ACCT

47

STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2016

Consolidated

2016 2015

Note $’000 $’000

Assets

Current assets

Cash and cash equivalents 30 128,629 15,170

Trade and other receivables 16 144,379 22,682

Inventories 17 12,924 -

Available-for-sale financial assets 1,998 -

Derivative financial instruments 11 9,978 1,027

Other 34 35,776 3,051

Total current assets 333,684 41,930

Non-current assets

Plant and equipment 25 522,413 204,619

Intangibles 26 3,757,068 125,394

Deferred tax 28 57,403 5,443

Investment in joint venture 4,934 3,708

Other 19 18,517 2,250

Total non-current assets 4,360,335 341,414

Total assets 4,694,019 383,344

Liabilities

Current liabilities

Trade and other payables 18 288,966 24,177

Borrowings 32 13,729 1,764

Derivative financial instruments 12 3,972 -

Income tax 2,036 3,533

Provisions 22 25,020 10,127

Other 20 66,841 1,277

Total current liabilities 400,564 40,878

Non-current liabilities

Borrowings 33 872,382 117,959

Derivative financial instruments 13 5,390 -

Deferred tax 29 216,320 21,299

Provisions 23 11,310 2,441

Other 21 13,768 4,528

Total non-current liabilities 1,119,170 146,227

Total liabilities 1,519,734 187,105

Net assets 3,174,285 196,239

Equity

Contributed equity 35 3,100,738 144,244

Reserves 36 16,306 3,847

Retained profits 37 57,080 48,148

Equity attributable to the owners of Vocus Communications Limited 3,174,124 196,239

Non-controlling interest 161 -

Total equity 3,174,285 196,239

The above statement of financial position should be read in conjunction with the accompanying notes

48 | VOCUS.COM.AU

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016

Consolidated Contributed

Equity Reserves Retained

Profits

Non- controlling

Interest Total

equity $’000 $’000 $’000 $’000 $’000

Balance at 1 July 2014 98,594 2,639 35,891 - 137,124

Profit after income tax expense for the year - - 19,850 - 19,850

Other comprehensive income for the year, net of tax - 291 - - 291

Total comprehensive income for the year - 291 19,850 - 20,141

Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 35) 45,650 - - - 45,650

Share-based payments (note 38) - 917 - - 917

Dividends paid (note 8) - - (7,593) - (7,593)

Balance at 30 June 2015 144,244 3,847 48,148 - 196,239

Consolidated Contributed

Equity Reserves Retained

Profits

Non- controlling

Interest Total

equity $’000 $’000 $’000 $’000 $’000

Balance at 1 July 2015 144,244 3,847 48,148 - 196,239

Profit after income tax expense for the year - - 64,091 161 64,252

Other comprehensive income for the year, net of tax - 9,599 - - 9,599

Total comprehensive income for the year - 9,599 64,091 161 73,851

Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 35) 2,955,273 - - - 2,955,273

Share-based payments (note 38) - 2,077 - - 2,077

Arising upon business combinations w(note 40) - 2,004 - - 2,004

Transfers 1,221 (1,221) - - -

Dividends paid (note 8) - - (55,159) - (55,159)

Balance at 30 June 2016 3,100,738 16,306 57,080 161 3,174,285

The above statement of changes in equity should be read in conjunction with the accompanying notes

49

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016

Consolidated 2016 2015

Note $’000 $’000

Cash flows from operating activities

Receipts from customers 862,745 156,373

Payments to suppliers and employees (695,456) (109,714)

167,289 46,659

Dividends received 8 -

Interest received 879 789

Other finance costs paid (1,487) (319)

Income taxes paid (31,063) (4,519)

Net cash from operating activities 31 135,626 42,610

Cash flows from investing activities

Payments for purchase of business, net of cash acquired, acquisition and integration costs 35,038 (53,948)

Payments for property, plant and equipment (66,899) (31,852)

Proceeds from disposal of assets 265 3,048

Payments for intangible assets (31,169) (2,842)

Proceeds from total return swaps 19,520 -

Net cash used in investing activities (43,245) (85,594)

Cash flows from financing activities

Proceeds from borrowings 695,948 63,110

Repayment of borrowings on business acquisitions (595,000) (32,559)

Interest and other finance costs paid on borrowings (21,465) (5,192)

Repayment of finance leases and IRU liabilities (7,340) (9,528)

Interest paid on leases (1,512) (876)

Proceeds from issue of shares, net of transaction costs 1,307 854

Dividends paid 8 (50,860) (2,212)

Net cash from financing activities 21,078 13,597

Net increase/(decrease) in cash and cash equivalents 113,459 (29,387)

Cash and cash equivalents at the beginning of the financial year 15,170 44,557

Cash and cash equivalents at the end of the financial year 30 128,629 15,170

The above statement of cash flows should be read in conjunction with the accompanying notes

50 | VOCUS.COM.AU

NOTE 1. BASIS OF PREPARATION

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’).

Historical cost convention

The financial statements have been prepared under the historical cost convention, except for the revaluation of derivative financial instruments at fair value.

Net current asset deficiency

As at 30 June 2016, Vocus’ current liabilities exceeded its current assets by $66,880,000. Vocus is satisfied that it will be able to meet all its obligations as they fall due given its strong profitability and operating cash flows, existing cash reserves and available finance facilities.

Critical accounting estimates

The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying Vocus’ accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2.

Parent entity information

In accordance with the Corporations Act 2001, these financial statements present the results of Vocus (as a Consolidated entity) only. Supplementary information about the parent entity is disclosed in note 39.

NOTE 2. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below.

Estimation of useful lives of assets

The estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets is determined by the Company. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.

Goodwill and other indefinite life intangible assets

The recoverable amount of the Australia and New Zealand CGU’s have been determined based on a fair value less costs of disposal calculation. In assessing fair value less costs of disposal, Vocus estimates post tax future cash flows including expected synergistic benefits from recent mergers, further capital expenditure and a long term growth rate assumption, and discounts these cash flows using a post-tax rate. These assumptions require managements’ judgement and are based on market expectations.

NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2016

51

NOTE 2. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued)

Impairment of non-financial assets other than goodwill and other indefinite life intangible assets

Assessments of impairment of non-financial assets other than goodwill and other indefinite life intangible assets are made at each reporting date by evaluating conditions specific to Vocus and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions.

Derivative financial instruments

Forward foreign exchange contracts, designated as cash flow hedges, are measured at fair value. Reliance is placed on future cash flows and judgement is made on a regular basis, through prospective and retrospective testing, including at the reporting date, that the hedges are still highly effective.

Business combinations

As discussed in note 40, business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported.

Unbilled revenue

Unbilled revenue for gas and electricity is estimated at the end of the reporting period. Customers are billed on a periodic and regular basis. Management estimates customer consumption between the last invoice date and the end of the reporting period. This is based on preliminary usage obtained from external regulators at an estimated bill rate. Various assumptions and financial models are used to determine the estimated unbilled rate.

NOTE 3. OPERATING SEGMENTS

Reporting segments

Segment information is based on the information that management uses to make decisions about operating matters and allows users to review operations through the eyes of management.

Operating segments represent the information reported to the chief operating decision makers (CODM), being the executive management team, for the purposes of resource allocation and assessment of segment performance focuses on the jurisdiction in which the services are delivered or provided.

Consistent with information presented for internal management reporting purposes, the result of each segment is measured based on its EBITDA contribution. Corporate costs are allocated to segments (and included within segment EBITDA) with reference to the resources allocated to provide those services to each segment.

The directors of Vocus have chosen to organise the Group around the two main jurisdictions in which the Group operates.

Specifically, the Group’s reportable segments under AASB 8 are as follows:

➜ Australia

➜ New Zealand

The reportable segments also represent the group’s cash-generating units for impairment testing purposes.

In the prior year, Vocus operated and disclosed as a single operating segment. The prior year reporting segment information has been restated below in line with current year segments.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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NOTE 3. OPERATING SEGMENTS (continued)

In addition to reportable segments, a summary of sales revenue by product has been provided below.

Sales revenue by product set

Consolidated

2016 2015

$’000 $’000

Fibre and Ethernet 172,876 64,539

Internet 88,885 43,853

Data Centre 53,599 26,621

Voice 149,807 12,251

Consumer Telecommunications 287,355 -

Consumer Energy 59,481 -

Other 17,935 1,740

Total sales revenue 829,938 149,004

Major customers

During the year ended 30 June 2016 there were no customers of Vocus which contributed 10% or more of external revenue (2015: nil).

Segment revenues and results

Consolidated - 2016 Australia New Zealand Intersegment adjustments Total

$’000 $’000 $’000 $’000

Revenue

Sales to external customers 696,236 144,609 (10,907) 829,938

Interest revenue 1,707 40 (868) 879

Other revenue 7 1 - 8

Total revenue 697,950 144,650 (11,775) 830,825

EBITDA 170,641 25,183 (868) 194,956

Depreciation and amortisation (68,103) (10,384) - (78,487)

Finance costs (16,815) (8,517) 868 (24,464)

Non-controlling interest 161 - - 161

Profit before income tax expense 85,884 6,282 - 92,166

Income tax expense (27,914)

Profit after income tax expense 64,252

Assets

Segment assets 3,785,830 908,189 - 4,694,019

Total assets 4,694,019

Liabilities

Segment liabilities 1,272,797 246,937 - 1,519,734

Total liabilities 1,519,734

53

NOTE 3. OPERATING SEGMENTS (continued)

Consolidated - 2015 Australia New Zealand Intersegment adjustments Total

$’000 $’000 $’000 $’000

Revenue

Sales to external customers 101,725 50,508 (3,229) 149,004

Interest revenue 3,857 85 (3,147) 795

Total revenue 105,582 50,593 (6,376) 149,799

EBITDA 50,045 9,379 (6,382) 53,042

Depreciation and amortisation (12,549) (6,135) - (18,684)

Finance costs (2,201) (7,019) 3,147 (6,073)

Profit/(loss) before income tax expense 35,295 (3,775) (3,235) 28,285

Income tax expense (8,435)

Profit after income tax expense 19,850

Assets

Segment assets 229,251 154,093 - 383,344

Total assets 383,344

Liabilities

Segment liabilities 72,530 114,575 - 187,105

Total liabilities 187,105

Revenue by geographical area

Consolidated 2016 2015

$’000 $’000

Australia 669,257 81,937

New Zealand 148,890 58,721

Rest of World 11,791 8,346

829,938 149,004

Revenues from Rest of World customers are predominantly earned by the Australia operating segment.

Accounting policy for operating segments

Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM are responsible for the allocation of resources to operating segments and assessing their performance.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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NOTE 4. REVENUE

Consolidated

2016 2015

$’000 $’000

Sales revenue

Rendering of services 829,938 149,004

Other revenue

Dividends 8 -

Interest 879 795

887 795

Revenue 830,825 149,799

Accounting policy for revenue recognition

Revenue is recognised when it is probable that the economic benefit will flow to Vocus and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable.

Rendering of services

Corporate revenue is derived from the provision of internet, data centre, fibre and Ethernet and voice services to corporate and wholesale customers. Revenues are recognised on a straight-line basis over the period that services are provided.

Consumer revenue is principally derived from providing telecommunication and gas and electricity services. Telecommunication services include fixed wire, mobile, data services and equipment sales. Products and services may be sold separately or in bundled packages.

Revenue for fixed wire, mobile and data services are recognised as revenue when services are performed. Revenue from services provided, but unbilled, are accrued at end of each period and unearned revenue (revenue billed in advance) for services to be provided in future periods is deferred.

Revenue from bundled offers is recognised when two or more activities or deliverables are sold under one single arrangement. The total fixed or determinable amount of the arrangement is allocated to the separate units of accounting based on its relative fair value. A delivered item is considered a separate unit of accounting where it has value to the customer on a stand-alone basis and the fair value of any undelivered items cannot be terminated by the customer without incurring penalties.

Revenue from gas and electricity services supplied is recognised once the gas and electricity has been delivered to the customer and is measured through a regular review of usage meters. At the end of each reporting period, gas and electricity revenue includes an accrual for energy delivered to the customer but not yet billed (unbilled revenue)

Revenue for equipment sales is recognised when the device is delivered to the end customer and the sale is considered complete.

Commission income

Commissions are received as incentives from upstream suppliers for connecting new customers. Revenue from such commissions is deferred and recognised over a period of life in line with the average period related to the customers’ contracts.

Interest

Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

Other revenue

Other revenue is recognised when it is received or when the right to receive payment is established.

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NOTE 5. OTHER GAINS AND LOSSES

Consolidated 2016 2015

$’000 $’000

Gain on early repayment of borrowings * - 5,477

Gain on total return swaps ** 19,520 7,486

Acquisition and integration costs *** (40,660) (10,400)

Gains/(losses) associated with foreign exchange 1,445 (629)

Other gains/(losses) (956) (1,257)

Other gains and losses (20,651) 677

* The gain on early repayment of borrowings arose following the Company’s payment of its outstanding IRU liabilities in the 2015 financial year.

** 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.

*** 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 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.

NOTE 6. EXPENSES

Consolidated 2016 2015

$’000 $’000

Profit before income tax includes the following specific expenses:

Depreciation and amortisation

Depreciation (note 25) 36,864 12,338

Amortisation (note 26) 41,623 6,346

Total depreciation and amortisation 78,487 18,684

Finance costs

Interest and finance charges paid/payable 24,464 6,073

Rental expense relating to operating leases

Minimum lease payments 12,152 4,747

Employee benefits expense

Salaries and wages expense 67,942 16,137

Employee on-costs expense 14,601 2,440

Employee leave expense 4,330 1,547

Outsourcing expense 16,978 -

Share-based payment expense 2,077 917

Other employee benefits expense 14,844 4,878

Total employee benefits expense 120,772 25,919

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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NOTE 7. EARNINGS PER SHARE

Consolidated 2016 2015

$’000 $’000

Profit after income tax 64,252 19,850

Non-controlling interest (161) -

Profit after income tax attributable to the owners of Vocus Communications Limited 64,091 19,850

Number Number

Weighted average number of ordinary shares used in calculating basic earnings per share 339,875,432 104,009,415

Adjustments for calculation of diluted earnings per share:

Options 194,094 388,179

Performance rights 493,780 -

Weighted average number of ordinary shares used in calculating diluted earnings per share 340,563,306 104,397,594

Cents Cents

Basic earnings per share 18.86 19.08

Diluted earnings per share 18.82 19.01

The weighted average number of ordinary shares for 2015 and 2016 has been restated for the effect of the 1 for 8.9 rights issue completed in July 2016, in accordance with AASB 133 ‘Earnings per share’.

Accounting policy for earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to the owners of Vocus Communications Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year.

Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

NOTE 8. EQUITY - DIVIDENDS

Dividends

Dividends paid/payable during the financial year were as follows:

Consolidated 2016 2015

$’000 $’000

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 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

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NOTE 8. EQUITY - DIVIDENDS (continued)

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.

Franking credits

Consolidated 2016 2015

$’000 $’000

Franking credits available at the reporting date based on a tax rate of 30% 38,927 10,369

Franking credits that will arise from the payment of the amount of the June income tax payment made in July at the reporting date based on a tax rate of 30% 4,405 3,973

Franking credits available for subsequent financial years based on a tax rate of 30% 43,332 14,342

Franking debits that will arise from the payment of dividends declared subsequent to the reporting date based on a tax rate of 30% (21,172) (2,306)

Net franking credits available based on a tax rate of 30% 22,160 12,036

Consolidated 2016 2015

$’000 $’000

Franking credits available for subsequent financial years based on a tax rate of 30% 22,160 12,036

The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:

➜ franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date

➜ franking debits that will arise from the payment of dividends recognised as a liability at the reporting date

➜ franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date

Accounting policy for dividends

Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.

Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Company, on or before the end of the financial year but not distributed at the reporting date.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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NOTE 9. FINANCIAL INSTRUMENTS

Financial risk management objectives

Vocus’ activities expose it to a variety of financial risks including market risks such as foreign currency, price and interest rate, and credit and liquidity risks.

The Audit Committee has general oversight of those financial risks identified here. In addition, the Risk Committee oversees a formal risk management policy and risks identified are monitored by executive management on a regular basis to minimise the potential adverse effects these risks may have on financial performance.

Overall risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on financial performance where material. Derivative financial instruments such as forward foreign exchange contracts are used to hedge certain risk exposures or cash flow hedges where appropriate.

Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments, with the exception of the total return swap in relation to Vocus’ 16% relevant interest in Macquarie Telecom Group Limited which is held as a strategic investment.

Different methods are used to measure different types of risk to which Vocus is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and ageing analysis for credit risk.

As part of the acquisition of M2 Group Limited, Vocus now has an electricity and gas retailing business for which it needs to manage commodity risk. The Wholesale Energy Risk Management Committee, which is a sub-committee of the Risk Committee provides direct oversight over the risks relating to this business and appropriate hedging strategies are undertaken to mitigate these risks.

Financial assets and liabilities comprise cash and cash equivalents, receivables, payables, bank loans and finance leases.

Market risk

Foreign currency risk

Certain transactions are denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations.

Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting.

The maturity, settlement amounts and the average contractual exchange rates of outstanding forward foreign exchange contracts at the reporting date was as follows:

Sell Australian dollars Average exchange rates

2016 2015 2016 2015

$’000 $’000 $’000 $’000

Buy US dollars

Maturity:

0 - 12 months 20,042 20,566 0.7579 0.7712

12 - 24 months - 16,689 - 0.7604

Buy Philippine Pesos

Maturity:

0 - 12 months 58,423 - 34.1473 -

12 - 24 months 9,167 - 34.9091 -

These figures represent the Australian dollars to be sold under foreign exchange contracts to purchase US dollars and Philippine Pesos.

59

NOTE 9. FINANCIAL INSTRUMENTS (continued)

The carrying amount of foreign currency denominated financial assets and financial liabilities at the reporting date was as follows:

Assets Liabilities

Consolidated 2016 2015 2016 2015 $’000 $’000 $’000 $’000

US dollars 3,275 2,038 4,962 1,699

New Zealand dollars 5,687 6,447 38 -

Philippine Pesos - - 4,959 -

8,962 8,485 9,959 1,699

Vocus is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to, the United States dollar (USD), New Zealand dollar (NZD) and Philippine peso (PHP). Vocus manages its foreign exchange rate risk by hedging its firm commitments and highly probable forecast transactions over varying time horizons. These hedges are undertaken centrally by Group Treasury.

As at 30 June 2016, future movements in USD/AUD currency of 5%(2015: 5%) will have an approximate $80,000 (2015:20,000) increase or decrease to profit or loss and $1,076,000 increase and $974,000 decrease (2015: $1,933,000 increase and $1,749,000 decrease) in equity in the financial year ending 30 June 2016.

As at 30 June 2016, future movements in NZD/AUD currency of 5%(2015: 5%) will have an approximate $30,000 (2015:$272,000) increase or decrease to profit or loss.

As at 30 June 2016, future movements in PHP/AUD currency of 5%(2015: 5%) will have an approximate $236,000 (2015:nil) increase or decrease to profit or loss and $3,486,000 increase and $3,154,000 decrease(2015: nil ) in equity in the financial year ending 30 June 2016.

Commodity risk

Vocus is exposed to commodity price risk associated with the purchase and/ or sale of electricity and to a lesser extent gas. To manage the price risks associated with electricity, Vocus enters into derivative instruments such as options and swaps. To manage gas price risk, Vocus has a supply agreement which has the commercial effect of limiting the price paid from the national pool on a certain amount of gas.

Based on a quarterly forecast of the required electricity supply, Vocus hedges the purchase price using future commodity purchase contracts. The forecast is deemed to be a highly probable transaction.

Details of electricity hedges entered at 30 June 2016 can be found in Note 11.

As at 30 June 2016, future movements in electricity price of 1% will have an approximate $47,000 increase or decrease to profit or loss and $419,000 increase or decrease in equity.

Interest rate risk

Interest rate risk arises from term deposits, cash on deposit, bank loans and long-term borrowings. Term deposits, cash on deposit and borrowings at variable rates creates exposure to interest rate risk. To manage interest rate risk, the group enters into interest rate swaps. The interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates.

Obligations under the IRU loan and finance leases are fixed as part of the defined repayment schedules. This mitigates interest rate risk in respect of these obligations.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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NOTE 9. FINANCIAL INSTRUMENTS (continued)

As at the reporting date, Vocus had the following variable rate borrowings and interest rate swap contracts outstanding:

2016 2015

Consolidated

Weighted average interest

rate Balance

Weighted average interest

rate Balance

% $’000 $’000 $’000

Bank overdraft and bank loans 3.88% 828,555 5.79% 106,235

Interest rate swaps (notional principal amount) 2.70% (379,222) - -

Net exposure to cash flow interest rate risk 449,333 106,235

As at 30 June 2016, future movements in interest rate of 50 basis points (2015: 50 basis points) will have an approximate $2,232,000 (2015:$531,000) increase or decrease to profit or loss and $1,896,000 (2015: nil) increase or decrease in equity in the financial year ending 30 June 2016.

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss.

Vocus does not hold any credit derivatives to offset its credit exposure.

It is Vocus’ policy that customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit worthiness, financial position, past experience and industry reputation. Where appropriate, guarantees and security deposits are used as collateral to mitigate perceived risk. The maximum exposure to credit risk at the reporting date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements.

In addition, receivable balances are monitored on an ongoing basis with the result that Vocus’ exposure to bad debts is not significant. There are no significant concentrations of credit risk within Vocus.

Liquidity risk

Vigilant liquidity risk management requires the maintenance of sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable.

Liquidity risk is managed by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities.

Financing arrangements

Unused borrowing facilities at the reporting date:

Consolidated 2016 2015

$’000 $’000

Bank loans 358,462 -

Bank guarantee / letter of credit facility 20,707 -

Multi-option facility - 21,668

379,169 21,668

The bank guarantee / letter of credit facility was used to issue bank guarantees for property leases and other performance contracts and replaces the multi-option facility present in the prior year (refer note 33 for details of the total facility).

61

NOTE 9. FINANCIAL INSTRUMENTS (continued)

Remaining contractual maturities

The following tables detail Vocus’ remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position.

Consolidated - 2016 1 year or less

Between 1 and 2

years

Between 2 and 5

years Over

5 years

Remaining contractual

maturities $’000 $’000 $’000 $’000 $’000

Non-derivatives

Non-interest bearing

Trade payables and accruals 218,064 - - - 218,064

Other payables 62,518 - - - 62,518

Deposits held 326 - - - 326

Interest-bearing - variable

Bank loans - - 828,555 - 828,555

Interest-bearing - fixed rate

Lease liability 9,032 7,584 9,139 13,117 38,872

IRU liability 7,542 7,842 20,513 - 35,897

Total non-derivatives 297,482 15,426 858,207 13,117 1,184,232

Derivatives

Interest rate swaps net settled 2,207 2,591 2,767 - 7,565

Forward foreign exchange contracts net settled 1,326 32 - - 1,358

Total return swap net settled 439 - - - 439

Total derivatives 3,972 2,623 2,767 - 9,362

Consolidated - 2015 1 year or less

Between 1 and 2

years

Between 2 and 5

years Over 5 years

Remaining contractual

maturities $’000 $’000 $’000 $’000 $’000

Non-derivatives

Non-interest bearing

Trade payables and accruals 20,898 - - - 20,898

Other payables 3,279 - - - 3,279

Deposits held 120 - - - 120

Interest-bearing - variable

Bank loans 5,843 5,843 112,078 - 123,764

Interest-bearing - fixed rate

Lease liability 2,666 2,525 3,913 12,559 21,663

Total non-derivatives 32,806 8,368 115,991 12,559 169,724

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

62 | VOCUS.COM.AU

NOTE 10. FAIR VALUE MEASUREMENT

Fair value hierarchy

The following tables detail assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3: Unobservable inputs for the asset or liability

Consolidated - 2016 Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000

Assets

Available-for sale financial assets 1,998 - - 1,998

Forward foreign exchange contracts - 495 - 495

Electricity derivatives - 9,483 - 9,483

Total assets 1,998 9,978 - 11,976

Liabilities

Total return swaps - (439) - (439)

Forward foreign exchange contracts - (1,358) - (1,358)

Interest rate swaps - (7,565) - (7,565)

Total liabilities - (9,362) - (9,362)

Consolidated - 2015 Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000

Assets

Forward foreign exchange contracts - 523 - 523

Total return swaps - 504 - 504

Total assets - 1,027 - 1,027

There were no transfers between levels during the financial year.

The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature.

The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities.

Total return swaps

Vocus holds a 16% relevant interest in Macquarie Telecommunications Group Limited by way of a total return swap with the Commonwealth Bank of Australia. Under the total return swap, Vocus is exposed to mark-to-market movements on the value of Macquarie Telecom shares, for which it receives or pays cash to CBA depending on the movement in each period. The swap is currently scheduled to settle on 30 December 2016, but can be extended by mutual consent.

63

NOTE 10. FAIR VALUE MEASUREMENT (continued)

Valuation techniques for fair value measurements

Available for sale financial assets uses observable values such as publically available equity prices at the end of the reporting period in the valuation and is classified as in the hierarchy as level 1.

The fair value of derivative financial instruments that are not traded on an active market is determined by using valuation methodologies and assumptions that are based on market conditions existing at the valuation date. These include:

➜ The use of forward electricity price curve derived from various inputs such as electricity futures market is used in calculating electricity derivatives.

➜ The interest rate yield curve and applying the net present value to future cash flows are techniques used in valuing interest rate swaps.

➜ The fair value of forward exchange contracts are determined by using forward exchange market rates in valuing forward exchange contracts.

➜ The fair value of total return swap contracts are derived from the market value of the underlying security, being the shares of Macquarie Telecommunications Group Limited, adjusted for receipts/payments made under the swap to balance date.

Accounting policy for fair value measurement

When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market.

Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement.

For recurring and non-recurring fair value measurements, external valuer’s may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuer’s are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data.

NOTE 11. CURRENT ASSETS - DERIVATIVE FINANCIAL INSTRUMENTS

Consolidated 2016 2015

$’000 $’000

Forward foreign exchange contracts - cash flow hedges 495 523

Electricity derivatives – cash flow hedges 9,483 -

Total return swaps - 504

9,978 1,027

Refer to note 10 for further information on fair value measurement.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

64 | VOCUS.COM.AU

NOTE 11. CURRENT ASSETS - DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Forward foreign exchange contracts

Vocus have designated into forward exchange hedge relationships to buy and sell specified amounts of foreign currency denominated in USD and Philippine Peso in the future at stipulated exchange rates. The objective of entering the forward exchange contracts is to protect Vocus against unfavourable exchange rate movements for high probable forecasted purchase of inventory and payments for services.

The forward exchange contracts mature within the next financial year and have been designated based on forecasted foreign currency denominated purchases. Gains or losses recognised in the cash flow hedge reserve in equity on forward foreign exchange contracts as of 30 June 2016 will be released to the income statement when the underlying anticipated transactions affect the income statement or included in the carrying value of asset or liabilities acquired.

Interest rate swaps

Vocus currently holds interest swap agreements to protect the syndicated loan facility from exposure to increasing interest rates. A hedge relationship was designated on this date. Under these interest rate swap agreements, the Group pays a fixed rate of interest between 2.16% and 2.80% per annum, and receives interest at a variable rate.

The contracts require settlement of net interest receivable or payable each 90 days. The next settlement is on 21 September 2016.

The gain or loss from remeasuring the hedging instruments at fair value is recognised in other comprehensive income and deferred in equity in the cash flow hedge reserve, to the extent that the hedge is effective. It is reclassified into profit or loss when the hedged interest expense is recognised.

Electricity derivatives

Vocus manages this exposure of floating purchase price of electricity through purchase of electricity futures contracts from the Australian Energy Market Operator (AEMO). The hedged anticipated electricity purchase and sale transactions are expected to occur for each half hour period throughout the next quarter from the reporting date consistent with the forecast demand from customers over this period. Gains or losses recognised in the cash flow hedge reserve in equity on the forward foreign exchange contracts as of 30 June 2016 will be released to the income statement when the underlying anticipated purchase or sale transactions are recognised in the income statement.

Accounting policy for derivative financial instruments

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

Derivatives are classified as current or non-current depending on the expected period of realisation.

Cash flow hedges

Cash flow hedges are used to cover exposure to variability in cash flows that is attributable to particular risks associated with a recognised asset or liability or a firm commitment which could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, whilst the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred out of equity and included in the measurement of the hedged transaction when the forecast transaction occurs.

Cash flow hedges are tested for effectiveness on a regular basis both retrospectively and prospectively to ensure that each hedge is highly effective and continues to be designated as a cash flow hedge. If the forecast transaction is no longer expected to occur, the amounts recognised in equity are transferred to profit or loss.

If the hedging instrument is sold, terminated, expires, exercised without replacement or rollover, or if the hedge becomes ineffective and is no longer a designated hedge, the amounts previously recognised in equity remain in equity until the forecast transaction occurs.

65

NOTE 12. CURRENT LIABILITIES - DERIVATIVE FINANCIAL INSTRUMENTS

Consolidated 2016 2015

$’000 $’000

Forward foreign exchange contracts - cash flow hedges 1,326 -

Interest rate swap contracts - cash flow hedges 2,207 -

Total return swaps 439 -

3,972 -

Refer to note 9 for further information on financial instruments.

Refer to note 10 for further information on fair value measurement.

Total return swaps

The current liability in respect of total return swaps comprise marked-to-market gains in relation to the 16% relevant interest in Macquarie Telecom Group Limited. The Macquarie Telecom swap is currently scheduled to settle on 30 December 2016, but can be extended by mutual consent.

NOTE 13. NON-CURRENT LIABILITIES - DERIVATIVE FINANCIAL INSTRUMENTS

Consolidated 2016 2015

$’000 $’000

Forward foreign exchange contracts - cash flow hedges 32 -

Interest rate swap contracts - cash flow hedges 5,358 -

5,390 -

Refer to note 9 for further information on financial instruments.

Refer to note 10 for further information on fair value measurement.

NOTE 14. CONTINGENT LIABILITIES

Consolidated 2016 2015

$’000 $’000

Guarantees 29,293 3,059

The bank guarantee / letter of credit facility was used to issue bank guarantees for property leases and other performance contracts and replaces the multi-option facility present in the prior year.

NOTE 15. COMMITMENTS

Consolidated 2016 2015

$’000 $’000

Lease commitments - operating

The operating leases relate primarily to offices and data centre locations.

Committed at the reporting date but not recognised as liabilities, payable:

Within one year 31,581 5,784

One to five years 87,403 20,153

More than five years 59,401 42,777

178,385 68,714

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

66 | VOCUS.COM.AU

NOTE 15. COMMITMENTS (continued)

Consolidated 2016 2015

$’000 $’000

Lease commitments - finance

Committed at the reporting date and recognised as liabilities, payable:

Within one year 9,031 2,666

One to five years 16,724 6,438

More than five years 13,117 12,559

Total commitment 38,872 21,663

Less: Future finance charges (9,754) (8,175)

Net commitment recognised as liabilities 29,118 13,488

Representing:

Lease liability - current (note 32) 7,737 1,764

Lease liability - non-current (note 33) 21,381 11,724

29,118 13,488

Backhaul IRU commitments - finance

Backhaul IRU commitments represent an indefeasible right to use (IRU) purchased to access NBN Points of Interconnect. The liability is accounted for as a finance lease and is payable in annual instalments over a six year period, whilst the asset is recorded as an intangible and amortised over its effective life.

Committed at the reporting date and recognised as liabilities, payable:

Within one year 7,541 -

One to five years 28,355 -

Total commitment 35,896 -

Less: Future finance charges (4,641) -

Net commitment recognised as liabilities 31,255 -

Representing:

Backhaul IRU liability - current (note 32) 5,992 -

Backhaul IRU liability - non-current (note 33) 25,263 -

31,255 -

Network equipment (related to finance lease commitments)

Finance lease commitments includes contracted amounts for various network plant and equipment at the following values under finance leases expiring within one to five years. Under the terms of the leases, there is an option to acquire the leased assets for predetermined residual values on the expiry of the leases.

Network equipment - at cost 37,651 13,766

Less: Accumulated depreciation (13,175) (4,364)

Written down value 24,476 9,402

Fibre network (related to finance lease commitments)

Finance lease commitments includes contracted amounts for various network plant and equipment at the following values under finance leases expiring within one to five years. Under the terms of the leases, there is an option to acquire the leased assets for predetermined residual values on the expiry of the leases.

Fibre network - at cost 7,285 6,810

Less: Accumulated depreciation (1,601) (1,353)

Written down value 5,684 5,457

67

NOTE 15. COMMITMENTS (continued)

Consolidated 2016 2015

$’000 $’000

Purchase commitments - IRU capacity

The purchase commitments relate to the purchase programme for additional undersea cable capacity, announced on 19 February 2015. Capacity is allocated and paid in annual instalments over a six year period.

Committed at the reporting date but not recognised as assets or liabilities, payable:

Within one year 16,679 20,582

One to five years 39,388 49,287

More than five years - 6,839

56,067 76,708

NOTE 16. CURRENT ASSETS - TRADE AND OTHER RECEIVABLES

Consolidated 2016 2015

$’000 $’000

Trade receivables 100,532 21,154

Less: Provision for impairment of receivables (4,234) (573)

96,298 20,581

Other receivables 5,302 1,861

Accrued revenue 42,779 240

144,379 22,682

Impairment of receivables

An expense of $7,474,000 (2015: $322,000) has been recognised in profit or loss in respect of impairment of receivables for the year ended 30 June 2016. The increase is a reflection of the nature of the acquired M2 Consumer business.

The ageing of the impaired receivables provided for above are as follows:

Consolidated 2016 2015

$’000 $’000

1 to 3 months overdue 186 212

Greater than 3 months overdue 4,048 361

4,234 573

Movements in the provision for impairment of receivables are as follows:

Consolidated 2016 2015

$’000 $’000

Opening balance 573 652

Additional provisions recognised 7,474 359

Receivables written off during the year as uncollectable (3,813) (438)

Closing balance 4,234 573

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

68 | VOCUS.COM.AU

NOTE 16. CURRENT ASSETS - TRADE AND OTHER RECEIVABLES (continued)

Past due but not impaired

Customers with balances past due but without provision for impairment of receivables amount to $24,019,000 as at 30 June 2016 ($1,350,000 as at 30 June 2015).

These balances were not considered a credit risk on the aggregate balances after reviewing credit terms of customers based on recent collection practices.

The ageing of the past due but not impaired receivables are as follows:

Consolidated 2016 2015

$’000 $’000

1 to 3 months overdue 20,308 640

Greater than 3 months overdue 3,711 710

24,019 1,350

Accounting policy for trade and other receivables

Trade receivables are initially recognised at fair value and subsequently measured at amortised cost, less any provision for impairment. Trade receivables are generally due for settlement within 14 to 60 days.

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that Vocus will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable may be impaired. In determining this, management makes judgment as to whether there is observable data indicating that there has been a significant change in the payment ability of the debtor, or whether there have been significant changes with adverse effect in the technological, market, economic or legal environment in which the debtor operates in.

The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between the estimated loss and actual loss experience.

Other receivables are recognised at amortised cost, less any provision for impairment.

NOTE 17. CURRENT ASSETS - INVENTORIES

Consolidated 2016 2015

$’000 $’000

Stock on hand - at net realisable value 12,924 -

Accounting policy for inventories

Stock on hand is stated at the lower of cost and net realisable value. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

69

NOTE 18. CURRENT LIABILITIES - TRADE AND OTHER PAYABLES

Consolidated 2016 2015

$’000 $’000

Trade payables 116,907 15,207

Revenue received in advance 39,738 -

Accruals 101,157 5,691

Goods and services tax payable 8,384 1,021

Other payables 22,780 2,258

288,966 24,177

Refer to note 9 for further information on financial instruments.

Increase in trade and other payables in the current year predominantly due to acquisition of Amcom and merger with M2.

Accounting policy for trade and other payables

These amounts represent liabilities for goods and services provided prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.

NOTE 19. NON-CURRENT ASSETS - OTHER

Consolidated 2016 2015

$’000 $’000

Accrued revenue 732 822

Prepayments 2,763 162

Subscriber acquisition costs 14,475 834

Other deposits 547 432

18,517 2,250

Accounting policy for subscriber acquisition costs

Costs directly attributable to obtaining subscribers are capitalised pursuant to Interpretation 1042 Subscriber Acquisition Costs. Costs are capitalised when directly attributable to acquiring a new customer on a fixed term contract. The costs include the provision of equipment, commissions paid to internal and external sales personnel and non-refundable installation costs. Costs are amortised over the average term of the customer contract, generally being between 12 and 36 months.

NOTE 20. CURRENT LIABILITIES - OTHER

Consolidated 2016 2015

$’000 $’000

Lease incentive and rent straight lining 569 30

Deposits held 326 120

Deferred revenue 62,202 1,035

Other current liabilities 3,744 92

66,841 1,277

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

70 | VOCUS.COM.AU

NOTE 21. NON-CURRENT LIABILITIES - OTHER

Consolidated 2016 2015

$’000 $’000

Lease incentive and rent straight lining 5,789 782

Deferred revenue 6,935 3,746

Other non-current liabilities 1,044 -

13,768 4,528

NOTE 22. CURRENT LIABILITIES - PROVISIONS

Consolidated 2016 2015

$’000 $’000

Employee benefits 16,665 973

Deferred consideration 2,000 3,300

Special dividends - 5,381

Onerous contracts 5,495 -

Make good 860 -

Other - 473

25,020 10,127

Deferred consideration

Deferred consideration represents the obligation to pay consideration at a later time following the acquisition of a business or assets.

Special dividends

Dividends represents dividends declared, being appropriately authorised and no longer at the discretion of the Company, on or before the end of the financial year but not distributed at the reporting date.

Onerous contracts

A provision has been made for onerous contracts in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The provision is calculated based on the lower of the cost of fulfilling the contract and any compensation or penalties arising from failure to fulfil the contract.

Make good

Make good represents the present value of the estimated costs to make good the premises leased by Vocus at the end of the respective lease terms.

Other

Other represents the present value of the estimated costs that will be incurred until the end of specified redundant lease terms.

71

NOTE 22. CURRENT LIABILITIES - PROVISIONS (continued)

Movements in provisions

Movement in provisions, excluding employee benefits, during the current financial year is set out below:

Consolidated - 2016

Deferred consider-

ation Special

dividends Onerous Make good Other

$’000 $’000 $’000 $’000 $’000

Carrying amount at the start of the year 3,300 5,381 - - 473

Additions through business combinations (note 40) 2,000 - 5,495 839 -

Amounts transferred from non-current - - - 21 -

Amounts paid (2,838) (5,381) - - (473)

Unused amounts reversed to other gains (462) - - - -

Carrying amount at the end of the year 2,000 - 5,495 860 -

Accounting policy for provisions

Provisions are recognised when there is a present (legal or constructive) obligation as a result of a past event, it is probable Vocus will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost.

Accounting policy for employee benefits

Short-term employee benefits

Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for sick leave are recognised when the leave is taken and are measured at the rates paid or payable.

Commissions incurred in securing long term customer contracts are amortised over the weighted-average duration of closed contracts during each period.

NOTE 23. NON-CURRENT LIABILITIES - PROVISIONS

Consolidated 2016 2015

$’000 $’000

Employee benefits 2,039 468

Onerous contracts 2,435 -

Warranties - 208

Make good 6,836 1,765

11,310 2,441

Onerous contracts

Refer to Note 22.

Make good

Refer to Note 22.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

72 | VOCUS.COM.AU

NOTE 23. NON-CURRENT LIABILITIES - PROVISIONS (continued)

Movements in provisions

Movement in provisions, excluding employee benefits, during the current financial year is set out below:

Consolidated - 2016 Onerous contracts Warranties

Make good

$’000 $’000 $’000

Carrying amount at the start of the year - 208 1,765

Additions through business combinations (note 40) 2,435 - 5,046

Payments - (208) -

Adjustment for FX - - 25

Carrying amount at the end of the year 2,435 - 6,836

Accounting policy for other long-term employee benefits

The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bond rates with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

NOTE 24. INTERESTS IN JOINT VENTURES

Interests in joint ventures are accounted for using the equity method of accounting. Information relating to joint ventures that are material to Vocus are set out below:

Ownership interest

Name Principal place of business / Country of incorporation 2016 2015

% % Connect 8 Limited New Zealand 50.00% 50.00%

Accounting policy for joint ventures

A joint venture is a form of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Investments in joint ventures are accounted for using the equity method. Under the equity method, the share of the profits or losses of the joint venture is recognised in profit or loss and the share of the movements in equity is recognised in other comprehensive income. Investments in joint ventures are carried in the statement of financial position at cost plus post-acquisition changes in Vocus’ share of net assets of the joint venture. Goodwill relating to the joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. Income earned from joint venture entities reduce the carrying amount of the investment.

73

NOTE 24. INTERESTS IN JOINT VENTURES (continued)

Summarised financial information

Connect 8 Limited 2016 2015

$’000 $’000

Summarised statement of financial position

Cash and cash equivalents 822 2,084

Other current assets 3,361 1,255

Non-current assets 7,527 5,802

Total assets 11,710 9,141

Trade and other payables 1,832 2,114

Non-current liabilities 191 179

Total liabilities 2,023 2,293

Net assets 9,687 6,848

Summarised statement of profit or loss and other comprehensive income

Revenue 16,796 8,948

Expenses (14,225) (7,481)

Profit before income tax 2,571 1,467

Income tax expense (721) (417)

Profit after income tax 1,850 1,050

Other comprehensive income - -

Total comprehensive income 1,850 1,050

Reconciliation of Vocus’ carrying amount

Opening balance 3,728 -

Share of profit after income tax from discontinued operations 925 525

Capital invested in the year - 3,203

Foreign exchange movements 281 -

Closing carrying amount 4,934 3,728

NOTE 25. NON-CURRENT ASSETS - PLANT AND EQUIPMENT

Consolidated 2016 2015

$’000 $’000

Fibre assets - at cost 354,124 132,935

Less: Accumulated depreciation (19,464) (5,759)

334,660 127,176

Data centre assets - at cost 62,477 50,530

Less: Accumulated depreciation (13,754) (8,250)

48,723 42,280

Network equipment - at cost 69,702 36,790

Less: Accumulated depreciation (8,113) (5,507)

61,589 31,283

Other plant and equipment - at cost 104,268 6,101

Less: Accumulated depreciation (26,827) (2,221)

77,441 3,880

522,413 204,619

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

74 | VOCUS.COM.AU

NOTE 25. NON-CURRENT ASSETS - PLANT AND EQUIPMENT (continued)

Reconciliations

Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:

Consolidated Fibre

assets

Data centre assets

Network equipment

Other plant and

equipment Total $’000 $’000 $’000 $’000 $’000

Balance at 1 July 2014 34,393 19,863 6,515 2,613 63,384

Reclassifications 18,954 4,318 8,574 2,391 34,237

Additions through business combinations (note 40) 78,028 22,590 20,324 1,793 122,735

Disposals (96) (623) (49) (983) (1,751)

Exchange differences (1,232) 43 (334) (125) (1,648)

Transfers in/(out) 59 (696) 153 484 -

Depreciation expense (2,930) (3,215) (3,900) (2,293) (12,338)

Balance at 30 June 2015 127,176 42,280 31,283 3,880 204,619

Additions 41,654 3,862 11,810 19,990 77,316

Additions through business combinations (note 40) 162,958 7,791 31,800 64,570 267,119

Reclassifications (493) (7) 3,294 (483) 2,311

Disposals (39) - - (638) (677)

Exchange differences 5,724 301 1,542 1,021 8,588

Transfers in/(out) 11,108 - (8,635) (2,473) -

Depreciation expense (13,428) (5,504) (9,505) (8,426) (36,863)

Balance at 30 June 2016 334,660 48,723 61,589 77,441 522,413

No impairment indicators are present relating to the carrying value of plant and equipment and network equipment.

Accounting policy for property, plant and equipment

Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment over their expected useful lives as follows:

Fibre 10-50 years Data centre 5-15 years Network equipment 5-8 years Plant and equipment 3-15 years

The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.

Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter.

An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss.

75

NOTE 26. NON-CURRENT ASSETS - INTANGIBLES

Consolidated 2016 2015

$’000 $’000

Goodwill - at cost 2,960,303 43,242

Brands - at cost 190,500 -

IRU capacity - at cost 153,392 79,037

Less: Accumulated amortisation (26,716) (20,714)

126,676 58,323

Customer intangibles - at cost 376,531 20,846

Less: Accumulated amortisation (26,365) (1,969)

350,166 18,877

Software - at cost 139,793 5,151

Less: Accumulated amortisation (12,499) (1,387)

127,294 3,764

Other intangibles - at cost 2,494 1,440

Less: Accumulated amortisation (365) (252)

2,129 1,188

3,757,068 125,394

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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NOTE 26. NON-CURRENT ASSETS - INTANGIBLES (continued)

Reconciliations

Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:

Consolidated Goodwill IRU

capacity Customer

intangibles Software

Brand & other

intangibles Total $’000 $’000 $’000 $’000 $’000 $’000

Balance at 1 July 2014 17,014 62,478 1,313 2,696 1,358 84,859

Additions - 212 - 1,951 77 2,240

Additions through business combinations (note 40) 31,603 - 18,113 - - 49,716

Disposals (5,452) - - (96) (151) (5,699)

Exchange differences 77 - 52 2 3 134

Transfers in/(out) - - (8) (1) 499 490

Amortisation expense - (4,367) (593) (788) (598) (6,346)

Balance at 30 June 2015 43,242 58,323 18,877 3,764 1,188 125,394

Additions - 19,372 - 9,478 2,319 31,169

Additions through business combinations (note 40) 2,916,946 55,175 355,643 124,696 192,327 3,644,787

Disposals* (3,108) - - - (785) (3,893)

Exchange differences 3,223 (192) 42 468 2 3,543

Reclassifications - - - - (2,309) (2,309)

Amortisation expense - (6,002) (24,396) (11,112) (113) (41,623)

Balance at 30 June 2016 2,960,303 126,676 350,166 127,294 192,629 3,757,068

* Disposal of goodwill

Disposal of goodwill in the current year amounting to $1,159,000 arose on the sale of L7 Solutions Pty Ltd, which was acquired as part of the Amcom group on July 8 2015, to Cirrus Network Holdings on 15 December 2015. L7 represented the IT integration arm of the former Amcom business.

Disposal of goodwill in the current year amounting to $1,949,000 arose as a result of the sale by the Aggregato business (of which Vocus has a 61.2% interest) of its US assets. This business was acquired as part of the merger with M2 Group Ltd on 22 February 2016.

77

NOTE 26. NON-CURRENT ASSETS - INTANGIBLES (continued)

Consolidated 2016 2015

$’000 $’000

Allocation of Goodwill

Goodwill has been allocated for impairment testing purposes to the following cash-generating units:

➜ Australia

➜ New Zealand

In the previous period, Vocus operated as a single CGU. Goodwill for 2015 has been restated for the change in cash-generating units in 2016.

The carrying amount of goodwill was allocated to cash-generating units as follows:

➜ Australia 2,309,484 14,826

➜ New Zealand 650,819 28,416

2,960,303 43,242

Impairment testing

In accordance with Vocus’ accounting policy, impairment testing has been undertaken at 30 June 2016 for all groups of cash generating units (‘CGUs’) with indefinite life intangible assets or where there is an indication of impairment. The testing has been conducted using a fair value less costs of disposal model which is higher than the value in use.

The recoverable amount of the Australia and New Zealand CGUs have been determined based on a fair value less costs of disposal calculation based on future cash flows. The recoverable amount was verified against external indicators such as EBITDA multiples of comparable market transactions. This is further supported by the fact that the market capitalisation of the Group as at year end exceeds net assets by $1,317,644,000.

The key assumptions used in the calculation are:

➜ Forecasts for capital expenditure based on past experience required to maintain current fixed asset levels as well as expand the network to support future growth

➜ Post tax discount rates for Australia and New Zealand of 8.9% and 9.0%, respectively

➜ Five year cash flow forecasts as approved by Senior Management including expected synergistic benefits from recent mergers

➜ Long term growth rate of 3%

➜ 5% cost to sell

The Directors believe that any reasonably possible change in the key assumptions by which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the group of CGUs.

Accounting policy for intangible assets

Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the de-recognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

78 | VOCUS.COM.AU

NOTE 26. NON-CURRENT ASSETS - INTANGIBLES (continued)

Goodwill

Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed.

Brands

Brands have indefinite useful lives. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at cash-generating unit level consistent with the methodology outlined for goodwill above. Such intangibles are not amortised. Assets with indefinite useful lives are reviewed each reporting period to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis.

Intellectual property

Significant costs associated with intellectual property are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life of 10 years.

Indefeasible Right to Use (‘IRU’)

Indefeasible right to use capacity are brought to account as intangible assets at cost, being the present value of the future cash flows payable for the right. Costs associated with IRU’s are deferred and amortised on a straight-line basis over the period of their expected benefit.

Software

Costs associated with software, including those associated with capitalised development costs, are amortised on a straight- line basis over the period of their expected benefit, being its finite life of between 3 to 8 years.

An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. All other research costs are expensed as incurred.

Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised over the period of expected benefit from the related project.

The carrying value of an intangible asset arising from development expenditure is tested for impairment annually when the asset is not yet available for use or more frequently when an indication of impairment arises during the reporting period.

Customer intangibles

Customer intangibles acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their expected finite life of between 4 to 15 years.

Other intangibles

Other intangibles are amortised on a straight-line basis over the period of their expected benefit, except in the case of brands, which are not subsequently amortised.

79

NOTE 27. INCOME TAX EXPENSE

Consolidated 2016 2015

$’000 $’000

Income tax expense

Current tax 23,392 7,766

Deferred tax - origination and reversal of temporary differences 3,994 680

Adjustment recognised for prior periods 528 (11)

Aggregate income tax expense 27,914 8,435

Deferred tax included in income tax expense comprises:

Increase in deferred tax assets (note 28) (5,782) (403)

Increase in deferred tax liabilities (note 29) 9,776 1,083

Deferred tax - origination and reversal of temporary differences 3,994 680

Numerical reconciliation of income tax expense and tax at the statutory rate

Profit before income tax expense 92,166 28,285

Tax at the statutory tax rate of 30% 27,650 8,486

Tax effect amounts which are not deductible/(taxable) in calculating taxable income:

Amortisation of intangibles - 179

Entertainment expenses 156 48

Share-based payments 623 275

Non-assessable income (previously treated as assessable) 124 -

Donations and other adjustments (86) 3

Transaction costs 803 600

Tax allowances and incentives (1,985) (556)

Non-taxable other gains (97) (1,548)

Sundry items 326 106

27,514 7,593

Adjustment recognised for prior periods 528 (11)

Difference in overseas tax rates (128) 78

Movement in timing differences - 775

Income tax expense 27,914 8,435

Consolidated 2016 2015

$’000 $’000

Amounts charged/(credited) directly to equity

Deferred tax assets (note 28) 69 (132)

Deferred tax liabilities (note 29) 8 (95)

77 (227)

Accounting policy for tax

Income tax for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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NOTE 27. INCOME TAX EXPENSE (continued)

Deferred tax

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, except for (i) when the deferred tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or (ii) when the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset.

Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously.

Tax consolidation legislation

Vocus Communications Limited and its 100% owned Australian subsidiaries formed a tax Consolidated group with effect from 14 September 2010. Vocus Communications Limited is the head entity of the tax Consolidated group. Members of Vocus have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote.

Tax effect accounting by members of the tax Consolidated group

Measurement method adopted under AASB Interpretation 1052 Tax Consolidated Accounting The head entity and the controlled entities in the tax Consolidated group continue to account for their own current and deferred tax amounts. Vocus has applied the stand-alone taxpayer approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax Consolidated group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes. The nature of the tax funding agreement is discussed further below.

In addition to its current and deferred tax amounts, the head entity also recognises current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax Consolidated group.

Nature of the tax funding agreement

Members of the tax Consolidated group have entered into a tax funding agreement. The tax funding agreement requires payments to/from the head entity to be recognised via an inter-entity receivable/(payable) which is at call. To the extent that there is a difference between the amount charged under the tax funding agreement and the allocation under AASB Interpretation 1052, the head entity accounts for these as equity transactions with the subsidiaries.

81

NOTE 28. NON-CURRENT ASSETS - DEFERRED TAX

Consolidated 2016 2015

$’000 $’000

Deferred tax asset comprises temporary differences attributable to:

Amounts recognised in profit or loss:

Tax losses 37 37

Receivables 13,392 284

Property, plant and equipment 502 973

Accruals and provisions 25,156 1,772

Unrealised foreign exchange loss 424 665

Expenses deductible over five years 11,037 30

Unearned income 1,208 -

Other 5,647 1,682

Deferred tax asset 57,403 5,443

Movements:

Opening balance 5,443 3,114

Credited to profit or loss (note 27) 5,782 403

Credited/(charged) to equity (note 27) (69) 132

Additions through business combinations (note 40) 46,247 1,794

Closing balance 57,403 5,443

NOTE 29. NON-CURRENT LIABILITIES - DEFERRED TAX

Consolidated 2016 2015

$’000 $’000

Deferred tax liability comprises temporary differences attributable to:

Amounts recognised in profit or loss:

Property, plant and equipment 27,589 12,913

Intangibles 171,084 5,669

Customer acquisition costs 10,109 -

Unrealised foreign exchange gain 158 157

Total return swaps 6,660 925

Other 720 1,635

Deferred tax liability 216,320 21,299

Movements:

Opening balance 21,299 3,092

Charged to profit or loss (note 27) 9,776 1,083

Charged/(credited) to equity (note 27) 8 (95)

Additions through business combinations (note 40) 185,237 17,219

Closing balance 216,320 21,299

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

82 | VOCUS.COM.AU

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 2015

$’000 $’000

Profit after income tax expense for the year 64,252 19,850

Adjustments for:

Depreciation and amortisation 78,486 18,684

Net loss on disposal of non-current assets - 1,199

Share of profit - joint ventures (925) (525)

Share-based payments 2,077 917

Foreign exchange differences (25) -

Finance costs disclosed under financing activities 22,977 6,410

Non cash gain on early repayment of borrowings - (5,477)

Gain on total return swaps (19,520) (3,085)

Acquisition and integration costs 40,660 10,400

Non-cash other gains and losses - (155)

Change in operating assets and liabilities:

Increase in trade and other receivables (9,569) (9,113)

Decrease in inventories 6,713 -

Increase in deferred tax assets (5,713) (535)

Increase in accrued revenue (142) (239)

Increase in derivative assets (2,328) (189)

Increase in prepayments (7,760) (342)

Decrease/(increase) in other operating assets (32,783) 3,224

Decrease in trade and other payables (2,645) (2,643)

Increase/(decrease) in derivative liabilities 9,362 (473)

Increase/(decrease) in provision for income tax (7,178) 1,449

Increase in deferred tax liabilities 9,742 988

Increase/(decrease) in employee benefits 17,263 (659)

Increase/(decrease) in other provisions (27,374) 4,741

Increase/(decrease) in other operating liabilities 56 (1,817)

Net cash from operating activities 135,626 42,610

83

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: $9,916,000

➜ Acquisition of Amcom Telecommunications Limited: $686,662,000

➜ Merger with M2 Group Limited: $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 $’000

Bank loans 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 $’000

Bank loans 825,738 106,235

Lease liability 29,118 13,488

854,856 119,723

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

84 | VOCUS.COM.AU

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

Total facilities

Bank loans 1,184,200 106,235

Bank guarantee / letter of credit facility 50,000 -

Multi-option facility - 25,000

1,234,200 131,235

Used at the reporting date

Bank loans 825,738 106,235

Bank guarantee / letter of credit facility 29,293 -

Multi-option facility - 3,332

855,031 109,567

Unused at the reporting date

Bank loans 358,462 -

Bank guarantee / letter of credit facility 20,707 -

Multi-option facility - 21,668

379,169 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.

85

NOTE 35. EQUITY - CONTRIBUTED EQUITY

Consolidated 2016 2015 2016 2015

Shares Shares $’000 $’000

Ordinary shares - fully paid 533,356,665 105,511,947 3,124,000 159,093

Less: Treasury shares* (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 92,934,834 102,317

Issue of shares on conversion of options 4 July 2014 2,500 $2.00 5

Issue of shares for loan funded share plan 21 July 2014 1,672,500 $5.05 8,446

Issue of shares on conversion of options 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

Issue of shares for loan funded share plan 23 December 2014 560,599 $5.71 3,201

Issue of shares on conversion of options 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

Less: Share issue costs, net of deferred tax - $0.00 (1)

Balance 30 June 2015 105,511,947 159,093

Issue of shares on conversion of options 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

Issue of shares on conversion of performance rights 8 July 2015 74,978 $5.50 412

Issue of shares for loan funded share plan 20 August 2015 195,000 $5.95 1,160

Issue of shares on conversion of options 1 September 2015 12,500 $2.00 25

Issue of shares for loan funded share plan 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 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

Issue of shares pursuant to the Dividend Reinvestment Plan 11 April 2016 1,203,192 $7.96 9,577

Less: Share issue costs, net of deferred tax - $0.00 (242)

Balance 30 June 2016 533,356,665 3,124,000

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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NOTE 35. EQUITY - CONTRIBUTED EQUITY (continued)

Movements in treasury shares*

Details Date Shares Issue price $’000

Balance 1 July 2014 2,047,978 3,723

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

Transfer of shares to participants (259,435) $0.00 (492)

Cancellation of shares (13,334) $0.00 (29)

Balance 30 June 2015 4,008,308 14,849

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

Shares transferred to beneficiaries ** (569,233) $0.00 (1,503)

Balance 30 June 2016 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.

87

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

Current liabilities - borrowings (note 32) 13,729 1,764

Non-current liabilities - borrowings (note 33) 872,382 117,959

Total borrowings 886,111 119,723

Current assets - cash and cash equivalents (note 30) (128,629) (15,170)

Net debt 757,482 104,553

Total equity 3,174,285 196,239

Total capital 3,931,767 300,792

Gearing ratio 19% 35%

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 2015

$’000 $’000

Investment revaluation reserve (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.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

88 | VOCUS.COM.AU

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

Balance at 1 July 2014 - 977 1,804 (142) 2,639

Foreign currency translation - (217) - - (217)

Recognition of share-based payments - - 917 - 917

Net movement on hedging transactions - - - 508 508

Balance at 30 June 2015 - 760 2,721 366 3,847

Revaluation - net of tax (233) - - - (233)

Foreign currency translation - 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

Transfers to contributed equity - - (1,221) - (1,221)

Balance at 30 June 2016 (233) 3,969 5,581 6,989 16,306

NOTE 37. EQUITY - RETAINED PROFITS

Consolidated 2016 2015

$’000 $’000

Retained profits at the beginning of the financial year 48,148 35,891

Profit after income tax expense for the year 64,091 19,850

Dividends paid and payable (note 8) (55,159) (7,593)

Retained profits at the end of the financial year 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.

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NOTE 38. SHARE-BASED PAYMENTS (continued)

Set out below are summaries of options granted under the plan:

2016

Grant date Expiry date Exercise

price

Balance at the start of

the year Granted Exercised

Expired/ forfeited/

other

Balance at the end of

the year

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

Weighted average exercise price $1.30 $5.20 $1.00 $0.00 $4.41

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

Grant date Expiry date Exercise

price

Balance at the start of

the year Granted Exercised

Expired/ forfeited/

other

Balance at the end 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

Weighted average exercise price $1.68 $0.00 $2.06 $2.60 $1.30

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 Expiry date 2016

Number 2015

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

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

90 | VOCUS.COM.AU

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

Grant date Vesting date Exercise

price

Balance at the start of

the year Granted Exercised

Expired/ forfeited/

other

Balance at the end 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

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.

91

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.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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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 $’000

Total current assets 6,710 4,659

Total assets 3,130,441 210,064

Total current liabilities 643 14,373

Total liabilities 1,269 53,623

Equity

Contributed equity 3,104,820 148,318

Share-based payments reserve 10,170 2,604

Options reserve 103 103

Retained profits 14,079 5,416

Total equity 3,129,172 156,441

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.

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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.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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NOTE 40. BUSINESS COMBINATIONS (continued)

2016

Amcom Telecomm- unications Fair value

M2 Group Fair value

Total Fair value

$’000 $’000 $’000

Cash and cash equivalents 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

Prepayments - 8,642 8,642

Other plant and equipment 178,017 89,103 267,120

Customer intangibles 66,143 289,500 355,643

Software 6,845 117,851 124,696

Brands - 189,500 189,500

IRU Capacity - 55,175 55,175

Other intangible assets 1,035 1,792 2,827

Deferred tax asset 10,766 35,481 46,247

Other financial assets - 1,900 1,900

Trade and payables (14,668) (259,209) (273,877)

Provision for income tax - (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

Acquisition costs expensed to profit or loss 12,686 13,109 25,795

Cash used to acquire business, net of cash acquired:

Acquisition-date fair value of the total consideration transferred 686,662 2,259,628 2,946,290

Less: cash and cash equivalents (5,087) (73,911) (78,998)

Less: Vocus Communications Limited shares, options and performance rights issued to vendor (686,662) (2,259,628) (2,946,290)

Net cash received (5,087) (73,911) (78,998)

95

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 - 20,324 - 20,324

Data centre assets 11,121 - 11,469 22,590

Other plant and equipment - 1,793 - 1,793

Make good 250 226 500 976

Customer intangibles 770 - 17,343 18,113

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)

Deferred tax liability (178) (11,838) (5,203) (17,219)

Employee benefits (3) (1,152) (109) (1,264)

Warranty provision - (208) - (208)

Other financial liabilities - (56,289) - (56,289)

Other provisions (250) (1,468) (500) (2,218)

Net assets acquired 11,710 24,062 23,500 59,272

Goodwill - 32,845 - 32,845

Acquisition-date fair value of the total consideration transferred 11,710 56,907 23,500 92,117

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

96 | VOCUS.COM.AU

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

Representing:

Cash paid or payable to vendor 10,710 12,111 21,200 44,021

Vocus Communications Limited shares issued to vendors - 44,796 - 44,796

Contingent consideration 1,000 - 2,300 3,300

11,710 56,907 23,500 92,117

Acquisition costs expensed to profit or loss 771 4,791 801 6,363

Cash used to acquire business, net of cash acquired:

Acquisition-date fair value of the total consideration transferred 11,710 56,907 23,500 92,117

Less: shares issued by Company as part of consideration - (44,796) - (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.

97

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.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

98 | VOCUS.COM.AU

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% -

99

NOTE 41. INTERESTS IN SUBSIDIARIES (continued)

Ownership interest

2016 2015

Name Principal place of business / Country of incorporation % %

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

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

100 | VOCUS.COM.AU

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.

101

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.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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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.

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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.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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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 2015

Short-term employee benefits 4,696,067 2,369,950

Post-employment benefits 202,864 126,027

Long-term benefits 990,690 77,498

Share-based payments 1,445,473 253,602

7,335,094 2,827,077

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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

Audit services - Deloitte Touche Tohmatsu

Audit or review of the financial statements 550,000 230,280

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

Audit services - network firms of Deloitte Touche Tohmatsu

Audit or review of the financial statements 124,567 91,021

Other services - network firms of Deloitte Touche Tohmatsu

Tax compliance services - 22,412

Other non-audit services 57,873 3,843

57,873 26,255

182,440 117,276

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.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016

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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.

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DIRECTORS’ DECLARATION 30 JUNE 2016

In the Directors’ opinion:

➜ the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;

➜ the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 43 to the financial statements;

➜ the attached financial statements and notes give a true and fair view of Vocus’ financial position as at 30 June 2016 and of its performance for the financial year ended on that date;

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

➜ at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 42 to the financial statements.

The Directors have been given the declarations required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001.

On behalf of the Directors

___________________________

David Spence

Director

23 August 2016

Sydney

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VOCUS COMMUNICATIONS LIMITED

Liability limited by a scheme approved under Professional Standards Legislation.

Member of Deloitte Touche Tohmatsu Limited

95

Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia Tel: +61 2 9322 7000 Fax: +61 9322 7001 www.deloitte.com.au

Independent Auditor’s Report to the members of Vocus Communications

Limited Report on the Financial Report We have audited the accompanying financial report of Vocus Communications Limited, which comprises the statement of financial position as at 30 June 2016, the statement of profit or loss and other comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 36 to 99. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the consolidated financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the entity’s preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VOCUS COMMUNICATIONS LIMITED

96

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Vocus Communications Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of Vocus Communications Limited is in accordance with the

Corporations Act 2001, including:

(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards and the Corporations Regulations

2001; and (b) the consolidated financial statements also comply with International Financial Reporting

Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 17 to 31 under the heading ‘Remuneration Report’ in the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion the Remuneration Report of Vocus Communications Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU Don Pasquariello Partner Chartered Accountants Sydney, 23 August 2016

Alfie Nehama Partner Chartered Accountants Sydney, 23 August 2016

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SHAREHOLDER INFORMATION 30 JUNE 2016

The shareholder information set out below was applicable as at 12 August 2016.

Distribution of equitable securities

Analysis of number of equitable security holders by size of holding:

Number of holders

of ordinary shares Units

1 to 1,000 10,415 4,617,624

1,001 to 5,000 13,329 33,030,459

5,001 to 10,000 3,884 27,275,230

10,001 to 100,000 3,009 67,032,281

100,001 and over 234 485,569,075

30,871 617,524,669

Holding less than a marketable parcel 674 10,038

Equity security holders

Twenty largest quoted equity security holders

The names of the twenty largest security holders of quoted equity securities are listed below:

Number held

Ordinary shares

% of total shares issued

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 115,127,308 18.64

J P MORGAN NOMINEES AUSTRALIA LIMITED 88,297,191 14.30

NATIONAL NOMINEES LIMITED 50,080,193 8.11

CITICORP NOMINEES PTY LIMITED 39,172,155 6.34

BNP PARIBAS NOMS PTY LTD (DRP) 24,312,714 3.94

CITICORP NOMINEES PTY LIMITED (COLONIAL FIRST STATE INV A/C) 11,586,216 1.88

AMP LIFE LIMITED 10,662,250 1.73

BNP PARIBAS NOMINEES PTY LTD (AGENCY LENDING DRP A/C) 7,075,204 1.15

MR VAUGHAN BOWEN (V G BOWEN FAMILY A/C) 6,315,919 1.02

TEFIG PTY LTD (AJ ABERCROMBIE S/FUND A/C) 6,308,058 1.02

RETRELLA PTY LTD 6,280,000 1.02

VALUE ADDED NETWORK PTY LIMITED 6,072,258 0.98

BELL POTTER NOMINEES LTD (BB NOMINEES A/C) 4,828,753 0.78

VOCUS BLUE PTY LTD (THE VOCUS SHARE PLAN A/C) 4,749,033 0.77

THE ABERCROMBIE GROUP PTY LTD (THE PHILADELPHIA A/C) 4,657,165 0.75

AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED 3,893,259 0.63

THIRTY FOURTH ZULU PTY LTD (HAMILTON SUPERANNUATION NO 3 A) 3,620,199 0.59

RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED (PI POOLED A/C) 3,177,022 0.51

TALSTON PTY LTD (THE TALSTON A/C) 3,000,000 0.49

OAKTONE NOMINEES PTY LTD (THE GRIST INVESTMENT A/C) 2,824,721 0.46

402,039,618 65.11

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SHAREHOLDER INFORMATION CONTINUED 30 JUNE 2016

Unquoted equity securities

At 12 August 2016, 507,773 unlisted performance rights and 189,586 options have been issued to employees and remain unexercised.

Substantial holders

Substantial holders in the Company are set out below:

Number held

Ordinary shares

% of total shares issued

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 115,127,308 18.64

J P MORGAN NOMINEES AUSTRALIA LIMITED 88,297,191 14.30

NATIONAL NOMINEES LIMITED 50,080,193 8.11

CITICORP NOMINEES PTY LIMITED 39,172,155 6.34

Voting rights

The voting rights attached to ordinary shares are set out below:

Ordinary shares

By virtue of the Company’s Constitution, outlined in Clause 34, voting rights for ordinary shares are:

a) on a show of hands, each member has one vote;

b) (subject to section 250L(4)) on a poll, each member has:

i) for each fully paid share held by the member, one vote; and

ii) for each partly-paid share held by the member, a fraction of a vote equivalent to the proportion which the amount paid (not credited nor paid in advance of a call) is of the total amounts paid and payable (excluding amounts credited) for the share.

There are no other classes of equity securities to which voting rights attach.

Securities subject to voluntary escrow

At 30 June 2016, Vocus had 319,734 shares (purchased by team members) held in escrow, per the terms of the M2 Group Ltd Employee Share Plan (Salary Sacrifice) and part consideration issued to shareholders on the acquisition of CallPlus Group.

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CORPORATE DIRECTORY

Directors David Spence - Chairman

Craig Farrow - Deputy Chairman

Vaughan Bowen - Executive Director

James Spenceley - Executive Director

Jon Brett

Tony Grist

Rhoda Phillippo

Michael Simmons

Company secretary Ashe-Lee Jegathesan

Registered office Level 12

60 Miller Street

North Sydney NSW 2060

Telephone: (02) 8999 8999

Share register Computershare Investor Services Pty Limited

Level 4

60 Carrington Street

Sydney NSW 2000

Telephone: 1300 787 272

Auditor Deloitte Touche Tohmatsu

Grosvenor Place

225 George Street

Sydney NSW 2000

Stock exchange listing Vocus Communications Limited shares are listed on the Australian Securities Exchange (ASX code: VOC)

Website www.vocus.com.au

Corporate Governance Statement

Vocus' Corporate Governance Statement and ASX Appendix 4G detailing compliance with the third edition of the ASX Corporate Governance Principles and Recommendations is available on the website www.vocus.com.au/corporate-governance/

1

Roger Lienert & Alex Maclaren, Network Operations.

________

Vocus Communications Limited ACN 084 115 499

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