisation expense (18) - - (18)

Balance at 30 June 2006 (19) - - (19)

Net book value

As at 30 June 2005 11 45 - 56

As at 30 June 2006 123 45 - 168

financial report

EFTel Limited 49

12. Current trade and other payables


2005 $’000

2006 $’000

2005 $’000

Trade payables 2,228 2,296 1,559 1,654

Sundry creditors and accrued expenses 1,238 1,521 559 274

3,466 3,817 2,118 1,928

Terms of major suppliers are typically 30 days.


2005 $’000

2006 $’000

2005 $’000

13. Current borrowings

Unsecured

Lease liability 131 109 131 104

Other loans 117 150 100 -

Loans from:

Related entities - 150 - -

248 409 231 104

Other loans includes $100k for the delayed settlement of M Power Technologies Pty Ltd. This payment has been made in full since 30 June 2006. The remaining balance of $17k carries no interest obligations and is expected to be settled in full in the current financial year.


2005 $’000

2006 $’000

2005 $’000

14. Current provisions

Employee benefits 298 404 - -

Other 236 153 50 60

534 557 50 60


2005 $’000

2006 $’000

2005 $’000

15. Other current liabilities

Deferred revenue 1,717 1,756 218 164

1,717 1,756 218 164


2005 $’000

2006 $’000

2005 $’000

16. Non-current borrowings

Unsecured

Lease liability 97 168 97 168

97 168 97 168


2005 $’000

2006 $’000

2005 $’000

17. Non-current provisions

Employee benefits 166 134 - -

166 134 - -

financial report


18. Issued capital


2005 $’000

2006 $’000

2005 $’000

157,837,521 fully paid ordinary shares (2005: 1,578,365,034) 37,708

37,726 37,708 37,726

37,708 37,726 37,708 37,726

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.

2006 2005

No. $’000 No. $’000

Fully paid ordinary shares

Balance at beginning of financial year 1,578,365,034 37,726 1,257,431,732 34,176

Issue of shares on:

26-10-2004 - - 17,500,000 245

12-11-2004 - - 93,500,000 1,215

Options exercised - - 209,933,302 2,049

Consolidated shares: 1:10 on 30 November 2005 157,837,521 - - -

Costs relating to share consolidation (18) -

Costs relating to share issues - (60)

Share-based payment expense - 101

Balance at end of financial year 157,837,521 37,708 1,578,365,034 37,726

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 2006, there were 100,000 (30 June 2005: 17,351,160) unissued ordinary shares for which options were outstanding. These options have an exercise price of $2 and an expiry date of 16 June 2010.


2005 $’000

2006 $’000

2005 $’000

19. Accumulated losses

Balance at beginning of financial year (22,023) (23,617) (15,146) (14,944)

Net profit attributable to members of the parent entity 799 1,594 224 (202)

Balance at end of financial year (21,224) (22,023) (14,922) (15,146)

financial report

EFTel Limited 51

20. Earnings per share

Consolidated2006

Cents per share2005

Cents per shareBasic earnings per share:

From continuing operations 0.506 1.084

Total basic earnings per share 0.506 1.084

Diluted earnings per share:

From continuing operations 0.506 1.084

Total diluted earnings per share 0.506 1.084

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:

2006 $’000

2005 $’000

Earnings (a) 799 1,594

2006 No.’000

2005 No.’000

Weighted average number of ordinary shares for the purposes of basic earnings per share 157,838 146,981

(a) 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:

Consolidated2006 $’000

2005 $’000

Net profit 799 1,594

Other - -

Earnings used in the calculation of basic EPS 799 1,594

Earnings used in the calculation of basic EPS from continuing operations 799 1,594

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:

2006 $’000

2005 $’000

Earnings (a) 799 1,594

2006 No. ‘000

2005 No. ‘000

Weighted average number of ordinary shares for the purposes of diluted earnings per share (b) 157,838* 146,981*

* Options outstanding are not considered dilutive as they are considered unlikely to be exercised.

(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:

2006 $’000

2005 $’000

Net profit 799 1,594

Earnings used in the calculation of diluted EPS 799 1,594

Earnings used in the calculation of diluted EPS from continuing operations 799 1,594

financial report


20. Earnings per share (cont’d)(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:

Consolidated2006

No. ‘0002005

No. ‘000Weighted average number of ordinary shares used in the calculation of basic EPS 157,838 146,981

Weighted average number of ordinary shares used in the calculation of diluted EPS 157,838 146,981


2005 $’000

2006 $’000

2005 $’000

21. Contingent liabilities and contingent assets

Contingent liabilitiesCourt Proceedings

An entity in the consolidated entity is a defendant in a legal action for alleged breach of fiduciary obligations.

The directors believe that the action can be successfully defended and therefore no losses will be incurred.

- - - -

Employee Disputes

An entity in the consolidated entity is a defendant in a legal action involving the alleged non-payment of long service leave entitlements.

The directors believe the claim can be successfully defended and therefore no losses will be incurred.

- - - -

22. Leases

Finance 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 paymentsConsolidated Company Consolidated Company

2006 $’000

2005 $’000

2006 $’000

2005 $’000

2006 $’000

2005 $’000

2006 $’000

2005 $’000

No later than 1 year 151 126 151 121 151 126 151 120

Later than 1 year and not later than 5 years 114 195 114 195 92 152 92 152

Later than five years - - - - - - - -

Minimum lease payments* 265 321 265 316 243 278 243 272

Less future finance charges (37) (44) (37) (44) (34) (38) (34) (38)

Present value of minimum lease payments 228 277 228 272 209 240 209 234

Included in the financial statements as:

Current borrowings (note 13) 131 109 131 104

Non-current borrowings (note 16) 97 168 97 168

228 277 228 272

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

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EFTel Limited 53

22. Leases (cont’d)

Operating leases

Leasing arrangementsOperating leases relate to property, plant and equipment with lease terms between 1 and 4 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.


2005 $’000

2006 $’000

2005 $’000

Non-cancellable operating leases contracted for but not capitalised in the financial statementsNot longer than 1 year 459 347 50 51

Longer than 1 year and not longer than 5 years 456 580 57 97

915 927 107 148

23. Subsidiaries

Name of entity Country of incorporation

Ownership interest 2006

%2005

%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% -

financial report


All subsidiaries apart from Paradox Digital Pty Limited will enter the tax consolidated group.

M Power Technologies Pty Ltd

Net assets acquired Carrying ValueFair value

adjustmentRecognised on

acquisition$’000 $’000 $’000

Intangible assets – customer base - 170 170

Trade and other receivables 27 - 27

Cash and cash equivalents 19 - 19

Trade and other payables (29) - (29)

Deferred revenue (102) - (102)

(85) 170 85

Goodwill on acquisition 434

Vianet ISP business



acquisition$’000 $’000 $’000




(215) 184 (31)


Ace Online ISP business



acquisition$’000 $’000 $’000




- 85 85


24. Acquisition of businesses

2006

Names of businesses acquiredDate of acquisition

Proportion of shares acquired

(%)

Cost of acquisition $’000

M Power Technologies Pty Ltd 1 Aug 2005 100% 519

Vianet internet service provision (ISP) business 1 July 2005 - 600

Ace Online ISP business 1 May 2006 - 120

1,239

The cost of acquisition comprises cash for all the acquisitions, with M Power Technologies Pty Ltd consideration including a $100k deferred payment payable upon certain target criteria being met. The deferred payment has been made since the end of the financial year.

The principal business of each of the acquisitions is internet service provision. In each acquisition, the consolidated entity has paid a premium for the acquiree as it believes the acquisitions will introduce additional synergies to its existing operations. With respect to the financial benefit these acquisitions have added to the EFTel Limited group, had these businesses been effected at 1 July 2005, the revenue of the consolidated entity would be $26,553k, and net profit before tax $1,261k.

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EFTel Limited 55

24. Acquisition of businesses (cont’d)

2005

Names of businesses acquiredDate of acquisition

Proportion of shares acquired

(%)

Cost of acquisition $’000

Planet Netcom Pty Ltd 1 July 2004 100% 1,476

Affinity Internet ISP business 8 Nov 2004 - 1,723

Ozzienet ISP business 1 Aug 2004 - 695

Geelong Science and Technology Centre ISP business 10 Aug 2004 - 10

Global Solutions Network ISP business 18 Jun 2005 - 10

3,914

The cost of acquisition comprises cash and or shares for all the acquisitions.

The principal business of each of the acquisitions is internet service provision. In each acquisition, the consolidated entity has paid a premium for the acquiree as it believes the acquisitions will introduce additional synergies to its existing operations.

Planet Netcom Pty Ltd



acquisition$’000 $’000 $’000



Cash and cash equivalents 3 - 3

Plant and equipment 219 219


(357) 750 393

Goodwill on acquisition 1,083

Affinity Internet ISP business



acquisition$’000 $’000 $’000




(63) 550 487

Goodwill on acquisition 1,236

Ozzienet ISP business



acquisition$’000 $’000 $’000

Intangible assets - 200 200



(51) 200 149


financial report


24. Acquisition of businesses (cont’d)

GSAT ISP business



acquisition$’000 $’000 $’000



(37) 47 10

Goodwill on acquisition -

GSN ISP business



acquisition$’000 $’000 $’000




- 5 5


25. Related party disclosures

Equity interests in related parties Equity interests in subsidiaries Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 23 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, a company registered in Western Australia. Fleet Broadband Holdings Pty Ltd principal business 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.

a)

b)

c)

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EFTel Limited 57

25. Related party disclosures (cont’d)

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

d)

Balance 01/07/2005

Received as Remuneration

Share Consolidation

1 for 10Net Change Other*

Balance 30/06/2006

Directors

Simon Ehrenfeld 334,507,875 - -263,044,066 -45,948,986 25,514,823

Russell Collett 430,000 - -387,000 - 43,000

Daniel Ehrenfeld^ - - 13,945,960 13,945,960

Juliette Reay 430,000 - -387,000 - 43,000

Greg Searle 32,074,779 - -29,236,301 510,000 3,348,478

Jurgen Steinert 47,689,616 - -38,420,654 -5,000,000 4,268,962

Paul Stevenage 1,000,000 - -630,000 -300,000 70,000

Other key management personnel

Matthew Bretherton 186,249,766 - -162,134,789 -4,967,949 19,147,028

Jeremy Cousins# 169,900,414 - -163,411,709 12,988,152 19,476,857

John Lane 10,236,817 - -3,269,445 -6,104,100 863,272

Luke MacKinnon 75,006,128 - -67,505,515 -230,000 7,270,613

John Raftis 7,142,278 - -5,580,000 -741,175 821,103

* Net change other refers to shares purchased or sold during the financial year. ^ Mr Daniel Ehrenfeld was appointed to the board on 24 May 2006. He held 13,945,960 shares as of that date. # Mr Jeremy Cousins and Mr Simon Ehrenfeld are directors of Paradox Investments Pty Ltd and Northlink Holdings Pty Ltd, companies that hold 18,041,857 and 310,000 shares in EFTel respectively.

Balance 01/07/2004

Received as Remuneration

Issued as a result of Options

ExercisedNet Change Other*

Balance 30/06/2005

Directors

Simon Ehrenfeld 294,893,839 430,000 76,850,000 -37,665,964 334,507,875

Russell Collett - 430,000 - - 430,000

Juliette Reay - 430,000 - - 430,000

Greg Searle 31,394,779 430,000 - 250,000 32,074,779

Jurgen Steinert 37,941,434 430,000 9,318,182 - 47,689,616

Paul Stevenage 1,100,000 430,000 - -530,000 1,000,000


Matthew Bretherton 169,103,481 - - 17,146,285 186,249,766

Jeremy Cousins# - - - 4,868,848 4,868,848

John Lane 5,500,000 3,030,000 2,477,272 -770,455 10,236,817

Luke MacKinnon^ - - - 75,006,128 75,006,128

John Raftis 5,550,000 430,000 - 1,162,278 7,142,278

* Net change other refers to shares purchased or sold during the financial year. ^ Mr Luke MacKinnon received shares and options as part of the consideration for the acquisition of the issued shares of Planet Netcom Pty Ltd by EFTel. # Mr Jeremy Cousins and Mr Simon Ehrenfeld are directors of Paradox Investments Pty Ltd and Northlink Holdings Pty Ltd, companies that hold 18,041,857 and 310,000 shares in EFTel respectively.

financial report



Number of Options in which Directors and Specified Executives have either a direct or indirect interest:

Balance 01/07/2005

Options Exercised Options Expired* Net Change OtherBalance

30/06/2006Directors

Simon Ehrenfeld - - - - -

Russell Collett - - - - -

Daniel Ehrenfeld - - - -

Juliette Reay - - - - -

Greg Searle - - - - -

Jurgen Steinert - - - - -

Paul Stevenage - - - - -


Matthew Bretherton - - - - -

Jeremy Cousins - - - - -

John Lane - - - - -

Luke MacKinnon 8,022,046 - -8,022,046 - -

John Raftis - - - - -

* The options expired are the expiry of options held by Luke MacKinnon on 30 November 2005 that were issued as part of the consideration for the purchase of Planet Netcom Pty Limited by EFTel. The exercise price of the options were 3 cents and expired on 30 November 2005.

Balance 01/07/2004

Options ExercisedOptions Expired

30/6/2005Net Change Other*

Balance 30/06/2005

Directors

Simon Ehrenfeld 106,315,001 -76,850,000 -29,465,001 - -

Russell Collett - - - - -

Juliette Reay - - - - -

Greg Searle 10,110,851 - -10,110,851 - -

Jurgen Steinert 13,106,819 -9,318,182 -3,788,637 - -

Paul Stevenage 400,000 - - -400,000 -


Matthew Bretherton 53,401,099 - -50,401,099 -3,000,000 -

Jeremy Cousins - - - - -

John Lane 3,300,000 -822,728 -2,477,272 - -

Luke MacKinnon - - - 8,022,046 8,022,046

John Raftis 555,000 - -555,000 - -

* Net change other includes those options that have been forfeited by holders as well as options issued during the year under review. The options issued were part of the consideration for the acquisition of the issued shares of Planet Netcom Pty Ltd by EFTel. The exercise price of the options were 3 cents expiring on 30 November 2005.

financial report

EFTel Limited 59


Other transactions with specified directorse)Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

Consolidated

2006 $

2005 $

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

Internet services sold to Lasar Software & Computers* 26,697 9,664

Internet services sold to Skyglow Holdings Pty Ltd^ 1,775 -

Total recognised as revenue 28,472 9,664

Rental paid to Lasar Software & Computers* 5,321 8,149

Reseller commission paid to Skyglow Holdings Pty Ltd^ 8,782 -

Consultancy fees paid to Global Communications** - 37,134

Interest paid to K & N Ehrenfeld^^ 13,500 14,885

Total recognised as expenses 27,603 60,168

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

Plant & equipment purchased from Lasar Software & Computers* 7,743 10,101

Accounts receivable due from Skyglow Holdings Pty Ltd^ 1,775 -

* Lasar Software & Computers, of which Jurgen Steinert is a director, conducts business from a premise that housed a Point of Presence. EFTel also purchases computer supplies and equipment from, and sells internet services to Lasar Software & Computers. ^ Skyglow 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. ** Global Communications, of which Greg Searle is a director, provided consultancy services to EFTel. ^^ K & N Ehrenfeld, who are the parents of Simon Ehrenfeld, loaned EFTel More Than Broadband Pty Ltd $150,000. The loan was repaid in full during the year.

Transactions with other related parties

Consolidated2006

$2005

$The profit from operations includes the following items of revenue and expense that resulted from transactions with associated entities:Fees charged to Fleet Broadband Holdings Pty Ltd and its 100% subsidiaries, including Fleet Global Pty Ltd and Fleet Internet SA Pty Ltd

292,245 333,080

ADSL services charged to Fleet Global 101,724 208,558

Total recognised as revenue 393,969 541,638

Allowance for doubtful debts in respect of receivables from Fleet Broadband Holdings Pty Ltd and its subsidiaries 292,245 75,000

Total recognised as expenses 292,245 75,000

f)

financial report


26. Subsequent events

Subsequent to 30 June 2006, the following events occurred:

On 10 July 2006, EFTel Limited acquired the assets of aaNet for a maximum consideration of $2.1m payable upon the achievement of specified performance targets, with final settlement currently being finalised. On 1 July 2006, EFTel Limited acquired the assets of Instant Communications for a consideration of $125k cash plus a further maximum payment of $125k payable upon the achievement of specified targets, with final settlement currently being finalised.The principal activity of both these acquisitions is internet service provision. As at the date of issue management is in the process of finalising the fair value of the assets, liabilities and goodwill of these acquisitions.

27. Notes to the cash flow statement


2005 $’000

2006 $’000

2005 $’000

(a) Reconciliation 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:

Cash and cash equivalents 2,209 2,004 1,438 164

Bank overdraft - - - -

2,209 2,004 1,438 164

Cash and cash equivalents attributable to discontinued operations - - - -

2,209 2,004 1,438 164

(b) Businesses acquired

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

Consideration

Cash and cash equivalents 1,139 1,245 1,139 930

Ordinary shares - 1,216 - 1,216

Deferred purchase consideration 100 - 100 -

1,239 2,461 1,239 2,146

Net cash outflow on acquisition

Cash and cash equivalents consideration 1,239 2,461 1,239 2,146

Less cash and cash equivalent balances acquired (19) - (19) -

1,220 2,461 1,220 2,146

financial report

EFTel Limited 61

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


2005 $’000

2006 $’000

2005 $’000

(c) Reconciliation of profit for the period to net cash flows from operating activities

Profit for the period 799 1,594 224 (202)

(Gain)/loss on sale or disposal of non-current assets (189) (431) - (431)

Depreciation and amortisation of non-current assets 1,833 1,554 997 849

Equity settled share-based payment - 101 - 101

Interest income received and receivable (70) (60) (12) (12)

Increase/(decrease) in current tax liability 515 583 515 583

(Increase)/decrease in deferred tax balances (70) 43 (127) (16)

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

(Increase)/decrease in assets:

Trade and term receivables 105 (264) 1,345 1,959

Other operating assets (69) (477) 84 25

Increase/(decrease) in liabilities:

Trade creditors and accruals (520) (720) (295) (212)

Provisions (23) 123 10 307

Deferred revenue (398) (107) (45) (327)

Net cash from operating activities 1,913 1,939 2,696 2,624

(d) Financing facilities

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

• amount used - - - -

• amount unused 3,000 - 3,000 -

3,000 - 3,000

financial report


28. Financial instruments

Interest rate risk a)The consolidated entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, as follows:

2006

Weighted average effective

interest rate

Variable interest rate

Fixed maturity datesNon interest

bearingTotalLess than 1

year1-2 years 2-3 years

% $’000 $’000 $’000 $’000 $’000 $’000

Financial assets:

Cash and cash equivalents 5.20% 2,048 161 - - - 2,209

Trade receivables - - - - 2,569 2,569

2,048 161 - - 2,569 4,778

Financial liabilities:

Trade payables - - - - 3,466 3,466

Finance lease liabilities 8.50% - 131 79 18 - 228

Other loans - - - - 117 117

- 131 79 18 3,583 3,811

2005

Weighted average effective

interest rate

Variable interest rate

Fixed Maturity datesNon interest

bearingTotal

Less than 1 year

1-2 years 2-3 years 3-4 years

% $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets:

Cash and cash equivalents 5.10% 1,843 161 - - - - 2,004

Trade and other receivables - - - - - 2,583 2,583

1,843 161 - - - 2,583 4,587

Financial liabilities:

Trade payables - - - - - 3,817 3,817

Finance lease liabilities 8.50% - 109 104 57 7 - 277

Loans from related parties 12.00% - 150 - - - - 150

Other loans - - - - - 150 150

- 259 104 57 7 3,967 4,394

financial report

EFTel Limited 63

Credit risk b)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 c)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.

Unlisted investments where there is no organised financial market the fair value has been based on a reasonable estimation of the underlying net assets or discounted cash flows of the investment.

The fair values of other loans and amounts due are determined by discounting the cash flows, at market interest rates of similar borrowings, to their present value. The carrying amount approximates fair value because of their short term to maturity.

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 in standardised form other than listed investments, forward exchange contracts and interest rate swaps.

Financial assets where the carrying amount exceeds fair values have not been written down as the consolidated entity intends to hold these assets to maturity.

Refer to note 1(d) and 1(r) for the financial assets and financial instruments policies.

29. Segment information

The consolidated entity operates solely in the Telecommunications industry in Australia.

30. Impacts of the adoption of Australian equivalents to International Financial Reporting StandardsThe consolidated entity changed its accounting policies on 1 January 2005 to comply with Australian equivalents to International Financial Reporting Standards (‘A-IFRS’). The transition to A-IFRS is accounted for in accordance with Accounting Standard AASB 1 ‘First-time Adoption of Australian Equivalents to International Financial Reporting Standards’, with 1 January 2004 as the date of transition, except for financial instruments, including derivatives, where the date of transition is 1 January 2005 (refer note 1).

An explanation of how the transition from superseded policies to A-IFRS has affected the company and consolidated entity’s financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.

financial report


30. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards (cont’d)

Effect of A-IFRS on the balance sheet as at 1 July 2004


NoteSuperseded

policies* $’000

Effect of transition to

A-IFRS $’000

A-IFRS $’000

Superseded policies*

$’000


A-IFRS $’000

A-IFRS $’000

Current assets

Cash & cash equivalents 1,681 1,681 363 363

Trade & other receivables 1,978 1,978 855 855

Other 417 417 371 371

Total current assets 4,076 - 4,076 1,589 - 1,589

Non-current assets

Trade & other receivables 317 317 6,028 6,028

Other financial assets - - 8,695 8,695

Property, plant and equipment f 3,883 (20) 3,863 2,683 (20) 2,663

Deferred tax assets d - 3,866 3,866 - 3,173 3,173

Goodwill a 7,164 - 7,164 - -

Other intangible assets f - 20 20 - 20 20

Total non-current assets 11,364 3,866 15,230 17,406 3,173 20,579

Total assets 15,440 3,866 19,306 18,995 3,173 22,168

Current liabilities

Trade & other payables 4,576 4,576 742 742

Borrowings 601 601 367 367

Provisions 518 518 222 222

Other 1,863 1,863 633 633

Total current liabilities 7,558 - 7,558 1,964 - 1,964


Trade & other payables 136 136 - -

Borrowings 386 386 273 273

Deferred tax liabilities d - 569 569 - 699 699

Provisions 98 98 - -

Total non-current liabilities 620 569 1,189 273 699 972

Total liabilities 8,178 569 8,747 2,237 699 2,936

Net assets 7,262 3,297 10,559 16,758 2,474 19,232

Equity

Share capital 34,176 - 34,176 34,176 34,176

Retained earnings e (26,914) 3,297 (23,617) (17,418) 2,474 (14,944)

Total equity 7,262 3,297 10,559 16,758 2,474 19,232

* Reported financial position for the financial year ended 30 June 2004.

financial report

EFTel Limited 65


Effect of A-IFRS on the balance sheet as at 30 June 2005


NoteSuperseded

policies* $’000

Effect of transition to A-IFRS and other

adjustments $’000

A-IFRS $’000


$’000


adjustments $’000

A-IFRS $’000

Current assets

Cash & cash equivalents 2,004 - 2,004 164 - 164

Trade & other receivables 2,583 - 2,583 7,565 - 7,565

Other 545 - 545 516 - 516

Total current assets 5,132 - 5,132 8,245 - 8,245

Non-current assets

Other financial assets d,g 3 - 3 11,825 862 12,687

Property, plant and equipment f 3,350 (11) 3,339 2,145 (11) 2,134

Investment properties - - - - - -

Deferred tax assets d - 3,760 3,760 - 2,994 2,994

Goodwill a 9,329 728 10,057 - - -

Other intangible assets b,f 45 1,297 1,342 45 11 56

Total non-current assets 12,727 5,774 18,501 14,015 3,856 17,871

Total assets 17,859 5,774 23,633 22,260 3,856 26,116

Current liabilities

Trade & other payables 3,817 - 3,817 1,928 - 1,928

Borrowings 409 - 409 104 - 104

Current tax payable g - 583 583 - 583 583

Provisions 557 - 557 60 - 60

Other 1,756 - 1,756 164 - 164

Total current liabilities 6,539 583 7,122 2,256 583 2,839


Borrowings 168 - 168 168 - 168

Deferred tax liabilities d - 506 506 - 529 529

Provisions 134 - 134 - - -

Total non-current liabilities 302 506 808 168 529 697

Total liabilities 6,841 1,089 7,930 2,424 1,112 3,536

Net assets 11,018 4,685 15,703 19,836 2,744 22,580

Equity

Share capital c 37,625 101 37,726 37,625 101 37,726

Retained earnings e (26,607) 4,584 (22,023) (17,789) 2,643 (15,146)

Total equity 11,018 4,685 15,703 19,836 2,744 22,580

* Reported financial position for the financial year ended 30 June 2005.

financial report



Effect of A-IFRS on the income statement for the financial year ended 30 June 2005


NoteSuperseded

policies* $’000


adjustments $’000

A-IFRS $’000


$’000


A-IFRS $’000

A-IFRS $’000

Revenue 26,959 - 26,959 10,697 - 10,697

Communication expenses (11,092) - (11,092) (8,680) - (8,680)

Employee benefits expense c (7,919) (101) (8,020) - (101) (101)

Occupancy expenses (1,334) - (1,334) (471) - (471)

Depreciation and amortisation expense a,b (3,568) 2,014 (1,554) (849) - (849)

Finance costs (182) - (182) (66) - (66)

Other expenses (2,557) - (2,557) (1,002) - (1,002)

Profit before income tax expense 307 1,913 2,220 (371) (101) (472)

Income tax (expense)/benefit d, g - (626) (626) - 270 270

Profit attributable to members of EFTel Limited

307 1,287 1,594 (371) 169 (202)

* Reported financial results for the year ended 30 June 2005.

Effect of A-IFRS on the cash flow statement for the financial year ended 30 June 2005There are no material differences between the cash flow statement presented under A-IFRS and the cash flow statement presented under the superseded policies.

Notes to the reconciliations of income and equity

Goodwilla)

Intangible assets relating to customer base value have been removed from goodwill, and recognised as a separated identifiable asset.

The consolidated entity has elected not to restate business combinations that occurred prior to the date of transition to A-IFRS, and accordingly, the carrying amount of goodwill at the date of transition has not changed.

However, goodwill, which was amortised under superseded policies, is not amortised under A-IFRS from the date of transition. The effect of the change is an increase in the carrying amount of goodwill by $728k (company: $0) and an increase in net profit before tax of $2,280k for the financial year ended 30 June 2005. There is no tax effect as deferred taxes are not recognised for temporary differences arising from goodwill for which amortisation is not deductible for tax purposes.

Intangible assetsb)

Intangible assets relating to customer base value have been removed from goodwill, and recognised as a separated identifiable asset.

Share-based payments c)

For the financial year ended 30 June 2005, share-based payments of $101k (company: $101k) which were not recognised under the superseded policies were recognised under A-IFRS.

These adjustments had no material tax or deferred tax consequences.

financial report

EFTel Limited 67


Income tax d)

Under superseded policies, the consolidated entity adopted tax-effect accounting principles whereby income tax expense was calculated on pre-tax accounting profits after adjustment for permanent differences. The tax-effect of timing differences, which occur when items were included or allowed for income tax purposes in a period different to that for accounting were recognised at current taxation rates as deferred tax assets and deferred tax liabilities, as applicable.Under A-IFRS, deferred tax is determined using the 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 their corresponding tax bases.

As disclosed in Note 1 the company and its wholly owned Australian Resident entities intend to enter into a tax consolidated group. Currently there is no tax funding agreements in place. As a result, under UIG 1052 “Tax consolidation”, the company has recognise the 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 as an adjustment against the investment in subsidiaries. All impacts are fully eliminated on consolidation.

The effect of the above adjustments on the deferred tax balances are as follows:

Consolidated Company1 July 2004

$’00030 June 2005

$’0001 July 2004

$’00030 June 2005

$’000Deferred tax not recognised under previous GAAP 3,297 3,254 2,474 2,744

Net increase/(decrease) in deferred tax balances 3,297 3,254 2,474 2,744

Retained earningse)

The effect of the above adjustments on retained earnings is as follows:


Note1 July 2004

$’00030 June 2005

$’0001 July 2004

$’00030 June 2005

$’000Goodwill no longer amortised a - 2,280 - -

Additional depreciation expense b - (266) - -

Expensing share-based payments c - (101) - (101)

Adjustments to tax balances d 3,297 3,254 2,474 2,744

Other adjustments g - (583) - -

Total adjustment to retained earnings 3,297 4,584 2,474 2,643

Software f)

Software has been reclassified from property, plant and equipment to other intangible assets.

Effects of other adjustmentsg)

Other adjustments comprises current income tax for the year ended 30 June 2005 which was not recognised under previous GAAP. As disclosed in Note 1, there is no tax funding arrangement currently in place and, accordingly, this amount has been recognised in the investment in subsidiaries in the company financial statements.

31. Expenditure commitments

No capital expenditure or other commitments were contracted for at balance date. Please refer to Note 22 for the lease expenditure commitments.

32. 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.

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 2nd day of October 2006

a)

b)

c)

auditor’s reportdirectors’ declaration

EFTel 2006 Annual Report6�

auditor’s reportdirectors’ declaration

EFTel Limited 6�

additional informationauditor’s report

EFTel 2006 Annual Report�0

Additional Stock Exchange Information for Listed Public Companies

Distribution of Holders of Equity Securities as at 31 August 2006

Size of HoldingNumber of Ordinary Fully Paid Shares

Number of Shareholders

1 – 1,000 1,102,642 3,420

1,001 – 5,000 2,945,774 1,196

5,001 – 10,000 2,879,799 368

10,001 – 100,000 19,642,243 603

100,001 and over 131,267,063 112

157,837,521 5,699

Unmarketable Parcels

The number of shares held in shareholdings with less than marketable parcels is 5,433,542.

Substantial Shareholders as at 31 August 2006

ShareholderNumber of Ordinary Fully Paid Shares

Percentage of Issued Ordinary Capital Held

Paradox Investments Pty Ltd 17,987,857 11.40

Thooruna Pty Ltd 17,384,977 11.01

Mr Daniel Ehrenfeld 13,215,960 8.37

Ospin Pty Ltd 8,174,024 5.18

Voting Rights

The voting rights attached to each class of equity security are as follows:

Ordinary Shares - each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by

proxy has one vote on a show of hands.

Options – options have no voting rights.

additional informationauditor’s report

EFTel Limited �1

Twenty Largest Holders - Ordinary Shares

ShareholderNumber of Ordinary Fully Paid Shares

Percentage of Issued Ordinary Capital Held

1. Paradox Investments Pty Ltd 17,987,857 11.40

2. Thooruna Pty Ltd 17,384,977 11.01

3. Mr Daniel Ehrenfeld 13,215,960 8.37

4. Ospin Pty Ltd 8,174,024 5.18

5. Mr Luke MacKinnon 7,270,613 4.61

6. Mr Simon Ehrenfeld 7,060,966 4.47

7. Mr Frank Romanin (Franco Romanin Super Fund) 5,373,683 3.40

8. Signet Enterprises Pty Ltd 4,379,546 2.77

9. Jenesta Pty Ltd 4,225,962 2.68

10. Mr Paul Alexander Rolfe 3,976,646 2.52

11. Kourian Investments Pty Ltd 3,134,478 1.99

12. Mountainview Retreat Retirement Village Pty Ltd 1,779,477 1.13

13. Alljen Pty Ltd 1,700,000 1.08

14. Thooruna Pty Ltd (Thooruna Super Fund) 1,602,051 1.02

15. Mr Philip Stephen Wilton 1,307,890 0.83

16. Mr Mark Dignam 1,095,000 0.69

17. Mr Jeremy Cousins 1,092,375 0.69

18. Mr Brad Campbell Perks 1,025,000 0.65

19. Giovanni Nominees Pty Ltd 1,015,448 0.64

20. Mrs Denise Chiplin 1,007,380 0.64

103,809,333 65.77

Unquoted Securities

Options over Unissued Shares

A total of 100,000 options with an exercise price of $2.00 are on issue to 1 holder under the EFTel employee option plan.

mission statementadditional information

EFTel 2006 Annual Report�2

8/250 st george’s terrace, perth 6000 tel. 1300 550 550 fax. 1300 368 200 web. www.eftel.com

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2006 Annual Report of EFTel Limited (formerly Datafast ... · effective and flexible alternative to other service providers, EFTel Limited is in a strong position to accelerate growth