NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 30. CURRENT ASSETS - CASH AND CASH EQUIVALENTS Consolidated 2016 2015 $’000 $’000 Cash at bank 62,915 10,195 Cash on deposit 65,714 4,975 128,629 15,170 Accounting policy for cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities 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. NOTE 31. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FROM OPERATING ACTIVITIES Consolidated 2016 Profit after income tax expense for the year 2015 $’000 $’000 64,252 19,850 78,486 18,684 - 1,199 Adjustments for: Depreciation and amortisation Net loss on disposal of non-current assets Share of profit - joint ventures Share-based payments Foreign exchange differences Finance costs disclosed under financing activities Non cash gain on early repayment of borrowings Gain on total return swaps (925) (525) 2,077 917 (25) - 22,977 6,410 - (5,477) (19,520) (3,085) Acquisition and integration costs 40,660 10,400 Non-cash other gains and losses - (155) (9,569) (9,113) 6,713 - (5,713) (535) Change in operating assets and liabilities: Increase in trade and other receivables Decrease in inventories Increase in deferred tax assets Increase in accrued revenue (142) (239) Increase in derivative assets (2,328) (189) Increase in prepayments Decrease/(increase) in other operating assets Decrease in trade and other payables Increase/(decrease) in derivative liabilities Increase/(decrease) in provision for income tax Increase in deferred tax liabilities Increase/(decrease) in employee benefits Increase/(decrease) in other provisions Increase/(decrease) in other operating liabilities Net cash from operating activities 82 | VOCUS.COM.AU (7,760) (342) (32,783) 3,224 (2,645) (2,643) 9,362 (473) (7,178) 1,449 9,742 988 17,263 (659) (27,374) 4,741 56 (1,817) 135,626 42,610 NOTE 31. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FROM OPERATING ACTIVITIES (continued) Non-cash investing and financing activities The following non-cash investing and financing activities occurred during the period: ➜➜ Plant and equipment acquired through finance leases: $10,147,000 ➜➜ Dividends paid through issue of shares under DRP: $9,679,000 ➜➜ Issue of shares under the Loan Funded Share Plan: ➜➜ Acquisition of Amcom Telecommunications Limited: ➜➜ Merger with M2 Group Limited: $9,916,000 $686,662,000 $2,259,628,000 NOTE 32. CURRENT LIABILITIES - BORROWINGS Consolidated 2016 2015 $’000 $’000 Backhaul IRU liability 5,992 - Lease liability 7,737 1,764 13,729 1,764 Refer to note 33 for further information on assets pledged as security and financing arrangements. Refer to note 9 for further information on financial instruments. NOTE 33. NON-CURRENT LIABILITIES - BORROWINGS Consolidated 2016 2015 $’000 Bank loans $’000 825,738 106,235 Backhaul IRU liability 25,263 - Lease liability 21,381 11,724 872,382 117,959 Refer to note 9 for further information on financial instruments. Refer to note 15 for further details on IRU commitments relating to the IRU liability. Total secured liabilities The total secured liabilities (current and non-current) are as follows: Consolidated 2016 2015 $’000 Bank loans Lease liability $’000 825,738 106,235 29,118 13,488 854,856 119,723 83 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 33. NON-CURRENT LIABILITIES - BORROWINGS (continued) Assets pledged as security The bank loans are secured via general security deeds over Vocus’ assets and undertakings. The lease liabilities are effectively secured as the rights to the leased assets, recognised in the statement of financial position, revert to the lessor in the event of default. Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Consolidated 2016 2015 $’000 $’000 1,184,200 106,235 50,000 - Total facilities Bank loans Bank guarantee / letter of credit facility Multi-option facility - 25,000 1,234,200 131,235 825,738 106,235 29,293 - Used at the reporting date Bank loans Bank guarantee / letter of credit facility Multi-option facility - 3,332 855,031 109,567 358,462 - Unused at the reporting date Bank loans Bank guarantee / letter of credit facility 20,707 - - 21,668 379,169 Multi-option facility 21,668 The Group’s bank facility at 30 June 2016 consists of a $1,234,200,000 senior finance facility (2015: $131,235,000), comprising 3 year (A$560,000,000) and 5 year (A$510,000,000, NZ$160,000,000) facilities, including available facilities for bank guarantees / letters of credit and is non-amortising. This facility 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. The previous multi-option facility was replaced with the bank guarantee / letter of credit facility Accounting policy for borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. NOTE 34. CURRENT ASSETS - OTHER Consolidated 2016 2015 $’000 $’000 Prepayments 16,554 1,919 Subscriber acquisition costs 19,222 1,132 35,776 3,051 Accounting policy for subscriber acquisition costs Refer to Note 19. 84 | VOCUS.COM.AU NOTE 35. EQUITY - CONTRIBUTED EQUITY Consolidated 2016 2015 2016 2015 Shares Ordinary shares - fully paid Less: Treasury shares* Shares $’000 $’000 533,356,665 105,511,947 3,124,000 159,093 (5,089,252) (4,008,308) (23,262) (14,849) 528,267,413 101,503,639 3,100,738 144,244 Movements in ordinary share capital Details Date Shares Issue price $’000 Balance 1 July 2014 92,934,834 Issue of shares on conversion of options 4 July 2014 2,500 $2.00 5 Issue of shares for loan funded share plan 102,317 21 July 2014 1,672,500 $5.05 8,446 28 August 2014 12,332 $2.00 25 Issue of shares for consideration of FX Networks 19 September 2014 10,164,930 $4.40 44,726 Issue of shares for consideration of FX Networks 7 October 2014 15,922 $4.40 70 Issue of shares on conversion of options 29 October 2014 16,666 $2.60 43 Issue of shares on conversion of options 29 October 2014 5,000 $2.00 10 23 December 2014 560,599 $5.71 3,201 29 January 2015 56,666 $2.00 113 Cancellation of shares under loan funded share plan 17 April 2015 (13,334) $2.17 (29) Issue of shares on conversion of options 27 May 2015 83,332 $2.00 167 - $0.00 (1) Issue of shares on conversion of options Issue of shares for loan funded share plan Issue of shares on conversion of options Less: Share issue costs, net of deferred tax 30 June 2015 105,511,947 Issue of shares on conversion of options Balance 7 July 2015 26,667 $0.00 - Issue of shares for consideration of Amcom Telecommunications Limited 8 July 2015 124,482,876 $5.50 684,657 8 July 2015 74,978 $5.50 412 20 August 2015 195,000 $5.95 1,160 Issue of shares on conversion of performance rights Issue of shares for loan funded share plan Issue of shares on conversion of options 159,093 1 September 2015 12,500 $2.00 25 14 September 2015 891,000 $5.53 4,927 Issue of shares on conversion of options 2 October 2015 12,999 $2.00 26 Issue of shares on conversion of options 2 October 2015 35,000 $0.50 18 Issue of shares for loan funded share plan 2 October 2015 220,623 $6.49 1,432 Issue of shares for loan funded share plan 9 November 2015 50,000 $6.38 319 Issue of shares for loan funded share plan 2 December 2015 293,554 $7.08 2,078 Issue of shares for loan funded share plan Issue of shares on conversion of options 2 December 2015 1,667 $2.00 3 Issue of shares on conversion of performance rights 15 December 2015 4,614 $5.50 25 Issue of shares on conversion of performance rights 12 January 2016 124,005 $5.50 682 Issue of shares on conversion of performance rights 15 January 2016 18,456 $5.50 102 Issue of shares for consideration of M2 Group Limited 23 February 2016 300,083,420 $7.53 2,259,628 Issue of shares on conversion of options 26 February 2016 100,000 $0.50 50 Issue of shares on conversion of options 5 April 2016 14,167 $2.00 28 11 April 2016 1,203,192 $7.96 9,577 - $0.00 (242) Issue of shares pursuant to the Dividend Reinvestment Plan Less: Share issue costs, net of deferred tax Balance 30 June 2016 533,356,665 3,124,000 85 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 35. EQUITY - CONTRIBUTED EQUITY (continued) Movements in treasury shares* Details Balance Date Shares Issue price $’000 1 July 2014 2,047,978 Issue of shares for loan funded share plan 21 July 2014 1,672,500 $5.05 8,446 Issue of shares for loan funded share plan 23 December 2014 560,599 $5.71 3,201 (259,435) $0.00 (492) (13,334) $0.00 (29) Transfer of shares to participants Cancellation of shares Balance 3,723 30 June 2015 4,008,308 Issue of shares for loan funded share plan 20 August 2015 195,000 $5.95 1,160 Issue of shares for loan funded share plan 14 September 2015 891,000 $5.53 4,927 Issue of shares for loan funded share plan 2 October 2015 220,623 $6.49 1,432 Issue of shares for loan funded share plan 9 November 2015 50,000 $6.38 319 Issue of shares for loan funded share plan 2 December 2015 293,554 $7.08 2,078 (569,233) $0.00 (1,503) Shares transferred to beneficiaries ** Balance 30 June 2016 14,849 5,089,252 23,262 * Shares held by Vocus Blue Pty Limited During the financial year ended 30 June 2016, 1,650,177 (2015: 2,233,099) shares were issued to Vocus Blue Pty Limited, a wholly– owned subsidiary of Vocus Communications Limited as part of its Loan Funded Share Plan remuneration scheme to attract and retain key employees. Vocus Blue Pty Limited’s sole purpose is to hold shares as trustee for its beneficiaries (its ‘participants’). The participants are granted a loan by Vocus to purchase the beneficial interest in shares. The loans are limited recourse to the participants and any dividends received in respect of the plan shares are used to reduce the loan balance net of tax payable. Participants are required to meet service requirements and performance conditions before being entitled to acquire full title to these shares and are required to repay the loan in order to do so. The shares held by Vocus Blue Pty Limited have been deducted from equity as treasury shares in line with accounting standards. ** The transfer of shares to beneficiaries during the current and previous year is measured with reference to the loan value attaching to those shares. Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Capital risk management Vocus’ objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, adjustments may be made to the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Vocus would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Parent Entity’s share price at the time of the investment. The capital risk management policy remains unchanged from the 30 June 2015 Annual Report. 86 | VOCUS.COM.AU NOTE 35. EQUITY - CONTRIBUTED EQUITY (continued) Capital is monitored on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘trade and other payables’ and ‘borrowings’ as shown in the statement of financial position) less ‘cash and cash equivalents’ as shown in the statement of financial position. Total capital is calculated as ‘total equity’ as shown in the statement of financial position (including non-controlling interest) plus net debt. The gearing ratio at the reporting date was as follows: Consolidated 2016 2015 $’000 $’000 13,729 1,764 Non-current liabilities - borrowings (note 33) 872,382 117,959 Total borrowings 886,111 119,723 Current liabilities - borrowings (note 32) Current assets - cash and cash equivalents (note 30) (128,629) (15,170) 757,482 104,553 Total equity 3,174,285 196,239 Total capital 3,931,767 300,792 19% 35% Net debt Gearing ratio Accounting policy for issued 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. NOTE 36. EQUITY - RESERVES Consolidated 2016 $’000 Investment revaluation reserve 2015 $’000 (233) - Foreign currency reserve 3,969 760 Share-based payments reserve 5,581 2,721 Hedge reserve 6,989 366 16,306 3,847 Investment revaluation reserve The reserve is used to recognise increments and decrements in the fair value of available-for-sale financial assets. Foreign currency reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees as part of their remuneration, and as part of their compensation for services. Hedging reserve - cash flow hedges The reserve is used to recognise the effective portion of the gain or loss of cash flow hedge instruments that is determined to be an effective hedge. 87 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 36. EQUITY - RESERVES (continued) Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Investment revaluation Foreign currency Share-based payments Hedge Total $’000 $’000 $’000 $’000 $’000 - 977 1,804 (142) 2,639 Foreign currency translation - (217) - - (217) Recognition of share-based payments - - 917 - 917 Balance at 1 July 2014 Net movement on hedging transactions - - - 508 508 Balance at 30 June 2015 - 760 2,721 366 3,847 (233) - - - (233) Foreign currency translation Revaluation - net of tax - 3,209 - - 3,209 Recognition of share-based payments - - 2,077 - 2,077 Net movement on hedging transactions - - - 6,623 6,623 Arising upon business combinations (Note 40) - - 2,004 - 2,004 - - (1,221) - (1,221) (233) 3,969 5,581 6,989 16,306 Transfers to contributed equity Balance at 30 June 2016 NOTE 37. EQUITY - RETAINED PROFITS Consolidated 2016 2015 $’000 Retained profits at the beginning of the financial year Profit after income tax expense for the year Dividends paid and payable (note 8) Retained profits at the end of the financial year $’000 48,148 35,891 64,091 19,850 (55,159) (7,593) 57,080 48,148 NOTE 38. SHARE-BASED PAYMENTS Employee Share Option Plan An employee share option plan was established and approved by shareholders at a general meeting, whereby Vocus, at the discretion of the Board, granted options over ordinary shares in the Parent Entity to employees. Each employee share option converts into one ordinary share of the Parent Entity on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. 88 | VOCUS.COM.AU NOTE 38. SHARE-BASED PAYMENTS (continued) Set out below are summaries of options granted under the plan: 2016 Expiry date Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other 01/10/2010 30/09/2017 $0.50 135,000 - (135,000) - 13/05/2011 12/05/2018 $2.00 6,666 - (6,666) - - 01/08/2011 31/07/2018 $2.50 46,668 - - - 46,668 11/05/2012 10/05/2019 $2.00 68,834 - (61,334) - 7,500 22/02/2016 22/02/2023 $5.20 - 135,418 - - 135,418 257,168 135,418 (203,000) - 189,586 $1.30 $5.20 $1.00 $0.00 $4.41 Grant date Weighted average exercise price Balance at the end of the year - 135,418 options at a strike price of $5.20 were granted during the period in consideration for M2 options acquired as a result of the merger between Vocus and M2. 2015 Expiry date Exercise price Balance at the start of the year 01/10/2010 30/09/2017 $0.50 135,000 - - - 135,000 13/05/2011 12/05/2018 $2.00 19,998 - (13,332) - 6,666 01/08/2011 31/07/2018 $2.50 46,668 - - - 46,668 15/08/2011 14/08/2018 $2.00 50,000 - (50,000) - - 11/05/2012 10/05/2019 $2.00 165,332 - (96,498) - 68,834 25/02/2014 24/02/2021 $2.60 50,000 - (16,666) (33,334) - 466,998 - (176,496) (33,334) 257,168 $1.68 $0.00 $2.06 $2.60 $1.30 Grant date Weighted average exercise price Granted Exercised Expired/ forfeited/ other Balance at the end of the year The fair value of the 189,586 (2015: 257,168) shares under option at 30 June 2016 was $108,401 (2015: $77,358). Set out below are the options exercisable at the end of the financial year: 2015 Grant date 2016 2015 Expiry date Number Number 01/10/2010 30/09/2017 - 135,000 13/05/2011 12/05/2018 - 6,666 01/08/2011 31/07/2018 46,668 46,668 11/05/2012 10/05/2019 7,500 68,834 54,168 257,168 89 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 38. SHARE-BASED PAYMENTS (continued) The share prices of the options exercised during the financial year, at the date of exercise, were as follows: ➜➜ 7 July 2015, 26,667 options were exercised at a share price of $5.52. ➜➜ 1 September 2015, 12,500 options were exercised at a share price of $5.61. ➜➜ 2 October 2015, 47,999 options were exercised at a share price of $6.07. ➜➜ 2 December 2015, 1,667 options were exercised at a share price of $7.31. ➜➜ 26 February 2016, 100,000 options were exercised at a share price of $7.27. ➜➜ 5 April 2016, 14,167 options were exercised at a share price of $8.29. Subsequent to the year end, on 28 July 2016, Vocus announced a reduction in the exercise prices of its unlisted options in accordance with the formula set out in the rules of the Vocus Options and Performance Share Plan, consistent with ASX Listing Rule 6.22.2. The changes to the exercise prices of Vocus’ unlisted options follows the completion of Vocus’ fully underwritten 1 for 8.90 rights issue concluded in July 2016. The reduced option prices are not reflected in the table above. Performance Rights Plan As part of the Amcom Scheme Implementation Agreement, Vocus agreed to issue Vocus Performance Rights to replace existing Amcom performance rights held by certain Amcom employees. Similarly, as part of the M2 Scheme Implementation Agreement, Vocus agreed to issue Vocus Performance Rights to replace existing M2 performance rights held by M2 employees. Set out below are summaries of performance rights granted under the plan: 2016 Vesting date Exercise price Balance at the start of the year 08/07/2015 08/07/2016 $0.00 - 364,511 (222,053) - 142,458 22/02/2016 01/07/2016 $0.00 - 213,973 - - 213,973 22/02/2016 01/07/2017 $0.00 - 382,249 - - 382,249 22/02/2016 01/07/2018 $0.00 - 188,429 - - 188,429 - 1,149,162 (222,053) - 927,109 Grant date Granted Exercised Expired/ forfeited/ other Balance at the end of the year The fair value of performance rights issued during the period was as follows: ➜➜ Issued on 8 July 2015: $5.50 per share ➜➜ Issued on 22 February 2016: $6.00 per share The weighted average remaining contractual life of performance rights outstanding at the end of the financial year was 0.82 years (2015: no performance rights outstanding). Loan Funded Share Plan Shares were issued to Vocus Blue Pty Limited, a wholly owned subsidiary of Vocus Communications Limited as part of Vocus’ Loan Funded Share Plan remuneration scheme to attract and retain key employees. Vocus Blue Pty Limited’s sole purpose is to hold shares as trustee for its beneficiaries (its ‘participants’). The participants are granted a loan by Vocus to purchase the beneficial interest in Vocus shares. The loans are limited recourse to the participants and any dividends received in respect of the plan shares are used to reduce the loan balance net of tax payable. Participants are required to meet service requirements and performance conditions before being entitled to acquire full title to these shares and are required to repay the loan in order to do so. The shares will progressively become unrestricted over a period determined by each employee’s loan agreement, subject to continuous employment with Vocus. 90 | VOCUS.COM.AU NOTE 38. SHARE-BASED PAYMENTS (continued) During the financial year ended 30 June 2016, 1,650,177 (2015: 2,233,099) shares were issued to Vocus Blue Pty Limited. At 30 June 2016, Vocus Blue Pty Limited held 5,089,252 (2015: 4,008,308) shares in trust under the Loan Funded Share Plan remuneration scheme. The shares were issued as follows: ➜➜ 20 August 2015: 195,000 shares at an issue price of $5.95 and fair value of $1.38 ➜➜ 14 September 2015: 891,000 shares at an issue price of $5.53 and fair value of $1.30 ➜➜ 2 October 2015: 220,623 shares at an issue price of $6.49 and fair value of $1.16 ➜➜ 9 November 2015: 50,000 shares at an issue price of $6.38 and fair value of $1.50 ➜➜ 25 November 2015: 293,554 shares at an issue price of $7.08 and fair value of $1.14 Accounting policy for share based payments Equity settled share based compensation benefits are provided to employees. Equity settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity settled transactions are measured at fair value on grant date. Fair value is independently determined using the Binominal or Black Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non vesting conditions that do not determine whether Vocus receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share based compensation benefit as at the date of modification. If the non vesting condition is within the control of Vocus or the employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of Vocus or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. 91 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 39. PARENT ENTITY INFORMATION Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Parent 2016 2015 $’000 $’000 Profit after income tax 63,823 17,080 Total comprehensive income 63,823 17,080 Statement of financial position Parent 2016 2015 $’000 Total current assets Total assets Total current liabilities Total liabilities $’000 6,710 4,659 3,130,441 210,064 643 14,373 1,269 53,623 3,104,820 148,318 10,170 2,604 Equity Contributed equity Share-based payments reserve Options reserve 103 103 Retained profits 14,079 5,416 3,129,172 156,441 Total equity Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The Parent Entity is a party to a deed of cross guarantee (refer Note 42) under which it guarantees the debts of its subsidiaries as at 30 June 2016 and 30 June 2015. Capital commitments - Property, plant and equipment The Parent Entity had no capital commitments for property, plant and equipment at as 30 June 2016 and 30 June 2015. Significant accounting policies The accounting policies of the Parent Entity are consistent with those of Vocus, as disclosed in these notes to these financial statements. 92 | VOCUS.COM.AU NOTE 40. BUSINESS COMBINATIONS 2016 Amcom Telecommunications Limited On 8 July 2015, Vocus Communications Limited, through its subsidiary Vocus Group Pty Ltd, acquired 100% of the shares in Amcom Telecommunications Limited (‘Amcom’) for a total consideration transferred of $686,662,000, arising from the issue of 124,482,876 shares and 364,511 performance rights in the company. The issue of Vocus shares was at a share price of $5.50. The acquisition combines two geographically diverse, complementary businesses to create a major trans-Tasman telecommunications provider. Goodwill of $542,752,000 represents the residual value of the purchase price of the company over the fair value of identified tangible and intangible assets. Due to significant integration changes across Vocus’ common service infrastructure, it is not practical to provide a meaningful profit for the period since acquisition. On 16 December 2015, Vocus Communications Limited sold Amcom L7 Solutions Pty Ltd (‘L7’) to Cirrus Network Holdings Pty Ltd, for consideration of $500,000. L7 represented the IT integration and managed services arm of the former Amcom business. M2 Group Limited On 22 February 2016, Vocus acquired 100% of the share capital of M2 Group Limited (‘M2’) for total consideration of $2,259,628,000 settled by the issuance of 300,083,420 ordinary shares, 135,418 options and 784,651 performance rights in the Company. The issue of Vocus shares was at a share price of $7.53. The value of options and performance rights has been split between amounts relating to consideration and to post-acquisition remuneration. Non-controlling interests acquired were measured at fair value. The merger of Vocus and M2 brings together two highly 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. M2’s revenue for the period to 30 June 2016 (before intercompany eliminations) was $489,886,000. Due to significant integration changes across Vocus’ common service infrastructure, it is not practical to provide a meaningful profit for the period since acquisition. Goodwill of $2,374,194,000 represents the residual value of the purchase price of the company over the fair value of identified tangible and intangible assets, and has been determined on a provisional basis due to the size and complexity of the transaction. Finalisation of purchase price accounting estimates will be completed in the 2017 financial year. On the acquisition of Amcom and the merger with M2, both conducted through a schemes of arrangement, management performed a detailed analysis of the accounting standard requirements in accordance with AASB 3 Business Combinations and AASB 10 Consolidated Financial Statements. Management has identified Vocus as the acquirer in accordance with the guidance contained in AASB 3 for both transactions and concluded that the guidance on reverse acquisitions did not apply as the issuing entity (Vocus) was identified as the acquirer. 93 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 40. BUSINESS COMBINATIONS (continued) 2016 Amcom Telecommunications Fair value Total Fair value $’000 Cash and cash equivalents M2 Group Fair value $’000 $’000 5,087 73,911 78,998 Trade and other receivables 14,000 100,461 114,461 Inventories and other current assets 10,965 8,621 19,586 - 8,642 8,642 178,017 89,103 267,120 66,143 289,500 355,643 Prepayments Other plant and equipment Customer intangibles Software 6,845 117,851 124,696 Brands - 189,500 189,500 IRU Capacity - 55,175 55,175 Other intangible assets Deferred tax asset Other financial assets Trade and payables Provision for income tax 1,035 1,792 2,827 10,766 35,481 46,247 - 1,900 1,900 (14,668) (259,209) (273,877) - (5,681) (5,681) Deferred tax liability (34,815) (150,422) (185,237) Provisions and other liabilities (23,083) (22,264) (45,347) Deferred revenue (13,497) (51,252) (64,749) Bank loans (51,000) (555,000) (606,000) Hire purchase (11,885) - (11,885) IRU and lease liability - (31,923) (31,923) Derivative financial instruments - (5,635) (5,635) Other liabilities - (5,117) (5,117) Net assets/(liabilities) acquired 143,910 (114,566) 29,344 Goodwill 542,752 2,374,194 2,916,946 Acquisition-date fair value of the total consideration transferred 686,662 2,259,628 2,946,290 Representing: Vocus Communications Limited shares, options and performance rights issued to vendors 686,662 2,259,628 2,946,290 12,686 13,109 25,795 686,662 2,259,628 2,946,290 (5,087) (73,911) (78,998) (686,662) (2,259,628) (2,946,290) (5,087) (73,911) (78,998) Acquisition costs expensed to profit or loss Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: cash and cash equivalents Less: Vocus Communications Limited shares, options and performance rights issued to vendor Net cash received 94 | VOCUS.COM.AU NOTE 40. BUSINESS COMBINATIONS (continued) 2015 Bentley Data Centre from ASG Group Limited On 13 August 2014, Vocus acquired the assets related to the Bentley Data Centre from ASG Group Limited for $11,710,000. The values identified in relation to the acquisition are final as at the reporting date 30 June 2016. FX Networks Limited (now known as Vocus (New Zealand) Limited) In September 2014, Vocus acquired FX Networks Limited for an enterprise value of $109,300,000 inclusive of consideration transferred of $56,907,000 and debt assumed of $52,393,000. It provides Vocus with premium fibre services in New Zealand. Goodwill of $32,845,000 represents the residual value of the purchase price over the fair value of identifiable tangible and intangible assets shown below. The values identified in relation to the acquisition are final as at the reporting date 30 June 2016. Enterprise Data Corporation from Enterprise Data Corporation Pty Ltd On 1 April 2015, Vocus acquired certain assets of Enterprise Data Corporation from Enterprise Data Corporation Pty Ltd for $23,500,000. The values identified in relation to the acquisition are final as at the reporting date 30 June 2016. Details of the acquisitions are as follows: 2015 Bentley Data Centre Fair value FX Networks Fair value Enterprise Data Corporation Fair value Total Fair value $’000 $’000 $’000 $’000 Trade receivables - 3,032 - 3,032 Other receivables - 766 - 766 Prepayments - 1,204 - 1,204 Other current assets - 583 - 583 Fibre assets - 78,028 - 78,028 Network equipment Data centre assets Other plant and equipment - 20,324 - 20,324 11,121 - 11,469 22,590 - 1,793 - 1,793 Make good 250 226 500 976 Customer intangibles 18,113 770 - 17,343 Deferred tax asset - 1,794 - 1,794 Trade payables - (6,454) - (6,454) Other payables - (5,972) - (5,972) Provision for income tax - (307) - (307) (178) (11,838) (5,203) (17,219) (3) (1,152) (109) (1,264) Deferred tax liability Employee benefits Warranty provision - (208) - (208) Other financial liabilities - (56,289) - (56,289) Other provisions Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred (250) (1,468) (500) (2,218) 11,710 24,062 23,500 59,272 - 32,845 - 32,845 11,710 56,907 23,500 92,117 95 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 40. BUSINESS COMBINATIONS (continued) 2015 Bentley Data Centre Fair value FX Networks Fair value Enterprise Data Corporation Fair value Total Fair value $’000 $’000 $’000 $’000 10,710 12,111 21,200 44,021 - 44,796 - 44,796 Representing: Cash paid or payable to vendor Vocus Communications Limited shares issued to vendors Contingent consideration Acquisition costs expensed to profit or loss 1,000 - 2,300 3,300 11,710 56,907 23,500 92,117 771 4,791 801 6,363 11,710 56,907 23,500 92,117 (44,796) Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: shares issued by Company as part of consideration - (44,796) - Less: contingent consideration (1,000) - (2,300) (3,300) Net cash used 10,710 12,111 21,200 44,021 Accounting policy for business combinations The acquisition method of accounting is used to account for business combinations. The consideration is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, an assessment is made of the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, a re-measurement of any previously held equity interest in the acquiree at the acquisition-date fair value is made and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. 96 | VOCUS.COM.AU NOTE 40. BUSINESS COMBINATIONS (continued) The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. Goodwill relates to future synergies from combining operations of the acquiree and the acquirer, intangibles that do not qualify for separate recognition, and other factors. Goodwill is not deductible for tax purposes. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. 97 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 41. INTERESTS IN SUBSIDIARIES The Consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 43: Ownership interest 2016 2015 Name Principal place of business / Country of incorporation % % Vocus Group Pty Limited Australia 100.00% 100.00% Vocus Holdings Pty Limited Australia 100.00% 100.00% Vocus Pty Limited Australia 100.00% 100.00% Vocus Connect Pty Limited Australia 100.00% 100.00% Vocus Data Centres Pty Limited Australia 100.00% 100.00% Vocus Fibre Pty Limited Australia 100.00% 100.00% Perth International Exchange Pty Limited atf the Perth IX Trust (trading as Perth IX) Australia 100.00% 100.00% Vocus Blue Pty Limited Australia 100.00% 100.00% Ipera Communications Pty Limited Australia 100.00% 100.00% Amcom Telecommunications Pty Limited Australia 100.00% - Amcom Pty Limited Australia 100.00% - aCure Technology Pty Limited Australia 100.00% - Global Networks AMC Data Centre Pty Limited Australia 100.00% - Amcom East Pty Limited Australia 100.00% - Amnet Broadband Pty Limited Australia 100.00% - Amcom Data Centres Pty Limited Australia 100.00% - Amcom IP Tel Pty Limited Australia 100.00% - M2 Group Limited Australia 100.00% - M2 Loyalty Programs Pty Limited Australia 100.00% - M2 Group Franchising Pty Limited Australia 100.00% - M2 Commander Pty Limited Australia 100.00% - 2Talk Pty Limited Australia 100.00% - M2 Telecommunications Pty Limited Australia 100.00% - M2 Clear Pty Limited Australia 100.00% - Southern Cross Telco Pty Limited Australia 100.00% - People Telecom Pty Limited Australia 100.00% - People Telecommunications Pty Limited Australia 100.00% - M2 Wholesale Pty Limited Australia 100.00% - Wholesale Communications Group Pty Limited Australia 100.00% - M2 Wholesale Services Pty Limited Australia 100.00% - Primus Telecom Holdings Pty Limited Australia 100.00% - First Path Pty Limited Australia 100.00% - Primus Network (Australia) Pty Limited Australia 100.00% - Primus Telecom Pty Limited Australia 100.00% - Hotkey Internet Services Pty Limited Australia 100.00% - Primus Telecommunications Pty Limited Australia 100.00% - Primus Telecommunications (Australia) Pty Limited Australia 100.00% - Dodo Australia Holdings Pty Limited Australia 100.00% - No Worries Online Pty Limited Australia 100.00% - Dodo Group Services Pty Limited Australia 100.00% - 98 | VOCUS.COM.AU NOTE 41. INTERESTS IN SUBSIDIARIES (continued) Ownership interest 2016 Name % Principal place of business / Country of incorporation 2015 % Pendo Industries Pty Limited Australia 100.00% - Dodo Services Pty Limited Australia 100.00% - Dodo Insurance Pty Limited Australia 100.00% - Secureway Pty Limited Australia 100.00% - M2 Energy Pty Limited Australia 100.00% - Eftel Pty Limited Australia 100.00% - Eftel Wholesale Pty Limited Australia 100.00% - Club Telco Pty Limited Australia 100.00% - Eftel Corporate Pty Limited Australia 100.00% - Visage Telecom Pty Limited Australia 100.00% - Engin Pty Limited Australia 100.00% - Eftel Retail Pty Limited Australia 100.00% - Aggregato Global Limited Australia 61.20% - Vocus (New Zealand) Holdings Limited New Zealand 100.00% 100.00% Vocus (New Zealand) Limited * New Zealand 100.00% 100.00% Vocus Data Centres (New Zealand) Limited ** New Zealand 100.00% 100.00% Data Lock Limited New Zealand 100.00% 100.00% M2 Group NZ Limited New Zealand 100.00% - CallPlus Holdings Limited New Zealand 100.00% - 2Talk Limited New Zealand 100.00% - CallPlus Australia Holdings Limited New Zealand 100.00% - CallPlus Limited New Zealand 100.00% - Blue Reach Limited New Zealand 100.00% - Slingshot Communications Limited New Zealand 100.00% - CallPlus Services Limited New Zealand 100.00% - CallPlus Trustee Limited New Zealand 100.00% - Orcon Limited New Zealand 100.00% - CallPlus Assets Limited New Zealand 100.00% - Flip Services Limited New Zealand 100.00% - CallPlus Services Australia Limited New Zealand 100.00% - M2 NZ Limited New Zealand 100.00% - * Formerly FX Networks Limited (name changed on 28 April 2015). ** Formerly Vocus (New Zealand) Limited (name changed on 17 April 2015). Notes to the financial statements 99 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 42. DEED OF CROSS GUARANTEE The wholly-owned entities listed in Note 41 are party to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare financial statements and Directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission (‘ASIC’). The companies represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by Vocus Communications Limited, they also represent the ‘Extended Closed Group’. The Consolidated statement of profit or loss and other comprehensive income and statement of financial position are substantially the same as Vocus and therefore have not been separately disclosed. The statement of profit or loss and other comprehensive income and statement of financial position of the ‘Closed Group’ can be found in the Consolidated statement of profit or loss and other comprehensive income and statement of financial position along with the note on Vocus Communications Limited as parent found in these financial statements. NOTE 43. OTHER SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial statements are set out either in the respective notes or below. These policies have been consistently applied to all the years presented, unless otherwise stated. Principles of consolidation The Consolidated financial statements of Vocus comprise of the financial statements of Vocus Communications Limited and its subsidiaries where it is determined that there is a capacity to control. Vocus controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully Consolidated from the date on which control is transferred. They are de-Consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in Vocus are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by Vocus. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of Vocus. Losses incurred by Vocus are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where Vocus loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. Vocus recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. 100 | VOCUS.COM.AU NOTE 43. OTHER SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign currency translation The financial statements are presented in Australian dollars, which is Vocus Communications Limited’s functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in Vocus’ normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in Vocus’ normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Investments and other financial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. They are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the acquisition and subsequent reclassification to other categories is restricted. The fair values of quoted investments are based on current bid prices. For unlisted investments, fair value is established by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and Vocus has transferred substantially all the risks and rewards of ownership. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the asset is derecognised or impaired. 101 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 43. OTHER SIGNIFICANT ACCOUNTING POLICIES (continued) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets, principally equity securities, that are either designated as available-for-sale or not classified as any other category. After initial recognition, fair value movements are recognised in other comprehensive income through the available-for-sale reserve in equity. Cumulative gain or loss previously reported in the available-for-sale reserve is recognised in profit or loss when the asset is derecognised or impaired. Impairment of financial assets Vocus assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows. The amount of the impairment allowance for loans and receivables carried at amortised cost is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. If there is a reversal of impairment, the reversal cannot exceed the amortised cost that would have been recognised had the impairment not been made and is reversed to profit or loss. Available-for-sale financial assets are considered impaired when there has been a significant or prolonged decline in value below initial cost. Subsequent increments in value are recognised in other comprehensive income through the available-for-sale reserve. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that Vocus will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. 102 | VOCUS.COM.AU NOTE 43. OTHER SIGNIFICANT ACCOUNTING POLICIES (continued) Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. New, revised or amending Accounting Standards and Interpretations adopted Vocus has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by Vocus for the annual reporting period ended 30 June 2016. Vocus’ assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to Vocus, are set out below. AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. AASB 9 introduces new classification and measurement models for financial assets. New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. Vocus will adopt this standard from 1 July 2018 but the impact of its adoption is yet to be assessed. AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. 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 those goods or services. The standard may impact the way revenue is recognised by Vocus on application from 1 July 2018. The impact of its adoption is yet to be assessed. 103 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 43. OTHER SIGNIFICANT ACCOUNTING POLICIES (continued) AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance leases. Items currently classified as operating leases will be capitalised in the statement of financial position with a liability corresponding to the capitalised lease also being recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). Vocus will adopt this standard from 1 July 2019. The full impact of its adoption has yet to be assessed. AASB 2015 - 2 Disclosures Program This standard applies to annual reporting periods beginning on or after 1 January 2016. This disclosure initiative makes amendments to AASB 101 to provide clarification regarding its requirements. It specifically addresses concerns about existing presentation and disclosure requirements and ensures entities are able to use judgment when applying a Standard in determining what information is required to be disclosed in their financial statements. Vocus will adopt this standard from 1 July 2016 but the impact of its adoption is yet to be assessed by Vocus. NOTE 44. KEY MANAGEMENT PERSONNEL DISCLOSURES Compensation The aggregate compensation made to Directors and other members of key management personnel of Vocus is set out below: Consolidated 2016 Short-term employee benefits 2015 4,696,067 2,369,950 Post-employment benefits 202,864 126,027 Long-term benefits 990,690 77,498 Share-based payments 253,602 7,335,094 104 | VOCUS.COM.AU 1,445,473 2,827,077 NOTE 45. REMUNERATION OF AUDITORS During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, the auditor of the Company, and its network firms: Consolidated 2016 2015 550,000 230,280 Audit services - Deloitte Touche Tohmatsu Audit or review of the financial statements Other services - Deloitte Touche Tohmatsu Tax compliance services 224,902 45,008 Other non-audit services 768,897 234,917 993,799 279,925 1,543,799 510,205 124,567 91,021 Tax compliance services - 22,412 Other non-audit services 57,873 3,843 57,873 26,255 182,440 117,276 Audit services - network firms of Deloitte Touche Tohmatsu Audit or review of the financial statements Other services - network firms of Deloitte Touche Tohmatsu NOTE 46. RELATED PARTY TRANSACTIONS Parent entity Vocus Communications Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 41. Joint ventures Interests in joint ventures are set out in note 24. Key management personnel Disclosures relating to key management personnel are set out in note 44 and the remuneration report included in the Directors’ report. Transactions with related parties The Company purchased corporate entertainment packages totalling $5,259 (2015: $11,400) from Illawarra Hawks Pty Ltd, a company related to James Spenceley. The packages were on commercial terms and approved by the Board. Loans to Directors and executives for the year ended 30 June 2016 are in relation to the Company’s Loan Funded Share Plan. A schedule detailing the loan amounts and movements during the year is included in the Remuneration Report. 105 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 NOTE 47. EVENTS AFTER THE REPORTING PERIOD 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 has set a provisional date to announce a final decision or release of a Statement of Issues in respect of Nextgen on or around 22 September 2016. The Nextgen acquisition is funded from 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 disclosed in note 8, 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. NOTE 48. GENERAL INFORMATION The financial statements cover Vocus Communications Limited as a Consolidated Entity consisting of Vocus Communications Limited and the entities it controlled at the end of, or during, the year (collectively referred to as ‘Vocus’). The financial statements are presented in Australian dollars, which is Vocus Communications Limited’s functional and presentation currency. Vocus Communications Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 12 60 Miller Street North Sydney NSW 2060 A description of the nature of Vocus’ operations and its principal activities are included in the Directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of Directors, on 23 August 2016. The Directors have the power to amend and reissue the financial statements. 106 | VOCUS.COM.AU