MACQUARIE TECHNOLOGY GROUP LIMITED — Annual Report 2008

Aug 26, 2008

Macquarie Telecom Group Limited ACN 056 712 228

Annual Report for the year ended 30 June 2008

M a cqu a r i e T el e co m G r oup Li mi t ed

DIRECTORS’ REPORT

Your directors submit their report for the year ended 30 June 2008.

DIRECTORS

The names and details of the directors of Macquarie Telecom Group Limited (“Macquarie” or the “Company”) in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Names, qualifications, experience and special responsibilities

Robert Kaye	Robert is Chairman of Macquarie and was appointed as a director in 2001. He was
(Chairman)	British Telecom’s director of market and business development for the Australasian
Age 70	region, a former managing director of British Telecom’s Australian operations, and a director of Clear Communications Ltd in New Zealand, until retirement in June
	2002. Robert has held CEO positions in the past with several major IT&T
	companies. Robert is chairman of the Corporate Governance, Nomination and
	Remuneration Committee and a member of the Audit and Risk Management
	Committee.
David Tudehope	David is Chief Executive and co-founder of Macquarie and has been a director
(Chief Executive)	since 1992. He is responsible for overseeing the general management and strategic
Age 41	direction of the Company, and is actively involved in the Company’s participation in regulatory issues. David was a former member of the Minister for
	Telecommunication’s Australian Information Economy Advisory Council. He was
	previously a director of the Service Providers’ Industry Association. David holds a
	Bachelor of Commerce degree. He is a member of the Corporate Governance,
	Nomination and Remuneration Committee.
Aidan Tudehope	Aidan is the Managing Director - Hosting and co-founder of Macquarie and has
(Managing Director -	been a director since 1992. Aidan is responsible for the Hosting business, including
Hosting) Age 36	its Gateway service. He has been instrumental in the development of Macquarie’s Singaporean, data networking and Intellicentre strategies. Prior to taking on the leadership of the Hosting business, Aidan was the Chief Operating Officer,
	responsible for the design and delivery of operational excellence within Macquarie.
	Aidan holds a Bachelor of Commerce degree.
Stephen Butler	Stephen joined the Board on 26 July 2004 and is a member of the Audit and Risk
(Non-Executive Director)	Management Committee and the Corporate Governance, Nomination and
Age 41	Remuneration Committee. He has held board positions with PowerTel and WilTel Communications Australia, and advisory board positions with Newbridge
	Networks, Argon Networks and Edge Broadband Ltd. Stephen is currently a
	division director within the Infrastructure Technology Group of Macquarie Group
	Limited (an entity unrelated to Macquarie Telecom). He was formerly chief
	executive officer of PowerTel Limited, a position he held for more than three years
	until 2003. During this time, Stephen led the transformation of PowerTel from a
	construction focused company to a customer service company, driving revenue
	growth and achieving positive operating cash flow. Stephen holds a Bachelor of
	Science (Electrical Engineering) degree.
John Palfreyman	John’s career spans more than 20 years in the IT industry. He was executive
(Non-Executive Director)	chairman of 90East Inc, an Australian supplier of managed security services to
Age 49	federal government agencies, until the company’s successful trade sale in early 2004. Previously John was managing director of Baltimore Technologies (Asia
	Pacific), the region’s dominant supplier of public key infrastructure based e-
	commerce and enterprise security systems. He holds a Bachelor of Commerce
	degree and qualified as a chartered accountant in 1982. John joined the Board on
	26 July 2004 and is chairman of the Audit and Risk Management Committee and a
	member of the Corporate Governance, Nomination and Remuneration Committee.

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DIRECTORS’ REPORT

Directors’ interests in the shares and options of the Company and related bodies corporate

As at the date of this report, the interests of the directors in the shares and options of the Company and related bodies corporate were as follows:

• (a) D Tudehope and A Tudehope collectively wholly own Claiward Pty Ltd, an entity which holds 12,501,390 (61%) of the ordinary shares of Macquarie. The relevant ownership interests in Claiward Pty Ltd are held by Semark Pty Ltd at 84% and Fenton Australia Pty Ltd at 16%. The shares in these latter companies are held by D Tudehope and A Tudehope respectively;

• (b) a director-related entity of D Tudehope and A Tudehope holds 7,183 ordinary shares issued under the Employee Discretionary Share Plan and Share Purchase Plan;

• (c) a director-related entity of D Tudehope holds 300,149 ordinary shares;

• (d) R Kaye holds an interest in 40,000 options over ordinary shares. A director related entity of R Kaye holds 5,000 ordinary shares;

• (e) S Butler holds an interest in 40,000 options over ordinary shares and 7,500 ordinary shares; and

• (f) J Palfreyman holds an interest in 40,000 options over ordinary shares. A director-related entity of J Palfreyman holds 10,000 ordinary shares.

COMPANY SECRETARIES

Michael Simmonds Michael was appointed as company secretary of the Company in March 2006. Prior to this he held a number of positions as finance director in the UK. Michael Age 42 has been a chartered accountant for over 15 years. Albert Koolmees Albert was appointed as company secretary of the Company in November 2001. Prior to this he held the role of general counsel and company secretary of Spike Age 45 Networks Limited for a period of over two years. Albert has been a lawyer for over 15 years.

INDEPENDENT PROFESSIONAL ADVICE

Directors and board committees have the right, in connection with their duties and responsibilities, to seek independent professional advice at the company’s expense. Prior written approval of the Chairman is required, but this will not be unreasonably withheld.

PRINCIPAL ACTIVITIES

Macquarie is the head entity of a consolidated group comprising Macquarie Telecom Pty Limited (“MT”), Macquarie Telecom Services Pty Limited (“MTS”), Macquarie Telecom Carrier Services Pty Limited (“MTCS”), Macquarie Telecom Network Carrier Services Pty Limited (“MTNCS”) and Macquarie Telecom Pte Limited.

The principal activities of the consolidated entity were the provision of telecommunication and hosting services to corporate and government customers within Australia and Singapore.

There have been no significant changes in the nature of activities during the year.

	2008	2007
EARNINGS PER SHARE	cents	cents
Basic loss per share	(5.7)	(17.4)
Diluted loss per share	(5.7)	(17.4)
DIVIDENDS

There were no dividends recommended or paid on ordinary shares during the year (2007: nil).

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DIRECTORS’ REPORT

REVIEW AND RESULTS OF OPERATIONS

The consolidated entity achieved earnings before interest, tax, depreciation and amortisation (EBITDA) of $13.8 million in the year ended 30 June 2008, up from $11.3 million in the corresponding period.

The following tables summarise the revenue and EBITDA performance of Macquarie Telecom’s major lines of business for the past three comparable reporting periods.

REVENUE (A$ million)	Full Year 2008	Full Year 2007	Full Year 2006
Voice	125.1	145.1	149.3
Data & Hosting	81.2	72.1	66.7
Asia	10.3	11.0	11.9
Mobiles	28.3	26.4	21.0
TOTAL	244.9	254.6	249.0

EBITDA (A$ million)	Full Year 2008	Full Year 2007	Full Year 2006
Voice	8.2	10.7	8.1
Data & Hosting	9.4	6.0	0.8
Asia	0.1	0.2	0.3
Mobiles	1.6	0.7	0.5
Corporate Office	(5.5)	(6.3)	(5.2)
TOTAL	13.8	11.3	4.5

In the 12 months to 30 June 2008, Macquarie Telecom delivered revenue improvements across its Data & Hosting and Mobiles businesses. Total service revenue was $244.9 million, a decrease of 3.8% compared to the corresponding period.

Macquarie Telecom’s Data & Hosting business, which provides secure, high-availability hosting solutions for companies with online applications, mission critical to their business, continued to perform strongly.

The Data & Hosting business generated an EBITDA profit of $9.4 million, up 56% on the corresponding period. Data & Hosting now represents 33.2% of Macquarie Telecom’s revenue.

Mobiles revenue rose 7.3% to $28.3 million with continued growth in sophisticated mobile data products. Mobile is an important element of Macquarie Telecom’s strategy of offering bundled solutions to customers across all areas of telecommunications. Mobiles recorded an EBITDA profit of $1.6 million up from $0.7 million in the previous corresponding period.

Macquarie Telecom’s established Voice business generated revenue of $125.1 million, down 13.8% from the corresponding period, and delivered an EBITDA profit of $8.2 million down from $10.7 million in 2007. The Voice services market again came under intense price pressure, reinforcing Macquarie Telecom’s ongoing strategy to reduce reliance on Voice service revenue and focus on higher margin businesses, such as Data & Hosting.

Capital expenditure for the full year was $13.0 million, up from $12.1 million in 2007.

Macquarie Telecom has generated operating cash flows of $18.8 million and held cash and cash equivalents of $22.6 million as at 30 June 2008.

The consolidated entity employed 339 employees at 30 June 2008 (2007: 352 employees).

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DIRECTORS’ REPORT

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

There were no significant changes in the state of affairs during the year ended 30 June 2008.

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

There were no significant events after the balance date.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

The directors believe, on reasonable grounds, that to include in this report detailed information regarding likely developments in the operations of the consolidated entity and the expected results of those operations in years after the current year would be likely to result in unreasonable prejudice to the Company. Accordingly, this information has not been included in this report. Further developments by the time of the Annual General Meeting will be reported in the Chairman’s address to that meeting.

SHARE OPTIONS

Details of options on issue at 30 June 2008 and movements in options on issue during the year are included in Note 18 to the financial statements.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

During the year, the Company paid premiums in respect of a contract insuring all the directors of Macquarie against costs incurred in defending proceedings for conduct involving:

• (a) a wilful breach of duty; or

• (b) a contravention of sections 182 or 183 of the Corporations Act 2001 , as permitted by section 199B of the Corporations Act 2001 .

The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premiums.

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DIRECTORS’ REPORT

REMUNERATION REPORT (AUDITED)

This report outlines the remuneration arrangements in place for directors and executives of Macquarie.

Remuneration Philosophy

The performance of the Company depends upon the quality of its directors and senior managers. To prosper, the Company must attract, motivate and retain highly skilled directors and executives.

To this end, the Company embodies the following principles in its remuneration framework:

• Provide competitive rewards to attract high calibre senior managers;

• Link senior manager rewards to shareholder value;

• Significant portion of senior manager remuneration ‘at risk’, dependant upon meeting predetermined performance benchmarks; and

• Establish appropriate, demanding performing hurdles in relation to variable senior manager remuneration.

Responsibility for evaluating the Board’s performance falls to the Corporate Governance, Nomination and Remuneration Committee. The performance of key executives is evaluated by the Chief Executive and Managing Director - Hosting and, where considered appropriate, the Board as a whole.

Remuneration link to performance

Macquarie’s remuneration philosophy directly aligns a percentage of short term incentives, such as bonuses, and all long-term incentives granted to employees with key business outcomes such as investment returns, company profit growth and total shareholder return.

Remuneration Structure

In accordance with best practice corporate governance, the structure of non-executive director and senior manager remuneration is separate and distinct.

Non-executive director remuneration

Objective

The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain non-executive directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.

Structure

The Company’s constitution and the ASX Listing Rules specify that the aggregate remuneration of nonexecutive directors will be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the non-executive directors as agreed. The latest determination was at the Annual General Meeting held on 26 November 2003 when shareholders approved an aggregate remuneration of $500,000 per year.

The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst non-executive directors is reviewed annually. The Board considers advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process.

Each non-executive director receives a fee for being a director of the Company. No additional fee is paid for each Board committee on which a director sits.

The non-executive directors of the Company may hold shares and options over shares in the Company. The issue of any options to non-executive directors must be approved by shareholders in general meeting.

The remuneration of non-executive directors for the period ending 30 June 2008 is detailed in the table on page 9 of this report.

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DIRECTORS’ REPORT

REMUNERATION REPORT (cont’d)

Senior manager and executive director remuneration

Objective

The Company aims to reward senior managers with a level of mix of remuneration commensurate with their position and responsibilities within the Company and so as to:

• Reward senior managers for Company, business unit and individual performance against targets set by reference to appropriate benchmarks;

• Align the interests of the executives with those of the shareholders;

• Link reward with the strategic goals and performance of the Company; and

• Ensure total remuneration is competitive by market standards.

Structure

Service agreements have been entered into with each of the Chief Executive and the Managing Director - Hosting, but not with any other senior managers, each of whom is employed under the terms of a letter of appointment. Details of the service agreements are provided on page 9.

Remuneration for all senior managers consists of the following key elements:

• Fixed remuneration

• Variable remuneration

• Short Term Incentive (“STI”); and

• Long Term Incentive (“LTI”).

Fixed Remuneration

Objective

The level of fixed remuneration is set so as to provide a base level of remuneration, which is both appropriate to the position and is competitive in the market.

Fixed remuneration of the Chief Executive and Managing Director - Hosting is reviewed annually by the Corporate Governance, Nomination and Remuneration Committee and the process consists of a review of Company-wide and individual performance, relevant comparative remuneration in the market and internally and, where appropriate, external advice on policies and practices. The Committee has access to external advice independent of management.

Structure

Senior managers are given the opportunity to receive their fixed (primary) remuneration in certain forms including cash and allowances such as motor vehicle allowances. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company.

The fixed remuneration component of the key management personnel is detailed on page 9.

Variable Remuneration – Short Term Incentive (“STI”)

Objective

The objective of the STI program is to link the achievement of the Company’s operational targets with the remuneration received by the senior managers charged with meeting those targets. The total potential STI available is set at a level so as to provide sufficient incentive to the senior manager to achieve the operational targets and such that the cost to the Company is reasonable in the circumstances.

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DIRECTORS’ REPORT

REMUNERATION REPORT (cont’d)

Structure

Actual STI payments granted to each senior manager depend on the extent to which specific operating targets set at the beginning of the financial year are met. The operational targets consist of a number of Key Performance Indicators (KPIs) covering both financial and non-financial measures of performance. Typically included are measures such as contribution to profit, operational performance and staff management. The Company has predetermined benchmarks, which must be met in order to trigger payments under the STI scheme.

On a half-yearly basis, after consideration of performance against KPIs, an overall performance rating for the Company is approved by the Corporate Governance, Nomination and Remuneration Committee. The individual performance of each senior manager is also rated and taken into account when determining the amount, if any, of the STI component to be paid to each senior manager.

Variable Pay – Long Term Incentives (“LTI”)

Objective

The objective of the LTI plan is to reward senior managers in a manner which aligns this element of remuneration with the creation of shareholder wealth.

As such, LTI grants are made to senior managers who are able to influence the generation of shareholders’ wealth and thus have a direct impact on the Company’s performance against the relevant long-term performance hurdle.

Structure

LTI grants to senior managers are delivered in the form of options and discretionary shares.

Service Agreements

The Chief Executive and the Managing Director - Hosting are each employed under a service agreement. The current agreements commenced in August 1999 and continue until terminated by either the Company or the Chief Executive or the Managing Director - Hosting (as the case may be). Under the terms of the present agreements:

• Each of the Chief Executive and the Managing Director - Hosting may resign from his position and thus terminate their agreement by giving six months’ written notice;

• The Company may terminate the agreements by providing six months’ written notice or provide payment in lieu of the notice period, based on the fixed component of the Chief Executive or the Managing Director - Hosting’s remuneration (as the case may be). The Company may also terminate the agreements on a lesser period of notice if, for example, the Chief Executive or the Managing Director - Hosting (as the case may be) become incapacitated.

• The Company may terminate the agreements at any time without notice if serious misconduct has occurred. Where termination with cause occurs the Chief Executive or the Managing Director - Hosting (as the case may be) is only entitled to that portion of remuneration which is fixed, and only up to the date of termination.

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DIRECTORS’ REPORT

REMUNERATION REPORT (cont’d)

Remuneration of Key Management Personnel for the year ended 30 June 2008:

Directors	Directors					Short Term	Short Term	Short Term	Short Term	Short Term	Short Term					Long Term	Long Term
						Primary and bonus						Post Employ- ment		% Bonus granted		Share Based Payments		Total		Total Perfor- mance Related
				Salary and Fees		Cash Bonus		Non – Monetary Benefits(i)		Other(ii)		Super- annuation				Options(iii)
R Kaye – Chairman		2008		150,000		-		-		-		9,847		-			9,897	169,744			5.8%
		2007		150,000		-		-		-		12,686		-			5,219	167,905			3.1%
D Tudehope – Chief Executive		2008		384,261		144,035		1,796		36,155		13,129		94.5%			-	579,376			24.9%
		2007		354,234		93,666		(67,760)		28,113		12,686		63.7%			-	420,939			22.3%
A Tudehope – Managing Director - Hosting		2008		365,962		91,240		23,322		36,155		13,129		94.5%			-	529,808			17.2%
		2007		337,365		59,334		7,171		28,113		12,686		63.5%			-	444,669			13.3%
S Butler – Non-Executive Director(iv)		2008		139,750		-		-		-		10,615			-		-	150,365			0.0%
		2007		90,000		-		-		-		8,100			-		4,558	102,658			4.4%
J Palfreyman – Non- Executive Director(iv)		2008		181,625		-		-		-		-			-		-	181,625			0.0%
		2007		139,974		-		-		-		-			-		4,558	144,532			3.2%
Total Directors’ Remuneration		2008		1,221,598		235,275		25,118		72,310		46,720					9,897	1,610,918
		2007		1,071,573		153,000		(60,589)		56,226		46,158					14,335	1,280,703
Other Key Management Personnel								Short Term									Long Term
					Primary and			bonus			Post Employ- ment		Termin - ation Benefits		% Bonus granted		Share Based Payments		Total		Total Perfor- mance Related
				Salary and Fees	Cash Bonus		Non – Monetary Benefits(i)		Other(ii)		Super- annuation						Options(iii)
C Greig – Marketing Director	2008			282,274	129,660		27,423		19,204		13,129		-		106.5%		2,054		473,744		27.8%
	2007			277,949	81,586		22,164		16,308		12,686		-		67.1%		2,745		413,438		20.4%
M Krishnapillai * – Group Executive Carrier & Strategy	2008			233,949	55,465		(36,455)		20,007		10,228		-		104.1%		-		283,194		19.6%
	2007			240,932	100,040		(9,492)		23,443		12,686		-		73.7%		1,656		369,265		27.5%
G Noble – Group Executive Data Networks & CTO	2008			243,968	71,572		13,402		17,000		13,129		-		86.4%		727		359,798		20.1%
	2007			240,442	69,601		6,900		17,327		12,686		-		76.3%		1,163		348,119		20.3%
L Morgan – President & Managing Director Asia	2008			311,150	139,191		9,008		9,340		-		-		94.1%		21,876		490,565		32.8%
	2007			80,870	39,097		4,587		2,469		-		-		100%		4,701		131,724		33.2%
M Simmonds – Chief Financial Officer	2008			237,367	62,902		4,163		5,000		13,129		-		88.9%		5,307		327,868		20.8%
	2007			220,062	49,001		(368)		-		12,686		-		79.4%		986		282,367		17.7%
G Thomson ** – Commercial Director	2008			235,001	44,556		(37,199)		15,486		9,847		154,862		45.7%		-		422,553		10.5%
	2007			292,180	101,375		9,409		15,288		12,686		-		81.1%		1,656		432,594		23.8%
Total Other Key Management Personnel Remuneration	2008			1,543,709	503,346		(19,658)		86,037		59,462		154,862				29,964		2,357,722
	2007			1,352,435	440,700		33,200		74,835		63,430		-				12,907		1,977,507

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DIRECTORS’ REPORT

REMUNERATION REPORT (cont’d)

Details of shares issued to and held by key management personnel are disclosed in Note 25 to the financial statements.

The terms “director” and “executive officer” have been treated as mutually exclusive for the purposes of this disclosure. The elements of emoluments have been determined on the basis of the cost to the Company and the consolidated entity. Executives are those directly accountable and responsible for the operational management and strategic direction of the Company and the consolidated entity. All directors are paid through subsidiary entities.

Notes:

*Resigned 4 April 2008.

**Resigned 7 March 2008.

• (i) The category “Non-Monetary Benefits” represent amounts accrued or released in respect of annual leave and long service leave.

• (ii) The category “Other” includes the value of any non-cash benefits provided including expatriate package costs and motor vehicle allowances.

• (iii) The directors have issued options over ordinary shares to a number of eligible employees. The terms of the Employee Option Plan stipulate that options will vest over certain timeframes. The plan is designed to encourage superior performance and provide opportunity to all eligible employees to participate in the future success of the Company.

• Whilst LTI’s may include discretionary shares, no such shares have been issued either in this financial year or the previous year.

• (iv) J Palfreyman was paid $83,525 (2007: $41,874) and S Butler was paid $49,750 (2007: nil) for the provision of consulting services to the consolidated entity. All amounts paid were on normal commercial terms and conditions and at market rates.

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DIRECTORS’ REPORT

REMUNERATION REPORT (cont’d)

Equity Compensation: granted and vested during the year

During the financial year there were nil options granted as equity compensation to directors and key management personnel (2007: 132,500)

	Vested	Granted		Terms and	conditions for each grant	conditions for each grant
	Number	Number	Grant date	Value per	Exercise	First exercise	Last exercise
				option at	price per	date	date
				grant date	share
				$	$
Directors
S Butler	40,000	-	22 Dec 2004	0.53	1.90	29 Nov 2006	29 Nov 2009
R Kaye	-	40,000	19 Dec 2006	0.48	0.94	28 Nov 2008	28 Nov 2011
J Palfreyman	40,000	-	22 Dec 2004	0.53	1.90	29 Nov 2006	29 Nov 2009
Total	80,000	40,000
Other Key Management
Personnel
C Greig	-	2,500	23 Apr 2007	0.53	0.97	23 Apr 2009	23 Apr 2012
C Greig	10,000	-	1 Feb 2005	0.37	2.00	31 Jan 2007	31 Jan 2010
L Morgan	-	50,000	23 Apr 2007	0.52	0.98	1 Jul 2008	23 Apr 2012
G Noble	10,000	-	1 Feb 2005	0.37	2.00	31 Jan 2007	31 Jan 2010
M Simmonds	-	20,000	23 Apr 2007	0.53	0.97	23 Apr 2009	23 Apr 2012
Total	20,000	72,500

Details of director related interests in shares and other director related transactions are included in note 27.

Option holdings of Key Management Personnel

Directors R Kaye D Tudehope A Tudehope S Butler J Palfreyman Executives C Greig M Krishnapillai(ii) G Noble L Morgan M Simmonds G Thomson(ii) Total

Balance Granted as remuner- ation Options exercised Net change other Balance Vested and exercisable at 30 June 2008 1 July 2007 30 June 2008 Total Not vested nor exercis- able Vested and exercis- able 40,000 - - - 40,000 40,000 40,000 - 10,500 - - (10,500) - - - - 10,500 - - (10,500) - - - - 40,000 - - - 40,000 40,000 - 40,000 40,000 - - - 40,000 40,000 - 40,000 32,500 - - (20,000) 12,500 12,500 2,500 10,000 41,000 - - (41,000) - - - - 31,000 - - (21,000) 10,000 10,000 - 10,000 50,000 - - - 50,000 50,000 50,000 - 20,000 - - - 20,000 20,000 20,000 - 40,000 - - (40,000) - - - -

355,500 - - (143,000) 212,500 212,500 112,500 100,000

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DIRECTORS’ REPORT

DIRECTORS’ MEETINGS

The numbers of meetings of directors, including meetings of committees of directors, held during the year and the number of meetings attended by each director were as follows:

	Directors’ Meetings	Meetings of Committees	Meetings of Committees
		Audit and Risk Management	Corporate Governance, Nomination and Remuneration
Number of meetings held: Number of meetings attended: R Kaye D Tudehope A Tudehope S Butler J Palfreyman	17 17 15 17 17 16	6 6 - - 6 5	2 2 1 - 2 2

As at the date of this report, the Company had an Audit and Risk Management Committee and a Corporate Governance, Nomination and Remuneration Committee.

The members of the Audit and Risk Management Committee are J Palfreyman, S Butler and R Kaye. The members of the Corporate Governance, Nomination and Remuneration Committee are R Kaye, S Butler, J Palfreyman and D Tudehope.

ROUNDING

The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Class Order 98/100. The Company is an entity to which the Class Order applies.

AUDIT INDEPENDENCE AND NON-AUDIT SERVICES

Refer to page 62 for the independence declaration from our auditor, PricewaterhouseCoopers.

NON-AUDIT SERVICES

Taxation advice and compliance work was provided by the entity’s auditor, PricewaterhouseCoopers. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of nonaudit service provided means that auditor independence was not compromised.

PricewaterhouseCoopers received or is due to receive the following amounts for the provision of nonaudit services: $62,670 (2007: $23,000).

Signed in accordance with a resolution of the directors:

==> picture [117 x 73] intentionally omitted <==

David Tudehope Chief Executive Sydney, 27 August 2008

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CORPORATE GOVERNANCE STATEMENT

Introduction

The Board is responsible for the corporate governance practices of the Company. The major processes by which the Board fulfils that responsibility are described in this statement.

The Board considers that except to the extent expressly indicated in this statement, those corporate governance practices comply with the ASX Corporate Governance Council’s (“ASXCGC”) Principles of Good Corporate Governance and Best Practice Recommendations , dated 31 March 2003. Also, except to the extent expressly indicated in this statement, those practices were followed throughout the year.

A copy of the Audit and Risk Management Committee Charter and the Company’s Code of Conduct are available in the corporate governance section of the Company’s website at www.macquarietelecom.com, together with all other information which the ASXCGC recommends be made publicly available.

Principle 1 Lay solid foundations for management and oversight by the Board

The Board acts on behalf of and is accountable to the shareholders. The expectations of shareholders together with regulatory and ethical expectations and obligations are taken into consideration when defining the Board’s responsibilities.

The Board’s key responsibilities are:

• establishing, monitoring and modifying the Company’s corporate strategies;

• monitoring the performance of management;

• reporting to shareholders and the market;

• ensuring that appropriate risk management systems, internal control and reporting systems and compliance frameworks are in place and are operating effectively;

• monitoring financial results;

• reviewing business results and monitoring budgetary control and corrective actions (if required);

• authorising and monitoring budgets and major investments and strategic commitments;

• monitoring Board composition, director selection and Board processes and performance;

• reviewing the performance of the Chief Executive, the Managing Director - Hosting and senior management;

• endorsing key executive appointments and ensuring executive succession planning;

• reviewing and approving remuneration of the Chief Executive and the Managing Director - Hosting;

• reviewing and approving remuneration policies for senior management; and

• ensuring best practice corporate governance.

The responsibility for the day-to-day operation and administration of the Company has been delegated to the Chief Executive and the executive team. The Board ensures that this team is appropriately qualified and experienced. The Board is also responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identified by the Board.

All persons who are invited and agree to act as a director do so by a formal notice of consent. Nonexecutive directors have received formal letters of appointment. Each of the executive directors is party to a formal executive service agreement with the Company.

Directors are appointed to Board committees by formal resolution of the Board.

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CORPORATE GOVERNANCE STATEMENT

Principle 2 Structure the Board to add value

The Board has adopted a policy of ensuring that it is composed of a majority of non-executive directors with an appropriate mix of skills to provide the necessary breadth and depth of knowledge and experience. Each of the current non-executive directors is an independent director for the purposes of the criteria for independence outlined by the ASXCGC. The Chairman is selected from the non-executive directors and appointed by the Board.

The same person does not exercise the roles of Chairman and Chief Executive. The Board has agreed the division of responsibilities between these roles. That division is sufficiently clear and understood as to not require a formal statement of position.

Information about the directors, including their qualifications, experience and special responsibilities, appears in the Directors’ Report.

Principle 3 Promote ethical and responsible decision making

The Board is committed to the highest standards of conduct. To ensure that the Board, management and employees have guidance in the performance of their duties, the Board has adopted a Code of Conduct that reinforces the requirement that the business be conducted ethically and with professionalism.

In order to guard against the misuse of price sensitive information, the Board has established a share trading policy relating to the Board, senior managers and other employees dealing in the Company’s shares.

Principle 4 Safeguard integrity in financial reporting

The Chief Executive and the Chief Financial Officer have stated to the Board in writing that the Company’s financial reports present a true and fair view, in all material respects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards.

The Board has established an Audit and Risk Management Committee, which operates under a Charter approved by the Board in September 2003 and amended by the Board in August 2006. Each of the members of the Committee is an independent director. The names of the members of the Committee and their attendances at meetings of the Committee appear in the Directors’ Report.

The Chief Executive, Chief Financial Officer, Managing Director - Hosting, Company Secretary, the Business Risk Manager and the external auditor attend meetings at the discretion of the Committee. The Committee also meets privately with the external auditor without management present.

Minutes of all Committee meetings are provided to the Board.

The Board has delegated to the Committee responsibility for making recommendations on the appointment, evaluation and dismissal of the external auditor, setting its fees and ensuring that the auditor reports to the Committee and the Board.

The Company is committed to audit independence. The Committee reviews the independence and objectivity of the external auditors. Those reviews include:

• seeking confirmation that the auditor is, in their professional judgement, independent of the Company. The external auditor, PricewaterhouseCoopers, has declared its independence to the Board; and

• considering whether, taken as a whole, the various relationships between the Company and the external auditor impair the auditor’s judgement or independence. The Committee is satisfied that the existing relationships between the Company and the external auditor do not give rise to any such impairment.

The Company’s audit engagement partners will rotate every five years.

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CORPORATE GOVERNANCE STATEMENT

Principle 5 Make timely and balanced disclosure

The Board has adopted a formal continuous disclosure plan, the object of which is to ensure that material information is identified and disclosed in a timely manner. The Board is advised of any notifiable events. In addition, the Board has developed a guidance paper on the Company’s disclosure obligations, which is intended to provide guidance for all managers on those obligations.

The Board approves all releases that are made to ASX Limited.

The Company Secretary is responsible for communications with the ASX.

Principle 6

Respect the rights of shareholders

In addition to complying with its continuous disclosure obligations under the ASX Listing Rules, the Company ensures that shareholders are kept informed in a variety of other ways:

• shareholders can gain access to information about the Company, including Annual Reports and financial statements, half-year financial statements, Board commentaries on those financial statements, information provided to analysts during briefings on those financial statements, notices of meeting and explanatory materials and all relevant announcements made to the market, through the website at www.macquarietelecom.com;

• in conducting analyst briefings, the Company takes care to ensure that any information provided to analysts is made available to the market prior to it being provided to analysts;

• the principal method of communication with shareholders is through the provision of the Annual Report and financial statements, the half-year financial statements and Annual General Meetings. Shareholders are encouraged to use these meetings to ask questions on any matters related to the Company, its business and the performance of that business; and

• the Company requests the external auditor to attend the Annual General Meeting and be available to answer questions about the conduct of the audit and the preparation and content of the auditor’s report.

Principle 7 Recognise and manage risk

The Board is responsible for ensuring that the Company has in place a system of risk management and internal compliance and control that effectively safeguards assets and enhances the value of shareholders’ investments.

The Board has adopted a formal risk management strategy and policy. In addition, the Company has established a formal framework for risk management and internal compliance, which includes the establishment of an internal business risk management function. The Audit and Risk Management Committee is responsible for reviewing and reporting to the Board on the effectiveness of the Company’s management of risk, including systems for internal controls.

The assets of the Company and its controlled entities are insured under a comprehensive insurance program which is reviewed annually.

The Chief Executive and the Chief Financial Officer have stated to the Board in writing that:

• the integrity of financial statements is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; and

• the Company’s risk management and internal compliance and control system, in so far as it relates to financial reporting risk, is operating efficiently and effectively in all material respects.

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CORPORATE GOVERNANCE STATEMENT

Principle 8 Encourage enhanced performance

The performance of the Board, including its Committees, and of individual directors and key executives is reviewed on a regular basis.

In the case of the Board and individual directors, performance is evaluated largely having regard to the Board’s key responsibilities listed above.

In the case of executive directors and other key executives, performance is evaluated against both quantitative and qualitative indicators.

Responsibility for evaluating the Board’s performance falls to the Corporate Governance, Nomination and Remuneration Committee. The performance of key executives is evaluated by the Chief Executive and Managing Director - Hosting and, where considered appropriate, the Board as a whole.

Directors have the right, in connection with their duties and responsibilities as directors, to:

• have access to the Company Secretary, whose appointment and removal is a matter for decision by the Board as a whole; and

• seek independent professional advice at the Company’s expense. Prior written approval of the Chairman is required, but this will not be unreasonably withheld.

In addition, directors are provided with detailed financial information and reports by management on a monthly basis, and have the right to request additional information where they consider that the information supplied by management is insufficient to support informed decision making.

New directors receive special briefings from management to assist them to rapidly understand the Company’s business and issues. Time is allocated at Board and Committee meetings for continuing education on significant issues facing the Company and changes to the regulatory environment.

Principle 9 Remunerate fairly and responsibly

The functions of the Corporate Governance, Nomination and Remuneration Committee include reviewing the remuneration arrangements for non-executive and executive directors and reviewing and approving the issue of shares and options under the Company’s employee share and option plans. The Committee also reviews remuneration for the senior management team and monitors, reviews and makes recommendations to the Board as to the remuneration policies of the Company generally. The name of the members of the Committee and their attendances at meetings of the Committee appear in the Directors’ Report.

Non-executive directors receive fees determined by the Board, but within the aggregate limits approved by shareholders at general meetings of the Company.

The remuneration of senior managers consists of a combination of fixed and variable (at risk) remuneration. The bonus paid to a senior manager is based on a review of the individual manager’s performance.

Details of shares and options issued to employees of controlled entities of the Company are included in Note 22 to the financial statements.

Principle 10 Recognise the legitimate interests of stakeholders

The Company had in place during the year a Code of Conduct that sets out the behaviour required of directors and employees. The Code provides a mechanism to enable employees to report breaches of the Code without any fear of retribution. The Board and senior managers are responsible for monitoring compliance with and dealing with breaches of the Code.

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INCOME STATEMENT

Y E AR E N D E D 3 0 J UN E 2 0 0 8

Notes	CONSOLIDATED PARENT ENTITY
	2008 2007 2008 2007
	$’000 $’000 $’000 $’000
Revenue and other income 3	246,015 255,525 - -
Expenses 3	(246,592) (258,752) (103) (230)
Loss before income tax and finance costs	(577) (3,227) (103) (230)
Finance costs	(806) (1,012) - -
Loss before income tax	(1,383) (4,239) (103) (230)
Income tax benefit 5	218 645 24 61
Net loss attributable to members 19(b)	(1,165) (3,594) (79) (169)
	cents cents
Basic loss per share 24	(5.7) (17.4)
Diluted loss per share 24	(5.7) (17.4)

The above income statement should be read in conjunction with the accompanying notes.

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BALANCE SHEET

AS AT 3 0 J U N E 2 0 08

	Notes	CONSOLIDATED PARENT ENTITY
		2008 2007 2008 2007
		$’000 $’000 $’000 $’000
CURRENT ASSETS
Cash and cash equivalents	6	22,558 19,998 6 6
Receivables	7	18,815 18,604 2,498 14,779
Accrued income	8	10,876 16,803 - -
Other financial assets	9	1,402 1,246 - -
Other	10	1,815 1,492 - -
TOTAL CURRENT ASSETS		55,466 58,143 2,504 14,785
NON-CURRENT ASSETS
Other financial assets	11	- - 47,360 32,360
Plant and equipment	12	27,563 29,729 - -
Deferred tax assets	5	7,309 6,617 173 3,775
Other	13	2,171 2,474 - -
TOTAL NON-CURRENT ASSETS		37,043 38,820 47,533 36,135
TOTAL ASSETS		92,509 96,963 50,037 50,920
CURRENT LIABILITIES
Payables	14	41,909 42,514 2,295 3,437
Borrowings	15	1,845 3,008 - -
Current tax liabilities	5	314 - 314 -
Provisions	16	506 381 - -
Other	17	95 149 - -
TOTAL CURRENT LIABILITIES		44,669 46,052 2,609 3,437
NON-CURRENT LIABILITIES
Borrowings	15	1,772 3,617 - -
Deferred tax liabilities	5	11 60 - -
Provisions	16	1,169 1,046 - -
Other	17	1,550 1,702 - -
TOTAL NON-CURRENT LIABILITIES		4,502 6,425 - -
TOTAL LIABILITIES		49,171 52,477 2,609 3,437
NET ASSETS		43,338 44,486 47,428 47,483
EQUITY
Contributed equity	18	87,025 87,025 87,025 87,025
Reserves	19	4 (13) 120 96
Accumulated losses	19	(43,691) (42,526) (39,717) (39,638)
TOTAL EQUITY		43,338 44,486 47,428 47,483

The above balance sheet should be read in conjunction with the accompanying notes.

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STATEMENT OF CHANGES IN EQUITY

Y E AR E N D E D 3 0 J UN E 2 0 0 8

		Contributed Equity Reserves (Note 19) Accumulated losses Total
	CONSOLIDATED	$’000 $’000 $’000 $’000
	At 1 July 2006	87,025 214 (38,932) 48,307
	Currency translation difference	- (257) - (257)
	Total income and expense for the period recognised directly in equity	- (257) - (257)
	Loss for the period	- - (3,594) (3,594)
	Total recognised expense for the year	- - (3,594) (3,594)
	Share based payments expense	- 30 - 30
	At 1 July 2007	87,025 (13) (42,526) 44,486
	Currency translation difference	- (7) - (7)
	Total income and expense for the period recognised directly in equity	- (7) - (7)
	Loss for the period	- - (1,165) (1,165)
	Total recognised expense for the year	- - (1,165) (1,165)
	Share based payments expense	- 24 - 24
	At 30 June 2008	87,025 4 (43,691) 43,338
	PARENT ENTITY
	At 1 July 2006	87,025 66 (39,469) 47,622
	Total income and expense for the period recognised directly in equity	- - - -
	Loss for the period	- - (169) (169)
	Total recognised expense for the year	- - (169) (169)
	Share based payments expense	- 30 - 30
	At 1 July 2007	87,025 96 (39,638) 47,483
	Total income and expense for the period recognised directly in equity	- - - -
	Loss for the period	- - (79) (79)
	Total recognised expense for the year	- - (79) (79)
	Share based payments expense	- 24 - 24
	At 30 June 2008	87,025 120 (39,717) 47,428

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

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CASH FLOW STATEMENT

Y E AR E N D E D 3 0 J UN E 2 0 0 8

	Notes	CONSOLIDATED PARENT ENTITY
		2008 2007 2008 2007
		$’000 $’000 $’000 $’000
	CASH FLOWS FROM OPERATING ACTIVITIES
	Receipts from customers	273,197 277,967 - -
	Payments to suppliers and employees	(249,664) (258,397) - -
	Interest received	1,067 903 - -
	Interest paid	(806) (1,012) - -
	Goods and services taxpaid	(5,043) (5,209) - -
	NET CASH FLOWS FROM OPERATING ACTIVITIES 20(a)	18,751 14,252 - -
	CASH FLOWS FROM INVESTING ACTIVITIES
	Acquisition of non-current assets	(13,030) (11,870) - -
	Proceeds from sale of non-current assets	3 - - -
	Proceeds from/(payments for) other financial assets	(156) 738 - -
	NET CASH FLOWS USED IN INVESTING ACTIVITIES	(13,183) (11,132) - -
	CASH FLOWS FROM FINANCING
	ACTIVITIES
	Proceeds from finance leases	- 3,505 - -
	Purchase of shares	- - (15,000) -
	Repayment of finance lease principal	(3,008) (2,582) - -
	(Advances to)/payments from relatedparties	- - 15,000 -
	NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES	(3,008) 923 - -
	NET INCREASE IN CASH HELD	2,560 4,043 - -
	Cash and cash equivalents at the beginning of the financialyear	19,998 15,955 6 6
	CASH AND CASH EQUIVALENTS AT THE END OF YEAR 20(b)	22,558 19,998 6 6

The above cash flow statement should be read in conjunction with the accompanying notes.

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NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

1. BASIS OF PREPARATION OF THE FINANCIAL REPORT

(a) Corporate Information

The financial report of Macquarie Telecom Group Limited (“Macquarie” or the “Company”) for the year ended 30 June 2008 was authorised for issue in accordance with a resolution of directors on 27 August 2008.

Macquarie is the head entity of a consolidated group comprising Macquarie Telecom Pty Limited (“MT”), Macquarie Telecom Services Pty Limited (“MTS”), Macquarie Telecom Carrier Services Pty Limited (“MTCS”), Macquarie Telecom Network Carrier Services Pty Limited (“MTNCS”) and Macquarie Telecom Pte Limited.

Macquarie is a company limited by shares incorporated in Australia whose shares are publicly traded on the ASX. The nature of the operations and principal activities of the Group are described in Note 28.

(b) Basis of preparation

The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards.

The financial report has been prepared in accordance with the historical cost convention except for equity based payments that have been measured at fair value.

Compliance with IFRS

Australian Accounting standards include Australian equivalents to International Financial Reporting Standards (“AIFRS”). Compliance with AIFRS ensures that this financial report complies with International Financial Reporting Standards (“IFRS”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of consolidation

The consolidated financial statements are those of the consolidated entity, comprising Macquarie and all entities that Macquarie controlled during the year and at balance sheet date. Consolidation is based on control, which is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The financial statements of subsidiaries are prepared for the same reporting period as that of the parent entity, using consistent accounting policies. All intercompany balances and transactions have been eliminated in full.

(b) Significant accounting judgements, estimates and assumptions

In preparing the financial report the consolidated entity is required to make estimates and assumptions about carrying values of assets and liabilities. The key estimates and accounting judgements for Macquarie relate to income taxes, revenue recognition and the depreciation of non-current assets. These estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.

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NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(c) Foreign currencies

Translation of foreign currency transactions

Transactions denominated in a foreign currency are translated at the rates in existence at the date of the transactions. Exchange gains and losses are brought to account in determining the net profit or loss for the year.

Amounts payable to and by the entities within the consolidated entity that are outstanding at balance date and are denominated in foreign currencies have been converted to local currency using rates of exchange ruling at the end of the year.

Translation of financial reports of overseas operation

The functional and presentation currency of the parent company and its Australian subsidiaries is Australian dollars. The functional currency of the overseas subsidiary is Singapore dollars. As at the reporting date the assets and liabilities of the overseas subsidiary are translated into the presentation currency of the consolidated entity. The financial reports of the overseas subsidiary are translated using the spot rate for balance sheet items and the average rate for the profit and loss with any exchange differences taken directly to the foreign currency translation reserve. Foreign currency differences on intra-group investments, including long-term loans, are also taken through the foreign currency translation reserve.

(d) Plant and equipment

Cost and valuation

Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Plant and equipment includes costs in relation to Information Technology (“IT”) development and infrastructure development projects where future benefits are probable to exceed these costs.

Depreciation

Depreciation is calculated on a straight-line basis on all plant and equipment commencing from the time the asset is ready for use.

ready for use.
	2008	2007
Major depreciation periods are:
Plant and equipment	1 to 10 years	1 to 10 years
Leasehold improvements are amortised over the lease term.

(e) Transmission capacity

Expenditure, relating to the acquisition of transmission capacity, is capitalised to the extent that it is expected to provide future economic benefits to the Company. Capitalised expenditure less rebates are amortised over the period in which the related benefits are expected to be realised.

(f) Impairment of assets

At each reporting date, the consolidated entity assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the consolidated entity makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use can not be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Impairment losses are recognised in the income statement.

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NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(g) Cash and cash equivalents

Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(h) Trade and other receivables

Trade receivables are recognised and carried at original invoice amount, less a provision for any uncollectible debts.

An allowance for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified.

Receivables from related parties are recognised at amortised cost.

Other receivables are recognised at cost.

(i) Other financial assets

Bank deposits are measured at their nominal amount.

Investments in subsidiaries are recorded at the lower of cost and net recoverable amount.

(j) Accrued income

Accrued income represents the estimated amounts of unbilled services provided to all customers as at the balance date after taking into account all discounts as applicable.

(k) Payables

Liabilities for carrier suppliers (trade creditors) are carried at the net amount the consolidated entity expects to have to pay each carrier, in respect of the services received.

Liabilities for other trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the consolidated entity.

Payables to related parties are carried at amortised cost.

(l) Leases

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.

Operating leases

The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight-line basis.

In the event that lease incentives are received to enter into non-cancellable operating leases, such incentives are recognised as a liability. Lease payments are allocated between rental expenses, reduction of the liability and, where appropriate, interest expense over the term of the lease.

Finance leases

Leases which effectively transfer substantially all of the risks and benefits incidental to ownership of the leased item to the consolidated entity are capitalised at the fair value of the leased property or, if lower, at the present value of the minimum lease payments and disclosed as property, plant and equipment under lease. A lease liability of equal value is also recognised.

Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. Minimum lease payments are allocated between interest expense and reduction of the lease liability.

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NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(m) Employee benefits

The liability for employees’ benefits to wages, salaries, bonuses and annual leave is accrued to balance date based on the consolidated entity’s present obligation to pay resulting from employees’ services provided. The liability for employees’ benefits to long service leave is provided to balance date based on the present value of the estimated future cash flows to be paid by the consolidated entity resulting from the employees’ services provided.

(n) Share-based payment transactions

The consolidated entity provides benefits to employees, including directors, in the form of share-based payment transactions.

The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an external valuer using a Binomial option pricing model for those options subject to performance hurdles.

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

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting reflects (i) the extent to which the vesting period has expired; and (ii) the number of awards that, in the opinion of the directors, will vest ultimately. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of those conditions is included in the determination of fair value at grant date.

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

The consolidated entity has applied the requirements of AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards in respect of equity-settled awards and has applied AASB 2 Share Based Payments only to equity instruments granted after 7 November 2002 that had not vested on or before 1 January 2006.

(o) Contributed equity

Issued capital is recognised at the fair value of the consideration received by the Company.

Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

(p) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Service revenue

Service revenue is recognised when the telecommunication services have been provided to the customer. Revenue is recognised net of customer discounts and allowances.

Interest

Revenue is recognised as it 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.

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NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(q) Taxes

Income taxes

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amount for financial reporting purposes.

The deferred income tax is recognised for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

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.

Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted as at the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred liability is settled.

Tax consolidation legislation

Macquarie Telecom Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation.

The head entity, Macquarie Telecom Group Limited, and the controlled entities in the tax consolidation group, account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right.

In addition to its own current and deferred tax amounts, Macquarie Telecom Group Limited also recognises the 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.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Details of the tax funding agreement are disclosed in Note 5.

Any differences between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities.

Goods and services tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST except:

• where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• • receivables and payables are stated with the amount of GST included.

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

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

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(r) Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest rate method.

Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

25

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NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(s) Borrowing costs

Borrowing costs incurred in relation to the arrangement of borrowings are capitalised and amortised on a straight-line basis over the term of the facility. All other borrowing costs are recognised as an expense when incurred.

(t) Segment reporting

A business segment is identified for a group of assets and operations engaged in providing services that are subject to risks and returns that are different to those of other business segments. A geographical segment is identified when products or services are provided within a particular economic environment subject to risks and returns that are different from those of segments operating in other economic environments.

(u) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessment of the time value of money and the risks specific to the liability.

(v) Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of shares outstanding during the financial year.

Diluted earnings per share

Diluted earning per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with 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.

(w) Rounding of amounts

Amounts contained in the financial report have been rounded to the nearest $1,000, where rounding is applicable, under the option available to the Company under ASIC Class Order 98/100. The Company is an entity to which the Class Order applies.

(x) New accounting standards and interpretations

AASB7 Financial Instruments Disclosures has been adopted effective 1 July 2007 with prior year comparatives included.

In addition, certain new accounting standards and UIG interpretations have been published that are not mandatory for 30 June 2008 reporting periods. The Consolidated entity’s assessment of the impact of these new standards and interpretations are set out below.

AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Standards arising from AASB 8

AASB 8 and AASB 2007-3 are effective for annual reporting periods commencing on or after 1 January 2009. AASB 8 will result in significant change in the approach to segment reporting, as it requires adoption of a “management approach” to reporting on financial performance. The consolidated entity has not adopted the standards early. Application of AASB 8 may result in different segments, segment results and different types of information being reported in the segment note of the financial report. However, at this stage, it is not expected to affect any amounts recognised in the financial statements.

26

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(x) New accounting standards and interpretations (cont’d)

Revised AASB 123 Borrowing Costs and AASB 2007-6 Amendment to Australian Accounting Standards arising from AASB 123 [AASB 1, AASB 101, AASB 107, AASB 111, AASB 116 & AASB 138 and Interpretations 1 & 2]

Revised AASB 123 is applicable to annual reporting periods commencing on or after 1 January 2009. It has removed the option to expense all borrowing costs and when adopted will require the capitalisation of all borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. There will be no impact on the financial report of the consolidated entity, as the consolidated entity already capitalises borrowing costs relating to qualifying assets.

Revised AASB 101 Presentation of Financial Statements, AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101 and AASB 2007-10 Further amendments to Australian Accounting Standards arising from AASB 101.

A revised AASB 101 was issued in September 2007 and is applicable for annual reporting periods commencing on or after 1 January 2009. It requires the presentation of a statement of comprehensive income and makes changes to the statement of changes in equity, but will not affect any of the amounts recognised in the financial statements.

The Group has not adopted the standards early.

(y) Comparatives

Prior year comparatives have been restated were necessary to conform with current presentation.

27

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

	CONSOLIDATED PARENT ENTITY
	2008 2007 2008 2007
	$’000 $’000 $’000 $’000
3. REVENUE AND EXPENSES
(a) Revenue and other income
Revenue
Revenue from services	244,894 254,607 - -
Other income
Interest	1,121 918 - -
Total other income	1,121 918 - -
Total revenue and other income	246,015 255,525 - -
(b) Expenses
Amortisation of non-current assets
Leasehold improvements	204 304 - -
Transmission capacity	303 303 - -
Depreciation of non-current assets
Plant and equipment	14,942 14,775 - -
Total depreciation and amortisation expense	15,449 15,382 - -
Net loss on disposal of plant and equipment	47 11 - -
Bad and doubtful debts – trade debtors	780 1,306 - -
Operating lease rental	3,168 3,222 - -
Employment costs	53,144 50,796 24 30
Carrier costs	155,991 172,318 - -
Other	18,013 15,717 79 200
	231,143 243,370 103 230
Total expenses	246,592 258,752 103 230

28

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

	CONSOLIDATED PARENT ENTITY
	2008 2007 2008 2007
	$’000 $’000 $’000 $’000
4. DIVIDENDS PAID OR PROVIDED FOR ON ORDINARY SHARES
(a) There were no dividends proposed or paid during the year (2007: nil).	- - - -
(b) Franking account balance
The amount of franking credits available for the subsequent financial year are:
- franking account balance as at the end of the financial year at 30%	- - - -
	- - - -

5. INCOME TAX

(a) Income tax expense

(a) Income tax expense
Current tax		314	-	-	-
Deferred tax		(532)	(645)	(24)	(61)
		(218)	(645)	(24)	(61)
Deferred income tax (revenue) expense included in income tax expense comprises:
Decrease/(increase) in deferred tax assets		4,331	(208)	(24)	(61)
(Decrease)/increase in deferred tax liabilities		(4,863)	(437)	-	-
		(532)	(645)	(24)	(61)
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Loss from continuing operations before income tax expense		(1,383)	(4,239)	(103)	(230)
Tax at the Australian tax rate of 30% (2007: 30%)		(415)	(1,272)	(31)	(69)
Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Singapore tax losses not brought to account		305	280	-	-
Difference in overseas tax rates		203	189	-	-
Expenditure not allowable for income tax purposes		137	126	7	8
Decrease/(increase) in foreign tax credits carried forward		139	358	-	-
Adjustment to tax in respect of prior years		(511)	-	-	-
Other		(76)	(326)	-	-
Income tax (revenue) expense		(218)	(645)	(24)	(61)

29

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

		CONSOLIDATED PARENT ENTITY 2008 2007 2008 2007 $’000 $’000 $’000 $’000 - 3,629 - 3,629 165 96 165 96 6,086 4,596 - - 6,251 8,321 165 3,725 958 855 - - 1,044 3,133 8 50 703 857 - - 90 - - - 42 44 - - 2,837 4,889 8 50 9,088 13,210 173 3,775 (1,779) (6,593) - - 7,309 6,617 173 3,775
5. INCOME TAX (Cont’d)
NON-CURRENT ASSETS – DEFERRED TAX ASSETS
The balance comprises temporary differences attributable to:
Tax losses
Foreign tax credits (“FTC”)
Accelerated depreciation for accounting purposes
Employee benefits
Accrued expenses
Provisions for doubtful debts and credit notes
Other assets
Fringe benefits tax
Subtotal other
Total deferred tax assets
Set-off of deferred tax liabilities pursuant to set- off provisions
Net deferred tax assets
Movements - Consolidated		Tax losses FTC Accelerated depreciation Other Total
At 1 July 2006		4,235 1,090 3,348 4,965 13,638
Charged to the income statement		(606) (358) 1,248 (76) 208
Charged to withholding tax provision		- (636) - - (636)
At 30 June 2007		3,629 96 4,596 4,889 13,210
Charged/(credited) to the income statement		(3,629) (140) 1,490 (2,052) (4,331)
Charged to withholding tax provision		- 209 - - 209
At 30 June 2008		- 165 6,086 2,837 9,088
Movements - Parent		Tax losses FTC Accelerated depreciation Other Total 4,235 1,821 - 33 6,089 44 - - 17 61 (650) (1,725) - - (2,375)
At 1 July 2006
Charged/(credited) to the income statement
Charged directly to intercompany
At 30 June 2007		3,629 96 - 50 3,775 66 - - (42) 24 (3,695) 69 - - (3,626) - 165 - 8 173
Charged/(credited) to the income statement
Charged to intercompany
At 30 June 2008

30

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

5. INCOME TAX (cont’d)	Consolidated Parent entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 - 4,793 - - - - - - 1,670 1,570 - - 1,670 6,363 - - 84 171 - - 36 119 - - 120 290 - - 1,790 6,653 - - (1,779) (6,593) - - 11 60 - -
NON-CURRENT LIABILITIES - DEFERRED TAX LIABILITIES
The balance comprises temporary differences attributable to:
Accrued income
Prepayments
Accelerated depreciation for tax purposes
Other debtors
Accrued expenses
Sub-total other
Total deferred tax liabilities
Set-off of deferred tax liabilities pursuant to set-offprovisions
Net deferred tax liabilities
Movements - Consolidated	Accrued Income Prepay- ments Accelerated depreciation Other Total
At 1 July 2006	4,755 12 1,865 458 7,090
Charged/(credited) to the income statement	38 (12) (295) (168) (437)
At 30 June 2007	4,793 - 1,570 290 6,653
Charged/(credited) to the income statement	(4,793) - 100 (170) (4,863)
At 30 June 2008	- - 1,670 120 1,790
Movements - Parent	Accrued Income Prepay- ments Accelerated depreciation Other Total
At 1 July 2006	- - - - -
Charged/(credited) to the income statement	- - - - -
At 30 June 2007	- - - - -
Charged/(credited) to the income statement	- - - - -
At 30 June 2008	- - - - -

Tax consolidation

Macquarie and its 100% owned Australian resident subsidiaries have formed a tax consolidated group with effect from 1 July 2002. Macquarie is the head entity of the tax consolidated group. The agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax obligations. At balance date, the possibility of default is remote.

31

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

5. INCOME TAX (cont’d)

Tax effect accounting by members of the tax consolidated group

Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group in accordance with their accounting profit/(loss) for the period, while deferred taxes are allocated to members of the tax consolidated group in accordance with AASB 112 Income Taxes and UIG 1052 Tax Consolidation Accounting.

Notes	CONSOLIDATED	PARENT ENTITY	PARENT ENTITY
	2008 2007	2008	2007
	$’000 $’000	$’000	$’000
6. CASH AND CASH EQUIVALENTS
Cash at bank and in hand	22,558 19,998	6	6
7. RECEIVABLES
CURRENT
Trade debtors	19,936 18,229	-	-
Provision for doubtful debts	(1,786) (1,762)	-	-
Provision for credit notes	(1,698) (1,106)	-	-
Receipts due from trade debt purchase facility 20(d)	1,923 2,487	-	-
Other receivables	440 756	-	-
Receivable from related parties – wholly owned group 27(b)	- -	2,498	14,779
	18,815 18,604	2,498	14,779
(a) Australian dollar equivalents
Australian dollar equivalent of amounts receivable in foreign currencies not effectively hedged:
- Singapore dollars	521 585	-	-

• (b) Terms and conditions relating to the above financial instruments:

(i) Sales are on 14 day terms;

(ii) Details of the terms and conditions of related party receivables are set out in Note 27(b); and

(iii) Details of impairment of trade receivables are set out in Note 30 (b).

(c) Provision for doubtful debts/credit notes

At 1 July	(2,868) (3,387) - -
Amounts written off	1,343 2,312 - -
Additional amounts provided	(1,981) (1,793) - -
Provisions released	22 - - -
At 30 June	(3,484) (2,868) - -

32

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

			CONSOLIDATED	CONSOLIDATED	PARENT	ENTITY
			2008	2007	2008	2007
			$’000	$’000	$’000	$’000
8. ACCRUED INCOME Accrued income 9. CURRENT OTHER FINANCIAL ASSETS			10,876	16,803	-	-
Bank deposits			1,402	1,246	-	-

Terms and conditions relating to the above financial instruments:

(a) Short-term deposits include interest bearing term deposit accounts for facilities existing at 30 June 2008 and effective interest rates of 0.83% to 7.3% (2007: 0.67% to 5.4%) per annum.

These bank deposits are held by financial institutions as security against bank guarantees for rental bonds.

10. OTHER CURRENT ASSETS

Prepayments	1,815 1,492 - -

33

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

PARENT ENTITY	PARENT ENTITY
2008	2007
$’000	$’000

==> picture [248 x 71] intentionally omitted <==

					PARENT ENTITY	PARENT ENTITY
					2008	2007
					$’000	$’000
11. NON-CURRENT ASSETS – OTHER FINANCIAL ASSETS
Interests in subsidiaries
Name Country of incorporation Percentage of equity interest held by the consolidated entity
2008 2007
% %
Macquarie Telecom Pty Limited
– ordinary shares Australia (a) 100 100				32,360 32,360
Macquarie Telecom Services Pty Limited
– ordinary shares Australia (a) 100 100				- -
Macquarie Telecom Carrier Services Pty Limited
– ordinary shares Australia (a) 100 100				- -
Macquarie Telecom Network Carrier Services Pty Limited
– ordinary shares Australia (a) 100 100				- -
Macquarie Telecom Pte Ltd
– ordinary shares Singapore (a) 100 100				15,000 -
				47,360 32,360

The directors believe the investments in, and advances to (Note 7), these subsidiaries are fully recoverable based upon the estimated present value of net cash flows expected to be derived from the underlying businesses.

On 18 March 2008, the Company acquired one additional share of the issued capital of Macquarie Telecom Pte Ltd for a total consideration of $15 million.

(a) Entities subject to Class Order relief

Pursuant to Class Order 98/1418, relief has been granted to Macquarie Telecom Pty Limited, Macquarie Telecom Services Pty Limited, Macquarie Telecom Network Carrier Services Pty Limited and Macquarie Telecom Carrier Services Pty Limited from the Corporations Act 2001 requirements for preparation, audit and lodgement of their financial reports.

As a condition of the Class Order, Macquarie Telecom, Macquarie Telecom Pty Limited, Macquarie Telecom Services Pty Limited, Macquarie Telecom Carrier Services Pty Limited, Macquarie Telecom Network Carrier Services Pty Limited and Macquarie Telecom Pte Ltd (the “Closed Group”) entered into a Deed of Cross Guarantee on 28 June 2005. The effect of the deed is that Macquarie has guaranteed to pay any deficiency in the event of winding up of any of its controlled entities. The controlled entities have also given a similar guarantee in the event that Macquarie is wound up.

The consolidated statement of financial performance, statement of financial position and statement of cash flows of the entities that are members of the Closed Group are the same as those presented for the consolidated group and have therefore not been repeated.

34

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

	CONSOLIDATED PARENT ENTITY
	2008 2007 2008 2007
	$’000 $’000 $’000 $’000
12. PLANT AND EQUIPMENT
Leasehold improvements
At cost	1,245 2,041 - -
Accumulated amortisation	(599) (1,709) - -
	646 332 - -
Plant and equipment
At cost	66,441 65,187 - -
Accumulated depreciation	(41,804) (42,633) - -
	24,637 22,554 - -
Plant and equipment under lease
At cost	12,015 12,015 - -
Accumulated depreciation	(9,735) (5,172) - -
	2,280 6,843 - -
Total written down amount	27,563 29,729 - -
Reconciliations
Reconciliation of the carrying amounts of plant and equipment at the beginning and end of the current financial year:
Leasehold improvements
Opening balance	332 595 - -
Additions Disposals	568 (50) 41 - - -
Amortisation expense	(204) (304) - -
	646 332 - -
Plant and equipment
Opening balance	22,554 27,016 - -
Additions	12,462 12,108 - -
Disposals	- (12) - -
Transfer	- (3,505) - -
Depreciation expense	(10,379) (13,053) - -
	24,637 22,554 - -
Plant and equipment under lease
Opening balance	6,843 5,060 - -
Transfers	- 3,505 - -
Depreciation expense	(4,563) (1,722) - -
	2,280 6,843 - -

During the year fully depreciated plant and equipment of $11.1 million were retired.

35

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

Notes	CONSOLIDATED PARENT ENTITY 2008 2007 2008 2007 $’000 $’000 $’000 $’000 5,000 5,000 - - (278) (278) - - (2,551) (2,248) - - 2,171 2,474 - - 33,090 34,091 - - 7,072 6,757 27 166 1,538 1,438 - - 209 228 - - - - 2,268 3,271 41,909 42,514 2,295 3,437 878 475 - -
13. OTHER NON-CURRENT ASSETS
Transmission capacity
Transmission capacity rebate
Accumulated amortisation
14. PAYABLES
CURRENT
Trade creditors 23(a)
Other creditors and accruals
Annual leave entitlements
Withholding tax payable
Payable to related parties – wholly owned group 27(b)
(a) Australian dollar equivalents Australian dollar equivalent of amounts payable in foreign currencies not effectively hedged:
- Singapore dollars

(b) Included in trade creditors are amounts payable to various telecommunications carriers. As outlined in Note 23, the Company disputes certain charges levied by some of its carriers. Included in trade creditors are the amounts the Company believes are its obligations for the services provided, after a careful review of the carrier billings.

(c) Terms and conditions relating to the above financial instruments:

(i) Trade liabilities are normally settled on 30 to 60 day terms; and

(ii) Details of the terms and conditions of related party payables are set out in Note 27(b).

==> picture [74 x 32] intentionally omitted <==

36

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

	Notes	CONSOLIDATED PARENT ENTITY
		2008 2007 2008 2007
		$’000 $’000 $’000 $’000
	15. BORROWINGS
	CURRENT
	Obligations under finance leases 21(b)	1,845 3,008 - -
	NON-CURRENT
	Obligations under finance leases 21(b)	1,772 3,617 - -
	16. PROVISIONS
	CURRENT
	Employee benefits (a) 22	506 381 - -
	NON-CURRENT
	Employee benefits (a) 22	1,169 1,046 - -
		balances is shown below: 2008 2007 2008 2007 $’000 $’000 $’000 $’000 1,427 1,311 - - 517 255 - - (269) (139) - -
	(a) A reconciliation of the movements in the provision
	Long Service Leave
	At 1 July
	Arising during the year
	Utilised
	At 30 June	1,675 1,427 - -

37

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

Notes	Notes	CONSOLIDATED PARENT ENTITY
		2008 2007 2008 2007
		$’000 $’000 $’000 $’000
17. OTHER LIABILITIES
CURRENT
Lease incentive 21(b)		95 149 - -
NON-CURRENT
Lease incentive 21(b)		1,550 1,702 - -
18. CONTRIBUTED EQUITY
(a) Issued and paid up capital
Ordinary shares fully paid (no par value)		87,025 87,025 87,025 87,025
		2008 2008 2007 2007
		Number of shares $ Number of shares $
(b) Movements in shares on issue
Balance at beginning of year		20,608,621 87,025,435 20,608,621 87,025,435
Balance at end of year		20,608,621 87,025,435 20,608,621 87,025,435

38

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

18. CONTRIBUTED EQUITY (cont’d)

(c) Share options

Options over ordinary shares

There were nil options over ordinary shares issued during the year.

At the end of the year, there were 286,500 (2007: 611,500) unissued ordinary shares in respect of which options were outstanding.

Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any related body corporate or in the interest issue of any other registered scheme.

No share options are held by the parent entity or its subsidiaries (2007: nil).

Information with respect to the number of options issued by Macquarie Telecom Group Limited is as follows:

Balance at beginning of year Granted Forfeited Exercised Balance at end of year Exercisable at end of year	2008 2007 Number of options Weighted average exercise price $ Number of options Weighted average exercise price $ 611,500 2.02 581,000 1.94 - - 142,500 0.97 (325,000) 1.42 (112,000) 1.60 - - - -
	286,500 2.18 611,500 1.77
	164,000 3.09 423,000 2.02

The following table summarises information about total options outstanding and exercisable at 30 June 2008:

Exercise price $14.40 $1.90 $2.00 $0.94 $0.98 $0.97	Outstanding options Average option life (years) Exercisable number of options Expiry date 15,000 1.24 15,000 27 Sep 2009 80,000 1.42 80,000 29 Nov 2009 69,000 1.59 69,000 31 Jan 2010 40,000 3.41 - 28 Nov 2011 50,000 3.78 - 10 Apr 2012 32,500 3.82 - 23 Apr 2012 286,500 2.41 164,000

No options were exercised after year end.

(d) Terms and conditions of contributed equity

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held.

Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

39

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

Notes CONSOLIDATED	Notes CONSOLIDATED	PARENT ENTITY	PARENT ENTITY
2008 2007		2008	2007
$’000 $’000		$’000	$’000
19. OTHER RESERVES AND ACCUMULATED LOSSES
Other reserves 19(a)	4 (13)	120	96
Accumulated losses 19(b)	(43,691) (42,526)	(39,717)	(39,638)

(a) Other Reserves

(i) Nature and purpose of reserves	(i) Nature and purpose of reserves
The foreign currency translation reserve is used to record exchange differences arising from the translation of foreign subsidiaries. The employee equity benefits reserve is used to record the value of equity benefits provided to employees as part of their remuneration. Refer to Note 22 for further details of these plans.
(ii) Movements in reserves
Foreign currency translation reserve:
Balance at beginning of year	(109) 148 - -
Gain/(loss) on translation of foreign controlled entity	(7) (257) - -
Balance at end of year	(116) (109) - -
Employee equity benefits reserve:
Balance at beginning of year	96 66 96 66
Share based payments	24 30 24 30
Balance at end of year	120 96 120 96
	4 (13) 120 96
(b) Accumulated losses
Balance at beginning of year	(42,526) (38,932) (39,638) (39,469)
Loss attributable to members	(1,165) (3,594) (79) (169)
Total available for appropriation	(43,691) (42,526) (39,717) (39,638)
Dividends paid or provided for	- - - -
Balance at end of year	(43,691) (42,526) (39,717) (39,638)

40

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

Notes	CONSOLIDATED PARENT ENTITY
	2008 2007 2008 2007
	$’000 $’000 $’000 $’000
20. STATEMENT OF CASH FLOWS
(a) Reconciliation of the loss after income tax benefit/(expense) to the net cash flows from operating activities
Loss after income tax benefit	(1,165) (3,594) (79) (169)
Amortisation of non-current assets	507 607 - -
Depreciation of non-current assets	14,942 14,775 - -
Loss/(profit) on sale of plant and equipment	47 11 - -
Share based payments expense	24 30 24 30
Net foreign currency gains	(7) (257) - -
Changes in assets and liabilities
Trade receivables	(527) 53 - -
Other receivables	316 442 - -
Related party receivables	- - (2,719) (1,739)
Accrued income	5,927 16 - -
Prepayments	(323) 413 - -
Deferred tax assets	(692) 74 3,602 2,314
Trade and other creditors	(605) 1,892 (139) 56
Related party payables	- - (1,003) (492)
Other liabilities	(206) (243) - -
Current tax liabilities	314 - 314 -
Deferred tax liabilities	(49) (83) - -
Provision for employee benefits	248 116 - -
Net cash flow from operating activities	18,751 14,252 - -
(b) Reconciliation of cash
Cash balance comprises:
- Cash on hand 6	22,558 19,998 6 6
	22,558 19,998 6 6

(c) Non-cash investing activities

There were no non-cash investing activities during the financial year.

41

M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

		CONSOLIDATED PARENT ENTITY 2008 2007 2008 2007 $’000 $’000 $’000 $’000 10,000 16,000 - - 10,000 16,000 - - - - - - - - - - 10,000 16,000 - - 10,000 16,000 - - 10,000 16,000 - - - - - - 10,000 16,000 - -
	20. STATEMENT OF CASH FLOWS (cont’d)
	(d) Financing facilities available
	Total Facilities:
	- trade debt purchase facility
	Facilities used at reporting date:
	- trade debt purchase facility
	Facilities unused at reporting date:
	- trade debt purchase facility
	Total Facilities
	Facilities used at reporting date
	Facilities unused at reporting date

Trade debt purchase facility

During the financial year 2006, the consolidated entity entered into an agreement with an unrelated third party for the purchase of its trade debts. The facility was renegotiated and renewed in the current financial year. Upon acceptance, funds were made available to the consolidated entity of an amount not exceeding the facility limit of $10 million. At the reporting date the consolidated entity had not drawn down on the facility and was owed $1.9 million (2007: $2.5 million) in debtor receipts.

The facility term is two years and is subject to floating interest rates based on the bank bill swap reference rate plus a margin. The facility is subject to meeting financial covenants on a rolling six month basis which are reviewed each month by the third party. Under the agreement the consolidated entity has been appointed as agent to manage, collect and enforce all purchased trade debts. If, on any day, the receipts from debtors exceed the amount the consolidated entity has drawn down against the facility limit, that amount is required to be remitted to the consolidated entity on the next business day.

	next business day.
		CONSOLIDATED PARENT ENTITY
		2008 2007 2008 2007
		$’000 $’000 $’000 $’000
	21. EXPENDITURE COMMITMENTS
	(a) Capital expenditure commitments
	Estimated capital expenditure contracted for at balance date but not provided for:
	Not later than one year	291 1,173 - -
	Payable later than one year	- - - -
		291 1,173 - -

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==> picture [292 x 56] intentionally omitted <==

21. EXPENDITURE COMMITMENTS (cont’d)

(b) Lease expenditure commitments

Operating leases

All operating leases relate to premises, parking spaces and office equipment in various locations and have a lease term of between six months and six years. There are no restrictions placed upon the lessee by entering into these leases.

		CONSOLIDATED PARENT ENTITY
		2008 2007 2008 2007
		$’000 $’000 $’000 $’000
	Minimum lease payments:
	Not later than one year	3,321 2,189 - -
	Later than one year and not later than five years	8,864 7,033 - -
	Later than five years	2,538 4,158 - -
		14,723 13,380 - -
	Aggregate expenditure commitments comprise:
	Amounts provided for: Lease incentive liability – current	95 149 - -
	Lease incentive liability – non-current	1,550 1,702 - -
	Amounts not provided for: Rental commitments	14,723 13,380 - -
		16,368 15,231 - -

Finance lease and hire purchase commitments

The consolidated entity leases various plant and equipment with a carrying amount of $2.3 million under finance leases expiring within two years subject to interest rates between 7% and 11%.

		CONSOLIDATED PARENT ENTITY
		2008 2007 2008 2007
		$’000 $’000 $’000 $’000
	Minimum lease payments:
	Not later than one year	2,088 3,480 - -
	Later than one year and not later than five years	1,878 3,966 - -
	Later than five years	- - - -
	Total minimum lease payments	3,966 7,446 - -
	Less future finance charges	(349) (821) - -
	Total lease liability	3,617 6,625 - -
	Aggregate expenditure commitments comprise:
	Amounts provided for: Lease liabilities – current	1,845 3,008 - -
	Lease liabilities – non-current	1,772 3,617 - -
		3,617 6,625 - -

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	CONSOLIDATED PARENT ENTITY
	2008 2007 2008 2007
	$’000 $’000 $’000 $’000
22. EMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTS
Employee benefits
The aggregate employee benefits liability is comprised of:
Accrued wages, salaries, annual leave and on costs	5,126 3,823 - -
Provisions (current)	506 381 - -
Provisions (non-current)	1,169 1,046 - -
	6,801 5,250 - -

Employee share schemes

The consolidated entity has adopted the following three employee share plans:

• (a) Employee Option Plan;

• (b) Discretionary Share Plan; and

• (c) Share Purchase Plan.

Full-time and part-time employees of Macquarie or its subsidiaries are eligible to participate in these plans at the discretion of the directors. Directors, both executive and non-executive, are also eligible to participate in the plans. However, their participation is subject to the Corporations Act 2001 and the ASX Listing Rules. The plans are administered by the Board, which determines the directors or employees that will be made offers to participate in the plans and the terms of those offers. There are currently 339 employees and directors eligible for these plans.

Each of the plans contains provisions dealing with matters such as administration of the plans, variation of the plan rules, and termination or suspension of the plans. The plans are subject to the overriding application of the Corporations Act 2001 and the ASX Listing Rules.

The plans restrict the total number of shares issued under all of the plans, including as a result of the exercise of options, in the previous five years and the number of unexercised options issued to no more than 5% of the issued share capital of Macquarie.

During the year, there were nil options (2007: 102,500) issued under the Employee Option Plan to eligible employees. At 30 June 2008, there were 151,500 (2007: 476,500) options on issue under this plan. During the year, nil options were exercised (2007: nil) and 325,000 (2007: 72,000) options were forfeited or expired.

During the year, there were nil shares (2007: nil) issued under the Discretionary Share Plan to eligible employees, and nil shares (2007: nil) issued under the Share Purchase Plan. Ordinary shares issued under the Discretionary Share Plan are not disposable for two years from the date of issuance, and are forfeited upon termination of employment with Macquarie. Ordinary shares issued under the Share Purchase Plan are not disposable until the earlier of the date of termination of employment with Macquarie, or three years from the date of issuance.

The market value of Macquarie shares closed at $0.71 on 30 June 2008.

No other equities in any of the entities within the consolidated entity were acquired by or issued to employees during the year in relation to any other ownership based remuneration scheme.

The maximum contractual life of each option granted is six years. There are no cash settlement alternatives.

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AT 3 0 J U N E 2 0 08

22. EMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTS (cont’d)

Information in respect to the number of options granted under the Employee Option Plan is as follows:

Balance at beginning of year Granted Forfeited / Expired Exercised Balance at end of year Exercisable at end of year	2008 2007 Number of options Weighted average exercise price $ Number of options Weighted average exercise price $ 476,500 1.42 446,000 1.55 - - 102,500 0.97 (325,000) 1.42 (72,000) 1.54 - - - -
	151,500 1.44 476,500 1.42
	69,000 2.00 328,000 1.48

(a) Options held at the beginning of the reporting period

The following table summarises information about the options held by employees as at 1 July 2007.

Number of	Grant date	Vesting date	Expiry date	Weighted
options				average
				exercise price
				$
262,000	6 May 2002	1 July 2004 and	1 July 2007	1.40
		1 July 2005
20,000	18 June 2003	17 June 2006 and	17 June 2008	1.40
		17 June 2007
92,000	1 February 2005	31 January 2007 and	31 January 2010	2.00
		31 January 2008
50,000	23 April 2007	1 July 2008	10 April 2010	0.98
52,500	23 April 2007	23 April 2009	23 April 2012	0.97
476,500

(b) Options granted during the reporting period

There were nil options granted by the Company to employees during the year.

(c) Options exercised during the reporting period

There were no options exercised by employees during the year.

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22. EMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTS (cont’d)

(d) Options held as at the end of the reporting period

The following table summarises information about options held by the employees as at 30 June 2008:

Number of	Grant date	Vesting date	Expiry date	Weighted
options				average
				exercise price
				$
69,000	1 February 2005	31 January 2007 and	31 January 2010	2.00
		31 January 2008
50,000	23 April 2007	1 July 2008	10 April 2010	0.98
32,500	23 April 2007	23 April 2009	23 April 2012	0.97
151,500

(e) Superannuation commitments

MT makes contributions in accordance with the superannuation law in respect of each eligible employee. At the end of the financial year, contributions of up to 9% (2007: 9%) of employees’ salaries and wages are legally enforceable in Australia.

23. CONTINGENT LIABILITIES

• (a) The consolidated entity currently disputes certain charges levied by some of its suppliers which total $0.3 million (2007: $0.5 million) on the grounds of incorrect billing, including that the services were not provided to the consolidated entity or its customers, and services supplied were not in accordance with agreed criteria. The consolidated entity is currently in discussion with each of the suppliers to resolve the disputes and expects that satisfactory solutions will be agreed. The consolidated entity has recorded an amount in trade creditors, which excludes the disputed amounts. A contingent liability could exist for the difference between the amount recorded in the trade creditors and the negotiated settlement of these disputes, the extent of which cannot currently be determined.

• (b) The Company has guaranteed MT’s performance, including payments owed, under various wholesale supply agreements between MT and Telstra Corporation Limited (“Telstra”). It is not practical to disclose the maximum amount payable under the guarantee.

• (c) The Company has provided a letter of ongoing financial support to Macquarie Telecom Pte Ltd (“MT Singapore”) a wholly owned subsidiary of the Company, for the purpose of assisting MT Singapore to meet its liabilities as and when they fall due, but only to the extent that money is not otherwise made available to MT Singapore to meet such liabilities. The period of the financial support and guarantee is until 26 February 2009.

• (d) MT was in dispute with a former wholesale customer Telkom over unpaid bills. In turn, Telkom lodged a claim against MT. Telkom appointed an administrator in April 2008 and subsequently went into voluntary liquidation. Telstra (a secured creditor) appointed a receiver in May 2008. The receiver subsequently provided formal notification to MT that he does not propose to pursue Telkom’s claim against the company. MT has also received formal notification from the liquidator that he does not propose to pursue Telkom’s claim against MT.

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24. EARNINGS PER SHARE	CONSOLIDATED
	2008 2007
Basic loss per share (cents per share)	(5.7) (17.4)
Diluted loss per share (cents per share)	(5.7) (17.4)
	2008 2007
	$’000 $’000
The following reflects the loss and share data used in the calculations of basic and diluted loss per share:
Net loss attributable to members	(1,165) (3,594)
Loss used in calculating basic and diluted loss per share	(1,165) (3,594)
	2008 2007
	Number of shares Number of shares
Weighted average number of ordinary shares used in calculating basic loss per share	20,608,621 20,608,621
Effect of dilutive securities:
Share options	- -
Adjusted weighted average number of ordinary shares used in calculating diluted loss per share:	20,608,621 20,608,621
Number of options that are not dilutive and not included in the calculation of diluted loss per share
- Options over ordinary shares	286,500 611,500

Since the end of the financial year, no ordinary shares have been issued upon the exercise of options.

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25. KEY MANAGEMENT PERSONNEL DISCLOSURES

(a) Details of Key Management Personnel

Key management personnel of the consolidated group are defined as those persons having the authority and responsibility for planning, directing and controlling activities of the entity, directly or indirectly.

Directors:

R Kaye Chairman D Tudehope Chief Executive A Tudehope Managing Director - Hosting S Butler Non-executive director J Palfreyman Non-executive director

Other Key Management Personnel:

C Greig Marketing Director M Krishnapillai Group Executive, Carrier and Strategy G Noble Group Executive, Convergent Programs L Morgan Managing Director - Asia M Simmonds Chief Financial Officer G Thomson Commercial Director

• Ceased employment during the financial year.

(b) Compensation of Key Management Personnel

(i) Compensation Policy

The Corporate Governance, Nomination and Remuneration Committee comprises all the non-executive directors and the Chief Executive. Its main responsibilities are to review all matters relating to the appointment, retirement and performance of the Board, the Board Committees and the Chief Executive and Managing Director - Hosting of the Company.

The Committee addresses the people management processes and reviews the remuneration arrangements for non-executive directors, executive directors and senior managers. The Committee also reviews and approves the issue of shares and options under the Company’s share and option plans. The Managing Director - Hosting joins the Committee to determine the remuneration policy for the senior management team.

Further details of remuneration policy and service contracts in place are outlined in the Directors’ Report under the heading “Remuneration Report”.

(ii) Compensation by Category

(ii) Compensation by Category
	CONSOLIDATED PARENT ENTITY
	2008 2007 2008 2007
	$’000 $’000 $’000 $’000
Short-term employee benefits	3,667,735 3,121,380 - -
Post employment benefits	106,182 109,588 - -
Termination payments	154,862 - - -
Share-based payments	39,861 27,242 - -
	3,968,640 3,258,210 - -

Information regarding individual directors’ and executives’ remuneration is provided in the remuneration report on pages 6 to 11.

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25. KEY MANAGEMENT PERSONNEL DISCLOSURES (cont’d)

(c) Shareholdings of Key Management Personnel

30 June 2008 Directors R Kaye D Tudehope A Tudehope D & A Tudehope 27(c) S Butler J Palfreyman Executives C Greig M Krishnapillai L Morgan G Noble M Simmonds G Thomson Total	Balance 1 July 2007 Granted as remuneration On exercise of options Net change other Balance 30 June 2008 5,000 - - - 5,000 24,042 - - - 24,042 3,591 - - - 3,591 12,501,390 - - - 12,501,390 7,500 - - - 7,500 10,000 - - - 10,000 - - - - - 7,183 - - - 7,183 - - - 45,750 45,750 21,835 - - - 21,835 - - - - - 6,133 - - - 6,133
	12,586,674 - - 45,750 12,632,424

• Ceased employment during the year.

All options and shareholdings referred above are ordinary shares in the company.

(d) Shares issued on exercise of compensation options

During the financial year there were no shares (2007: nil) issued to key management personnel on exercise of compensation options.

(e) Other transactions and balances with Key Management Personnel

Services

Services provided by any related party have been disclosed in the Remuneration Report.

	CONSOLIDATED PARENT ENTITY
	2008 2007 2008 2007
	$ $ $ $
26. AUDITORS’ REMUNERATION
The auditor of Macquarie is PricewaterhouseCoopers.
Amounts received or due and receivable by the auditors of Macquarie for:
– an audit or review of the financial report of the Company and any other entity in the consolidated entity	190,000 190,000 - -
– other services in relation to the Company and any other entity in the consolidated entity	62,670 23,000 - -
	252,670 213,000 - -

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27. RELATED PARTY DISCLOSURES

(a) The directors of Macquarie during the year were:

R Kaye D Tudehope A Tudehope S Butler J Palfreyman

(b) The following related party transactions occurred during the financial year:

Transactions with related parties in the wholly owned group

Business Development Agreement

On 29 June 1998, the Company entered into a Business Development Agreement with its wholly owned subsidiary, MT. Under this agreement, the Company can charge MT a fee for the provision of services to customers and can be charged a management fee by MT for servicing any customers contracted to the Company.

No such fees were levied during the current financial year (2007: nil).

Tax consolidation

Effective 1 July 2002, for the purposes of income taxation, Macquarie and its 100% owned Australian subsidiaries have formed a tax consolidated group. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned Australian subsidiaries based on their accounting profit/(loss) for the period. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations.

Amounts due from/payable to wholly owned entities

On 30 June 2008, the Company had a current receivable of $1,414,987 (2007: $13,981,688) due from MT, which was a result of tax consolidations and advances made to MT in relation to normal commercial transactions, including the repayment of $15,000,000 of advances.

On 30 June 2008, the Company had a current receivable of $1,082,998 (2007: $797,716) due from Macquarie Telecom Services Pty Limited (“MTS”) which was a result of tax consolidations.

On 30 June 2008, the Company had an amount payable to Macquarie Telecom Carrier Services Pty Limited (“MTCS”) of $2,268,065 (2007: $3,271,346) which was a result of tax consolidations.

(c) Equity instruments of directors

Interests in the equity instruments of entities in the consolidated entity held by directors of the reporting entity and their director-related entities at 30 June 2008, being the number of instruments held, were:

• (i) D Tudehope and A Tudehope collectively wholly own Claiward Pty Ltd, an entity which owns 61% (2007: 61%) of the ordinary shares of Macquarie. The relevant ownership interests in Claiward Pty Ltd are held by Semark Pty Ltd at 84% and Fenton Australia Pty Ltd at 16%. The shares in these latter companies are held by D Tudehope and A Tudehope respectively;

• (ii) 7,183 ordinary shares were on issue to a director-related entity of D Tudehope and A Tudehope;

• (iii) 300,149 ordinary shares were on issue to a director-related entity of D Tudehope;

• (iv) 5,000 ordinary shares were on issue to a director-related entity of R Kaye. R Kaye also has an interest in 40,000 options over ordinary shares;

• (v) S Butler has an interest in 40,000 options over ordinary shares and 7,500 ordinary shares; and

• (vi) 10,000 ordinary shares were on issue to a director-related entity of J Palfreyman. J Palfreyman also has an interest in 40,000 options over ordinary shares.

There have been no changes in equity instruments of directors during the year.

(d) Terms and conditions

All transactions with key management personnel were made on normal commercial terms and conditions and at market rates.

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28. SEGMENT INFORMATION

Segment description

The consolidated entity operates in three primary business segments. The voice segment relates to the provision of voice telecommunications services to Australian corporate, Australian government and Singapore corporate customers. The Data & Hosting segment relates to the provision of services utilising the Macquarie data network and data hosting facility to Australian corporate, Australian government customers and Singapore corporate customers. The Mobiles segment relates to the provision of mobile telecommunications services to Australian corporate and Australian government customers.

Transfer prices between business segments are set at an arm’s length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment result include transfers between business segments. Those transfers have been eliminated on consolidation.

Geographically, the consolidated entity operates in two locations - Australia and Singapore.

Segment accounting policies

Segment accounting policies are the same as the consolidated entity’s policies described in Note 2.

Segment information on primary business segments

Revenue Sales to customers outside the consolidated entity Other revenues from customers outside the consolidated entity Segment revenue Unallocated revenue Total consolidated revenue Results Segment result before income tax Unallocated expenses Consolidated entity loss before income tax and finance costs Finance costs Consolidated entity loss before income tax Income tax benefit/(expense) Consolidated entity loss after income tax	Voice Data & Hosting Mobiles 2008 $’000 2007 $’000 2008 $’000 2007 $’000 2008 $’000 2007 $’000 132,864 156,149 83,722 72,075 28,308 26,383 - - - - - - 132,864 156,149 83,722 72,075 28,308 26,383	Consolidated 2008 $’000 2007 $’000 244,894 254,607 - - 244,894 254,607 1,121 918 246,015 255,525
	8,764 8,069 (4,177) (6,485) 1,545 573
		6,132 2,157 (6,709) (5,384) (577) (3,227) (806) (1,012) (1,383) (4,239) 218 645 (1,165) (3,594)

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28. SEGMENT INFORMATION (cont’d)

Segment information on primary business segments

		Voice	Voice	Voice	Data & Hosting	Data & Hosting	Data & Hosting	Mobiles	Mobiles	Consolidated	Consolidated
		2008		2007	2008		2007	2008	2007	2008	2007
		$’000		$’000	$’000		$’000	$’000	$’000	$’000	$’000
Assets
Segment assets		33,990		39,599	46,160	43,496		7,746	6,528	87,896	89,623
Unallocated assets										4,613	7,340
Total assets										92,509	96,963
Liabilities
Segment liabilities		24,934		30,026	17,270	15,506		5,382	5,291	47,586	50,823
Unallocated liabilities										1,585	1,654
Total liabilities										49,171	52,477
Other segment information
Acquisition of plant and
equipment, intangible assets and
other non-current assets		395		904	10,185		9,432	30	34	10,610	10,370
Unallocated acquisitions										2,420	1,779
Total acquisitions										13,030	12,149
Depreciation		689		313	12,025	12,211		69	88	12,783	12,612
Unallocated depreciation										2,159	2,163
Total depreciation										14,942	14,775
Amortisation			-	-	303		303	-	-	303	303
Unallocated amortisation										204	304
Total amortisation										507	607
	Voice			Data &	Hosting		Mobiles		Unallocated		Consolidated
	2008	2007		2008	2007		2008	2007	2008	2007	2008	2007
	$’000	$’000		$’000	$’000		$’000	$’000	$’000	$’000	$’000	$’000
Cash flow information
Net cash from operating
activities	12,498	13,397		9,887	7,061		2,295	1,227	(5,929)	(7,433)	18,751	14,252
Net cash flow from
investing activities	(395)	(904)		(10,185)	(9,153)		(30)	(34)	(2,573)	(1,041)	(13,183)	(11,132)
Net cash flow from
financing activities	-		-	-		-	-	-	(3,008)	923	(3,008)	923

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28. SEGMENT INFORMATION (cont’d)

Segment information on secondary geographic segments

Segment revenue Segment assets Other segment information Acquisition of plant and equipment, intangible assets and other non-current assets	Australia Singapore Consolidated 2008 $’000 2007 $’000 2008 $’000 2007 $’000 2008 $’000 2007 $’000 235,772 244,495 10,243 11,030 246,015 255,525
	88,383 93,078 4,126 3,885 92,509 96,963
	12,642 11,910 388 239 13,030 12,149

29. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The consolidated entity’s principal financial instruments comprise receivables financing, finance leases, hire purchase contracts, cash and short-term deposits.

The main purpose of these financial instruments is to provide additional funding capacity for the consolidated entity’s operations.

The consolidated entity has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations.

The main risks arising from the consolidated entity’s financial instruments are interest rate risk, liquidity risk, credit risk and foreign exchange risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

The consolidated entity is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. The risk is managed by maintaining an appropriate mix between fixed and floating rate borrowings.

Liquidity risk

The consolidated entity’s objective is to maintain a balance between continuity of funding and flexibility through use of receivables financing, finance leases and hire purchase contracts.

Credit risk

Information regarding the Consolidated entity’s credit risk policies and objectives is set out in note 30(b).

Foreign exchange risk

The consolidated entity is exposed to changes in foreign exchange risk in relation to the earnings of its Singapore based subsidiary, which have not been hedged on the basis of its significance to the Group’s results.

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NOTES TO THE FINANCIAL STATEMENTS

30. FINANCIAL RISK MANAGEMENT

The consolidated entity and the parent entity hold the following financial instruments:

Financial assets Cash and cash equivalents Trade and other receivables Accrued income	Consolidated Parent Entity 2008 2007 2008 2007 $'000 $'000 $'000 $'000 22,558 19,998 6 6 18,815 18,604 2,498 14,779 10,876 16,803 - -
Other current assets	1,815 1,492 - -
Other financial assets	1,402 1,246 - -
Financial liabilities Trade and other payables	55,466 58,143 2,504 14,785
	41,909 42,514 2,295 3,437
	41,909 42,514 2,295 3,437

a) Market Risk

(i) Foreign exchange risk

The consolidated entity operates primarily in Australia and Singapore and is exposed to foreign exchange risk arising mainly from its Singapore operation. Commercial transactions in Australia and Singapore are mainly in AUD and SGD respectively. Foreign currency transactions are not significant to the consolidated operations. As such, the consolidated entity chooses not to hedge its foreign exchange risk using forward exchange contracts. The consolidated entity’s exposure to foreign currency risk at the reporting date was as follows:

Cash and cash equivalents Trade and other receivables Other current assets Accrued income Other financial assets Trade and other payables	2008 $'000 $'000 USD **SGD **	2007 $'000 $'000 USD **SGD **
	646 1,106 258 264 - 72 - 177 (649) 737 65 (1,591)	1,560 103 436 - 43 - 209 (176) 825 65 (1,479)

Consolidated entity sensitivity

Based on the financial instruments held at 30 June 2008, had the Australian dollar weakened/strengthened by 10% against the Singapore dollar with all other variables held constant, the consolidated entity’s post-tax profit for the year would have been $121,000 higher/$99,000 lower (2007: $176,000 higher/$144,000 lower) mainly as a result of foreign exchange gains/losses on translation of Singapore denominated financial instruments as detailed in the above table.

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Parent entity sensitivity

The carrying amounts of the parent entity's financial assets and liabilities are denominated in Australian dollars. Hence, no exchange loss/gain is expected on translation of financial instruments held by the parent entity.

(ii) Interest rate risk

The consolidated entity’s and parent entity’s main interest risk arising from cash and cash equivalents with banks. The consolidated entity’s borrowings are at fixed interest rate.

Based on the cash and cash equivalents at 30 June 2008, if interest rates had changed by +/- 10% from the year end rates with all other variables held constant, post-tax profit would have been $160,000 higher/lower (2007: $117,000 higher/lower) as a result of higher/lower interest income from these financial assets.

(iii) Other price risk

Neither the consolidated entity nor parent entity carries any other price risk.

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II) Cash flow and fair value interest rate risk

The consolidated entity’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at the balance date, are as follows:

	Floating interest rate	Floating interest rate	Fixed interest rate maturing in	Fixed interest rate maturing in	Fixed interest rate maturing in	Fixed interest rate maturing in	Fixed interest rate maturing in	Fixed interest rate maturing in	Non-interest bearing	Non-interest bearing	Total carrying amount as per the Balance Sheet	Total carrying amount as per the Balance Sheet	Weighted average effective interest rate	Weighted average effective interest rate
			1 year or less		Over 1 to 5 years		More than 5 years
	2008 $’000	2007 $’000	2008 $’000	2007 $’000	2008 $’000	2007 $’000	2008 $’000	2007 $’000	2008 $’000	2007 $’000	2008 $’000	2007 $’000	2008 %pa	2007 %pa
(i) Financial assets
Cash	22,558	19,998	-	-	-	-	-	-	-	-	22,558	19,998	6.69	5.51
Receivables - trade	-	-	-	-	-	-	-	-	18,375	17,848	18,375	17,848	N/A	N/A
Accrued income	-	-	-	-	-	-	-	-	10,876	16,803	10,876	16,803	N/A	N/A
Other financial assets	1,402	1,246	-	-	-	-	-	-	-	-	1,402	1,246	5.55	4.82
Other – current	-	-	-	-	-	-	-	-	1,815	1,492	1,815	1,492	N/A	N/A
Total financial assets	23,960	21,244	-	-		-	-	-	31,066	36,143	55,026	57,387
(ii) Financial liabilities
Payables	-	-	-	-	-	-	-	-	41,909	42,514	41,909	42,514	N/A	N/A
Total financial liabilities	-	-	-	-	-	-	-	-	41,909	42,514	41,909	42,514	N/A	N/A

N/A - Not applicable for non-interest bearing financial instruments.

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M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

30. FINANCIAL INSTRUMENTS (Cont’d)

(b) Credit risk

Credit risk is managed on a consolidated entity basis. Credit risk arises from cash and cash equivalents, deposits with financial institutions, as well as credit exposures to customers including receivable and committed transactions. Customers are assessed for their credit worthiness by using third party credit rating agency. If there are no independent credit ratings available, credit risk is assessed by taking into account the financial position of the company, past experience and other factors. The Consolidated entity mitigates the credit risk of the top twenty customers through trade credit insurance. The credit quality of the financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised on page 56.

Trade receivables Group 1 Group 2 Provision for doubtful debts	Consolidated Parent entity 2008 2007 2008 2007 $' 000 $'000 $'000 $'000 14,349 14,328 - - 5,587 3,901 - - (1,786) (1,762) - -
	18,150 16,467 - -

Group 1 Aged 0 – 60 days including past due, but not impaired. Group 2 Aged 60+ days including some impaired amounts for which provision has been made.

(c) Liquidity risk

Financing arrangement

The consolidated entity manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Surplus funds are generally invested on investment account.

The consolidated entity had access to the following undrawn borrowing facilities at the reporting date

Receivables financing	Consolidated Parent entity 2008 2007 2008 2007 $' 000 $'000 $'000 $'000 10,000 16,000 - -
	10,000 16,000 - -

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M a cqu a r i e T el e co m G r oup Li mi t ed

NOTES TO THE FINANCIAL STATEMENTS

AT 3 0 J U N E 2 0 08

30. FINANCIAL INSTRUMENTS (Cont’d)

Maturities of financial liabilities

The table below analyses the consolidated entity's and parent entity's financial liabilities.

Consolidated entity at 30 June 2008 Non interest bearing Variable Rate Fixed Rate	Less than 6 months 6-12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flow $'000 $'000 $'000 $'000 $'000 $'000 41,909 - - - - 41,909 - - - - - - - - - - - -
	41,909 - - - - 41,909

Parent entity at 30 June 2008 Non interest bearing Variable Rate Fixed Rate	- - 2,295 - - 2,295 - - - - - - - - - - - -
	- - 2,295 - - 2,295

(d) Fair value estimation

The carrying value of all financial instruments is assumed to approximate their fair value given their short term nature.

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M a cqu a r i e T el e co m G r oup Li mi t ed

DIRECTORS’ DECLARATION

In accordance with a resolution of the directors of Macquarie Telecom Group Limited, we state that:

• (1) In the opinion of the directors:

• (a) the financial report, the additional disclosures included in the directors’ report designated as audited, and notes of the Company and of the consolidated entity are in accordance with the Corporations Act 2001, including:

  • (i) giving a true and fair view of the Company’s and the consolidated entity’s financial position as at 30 June 2008 and of their performance for the year ended on that date; and

  • (ii) complying with Accounting Standards and Corporations Regulations 2001; and

• (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

• (2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial period ending 30 June 2008

• (3) In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in Note 11 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.

On behalf of the Board:

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David Tudehope Chief Executive

Sydney, 27 August 2008

59

PricewaterhouseCoopers ABN 52 780 433 757

Independent Auditor’s Report to the Members of

Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia www.pwc.com/au Telephone +61 2 8266 0000 Facsimile +61 2 8266 9999

Macquarie Telecom Group Limited

Report on the financial report

We have audited the accompanying financial report of Macquarie Telecom Group Limited, which comprises the balance sheet as at 30 June 2008, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Macquarie Telecom Group Limited (the consolidated entity). The consolidated entity comprises Macquarie Telecom Group Limited (the Company) and the entities it controlled at the year's end.

Directors’ responsibility for the financial report

The directors of the Company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 .This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies 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. These Auditing 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 and fair presentation of the financial report 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.

Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report.

For further explanation of an audit, visit our website http://www.pwc.com/au/financialstatementaudit.

Our audit did not involve an analysis of the prudence of business decisions made by directors or management.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

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Liability limited by a scheme approved under Professional Standards Legislation.

Auditor’s opinion

In our opinion:

• (a) the financial report of Macquarie Telecom Group Limited is in accordance with the Corporations Act 2001 , including:

• (i) giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2008 and of their performance for the year ended on that date; and

• (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and

• (b) the financial report complies with International Financial Reporting Standards as disclosed in Note 1.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 6 to 11 of the directors’ report for the year ended 30 June 2008. 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.

Auditor’s opinion

In our opinion, the Remuneration Report of Macquarie Telecom Group Limited for the year ended 30 June 2008, complies with section 300A of the Corporations Act 2001 .

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PricewaterhouseCoopers

==> picture [137 x 48] intentionally omitted <==

Wayne Andrews Partner

Sydney 27 August 2008

61

PricewaterhouseCoopers ABN 52 780 433 757

Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia www.pwc.com/au Telephone +61 2 8266 0000 Facsimile +61 2 8266 9999

Auditor’s Independence Declaration

As lead auditor for the audit of Macquarie Telecom Group Limited for the year ended 30 June 2008, I declare that to the best of my knowledge and belief, there have been:

• (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

• (b) no contraventions of any applicable code of professional conduct in relation to the audit .

This declaration is in respect of Macquarie Telecom Group Limited and the entities it controlled during the period.

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Wayne Andrews Partner PricewaterhouseCoopers

Sydney 27 August 2008

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Liability limited by a scheme approved under Professional Standards Legislation.