DIRECTORS REPORT. The directors present their report, together with the financial statements, on Vocus (referred to hereafter as the ‘Consolidated Entity’ or ‘Vocus’) consisting of Vocus Communications Limited (referred to hereafter as the ‘Company’ or ‘Parent Entity’) and the entities it controlled for the year ended 30 June 2016. Our Board of Directors at 30 June 2016: Craig Farrow, Jon Brett, Tony Grist, David Spence, James Spenceley, Rhoda Phillippo, Michael Simmons, Vaughan Bowen ________ 14 | VOCUS.COM.AU DIRECTORS David Spence Vaughan Bowen B.Com, CA (SA) B.Comm (UNSW) David has been involved in over 20 internet businesses, as Chairman, Chief Executive Officer (‘CEO’), director, shareholder or advisor. Until February 2010, David held the role of CEO at Unwired Ltd. From 1995 until 2000, David held various positions with OzEmail, including Managing Director and CEO. He grew the business to become Australia’s second largest ISP. David is a past Chairman of the Board of the Internet Industry Association. Vaughan co-founded M2 in late 1999, was appointed Managing Director upon incorporation, and steered M2 from a start-up technology enterprise to a large scale, fast-growing and profitable national telecommunications company. Vaughan transitioned from the Managing Director / Chief Executive Officer role into the role of Executive Director in October 2011, following a 12 year period leading M2. Non-Executive Chairman Other current directorships: SAI Global Limited, Hills Limited and PayPal Australia Pty Limited (unlisted) Former directorships (last 3 years): None Special responsibilities: Member of Nomination and M&A and Strategy Committees Craig Farrow Non-Executive Deputy Chairman B. Ec., Dip. FS, CPMgr, SA Fin, FCAANZ, FAICD Craig is Chairman/Partner of Brentnalls SA, Chartered Accountants and former National Chairman of the Brentnalls National Affiliation of Accounting Firms. In 2012, Craig held the position of President of the Institute of Chartered Accountants in Australia and in 2013, he was Executive Chair of the CAANZ amalgamation project for ICAA and NZICA. Currently, Craig acts as a director and Board adviser to several private consulting and trading enterprises across the agribusiness, software and manufacturing sectors. Formerly Chairman of the Institute of Chartered Accountant’s Public Practice Advisory Committee, Craig is also highly awarded, including being a Fellow of the Governor’s Leadership Foundation and receiving the Institute of Chartered Accountants 1999 National President’s Award for services to the Institute and the profession. Executive Director In his role as Executive Director at Vocus following its merger with M2, Vaughan’s focus is on identifying and executing strategic acquisition opportunities, which, prior to the merger, included a number of transformational acquisitions, including Primus Telecom, Dodo and New Zealand based Call Plus Group. Vaughan is a member of the Australian Institute of Company Directors, was named as a finalist in the Entrepreneur of the Year Southern Region in 2004 and 2009 and in 2012 was awarded ACOMMS Communications Ambassador for outstanding contributions to the telecommunications industry. Vaughan is also Chairman of the Telco Together Foundation, a charitable foundation unifying the telecommunications industry in support of disadvantaged communities, which he created and seeded in 2011. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of M&A and Strategy Committee Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Chair of Remuneration Committee and Member of Nomination and M&A and Strategy Committees 15 Jon Brett Michael Simmons B.Acc, B.Com, MCom, CA (SA) B. Comm, FCPA, ACIS Jon has extensive experience in the areas of management, operations, finance and corporate advisory. Jon’s experience includes several years as managing director of a number of publicly listed companies and was also formerly the non-executive deputy president of the National Roads and Motoring Association. Jon is currently on the board of several unlisted companies and was a director of Investec Wentworth Private Equity Limited. In the mid 1990’s, Jon was the CEO of Techway Limited which pioneered internet banking in Australia. Michael brings to the Board considerable experience in the telecommunications sector, having been a member of the M2 Group Ltd Board and having previously held the position of Chief Executive Officer of ASX-listed SP Telemedia Limited (“SPT Group”, now known as TPG Telecom Limited) since its listing in 2001. Prior to listing, the SPT Group was a wholly owned Subsidiary of the Washington H. Soul Pattinson Limited controlled NBN Television Group. He served in executive roles for nearly 26 years within the SPT/NBN Group of Companies, including as Chief Financial Officer and Chief Executive Officer. Non-Executive Director Other current directorships: The PAS Group Limited Former directorships (last 3 years): Godfreys Group Limited Special responsibilities: Chair of Audit Committee and Member of Risk Committee Rhoda Phillippo Non-Executive Director M. Sc, AICD Rhoda is a globally experienced executive with more than 30 years’ experience in the telecommunications and IT sectors, including senior management positions in commercial, engineering and operations with British Telecom PLC; as CEO of Optimisation New Zealand, a software development business; and as General Manager of Telecom/Gen-i’s (now “Spark”) enterprise Trans-Tasman business. Rhoda’s experience in the energy industry includes a role as Transition Director with Shell in New Zealand (now Z Energy) for H.R.L. Morrison & Co and recently as Managing Director of Infratil Energy Australia, leading the successful sale of the business in September 2014. Rhoda was previously COO of HRL Morrison & Co. She is currently Executive Chair of Vix Technology, Chair of Snapper Services Ltd and a non-Executive director on the Board of Vix Investments, Kiwibank and Ling. She is also an Alternate Director for the Future Fund’s investment in Perth Airport. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Chair of Risk Committee, Chair of Wholesale Energy Risk Management Sub-committee and member of Remuneration Committee. 16 | VOCUS.COM.AU Non-Executive Director In 2009 Michael left TPG Telecom to become the Managing Director of TERRiA, a telecommunications consortium of infrastructure-based telecommunications carriers, formed to bid for the contract to build, own and operate the National Broadband Network. Michael has and continues to be a Shareholder, Director and/ or Adviser to a number of companies operating predominantly in the telecommunications, technology and media industry sectors. Other current directorships: Non-Executive Director of Aggregato Global Limited, a public, unlisted company. Former directorships (last 3 years): None Special responsibilities: Member of Risk and Audit Committees James Spenceley Executive Director James Spenceley is the founder of Vocus. As the company’s leading straightshooter, James has steered Vocus through exponential growth in a business environment that itself has gone through seismic change. James is a well-respected and awarded entrepreneur having twice won the Australian Entrepreneur of the Year Award (Young and Listed categories). James is the archetypal maverick. Never afraid to challenge the industry, he’s won the trust and respect of the business and financial community with his open, transparent and refreshingly straightforward approach to business dealings. Sara Fidock, Recruitment & HR Consultant ________ A genuine industry innovator because he believes in the critical importance of the network and its role in transforming business. He’s a popular speaker at industry events around the Asia Pacific region and is a passionate advocate for ‘doing everything better.’ James is an elected member of the APNIC Executive Council, the body responsible for oversight of Internet address resources in Asia Pacific. He is an active investor in start-up businesses and is passionate about assisting the next generation of Australian entrepreneurs to reach their potential. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of M&A and Strategy Committee Tony Grist Non-Executive Director B. Comm, FINSIA, FAICD After managing the corporate underwriting division of an Australian Stockbroking firm, Tony formed what became Albion Capital Partners, a private investment group based in Perth in 1991. He formed what became Amcom Telecommunications Ltd in 1999 to acquire and finance the then start up telco, Amcom Pty Ltd. Tony led the acquisition of a major stake in iiNet Limited by Amcom in 2006 and joined the board of iiNet the same year. iiNet became the second largest broadband provider by customer number after a major period of expansion, and in 2011 Amcom divested its stake in iiNet via a distribution of the stake to Amcom shareholders. Tony left the board of iiNet in September 2011. Other current directorships: None Former directorships (last 3 years): Ore Corp Ltd (formerly Silverstone Resources Limited) Special responsibilities: Chair of Corporate Activity Committee and Member of Audit and Remuneration Committees ‘Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships in all other types of entities, unless otherwise stated. ‘Former directorships (in the last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes directorships in all other types of entities, unless otherwise stated. James Spenceley and Tony Grist both resigned from the Vocus Board of Directors on 11 October 2016. 17 The following persons were Directors of Vocus Communications Limited during the whole of the financial year and up to 23 August 2016, unless otherwise stated: David Spence Non-Executive Chairman Craig Farrow Non-Executive Deputy Chairman (appointed 22 February 2016) Vaughan Bowen Executive Director (appointed 22 February 2016) James Spenceley Executive Director Jon Brett Non-Executive Director Tony Grist Non-Executive Director (appointed 8 July 2015) Rhoda Phillippo Non-Executive Director (appointed 22 February 2016) Michael Simmons Non-Executive Director (appointed 22 February 2016) Steve Baxter Former Non-Executive Director (resigned 22 February 2016) Paul Brandling Former Non-Executive Director (appointed 8 July 2015, resigned 22 February 2016) Anthony Davies Former Non-Executive Director (appointed 8 July 2015, resigned 22 February 2016) Nick McNaughton Former Non-Executive Director (resigned 8 July 2015) John Murphy Former Non-Executive Director (resigned 22 February 2016) MEETINGS OF DIRECTORS The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended 30 June 2016, and the number of meetings attended by each Director were: Full Board Attended Held Audit Attended Held Risk Attended Held D. Spence 18 18 - - - - C. Farrow 7 7 - - - - V. Bowen 7 7 - - - - J.Spenceley 18 18 - - - - J. Brett 18 18 2 2 3 3 T. Grist 18 18 1 1 1 2 7 7 - - 3 3 R. Phillippo M. Simmons 7 7 1 1 3 3 S. Baxter 10 11 - - 3 3 P. Brandling 9 11 - - - - A. Davies 11 11 1 1 3 3 J. Murphy 11 11 1 1 1 1 Nomination Attended Held Remuneration Attended Held Corporate Activity Attended Held D. Spence 2 2 - - 3 3 C. Farrow 2 2 3 3 2 3 V. Bowen - - - - 3 3 J.Spenceley - - - - 3 3 J. Brett - - 1 2 - - T. Grist - - 3 3 3 3 R. Phillippo - - 3 3 - - P. Brandling - - 2 2 - - J. Murphy - - 2 2 - - Held: represents the number of meetings held during the time the Director held office or was a member of the relevant committee. 18 | VOCUS.COM.AU PRINCIPAL ACTIVITIES Vocus Communications Limited (“Vocus”, ASX: VOC) is a vertically integrated telecommunications provider, providing telecommunications and other services to customers across Australia and New Zealand. In July 2015, Vocus acquired Amcom Telecommunications Limited (‘Amcom’) which combined Amcom’s fibre network on the west coast of Australia with Vocus’ east coast networks, creating a true national alternative to the incumbent telcos. In February 2016, Vocus merged with M2 Group Ltd (‘M2’), to create the fourth largest telco in Australia and the third largest in New Zealand, with revenues of approximately $1.8 billion. The merger takes Vocus into supply of broadband, fixed voice, mobile, data centre, cloud and energy services to consumer and business segments through the well-recognised Commander, Dodo and iPrimus brands in Australia and Slingshot, CallPlus and Orcon in New Zealand. COMPANY SECRETARY Ashe-lee Jegathesan Company Secretary GAICD Ashe-lee Jegathesan, Company Secretary ________ Ashe-lee Jegathesan, GAICD, is General Counsel and Company Secretary. She has held this position since 22 February 2016, having held the equivalent position with M2 Group Ltd prior to its merger with Vocus. Ashe-lee is responsible for the legal, regulatory governance and risk management functions across Vocus, as well as acting as Company Secretary to the Board. Ashe-lee comes to Vocus with more than 20 years’ experience as a lawyer, including in similar senior executive roles with global companies, such as Melbourne IT Limited (also listed on the ASX) and the Planet One Group, and with major commercial law firms in Australia. 19 DIVIDENDS Dividends paid/payable during the financial year were as follows: Consolidated 2016 2015 $'000 $'000 4,606 946 Interim dividend for the year ended 30 June 2016 of 7.60 cents per ordinary share (2015: 1.20 cents per ordinary share) paid on 6 April 2016 40,443 1,266 Special dividend for the year ended 30 June 2016 of 1.90 cents per ordinary share (2015: 5.10 cents) paid on 6 April 2016 (2015: 8 July 2016) 10,110 5,381 55,159 7,593 Final dividend for the year ended 30 June 2015 of 2.00 cents per ordinary share (2015: 1.00 cent per ordinary share) paid on 24 September 2015 On 23 August 2016, the Directors declared a final fully franked dividend of 8.0 cents per share on ordinary shares in respect of its financial year ended 30 June 2016. This dividend is to be paid on 4 October 2016, for shareholders registered on 20 September 2016. The dividend is eligible for the Vocus Dividend Reinvestment Plan. The directors have adopted a dividend policy to deliver growing dividends, reflective of profitability, cash position and investment opportunities. The Vocus Dividend Reinvestment Plan (DRP) allows shareholders to elect to receive their dividends in the form of Vocus shares, offered at a discount of 1.5% to the volume weighted average price, in aggregate, over the five trading days commencing on and including the next trading day after the dividend record date. In relation to the final dividend for the year ended 30 June 2016, the issue price will be the volume weighted average price for the period 21 September 2016 to 27 September 2016, less the discount of 1.5%. The last date for receipt of election notices for participation in the DRP in relation to this dividend is 21 September 2016. 1,203,192 shares were issued in respect of the DRP in the financial year ended 30 June 2016. REVIEW OF OPERATIONS Vocus was founded in 2007, launched in 2008 and listed on the Australian Securities Exchange in 2010. Since launch, Vocus has transformed from a primarily wholesale internet and voice business to a full service provider of telecommunication services to consumers, corporate and government. Given its fixed infrastructure across Australia and New Zealand, Vocus is well positioned to leverage expected continued growth in demand for data bandwidth in its markets, and leveraging this infrastructure to service consumers over government owned broadband fibre networks. The acquisition of Amcom and the merger with M2 created a step-change in earnings, driven by the enhanced scale and operations of Vocus as a result of these transactions. Total revenue for the financial year ended 30 June 2016 was $830,825,000 (2015: $149,799,000). The profit for Vocus after providing for income tax and non-controlling interest amounted to $64,091,000 (2015: $19,850,000). The increase in revenue of $681,026,000 was attributable principally to the following: ➜➜ Acquisition of Amcom on 8 July 2015; ➜➜ Merger with M2 on 22 February 2016; and ➜➜ Growth in demand for Internet, Fibre / Ethernet and Voice services to corporate customers. Corporate growth was underpinned by 4,037 on-net buildings and 2,624 metro fibre kilometres in addition to our undersea fibre network and intercity New Zealand network. Voice services also grew strongly on the back of continued performance in wholesale call termination services and unified communications. Consumer revenue growth was derived from Vocus’ merger with M2. Future revenue growth is expected to be underpinned by growth in broadband services and supported by the NBN churn event where consumers are required to move to the NBN as the copper network is decommissioned. 20 | VOCUS.COM.AU Total services in operation at 30 June 2016 were 1,621,000, across mobile, energy, fixed wire and broadband services. Reducing consumer churn will be a focus for the business as it steps up its investment in brand, systems, customer care and retention, consistent with its primary goal to be the Most Loved Telco. Basic earnings per share for Vocus for the financial year ended 30 June 2016 was 18.86 cents (2015: 19.08 cents). Underlying earnings before interest, tax, depreciation and amortisation (‘Underlying EBITDA’) for the year ended 30 June 2016 was $215,607,000 (2015: $51,570,000). A reconciliation to statutory net profit after tax is shown below: Consolidated 2016 2015 $'000 $'000 Net profit after tax 64,091 19,850 Add back: Income tax expense 27,914 8,435 Add back: Net finance costs 24,464 5,278 Add back: Depreciation and amortisation 78,487 18,684 194,956 52,247 - (5,477) Statutory EBITDA Gains associated with early repayment of borrowings Gains on total return swaps (a) (19,520) (7,486) Acquisition and integration costs (b) 40,660 10,400 Gains/losses associated with foreign exchange (1,445) 629 956 1,257 215,607 51,570 Other gains and losses Underlying EBITDA Underlying net profit after tax (‘Underlying NPAT’) for the year ended 30 June 2016 was $101,726,000 (2015: $18,149,000). A reconciliation to statutory net profit after tax is shown below: Consolidated 2016 2015 $'000 Net profit after tax Gains associated with early repayment of borrowings $'000 64,091 19,850 - (5,477) (19,520) (7,486) Acquisition and integration costs (b) 40,660 10,400 Gains/losses associated with foreign exchange (1,445) 629 Amortisation of acquired intangibles arising from purchase price allocation (c) 33,113 594 956 1,257 Gains on total return swaps (a) Other gains and losses 117,855 19,767 Tax on above (16,129) (1,618) Underlying NPAT 101,726 18,149 Underlying EPS for the year ended 30 June 2016 was 29.87 cents per share (2015: 17.38 cents per share), which is calculated with reference to Underlying NPAT. The weighted average number of shares on issue for 2016 and 2015 also been adjusted for the effect of the 1-for-8.9 rights issue undertaken in July 2016, in line with accounting standards. 21 (a) - Gains on total return swaps The gains on total return swaps for the year ended 30 June 2016 comprises of mark-to-market movements in relation to Vocus’ 16% relevant interest in Macquarie Telecom Group Limited, net of dividends received, brokerage and interest costs relating to these total return swap arrangements. The Macquarie Telecom swap is presently scheduled to settle on 30 December 2016. The gains on total return swaps for the previous year comprised realised gains in relation to Vocus’ 10% interest in Amcom settled in May 2015 and unrealised gains in relation to its relevant interest in Macquarie Telecom for that period. (b) - Acquisition and integration costs Acquisition and integration costs in the year ended 30 June 2016 primarily comprise legal, professional services and other costs in relation to the acquisition and integration of Amcom and merger with M2 which completed on 8 July 2015 and 22 February 2016, respectively. Acquisition and integration costs for the previous year primarily relate to transaction costs in respect of the Bentley, FX Networks and EDC acquisitions and integration costs incurred during the period. (c) - Amortisation of acquired intangibles arising from purchase price allocation This refers to amortisation expense incurred in relation to intangible assets recognised on acquisition. These include customer intangibles and software assets. The intangible assets at 30 June 2016 totalled $446,924,000 (2015: $18,877,000) and have effective lives between 4 and 15 years. The increase is due to the acquisitions of Amcom and M2. EXPENSES – CONSOLIDATED The following table summarises the key expenses: 2016 2015 Change $'000 $'000 $’000 % Network and service delivery 440,427 64,538 375,889 582% Employee benefits expense 120,772 25,919 94,853 366% 78,487 18,684 59,803 320% Depreciation and amortisation expense Change Administration and other expenses 54,783 7,502 47,281 630% Finance costs 24,464 6,073 18,391 303% 718,933 122,716 596,217 486% Total All of the key expenses above have increased as a result of the acquisition of Amcom and merger with M2. Network and service delivery Network and service delivery costs increased for cost of sales related to the consumer business acquired through the M2 merger. These costs relate primarily to delivery of fixed wire, broadband and mobile services. Costs also increased from scale acquired with the acquisition of Amcom and its corporate business of delivering fibre, data centre and voice services. Employee benefits expense Employee benefits expense increases were mainly attributable to personnel and outsourcing expenses of Amcom and M2. M2 in particular drove increases in staffing requirements for sales, operations and support for its large scale consumer business. Depreciation and amortisation expense Additions to plant and equipment related to fibre and data centre assets through the acquisition of Amcom and overall customer demand are the principal drivers to increased depreciation in FY16. Amortisation expense increases relative to FY15 relate principally to intangibles arising from the acquisition of M2 along with undersea cable capacity purchases. Administration and other expenses Marketing, occupancy and other company expenses from Vocus’ merger with M2 and its acquisition of Amcom primarily drove administration expenses higher relative to FY15, reflecting the scale of the current consumer and corporate business of Vocus. Finance costs Increase in finance costs reflects the funding of the existing respective debt of Amcom and M2. 22 | VOCUS.COM.AU STATEMENT OF FINANCIAL POSITION 2016 2015 Change Change $'000 Current assets $'000 $’000 % 333,684 41,930 291,754 696% Non-current assets 4,360,335 341,414 4,018,921 1177% Total assets 4,694,019 383,344 4,310,675 1124% 400,564 40,878 359,686 880% Non-current liabilities Current liabilities 1,119,170 146,227 972,943 665% Total liabilities 1,519,734 187,105 1,332,629 712% Net assets 3,174,285 196,239 2,978,046 1518% Equity 3,174,285 196,239 2,978,046 1518% As with movement in key expenses, the statement of financial position changed mainly as a result of the acquisition of Amcom Telecommunications Limited and merger with M2 Group Ltd. Current assets Current assets have increased from the scale of business acquired from Amcom and M2, as well as Vocus’ strong operating cash flows and receivables generated by sales of the overall business. Non-current assets Increase in plant and equipment and other intangible assets are primarily due to network investment and undersea cable capacity purchases as referred to in the depreciation and amortisation section above. Current liabilities Current liabilities increased mainly to additional trade and other payables and deferred revenue brought on from acquisitions. Non-current liabilities Non-current liabilities increased mainly due to borrowings and deferred tax liabilities brought on from acquisitions. Brian Setchell, Hardeep Anand, Christian Mababa, Peter Hansen and Rasik Kulkarni Vocus Support & Network Management Centre. ________ 23 CAPITAL MANAGEMENT During the year Vocus produced net cash inflows from operating activities of $135,626,000 (2015: $42,610,000). A significant amount of this has been reinvested in the network through customer connections and upgrades to the network to support growth. There was also $21,078,000 net cash inflow (2015: $13,597,000) from financing activities net of dividend payments of $50,860,000 (2015: $2,212,000). At the reporting date 30 June 2016, consolidated cash holdings stood at $128,629,000 (2015: $15,170,000), total drawn debt and lease liabilities was $886,111,000 (2015: $119,723,000) and net debt (being total debt less cash holdings) was $757,482,000 (2015: $104,553,000). The gearing ratio for Vocus for the year ended 30 June 2016 was 19% (2015: 35%), as measured by net debt divided by net debt plus equity. Net debt and gearing reflect Vocus’ trading activity as well as corporate transactions (merger with M2 Group Ltd and acquisition of Amcom Telecommunications Limited). These changes are described below in significant changes in the state of affairs. The Group’s bank facility at 30 June 2016 consists of a $1,234,200,000 senior finance facility (2015: $131,235,000), comprising a combination of 3 year and 5 year facilities which replaced the existing syndicated facilities of M2 and Vocus. Interest on the facility is recognised at the aggregate of the reference bank bill rate plus a margin. During the current and prior year, there were no defaults or breaches in relation to the utilised bank facility. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 8 July 2015, Vocus acquired 100% of the share capital of Amcom Telecommunications Limited for the total consideration of $686,662,000. The acquisition combined two geographically diverse, complementary businesses to create a major trans-Tasman telecommunications provider. On 22 February 2016, Vocus acquired 100% of the share capital of M2 Group Limited (‘M2’) for a total consideration of $2,259,628,000. The merger of Vocus and M2 brings together two complementary business and creates a vertically integrated, infrastructure backed full service telecommunications provider with proven capabilities and scale to service individuals, corporate and government entities across Australia and New Zealand. 24 | VOCUS.COM.AU Following the merger of M2, Vocus entered into new syndicated banking facilities with a consortium of Australian and international banks on 27 May 2016. The facilities comprise a combination of 3 year and 5 year facilities, with total facility limits of A$1,070,000,000 and NZ$160,000,000 (totalling A$1,234,000,000 as at 30 June 2016), and replaced the existing syndicated facilities of M2 and Vocus. There were no other significant changes in the state of affairs of Vocus during the financial year. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR Proposed acquisition of Nextgen Networks and capital raising As announced on 29 June 2016, Vocus entered into a binding agreement to purchase Nextgen Networks as well as two development projects, NWCS and ASC (‘Nextgen’), for total upfront consideration of approximately A$807,000,000 and deferred consideration of up to A$54,000,000. The proposed acquisition is subject to standard consents, including regulatory consent from the Australian Competition and Consumer Commission (‘ACCC’) and the Infocom Development Authority of Singapore (‘IDA’). The acquisition links Vocus’ metro fibre access network to Nextgen’s intercity backhaul network. The ACCC announced their decision not to oppose the transaction on 22 September 2016. The Nextgen acquisition is funded from a combination of an equity raising of $652,000,000 completed in July 2016, with the balance funded from existing committed debt facilities. The equity raising was completed over three stages, and comprised a pro-rata accelerated institutional entitlement offer, a pro-rata retail entitlement offer with rights trading and an institutional placement. On completion of the entitlement offer, a total of 59,969,757 fully paid ordinary shares were issued at $7.55 per share, with 30,529,752 new shares issued on 11 July 2016 pursuing to the institutional entitlement offer and 29,440,005 new shares issued on 28 July 2016 under the retail entitlement offer. Under the institutional placement, 23,752,969 ordinary shares at $8.42 were issued on 11 July 2016. Apart from the dividend declared as discussed above, no other matter or circumstance has arisen since 30 June 2016 that has significantly affected, or may significantly affect Vocus’ operations, the results of those operations, or Vocus’ state of affairs in future financial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Demand for data and data services and trends to outsource information technology requirement as well as the replacement of the existing copper access networks operated by Telstra and other carriers in favour of the wholesale-only access National Broadband Network being built by the Australian Federal Government is expected to underpin Vocus’ delivery of communication and data centre services in financial year 2017. Consistent with its corporate goal of being the Most Loved Telco, Vocus intends to invest in systems, automation and improving customer experience. ENVIRONMENTAL REGULATION Vocus Communications has this year prepared its first annual Sustainability Report . It reviews our performance from 1 July 2015 to 30 June 2016. This report has been prepared in accordance with the Core option of the Global reporting Initiative’s G4 Sustainability Reporting Guidelines. A copy of the report can be found at vocus.com.au/investors. We welcome feedback on the report, which may be sent to investor@vocus.com.au. Vocus is not subject to any significant environmental regulation under Australian Commonwealth or State law. RISK MANAGEMENT The Board and the Board Risk Committee have endorsed a Risk Management Policy and Framework, which applies to all parts of the Vocus business. The Chief Risk Officer is the responsible officer for oversight of the risk management framework and process. Following is a summary of the key risks faced by the business in the short to medium term. Security Vocus continues to invest significantly in maintaining and improving the security of its digital assets. A team of IT security experts is employed to oversee the network. Security measures implemented include perimeter firewalls, intrusion prevention/detection systems, vulnerability scanning of core systems and application of critical patching, as well as automated logging of core customer systems. Privacy As part of signing up new customers, Vocus collects and retains personal identifying information. Recently enacted legislation in relation to Data Retention has also increased the volume of data being retained. In addition to the measures taken to ensure the security of the systems, Vocus ensures that appropriate obligations for confidentiality and data protection are included in contractual arrangements with our suppliers, and comprehensive training is provided to all team members in relation to complying with our legal obligations in this area. Vocus maintains appropriate levels of insurance to provide coverage in the event of a privacy breach, and has prepared an incident response plan which can be activated quickly in the event of a breach occurring. Business continuity Continuity Plans have been prepared and put in place to define Vocus’ response to an interruption event such as disruption to its offices, contact centres or data centres. Business interruption insurance is also in place. Financial risks Vocus’ financial risk exposures include interest rate risk arising on borrowings and foreign currency risk arising on non AUD-denominated revenue streams and suppliers. These risks are hedged where appropriate and in line with the Group Hedging Policy endorsed by the Board. Further information in respect of these risks is outlined in the Financial Instruments note to the accounts. Energy As a retailer of electricity, Vocus purchases electricity via the Australian Energy Market Operator (AEMO) at the prevailing price. This is a competitive market and prices fluctuate with demand. The Wholesale Energy Risk Management policy sets out our risk mitigation strategy. Vocus uses hedging instruments such as Over The Counter derivatives and futures to mitigate price volatility. Vocus also has a gas storage agreement to provide certainty over the price of gas. The Company’s hedging strategy is set by the Board of Directors with a 12 month horizon, it is reviewed regularly and monitored by a dedicated Wholesale Energy Risk Management sub-committee of the Board Risk Committee. 25