MNF Group
Annual Report 2018

Plain-text annual report

MNF Group Limited Annual Report 2018 ABN 37 118 699 853 Contents Message from our CEO ................................................................................................................................ People Experience (PX) ................................................................................................................................ Company structure ....................................................................................................................................... Organic and acquisitive growth ..................................................................................................................... Smart network .............................................................................................................................................. Business unit profiles .................................................................................................................................... Directors’ report ............................................................................................................................................ Board of Directors ......................................................................................................................................... Consolidated statement of profit or loss and other comprehensive income .................................................. Consolidated statement of financial position ................................................................................................. Consolidated statement of cash flows ........................................................................................................... Consolidated statement of changes in equity ............................................................................................... Notes to the consolidated financial statements ............................................................................................. Directors’ declaration .................................................................................................................................... Auditor’s independence declaration ............................................................................................................. ASX additional information ............................................................................................................................ 4 6 8 9 14 16 30 31 51 52 53 54 55 82 83 90 2 We’re redefining communications experiences through software led solutions 3 Message from our CEO Dear Shareholders, It has been another year of achievement and change for the MNF Group. Our core business has performed exceptionally in the markets and segments that have become the main pillars of our business. It has also been a year where our future growth strategy of regional expansion has started to become a positive reality. Our consolidated group revenue increased to $221 million, up 15% from the previous year, resulting in gross margin increase of 18% to $69 million. Given the diverse range of margin levels in the MNF Group portfolio we prefer to use gross margin as our top level indicator. Our EBITDA rose slightly to $24.6 million in light of the one-off investment into the Pennytel brand of $2.3 million. Our NPAT remained stable on prior year levels at $11.9 million. The company ended the year with a strong balance sheet, no net debt, and the ability to redraw $16.3 million from our revolving acquisition facility. This year saw solid gains in the gross margin across all three operating segments, with Domestic Retail up 22%, Domestic Wholesale up 15% and Global Wholesale up 17%. This year saw a full annualised contribution from the CCI acquisition (February 2017), which is now fully integrated and performing well with CCI gross margin contribution up 10% in H2 on the prior corresponding period. This year’s solid performance has allowed the board to declare total annual dividends of 8.35 cents per share fully franked – a slight increase on prior years, and consistent with our policy of returning half of NPAT to investors. Achievements During the year MNF Group achieved some major milestones in its cornerstone business, allowing it to invest in multiple new initiatives and growth strategies. New Zealand Symbio Network Roll-Out A key pillar in the MNF Group growth strategy is regional expansion into new markets for its Domestic Wholesale products suite. The first milestone in the execution of this strategy was the upgrade and roll out of a new Symbio Network in New Zealand. This new capability will increase margins for our Global Wholesale segment, as well as providing many years of organic growth for our Domestic Wholesale segment into the regional market which is most similar to Australia. MNF Group is now the only Australian or New Zealand carrier with a homogenous trans-Tasman voice network capability. SuperInternet Acquisition in Singapore Comparable to a mini-Symbio Network in Singapore, the SuperInternet group comes with a fully interconnected domestic voice network in Singapore, as well as connectivity to the national NBN network, as well as its own dark fibre assets in the Singapore CBD. The SuperInternet acquisition is predominately a capability acquisition where MNF Group is looking to accelerate its regional expansion into Asia. While the Group will now invest in upgrading and deploying its tried and trusted software eco-system into Singapore, this acquisition will save precious time in launching our Domestic Wholesale products into this new and exciting market. Enabling Mobility Mobility is a key component of any communications strategy today. While MNF Group has no aspirations of building its own spectrum and tower mobile network, it will leverage its key capabilities to make mobility a sig- nificant component of its product portfolio. This year saw MNF Group achieve considerable milestones in both the Domestic Retail segment and the Domestic Wholesale segment with regards to its mobile strategy. In the Retail segment MNF Group successfully re-launched the Pennytel brand to be the new face of MNF Group’s consumer segment. In the Wholesale segment MNF Group is now a significant player with its software enablement capabilities – enabling one of the largest MVNO retail brands in the country, as well as providing its own post-paid mobile wholesale aggregation services. The multi-segment approach has allowed MNF Group to become one of the fastest growing post-paid mobile user bases in Australia. 4 The Future For several years now the Group has had three very solid and organically growing business segments – Domestic Retail, Domestic Wholesale and Global Wholesale. The Group has a four-dimensional organic growth strategy, being: Geography Expansion into new regional markets – as shown with our success in New Zealand, and the recent acquisition in Singapore. MNF Group views each additional country as an expansion of its addressable market proportional to its population. With the addition of New Zealand and Singapore, the Group has added an additional 10 million potential end-users of our software capabilities, or increased our addressable market by 41% compared to our corner stone business in Australia. While it will take time to monetise these two new markets, the strategy is already proving successful with early take up and customer interest. MNF Group will continue to invest in its regional geographical expansion strategy with a target of adding 4 additional Asian countries to its portfolio by 2022. Market Share Growth Increasing revenue and margin by selling more of the products we already have. While this strategy may seem obvious, MNF Group is still a small player in market share across all of its operating segments. As new technology disruption accelerates into the traditional voice telecommunications market this opens up more market share opportunity for MNF Group thanks to our leading next generation software eco-system and product portfolio. MNF Group continues to win significant new business from legacy carriers as can be seen by its strong number portability growth of 22% in the last financial year alone. Software Increasing revenue and margin by adding new features and capabilities to our tried and trusted software eco-system. As has been a key pillar of our growth from inception, increasing functionality means we can create greater value for our customers, enable new customer acquisition, develop new markets, and further integrate into our existing customer base. MNF Group continues to invest in the key resource for software value creation – its people. Wholesale Partnerships By embracing the concept of wholesalers and building long term relationships, MNF Group benefits from the success of its partners. In an industry where traditional telco operators are hunkering down and building barriers for new entrants, MNF Group has differentiated itself by being the “go-to” capabilities provider enabling challengers into the market. This strategy has proven successful with many of our wholesale partners operating household name brands and becoming market leaders in their own product space. MNF will continue to buck the industry trend and continue to disrupt the market. Finally in addition to our organic growth drivers, the Group employs a fifth dimension for growth, that of growth by acquisition. Acquisitions Searching for viable capability and customer base opportunities – as demonstrated over many years, MNF Group is a discerning acquirer and integrator of businesses. The Group has shown its ability to bring customer bases onto our software eco-system and network assets thereby increasing margin and improving product performance, or adding new capabilities which can expand our product portfolio. MNF Group will continue to seek out synergistic acquisition opportunities which can increase shareholder value. On behalf of my fellow directors, I would like to thank all the staff and management team in achieving another solid result. Without the hard work and dedication from a highly specialised and skilled team we would not be where we are today. I thank all shareholders for your continued and loyal support. The company is looking forward to a successful and rewarding year ahead. Rene Sugo CEO and Executive Director 5 People Experience (PX) MNF Group is a values-based organisation, one that has successfully kept its strong culture intact while also integrating several acquisitions into the MNF family over the past 6 years. Be Brave, Honest & Fair, Deliver Excellence, Collaborate, and We Care are at the heart of what our people strive for every day. We are a culturally diverse organisation and respect the varying perspectives that inspire our colleagues to see the workplace—and the world—differently. Enabling Customers to Innovate & Communicate is our cornerstone Purpose Statement which binds our people together across our brands globally TAS (3) NT (1) US (1) Canada (1) New Zealand (47) Staff Members VIC (inc. CCI) (124) Sydney (199) Average Score 4.34/5 Gallup’s Global Data Base Percentile 72 In our August 2018 internal Diversity & Inclusiveness Survey, we scored in the 72nd percentile of Gallup’s Global database (for our average score of 4.34 out of 5) to the following statement: ‘Everyone at this company is treated fairly regardless of ethnic background, race, gender, age, disability, or other differences not related to job performance.’ Female Female Employees Leadership Male Male Our workforce composition in Australia, (based on our 2018 Workplace Gender Equality Agency (WGEA) Report) is 37% female and 63% male In senior leadership roles in Australia, we have 39% female representation 6 Our PX Team runs a predominantly centralised support model. Centres of Excellence are in place for Business Partnering, Learning & Development, and Talent Acquisition. The team focuses on the mantra of ‘empowering leaders to lead’, assisting managers with driving the development, engagement and performance of their people. Our PX Journey focuses on 5 major lifecycle milestones. The transition from candidate to joining the MNF family is designed to give people a sense of our ‘Awesomeness’ from the beginning, and fuel the excitement about starting their employee journey with us. This starts at attraction and recruitment, with interview questions aligned to our values & behaviours. Getting the right ‘people fit’ for the MNF family is imperative to our continued success. We believe that it is essential for our people to have clear, attainable outcomes because no matter how talented our people may be, they can’t do their jobs without a clear picture of what success looks like. This is closely aligned to our Deliver Excellence Value. Our people have clear expectations and goals in place, with competencies aligned to positions. To assist our people in Delivering Excellence, we have a formal Leadership Development program in place, and self-paced e-learning across a broad range of competencies and topics. MNF Group in Australia hosts its very own ‘Toastmasters’ to assist our people to build confidence and public speaking skills. We utilise an Annual Gallup Engagement survey to ensure our people’s views are heard and that we continually strive to improve. We Care is another of our Values which correlates with the support we provide our people to ensure they are supported in both their Health & Wellbeing. An Employee Assistance Program (EAP), regular webinars on mental health, charity fundraisers, an annual paid Volunteering Day, and employee blood donations with Red25 are just some of the ways that our people can engage in bolstering their own wellbeing or giving back to the Community. In addition, our people are provided with space to create, relax and innovate. Our people are our biggest asset. To reward our staff for their hardwork and Delivering Excellence, we have regular local level events and recognition initiatives. We run an annual Global Reward & Recognition program, based around our values. 7 1Welcome2Perform3Develop4Support5Appreciate Company Structure Rene Sugo CEO and Executive Director 8 John Boesen CTO Technology Business Unit Tim Dunning President - Global Commercial Global Commercial Business Unit Jon Cleaver CCO Domestic Commercial Business Unit Ritsa Hime COO Operations Business Unit Matthew Gepp CFO Finance Business Unit Helen Fraser General Counsel Legal & Compliance Business Unit Organic and acquisitive growth $25M $20M A D T B E I $15M $10M $5M $24.6M $17.9M $9.0M $4.4M $2.4M 2010 2012 2014 2016 2018 2009 Maiden profit ADSL2+ service launch 2010 Exclusive Panasonic deal for SME phone system 771% EBITDA growth 2011 Acquisition of Symbio Networks 2012 Tasmanian Government $20M Project win Acquisition of CallStream, Connexus, GoTalk Wholesale 2013 CeBIT Outstanding Project Award for Tasmanian Government Voice Carriage Project 2016 TNZI integration US completion 2014 Acquisition of Pennytel & iBoss Strong organic growth 2015 Acquisition of TNZI global voice network and OpenCA Softswitch Underlining EBITDA growth 15% 34% total EBITDA growth 2017 Acquisition of CCI Underlying organic EBITDA growth 25% 2018 18% margin growth NZ Domestic Network goes live SuperInternet acquisition 9 “Building a high-growth and sustainable business with real value creation through software innovation and network capability in the communications sector – in Australia, Asia-Pacific, and the world.” Rene Sugo, CEO and Executive Director 10 How we’re building the future of communications Our platform enables embedded capabilities Mobile SMS and IM Virtual numbers Global termination SIP trunks Telco back-end ...that we sell to telcos and disruptors... MNVO’s App developers Emerging telcos Software companies Global carriers Enterprise ...and use to power our own innovation Industry technology Apps and portals Voice services Conferencing Vertical brands 11 Multi-brand strategy leveraging our proprietary software and network While operating across Australia, New Zealand, UK and USA, MNF Group’s structure is defined by function rather than geography, with several Business Units headed by highly skilled and experienced Chief Executives. Each unit focuses on a particular functional area and works across multiple brands, products and office locations. This structure allows the Group to develop and leverage subject matter expertise of various teams to support a multi-brand strategy while ensuring operational efficiency. 12 Domestic Retail Domestic Wholesale Global Wholesale Our range of retail brands provide phone, internet, mobile and conferencing services in Australia. Symbio Networks enables new-generation providers to deliver mobile, IP telecom and UC services. TNZI enables communication providers to outsource all or part of their international calling business. Markets Markets Markets - Consumer VoIP and NBN - Telcos, MVNOs and MSPs - International telecoms, - Consumer Mobile - Small business - Enterprise and Government - Software and app with a focus on APAC developers - Software and app developers Major Brands Major Brands Major Brands Growth Drivers Growth Drivers Growth Drivers - Technology change - Cloud communications - Market change - Cloud communications - MVNO enablement - Regulatory change - Digital transformation - AU/NZ market growth - APAC market growth 13 Smart Network San Jose LA London Frankfurt SWM-4 Saudi Arabia UAE S. Korea Hong Kong Vietnam SWM-3 Mozambique Oman Thailand Sri Lanka SWM-3 SWM-3 SJC SWM-3 Malaysia SWM-4 EASSy Singapore Indonesia SWM-3 Japan AJC Guam SWM-3 Taiwan AAG AJC PNG San Jose London New York Frankfurt JUS SCCN Los Angeles SCCN Tokelau W. Samoa Cook Is. Nauru Fiji Vanuatu Norfolk Is. Tonga Niue A-PNG-2 SCCN Perth Sydney Carrier link Satelite link Global PoP Cable/Connectivity SCCN TAS-2 Auckland International reach MNF Group’s Tier 1 carrier network includes Points of Presence in Los Angeles, New York, Hong Kong, Singapore, London, Frankfurt, Sydney and Auckland and over 200 partner interconnects. Having developed market-leading managed voice services for its Australian network, the Group is now progressively rolling out these smart network capabilities to the rest of its global network. These innovative capabilities combined with first-mover advantage puts the MNF Group in prime position to be the carrier of choice for providers looking to reach the fast-growing Asia Pacific region. 14 San Jose LA London Frankfurt SWM-4 Saudi Arabia UAE SWM-3 S. Korea Hong Kong Vietnam SWM-3 Taiwan AAG SWM-3 SJC Guam Japan AJC AJC PNG Oman Thailand Sri Lanka SWM-3 SWM-3 Malaysia SWM-4 EASSy Singapore Indonesia SWM-3 Mozambique A-PNG-2 SCCN JUS SCCN Los Angeles SCCN Tokelau W. Samoa Cook Is. Nauru Fiji Vanuatu Tonga Niue Norfolk Is. San Jose London New York Frankfurt Perth Sydney SCCN TAS-2 Auckland Hamilton Auckland Palmerston North Wellington Christchurch Dunedin Coverage Dark fibre loop Regional PoP Global PoP Global link Domestic expertise In Australia, the Group owns and operates the country’s largest IP voice network and has established a robust network presence in New Zealand. The MNF network includes high speed fibre connectivity between major cities, and modern VoIP nodes in regional call collection areas across Australia and New Zealand. This robust infrastructure is the ‘go to’ for new-generation OTT providers and global carriers looking to establish or expand their presence in Australia and New Zealand. 15 “We are enabling a culture of disruption to deliver unique customer experiences” John Boesen, CTO 16 Technology John Boesen is an experienced technologist, a passionate leader and an innovative thinker. He has over 20 years experience in driving innovation and leading engineering teams. Prior to joining MNF Group, John was part of the executive team at Willian Hill where he held the positions of Chief Technology Officer and Chief Information Officer. John has also been Chief Operating Officer of Etherstack plc and held numerous project, product and technology focused roles where he challenged teams to think differently. John now leads MNF Group’s Technology team as Chief Technology Officer with a strong customer centric view and an affiliative approach to building high performance teams and collaborative cultures. Technology and the Customer “We are a software company with a world class telco foundation. It is a unique mix that sets us apart from the rest. I am excited at what lies ahead as we continually re-invent ourselves to deliver great product innovations to our customers.” John Boesen, Chief Technology Officer The Vision for Technology MNF Group’s Technology vision is seeded in industry disruption and integrating cutting edge technologies to deliver sustainable value. It’s about solving problems and delivering unique customer experiences in ways others haven’t. It’s about creating space to innovate and embracing diverse thinking to enrich the outcome. It’s not about fearing failure, but correcting mistakes quickly to make sure we are constantly evolving and being better than yesterday. With technology teams spread across multiple geographies, it is essential to have a collaborative and supportive engineering culture that can work seamlessly across the organisation. The way our teams deliver is guided by iterative methods that encourage continuous integration, continuous deployment and continuous improvement. Providing access to our core voice and data network capabilities through APIs will continue to fuel organic innovation and growth. Augmenting our core network capabilities with cutting edge cloud services and software defined networks will enable MNF Group to deliver a rich set of voice and data services that will be configurable and accessible from anywhere. It is an exciting future we have already begun building. 17 “Growing our business partnerships through a focus on the agile delivery of customer-centric international solutions.” Tim Dunning, President - Global Commercial 18 Global Commercial Strong customer acquisition, additional footprint and underlying organic growth underpin an excellent result for the Global Commercial Business Unit in FY18 and position us strongly into the future. Award-winning products support some of the largest traffic originators in the world, leveraging our fully-redundant low-latency global network to provide service where our customers live, work and play. As well as an extensive pick-list of products and services, we offer a variety of whole-of-business solutions to consolidate calling and manage internal and external costs. We wish to share in the success of our customers by providing a suite of communication capabilities that will enable them to grow. Our strength lies in our commitment to our customers as partners, our extensive network capabilities and the knowledge and expertise of our staff. Further investment in network assets during the FY19 financial year will augment both our capacity to serve existing customer growth and provide additional feature-sets leveraging our wholly-owned soft-switch software platform. With the international landscape changing so rapidly, this integral capability supports our innovative and agile approach to ensuring the needs of our customers can be accommodated. Amongst a range of initiatives being pursued, we are particularly proud of our new Origin-Based Routing (OBR) capability to be deployed in Q1. This in-house software development allows us to navigate the increasingly complex landscape of differential origination and termination rates for Europe-bound traffic. OBR capability allows us to de-risk this environment for our customers by providing a routing solution that ensures voice-traffic is managed to achieve the optimum cost and therefore the optimum rate to the customer. OTT (Over the Top) UCaaS (Unified Comms as a Service) Conferencing Domestic Products, Different Values, Different Needs NGS provides domestic access to a variety of customers to connect their products and services to the end users. CPaaS (Communications Platform as a Service) CCaaS (Contact Centre as a Service) 19 “Executing our multi-brand & segment strategy to deliver long term, sustainable growth by keeping the customer central to all decisions” Jon Cleaver, CCO - Domestic Commercial 20 Domestic Commercial Wholesale The Domestic Wholesale business once again delivered exceptional results through our two core brands, Symbio Networks and iBoss. Symbio voice capabilities continue to grow, porting an unprecedented amount of numbers into our smart network. Our software has been utilised to enable our customers to expand innovation and disrupt the market. Symbio has solidified itself as the go-to voice network with customers ranging from carriers, traditional RSP’s to emerging digital marketplaces. With the exciting addition of New Zealand and Singapore markets, this organic growth will be continuing for years to come. iBoss has further accelerated its growth from the previous year with the addition of direct MVNO services and managed SIP Trunking. The iBoss software suite continues to enable the fastest growing MVNO in the country and perpetually expanding its solutions as the global mobile market continues to evolve. With the emergence of large brands moving into communications, iBoss is in the perfect posi- tion to serve the next generation of providers. Small Business The NBN rollout and end of ISDN services perpetrates a general technology revolution in small business application, placing MyNetFone in the ideal space to accelerate its growth in this segment. Our hosted PBX product, now combined with mobility, further advances as the corner stone solution for small business. MyNetFone will continue to innovate and address this ever expanding market, supporting the lifeblood of the Australian economy in the small business segment, as for the first time they now have a real choice. Enterprise and Government The enterprise and government segment has experienced rapid change throughout the year. MNF Group had foreseen this growth and spent the last 2 years investing in the development of a product suite to support this segment. This product suite enables enterprise and government to seamlessly transition to the cloud and provide instant productivity gains with new solutions and reduced cost. This acceleration lead to the emergence of the MNF Enterprise brand (previously a subset of MyNetFone) and quickly followed with the release of our Cloud Connect range. This brand delivers sustainable growth with its new-generation IP voice solutions and value-added services that support the vast majority of business moving to cloud infrastructure. MNF Enterprise is selected as a preferred supplier to both the New South Wales and Tasmanian Government for telephony and IP-based services. Consumer As NBN and Mobility continues to dominate evolution in the consumer landscape, MNF Group successfully re-launched the Pennytel brand as a new face of MNF Group’s consumer segment. Initially targeting mobile, the focus was on superior customer service and intuitive design to add value and differentiation in the dynamic segment. MNF Group will look to expand services in this space, leveraging off its software developments in other segments, again highlighting the advantage of our multi-brand/segment approach. 21 “Delivering innovative service and experience that will excite our customers today and beyond” Ritsa Hime, COO 22 Operations The Operations Business Unit supports the entire customer journey from sign-on including service delivery, service assurance and technical support, billing and invoicing, incident management, customer complaints and escalations. The Operations Business Unit structure supports the company’s multi-brand strategy across all customer segments and works closely with all Business Units to ensure our processes are effective and meet the expectations of our customers. We are now well into our third year of delivering on our five-year strategic customer experience roadmap and have notable achievements. Our customers have told us that over 92% of their calls have been answered and resolved on their first call. Furthermore, our customers have rated our support staff with NPS +35 which is a 5-point increase from the prior year. This direct customer feedback is an outstanding achievement for our customer-facing staff. We recognise that customer experience is not a singular measure of success. A customer’s wholistic experience is achieved in combination of many other factors including employee engagement, product satisfaction and user experience. Over last 12 months, we completed a transformation initiative to improve our support to customers including the expansion of our teams and developing specialised technical teams. This transformation has delivered significant increases in staff engagement results and the launch of a new Quality Assessment framework program to empower our staff and facilitate training specific to their individual needs. 23 “Creating an environment that supports MNF Group’s four dimensional growth strategy, delivering results and key business indicators that support each of the business units” Matthew Gepp, CFO 24 Finance The Finance Business Unit is responsible for creating an environment that supports MNF’s four dimensional growth strategy, delivering results and key business indicators that support each of the business units. By working closely with all business segments and reviewing organic growth strategies we work to ensure short and long term goals are met throughout the business. 15% 17% 22% The MNF Group saw another strong year for FY18 with solid organic growth across all operating segments. Total margin was up $10.4m year-on-year to $69.0m, this result includes positive growth from Domestic Retail (up 22%), Domestic Wholesale (up 15%) and Global Wholesale (up 17%). These impressive results are driven by an ever growing product suite and a domestic and global sales team focussed on supporting and growing our existing customer base. As well as keeping investors, the Board and the business informed of results, the Finance BU drives key strategic acquisitions and advises on projects that lay the framework for sustainable growth, as well as integrating those acquisitions into our business. The acquisition in June of SuperInternet in Singapore was an example of MNF delivering on its strategy of geographic expansion, the Finance BU serves a pivotal function during due diligence in these transactions and ensures the future trajectory of the business is consistent with our stated goals. The People Experience (PX) team (formally Human Resources) operates within the Finance BU. PX is focussed on implementing best practice systems and processes globally that will ensure the long term viability and sustainability of our growing business and the people who drive that growth. The PX team have invested time in several projects aimed at acquiring and retaining talented team members, including University open days, ITC events and mentoring technology competitions. The achievements of MNF Group are backed by our hard working and highly specialised team and we look forward to another successful year ahead. 25 “We enable the Group to deliver on its strategy by providing practical legal advice and solutions.” Helen Fraser, General counsel 26 Legal and Compliance The Legal Services team supports the Board and the group as a whole with strategic and operational legal advice. Core advice areas include: Acquisitions Contracts Corporate governance Compliance Regulatory matters Consumer law Corporate governance and compliance remain important areas of work to ensure MNF Group has the systems, processes and policies needed for its long term future. Throughout FY18 this has included the Pennytel MVNO and MNF Enterprise Services range of products and services. In our day to day advices we work closely with stakeholders, striving to make it easier for our customers to do business with us while balancing the Group’s legal interests. Our work is closely aligned with the growth strategies of the Group. In FY18, a key focus area has been the acquisition of the SuperInternet companies and related expansion of the group into Singapore. We provide practical advice and solutions to support MNF Group’s product and business launches and operations. 27 MNF Group Limited ABN 37 118 699 853 Annual Financial Report 30 June 2018 Contents Directors’ report ................................................................................................................................................. Consolidated statement of profit or loss and other comprehensive income ...................................................... Consolidated statement of financial position ..................................................................................................... Consolidated statement of cash flows ............................................................................................................... Consolidated statement of changes in equity ................................................................................................... Notes to the consolidated financial statements ................................................................................................. 30 51 52 53 54 55 1. Corporate information .............................................................................................................. 2. Significant accounting policies ................................................................................................. 3. Operating segments ................................................................................................................ 4. Revenue and expenses ........................................................................................................... 5. Income tax ............................................................................................................................... 6. Operating cash flows reconciliation ......................................................................................... 7. Trade and other receivables .................................................................................................... 8. Property, plant and equipment ................................................................................................. 9. Trade and other payables ........................................................................................................ 10. Loans and borrowings ........................................................................................................... 11. Financial instruments ............................................................................................................. 12. Deferred revenue ................................................................................................................... 13. Provisions .............................................................................................................................. 14. Issued capital ......................................................................................................................... 15. Share-based payments ......................................................................................................... 16. Commitments and contingencies .......................................................................................... 17. Events after reporting date .................................................................................................... 18. Auditor’s remuneration .......................................................................................................... 19. Director and executive disclosures ........................................................................................ 20. Controlled entities .................................................................................................................. 21. Goodwill and other intangibles .............................................................................................. 22. Impairment testing ................................................................................................................. 23. Earnings per share ................................................................................................................ 24. Dividends paid and proposed ................................................................................................ 25. Parent entity .......................................................................................................................... 26. Financial risk management objectives and policies .............................................................. 27. Company details .................................................................................................................... 55 55 64 65 66 67 67 68 69 69 70 71 71 72 73 74 74 74 75 76 77 78 79 79 80 80 81 Director’s declaration ........................................................................................................................................ Auditor’s independence declaration .................................................................................................................. Independent auditor’s report ............................................................................................................................. ASX additional information ................................................................................................................................ 82 83 84 90 29 For the year ended 30 June 2018www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report Board of Directors For the year ended 30 June 2018 Your directors present this report, together with the financial statements of MNF Group Limited (the Company) and its controlled entities (the Group), for the financial year ended 30 June 2018. Board of Directors The names and details of the Company’s directors in office during the financial year and until the date of this report are set out below. Directors were in office for this entire period unless otherwise stated. 31 www.mnfgroup.limitedDirectors’ report Terry Cuthbertson Chairman, Non-Executive Director Qualifications Bachelor of Business, Chartered Accountant Experience and expertise Appointed as a Non-Executive Director in March 2006 and has been the Group Chairman since March 2006. Mr Cuthbertson was previously a partner of KPMG and has extensive corporate finance expertise and knowledge. Directorships of listed entities (last 3 years) Chairman of Austpac Resources N.L. from 2004 (Director from 2001); Chairman of Australian Whisky Holdings Ltd from 2003; Chairman of South American Iron & Steel Corporation Ltd from 2009; Chairman of Malachite Resources Ltd from 2013 (Director from 2012); Director of Mint Payments Ltd from 2007 (Chairman from 2008 to 2018); Director of Isentric Ltd from 2010 Special responsibilities Member of the Audit and Remuneration Committees Interest in shares 920,906 Interest in options 100,000 Michael Boorne Non-Executive Director Qualifications Diploma in Electronics Engineering Experience and expertise Appointed as Non-Executive Director in December 2006. Mr Boorne is a successful entrepreneur with extensive experience in combining technical expertise with commercial and corporate experience. He has founded start- up businesses Sprit Modems and Mitron, and is a director and committee member of numerous private companies and charitable foundations. He was previously a Non-Executive Director of Netcomm Ltd. Directorships of listed entities (last 3 years) None Special responsibilities Chairman of the Audit and Remuneration Committees Interest in shares 709,543 Interest in options 100,000 32 For the year ended 30 June 2018MNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report Andy Fung Non-Executive Director Qualifications Bachelor of Engineering, Master of Commerce Experience and expertise Appointed as Non-Executive Director in March 2012. Mr Fung is a co-founder of MNF Group Limited and Symbio Networks Pty Ltd. He was formerly Managing Director of the Group from 2006 until 2012. Mr Fung has had extensive telecommunications industry experience in Australia and Asia, having previously held senior management positions with Telstra, Australian Trade Commission, Optus and Lucent Technologies of US. He is also Executive Director of a private company with interests in trade and investments. Directorships of listed entities (last 3 years) None Special responsibilities Member of the Audit and Remuneration Committees Interest in shares 14,151,954 Interest in options 100,000 Rene Sugo Chief Executive Officer and Executive Director Qualifications Bachelor of Engineering (Hons) Experience and expertise Appointed as CEO and Executive Director in March 2012. Mr Sugo is a co-founder of MNF Group Limited. He is a strong industry advocate, representing both the interests of MNF Group and the telecommunications industry. He has been a director of the Australian Communications Alliance and the INMS (Industry Number Management Services) since 2015. Mr Sugo sits on various industry committees locally and overseas including the ITW Global Leaders Forum (GLF), and regularly contributes articles and opinions on issues affecting the industry, such as the NBN, regulatory policy and innovation. Mr Sugo started his career at the CSIRO - Australia’s premier Research and Development organisation. Prior to making the move into the Communications industry, Mr Sugo worked at Lucent Technologies Bell Labs in Australia, the USA and Asia. Directorships of listed entities (last 3 years) None Special responsibilities Member of the Audit and Remuneration Committees Interest in shares 11,896,867 Interest in options 150,000 Catherine Ly Company Secretary Qualifications Bachelor of Business and Certified Practising Accountant Experience and expertise Ms Ly joined the MNF Group in April 2006 as CFO and Company Secretary, and has focused on the role of Company Secretary and Treasurer since August 2013 following the expansion of the Group. 33 For the year ended 30 June 2018www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report Board and Committee Meetings From 1 July 2017 to 30 June 2018, the Directors held 16 board meetings and 2 audit committee meetings. Each Director’s attendance at those meetings is set out in the following table: Directors Eligible to attend Attended Eligible to attend Attended Board Audit Mr. Terry Cuthbertson Mr. Michael Boorne Mr. Andy Fung Mr. Rene Sugo 16 16 16 16 15 16 16 16 2 2 2 2 2 2 2 2 Principal activities and significant changes in nature of activities The principal activity of the MNF Group is providing voice, data, and cloud based communication and communication enablement services to residential, business, government and wholesale customers in Australia and internationally. In the financial year the MNF Group derived revenue from the sale of the above-mentioned communications services. These fees consist of recurring charges for access to facilities and capabilities, as well as consumption charges for variable usage of those facilities. Revenue was also derived from the sale of hardware, equipment and consulting services to support the primary products of the business. The company operates in three main segments: Domestic Retail - based on the original MyNetFone brand and other retail acquisitions, focussing on selling directly to residential, small business, enterprise and government customers; Domestic Wholesale - based on the original Symbio Networks brand, focussing on selling to Australian & New Zealand domestic carriers, carriage service providers (CSP), cloud providers and application providers; and Global Wholesale - based on the TNZI acquisition and pre-existing global customers, focussing on selling to global carriers, carriage service providers (CSP), cloud providers and application providers. The overall nature of the business has not changed during the financial year. Operating Result Excluding cost associated with acquisitions, earnings before interest expense, tax expense, depreciation and amortisation expense (EBITDA) increased by 3% to $24.6 million, with net profit after tax (NPAT) decreasing by 1.7% to $11.9 million, compared to the prior year. The Group issued updated guidance in February 2018. The EBITDA result is at 98.4% of the $25.0 million guidance and NPAT is at 95% of the $12.5 million guidance, NPAT includes $0.3m of un-forecasted acquisition costs. The total dividend for the full year has increased to 8.35 cents per share (fully franked), with the company declaring a final dividend of 4.05 cents per share for the second half of the 2018 financial year. The full year dividend payments represent 51% of the 2018 full year EPS. 34 Directors’ Report for the year ended 30 June 2018 For the year ended 30 June 2018MNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report MNF performance at a glance 250 200 150 100 50 FY14 FY15 FY16 FY17 FY18 EBITDA $24.6 million EBITDA rose marginally by 3% for the full year to $24.6m impacted by a one-off investment into the Pennytel brand launch of $2.3m. 25 20 15 10 5 EPS 16.25¢ EPS decreased by 1.07c. While NPAT was flat YoY, the full dilutionary impact of the February 2017 share placement & SPP weighed on the EPS calculation. 20.0 15.0 10.0 5.0 FY14 FY15 FY16 FY17 FY18 REVENUE MARGIN $221 million Consolidated Group Revenue increased to $221 million up 15% from the previous year. All segments contributed with organic revenue growth, in conjunction with a full year contribution from CCI acquisition (February 2017). $69 million Gross margin increased by 18% on the PCP to $69m. With all segments contributing to that YoY growth. Given the diverse range of margin levels in the portfolio MNF prefers to use gross margin as the top level indicator of performance. 70 60 50 40 30 20 10 FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18 14 12 10 8 6 4 2 NPAT $11.9 million While PBT saw a marginal YoY increase, NPAT saw a small decrease impacted by the Group’s marginal tax rate from 27% (FY17) to 29% (FY18), and effects of investment in the Pennytel brand launch. FY14 FY15 FY16 FY17 FY18 DIVIDEND 8.35¢ A final declared dividend of 4.05c brings the full year dividend to 8.35c, a 1% increase on the PCP. The full year dividend represents 51% of EPS, this ratio is consistent with prior years. 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 FY14 FY15 FY16 FY17 FY18 35 For the year ended 30 June 2018www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report Review of operations A review of the operations of the entity during the financial year and the results of those operations are as follows: Record Margin and EBITDA Margin increased $10.4m (18%) on the prior year to a record $69.0m (2017: $58.6m). EBITDA of $24.6m was up 3% on the prior year. Net profit after tax (NPAT) for the year was marginally down at $11.9m (2017: $12.1m) with Earnings per share (EPS) decreasing to 16.25 cents per share (2017: 17.32 cents per share). Year ended 30 June 2018 Year ended 30 June 2017 % change Revenue Gross profit EBITDA NPAT EPS $220.7m $69.0m $24.6m $11.9m $191.8m $58.6m $23.9m $12.1m 16.25 cents 17.32 cents +15% +18% +3% -2% -6% Reconciliation of NPAT to reported EBITDA NPAT Add back Depreciation & Amortisation Interest expense Income tax expense Acquisition costs Reported EBITDA Non-cash share option costs Interest revenue Standard EBITDA 2018 $’000 2017 $’000 2016 $’000 11,859 12,066 8,990 6,310 1,270 4,894 262 24,595 396 (576) 24,415 5,083 1,790 4,444 498 23,881 293 (1,350) 22,824 4,709 1,061 2,835 200 17,795 - (249) 17,546 Historically MNF has reported EBITDA without excluding Non-cash share option costs and interest revenue, which have been for the most part immaterial. The above table demonstrates the reported EBITDA and the EBITDA after removing interest revenue and option costs. Cash and debt The closing cash balance as at 30 June 2018 was $18.9m (2017: $52.4m). The decrease in the cash balance was the result of the unwinding of the large novated creditor that came onto the balance sheet in 2016. This decrease was anticipated by management and brings the cash balance closer to a normalised cash balance for the business. At year end gross debt in the form of a $27.0m revolving acquisition facility was $10.7m (2017: $11.2m). $2.5m of gross debt was paid down during the year, and the company drew down $2.0m for the SuperInternet acquisition that completed on 6 July 2018. The company had no net debt as at year end. 36 For the year ended 30 June 2018MNF Group Limited | ABN 37 118 699 853 and controlled entities Directors’ report Business outlook The MNF Group operates with three very solid independent segments – Domestic Retail, Domestic Wholesale and Global Wholesale. Inside each segment are multiple product lines with excellent diversity of customers and profit contribution. All segments operate in our core area of specialisation, being enabling new and disruptive voice communications through software development and network deployment. Each segment has a well-defined strategy for investment and growth. The business is confident of sustainable organic gross margin and profit growth across all three segments. Additionally, the business has shown an ability to find value accretive acquisitions and integrate them quickly and effectively to improve the overall performance of the business. With a discerning and conservative approach, the Board of MNF Group will continue to actively search for further acquisition opportunities; whilst the business remains totally committed to driving organic growth and overall financial performance within the business. Domestic Retail Segment This segment is based on the original MyNetFone brand and other retail acquisitions, focussing on selling directly to residential, small business, enterprise & government, and conferencing customers. The domestic retail segment delivered a margin contribution to the group of $23.0m. That is a $4.1m (22%) increase on the prior year. The addition of CCI to this segment in February 2017 was the primary driver of this growth. Excluding CCI from this growth, the Domestic Retail Segment grew organically by around 1.3%. The underlying organic growth was impacted by the accelerating decline of the residential sub-segment which declined 13% this year. This offset the growth of small business and enterprise & government. a. Residential The Residential sub-segment consists of selling residential products – VoIP, DSL, NBN and Mobile within Australia. The segment operates under multiple brands – MyNetFone, Pennytel and theBuzz. This year the company decided to invest in the re-launch of Pennytel (February 2017) to be a main stream brand with Mobile as the core offering. In launching this new brand, the company is leveraging its software eco-system, experience enabling other very large house-hold name brands, extensive niche residential marketing experience, our Telstra Wholesale MVNO agreement and a strategic marketing partnership. The company’s focus going forward will be to continue to develop the Pennytel brand, and allow the older legacy brands to gradually decline as the products reach technical obsolescence. Going forward the company will look to launching a new NBN and Voice offering also under the Pennytel brand and consolidate all residential operations under one brand. The once-off investment into the Pennytel launch amounted to $2.3m in FY18. Looking forward into FY19 the Residential sub-segment is expected to cost the company approximately $0.5m at EBITDA level as the customer acquisition run rate increases. b. Small Business The Small Business sub-segment consists of selling business grade MyNetFone Virtual PBX and SIP trunks, as well as business grade DSL, NBN and Ethernet broadband services within Australia. The sub-segment operates under the brands MyNetFone, Connexus and CallStream. Each brand has its own value proposition, web site, and product range; however, all brands are operated across the same network and same operations team, providing a high level of synergy. The small business market sub-segment is strategic to MNF with strong prospects for future growth. The company has some leading products in the market and continues to innovate. The NBN roll out will provide additional growth impetus to this segment when the NBN reaches more centralised business areas, as it will force customers to move off legacy copper PSTN services and find new alternatives for telephony. 37 For the year ended 30 June 2018www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report The Virtual PBX and SIP trunk products, which are the core product in this segment, grew by 13% to 3,842 services in operation. Revenue and margin from business voice has grown in 2017. c. Enterprise & Government The Enterprise & Government sub-segment consists of selling enterprise grade telecommunications solutions such as SIP Trunks, Microsoft Skype for Business, BroadSoft and other solutions within Australia and New Zealand. The sub-segment operates under the newly created MNF Enterprise brand. The Enterprise & Government gross margin grew 13% this year to $2.6m. The growth was largely due to contributions from the new Microsoft Skype for Business solutions. Additional product capabilities for Broadsoft are due to come online in FY19. The MNF Group maintains preferred supplier status under the Tasmanian Government TMD and PNAC purchasing agreements. Additionally MNF Group has obtained purchasing panel arrangements with New Zealand Government, NSW Government, Victorian Government, the Municipal Association of Victoria, and the West Australian Association of Local Government. d. Conference Call International (CCI) The CCI sub-segment consists of the business assets, customers and operations of Conference Call International Pty Ltd acquired in February 2017. The CCI business involved selling audio conferencing and collaboration services to business customers in Australia and New Zealand. The business owns and operates three main brands – OzLink, Eureka Conferencing and Express Virtual Meetings. Each brand services a different set of user needs in this space. The CCI business is performing well with overall gross margin up 10% in FY18H2 compared to the previous corresponding period. The business and network integration is now complete together with capacity expansion for future growth. Additionally new product offerings in the area of video conferencing and collaboration are under development for release in FY19. Domestic Wholesale Segment This segment is based on the original Symbio Networks brand, and includes the iBoss software platform. The segment is focussed on selling to Australian & New Zealand domestic carriers, carriage service providers (CSP), cloud providers and application providers. This segment is strategic to the group and continues to experience strong organic growth. The key products sold into this market are: 1. Wholesale voice – termination of high volume Wholesale voice minutes; 2. 3. Wholesale managed services – providing unbranded capabilities and services such as Local Number Portability, voice end-points, phone numbers, and numerous other in-house developed cloud based value added services; Wholesale aggregation services on the iBoss software platform – providing customer branded services such as: DSL broadband, NBN broadband, Legacy ISDN/PSTN voice resale, mobile telephony resale and also providing access to the complete suite of Symbio Wholesale managed services; 4. Software-as-a-Service (SaaS)– leveraging the company’s extensive software intellectual property assets and monetising them by means of selling cloud based capabilities on a monthly recurring basis. The main product is the iBoss enablement platform. 38 For the year ended 30 June 2018MNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report These products leverage the extensive fully interconnected national voice network that is also used to carry the group’s retail and globally originated traffic, in addition to an extensive amount of proprietary intellectual property that has been developed by the company over the last 15 years. The domestic wholesale business is currently hosting over 300 unique service provider customers, an increase of 5% on the previous year. Each customer generally purchases one or more products from the above suite of products. In addition to the increase in service provider customers, the customers themselves are generally growing organically, providing a compounding growth effect – hence the strong margin growth for this segment. Services provided in this segment continue to experience strong growth, with Local Number Portability (LNP) growing 22% to 788,000 inbound ported numbers, and the total volume of hosted Direct-In-Dial (DID) numbers growing to 3.2 million numbers. Wholesale aggregation subscriptions (iBoss) increased to 15,156, up 179% on the prior year. Global Wholesale Segment This segment is based on the TNZI and Symbio Networks brand to customers that are global operators and managed by the team out of Wellington. The segment is focussed on selling to global carriers, carriage service providers (CSP), cloud providers and application providers. This segment is strategic to the group and has the biggest potential for long term organic growth through leveraging its global market reach to sell the company’s high margin products. Initial focus for global growth is the Asia-Pacific region where the opportunity and the company is strongest. The main product sold by TNZI has historically been global voice termination. The TNZI brand operates high quality voice termination to all countries around the globe through direct and indirect partnerships. TNZI is globally recognised as a “Tier 1” quality brand, having been an innovator and pioneer of global minutes trading for over 25 years. The TNZI organisation is a member of many exclusive global infrastructure organisations and committees, including the ITW Global Leaders Forum (GLF), Pacific Islands Telecommunications Association (PITA), the i3 Forum standards organisation and the Pacific Telecommunications Council (PTC). The Symbio Networks products are being productised and made available to the global customer base. This is expected to provide additional high margin recurring revenue streams to the TNZI business, similar to what Symbio Networks is achieving in the Australian and New Zealand domestic markets. Significant changes in the state of affairs There were no significant changes in the state of affairs of the company during the financial year. After balance date events Dividends proposed: The dividend as recommended by the Board will be paid subsequent to the balance date. Acquisition of SuperInternet On 6 July 2018, the Company completed the acquisition of 100% of the issued shares in SuperInternet (s) Pte Ltd for SGD2.0m (AUD2.0m), SuperInternet is a fully licensed independent facilities-based operator (FBO) in Singapore. The acquisition has increased the Group’s footprint into Asia with voice and data capabilities. 39 For the year ended 30 June 2018www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report Future developments The Board is committed to growing the company organically as well as by way of targeted acquisitions. The company has a strict policy around the evaluation of acquisition targets and will continue to look to build through leveraging synergies, adding products and services through the acquisition of intellectual property and avoiding companies that are pure re-sellers of other networks. Environmental issues The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory. Dividends paid or recommended Fully franked dividends paid or declared for payment during the financial year are as follows: Dividends paid during the year: $000 Franking 2017 Final dividend of 4.50 cents per share paid on 28 September 2017 2018 Interim dividend of 4.30 cents per share paid on 05 April 2018 Dividends recommended (subsequent to year end): 3,279 3,138 100% 100% 2018 Final dividend of 4.05 cents per share recommended on 28 August 2018 2,961 100% The 2018 final divident is to be paid on 4 October 2018 to shareholders registered as at 10 September 2018. Options Shares under option or issued on exercise of options The Directors did not acquire any shares through the exercise of options during the year. On 25 October 2016 at the Annual General Meeting, shareholders voted in favour of granting 450,000 options to Directors. The details of those options are detailed in the table below: Director Date of expiry Exercise price Number of options Terry Cuthbertson Michael Boorne Andy Fung Rene Sugo 30 June 2021 30 June 2021 30 June 2021 30 June 2021 $7.15 $7.15 $7.15 $7.15 100,000 100,000 100,000 150,000 450,000 At the date of this report, the unissued ordinary shares of MNF Group Limited under options which were granted during the 2017 financial year is as follows: Grant Date Date of expiry Exercise price Number of options 15 September 2016 15 September 2016 27 October 2016 30 June 2019 30 June 2020 30 June 2021 Nil Nil $7.15 90,000 90,000 620,000 800,000 40 For the year ended 30 June 2018MNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report - audited remuneration report Audited Remuneration Report This report details the remuneration structures and outcomes for key management personnel (KMP) of the Group for the year ended 30 June 2018. This report forms part of the directors’ report and has been prepared and audited in accordance with section 300A of the Corporations Act 2001. For the purposes of this report, KMP is defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, and includes directors (whether executive or otherwise) of the Company, the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and other senior executives of the Group. The table below outlines the KMPs of the Group and their movements during the 2018 financial year: Name Position Term as KMP Non-executive directors Mr Terry Cuthbertson Non-executive Chairman Full financial year Mr Michael Boorne Non-executive Director Full financial year Mr Andy Fung Non-executive Director Full financial year Executive director Mr Rene Sugo Other KMPs Chief Executive Officer Full financial year Mr Matthew Gepp Chief Financial Officer Full financial year Ms Catherine Ly Company Secretary and Treasurer Full financial year There were no changes to KMPs between the reporting date and date the financial report was authorised for issue. Remuneration Committee Due to the size of the Group, the functions of the Remuneration Committee are undertaken by the full Board. Mr Boorne chairs the Remuneration Committee. The Board is responsible for the remuneration arrangements of the CEO and other senior executives and all awards made under short and long-term incentive plans. The Group does not currently engage remuneration consultants, however may consider the use of remuneration consultants in the future as the Group continues to grow. The Board also sets the aggregate remuneration of non-executive directors, which is then subject to shareholder approval. The 2017 audited remuneration report received positive shareholder support at the 2017 annual general meeting (AGM) with a vote of 91.45% in favour (2016: 98.45%). The current aggregate maximum amount of non-executive directors’ fees of $500,000 per annum (inclusive of superannuation guarantee charge contribution) was approved by shareholders at the 2014 AGM. 41 For the year ended 30 June 2018www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report - audited remuneration report Executive remuneration arrangements Remuneration principles and strategy Remuneration levels for KMPs of the Group are designed to attract and retain appropriately qualified and experienced directors and executives. The Group aims to reward executives based on their position and responsibility whilst maintaining comparability with other companies in the sector of similar revenue, market capitalisation and earnings levels. The executive remuneration structure remains unchanged from prior year, and includes a combination of the following components: Fixed Remuneration Short-term Incentive (STI) Long-term Incentive (LTI) Variable Remuneration Cash Equity - Base salary plus superannuation - Eligibility for payment is dependent on the Group exceeding budgeted NPAT - Set based on market benchmarks and individual performance, qualifications and experience - Paid within the quarter following financial year-end - Share options to vest after each successive tranche, conditional upon continuation of employment - Aimed to retain key staff - Share options are linked to share price performance at $7.15 strike price. It incentivise KMPs to create shareholder wealth, based on individual skills, qualifications and experience, to expire on 30 June 2021 Fixed remuneration Fixed remuneration consists of base salary, employer superannuation contributions and non-monetary benefits. Non-monetary benefits are typically benefits such as access to car-parking and leave entitlements. It is market competitive and set to attract, motivate and retain highly skilled personnel. Details of the short-term incentive plan The objective of the STI plan is to link the Group’s financial and operational targets with the remuneration received by senior managers charged with meeting those targets. As part of their respective employment agreements the CEO, CFO and other senior managers are eligible for a cash bonus subject to the attainment of these clearly defined objectives. The STI plan applies to the period from 1 July 2017 to 30 June 2018. 100% of the STI target for financial year 2018 was linked to the Group achieving its annual financial targets. The determination and agreement of these targets are set at the start of each financial year and align with the Group’s longer-term strategic goals. The current financial year’s STI plan depends on the Group achieving its budgeted net profit after tax (NPAT) target after provisioning for the STI, as set by the Board. The Board believes that the objective being set is challenging for the executives and senior managers. It will be paid out annually in the quarter following financial year-end should the target be met, subject to Board approval, as they have ultimate discretion. Performance of the Group against the 2018 STI NPAT target/hurdle is summarised as follows: Performance 2018 TargetA 2018 NPAT % Variance NPAT (inclusive of STI provisioning) $12.5m $11.9m (5%) A The budget was revised in the Group’s Business Update forecast guidance as communicated on 13 February 2018 in the Half-Year Investor Presentation. As the financial performance has not exceeded budget for the 2018 financial year, the STI will not be payable and is not accrued in the 2018 financial report. 42 For the year ended 30 June 2018MNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report - audited remuneration report The below illustrates the structured employee entitlements of eligible KMPs as a percentage of their fixed remuneration: KMP Remuneration Structure 16% 21% 6% 18% 2% 23% 84% 79% 76% 75% FY18 FY17 FY18 FY17 CEO CFO Fixed Remuneration STI LTI Non-executive directors are not eligible for an STI. Details of long-term incentive plans LTI plans are offered under the Company’s Employee Option Plan to align remuneration with the creation of shareholder value over the long term. As such, LTI awards are only made to executives and other key employees who have an impact on the Group’s performance. Currently, the Group has two LTI plans in place. The first plan is a share-based option plan aimed at retaining highly skilled directors and KMPs to appropriately remunerate in line with similar organisations in the market: Plan attributes Detail Participants Allocation Mr M Gepp, Ms C Ly The allocation of the options granted is separated into four tranches, each vesting to the KMPs as detailed below: Vest date 1 Sep 2016 1 Sep 2017 1 Sep 2018 1 Sep 2019 Number of options Mr M Gepp Ms C Ly 2,000 6,000 6,000 6,000 500 1,500 1,500 1,500 Value Vesting Alignment/objective Forfeiture The options granted have an exercise price of $Nil. Vesting of each successive tranche is conditional upon the recipient continuing employment with the Group up until date of vesting. Incentive package in accordance with remuneration policy focussing on long-term retention of key staff within the Group. The objective is to retain highly skilled employees for the long-term, whose contributions are key to the success of the Group. Subject to the Board’s discretion should the employee resign, be terminated by the Group for any reason, or be terminated from the plan for any reason, the options granted prior to vesting date will be forfeited. 43 For the year ended 30 June 2018www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report - audited remuneration report The second plan is also a share-based option plan aimed at directors, executives and KMPs of the Group, to align their long-term remuneration with the performance of the long-term share price: Plan attributes Detail Participants Allocation The Group’s directors and KMPs The allocation of the options granted to each director and senior manager is as below: Mr T Cuthbertson 100,000 Mr M Boorne Mr A Fung Mr R Sugo Mr M Gepp Ms C Ly 100,000 100,000 150,000 50,000 20,000 These options were granted on 27 October 2016. The options granted to directors were approved by shareholders at the 2016 AGM. Conditions Options have an exercise price of $7.15, and expire on 30 June 2021. Alignment/objective The Board believes that LTI hurdles based on achieving or exceeding a share price of $7.15 targeted in the Group’s TSR performance is a challenging objective. This incentive directly aligns the financial interests of directors, KMPs and executives with shareholders by linking their reward to the Group's share price performance. Forfeiture Should the participant resign, be terminated by the Group for any reason, or be terminated from the plan for any reason, the options granted prior to vesting date will be forfeited. Shareholders returns KMP remuneration is rewarded with consideration of the Group’s earnings and performance. The following table sets out MNF Group’s key financial results and shareholder wealth generation over the past five years: Performance metric 2018 2017 2016 2015 2014 Revenue (‘000) NPAT (‘000) $220,728 $191,752 $161,217 $85,675 $59,306 $11,859 $12,066 $8,990 $7,184 $5,778 Basic EPS (cents) 16.25 17.32 13.45 11.49 9.26 Dividends paid (‘000) $6,417 $5,099 $4,512 $3,128 $2,498 Dividends declared per share (cents) Share price (as at 30 June) Change in share price 8.35 $5.25 $0.88 8.25 $4.37 $0.37 7.00 5.75 4.50 $4.00 $0.18 $3.82 $1.40 $2.42 $1.22 Market Capitalisation $384m $318m $270m $240m $151m 44 For the year ended 30 June 2018MNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report - audited remuneration report Remuneration details of directors and KMPs for the year ended 30 June 2018 Details of the nature and amount of benefits and payments for each director and KMP of the company for the 2017 and 2018 financial years are as follows, represented on an accrual basis: Short term benefits Cash salary & fees (i) $ STI/ Bonus paid(ii) $ STI/ Bonus accrued(iii) $ Non- monetary benefits(iv) $ Non-executive Directors Mr T Cuthbertson Mr M Boorne 2018 120,000 2017 118,200 2018 100,000 2017 91,750 Mr A Fung 2018 80,000 2017 77,000 Executive Director - - - - - - Mr R Sugo 2018 517,025 135,013 2017 464,617 79,500 Other KMPs Mr M Gepp 2018 337,719 97,805 2017 296,667 80,000 Ms C Ly 2018 164,167 2017 159,250 - - Total 2018 1,318,911 232,818 2017 1,207,484 159,500 Post employment benefits Superannuation Shared based pay- ments Options (v) Total $ $ $ 11,400 - 131,400 11,229 715 130,144 9,500 - 109,500 8,550 7,600 7,315 715 101,015 - 87,600 715 85,030 25,000 - 683,968 27,736 1,073 575,420 25,000 29,067 494,061 30,308 8,658 418,127 15,675 7,267 187,109 15,128 2,218 176,596 94,175 36,334 1,693,638 100,266 14,094 1,486,332 - - - - - - - - - - - - - - - - - - - - 6,930 2,494 4,470 2,494 - - 11,400 4,988 (i) (ii) (iii) (iv) (v) Cash salaries paid are reviewed annually. STI amounts paid in the current financial year relate to the achievement of 2017 targets and were accrued for in the 2017 results. STI amounts accrued in the current financial year are in relation to the 2018 financial year and would be paid in the subsequent financial year when applicable. The category “Non-monetary benefits” represent other benefits such as car parking. Black-Scholes model is used to value options issued. 45 For the year ended 30 June 2018www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report - audited remuneration report Key terms of employment agreements The Company has entered into an executive employment agreement with the CEO. The remuneration and terms of employment for other key executives are also set out in written agreements. Each of these employment agreements are unlimited in term but may be terminated by written notice by either party and by the Company making payment in lieu of notice. Each of these agreements sets out the arrangements for total fixed remuneration, performance-related cash bonus opportunities, superannuation, termination rights and obligations and eligibility to participate in the employee equity-based incentive scheme. Executive salaries are reviewed annually. The executive employment agreements do not require the Company to increase base salary, incentive bonuses or to continue the participants’ participation in equity-based incentive programs. Payment of any STI is at the Board’s discretion. The Company may terminate the employment of the key executives without notice and without payment in lieu of notice in some circumstances. These include if the executive: Commits an act of serious misconduct; Commits a material breach of the executive employment agreement; Denigrates or engages in any behaviour that may materially damage the reputation of, or otherwise bring the Group into disrepute; or is convicted of any criminal offence which would in the reasonable opinion of the Board of Directors adversely affect the carrying out of the executive’s duties. The Company may terminate the employment of the key executive at any time by giving the executive notice of termination or payment in lieu of such notice. The amount of notice required from the Company in these circumstances is set out in the following table: KMP Company notice period Employee notice period Termination provision Details Mr R Sugo 6 months 1 month Mr M Gepp 3 months 3 months Ms C Ly 6 months 1 month 6 months’ base salary Fixed salary package of $542,025, consisting of base salary and superannuation, reviewed annually by the Board 3 months’ base salary Fixed salary package of $369,563, consisting of base salary and superannuation, reviewed annually by the Board in September 6 months’ base salary Fixed salary package of $180,675, consisting of base salary and superannuation, reviewed annually by the Board in September 46 For the year ended 30 June 2018MNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report - audited remuneration report Directors’ interests in shares and options of the Company At the date of this report, the particulars of shares and options held by the directors and other KMPs of the Company in the Company or in related bodies corporate which are required to be declared in the register of directors’ share holdings are as follows: 2018 2017 Shareholding Options Shareholding Options Non-executive Directors Mr T Cuthbertson 920,906 100,000 920,906 100,000 Mr M Boorne Mr A Fung Executive Director 709,543 100,000 728,014 100,000 14,151,954 100,000 14,025,989 100,000 Shareholding movement % 0% (3%) 1% Mr R Sugo 11,896,867 150,000 13,178,084 150,000 (10%) Other KMPs Mr M Gepp Ms C Ly Total 43,000 295,676 62,000 23,000 52,000 68,000 288,926 24,500 (17%) 2% 28,017,946 535,000 29,193,919 542,500 This concludes the audited remuneration report. 47 For the year ended 30 June 2018www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entities Directors’ report Directors’ benefits No director has received or has become entitled to receive, during or since the financial year, a benefit because of a contract made by the company, controlled entity or related body corporate with a director, a firm which a director is a member or an entity in which a director has a substantial financial interest. Indemnifying officers or auditor The Group has in place a contract insuring the directors, the company secretary and all executive officers of the Group and any related body corporate, against a liability incurred by a director, company secretary or executive officers to the extent permitted by the Corporations Act 2001. The Group has indemnified the directors, the company secretary and all executive officers of the Group for costs incurred, in their capacity as officers of the Group, for which they may be held personally liable, except where there is a lack of good faith. Details of the amount of the premium paid in respect of the insurance policies are not disclosed as such disclosure is prohibited under the terms of the contract. No indemnities have been given or agreed to be given or insurance premiums paid or agreed to be paid, during or since the end of the financial year, to the auditors of the Group or any related entities against a liability incurred by the auditors Proceedings on behalf of the company No person has applied for leave of a Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. The Group was not a party to any such proceedings during the year. Non-audit services During the current and prior year MNSA Pty Ltd Chartered Accountants, the Group’s auditor, did not provide any non-audit services. The total amount received by MNSA Pty Ltd Chartered Accountants for non-audit services was $Nil (2017: $Nil). Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 has been received and can be found on page 83 of the financial report. Rounding off MNF Group Limited is a company of the kind referred to in ASIC Legislative Instrument (Rounding in Financial/ Directors’ Reports) 2016/191 and in accordance with that Instrument, amounts in the Directors’ report and the consolidated financial statements are rounded to the nearest thousand dollars, except where otherwise indicated. 48 For the year ended 30 June 2018MNF Group Limited | ABN 37 118 699 853 and controlled entitiesDirectors’ report This directors’ report, incorporating the audited remuneration report, is signed in accordance with a resolution of the Board of Directors. Terry Cuthbertson Chairman Sydney, 28 August 2018 Rene Sugo CEO and Executive Director 49 For the year ended 30 June 2018www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesConsolidated financial statements 2018 Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June Continuing operations Notes Consolidated group 2018 $’000 2017 $’000 Revenue Cost of sales Gross profit Other income Employee benefits expense Depreciation and amortisation Other expenses Costs related to acquisition Financing costs Profit before income tax 4a 220,728 191,752 (151,683) (133,139) 69,045 58,613 4a 4b 4c 4d 4e 1,128 1,350 (31,713) (6,310) (13,865) (262) (1,270) 16,753 (26,028) (5,083) (10,054) (498) (1,790) 16,510 Income tax expense 5a, 5b (4,894) (4,444) Profit from continuing operations 11,859 12,066 Net profit for the year 11,859 12,066 Other comprehensive income/(loss) Items that may be reclassified to profit or loss: Exchange differences on translation of foreign operations Changes in fair value of cash flow hedges 475 352 827 (584) 142 (442) Total comprehensive income for the year 12,686 11,624 Earnings per share from continuing operations - Basic earnings per share (cents) - Diluted earnings per share (cents) 23 23 16.25 16.08 17.32 17.10 The accompanying notes form part of these consolidated financial statements. 51 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entities Consolidated statement of financial position As at 30 June Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets Property, plant and equipment Deferred tax asset Goodwill and other intangibles Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Loans and borrowings Deferred revenue Income tax payable Financial Instruments Provisions Total current liabilities Non-current liabilities Loans and borrowings Financial instruments Provisions Deferred tax liability Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity Notes 6a 7 8a 5c 21 9 10 12 11 13 10 11 13 5d 14a Consolidated group 2018 $’000 2017 $’000 18,870 33,450 650 52,970 23,144 1,040 48,754 72,938 52,358 30,121 669 83,148 18,663 958 47,697 67,318 125,908 150,466 30,120 63,181 2,500 1,763 1,996 - 1,801 38,180 8,190 80 1,876 1,349 11,495 49,675 76,233 50,221 1,493 24,519 76,233 2,500 1,611 1,581 592 1,483 70,948 8,690 140 921 1,420 11,171 82,119 68,347 49,000 270 19,077 68,347 The accompanying notes form part of these consolidated financial statements. 52 MNF Group Limited | ABN 37 118 699 853 and controlled entitiesConsolidated group 2018 $’000 2017 $’000 231,224 202,372 (242,907) (182,486) 603 (694) 836 (759) (4,599) - (3,947) 1,358 (904) (3,016) 13,377 (9,646) (16,986) - (461) - Consolidated statement of cash flows For the year ended 30 June Cash flows from operating activities Notes Receipts from customers Payments to suppliers and employees Settlement of financial asset Settlement of financial liability Interest received Interest paid Income tax paid Net cash (used for)/from operating activities 6b (16,296) Cash flows from investing activities Purchase of property, plant and equipment Payment for business acquisitions Payment in advance for business acquisitions Software development costs Purchase of other intangible assets (8,101) - (646) (2,350) (704) Net cash used for investing activities (11,801) (27,093) Cash flows from financing activities Proceeds from share placement and options exercised Dividends paid Proceeds from borrowings Repayment of borrowings Net cash (used for)/from financing activities Net (decrease)/increase in cash and cash equivalents Impact of FX on cash and cash equivalents Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June 6a 1,221 (6,417) 2,000 (2,500) (5,696) (33,793) 305 52,358 18,870 22,560 (5,099) - (2,500) 14,961 1,245 (1,776) 52,889 52,358 The accompanying notes form part of these consolidated financial statements. 53 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesConsolidated statement of changes in equity Attributable to owners of the Group Ordinary share capital Share- based payment reserve Translation reserve Hedging reserve Retained earnings Total $’000 $’000 $’000 $’000 $’000 $’000 Balance at 30 June 2016 26,440 1,353 (329) (605) 12,109 38,968 Profit for the period Other comprehensive income Dividends paid Share options exercised Share placement Shares issued - DRP Shares issued - SPP - - - 958 17,949 703 2,950 - - - - - - - Share-based payments - 293 - - 12,066 12,066 (584) 142 - (442) - - - - - - - - - - - - (5,098) (5,098) - - - - - 958 17,949 703 2,950 293 Balance at 30 June 2017 49,000 1,646 (913) (463) 19,077 68,347 Profit for the period Other comprehensive income Dividends paid - - - Shares issued - DRP 1,221 - - - - Share-based payments - 396 - 475 - - - - 11,859 11,859 352 - 827 - - - (6,417) (6,417) - - 1,221 396 Balance at 30 June 2018 50,221 2,042 (438) (111) 24,519 76,233 The accompanying notes form part of these consolidated financial statements. 54 MNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements 1. Corporate information These consolidated financial statements and notes represent those of MNF Group Limited (the Company) and its controlled entities (collectively, the Group) for the year ended 30 June 2018. The financial statements were authorised for issue on 28 August 2018 in accordance with a resolution by the directors of the Company. MNF Group Limited is a for-profit entity limited by shares and incorporated and domiciled in Australia. Shares are publicly traded on the Australian Securities Exchange (ASX). The nature of the operations and principal activities of the Group are described in the Directors’ report. The separate financial statements of the MNF Group Limited, the parent entity of the Group, have not been presented within this financial report as permitted by the Corporations Act 2001. The financial information of the Company has been disclosed in Note 25. 2. Significant accounting policies a. Basis of preparation The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in the financial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB). Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless otherwise stated. The financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. b. New and amended accounting policies adopted by the Group and New Accounting Standards for application in future periods Accounting Standards and Interpretations issued by the AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below: AASB 9 Financial Instruments and associated amending standards (AASB 9) AASB 9 is applicable for annual reporting periods beginning on or after 1 January 2018. The Group expects to adopt the new requirements from its mandatory reporting date, the financial year beginning 1 July 2018. The Standard will be applicable retrospectively (subject to the provisions on hedge accounting outlined below) and includes revised requirements for the classification and measurement of financial instruments, revised recognition and derecognition requirements for financial instruments and simplified requirements for hedge accounting. The key changes that may affect the Group on initial application include certain simplifications to the classification of financial assets, simplifications to the accounting of embedded derivatives, upfront accounting for expected credit loss and the irrevocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. AASB 9 also introduces a new model for hedge accounting that will allow greater flexibility in the ability to hedge risk, particularly with respect to hedges of non-financial items. Should the entity elect to change its hedge policies in line with the new hedge accounting requirements of the Standard, the application of such accounting would be largely prospective. 55 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entities Notes to the consolidated financial statements The Group does not expect a significant impact on its balance sheet or equity on applying classification and measurement requirements of AASB 9. It expects to continue to measure derivatives at fair value through other comprehensive income. The new impairment model requires updates to the expected credit losses recognised at each reporting date to reflect changes in risk for debt securities, loans and trade receivables. The Group does not expect material variances as it applies the expected losses on a 12-month basis. The Group determined that all existing hedge relationship that are currently designated in effective hedging relationships will continue to qualify for hedge accounting under AASB 9. As the general principles of accounting for effective hedges do not change as a result of AASB 9, there is an expectation that the impact to the Group’s financial statement on application would not be significant. AASB 15 Revenue from Contracts with Customers (AASB 15) This Standard will come into effect on 1 January 2018 and replace the current accounting requirements applicable to revenue with a single, principles-based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following five-step process: identify the contract(s) with a customer; identify the performance obligations in the contract(s); determine the transaction price; allocate the transaction price to the performance obligations in the contract(s); and recognise revenue when (or as) the performance obligations are satisfied This Standard will require retrospective restatement, as well as enhanced disclosures. The Group provides telecommunication services. Some contracts may include more than one performance obligation from the provision of services and low value hardware. The Group accounts for the equipment and service as separate deliverables. Consideration between these deliverables are allocated using the relative fair value approach. Under AASB 15, allocation will be made based on relative stand-alone selling prices. Hence, the allocation of the consideration of revenue recognised in relation to these sales would be affected. Although the directors anticipate that the adoption of AASB 15 may have an impact on the Group’s financial statements, it is not expected to generate material differences to the current or future years’ results. The Group expects to adopt the new requirements from its mandatory reporting date, the financial year beginning 1 July 2018. AASB 16 Leases (AASB 16) This Standard will: replace AASB 117 Leases and some lease-related Interpretations; require all leases to be accounted for ‘on-balance sheet’ by lessees, other than short-term and low value asset leases; and require new and difference disclosures about leases. This Standard will require retrospective restatement, as well as new disclosures. The Directors anticipate the adoption of AASB 16 may have an impact on the Group’s financial statements. The Group has conducted an initial assessment of the potential impact on its consolidated financial statements but has not yet completed its detailed assessment. The Group has operating lease commitments and will be required to recognise new assets and liabilities for its operating leases of office spaces. AASB 16 is applicable for annual reporting periods beginning on or after 1 January 2019. The Group expects to adopt the new requirements from its mandatory reporting date, the financial year beginning 1 July 2019. 56 MNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements c. Principles of consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by the Company at the end of the reporting period. A controlled entity is any entity over which MNF Group Limited has the ability and right to govern the financial and operating policies so as to obtain benefits from the entity’s activities. Control will generally exist when the Company owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. In assessing the power to govern, the existence and effect of holdings of actual and potential voting rights are also considered. In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the consolidated group have been eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those adopted by the parent entity. Where controlled entities have entered or left the Group during the year, the financial performance of those entities are included only for the period of the year that they were controlled. A list of controlled entities is contained in Note 20 to the consolidated financial statements. d. Business combinations Business combinations occur where an acquirer obtains control over one or more businesses and results in the consolidation of its assets and liabilities. All business combinations, including those involving entities under common control, are accounted for by applying the acquisition method. Consideration transferred for the acquisition comprises the fair value of the assets transferred, liability incurred and the equity interests issued by the acquirer. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. Any deferred consideration payable is discounted to present value using the entity’s incremental borrowing rate. Acquisition-related costs are expensed as incurred. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of fair value of consideration transferred, over the acquisition-date fair values of identifiable net assets. See Note 2p for further details regarding impairment testing. e. Critical accounting estimates and judgments The Directors evaluate estimates and judgments incorporated into the consolidated financial statements based on historical knowledge and best available current information. Estimates assure a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Key estimates that have a significant risk of causing adjustments to the carrying amounts of certain assets and liabili- ties within the next annual reporting period are: (i) Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an independent valuer using the Black-Scholes model. The accounting estimates and assumptions relating to equity-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may have impact on profit or loss and equity. (ii) Useful lives of property, plant and equipment The Group reviews the estimated useful lives of property, plant and equipment at the end of each financial year. The Group adjusts the remaining effective useful life of its assets to better reflect their actual usage and future economic benefit. (iii) Utilisation of tax losses The Company and its wholly-owned Australian subsidiaries elected to join as members of a tax consolidated group under Australian taxation law as of 1 July 2011. Each entity in the tax consolidated group contributed tax losses to the Group. The Group has no tax losses to currently utilize. 57 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements (iv) Research & Development (R&D) tax concession When calculating the income tax provision for the year, the Research & Development tax concession for the current financial year is based on management’s operational knowledge and best estimate at the time, utilitising prior year’s claim as a benchmark. The directors believe the estimate is reasonable and conservative. This may be subject to change following the approval of the R&D tax concession application from AusIndustry in due course. f. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. The following specific recognition criteria must also be met before revenue is recognised: (i) Rendering of services Revenue from telecommunication services is recognised when the services are provided to the customer. Deferred revenue represents the unused proportion of cash received in advance for call credits determined on a specific account basis at balance date (ii) Interest income Interest revenue is recognised using the effective interest rate method, which, for floating rate financial assets, is the rate inherent in the instrument. g. Leases The Group as a lessee - lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the period in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term. h. Cash and cash equivalents Cash and cash equivalents in the consolidated statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. i. Trade and other receivables Trade and other receivables are non-interest bearing financial assets with fixed or determinable payments that are not quoted on an active market. The balance is recognised and carried at original invoice amount net of any provision for doubtful debts. A provision for doubtful debts is estimated based on analysis made by the Group regarding the collectability of the debt with reference to the counterparty’s current financial situation. Bad debts are written off when it is determined the debt is irrecoverable. These amounts have been included in other expenses. j. Foreign currency transactions and balances (i) Functional and presentation currency The functional currency of each group entity is measured using the currency of the primary consolidated environment in which the entity operates. The consolidated financial statements are presented in Australian dollars which is the Company’s functional and presentation currency. (ii) Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. 58 MNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements (iii) Group Companies The financial results and position of foreign operations whose functional currency is different from the Group’s presentation currency are translated as follows: Assets and liabilities are translated at year end exchange rates prevailing at the reporting date. Income and expenses are translated at average exchange rates for the period. Retained earnings are translated at the exchange rates prevailing at the date of the transaction. On consolidation, assets and liabilities have been translated into Australian dollars at the closing rate at the reporting date. Income and expenses have been translated into the Group’s presentation currency at the average rate over the reporting period. The exchange differences are taken to other comprehensive income (OCI) in the consolidated statement of profit or loss and other comprehensive income. k. Income tax (i) Current tax Current income tax expense charged to the profit or loss is the tax payable on taxable income, calculated using applicable income tax rates enacted as at reporting date. Current tax liabilities are measured at the amounts expected to be paid to the relevant taxation authority. (ii) Deferred tax Deferred taxes arise due to temporary timing differences between accounting and tax treatments of income and expenses. They are calculated at the tax rates expected to apply to the period when the asset is realised or the liability is settled. Deferred tax assets relating to unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Except for business combinations, no deferred tax is recognised from the initial recognition of an asset or liability where there is no effect on accounting or taxable profit or loss. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. (iii) Tax consolidation MNF Group Limited and its wholly-owned Australian subsidiaries are part of a tax consolidation group under Australian taxation law. MNF Group Limited is the head entity in the tax consolidation group. Tax expense, deferred tax liabilities and deferred tax assets arise from temporary differences of the members of the tax-consolidation group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. MNF Group Limited, as the head entity in the tax consolidated group, recognises the current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of all entities in Australia. l. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. m. Inventories Costs of purchased inventory are determined after deducting rebates and discounts. Inventories are measured at the lower of cost and net realisable value. Cost of inventories are determined on a weighted average cost basis. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. 59 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements n. Property, plant and equipment (i) Carrying amount Plant and equipment are measured on the cost basis. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not more than the recoverable amount from these assets. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of profit or loss and other comprehensive income during the financial period in which they are incurred. (ii) Depreciation The depreciable amount of all fixed assets is depreciated on a straight-line basis over the asset’s useful life to the consolidated group commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets are: Furniture & fittings 6 to 10 years Office equipment 3 to 5 years Leasehold improvements 3 to 9 years Network infrastructure and IT systems 2 to 10 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate at the end of each reporting period. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the consolidated statement of profit or loss and other comprehensive income. When re-valued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. o. Financial instruments Non-derivative financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified ‘at fair value through profit or loss’, in which case transaction costs are expensed to profit or loss immediately. (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period (all other loans and receivables are classified as non-current assets). (ii) Investments in subsidiaries held by the parent Investments in subsidiaries held by the parent entity are recognised and subsequently measured at cost in the separate financial statements of the company, less any impairment. (iii) Derivative financial instruments and hedge accounting The group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if certain criteria are met. 60 MNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then the hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the amount accumulated in reserves is reclassified to profit or loss. Derivatives are initially recognised at fair value; any directly attributable transaction costs are recognised in profit or loss as incurred. Cash flow hedges When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income (OCI) and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. The amount accumulated in equity is retained in OCI and reclassified to profit or loss in the same period or periods during which the hedged item affects profit or loss. Fair Value hedges When a derivative is designated as a fair value hedging instrument, the hedged item is re-measured to take into account the gain or loss attributable to the hedged risk, with the gains or losses arising recognised in profit or loss. This offsets the gain or loss arising on the hedging instrument which is measured at fair value through profit or loss. Changes in fair value of the derivative instrument are recognised in profit or loss. p. Intangible assets and goodwill (impairment testing) At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of profit or loss and other comprehensive income. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recognition and measurement: Goodwill Brands Research and development Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. Goodwill assets are not subject to amortisation and are tested for impairment on an annual basis, or whenever an indication of impairment exists. Brands identified on acquisitions are measured and recorded at valuation less accumulated impairment losses. Brands are not subject to amortisation and are tested for impairment on an annual basis, or whenever an indication of impairment exists. Expenditure on research is recognised in profit or loss as incurred. Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. Other intangible assets Other intangible assets, including customer contracts, patents and trademarks and software acquired by the Group that have finite lives are measured at cost less accumulated amortisation and any accumulated impairment losses. 61 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements Amortisation Amortisation is calculated to write off the cost of intangible assets less their residual values using the straight-line method over their estimated useful life, and is generally recognised in profit or loss. Goodwill is not amortised. The estimate useful life of intangibles is as follows: Patents and trademarks 5 to 20 years Software and software development costs 5 to 10 years Customer relationships 3 to 5 years Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. q. Trade and other payables Trade and other payables represent the liability outstanding at the end of the reporting period for goods and services received by the Group during the reporting period which remains unpaid. The balance is recognised as a current liability with the amount being normally paid within 30 days of recognition of the liability. r. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Statement of Comprehensive Income net of any reimbursement. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the statement of financial position date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. s. Employee leave benefits Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wages increases and the probability that the employee may satisfy vesting requirements. Those cash outflows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows. t. Contributed capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. u. Earnings per share Basic earnings per share is determined as net profit/(loss) attributable to members of the group, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares. Diluted earnings per share include options outstanding that will have the potential to convert to ordinary shares and dilute the basic earnings per share. 62 MNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements v. De-recognition of financial assets and financial liabilities Financial assets are de-recognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are de-recognised where the related obligations are either discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. w. Share-based payment transactions The Group provides benefits to its employees and directors (including KMPs) in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). The cost of these equity-settled transactions with employees and directors is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using the Black-Scholes model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees and directors become fully entitled to the award (the vesting date). At each subsequent reporting date until vesting, the cumulative charge to the consolidated statement of profit or loss and other comprehensive income is the product of: (i) the grant date fair value of the award; (ii) the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met; and (iii) the expired portion of the vesting period. The charge to the consolidated statement of profit or loss and other comprehensive income for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding credit to equity. 63 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements 3. Operating segments The Group operates in one business segment being telecommunications, which is further broken down into three sub-segments. These sub-segments reflect the organisational structure of the day to day operations as well as the separate target markets, being Australian Domestic Retail, ANZ Domestic Wholesale & Global Wholesale. These segments are based on internal management reporting that is used by the executive management team (chief operating decision makers) in assessing performance and allocating resources. Australian Domestic Retail The core MyNetFone brand, services Residential, SMB (Small to Medium Business), Enterprise and Government customers in Australia Conference Call International Pty Limited (CCI) is included in this segment Other brands in this segment include, Connexus, callstream, PennyTel and theBuzz Key products in this segment include: VoIP, Internet, Virtual PBX and SIP trunking End-to-end audio and web conferencing solutions for SMBs, toll free numbers and number porting Australia/New Zealand Domestic Wholesale The core Symbio and iBoss brands service wholesale customers based in Australia & New Zealand Key products offered by this segment are: Call termination & collection, pre-select, SIP trunking, DIDs, inbound numbers, porting and virtual numbers Wholesale aggregation, SaaS, data enablement and MVNO Global Wholesale The TNZI Brand services the Global Wholesale market TollShield and OCA (Open CA) also operate under the Global Wholesale segment Key products in this segment include: Voice carriage and International toll free services (ITFS) Toll Fraud prevention Class 4 Softswitch and billing Australian Domestic Retail Australia/New Zealand Domestic Wholesale Global Wholesale Total $’000 $’000 $’000 $’000 35,382 - 35,382 22,968 32,213 - 32,213 18,882 33,758 4,565 38,323 17,703 27,133 4,737 31,870 15,431 151,588 4,942 156,530 28,374 132,406 1,754 134,160 24,300 220,728 9,507 230,235 69,045 191,752 6,491 198,243 58,613 2018 External revenue Inter-segment revenue Segment revenue Segment margin 2017 External revenue Inter-segment revenue Segment revenue Segment margin 64 MNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements For the year ended 30 June 4. Revenue and expenses a. Revenue 2018 $’000 2017 $’000 Rendering of services and sale of goods 220,728 191,752 Interest on bank deposits Other income b. Employee benefits expense Wages and salaries Superannuation Share based payments expense Other employee benefits expense c. Depreciation and amortisation Depreciation of fixed assets Amortisation of intangible assets d. Other expenses Marketing Property Technology & support Distribution Accounting & audit Legal & consulting Bank and transaction costs Other administrative expenses e. Financing costs Finance charges related to hedge instrument Finance charges payable on bank loan 576 552 1,128 26,857 2,447 396 2,013 31,713 4,313 1,997 6,310 1,760 2,898 2,195 464 435 219 404 5,490 13,865 508 762 1,270 1,350 - 1,350 22,533 1,845 293 1,357 26,028 3,305 1,778 5,083 1,641 1,460 2,416 363 563 169 422 3,020 10,054 956 834 1,790 65 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements For the year ended 30 June 5. Income tax a. Income tax expense The major components of income tax expense are as follows: Current tax Adjustment in respect of prior year tax Origination and reversal of temporary differences 2018 $’000 2017 $’000 5,361 (564) 97 4,894 4,716 (139) (133) 4,444 b. Reconciliation between tax expense and the accounting profit Profit before income tax 16,753 16,510 At the Group’s statutory rate of 30% (2017: 30%) 5,026 4,953 Tax incentives Effect of tax rates in foreign jurisdictions Non-temporary differences Adjustment in respect of prior year (289) (124) 845 (564) 4,894 (247) (68) (28) (166) 4,444 Effective income tax rate 29% 27% c. Deferred tax asset Relating to temporary differences d. Deferred tax liability Relating to temporary differences 1,040 1,040 1,349 1,349 958 958 1,420 1,420 e. The Company and its wholly-owned Australian entities are members of a tax consolidated group. Transactions within the tax consolidated group have been eliminated in full on consolidation. The Australian tax consolidated Group is treated as a single entity for income tax purposes. 66 MNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements For the year ended 30 June 6. Operating cash flows reconciliation a. Cash and cash equivalents Cash at bank and on hand 2018 $’000 2017 $’000 18,870 52,358 b. Reconciliation of net profit after tax to net cash flows (used for)/from operating activities Profit for the year Adjustments for: Depreciation and amortisation Share based payments expense Tax expense Changes in assets and liabilities, net of the effects of acquisitions: Change in trade and other receivables Change in inventories Change in trade and other payables Change in other financial assets Change in deferred revenue Change in provisions and employee benefits Cash (used for) from operating activities Tax paid Net cash flows (used for)/from operating activities 7. Trade and other receivables Trade receivables Doubtful debts provision Other receivables 11,859 12,066 6,310 396 4,894 1,047 19 (36,018) (591) 152 235 (11,697) (4,599) (16,296) 30,671 (1,010) 3,789 33,450 5,083 293 4,444 (207) (365) (2,914) (2,164) (57) 214 16,393 (3,016) 13,377 28,602 (1,008) 2,527 30,121 Trade receivables balance is mostly made up of contractual agreements with customers. Generally, the terms and conditions of these contracts require settlement between 14 to 30 days from the date of invoice. Allowance for doubtful debts The Group applies professional judgement to estimate the allowance for doubtful debts for trade receivables. Assessment is based on historical trends and management’s assessment of general economic conditions. Credit risks, insolvency risk and incapacity to pay a legally recoverable debt are taken into consideration when applying this allowance. 67 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements Office Leasehold Network furniture & improvements infrastructure equipment & equipment Work in progress Total $’000 $’000 $’000 $’000 $’000 8. Property, plant and equipment a. Reconciliation of carrying amount Cost: At 1 July 2016 Acquisitions Additions Disposals Transfers from work in progress Reclassify asset category Effect of movement in exchange rates At 30 June 2017 At 1 July 2017 Additions Disposals Transfers from work in progress Effect of movement in exchange rates 2,423 - 1,024 - 86 (329) (8) 3,196 3,196 965 (5) - 9 789 - 453 - - 329 (12) 1,559 1,559 3,100 - 402 14 22,120 1,344 4,925 (3,008) - - (505) 24,876 24,876 4,702 (113) 2,997 169 At 30 June 2018 4,165 5,075 32,631 Accumulated depreciation: At 1 July 2016 Acquisitions Depreciation expense Disposals Reclassify asset category Effect of movement in exchange rates At 30 June 2017 At 1 July 2017 Depreciation expense Disposals Effect of movement in exchange rates (1,102) (554) (11,751) - (447) - 22 3 (1,524) (1,524) (529) 1 (6) - (295) - (22) 2 (869) (869) (639) - (6) (1,043) (2,563) 3,008 - 375 (11,974) (11,974) (3,145) 84 (208) At 30 June 2018 (2,058) (1,514) (15,243) 86 - 3,399 25,418 1,344 9,801 - (3,008) (86) - - - - (525) 3,399 33,030 3,399 33,030 88 - (3,399) - 88 - - - - - - - - - - - - 8,855 (118) - 192 41,959 (13,407) (1,043) (3,305) 3,008 - 380 (14,367) (14,367) (4,313) 85 (220) (18,815) Net Book Value At 30 June 2017 At 30 June 2018 68 1,672 2,107 690 3,561 12,902 17,388 3,399 18,663 88 23,144 MNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements b. Disposals Asset disposals relate to equipment that is fully written down to net book value $Nil and is no longer in use. There was no material impact to the profit or loss account in relation to these disposals. For the year ended 30 June 9. Trade and other payables Trade payables Other creditors and accruals Security deposits held 10. Loans and borrowings Current liabilities Secured bank loan Non-current liabilities Secured bank loan 2018 $’000 2017 $’000 10,264 19,797 59 30,120 46,038 17,088 55 63,181 2,500 2,500 8,190 10,690 8,690 11,190 The Group’s bank facility (the Facility) consists of a $27.0m (2017: $27.0m) revolving acquisition facility and a $2.1m (2017: $2.1m) revolving multi-option credit facility. The Facility has a maturity date of 20 April 2020. In the current reporting period, the Group has drawn down $2.0m on the acquisition facility. $1.8m (2017: $1.5m) of the revolving multi-option credit facility has been utilised as bank guarantees for property leases and supplier securities where required. The Facility is secured by a fixed and floating charge over the assets of the Group and is interest bearing. The interest rate payable under the bank facility is based on the Bank Bill Swap Rate (BBSY) rates plus a fixed margin. For more information about the Group’s exposure to interest rate and foreign currency risk, see Note 26. The Facility requires compliance with financial covenants. During the financial year, there were no defaults or breaches on the Facility. 69 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entities Notes to the consolidated financial statements For the year ended 30 June 11. Financial instruments Current liabilities Forward foreign exchange contract - fair value hedge Non-current liabilities Interest rate swap contract - cash flow hedge Interest rate swap contract - cash flow hedge 2018 $’000 2017 $’000 - 80 80 592 140 732 The Group’s bank facility is a variable interest rate facility. It is the Group’s policy to protect a portion of the bank facility from exposure to fluctuations in interest rates. On 23 April 2015, the Group entered into an interest rate swap agreement (which was rolled into a new contract in January 2018) to protect the loan facility from exposure to increasing interest rates. A hedge relationship was designated on this date. Under this interest rate swap, the Group is obliged to receive interest at a variable rate and pay interest starting January 2018 at fixed rate of 2.85% (2017: 2.64%) per annum. The swap covers 88.3% (2017: 95.5%) of the floating rate exposure under the Facility. The contract requires settlement of the net interest receivable or payable each 90 days which coincides with the dates on which interest is payable on the underlying facility making it highly effective. The gain or loss from remeasuring the hedging instrument at fair value is recognised in other comprehensive income and deferred in equity in the hedge reserve. It is reclassified into profit or loss when the hedged interest expense is recognised. Forward foreign exchange contract - fair value hedge There are significant creditor balances derived in foreign currencies, including U.S. Dollar, Pound Sterling, Euro, New Zealand Dollar and Singapore Dollar. These exposures on creditor balances are largely offset by debtor balances in corresponding currencies. Where this is not the case, it is the Group’s policy to protect these liabilities from exposure to fluctuations in foreign exchange rates. During the period, the Group entered into forward foreign exchange contracts to protect any exposed creditor balances from increasing foreign exchange rates. Hedge relationships were designated and there has been no material ineffectiveness during the year. As at 30 June 2018, there are no unsettled forward foreign exchange hedges due to a shift in the mix of foreign currency debtors and creditors. Foreign exchange hedge effectiveness Foreign exchange movement Foreign currency term deposits Foreign currency liabilities Gain in foreign currency valuations Fair value of hedging contract Loss in valuation of hedge Hedge effectiveness 70 - - - - - -% 1,012 (435) 577 (592) (592) 97% MNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements For the year ended 30 June 12. Deferred revenue Pre-paid accounts 2018 $’000 2017 $’000 1,763 1,611 Deferred revenue mostly relates to cash received in advance from customers with respect to pre-paid VoIP accounts. The balance represents the unused call credits as at balance date. 13. Provisions As at 1 July 2017 Reclassification of 2017 balance from current liabilities Arising during the year Utilised during the year Movement due to change in foreign currency translation rates As at 30 June 2018 Current Non-current Annual leave Long service leave Makegood provision Total $’000 $’000 $’000 $’000 1,483 - 940 (714) (1) 1,708 1,708 - 921 - 148 (95) - 974 - 974 - 290 702 - 3 2,404 290 1,790 (809) 2 995 3,677 93 902 1,801 1,876 A provision has been recognised for employee entitlements relating to long service leave. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. The measurement and recognition criteria relating to employee benefits have been included in Note 2. 71 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements For the year ended 30 June 14. Issued capital a. Ordinary shares Issued capital 2018 $’000 2017 $’000 50,221 49,000 2018 2017 Movements in ordinary shares on issue: Number of shares $’000 Number of shares $’000 At 1 July 72,778,264 49,000 67,454,337 26,440 Exercise of share options (i) Issued for cash 89,250 - - - 355,000 960 4,133,333 17,949 Issued from DRP participation (ii) 250,394 1,221 168,753 Issued from SPP participation - - 666,841 703 2,948 At 30 June 73,117,908 50,221 72,778,264 49,000 (i) In 2018 options were exercised with an exercise price of $Nil. In 2017, 325,000 options were exercised with an exercise price of $3.00 and 30,000 options were exercised with an exercise price of $Nil. (ii) Shares issued as a result of participation in the MNF Group dividend reinvestment plan (at an issue price of $4.73 and $5.07, 2017: $4.00 and $4.51). Share capital movements above are presented net of transaction costs. Ordinary shares have the right to receive dividends as declared and in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. b. Share options Movements in share options on issue: Number WAEP $ Number WAEP $ 2018 2017 Outstanding at 1 July 890,000 4.98 355,000 Granted during the year Granted during the year Exercised during the year Exercised during the year Expired during the year Outstanding at 30 June Exercisable - - (89,250) - (750) 800,000 800,000 - - - - - 5.54 5.54 620,000 300,000 (325,000) (30,000) (30,000) 890,000 890,000 3.00 7.15 0.00 3.00 0.00 3.00 4.98 4.98 The outstanding options balance as at 30 June 2018, issued under the share-based payment option scheme to directors and executives is represented by 620,000 options with an exercise price of $7.15 each and an expiry date of 30 June 2021. Two tranches of options at 90,000 each were issued to employees with an exercise price of $Nil and expiry dates of 30 June 2019 and 30 June 2020 respectively. 72 MNF Group Limited | ABN 37 118 699 853 and controlled entities Notes to the consolidated financial statements For the year ended 30 June 15. Share-based payments Outstanding options Employee option plan Options granted to directors Total a. Employee option plan (EOP) 2018 Number 2017 Number 350,000 450,000 800,000 440,000 450,000 890,000 The Board may issue options under the EOP to any employee of the Group, including executive directors and non-executive directors. Options will be issued free of charge, unless the Board determines otherwise. Each option is to subscribe for one share and when issued, the shares will rank equally with other shares. Unless the terms on which an option was offered specify otherwise, an option may be exercised at any time after one year from the date it is granted, provided the employee is still employed by the company. An option may also be exercised in special circumstances, that is, at any time within six months after the employee’s death, total and permanent disablement, or retrenchment. An option lapses upon the termination of the employee’s employment by the company and, unless the terms of the offer of the option specify otherwise, lapses three years after the date upon which it was granted. The maximum number of options on issue under the EOP must not at any time exceed 5% of the total number of shares on issue at that time. b. Share options granted to directors 450,000 options were granted to directors in the prior year. The following table illustrates the number and weighted average exercise prices (WAEP) of and movements of share options held by directors during the year: 2018 2017 Number WAEP $ Number WAEP $ Outstanding as at 1 July 450,000 7.15 - Granted during the year Exercised during the year - - - - 450,000 - Outstanding as at 30 June 450,000 7.15 450,000 - 7.15 - 7.15 73 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entities Notes to the consolidated financial statements 16. Commitments and contingencies Operating lease commitments Operating leases relate to premises with lease terms remaining between one and eight years. The consolidated entity does not have an option to purchase the leased assets at the expiry of the lease terms. The operating leases generally contain escalation clauses, which are fixed increases between three and four percent per annum. In the current year, a lease negotiation was undertaken and an executed deed of amendment has changed the original six-year term lease to termination given with four months’ notice. Future minimum lease payments under non-cancellable operating leases not recorded in the financial statements as at 30 June 2018 are as follows: Within one year After one year, not more than five years More than five years 2018 $’000 2017 $’000 2,447 9,232 2,305 13,984 1,169 10,056 6,944 18,169 Commitments There were no commitments as at 30 June 2018. At 30 June 2017, the Group had commitments of $2.3m relating to the fit-out of leasehold properties in Sydney and Melbourne. Guarantees There were no new guarantees as at 30 June 2018. The Company has a guarantee to Telstra Corporation Limited. This guarantee covers all primary obligations including any debts of its wholly owned subsidiaries. It does not impose any greater liability of the Company than is already in place for the subsidiaries collectively. 17. Events after reporting date Dividends The dividend as recommended by the Board will be paid subsequent to the balance date. Acquisition of Super Internet group On 6 July 2018, the Company completed the acquisition of 100% of the issued shares in SuperInternet (s) Pte Ltd for SGD2.0m (AUD2.0m), SuperInternet is a fully licensed independent facilities-based operator (FBO) in Singapore. The acquisition has increased the Group’s footprint into Asia with voice and data capabilities. 18. Auditor’s remuneration The auditor of the Group is MNSA Pty Ltd Chartered Accountants. Auditors of the Group Amounts received or due and receivable by MNSA Pty Ltd Chartered Accountants for: 2018 $’000 2017 $’000 Audit and review of the annual report of the entity Non-audit services Other Auditors Audit and review of financial statements 74 308 - 89 397 272 - 91 363 MNF Group Limited | ABN 37 118 699 853 and controlled entities Notes to the consolidated financial statements 19. Director and executive disclosures a. Details of Key Management Personnel (KMP) Personnel Mr Terry Cuthbertson Mr Michael Boorne Mr Andy Fung Mr Rene Sugo Mr Matthew Gepp Ms Catherine Ly b. Compensation of KMPs Position Chairman and non-executive director Non-executive director Non-executive director Director & Chief Executive Officer Chief Financial Officer Company Secretary The Group has applied the exemption under Corporations Amendments Regulation 2006 No 4 which exempts listed companies from providing remuneration disclosures in relation to their key management personnel in their annual financial reports as required by AASB 124 Related Party Disclosures. These disclosures are provided in the directors’ report designated as audited. c. Shareholdings of KMPs Year Balance at the beginning of period Traded during the year Options exercised Balance at end of period Directors Other KMPs 2018 2017 2018 2017 28,852,993 (1,173,723) 28,754,859 340,926 282,665 98,134 (9,750) 5,761 - - 27,679,270 28,852,993 7,500 338,676 52,500 340,926 The above shareholdings are held directly and indirectly through controlled entities. d. Share options of KMPs Year Balance at the beginning of period Granted Options exercised Balance at end of period Directors Other KMPs 2018 2017 2018 2017 450,000 - - 450,000 - - 92,500 50,000 - (7,500) 95,000 (52,500) 450,000 450,000 85,000 92,500 75 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entities Notes to the consolidated financial statements 20. Controlled entities The consolidated financial statements include the financial statements of MNF Group Limited and the subsidiaries listed in the following table: Name Country of incorporation Ownership interest 2018 2017 My Net Fone Australia Pty Limited Symbio Networks Pty Limited Symbio Wholesale Pty Limited Internex Australia Pty Limited Pennytel Australia Pty Limited Mobile Enablement Australia Pty Limited Symbio Wholesale (Singapore) Pte Limited TNZI International Pty Limited TNZI USA LLC TNZI New Zealand Limited TNZI Australia Pty Limited TNZI UK Limited TNZI Singapore Pte Limited Symbio Wholesale NZ Pty Limited Conference Call International Pty Limited Express Virtual Meetings Pty Limited Eureka Teleconferencing Pty Limited Conference Call Asia Pty Limited Ozlink Conferencing Pty Limited Australia Australia Australia Australia Australia Australia Singapore Australia USA New Zealand Australia United Kingdom Singapore New Zealand Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 76 MNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements 21. Goodwill and other intangibles. Goodwill Brands Customer contracts Software development costs Software, and other assets# Total Cost $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 July 2016 17,327 1,823 1,433 Additions Acquisition of CCI Balance at 1 July 2017 Additions - 13,462 30,789 - - 3,000 4,823 - - 1,500 2,933 967 462 - 11,226 32,776 - 462 250 18,212 1,429 11,476 51,450 - 2,350 704 3,054 Balance at 30 June 2018 30,789 4,823 2,933 3,779 12,180 54,504 Accumulated Amortisation Balance at 1 July 2016 Amortisation Balance at 1 July 2017 Amortisation Balance at 30 June 2018 Net Book Value At 30 June 2017 At 30 June 2018 - - - - - - - - - - (359) (412) (771) (587) (1,358) 30,789 30,789 4,823 4,823 2,162 1,575 - (1,615) (1,974) (192) (192) (235) (427) 1,237 3,352 (1,175) (1,779) (2,790) (3,753) (1,175) (1,997) (3,965) (5,750) 8,686 47,697 8,215 48,754 # Acquired externally or purchased as part of a business combination 77 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entitiesNotes to the consolidated financial statements 22. Impairment testing For the purpose of undertaking impairment testing, MNF Group Limited identifies cash generating units (CGUs). CGUs are determined according to the smallest group of assets that generates cash flows that are separately identifiable. The carrying amount of goodwill broken out into CGUs is detailed below: For the year ended 30 June CGUs Australia/New Zealand Domestic Wholesale Australian domestic retail Global Wholesale Total goodwill 2018 $’000 2017 $’000 6,086 19,327 5,376 30,789 6,086 19,327 5,376 30,789 Goodwill assets are not subject to amortisation and are tested for impairment on an annual basis, or whenever an indication of impairment exists. The recoverable amount of the cash generating units has been determined based on value-in-use calculations using cash flow projections based on five-year financial forecasts and assumptions that represent management’s best estimate of the range of business and economic conditions at the time. Calculations are reviewed and approved by the Board of Directors. Value-in-use represents the present value of the future net cash flow arising from the assets continued use and subsequent disposal. Any reduction in the carrying value is recognised as an expense in the consolidated statement of profit or loss and other comprehensive income in the reporting period in which the impairment loss is incurred. In determining value in use, management apply their best judgement in establishing forecasts of future operating performance, as well as a selection of growth rates, terminal rates and discount rates. These judgements are applied based on management’s understanding of historical information and expectation of future performance. Management consider that, as the Domestic Wholesale, Domestic Retail and Global Wholesale CGUs operate in the Telecommunications Industry in Australia servicing the same markets, the risks specific to each unit are comparable and therefore a discount rate of 10.5% (2017: 9.8%) is applicable to all domestic CGUs. The long-term growth rate used to extrapolate the cash flows beyond five years (the Terminal Value) for each CGU is 2.5% (2017: 2.5%). The International CGU has been assessed using a discount rate of 14.0% (2017: 14.0%) and a Terminal Value of 2.0% (2017: 2.0%) Based on the results of the tests undertaken no impairment losses were recognised in relation to goodwill. 78 MNF Group Limited | ABN 37 118 699 853 and controlled entities Notes to the consolidated financial statements 23. Earnings per share Earnings and weighted average number of ordinary shares used in calculating basic and diluted earnings per share are: Net profit attributable to ordinary equity holders of the Company 11,859 12,066 2018 $’000 2017 $’000 2018 2017 Number Number Weighted average number of shares: Weighted average number of ordinary shares for basic earnings per share 72,974 69,683 Add effect of dilution: - Share options 800 890 Weighted average number of ordinary shares for diluted earnings per share 73,774 70,573 24. Dividends paid and proposed Recognised amounts: Cents per share $’000 Date of payment 2017 fully franked final dividend declared and paid 2018 fully franked interim dividend declared and paid 4.50 4.30 3,279 3,138 28-Sep-17 5-Apr-18 Unrecognised amounts: 2018 fully franked final dividend declared (i) 4.05 2,961 4-Oct-18 (i) The final dividend was declared on 28 August 2018. The amount has not been recognised as a liability in the 2018 financial year and will be brought to account in the 2019 financial year. The proposed payment date of the 2018 final dividend is 4 October 2018. The amount of franking credits available for future reporting periods is $8,552,247 (2017: $5,092,271). The tax rate at which paid dividends have been franked is 30% (2017: 30%). Dividends proposed will be franked at the rate of 30%. 79 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entities Notes to the consolidated financial statements 25. Parent entity Key financial information relating to the parent entity is summarised below: For the year ended 30 June Statement of profit or loss and other comprehensive income Loss attributable to the owners of the company Other comprehensive gain/(loss) Total comprehensive loss attributable to the owners of the company Statement of financial position Total current assets Total non-current assets Total current liabilities Total non-current liabilities Net assets Issued Capital Reserves Retained earnings Total equity 2018 $’000 2017 $’000 (2,777) 60 (2,717) 1,812 62,008 (6,554) (13,676) 43,590 55,036 1,962 (13,408) 43,590 (128) (142) (270) 3,330 61,697 (5,488) (8,432) 51,107 53,815 1,506 (4,214) 51,107 26. Financial risk management objectives and policies The Group’s principal financial instruments as at year end comprise cash at bank, trade and other receivables, trade payables, forward foreign exchange contract and a loan facility. The main risks arising from the Group’s financial instruments are foreign currency risk, interest rate risk, liquidity risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below: (i) Foreign currency risk The Group is exposed to foreign exchange risks arising from various currency exposures, primarily with respect to the United States Dollar (USD) and the New Zealand Dollar (NZD). Much of the USD exposure is subject to a natural hedge, as the buy and sell side of most foreign currency transactions are in USD. Any unhedged foreign exchange positions associated with our transactional exposures will directly affect profit or loss as a result of foreign currency movements. The Group’s objective is to manage its foreign exchange risk against its functional currency and to hedge firm commitments and highly probable and material forecast transactions over varying time horizons using forward exchange contracts. Contracts are in place with all major creditworthy financial institutions Sensitivity to foreign currency movements: A movement of 10% in the Australian dollar at 30 June 2018 would impact the profit or loss by less than $270k (30 June 2017: $250k). This analysis assumes a movement in the Australian dollar across all currencies and only includes the effect of foreign exchange movements on monetary financial instruments. (ii) Interest rate risk The Group’s interest rate exposure relates to short term cash and long-term loans, both are subject to the floating interest rate. The Group’s objective is to minimise the cost of net borrowings and to minimise the impact of interest rate movements on the Group’s interest expense and net earnings. The Group policy is to maintain at 80 MNF Group Limited | ABN 37 118 699 853 and controlled entities Notes to the consolidated financial statements least 50% of its long-term loan at fixed rates using interest rate swaps whereby the Group agrees to exchange at defined periods the net difference between fixed and floating interest rates based on an agreed notional principal amount. This interest rate swap is designated into a hedge relationship and satisfies the requirements for hedge accounting. (iii) Liquidity risk Liquidity risk represents the Group’s ability to meet its contractual obligations as they fall due. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of current accounts, short term deposits, long-term borrowings, preference shares, finance leases and a revolving multi-option credit facility. The Group has access to a sufficient variety of sources of funding to adequately mitigate liquidity risks. (iv) Credit risk The company has no significant exposure to credit risk. For credit sales the Group only trades with recognised creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. Ageing analysis and ongoing credit evaluation are performed on the financial condition of our customers and, where appropriate, an allowance for doubtful debts is raised. In addition, receivable balances are monitored on an ongoing basis so that our exposure to bad debts is not significant. Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments recognised in the financial statements. 2018 2017 Carrying amount Fair value Carrying amount Fair value Financial assets $’000 $’000 $’000 $’000 Cash Weighted average effective interest rate 1.5% (2017: 0.1%) Cash at call Weighted average effective interest rate 3.5% (2017: 2.6%) 15,201 15,201 16,905 16,905 3,669 3,669 35,453 35,453 Trade and other receivables 33,450 33,450 30,121 30,121 Financial liabilities On statement of financial position Trade payables Loans and borrowings Weighted average effective interest rate 4.7% (2017: 4.8%) Forward foreign exchange contract – fair value hedge Interest rate swap contract – cash flow hedge 30,120 10,690 30,120 10,690 - 80 - 80 63,181 11,190 592 140 63,181 11,190 592 140 27. Company details The registered office and principal place of business of MNF Group Limited is: Level 4, 580 George Street, Sydney, NSW, 2000, Australia 81 www.mnfgroup.limitedMNF Group Limited | ABN 37 118 699 853 and controlled entities MNF Group Limited Directors’ Declaration In accordance with a resolution of the directors of MNF Group Limited, the directors of the Company declare that: 1. The consolidated financial statements and notes, as set out on pages 50 to 81, are in accordance with the Corporations Act 2001 and: a. b. comply with Australian Accounting Standards, which, as stated in accounting policy Note 2 to the financial statements, constitutes compliance with International Financial Reporting Standards (IFRS); and give a true and fair view of the financial position as at 30 June 2018 and of the performance for the year ended on that date of the Group; 2. 3. in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and the directors have been given the declarations required by s295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer. On behalf of the Board Terry Cuthbertson Chairman Sydney, 28 August 2018 Rene Sugo CEO and Executive Director 82 83 84 85 86 87 88 41 to 47 89 89 ASX Additional Information Additional information required by ASX Ltd and not shown elsewhere in this report is as follows. The information is current as at 13 August 2018 (a) Distribution of equity securities (i) Ordinary share capital 73,117,908 fully paid ordinary shares are held by 3,981 individual shareholders. All issued ordinary shares carry one vote per share and carry the rights to dividends. (ii) Options 800,000 unlisted options are held by 48 individual option holders. Options do not carry a right to “vote.” The numbers of shareholders, by size of holding, in each class are: Fully paid ordinary shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over The number of security investors holding less than a marketable parcel of ordinary shares is 154. (b) Substantial shareholders Ordinary shareholders Number Percentage Fully Paid Mr Andy Fung and related parties Mr Rene Sugo and related parties NAOS Asset Management Limited 14,151,954 11,896,867 10,871,529 1,650 1,372 421 509 29 3,981 19.35 16.27 14.87 91 www.mnfgroup.limited(c) Twenty largest holders of quoted equity securities Ordinary shareholders Number Percentage Fully Paid 13,943,600 13,601,837 10,838,955 2,398,061 1,617,301 1,244,117 1,173,935 1,057,912 920,906 893,419 832,910 822,547 599,874 529,247 420,000 371,199 330,000 324,938 295,676 273,951 19.07 18.60 14.82 3.28 2.21 1.70 1.61 1.45 1.26 1.22 1.14 1.12 0.82 0.72 0.57 0.51 0.45 0.44 0.40 0.37 52,490,385 71.76 Mr Andy Kam Kan Fung & Ms My Van Monique Ly National Nominees Limited Avondale Innovations Pty Ltd BNP Paribas Noms Pty Ltd HSBC Custody Nominees (Australia) Limited L & C Pty Ltd JP Morgan Nominees Australia Limited RACS SMSF Pty Ltd Kore Management Services Pty Ltd Boorne Gregg Investments Pty Ltd Boorne Superannuation Fund Pty Ltd Citicorp Nominees Pty Ltd Sandhurst Trustees Ltd G & E Properties Pty Ltd Lee Superfund Management Pty Ltd Mr Michael John Boorne Ecapital Nominees Pty Ltd Earglow Pty Ltd Ms Catherine Ly Endan Pty Ltd (d) On-Market Buy Back There is currently no on-market buy back. 92 Corporate Information Directors Terry Cuthbertson (Chairman) Michael Boorne Andy Fung Rene Sugo (CEO) Company Secretary Catherine Ly Chief Financial Officer Matthew Gepp Registered Office Level 4, 580 George Street Sydney NSW 2000 Australia Bankers Westpac Banking Corporation Westpac Place Sydney NSW 2000 Australia Principal Place of Business Level 4, 580 George Street Sydney NSW 2000 Australia Phone: 61 2 8008 8000 Share Registry Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Australia Phone: 61 2 8280 7100 Auditors MNSA Pty Ltd Chartered Accountants Level 1, 283 George Street Sydney NSW 2000 Australia This annual report covers both MNF Group Limited as an individual entity and the consolidated group comprising MNF Group Limited and its subsidiaries. The Group’s functional and presentation currency is AUD. The company is listed on the Australian Securities Exchange under the code MNF. The Annual General Meeting of MNF Group Limited will be held at Level 4, 580 George Street, Sydney at 16:30 on 30 October 2018. Annual Report Copies of the 2018 Annual Report with the Financial Statements can be downloaded from: www.mnfgroup.limited/investors/annual-reports 93 www.mnfgroup.limited MNF Group Limited Annual Report 2018 

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