annual report ‘09 - eftel · investment in infrastructure involving the installation of msan...

2007 Annual Report of EFTel Limited

ANNUAL REPORT ‘09

CORPORATE DIRECTORY 02

CHAIRMAN & CEO REPORTS 03

DIRECTORS’ REPORT 05

CORPORATE GOVERNANCE STATEMENT 19

FINANCIAL REPORT 22

ADDITIONAL INFORMATION 66

�Eftel Limited. Annual Report 2009

About Eftel Limited

Eftel Ltd (ASX: EFT) is a broadband network operator. Through ownership and partnership it provides access to Australia’s sixth largest Broadband footprint. It has offices in Perth and Melbourne and operates a state-of-the-art Business Processing Centre located at Cyberjaya in the heart of Kuala Lumpur’s Multimedia Super Corridor.

Eftel has several business divisions which utilise the company’s network. These operations are wholesale, retail and corporate.

Eftel Corporate is among Australia’s most reliable ISPs, offering tailored solutions to business and government clients throughout Australia. It is a preferred supplier of the Victorian Government.

Eftel Retail is a Top �0 Internet Service Provider offering a full suite of consumer Internet products. Its online brand aaNet is one of Australia’s most popular broadband providers among industry opinion leaders, receiving high customer satisfaction ratings in both the PC Authority and Australian Broadband surveys.

Eftel Wholesale services a quarter of Australia’s ISPs with a range of services including IP, co-location, dialup ports and DSL Broadband.

EFTEL limited

� Eftel Limited. Annual Report 2009

Directors

Simon Ehrenfeld - Executive Chairman John Lane - Chief Executive Officer Jeremy Cousins - Non-executive Director Paul Stevenage - Non-executive Director

Company Secretary

John Raftis

Notice of Annual General Meeting

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

Level �, QV� �50 St George’s Terrace Perth

Time: �0.00am Date: Tuesday �4 November �009

Registered Office

Level 8, QV� �50 St George’s Terrace Perth WA 6000 Ph: (08) 94�0 9999 Fax: (08) 948� 4777 ACN 073 �38 �78 ABN 47 073 �38 �78 www.eftel.com

Share Register

Computershare Investor Services Pty Limited Level �, 45 St George’s Terrace Perth WA 6000 Ph: (08) 93�3 �000 Fax: (08) 93�3 �033

Auditor

PKF Chartered Accountants & Business Advisers 7/�8 The Esplanade Perth WA 6000

Solicitors

Allens Arthur Robinson 530 Collins Street Melbourne VIC 3000

Bankers

Westpac �09 St George’s Terrace Perth WA 6000

Stock Exchange Listing

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

CORPORATE directory

3Eftel Limited. Annual Report 2009

The last year has seen your company make a significant transition on three fronts – strategically, financially and operationally.

Your company has moved from the pack of several hundred providers who only resell the broadband infrastructure of others to one of a small number who control their own. Through a combination of investment and alliances, your company has established Australia’s 6th largest broadband footprint.

In conjunction with this strategy, we have appointed a new CEO in John Lane, along with a revamped management team. Key changes have been made to your company including the Customer Focus Initiative and the launch of Eftel Wholesale. These projects will help ensure that the infrastructure investment Eftel has made is complemented by a service experience at the retail, corporate and wholesale levels that give your company unbeatable advantages in the market.

These two major changes have not been possible without the third front, which has been a substantial recapitalisation of the company. Over the last year Eftel has finalised key supplier finance arrangements, brought in new finance (both banking and private) and successfully carried out a � for � non-renounceable rights issue. The effect of these initiatives is to ensure the company sees through the early stages of its investment while it fills capacity on its network.

The past year has also seen a streamlining of the Board’s operations, with the number of committees reduced from 4 to �. The

Board also operates with 4 directors, down from a high of 7 directors just � years ago. This slimming down of operations has occurred throughout the organisation. Over the past 3 years, management and labour costs have dropped from �8.�% of revenue to �6.8%.

These past efforts to tackle heavy cost areas enabled the company to pay a modest maiden dividend during the year (for the �007-08 period). Dividends went on hold for �008-09 while Eftel then ramped up its attack on cost of goods, by advancing its infrastructure investment. We believe lower cost of goods and labour will combine well with our growing revenues to deliver an excellent result for shareholders in the future.

Of course we continue to ensure that we do not ignore the state of the Australian stock market. In the telecommunications sector particularly, we have seen shares lose substantial value in a few short years. We reiterate the message that we believe our philosophy of building a solid business rather than blue sky will ultimately bring greater value to shareholders as the market recovers.

We thank you for your investment in Eftel.

Simon Ehrenfeld MBA MMR Executive Chairman

ChAIRMAN’S rePort

4 Eftel Limited. Annual Report 2009

It is a pleasure to address you as Chief Executive Officer of your company, a weighty responsibility and one which I embrace as a trust and a privilege.

Eftel has developed from essentially a start-up to its present position as one of the country’s largest ISPs during a decade which has also seen the dot com boom and bust, the advent of popular broadband, the arrival of online video as a mainstream service, and the announcement of major government intervention in the telecommunications market, amongst countless other dynamics.

We cannot expect that the telecommunications industry will stand still in future, however your company is now in an excellent position to generate profits from the continued successful execution of its chosen strategy. This strategy rests chiefly on the major investment the company has made in broadband infrastructure, giving us the best xDSL network in the country. BroadbandNext enjoys the advantages of MSAN architecture, providing massive capacity per chassis and wonderful flexibility, along with �00% fibre backhaul which ensures that the huge increases in video traffic that are being experienced across the Internet can be carried without stress to and from our customers. Very few competitors are in this enviable position, with most needing to re-architect their DSLAMs and exchange backhaul to cope with the step-change which the new traffic levels represent.

The past year has been one of significant challenges and changes within the Eftel business, as we have moved from almost total reliance on other suppliers to the new BroadbandNext network. Substantial one-off expenses were incurred as customers were migrated on to the new infrastructure, and monthly overheads have also increased. however the marginal cost of providing services has fallen dramatically, meaning that sales growth translates to strong profitability.

The new business processing centre in Kuala Lumpur is now operating at full strength and generating excellent service levels in both back-office and customer service operations. Significant costs have been expensed during the period in this exercise, however it has permanently lowered the company’s operating expenses.

EBITDA hit its low point in Sep/Oct 08, however underlying EBITDA is growing as the benefits of BroadbandNext and our other initiatives flow through.

While undertaking this major transformation, your company has continued to grow, with record revenues, and our seventh consecutive year of positive operating cash flow. The EBITDA loss of $0.9m in the first half contrasts pleasingly with a positive EBITDA of $�.�m in the second half. Your company has given earnings guidance of $3m EBITDA for �009-�0.

The year has seen a number of significant events, including the creation of our new wholesale division, the Customer Focus Initiative, the acquisition of the Concept Group and the creation of alliances with key industry players, including Dodo, Wideband, Amnet and Nextep (a division of NEC Australia).

Eftel’s flagship broadband brand, aaNet, continues to outperform the industry. In the �008 Australian Broadband Survey, nearly 90% of customers said they would recommend the brand, compared with less than 50% for the major telcos.

At the time of writing there are significant questions about how the Federal Government’s intervention in our sector, particularly proposed changes to Telstra and the planned National Broadband Network will affect your company. To place these things in a contextual timeframe, estimates are of between 8 and �6 years for these plans to be completed. Yet it is clear that the public will not wait this long for faster broadband. Demand for the technology Eftel has invested in is growing at present, and will continue to grow strongly in the years ahead.

John Lane

Chief Executive Officer

CEO’S rePort


Your directors present their report on the company and its controlled entities for the financial year ended 30 June �009.

Directors

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

Russell Collett (retired �0th October �008) Jeremy Cousins Simon Ehrenfeld John Lane (appointed �8th November �008) Jurgen Steinert (retired �8th November �008) Paul Stevenage

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

Company Secretary

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

Principal Activities

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

Telecommunications and supply of Internet services;

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

Operating Results

The consolidated profit (loss) of the economic entity after providing for income tax was ($5.745m) (�008: Profit of $0.�70m).

Dividends Declared or Recommended

No dividend was declared or recommended during the �008-09 period.

Review of Operations

Significant events during the �008-09 Reporting Period:

Acquisition of assets of the Conceptual Internet Group.

Acquisition of CGOC Malaysia.

Expansion of BroadbandNext project:

Secured exclusive access to MPORT DSLAM infrastructure of NEXTEP (a division of NEC Australia).

Network partnership with Wideband to access regional Victorian ADSL�+ exchange infrastructure.

Partnership with Dodo to provide access to the Eftel BroadbandNext network.

Clearing of all Westpac finance facilities and the lifting of the fixed/floating charge on the company.

Completion of financing agreement with key supplier.

Significant events since the end of the Reporting Period:

Successfully raised $�.��4m from undertaking Non-renounceable Rights Issue, including shortfall placement.

Further expansion of BroadbandNext Network by adding �� BroadbandNext Exchanges in Western Australia.

Secured $0.9m long-term debt facility.

Refinanced a vendor finance facility of $�.75m.

Financial Position

The net assets of the economic entity were $�0.7�7m at 30 June �009 ($�5.85�m at 30 June �008). A significant goodwill writedown was conducted. During the period, the company also carried out a significant investment in infrastructure involving the installation of MSAN (Multi Service Access Node) equipment into approximately 70 exchanges. This infrastructure is enabling the company to implement substantial savings in the supply of broadband Internet services.

With seven years of positive operating cash flow, and expected substantial reductions in the costs of supplying services, the directors believe the group is in a strong and stable financial position to expand and grow its current operations.

Significant Changes in State of Affairs

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

Acquisition of the assets of the Conceptual Internet Group and CGOC Malaysia.

Expansion of the BroadbandNext project

Completion of a major financing agreement with a key supplier.

Future Developments

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

i.

ii.

iii.

DIRECTORS’ rePort


Information on Board Members

Simon Ehrenfeld MBA MMR - EXECUTIVE ChAIRMAN (Age 4�)

Simon served as the CEO of Eftel Limited (formerly Datafast Telecommunications Ltd) from �00�-�009, during which time the company grew to become a Top �0 National Internet Provider with Australia’s 6th largest broadband network. he holds a Master of Business Administration degree with 5 Dux awards from the University of Western Australia, as well as a Masters in Management Research.

Simon is a former State President and honorary Life Member of the Young Liberal Movement of Australia. he has served as Managing Director of various ISPs in the Eftel group for �3 years.

Simon has served as a member of the nomination committee, and the stakeholder relations committee. he is currently a member of the remuneration committee.

John Lane - ChIEF EXECUTIVE OFFICER (Age 4�)

John has �0 years experience in sales and IT, including co-founding multimedia and Internet business hotmix Group, and taking Internet directory aussie.com.au public in �999. he has been with Eftel for 8 years, and has negotiated numerous ISP acquisitions and BroadbandNext partnerships.

John has previously served as Chief Operating Officer and National Sales Manager of Eftel.

John has served as a Director since November �008 and as Chief Executive Officer since March �009.

Russell Collett Dip.R.E.M - NON-EXECUTIVE DIRECTOR (retired on �0 October �008) (Age 45)

Russell is a Licensed Real Estate Agent, Auctioneer, and Business Agent. he is the Managing Director of Collett Realty.com. Russell has over �0 years management experience, and served as a director for 5 years.

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

Jeremy Cousins - NON-EXECUTIVE DIRECTOR (Age 4�)

Jeremy has over �0 years experience in a variety of commercial roles, including �0 years in the Internet and telecommunications industry. he has served at the highest executive levels of Eftel Limited and, having most recently served as Commercial Relations Manager prior to becoming a Non-executive Director in �007.

Jeremy has served as a member of the nomination committee and currently serves as a member of the audit committee.

Jurgen Steinert MACS PCP GAICD - EXECUTIVE DIRECTOR (retired on �8 November �008) (Age 38)

Jurgen is currently on sabbatical leave, prior to which he served as the Chief Technical Officer of Eftel. he has a strong technical knowledge in addition to his background in management. Jurgen previously served as the Director of Finance and Resources.

he is a certified member of the Australian Computer Society, as well as a member of the Institute of Company Directors. Originally starting with Southwest Internet Systems, he has been with ISPs in the group for �3 years.

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

Paul Stevenage ASA - NON-EXECUTIVE DIRECTOR (Age 40)

Paul is a National Finance Manager at Woolworths Ltd, one of Australia’s largest companies. he has previously served in senior roles at other major Australian companies, including Boral Ltd, Mayne Nickless and 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 has served as a director for 6 years.

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

John Raftis CPA ACIS - COMPANY SECRETARY (Age 40)

John holds a Bachelor of Business degree, and completed his CPA with one of the highest rankings in Australia. he is also a Chartered Secretary and holds a Dux Award in Corporate Governance. John has �9 years of industry-based accounting experience. John is the Chief Financial Officer and has been with ISPs in the group for 9 years.

John serves as secretary to the audit committee.

DIRECTORS’ rePort


REMUNERATION REPORT (Audited)

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

Directors during the year:

Simon Ehrenfeld Executive Chairman

John Lane Chief Executive Officer (Appointed as a Director �8 November �008)

Russell Collett Non-executive Director (Retired on �0 October �008)

Jeremy Cousins Non-executive Director

Jurgen Steinert Executive Director (Retired on �8 November �008)

Paul Stevenage Non-executive Director

Other key management personnel during the year:

Gregory Broux Executive Manager (Commenced employment on � September �008)

Ryan Bunter Customer Service Manager (Commenced employment on �� May �009)

Luke MacKinnon Major Projects Manager (Ceased employment on �9 September �008)

John Raftis Chief Financial Officer/Company Secretary

Paul Rolfe Network Manager

Richard Swancott Marketing Manager

a)

b)

Remuneration Policy

Overview

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

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

The remuneration framework in place for �008-09 was produced by a three member remuneration committee during �006-07. Due to the downsizing of the Board which occurred in late �007, the remuneration committee currently comprises two members, including the executive chairman. As a result of this change, it is the policy of the remuneration committee to refer any resolution to increase the remuneration entitlements of the executive chairman to the Board. No resolutions of this nature were referred or required to be referred during �007-08 or �008-09.

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

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

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

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

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

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

The remuneration policy has been tailored to increase goal congruence between shareholders, directors and executives. This policy includes the payment of a performance bonus based on key performance indicators. 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 it sees fit, to ensure use of the most cost effective and efficient methods.

DIRECTORS’ rePort


Performance Based Remuneration

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

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

The company rewards its senior executives with incentive-based remuneration based on achieving ambitious performance targets for three key indicators – number of active accounts, EBITDA and share price. For achieving each of these targets in �007-08, the incentives were capped at $85,000 spread across all senior executives, of which no more than 60% could be paid to the executive directors. To achieve the full incentive bonus in each category, the company was required to increase the number of active accounts by �0%, increase EBITDA by �0%, and increase the share price by �00%. The number of active accounts is measured on information recorded in the company’s customer service systems. EBITDA is measured on comparisons of audited figures between financial years. Share price is measured by the weighted average price in the month following release of the Annual Report. The amount of each incentive bonus is scaled back for partial achievement of targets. For each item where the previous year’s result was successfully maintained but not improved upon, no incentive bonus was payable. The senior executives were responsible as a group for working towards these targets. The senior executives also had individual KPI incentives for which a combined limit of $85,000 was payable across all senior executives, and of which no more than 60% could be paid to the executive directors. For each KPI incentive

the managing director was limited to 30% of the bonus. For �008-09, the share price incentive was abolished and replaced by the issue of options to key employees. This change had three principal benefits: (i) reducing the company’s potential commitment by $85,000pa (ii) encouraging the retention of key employees, and (iii) creating a potential new source of capital to help fund the company’s projects. Neither the executive directors nor the non-executive directors have received any options, and the share price incentive for the executive directors has been abolished without replacement or compensation.

Additional incentive bonuses for exceeding the performance targets in �007-08 applied in the event that the KPI target for any category was exceeded. The only growth target to be exceeded was EBITDA growth, which was rewarded at 6% of EBITDA above target, representing a total cost of less than $4�,000. The additional incentive bonuses stated are the collective total payable across the remuneration packages of all senior executives, of which no more than 60% could be paid to the executive directors, and no more than 30% to the managing director. It is considered that the issue of options to key employees provides sufficient incentive for EBITDA targets to be exceeded in future. Consequently, for �008-09, there is no additional incentive bonus scheme, and it has been abolished without replacement or compensation, saving the company further potential costs.

The current incentive scheme is viewed as effective. The company has required its senior executives to cope with fewer supporting resources. This has resulted in a continued significant reduction in management and labour costs as a proportion of revenue (�8.�% in �005-06, ��.6% in �006-07, �8.9% in �007-08, �6.8% in �008-09), as well as a greater focus on achievement in the key areas. Over the �007-08 financial year there was substantial improvement in the EBITDA performance of the company. The subsequent increase in Net Profit After Tax allowed the company to announce its maiden dividend for shareholders. While a few key factors, particularly the BroadbandNext build and currency writedown, led to a downturn in EBITDA in the first half of �008-09, EBITDA performance in the second half of �008-09 has improved significantly. It is also viewed that the remuneration focus needs to support a continuation of the current improvements so that the company may resume dividends and enhance sustainable shareholder wealth.

Consolidated Performance and Earnings Per Share

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

2004 2005 2006 2007 2008 2009

Total Revenue ($’000) �8,604 �6,958¹ �6,��0 34,43� 36,4�7 38,�75

Earnings before Interest, Taxation, Depreciation & Amortisation ($’000)

3,�6� 3,956 3,�43 �,59� �,6�3 �74�

Net Profit After Tax ($’000) (7�7) �,594 799 (746) �70 (5,744)

Earnings Per Share (cents) (0.070) �.084 0.506 (0.473) 0.�7� (3.5�)

Dividends per share (cents) - - - - 0.� -

Share price at the start of the year (cents) 5.03 �6.03 �3.03 6.� 8.4 5.6

Share price at the end of the year (cents) �6.03 �3.03 6.� 8.4 5.6 3.04

� Includes $43�,�50 from sale of mining tenements � Excludes impairment of goodwill of $3,�66,4�0 3 Share price adjusted for � for �0 consolidation in December �005 4 � for � Non-renounceable Rights Issue at �.95 cents per share announced on �9 June �009

DIRECTORS’ rePort


The majority of short term incentives paid during the �008-09 relate to performance during the �007-08 year. Details of the incentives paid to the executive management are as follows:

Bonus $ % of Normal Maximum Bonus paid % of Normal Maximum Bonus not achieved

Simon Ehrenfeld 59,30� 58.�% 4�.9%

Jurgen Steinert �6,598 57.4% 4�.6%

John Lane �4,69� 60.5% 39.5%

Luke MacKinnon* �4,456 56.7% 43.3%

John Raftis �4,487 60.0% 40.0%

Paul Rolfe �,040 60.0% 40.0%

Richard Swancott �5,304 56.3% 43.7%

Greg Broux** - n/a n/a

Ryan Bunter*** - n/a n/a* Employment ceased on �9/9/�008 ** Commenced �/9/�008 *** Commenced ��/5/�009

Directors and key management personnel remuneration

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

Consolidated Company

2009 2008 2009 2008

$ $ $ $

Short-term employee benefits �,�95,6�9 �,3�8,458 �,�95,6�9 �,3�8,458

Post-employment benefits ��9,446 �83,37� ��9,446 �83,37�

Share-based payment 54,3�3 - 54,3�3 -

Total �,569,388 �,5��,830 �,569,388 �,5��,830

All employees are employed through Eftel More Than Broadband Pty Ltd (formerly Eftel Pty Ltd), a �00% owned subsidiary of Eftel Limited.

DIRECTORS’ rePort

�0 Eftel Limited. Annual Report 2009

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

Directors’ remuneration

2009

Short-term employee benefits Post-employmentShare-based

payment Total%

Performance RelatedSalary &

feesBonus

Non-Monetary

Other Superannuation Other Options

$ $ $ $ $ $ $ $ %

Simon Ehrenfeld �5�,745 59,30� - - 48,��5 - - 359,�6� �6.5%

Russell Collett � 8,750 - - - 788 - - 9,538 -

Jeremy Cousins �5,000 - - - �,�50 - - �7,�50 -

John Lane � �50,944 �4,690 - - �8,�97 - ��,90� ��6,733 ��.9%

Jurgen Steinert 3 65,957 �6,598 - - �5,859 - - ��8,4�4 ��.4%

Paul Stevenage �5,000 - - - �,�50 - - �7,�50 -

Total 527,396 110,589 - - 97,459 - 22,902 758,346� The remuneration was for the period from � July �008 to �0 October �008 � Mr John Lane was appointed as Director on �8 November �008. The remuneration was for the period from � July �008 to 30 June �009. he received �,9�7,000 options as part of the option issue to employees finalised on �7 July �008 before being appointed as a Director. 3 The remuneration was for the period from � July �008 to �8 November �008.

2008


payment Total%


feesBonus

Non-Monetary


$ $ $ $ $ $ $ $ %

Glenn Darlington � �6,606 - - - �,494 - - �8,�00 -

Simon Ehrenfeld �5�,835 43,009 �,748 - 40,46� - - 337,054 ��.8%

Russell Collett �4,��9 - - - �,�7� - - �6,30� -

Jeremy Cousins � ��,98� - - - �,�68 - - �4,�49 -

Daniel Ehrenfeld 3 63,760 - - - 5,738 - - 69,498 -

Greg Searle 4 4,�30 - - - 380 - - 4,6�0 -

Jurgen Steinert �48,4�5 ��,656 4,��3 - 48,8�6 - - ��4,��0 �0.�%

Paul Stevenage �4,��9 - - - �,�7� - - �6,30� -

Total 546,095 65,665 5,961 - 102,412 - - 720,133� The remuneration was for the period from � July �007 to �7 November �007 � The remuneration was for the period from �� December �007 to 30 June �008 3 The remuneration was for the period from � July �007 to �5 October �007 4 The remuneration was for the period from �7 September �007 to �7 November �007

DIRECTORS’ rePort

��Eftel Limited. Annual Report 2009

Other key management personnel remuneration

2009


payment Total%


feesBonus

Non-Monetary

Other Superannuation Termination Options

$ $ $ $ $ $ $ $ %

Gregory Broux � �3�,876 - - 3�,34� 7,8�7 - - �7�,034 -

Ryan Bunter � �0,6�5 - - - 955 - - ��,570 -

Luke MacKinnon 3 4�,387 �4,456 - - 6,6�0 50,7�8 - ��4,�9� ��.7%

John Raftis �48,767 �4,486 - - �6,8�5 - �3,087 ��3,�55 �7.6%

Paul Rolfe �08,365 �,040 - - �6,�54 - 5,�37 �3�,796 5.5%

Richard Swancott ��8,007 �5,304 - - ��,898 - �3,087 �69,�96 �6.8%

Total 570,017 56,286 - 31,341 71,259 50,728 31,411 811,042� The remuneration was for the period from � September �008 to 30 June �009. From � January �009, $��,�0� was paid from CGOC (Malaysia) at the average exchange rate of �.8�47 � The remuneration was for the period from �� May �009 to 30 June �009. 3 The remuneration was for the period from � July �008 to �9 September �008. Issued options expired during the period due to cessation of employment.

2008


payment Total%


feesBonus

Non-Monetary


$ $ $ $ $ $ $ $ %

John Lane �3�,599 �0,388 - - �0,785 - - �63,77� 6.3%

Luke MacKinnon �59,5�9 �6,�83 800 - �5,866 - - �9�,378 8.4%

John Raftis �48,075 �0,898 �,68� - �3,356 - - �84,0�0 5.9%

Paul Rolfe �0�,�0� - - - 9,309 - - ��0,5�0 -

Richard Swancott ��9,673 9,7�0 - - ��,644 - - �4�,0�7 6.9%

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

Performance Income as a Proportion of Total Remuneration

Executive directors and executives are offered performance 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 it sees 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 �009

No shares were issued to directors and executives as part of remuneration for the year ended 30 June �009. $0.06 Options were issued to specified executives for the year ended 30 June �009. (�008: nil)

DIRECTORS’ rePort

�� Eftel Limited. Annual Report 2009

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

2009Balance

01/07/2008Received as

Remuneration

Shares issued as a result of Option

exercised

Change in recognition of director/ executive

holdings due to appointment, retirement or resignation

Net Change Other*

Balance 30/06/2009

Directors

Russell Collett � 43,000 - - (43,000) - -

Jeremy Cousins � �3,480,785 - - - 960,600 �4,44�,385

Simon Ehrenfeld � �8,503,75� - - - �,�54,673 �9,658,4�4

John Lane 3 - - 48,960 �,900,0�7 - �,948,987

Jurgen Steinert 4 6,��4,590 - - (6,��4,590) - -

Paul Stevenage �00,000 - - - - �00,000

Other key management personnel

Gregory Broux 5 - - -

8,350,000 - 8,350,000

Ryan Bunter 6 - - - - - -

John Lane3 �,784,383 - ��5,644 (�,900,0�7) - -

Luke MacKinnon 7 7,070,666 - - (7,070,666) - -

John Raftis �,7�5,000 - �63,�44 - (�5,000) �,873,�44

Paul Rolfe 4,005,466 - �3,600 - - 4,0�9,066

Jurgen Steinert 4 - - - 6,��4,590 - 6,��4,590

Richard Swancott - - �0�,0�9 - - �0�,0�9

* Net change other refers to shares purchased or sold during the financial year. � Mr Russell Collett ceased office as a Director on �0 October �008. � Mr Jeremy Cousins and Mr Simon Ehrenfeld are directors of Paradox Investments Pty Ltd and Northlink holdings Pty Ltd, companies that held �8,04�,857 and �,�74,5�8 shares in Eftel respectively. The total of these shares are included in the holdings of both Mr Ehrenfeld and Mr Cousins. 3 Mr John Lane was appointed as a Director on �8 November �008. 4 Mr Jurgen Steinert ceased office as a Director on �8 November �008. he has taken one year’s leave and remains as an executive. 5 Mr Gregory Broux commenced employment on � September �008. Mr Gregory Broux is a director of Conceptual Internet Australia Pty Ltd, which holds �,350,000 shares. Conceptual Internet Australia Pty Ltd is associated with Netnode Pty Ltd, which holds 6,000,000 shares. 6 Mr Ryan Bunter commenced employment on �� May �009. 7 Mr Luke MacKinnon ceased employment on �9 September �008.

DIRECTORS’ rePort

�3Eftel Limited. Annual Report 2009

2008Balance

01/07/2007Received as

Remuneration

Shares issued as a result of Option

exercised

Change in recognition of director/ executive

holdings due to appointment, retirement or resignation

Net Change Other*

Balance 30/06/2008

Directors

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

Glenn Darlington � - - - - - -

Daniel Ehrenfeld � �5,444,585 - - (�5,444,585) - -

Simon Ehrenfeld 5 �7,49�,983 - - - �,0�0,768 �8,503,75�

Jeremy Cousins 4 5 - - - ��,865,0�7 6�5,768 �3,480,785

Greg Searle 3 - - - - - -

Jurgen Steinert 6,068,96� - - - 55,6�8 6,��4,590

Paul Stevenage �00,000 - - - - �00,000


Jeremy Cousins 4 ��,380,0�7 - - (��,380,0�7) - -

John Lane 988,�7� - - - 796,�� ,784,383

Luke MacKinnon 7,�70,6�3 - - - (�99,947) 7,070,666

John Raftis 999,000 - - - 7�6,000 �,7�5,000

Paul Rolfe - - - 3,905,466 �00,000 4,005,466

Richard Swancott - - - - - -

* Net change other refers to shares purchased or sold during the financial year. � Mr Glenn Darlington ceased office as Chairman on �7 November �007. � Mr Daniel Ehrenfeld ceased office as a Director on �5 October �007. 3 Mr Greg Searle was appointed as a Director on �7 September �007 and ceased office as a Director on �7 November �007. 4 Mr Jeremy Cousins was appointed as a Director on �� December �007. 5 Mr Jeremy Cousins and Mr Simon Ehrenfeld are directors of Paradox Investments Pty Ltd and Northlink holdings Pty Ltd, companies that held �7,44�,857 and �,388,�60 shares in Eftel respectively. The total of these shares are included in the holdings of both Mr Ehrenfeld and Mr Cousins.

DIRECTORS’ rePort


Number of Options in which Directors and other key management personnel have either a direct or indirect interest:

2009 Balance

01/07/2008Options Granted

Options Exercised

Options Lapsed due to retirement

or resignationOther*

Balance 30/06/2009

Directors

Russell Collett - - - - - -

Jeremy Cousins - - - - - -

Simon Ehrenfeld - - - - - -

John Lane � - - (48,960) - �,80�,356 �,75�,396

Jurgen Steinert - - - - - -

Paul Stevenage - - - - - -


Gregory Broux - - - - - -

Ryan Bunter - - - - - -

John Lane - �,9�7,000 (��5,644) (�,80�,356) -

Luke MacKinnon - �,667,000 - (�,667,000) - -

John Raftis - �,667,000 (�63,�44) - - �,503,756

Paul Rolfe - 667,000 (�3,600) - - 653,400

Richard Swancott - �,667,000 (�0�,0�9) - - �,564,97� � Mr John Lane was appointed as Director on �8 November �008. he received �,9�7,000 options as part of the option issue to employees finalised on �7 July �008 before being appointed as a Director.

Number of Options in which Directors and other key management personnel have either a direct or indirect interest:

2008 Balance

01/07/2007Options Granted

Options Exercised

Options Lapsed due to retirement

or resignationOther*

Balance 30/06/2008

Directors

Russell Collett - - - - - -

Glenn Darlington - - - - - -

Daniel Ehrenfeld - - - - - -

Simon Ehrenfeld - - - - - -


Greg Searle - - - - - -

Jurgen Steinert - - - - - -

Paul Stevenage - - - - - -



John Lane - - - - - -

Luke MacKinnon - - - - - -

John Raftis - - - - - -

Paul Rolfe - - - - - -

Richard Swancott - - - - - -

DIRECTORS’ rePort


Employment Contracts of Directors and Senior Executives

The employment conditions of the Executive Chairman, Simon Ehrenfeld, the Chief Executive Officer, Mr John Lane, and specified executives are formalised in contracts of employment. All executives are permanent employees.

Termination Costs

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

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

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

B

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

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

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

i.

ii.

iii.

� month’s salary� week per year of continuous full-time employment

C

7 years of Senior Management service and �0 Years continuous full-time employment OR

5 years Executive Director service and 7 Years continuous full-time employment OR

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

i.

ii.

iii.

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

D

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

7 years Executive Director service and �0 Years continuous full-time employment OR

5 years Managing Director service and 7 Years continuous full-time employment

i.

ii.

iii.

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

E

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

7 years Managing Director service and �0 Years continuous full-time employment

i.

ii.3 months’ salary

� weeks per year of continuous full-time employment

F�0 years Managing Director service and �5 Years continuous full-time employment

i.4 months’ salary

� weeks per year of continuous full-time employment

The following criteria apply to the Termination Costs Schedule:

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

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

Length of Continuous Full-time Employment relates to service to Eftel Ltd and/or any of its subsidiaries unless otherwise agreed between Eftel Ltd and the Employee.

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

�.

�.

3.

4.

DIRECTORS’ rePort


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

Executive Current Classification BandTermination Notice Period Required

Length of Full-time Continuous Employment

Gregory Broux Senior Management A 3 months � year

Ryan Bunter Senior Management A � months <� year

Simon Ehrenfeld Executive Director E* 3 months �3 years

John Lane Managing Director B 3 months 8 years

John Raftis Senior Management B 3 months 9 years

Jurgen Steinert Senior Management D* � months �� years**

Richard Swancott Senior Management A � months 8 years* Under agreements that existed prior to the current schedule being set, for voluntary or mutually agreed termination, Mr S Ehrenfeld is entitled to an additional three months salary and no cap, and Mr J Steinert is entitled to an additional two months and no cap. ** On one year’s leave.

Meetings of Directors

During the financial year, �3 meetings of directors (excluding committees of directors) were held. Attendances by each director during the year were as follows:

BOARD MEETINGS AUDIT COMMITTEE REMUNERATION COMMITTEE

Number eligible to attend

Number Attended


Number Attended


Number Attended

Simon Ehrenfeld �3 �3 � �

John Lane 6 6

Russell Collett 4 3 � �

Jeremy Cousins �3 �3 � �

Jurgen Steinert 7 6 � �

Paul Stevenage �3 �3 3 3 � �

Directors’ Shareholdings

The following table sets out the relevant interest in Shares and Options of the company of all persons who held directorships during �008-09, as at the date of this report:

Fully Paid Ordinary Shares 6c Options Exp 31/12/09

Number Number

Directors

Simon Ehrenfeld 44,487,637

John Lane 3,�53,48� �,75�,396

Russell Collett 43,000

Jeremy Cousins 36,66�,078

Jurgen Steinert 6,6�4,590

Paul Stevenage �50,000

Post 30 June �009, additional shares were issued to those shareholders who participated in the Rights Issue. This is a significant factor in the difference between the balances above and those as at 30 June �009.

DIRECTORS’ rePort


Indemnifying Officers or Auditor

The company has entered into an agreement to pay insurance premiums to indemnify directors and officers against any payment they shall become legally obligated to make arising out of claims made against them in their capacity as directors or officers of the company. The total annual premium is $�5,�63.50.

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

Options

As at 30 June �009, the unissued ordinary shares of Eftel Limited under option are as follows:

Grant Date Date of Expiry Exercise Price Number under Option Number of Option holders

�5 June �000 �6 June �0�0 $�.00 �00,000 �

�8 July �008 3� December �009 $0.06 9,659,357 �4

During the year ended 30 June �009, 5�0,�43 ordinary shares of Eftel Limited were issued on the exercise of $0.06 Options. �,334,000 $0.06 Options expired due to cessation of employment.

No person entitled to exercise the Options had or has any right by virtue of the Options 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

There were not any fees for non-audit services paid/payable to the external auditors during the year ended 30 June �009.

Auditor’s Independence Declaration

The lead auditor’s independence declaration for the year ended 30 June �009 has been received and can be found on page �8 of the directors’ report.

Rounding off of Amounts

The company is an entity to which ASIC Class Order 98/�00 dated �0 July �998 applies and, accordingly, amounts in the financial statements and directors’ report have been rounded to the nearest thousand dollars.

Signed in accordance with a resolution of the Board of Directors made pursuant to s. �98(�) of the Corporations Act �00�.

Simon Ehrenfeld Director

Dated this 30th day of September �009.

DIRECTORS’ rePort


DIRECTORS’ rePort


Eftel Limited produces its Corporate Governance guidelines giving consideration to the Corporate Governance Principles and Recommendations of the ASX Corporate Governance Council.

�. 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/chief executive officer;

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.

The chief executive officer is accountable to the board for the operational 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. The chief executive officer delegates responsibilities to the executive management as appropriate.

The performance of senior executives is evaluated by the chief executive officer. The performance of the executive management is considered with regard to the achievement of key targets set by the chief executive officer. A review of the executive management was conducted in �008/09.

The performance of the chief executive officer is evaluated by the Board and takes into account the financial performance of the organisation as well as non-financial measures such as the management of stakeholders.

�. COMPOSITION OF ThE BOARD

The company presently has two non-executive directors and two executive directors. Of the non-executive directors, Mr Paul Stevenage is considered by the Board to be an independent director. Although the majority of the Board is not regarded as independent according to the definition in the ASX Corporate Governance Principles and Recommendations, the Board is structured so as to add value to the organisation. The board members have a vast amount of knowledge and experience of the company and the industry, are aware of their obligations, and exercise independent judgement with regard to Board decisions. The increased knowledge and experience allows the board to more effectively drive enhanced performance of the executive management. The names of the directors of the company in office at the date of this Statement are set out on page 5 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.

The Chairman of Directors is not an independent director according

to the definition in the ASX Corporate Governance Principles and Recommendations. The Board believes that the appointment of Mr Simon Ehrenfeld to the role of executive chairman, as both the founder of the Eftel business and its longstanding previous Managing Director, allows him to add greater value to the organisation than an independent or non-executive chairman.

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 6 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.

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. All members of the organisation are expected to abide by the code of conduct published within the Eftel Team Guide.

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 4 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 results for the half-year and preliminary results for the full financial year.

In periods not covered by (iii), 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 chief executive officer and chief financial officer report in writing to the audit committee that the consolidated financial statements of Eftel and its controlled entities for each half and full financial year present a true and fair view, in all material respects, of the group’s financial condition and operational results and are in accordance with accounting standards.

An audit committee was established during the �004 financial year. The current members of the Eftel audit committee are Mr Paul Stevenage and Mr Jeremy Cousins. The company secretary and chief financial officer John Raftis is the secretary to the committee. Mr Stevenage, who is an independent non-executive director, is the chairman of the committee. Mr Cousins is the other non-executive director on the board. Although the size and composition of the committee is not in line with the recommendation of the ASX Corporate Governance Principles and Recommendations, the board believes that the addition of an executive director would not enhance the committee’s independence, and that the committee contains the technical skills and acts independently so as to discharge its obligations effectively.

The qualifications of the members of the audit committee are contained on page 6 of the Directors’ Report. The meetings and attendance of the audit committee are also detailed in the Directors’ Report.

i.

ii.

iii.

iv.

a)

b)

CORPORATE governance statement


The audit committee has adopted a formal charter that specifies objectives as detailed below:

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; and

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. The board recognises that all investors and stakeholders are entitled to equal and timely access to balanced information that could impact, either positively or negatively, on the value of the company’s share price.

The board has established a Continuous Disclosure Policy applicable to all employees of the organisation. Announcements are circulated to board members before they are released to the ASX. The company secretary is responsible, under the ASX Listing Rules, for all communications with the ASX. The chief executive officer 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); and

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 to ensure the group’s external auditor attends the AGM.

7. RISK MANAGEMENT

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

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

Existing 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 chief executive officer and chief financial officer report in writing to the audit committee that:

the declaration regarding the integrity of the financial reports, provided in accordance with s�95A of the Corporations Act, 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 in relation to financial reporting.

8. 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 7 of this Annual Report.

A remuneration committee was established during the �004 financial year.

The committee has established a formal charter.

The role of the remuneration committee is to:

Review and recommend to the Board an 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; and

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.

It is the present practice of the board to appoint at least two directors to the remuneration committee who are separated from the day to day operations of the company. The committee comprises Mr Paul Stevenage and Mr Simon Ehrenfeld. The committee is chaired by Mr Stevenage, an independent and non-executive director. As executive chairman, the board believes Mr Ehrenfeld is the appropriate person to be the second member of the committee.

Whenever the committee comprises only one non-executive director, any proposal to increase remuneration for the executive directors on the committee are referred to the board. The skills and experience of the remuneration committee members, and the attendance at committee meetings, are detailed in the Directors’ Report.

The fees payable to individual non-executive directors have been determined by the board within the aggregate sum of $�50,000 per annum provided for under clause ��.� 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

�.

�.

3.

�.

�.

3.


��Eftel Limited. Annual Report 2009

to a refund of approved expenditure and may also receive payments for consultancy work contracted for and performed on the company’s behalf. The remuneration levels of executive directors are determined by the remuneration committee after taking into consideration those that apply to similar positions in comparable companies in Australia.

Corporate Governance

Unless disclosed above, all the best practice recommendations of the ASX Corporate Governance Council have been applied for the entire financial year ended 30 June �009.



Income statement for the financial year ended 30 June 2009Consolidated Company

Note2009 2008 2009 2008

$’000 $’000 $’000 $’000

Service revenue 4 37,467 35,946 25,144 21,947

Other revenue 4 708 481 913 473

Communication expenses 4 (27,603) (24,106) (19,822) (16,051)

Employee benefits expenses (6,399) (6,883) (3,191) (2,847)

Occupancy expenses (1,145) (780) (535) (403)

Depreciation and amortisation expenses 4 (2,504) (1,785) (1,881) (794)

Finance expenses 4 (347) (182) (347) (182)

Impairment of goodwill 4 (3,166) - -

Impairment of investment in subsidiaries 4 - - (4,001) -

Other expenses (2,854) (2,034) (6,872) (1,594)

Profit/(loss) before income tax expense (5,843) 657 (10,592) 549

Income tax benefit/(expense) 5 98 (387) 124 (255)

Profit/(loss) for the period (5,745) 270 (10,468) 294

Profit/(loss) attributable to members of Eftel Limited (5,745) 270 (10,468) 294

Earnings per share:

Basic (cents per share) 21 (3.507) 0.171

Diluted (cents per share) 21 (3.507) 0.171

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

FInanCIal REPORT


Balance sheet as at 30 June 2009Consolidated Company

Note2009 2008 2009 2008

$’000 $’000 $’000 $’000

Current assets

Cash and cash equivalents 6 2,004 2,242 1,920 1,990

Trade and other receivables 8 3,651 3,242 1,980 1,574

Other 9 869 875 752 537

Total current assets 6,524 6,359 4,652 4,101

Non-current assets

Trade and other receivables 8 - - 3,947 4,882

Other financial assets 10 1 1 6,848 14,294

Property, plant and equipment 11 7,152 7,247 6,803 6,808

Deferred tax assets 5 3,680 3,587 2,963 2,842

Goodwill 12 10,347 12,556 1,821 1,321

Other intangible assets 13 1,416 1,515 1,171 864

Total non-current assets 22,596 24,906 23,553 31,011

Total assets 29,120 31,265 28,205 35,112

Current liabilities

Trade and other payables 14 8,384 9,996 7,083 8,772

Borrowings 15 2,572 13 2,572 13

Current tax payables 5 165 421 165 421

Provisions 16 355 372 - -

Deferred revenue 17 2,076 2,144 1,143 1,087

Total current liabilities 13,552 12,946 10,963 10,293

Non-current liabilities

Borrowings 15 4,060 1,750 3,891 1,750

Deferred tax liabilities 5 508 392 553 437

Provisions 16 283 326 - -

Total non-current liabilities 4,851 2,468 4,444 2,187

Total liabilities 18,403 15,414 15,407 12,480

Net assets 10,717 15,851 12,798 22,632

Equity

Issued capital 18 38,262 37,708 38,262 37,708

Reserves 19 57 - 80 -

accumulated losses 20 (27,602) (21,857) (25,544) (15,076)

Parent entity interest 10,717 15,851 12,798 22,632

Total equity 10,717 15,851 12,798 22,632


FInanCIal REPORT


Statement of changes in equity for the financial year ended 30 June 2009Consolidated Company

Issued Capital

Employee share option

reserve

Foreign currency

translation reserve

Accum Losses

Total Equity

Issued Capital

Employee share option

reserve

Foreign currency

translation reserve

Accum Losses

Total Equity

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

Balance at 1 July 2007 37,708 - - (21,970) 15,738 37,708 - - (15,213) 22,495

Profit for the year - - - 270 270 - - - 294 294

Payment of dividends (note 22) - - - (157) (157) - - - (157) (157)

Balance at 30 June 2008 37,708 - - (21,857) 15,851 37,708 - - (15,076) 22,632

loss for the year - - (5,745) (5,745) - - - (10,468) (10,468)

Issue of shares under business combinations

551 - - - 551 551 - - - 551

Issue of shares under share option plan

30 - - - 30 30 - - - 30

Share issue costs (27) - - - (27) (27) - - - (27)

Recognition of share-based payments

- 80 - - 80 - 80 - - 80

Exchange differences arising on translation of foreign operations

- - (23) - (23) - - - - -

Balance at 30 June 2009 38,262 80 (23) (27,602) 10,717 38,262 80 - (25,544) 12,798


FInanCIal REPORT


Cash flow statement for the financial year ended 30 June 2009Consolidated Company

Note 2009 2008 2009 2008

$’000 $’000 $’000 $’000

Cash flows from operating activities

Receipts from customers 41,050 39,648 28,642 24,575

Payments to suppliers and employees (40,185) (37,492) (27,797) (22,594)

Interest and other costs of finance paid (347) (182) (347) (182)

Income taxes paid - (51) - (51)

net cash provided by/(used in) operating activities 6(c) 518 1,923 498 1,748

Cash flows from investing activities

Interest received 54 114 293 106

Payment for property, plant and equipment (1,935) (2,097) (1,981) (2,090)

Proceeds from sale of property, plant and equipment 215 - 208 -

net cash received from business acquisitions 6(b) 48 - 48 -

Other - (49) - (49)

net cash provided by/(used in) investing activities (1,618) (2,032) (1,432) (2,033)

Cash flows from financing activities

Proceeds from issues of equity securities 31 - 31 -

Payment for share issue costs (28) - (28) -

Proceeds from borrowings 1,012 1,750 1,014 1,750

Repayment of borrowings - (1,850) - (1,850)

Dividends paid to equity holders of the parent (153) - (153) -

net cash provided by/(used in) financing activities 862 (100) 864 (100)

net increase/(decrease) in cash and cash equivalents (238) (209) (70) (385)

Cash and cash equivalents at the beginning of the financial year 2,242 2,451 1,990 2,375

Cash and cash equivalents at the end of the financial year 6(a) 2,004 2,242 1,920 1,990


FInanCIal REPORT


1. General information

Eftel limited is a publicly listed company (EFT), incorporated in australia and operating in australia. Eftel owns a number of subsidiaries and has a business processing facility in Malaysia. Eftel limited is the ultimate parent entity. The registered office and principal place of business is at level 8, QV1 Building, 250 St George’s Terrace, Perth, Wa 6000.

Registered Office and Principal Place of Business

level 8 250 St George’s Terrace Perth Wa 6000

Other Offices

Melbourne Kuala lumpur

The principal activities of the consolidated entity are the provision of telecommunications and supply of Internet services.

2. Summary of accounting policies

Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordance with the Corporations act 2001, accounting Standards and Interpretations, and complies with other requirements of the law. 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 financial statements were authorised for issue by the directors on 30 September 2009.

Basis of preparation

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

Going Concern

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

as at 30 June 2009, the consolidated entity and parent entity had net current liabilities of $7.028m and $6.311m respectively, and had incurred losses of $5.745m and $10.468m respectively for the year then ended.

The company has been undergoing a transformation, from almost exclusive reliance upon wholesale broadband services supplied by other providers, to the construction and operation of its own broadband network. This exercise has resulted in significant capital expenditure and concomitant short-term trading losses, but has assisted the company in developing increasingly sustainable profitability.

The main contributing factors to the losses are:

Goodwill impairment of $3.166m for the consolidated entity

Costs associated with the new broadband network which were expensed as incurred

Recognition of unrealised foreign exchange losses of $0.281m for the consolidated entity and $0.270m for the parent entity

Tax adjustment of $0.334m for de-recognised deferred tax assets for the consolidated entity and parent entity

Depreciation and amortisation charges of $2.504m for the consolidated entity and $1.880m for the parent entity

Writedown of intercompany loans and investments in subsidiaries of $8.626m for the parent entity

after the add back of non-cash items, the resulting net profit would be $0.540m for the consolidated entity and $0.654m for the parent entity. The consolidated entity and parent entity had positive operating cash flows of $0.518m and $0.498m respectively. This represents the 7th consecutive year of positive operating cash flow.

The main contributing factors to the net current liability position of the consolidated entity are:

The recognition of $4.561 million of capital expenditure in trade and other payables for the Broadbandnext network infrastructure project which is expected to result in future increased profits and cash flows; and

Deferred revenue of $2.067 million. Deferred revenue is services invoiced in advance and as such, is a non-cash liability. Deferred revenue is spread across the large customer base of Eftel, and under the registered standard form of agreement for Eftel customers, prepayments (in accordance with the industry norm) are not refundable.

Since 30 June 2009 to the date of issue of this report, Eftel has:

Placed a total of $1.2m of shares in a Rights Issue and shortfall placement,

Finalised a long-term debt facility for $0.9m,

Refinanced a vendor finance facility, resulting in a reduction in current liabilities by $1.75m.

The directors have prepared cash flow forecasts that indicate that the consolidated entity and the parent entity will be profitable for the period ending 30 September 2010.

Based on the cash flow forecasts and the post-balance date events above, the directors are satisfied that the going concern basis of preparation is appropriate. The financial report has therefore been prepared on a going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.

Rounding of amounts

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

accounting Policies

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

Principles of consolidation

The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the consolidated entity, being the company (the parent entity) and its subsidiaries as defined in accounting Standard aaSB 127 ‘Consolidated and Separate Financial Statements’. a list of subsidiaries appears in note 25 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.

a)

FInanCIal REPORT


The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised.

The consolidated financial statements include the information and results of each subsidiary from the date on which the company obtains control and until such time as the company ceases to control such entity.

In preparing the consolidated financial statements, all intercompany balances and transactions, and unrealised profits arising within the consolidated entity are eliminated in full.

Goods and services tax

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

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

for receivables and payables which are recognised inclusive of GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.

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

Revenue recognition

Sale of goods

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

Rendering of services

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

installation fees are recognised on completion of the installation

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

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

Dividend and interest revenue

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

Income tax

Current tax

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

Deferred tax

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

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which

b)

i.

ii.

c)

d)

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

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

The Eftel group has entered into a Tax Funding and Sharing agreement between the entities in the tax-consolidated group. Therefore amounts are recognised as payable to or receivable by the company and each member of the group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement. Further information about the tax funding arrangement is detailed in note 5 to the financial statements. Where the tax contribution amount recognised by each member of the tax-consolidated group for a particular period is different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax credits in respect of that period, the difference is recognised as a contribution from (or distribution to) equity participants.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, cash in banks and

e)

FInanCIal REPORT


investments in money market instruments, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.

Financial assets

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

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

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

loans and receivables

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

Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amount of financial assets including uncollectible trade receivables is reduced by the impairment loss through the use of an allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

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.

f)

g)

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

Plant and equipment 5 - 7

Borrowing costs

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

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

leased assets

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

Consolidated entity as lessee

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

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

Goodwill

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

Intangible assets

Patents, trademarks and licences

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

h)

i)

j)

k)

FInanCIal REPORT


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.

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

Purchased customer bases

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

Intangible assets acquired in a business combination

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

Impairment of assets

at each reporting date, the consolidated entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated

l)

in order to determine the extent of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs.

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

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

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

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

Employee benefits

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

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

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

Defined contribution plans

Contributions to defined contribution superannuation plans are expensed when incurred.

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.

m)

n)

FInanCIal REPORT


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.

Foreign Currency

For the purpose of the consolidated financials statements, the results and financial position of Eftel limited and its subsidiaries are expressed in australian dollars (aUD). The functional currency of the oversea subsidiaries (CGOC (Malaysia) Sdn Bhd) is Malaysian Ringgit (MYR).

In preparing the financial statements, transactions in currencies other than the entity’s functional currency are recorded at the rate of exchange prevailing on the dates of the transactions. at each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined.

On consolidation, the assets and liabilities of the Group’s foreign operations are translated into australian dollars at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s foreign currency translation reserve. Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed.

Share-based Payments

Equity-settled share-based payments with employees are measured at the fair value of the equity instrument at the grant date. Fair value is measured by an external valuer using a binomial model. Further details on how the fair value of equity-settled share-based transactions has been determined can be found in note 28.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest.

at each reporting date, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss over the remaining vesting period, with corresponding adjustment to the equity-settled employee benefits reserve.

In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price if the shares of Eftel limited.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award.

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects

the extent to which the vesting period has expired, and

the number of awards that, in the opinion of the directors of the Group, will ultimately vest.

This opinion is formed based on the best available information at balance date. no adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date.

no expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the

o)

p)

q)

i.

ii.

award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In additional, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share (see note 21)

no amount has been recognised in the financial statements in respect of the other equity-settled share-based payments.

accounting standards not yet effective

The following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of initial application. They are available for early adoption at 30 June 2009 but have not been applied in preparing the financial report.

r)

FInanCIal REPORT


New or revised requirementEffective for annual reporting

periods beginning/ending on or after

New and revised Standards

aaSB 123 Borrowing Costs (Revised), aaSB 2007-6 amendments to australian accounting Standards 1, 101, 107, 111, 116, 138 and Interpretations 1 & 12

Beginning 1 July 2009

This revision eliminates the option to expense borrowing costs on qualifying assets and requires that they be capitalised. The transitional provision provided allows for prospective application of this revision from either application date or adoption date if prior to 1 January 2009. The amending Standard eliminates reference to the expensing option in various other pronouncements.

aaSB 3 Business Combinations (Revised) Beginning 1 July 2009

The IaSB issued the revised IFRS 3 in January, 2008. The equivalent aaSB 3 standard was issued in australia in March 2008. The revision makes several key amendments to the accounting for business combinations. Entities may want to early adopt the revised standard when issued.

aaSB 8 Operating Segments, aaSB 2007-3 amendments to australian accounting Standards 5, 6, 102, 107, 119, 127, 134, 136, 1023 & 1038 arising from aaSB 8


This standard supersedes aaSB 114 Segment Reporting introducing a US GaaP approach of management reporting as part of the convergence project with FaSB. This standard only applies to entities that have public accountability therefore any entities that do not fall within scope may wish to early adopt and avoid segment reporting. The amending Standard updates references in various other pronouncements.

aaSB 127 Consolidated and Separate Financial Statements (Revised) Beginning 1 July 2009

The IaSB revised IaS 27 Consolidated and Separate Financial Statements in 2003 as part of its project on Improvements to International accounting Standards. The IaSB’s main objective was to reduce alternatives in accounting for subsidiaries in consolidated financial statements and in accounting for investments in the separate financial statements of a parent, venturer or investor.

The aaSB incorporated this version of IaS 27 into aaSB 127 Consolidated and Separate Financial Statements issued in July 2004.

The aaSB issued this amended aaSB 127 at the same time as a revised aaSB 3 Business Combinations, incorporating the amended IaS 27 and revised IFRS 3 respectively.

aaSB 2008-3 amendments to australian accounting Standards arising from aaSB3 and aaSB 127. Beginning 1 July 2009

[aaSB’s 5, 7, 101, 102, 107, 108, 110, 116, 118, 119, 120, 123, 127, 128, 129, 131, 132, 134, 136, 138, 139, 140, 141, 1023 & 1038 and interpretations 9 & 107]

Consequential amendments to other standards arising from aaSB 3 (Revised) and aaSB 127 (amended)

aaSB 2008-6 Further amendments to australian accounting Standards arising from the annual Improvements Project.


[aaSB 1 & 5]

This Standard amends aaSB 1 and aaSB 5 to include requirements relating to a sale plan involving the loss of control of a subsidiary. The amendments require all the assets and liabilities of such a subsidiary to be classified as held for sale and clarify the disclosures required when the subsidiary is part of a disposal group that meets the definition of a discontinued operation.

FInanCIal REPORT




aaSB 2008-13 amendments to australian accounting Standards arising from aaSB Interpretation 17 – Distributions of non-cash assets to Owners


[aaSB 5 & aaSB 110]

The issuance of aaSB Interpretation 17 necessitated consequential amendments to aaSB 5: non-current assets Held for Sale and Discontinued Operations and aaSB 110: Events after the Balance Sheet Date.

The amendments are in respect of the classification, presentation and measurement of non-current assets held for distribution to owners in their capacity as owners and the disclosure requirements for dividends that are declared after the reporting period but before the financial statements are authorised for issue, respectively.

aaSB 2009-2 amendments to australian accounting Standards – Improving Disclosures about Financial Instruments

Beginning 1 January 2009 & ending on or after 30 april 2009

[aaSB 4, 7 1023 & 1038]

The amendments to aaSB 7 require enhanced disclosures about fair value measurements and liquidity risk. In particular, the amendments:

clarify that the existing fair value disclosure requirements in aaSB 7 must be made separately for each class of financial instrument;

require disclosure of any change in a method for determining fair value and the reasons for the change

introduce a three-level hierarchy for making fair value measurements, as follows:

level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;

level 2 – inputs, other than quoted prices included within level 1, that are observable for the asset or liability; and

level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs);

require disclosure about the relative reliability of each fair value measurement in the statement of financial position;

clarify that the current maturity analysis for non-derivative financial instruments should include issued financial guarantee contracts; and

require disclosure of a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows.

a)

b)

c)

a.

b.

c.

d)

e)

aaSB 2009-4 amendments to australian accounting Standards arising from the annual Improvements Project Beginning 1 July 2009

[aaSB 2, 138 and aaSB Interpretations 9 & 16]

The amendments result from proposals that were included in Exposure Draft ED 165 Proposed Improvements to australian accounting Standards issued in august 2008 and proposals included in ED 159 Proposed Improvements to australian accounting Standards issued in October 2007 and follow the issuance of the IaSB Standard Improvements to IFRSs in april 2009. The IaSB’s annual improvements project provides a vehicle for making non-urgent but necessary amendments to Standards.

aaSB 2009-7 amendments to australian accounting Standards Beginning 1 July 2009

[aaSB 5, 7, 107, 112, 136 & 139 and Interpretation 17]

These amendments arise from editorial corrections by the aaSB and by the International accounting Standards Board (IaSB).

FInanCIal REPORT




aaSB 2009-5 Further amendments to australian accounting Standards arising from the annual Improvements Project


[aaSB 5, 8, 101, 107, 117, 118, 136 & 139]

The amendments result from proposals that were included in Exposure Draft ED 165 Proposed Improvements to australian accounting Standards issued in august 2008 and proposals included in ED 159 Proposed Improvements to australian accounting Standards issued in October 2007, and follow the issuance of the IaSB Standard Improvements to IFRSs in april 2009. The IaSB’s annual improvements project provides a vehicle for making non-urgent but necessary amendments to Standards.

3. Segment information

The consolidated entity operates solely in the telecommunications industry in australia.

FInanCIal REPORT


4. Revenue and ExpensesConsolidated Company

2009 2008 2009 2008

$’000 $’000 $’000 $’000

Revenue a)

Revenue from the rendering of services 37,467 35,946 25,144 21,947

Interest revenue:

Bank deposits 54 114 5 106

Other loans and receivables - - 288 -

Other revenue 654 367 620 367

38,175 36,427 26,057 22,420

Communication expenses b)

Cost of sales 27,603 24,106 19,822 16,051

Finance costs c)

Interest on loans 330 138 330 138

Finance charges payable under hire purchase contracts 8 34 8 34

Other interest charges 9 10 9 10

Total interest expense 347 182 347 182

Depreciation, amortisation, foreign exchange differences included in income statement

d)

Depreciation of non-current assets 1,612 1,062 1,396 469

amortisation of non-current assets 892 723 485 325

2,504 1,785 1,881 794

Impairment of goodwill (Refer note 12) 3,166 - - -

Impairment of investment in subsidiaries (Refer note 10) - - 4,001 -

net foreign exchange Gain/ (loss) (184) - (270) -

Employee benefits expense e)

Defined contribution superannuation expense 421 490 190 168

Equity-settled share-based payments 80 - 80 -

501 490 270 168

FInanCIal REPORT


4. Revenue and Expenses (Con’t)Consolidated Company

2009 2008 2009 2008

$’000 $’000 $’000 $’000

Lease payments and other expenses included in income statement f)

Minimum lease payments - operating lease 764 431 339 223

net bad and doubtful debts arising from:

Trade debtors 485 257 138 (13)

Other related parties (164) (279) - -

Total bad and doubtful debts 321 (22) 138 (13)

Provision for non recoverability (Refer note 10) - - 4,625 -

net gain on disposal of property, plant and equipment 184 - 189 -

5. Income taxesConsolidated Company

2009 2008 2009 2008

$’000 $’000 $’000 $’000

Income tax recognised in profit or lossa)

Tax expense comprises:

Current tax expense - 87 - 125

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

22 300 (4) 130

adjustments recognised in the current year in relation to the current tax of prior years

(120) - (120) -

Total tax expense/(benefit) (98) 387 (124) 255

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 (5,843) 657 (10,592) 549

at the statutory income tax rate of 30% (2008:30%) (1,753) 197 (3,178) 165

non-deductible expenses 371 190 2,838 90

attributable income from subsidiaries - - 4 -

adjustments in respect of subsidiary losses of the consolidated group - - (122) -

adjustments recognised in the current year in relation to the current tax of prior years

(119) - (119) -

De-recognition of prior year Deferred Tax asset on tax losses 453 - 453 -

Impairment losses on goodwill that are not deductible 950 - - -

Income tax attributable to entity (98) 387 (124) 255

at an effective income tax rate of 2% (Parent: 1%) (2008: 59%, Parent: 46%)

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.

FInanCIal REPORT


5. Income taxes (Con’t)


2009 2008 2009 2008

$’000 $’000 $’000 $’000

Current tax liabilitiesb)

Current tax payables:

Income tax payable attributable to:

Parent entity

Other 165 421 165 421

165 421 165 421

Deferred tax balances c)

Deferred tax assets comprise:

Provisions 191 209 - -

allowance for doubtful debts 598 584 101 58

Other 171 40 141 30

Tax losses 2,720 2,754 2,721 2,754

3,680 3,587 2,963 2,842

Deferred tax liabilities comprise:

Tax allowances relating to property, plant and equipment 275 172 320 217

Other 233 220 233 220

508 392 553 437

Taxable and deductible temporary differences arise from the following:

Consolidated

2009

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

172 103 - - - - 275

Other 220 13 - - - - 233

392 116 - - - - 508

Deferred tax assets:

Provisions 209 (18) - - - - 191

Provision for doubtful debts 584 14 - - - - 598

Other 40 131 - - - - 171

Tax losses 2,754 (34) - - - - 2,720

3,587 93 - - - - 3,680

FInanCIal REPORT



Consolidated

2008

Opening balance

Charged to income

Charged to equity



Changes in tax rate

Closing balance

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



86 86 - - - - 172

Other 176 44 - - - - 220

262 130 - - - - 392


Provisions 196 13 - - - - 209

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

Other 20 20 - - - - 40

Tax losses 2,822 (68) - - - - 2,754

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

Company

2009

Opening balance

Charged to income

Charged to equity



Changes in tax rate

Closing balance

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



217 103 - - - - 320

Other 220 13 - - - - 233

437 116 - - - - 553



Other 30 111 - - - - 141

Tax losses 2,754 (33) - - - - 2,721

2,842 121 - - - - 2,963

FInanCIal REPORT



Company

2008

Opening balance

Charged to income

Charged to equity



Changes in tax rate

Closing balance

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



131 86 - - - - 217

Other 176 44 - - - - 220

307 130 - - - - 437



Other 12 18 - - - - 30

Tax losses 2,821 (67) - - - - 2,754

2,842 - - - - - 2,842

Tax consolidation

Relevance of tax consolidation to the consolidated entity

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

nature of tax funding arrangements and tax sharing agreements

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

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

FInanCIal REPORT


6. notes to the cash flow statementReconciliation of cash and cash equivalentsa)

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:


2009 2008 2009 2008

$’000 $’000 $’000 $’000

Cash and cash equivalents 2,004 2,242 1,920 1,990

Bank overdraft - - - -

2,004 2,242 1,920 1,990

Businesses acquiredb)

During the financial year businesses were acquired, details of the acquisition are as follows (note 26):

Consideration

Cash and cash equivalents - - - -

Deferred cash component due 1 March 2010 965 - 965 -

965 - 965 -

Cash obtained through acquisition of businesses 48 - 48 -

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

Profit/(loss) for the period (5,745) 270 (10,468) 294

(Gain)/loss on sale or disposal of non-current assets (215) - (208) -

Depreciation and amortisation of non-current assets 2,504 1,785 1,881 794

Foreign exchange (gain)/loss (23) - - -

Equity settled share-based payment 80 - 80 -

Interest income received and receivable (54) (114) (293) (106)

Impairment of non-current assets 3,166 - 4,001 -

Increase/(decrease) in current tax liability (256) 35 (256) 35

Increase/(decrease) in deferred tax balances 74 300 47 130

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

(Increase)/decrease in assets:

Trade and term receivables (272) (991) 340 (114)

Other operating assets 6 7 (215) (303)

Increase/(decrease) in liabilities:

Trade creditors and accruals 1,684 459 1,209 775

Provisions (111) (18) 4,575 -

Deferred revenue (320) 190 (195) 243

net cash from operating activities 518 1,923 498 1,748

FInanCIal REPORT


6. notes to the cash flow statement (Con’t)Consolidated Company

2009 2008 2009 2008

$ $ $ $

Financing facilitiesd)

Vendor financing facility with a fixed charge over equipment purchased:

amount used 1,750 1,750 1,750 1,750

amount unused - 250 - 250

1,750 2,000 1,750 2,000

Bank Guarantee facility:

amount used 898 - 898 -

amount unused - - - -

898 - 898 -

Non-cash financing activitiese)

During the period financing negotiations with a major supplier were successfully completed. The balance sheet effect of this was to convert a current liability of $2.235m to an interest-bearing non-current liability. Part of this amount is based upon US dollar agreements and is therefore subject to exchange rate fluctuations.

7. Remuneration of auditorsaudit or review of the financial report 65,376 87,321 65,376 87,321

65,376 87,321 65,376 87,321

2008: The auditor of the consolidated entity was Deloitte Touche Tohmatsu. 2009: The auditor of the consolidated entity is PKF Chartered accountants & Business advisers.

8. Current trade and other receivablesCurrent

Trade receivables 1 5,585 4,943 2,184 1,662

allowance for doubtful debts (1,934) (1,701) (336) (194)

3,651 3,242 1,848 1,468

Other receivables:

Wholly-owned subsidiaries - - 132 106

associate companies 83 246 - -

allowance for doubtful debts associate companies (83) (246) - -

- - 132 106

3,651 3,242 1,980 1,574

Non-current

Other receivables:

Wholly-owned subsidiaries - - 3,947 4,882

- - 3,947 4,882 1 Trade receivables are generally on 10 to 30 day terms and other receivables are generally on 30 day terms. a provision has been made for estimated irrecoverable trade receivable amounts arising from the past sale of goods and rendering of services, determined by reference to past recovery experience. The concentration of credit risk is reduced due to the customer base being large and unrelated. accordingly, the directors believe that there is no further credit provision required in excess of the provision for doubtful debts. The parent entity holds receivables with wholly owned subsidiaries. Contracted payment plans are in force and interest of 7.5% is charged on any outstanding amount. The entity regularly reviews the recoverability of these balances by assessing the current and future cash flows of the subsidiaries. The Directors believe that due to the expected cash flows to be received from the Broadbandnext project together with continued organic growth within the business, the subsidiaries will continue to meet the contracted payments and interest as required.

FInanCIal REPORT


8. Current trade and other receivables (Con’t)


2009 2008 2009 2008

$’000 $’000 $’000 $’000

ageing of past due but not impaired

30 - 60 days 187 146 97 40

60 - 90 days 101 81 44 17

90+ days 1,213 1,099 319 280

Total 1,501 1,326 460 337

Movement in the allowance for doubtful debts

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

amounts written off as uncollectible (418) (427) (47) (250)

Write down provision for debts for associated company - (89) - -

Movement in the allowance for doubtful debts 651 257 189 97

Unwind of discount - - - -

Balance at the end of the year 1,934 1,701 336 194

Trade receivables greater than 30 days are assessed and then provided for based on estimated irrecoverable amounts from the sale of goods and rendering of services, determined by reference to past default experience. all other customers where evidence exists to suggest that the collection of the receivable is in question will be provided for to the extent that the Group believes that the balance is irrecoverable.

The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Group does not hold any collateral over these balances.

age of impaired trade receivables

60 - 90 days - - - -

90+ days 1,934 1,701 336 194

Total 1,934 1,701 336 194

9. Other current assetsPrepayments 869 752 752 414

Others - 123 - 123

869 875 752 537

10. Other non-current financial assets

Investments at carried at cost:

Equity accounted investment in associate entities 1 1 - -

Shares in controlled entities at cost - - 10,849 10,453

Impairment of investments in subsidiaries - - (4,001) -

1 1 6,848 10,453

loans carried at amortised cost:

loans to subsidiaries - - 4,625 3,841

Provision for non recoverability 1 - - (4,625) -

- - - 3,841

Total non-current other financial assets 1 1 6,848 14,294

FInanCIal REPORT


11. Property, plant and equipment

Consolidated

Leasehold improvements at

cost

Plant and equipment at

cost 1

Equipment under finance lease at

cost 2Total

$’000 $’000 $’000 $’000

Gross carrying amount

Balance at 1 July 2007 171 10,334 1,256 11,761

additions - 6,495 - 6,495

Disposals - (180) - (180)

Equipment Writedown (40) (6,832) (566) (7,438)

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

additions - 1,132 154 1,286

Disposals - (72) - (72)

acquisitions through business combinations - 137 104 241

Equipment Writedown - (1,472) - (1,472)

Balance at 30 June 2009 131 9,542 948 10,621

Accumulated depreciation/ amortisation and impairment

Balance at 1 July 2007 (95) (8,877) (963) (9,935)

Disposals - 180 - 180

Equipment Writedown 31 6,840 565 7,436

Write-off expenses (2) (6) (2) (10)

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

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

Disposals - 64 - 64

Equipment Writedown - 1,470 - 1,470

Depreciation expense (21) (1,504) (87) (1,612)

Balance at 30 June 2009 (111) (2,699) (659) (3,469)

Net book value

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

as at 30 June 2009 20 6,843 289 7,152 1 Property, plant and equipment pledged as security for liabilities Plant and equipment is pledged as security for the respective vendor finance facilities, as disclosed in note 15. 2 Equipment under finance is pledged as security for the respective finance lease liabilities, as disclosed in note 15.

FInanCIal REPORT


11. Property, plant and equipment (Con’t)

Company

Leasehold improvements at

cost

Plant and equipment at

cost 1

Equipment under finance lease at

cost 2Total

$’000 $’000 $’000 $’000


Balance at 1 July 2007 - 3,883 797 4,680

additions - 6,495 - 6,495

Disposals - - - -

Equipment Writedown - (3,060) (508) (3,568)

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

additions - 1,133 154 1,287

Disposals - - - -

acquisitions through business combinations - 104 104

Equipment Writedown - (332) - (332)

Balance at 30 June 2009 - 8,119 547 8,666

Accumulated depreciation/ amortisation and impairment

Balance at 1 July 2007 - (3,311) (568) (3,879)

Disposals - - - -

Equipment Writedown - 3,055 505 3,560

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

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

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

Disposals - - - -

Depreciation expense - (1,309) (87) (1,396)

Equipment Writedown - 332 - 332

Balance at 30 June 2009 - (1,603) (260) (1,863)

Net book value

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

as at 30 June 2009 - 6,516 287 6,8031 Property, plant and equipment pledged as security for liabilities Plant and equipment is pledged as security for the respective vendor finance facilities, as disclosed in note 15. 2 Equipment under finance is pledged as security for the respective finance lease liabilities, as disclosed in note 15.

at 30 June 2009, the group reviewed the carrying amount of the property, plant and equipment with the goodwill and intangible assets as described in note 12. The directors are satisfied that no further writedown is required other than that described in note 12.

FInanCIal REPORT


12. Goodwill


2009 2008 2009 2008

$’000 $’000 $’000 $’000

Net book value

Balance at beginning of financial year 12,556 12,556 1,321 1,321

additional amounts recognised from business combinations occurring during the period

957 - 500 -

Impairment losses for the year (3,166) - - -

Balance at end of financial year 10,347 12,556 1,821 1,321

During the financial year, Eftel limited assessed the recoverable amount of goodwill, and determined that goodwill was impaired by $3.166m (2008: nil).

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 experiences and expectations. These include a pre tax discount rate of 9.95% per annum (2008: 13.10% per annum) and cash flow projections based on the budget for 2010 and a growth rate of 8% over 7 years (2008: 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 in australia.

Key assumptions used in value in use calculations for the cash generating units

Budget Gross marginsaverage gross margins achieved in the period immediately before the budget period, increased for expected efficiency improvements.

Budgeted overheads average overheads achieved in the year immediately before the budgeted period.

Discount rate a 5-year Government bond rate at the beginning of the budgeted year is used in value in use calculation.

Growth rate estimatesEstimated growth rate was determined by future investment in sales generation methods and by growth rate achieved within the previous period.

Projected cashflow period 7 years is used to reflect the minimum useful life of Broadbandnext assets.

FInanCIal REPORT


13. Other intangible assets

Consolidated

SoftwarePatents /

TrademarksCustomer

BasesTotal

$’000 $’000 $’000 $’000


Balance at 1 July 2007 334 45 3,154 3,533

additions 3 - - 3

additions from internal developments 46 - - 46

acquisitions through business combinations - - - -

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

additions 76 - 716 792

additions from internal developments - - - -

acquisitions through business combinations 1 - - 1

Balance at 30 June 2009 460 45 3,870 4,375

Accumulated amortisation and impairment

Balance at 1 July 2007 (87) - (1,257) (1,344)

amortisation expense (113) - (610) (723)

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


Balance at 30 June 2009 (354) - (2,605) (2,959)

Net book value

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

as at 30 June 2009 106 45 1,265 1,416

FInanCIal REPORT


13. Other intangible assets (Con’t)

Company

SoftwarePatents /

TrademarksCustomer

BasesTotal

$’000 $’000 $’000 $’000


Balance at 1 July 2007 334 45 1,060 1,439

additions 3 - - 3

additions from internal developments 46 - - 46

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

additions 76 - 716 792

additions from internal developments - - - -

Balance at 30 June 2009 459 45 1,776 2,280

Accumulated amortisation and impairment

Balance at 1 July 2007 (87) - (212) (299)


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


Balance at 30 June 2009 (354) - (755) (1,109)

Net book value

as at 30 June 2008 183 45 686 864

as at 30 June 2009 105 45 1,021 1,171

FInanCIal REPORT


14. Current trade and other payables


2009 2008 2009 2008

$’000 $’000 $’000 $’000

Trade payables 1 5,142 4,865 4,713 4,439

Sundry creditors and accrued expenses 1,225 4,865 518 4,231

Other payables 2,017 266 1,852 102

8,384 9,996 7,083 8,772

1 Terms of major suppliers are typically 30 days.

15. BorrowingsCurrent

Secured- at amortised cost

Obligations under finance leases and hire purchase contracts 93 13 93 13

Vendor financing facility 1 2,479 - 2,479 -

2,572 13 2,572 13

Non-current

Secured- at amortised cost

Obligations under finance leases and hire purchase contracts 112 - 112 -

loans from related parties (Refer to note 29) 1,000 - 1,000 -

Vendor financing facility 2 2,236 1,750 2,236 1,750

Unsecured- at amortised cost

Other loans 712 - 543 -

4,060 1,750 3,891 1,750 1 Secured by the equipment at a fixed rate of 6.5% per annum. 2 Secured by the equipment at a fixed rate of 5% per annum.

FInanCIal REPORT


16. Provisions


2009 2008 2009 2008

$’000 $’000 $’000 $’000

Current

Employee benefits 355 372 - -

355 372 - -

Non-current

Employee benefits 283 326 - -

283 326 - -

17. Other current liabilitiesDeferred revenue 2,076 2,144 1,143 1,087

2,076 2,144 1,143 1,087

18. Issued capital166,697,664 fully paid ordinary shares 38,262 37,708 38,262 37,708

(2008: 157,837,521)

38,262 37,708 38,262 37,708

2009

No. $’000

Movement in ordinary shares on the issue

at 1 July 2007 157,837,521 37,708

Issue of shares - -

Share issued costs - -

at 1 July 2008 157,837,521 37,708

Issue of shares under employee share option plan 510,143 30

Issue of shares under business combination 8,350,000 551

Share issued costs - (27)

at 30 June 2009 166,697,664 38,262

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

Share options

as at 30 June 2009, Eftel has 9,759,357 options on issue. 9,659,357 options have an exercise price of $0.06 and expire on 31 December 2009. 100,000 options have an exercise price of $2.00 and expire on 15 June 2010.

FInanCIal REPORT


19. ReservesConsolidated Company

2009 2008 2009 2008

$’000 $’000 $’000 $’000

Equity-settled employee benefits 80 - 80 -

Foreign currency translation (23) - - -

57 - 80 -

Equity-settled employee benefits

Balance at beginning of financial year - - - -

Share-based payment 80 - 80 -

Balance at end of financial year 80 - 80 -

The equity-settled employee benefits reserve arises on the grant of share options to employees under the employee share option plan. amounts are transferred out of the reserve and into issued capital when the options are exercised. Further information about share-based payments to employees is made in note 29 to the financial statements


2009 2008 2009 2008

$’000 $’000 $’000 $’000

Foreign currency translation reserve

Balance at beginning of financial year - - - -

Translation of foreign operations (23) - - -

Balance at beginning of financial year (23) - - -

Exchange differences relating to the translation from the functional currencies of Eftel’s foreign controlled entities into australian dollars are brought to account by entries made directly to the foreign currency translation reserve.

20. accumulated lossesBalance at beginning of financial year (21,857) (21,970) (15,076) (15,213)

net profit attributable to members of the parent entity (5,745) 270 (10,468) 294

Dividends provided for - (157) - (157)

Balance at end of financial year (27,602) (21,857) (25,544) (15,076)

FInanCIal REPORT


21. Earnings per share

Consolidated

2009 2008

Cents per share Cents per share

Basic earnings per share:

From continuing operations (3.507) 0.171

Total basic earnings per share (3.507) 0.171

Diluted earnings per share:

From continuing operations (3.507) 0.171

Total diluted earnings per share (3.507) 0.171

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:

Consolidated

2009 2008

$’000 $’000

Earnings (a) (5,745) 270

2009 2008

No.’000 No.’000

Weighted average number of ordinary shares for the purposes of basic earnings per share 163,812 157,838

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

a)

Consolidated

2009 2008

$’000 $’000

net profit (5,745) 270

Other - -

Earnings used in the calculation of basic EPS (5,745) 270

Earnings used in the calculation of basic EPS from continuing operations (5,745) 270

FInanCIal REPORT


21. Earnings per share (Con’t)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:

Consolidated

2009 2008

$’000 $’000

Earnings (a) (5,745) 270

2009 2008

No.’000 No.’000

Weighted average number of ordinary shares used in the calculation of basic EPS 163,812 157,838

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

Share Options - 100

Employee options - -

Weighted average number of ordinary shares used in the calculation of diluted EPS 163,812 157,938

The diluted earnings per share is not applicable at 30 June 2009 as the share options on issue are anti-dilutive.

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:

a)

Consolidated

2009 2008

$’000 $’000

net profit (5,745) 270

Earnings used in the calculation of diluted EPS (5,745) 270

Earnings used in the calculation of diluted EPS from continuing operations (5,745) 270

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:

b)

2009 2008

No.’000 No.’000

Weighted average number of ordinary shares used in the calculation of basic EPS 163,812 157,838

Weighted average number of ordinary shares used in the calculation of diluted EPS 163,812 157,938

FInanCIal REPORT


22. Dividends

2009 2008

Cents per share

Total Cents per share

Total

$’000 $’000

Interim dividends:

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

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

Company

2009 2008

$’000 $’000

adjusted franking account balance 887 954

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

23. Contingent liabilities and contingent assetsConsolidated Company

2009 2008 2009 2008

$’000 $’000 $’000 $’000

Contingent liabilities

Court proceedings - 30 - -

- 30 - -

FInanCIal REPORT


24. leasesFinance leases

Leasing arrangements

Finance leases relate to plant and equipment with lease terms of between 2 and 3 years. The borrowings on the finance leases are secured by the assets financed. The consolidated entity retains ownership of the plant and equipment at the conclusion of the lease agreement.

Finance lease liabilities

Minimum future lease paymentsPresent value of minimum future lease

payments

Consolidated Company Consolidated Company

2009 2008 2009 2008 2009 2008 2009 2008

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

no later than 1 year 108 14 108 14 108 14 108 14

later than 1 year and not later than 5 years 126 - 126 - 115 - 115 -

Minimum lease payments1 234 14 234 14 223 14 223 14

less future finance charges (29) (1) (29) (1) (26) (1) (26) (1)

Present value of minimum lease payments 205 13 205 13 197 13 197 13

Included in the financial statements as:

Current borrowings (note 15) 93 13 93 13

non-current borrowings (note 15) 112 - 112 -

205 13 205 13

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

Operating leases

Leasing arrangements

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


2009 2008 2009 2008

$’000 $’000 $’000 $’000

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

not longer than 1 year 717 193 132 75

longer than 1 year and not longer than 5 years 722 46 428 45

1,439 239 560 120

FInanCIal REPORT


25. Subsidiaries

Name of entity Country of incorporation

Ownership interest

2009 2008

% %

Ultimate Parent entity

Eftel limited

Subsidiaries

Datafast Telecommunications Pty ltd australia 100% 100%

Datafast (Sites) Pty ltd australia 100% 100%

Datafast (Melbourne Central) Pty ltd australia 100% 100%

Business Technologies Pty ltd australia 100% 100%

network Technology Pty ltd australia 100% 100%

northvoice Communications Pty ltd australia 100% 100%

VivanET Pty ltd australia 100% 100%

Viva.com Pty ltd australia 100% 100%

Vivanet australia Pty ltd australia 100% 100%

Eftel More Than Broadband Pty ltd australia 100% 100%

Tower.net Pty ltd australia 100% 100%

Spacenet Holdings Pty ltd australia 100% 100%

Xcomm (Wa) Pty ltd australia 100% 100%

Q-net australia Pty ltd australia 100% 100%

Quality Internet Services Pty ltd australia 100% 100%

Eftel Radio Pty ltd australia 100% 100%

Eftel Tasmania Pty ltd australia 100% 100%

Southern Star Technologies Pty ltd australia 100% 100%

Eftel Rural Pty ltd australia 100% 100%

Keypoint Pty ltd australia 100% 100%

Paradox Digital Pty ltd australia 99.99% 99.99%

Planet netcom Pty ltd australia 100% 100%

Planet netcom Radioworx Pty ltd australia 100% 100%

M Power Technologies Pty ltd australia 100% 100%

CGOC (Malaysia) Sdn Bhd Malaysia 100% -

FInanCIal REPORT


26. acquisition of businesses

2009 Date of acquisitionProportion of shares

acquired (%)Cost of acquisition

$’000

Names of businesses acquired

Conceptual networks 1-Sep-08 1,120

CGOC (Malaysia) Sdn Bhd 1-Sep-08 100% 396

1,516

2008 Date of acquisitionProportion of

shares acquired (%)Cost of acquisition

$’000

Names of businesses acquired

no acquisition

On 8 September 2008, Eftel announced the acquisition of the Internet business of Conceptual networks and the acquisition of CGOC (Malaysia) Sdn Bhd. The consideration for the acquisitions comprised 8,350,000 shares and a deferred cash component of $965,000.

The net assets acquired in the businesses and the goodwill arising, are as follows:

Conceptual Networks

Net assets acquiredCarrying Value

$’000

Fair value adjustment

$’000

Recognised on acquisition

$’000

net assets acquired:

Intangible assets – customer base - 716 716

Property, plant and equipment 104 - 104

Trade and other receivables 124 - 124

Finance Equipment (78) - (78)

Trade and other payables (51) - (51)

Deferred revenue (252) - (252)

(153) 716 563

Goodwill on acquisition 557

1,120

CGOC (Malaysia) Sdn Bhd

Net assets acquiredCarrying Value

$’000

Fair value adjustment

$’000

Recognised on acquisition

$’000

net assets acquired:

Property, plant & equipment 152 - 152

Trade and other receivables 14 - 14

Cash and cash equivalent 48 - 48

Trade and other payables (276) - (276)

(62) - (62)

Goodwill on acquisition 458

396

From the date of acquisition, CGOC (Malaysia) Sdn Bhd contributed $94,185 to the net profit of the group.

FInanCIal REPORT


27. Financial instrumentsCapital risk management

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

The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 15, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital and retained earnings as disclosed in notes 18 and 20 respectively.

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

Operating cash flows are used to maintain and expand the group’s assets, as well as to make the routine outflows of tax, dividends and repayment of maturing debt.

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

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

Gearing ratio

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

a)

The gearing ratio at year end was as follows:


2009 2008 2009 2008

$’000 $’000 $’000 $’000

Financial assets

Debt i 6,632 1,763 6,463 1,763

Cash and cash equivalents (2,004) (2,242) (1,920) (1,990)

net debt 4,628 (479) 4,543 (227)

Equity ii 10,717 15,851 12,798 22,632

net debt to equity ratio 43.2% (3.0%) 35.5% (1.0%)

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

Equity includes all capital and retained earnings.

i.

ii.

Categories of financial instrumentsb)

Financial assets

loans and receivables 3,651 3,242 1,980 6,456

Cash and cash equivalents 2,004 2,242 1,920 1,990

5,655 5,484 3,900 8,446

Financial liabilities

Trade Payables 6,367 9,730 5,231 8,670

Other Payables 2,017 266 1,852 102

Financial leases 205 13 205 13

Other borrowings 1,712 - 1,543 -

Vendor facility 2,236 1,750 2,236 1,750

12,537 11,759 11,067 10,535

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

FInanCIal REPORT


27. Financial instruments (Con’t)Foreign currency risk managementc)

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

Judgements of reasonably possible movements:

2009Consolidated Company

Foreign Exchange Movement Foreign Exchange Movement

Maximum Exposure a$’000

+5% -5% +5% -5%

Profit Equity Profit Equity Profit Equity Profit Equity

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

Financial non-current liabilities

Borrowings 2,006 108 108 (120) (120) 108 108 (120) (120)

net Effect (108) (108) 120 120 (108) (108) 120 120

net Effect after Tax (rate of 30%) (76) (76) 84 84 (76) (76) 84 84

2008Consolidated Company

Foreign Exchange Movement Foreign Exchange Movement

Maximum Exposure a$’000

+5% -5% +5% -5%

Profit Equity Profit Equity Profit Equity Profit Equity

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

Financial current liabilities

Trade and other payables 2,165 114 114 102 102 114 114 102 102

net Effect (114) (114) (102) (102) (114) (114) (102) (102)

net Effect after Tax (rate of 30%) (80) (80) (71) (71) (80) (80) (71) (71)

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

Credit risk management

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

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

Fair values

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

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

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

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

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

d)

e)

FInanCIal REPORT


27. Financial instruments (Con’t)Liquidity risk management

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

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

f)

Consolidated

Weighted average effective

interest rate

Less than 1 month

1-3 months3 months - 1

year1-5 years 5+ years

% $’000 $’000 $’000 $’000 $’000

2009

non-interest bearing - 301 6,333 1,750 282 -

Interest bearing 6.50% 1,186 1,279 465 2,235 -

Finance lease liabilities 12.30% 9 27 71 126 -

Fixed interest rate instruments 19.20% - - - 1,001 -

Fixed interest rate instruments 9.00% - - - 712 -

1,496 7,639 2,286 4,356 -

2008

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

Finance lease liabilities 12.30% 14 - - - -

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

938 5,098 4,109 1,882 -

Company

Weighted average effective

interest rate

Less than 1 month

1-3 months3 months - 1

year1-5 years 5+ years

% $’000 $’000 $’000 $’000 $’000

2009

non-interest bearing - - 6,205 1,750 282 -

Interest bearing 6.50% 1,186 1,279 465 2,235 -

Finance lease liabilities 12.30% 9 27 71 126 -

Fixed interest rate instruments 19.20% - - - 1,001 -

Fixed interest rate instruments 9.00% - - - 582 -

1,195 7,511 2,286 4,226 -

2008

non-interest bearing - 477 4,284 4,011 - -

Finance lease liabilities 12.30% 14 - - - -

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

491 4,321 4,109 1,882 -

FInanCIal REPORT


28. Share-based paymentsEmployee share option plan

On 15 July 2008, Eftel issued 12,503,500 options as part of the retention incentive for key employees of Eftel and to raise capital for the Broadbandnext rollout. Each employee share option converts into one ordinary share of Eftel limited on exercise. no amounts are paid or payable by the recipient on receipt of option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry.

The options granted expire at the earliest of 31 December 2009 or three months after cessation of employment, or immediately upon cessation of employment due to resignation.

The fair value of each share option granted is estimated at the date of grant using the binomial model.

Based on the valuation by an independent third party, the weighted average fair value of each share option granted during the financial year is $0.0121.

Inputs into the model Employee Share Option Plan

Grant date share price $0.049

Exercise price $0.060

Expected Volatility 60%

Option life 18 months

Dividend yield nil

Risk-free interest rate 6.62%

The following reconciles the outstanding share options granted under the employee share option plan at the beginning and end of the financial year:

2009 2008

Number of Options

Weighted average

exercise priceNumber of

Options

Weighted average

exercise price

$ $

Balance at beginning of the financial year - - - -

Granted during the financial year 12,503,500 0.06 - -

Forfeited during the financial year - - - -

Exercised during the financial year 1 (510,143) 0.06 - -

Expired during the financial year (2,334,000) 0.06 - -

Balance at the end of the financial year 9,659,357 0.06 - -

1 The weighted average share price at the date of exercise is $0.0370.

The weighted average remaining contractual life for the share options outstanding as at 30 June 2009 is 184 days (2008: nil).

FInanCIal REPORT


29. Related party disclosuresEquity interests in related parties

Equity interests in subsidiaries

Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 25 to the financial statements.

Key management personnel

The Company has applied the exemption under Corporations amendments Regulation 2006 which exempts listed companies from providing remuneration disclosures in relation to their key management personnel in their annual financial reports by accounting Standard aaSB 124 Related Party Disclosures. These remuneration disclosures are provided in the Remuneration Report in the Directors’ Report designated as audited.

Loan disclosures

Eftel limited did not provide any loan facilities to directors or executives during the year.

Other transactions with directors and key management personnel:

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

The profit from operations includes the following items of revenue and expense that resulted from transactions with key management personnel or their related entities:

a)

b)

c)

d)


2009 2008 2009 2008

$ $ $ $

Sales revenue includes the following amounts arising from transactions with key management personnel of the Group or their related parties:

Internet services:

aztec Pty ltd 1 8,703 - - -

lasar Software & Computers 2 68,244 57,290 - -

Karumax Pty ltd 3 529 2,023 - -

Skyglow Holdings Pty ltd 4 - 2,815 - -

John Raftis 1,358 - - -

78,834 62,128 - -

Consolidated profit including the following expenses arising from transactions with key management personnel of the Group or their related parties:

Interest and loan expenses

The Carnarvon Trust 6 16,706 - 16,706 -

Paradox Investments Pty ltd 7 210 - 210 -

Simon Ehrenfeld 42 - 42 -

John lane 163 - 163 -

John Raftis 1,883 - 1,883 -

Reseller commission paid


Other telecommunication expenses

Conceptual Internet australia Pty ltd 5 2,201,606 - 2,201,606 -

2,220,610 2,685 2,220,610 -

FInanCIal REPORT


29. Related party disclosures (Con’t)


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

accounts Receivable

lasar Software & Computers 2 361 230 - -

Karumax Pty ltd 3 - - - -


361 5,193 - -

Other transactions with directors and key management personnel:e)


2009 2008 2009 2008

$ $ $ $

Total liabilities arising from transactions other than compensation with key management personnel or their related parties:

accounts Payable

Conceptual Internet australia Pty ltd 5 311,931 - 311,931 -

lasar Software & Computers 2 8,095 - 8,095 -

320,026 - 320,026 -

non-current borrowing

The Carnarvon Trust 6 500,000 - 500,000 -

Paradox Investments Pty ltd 7 200,000 - 200,000 -

Simon Ehrenfeld 80,000 - 80,000 -

John lane 80,000 - 80,000 -

John Raftis 140,125 - 140,125 -

Gregory Broux 8 21,215 - - -

Denise Broux 9 108,337 - - -

Conceptual Internet australia Pty ltd 5 582,667 - 543,175 -

1,712,344 - 1,543,300 - 1 aztec Pty ltd is a company of which Mr Jeremy Cousins is a director. Eftel sells Internet services to aztec Pty ltd. 2 lasar Software & Computers is a company of which Mr Jurgen Steinert is a director. Eftel purchases computer supplies and equipment from, and sells Internet and telephony services to, lasar Software & Computers. 3 Karumax Pty ltd, of which Mr Russell Collett is a director, purchased Internet and telephony services from Eftel. The transactions disclosed above were from 1 July 2008 to 20 October 2008. 4 Skyglow Holdings Pty ltd, of which Mr Daniel Ehrenfeld is a director, operates a computer retail business. Eftel sold Internet services to Skyglow and Skyglow acted as a reseller of Eftel Internet services and received commission for actual sales. 5 Conceptual Internet australia Pty ltd, of which Mr Gregory Broux is a director, sells Internet and telephony services to Eftel. Payment terms are 30 days. Part of the consideration of the Conceptual Internet Group was a deferred cash component to be repaid by 1 March 2011. 6 Mr Simon Ehrenfeld and Mrs Samantha Ehrenfeld are Trustees of the Carnarvon Trust. Mrs Samantha Ehrenfeld is the spouse of Mr Simon Ehrenfeld. 7 Mr Jeremy Cousins and Mr Simon Ehrenfeld are directors of Paradox Investments Pty ltd. 8 an unsecured loan from Mr Gregory Broux was provided to CGOC (Malaysia) Sdn Bhd at a fixed interest rate of 15% per annum. This loan is repayable by 2012. 9 Mrs Denise Broux, a parent of Mr Gregory Broux, provided an unsecured loan to CGOC (Malaysia) Sdn Bhd at 15% per annum. This loan is repayable by 2012.

FInanCIal REPORT


29. Related party disclosures (Con’t)On 23 april 2009, a total borrowing of $1.0m was agreed with specific directors and key management personnel, and parties related to them, at a fixed interest rate of 19.2% per annum, repayable by 2012. The establishment fee for each loan was 3.5%. The company is entitled to make early principal repayments at any time without payment of any penalty to the lender. Each borrowing is secured by one of the following two assets, for which the company is unable to obtain alternative sources of finance:

part of the customer base of the parent company;

specified second hand plant and equipment.

all transactions entered into above with directors and key management personnel are done at arms length.

a)

b)

Transactions with other related partiesf)


2009 2008 2009 2008

$ $ $ $

allowance for doubtful debts in respect of receivables from Fleet Broadband Holdings Pty ltd 1 and its subsidiaries

(163,727) (277,264) - -

Total recognised as expenses (163,727) (277,264) - -

1 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, an internet service provider.

30. Subsequent eventsIn august 2009, Eftel limited successfully raised $1.214m from undertaking a non-renounceable Rights Issue, including shortfall placement.

In august 2009, Eftel announced a further expansion of Broadbandnext network by adding 12 Broadbandnext Exchanges in Western australia.

In September 2009, Eftel finalised a long-term debt facility of $0.9m.

In September 2009, Eftel refinanced a $1.75m vendor facility.

FInanCIal REPORT


The directors of Eftel limited declare that:

in the directors’ opinion the financial statements and notes and the Remuneration report in the Directors Report set out on pages 7 to 16, are in accordance with the Corporations act 2001, including:

giving a true and fair view of the company’s and the consolidated entity’s financial position as at 30 June 2009 and of their performance, for the financial year ended on that date; and

complying with australian accounting Standards (including the australian accounting Interpretations) and Corporations Regulations 2001.

the financial report also complies with International Financial Reporting Standards as disclosed in note 2; and

there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

The directors have been given the declarations required by Section 295a of the Corporations act 2001 by the chief executive officer and chief financial officer for the financial year ended 30 June 2009.

Signed in accordance with a resolution of the directors.

John lane

Managing Director

Dated this 30th day of September 2009

a)

i.

ii.

b)

c)

DIRECTORS’ dEclaRaTiOn


InDEPEnDEnT audiTOR’s REPORT


Eftel ltd - Distribution of Holders of Equity Securities as at 31 august 2009Size of Holding Number of Shareholders Number of Ordinary Fully Paid Shares

1 - 1,000 283 112,203

1,001 - 5,000 208 540,415

5,001 - 10,000 240 1,882,746

10,001 - 100,000 529 17,789,897

100,001 - 9,999,999,999 179 208,635,359

Total 1,439 228,960,620

Unmarketable Parcels

994 shareholders hold a total of 6,785,088 shares in unmarketable parcels.

Eftel ltd - Substantial Shareholders as at 31 august 2009

Substantial HolderShares at time of notification

Voting Power at time of notification

Notification

Simon Ehrenfeld 44,487,637 20.05% Substantial Shareholder notice dated 10/08/2009

Jeremy Cousins 36,662,078 16.52% Substantial Shareholder notice dated 10/08/2009

Paradox Investments Pty ltd 26,162,786 11.43%2009 annual Report and Substantial Shareholder notice dated 3/1/2007

Thooruna Pty ltd 16,832,089 7.35% 2009 annual Report

Daniel Ehrenfeld 15,444,585 6.96% Substantial Shareholder notice dated 10/08/2009

netnode Pty ltd/Conceptual Internet australia Pty ltd 12,275,000 5.82%2009 annual Report and Substantial Shareholder notice dated 3/11/2008

aDDITIOnal infORmaTiOn


Eftel limited - Top 20 Shareholders as at 31 august 2009

Rank ShareholderNumber of ordinary

full paid shares% of issued ordinary

capital held

1. PaRaDOX InVESTMEnTS PTY lTD 26,162,786 11.43

2. THOORUna PTY lTD 16,832,089 7.35

3. MR DanIEl EHREnFElD 14,714,585 6.43

4. MR SIMOn EHREnFElD 14,013,059 6.12

5. nETnODE PTY lTD 9,400,000 4.11

6. MR lUKE MaCKInnOn 7,070,666 3.09

7. JEnESTa PTY lTD <THE STEInERT FaMIlY a/C> 6,581,590 2.87

8. OSPIn PTY lTD 6,578,260 2.87

9. MR PaUl alEXanDER ROlFE 5,019,066 2.20

10. JaSFORCE PTY lTD 5,000,000 2.18

11. MRS nORMa ROSIna EHREnFElD 4,678,410 2.04

12. MR JEREMY COUSInS 4,612,500 2.01

13. nORTHlInK HOlDInGS PTY lTD <PaRaDOX InVESTMEnTS S/F a/C> 4,311,792 1.89

14. COnCEPTUal InTERnET aUSTRalIa PTY lTD 3,925,000 1.71

15. MR JOHn ROBERT RaFTIS 3,014,866 1.32

16. PICTOn COVE PTY lTD 3,000,000 1.31

17. MR JOHn lanE 2,923,481 1.27

18. TEnDWORD PTY lTD <D FaWCETT SUPER Plan a/C> 2,750,000 1.20

19. In THE CBD PTY lTD 2,300,000 1.00

20. THOORUna PTY lTD <THOORUna S/F a/C> 2,202,051 0.96

Total Top 20 Shareholders 145,090,201 63.36

Total Number of Issued Ordinary Shares 228,960,620 100%

aDDITIOnal infORmaTiOn

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8/250 St George’s Terrace, Perth, WA 6000Tel. 1300 4 EFTEL Fax. 1300 368 200

www.eftel.com.au

8/250 St George’s Terrace, Perth, WA 6000Tel. 1300 4 EFTEL Fax. 1300 368 200

www.eftel.com.au

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