DIRECTORS' REPORT

Your directors submit their report for the year ended 30 June 2003.

DIRECTORS

The names and details of the directors of Macquarie Corporate Telecommunications Holdinos 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:

JOHN PRIEST (CHAIRMAN AND NON-EXECUTIVE BIRECTOR)

John is Chairman of Macquarie. He is also currently Chairman of Apollo Life Sciences, a biotechnology firm, Apollo Capital, a private venture capital fund. Betcorp Ltd, a gaming company, and a non-executive director of Sydney Water. Previously, John served as executive director. Chief Financial Officer and Director of Corporate Development at Coca-Cola Amatil for 14 years and was a non-executive director of Prudential Corporation of Australia and the Woolmark Company, and Chairman of the Children's Hospital Fund. John holds a Bachelor of Business degree. He is a Fellow of the Australian Institute of Company Directors and a Fellow of CPA Australia. John is a member of the Audit and Risk Management Committee and Chairman of the Corporate Governance and Remuneration Committee.

DAVID TUDEHOPE (CHIEF EXECUTIVE)

David is Chief Executive and co-founder of Macquarie. He is responsible for overseeing the general management and strategic direction of the Company, and is actively involved in the Company's participation in requisitory 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 and Remuneration. Committee.

AIDAN TUDEHOPE (CHIEF OPERATING OFFICER)

Aidan is the Chief Operating Officer and co-founder of Macquarie. Aidan is responsible for the design and delivery of operational excellence within Macquarie. He has been instrumental in the development of Macquarie's Singaporean and Intellicentre strategies. He is also responsible for the direction of the Company's information technology strategy. Aidan holds a Bachelor of Commerce degree.

ROBERT KAYE (NON-EXECUTIVE DIRECTOR)

Robert was British Telecom's Director of Market and Business Development for the Australasian region, a former Managing Director of British Telecom's Australian operations, and a director of Clear Communications Ltd in New Zealand. He previously held CEO positions with several major IT&T companies and is currently operating as a management. consultant in the industry. Robert is Chairman of the Audit and Risk Management Committee and a member of the Corporate Governance and Remuneration Committee.

JANE CRAIG (NON-EXECUTIVE DIRECTOR)

Jane is currently the Director of the Executive MBA Program at the Australian Graduate School of Management. She has experience working with senior management teams at major companies and organisations in the banking, telecommunications, public utilities, insurance and dovernment. sectors. Jane holds a PhD in international strategic management. a MBA and a Bachelor of Arts degree. She is a member of the Audit and Risk Management Committee and the Corporate Governance and Remunaration Committee. Jane joined the Board on 1 January 2003.

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 inthe shares and options of the Company and related bodies. corporate were as follows:

a) D Tudehope and A Tudehope collectively wholly own Claiward Pty Limited, an entity which held 125,013,900 (61%) of the ordinary shares of Macquarie. The relevant ownership interests in Claiward Pty Limited are held by Semark Pty Limited at 84% and Fenton Australia Pty Limited at 16%. The shares in these latter companies are held by $D$ fudehope and A Tudehope respectively.
b) A director-related entity of D Tudehope and A Tudehope held 72,326 ordinary shares issued under the Employee Discretionary Share Plan and Share Purchase Plan, and held an interest in 345,000 options over ordinary shares issued. under the Employee Option Plan.
c) A director-related entity of D Tudehope held 204,500 ordinary. shares.
d) J Priest held an interest in 1,000,000 options over ordinary shares. Director-related entities of J Priest held 1,549,727. ordinary shares.
e) R Kaye held an interest in 400,000 options over ordinary. shares. A director-related entity of R Kave held 50,000 ordinary shares.
f) J Craig held an interest in 50,000 ordinary shares.

PRINCIPAL ACTIVITIES

The principal activities during the year of the consolidated entity. comprising Macquarie (the parent entity) and all the entities which Macquarie controlled from time to time during the financial year and at the end of the year, were the provision of telecommunication services to corporate and government. customers within Australia and Singapore.

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

farnings per Sharf.	2003
	cents
Basic loss per share	-62.31
Diluted loss per share	-(2.3)

DIVIDENDS

There were no dividends recommended or paid on ordinary shares during the year.

REVIEW AND RESULTS OF OPERATIONS.

Service revenue increased by 2.7% to \$234.5 million from \$228.4 million. The increased revenues were generated from the data, government and Singapore businesses, offsetting a fall in Australian corporate voice revenue.

The consolidated entity experienced a net loss after tax of \$4.7 million for the year, representing a significant improvement, compared to a net loss after tax for the year ended 30 June 2002. of \$17.7 million.

The improvement in the consolidated entity result was largely attributable to the change in revenue mix to higher margin areas and carrier cost reductions.

The consolidated entity incurred start up costs during the year relating to its newest business initiative. Macquarie Corporate Mobiles. These costs exceeded the revenue generated for this new business during the year ended 30 June 2003.

The consolidated entity employed 334 employees as at 30 June 2003 (2002: 342 employees).

The Company maintains a strong liquidity position including \$29.9 million in cash, no corporate debt and a positive net cash. flow of \$4.0 million for the year.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

There were no significant changes in the state of affairs during the vear ended 30 June 2003.

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

On 8 August 2003. Macquarie Corporate Telecommunications Pte Ltd. ("MCS"), a wholly owned. Sincapore based subsidiary. of the Company, accepted a settlement from an external party in relation to a claim resulting from defamatory statements. made against MCS. The details of the settlement are subject to confidentiality.

This settlement has no impact on the state of affairs or result of the Company.

EIKELY DEVELOPMENTS AND EXPECTED RESULTS.

The directors believe, on reasonable grounds, that to include in this report particular 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

Unissued shares

Details of options on issue at 30 June 2003 and movements in options on issue during the year are included in Note 15 to the financial statements.

INDEMINIFICATION 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 wifful breach of duty: or
b) a contravention of sections 182 or 183 of the Corporations. Act 2001

as permitted by section 1998 of the Corporations Act 2001.

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

DIRECTORS' AND OTHER OFFICERS' EMOLUMENTS.

The Board of directors is responsible for determining and reviewing compensation arrangements for the directors, the Chief Executive and the executive team. The Board assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention of a hich quality Board and executive team. Such officers are given the opportunity to receive their base emolument in a variety of forms including cash and fringe benefits. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company.

To assist in achieving these objectives, the Board links the nature and amount of executive directors' and executive. officers' emoluments to the Company's financial and operational performance. Senior executives have the opportunity to participate in various bonus arrangements which currently provide cash and share incentives where specified criteria are met. Details regarding the issue of shares and share options. under the Company's plans are provided in Note 19 to the financial statements.

Details of the nature and amount of each element of the emoluments of each director of the Company and each of the five executive officers of the Company and the consolidated entity receiving the highest emoluments for the year are asfollows:

Emoluments of directors of Macquarie

		Amual emoluments			Long term emploments
	Base Satary	Bonus	Otherfil.		Options(ii)		Superarmuation
				Granted during the period.	Amertised cost of unvested options.	%of remuneration
	S.	S	S.		\$.		S.
J Priest	120.000		$\sim$		25.092	16.1%	30.539
D Tudehope	294,692	60.000	15.116	٠.	$\sim$	. .	11.433
A Tudehope	287.308	37.500	16.471	$\cdot$	$\mathcal{L}^{\mathcal{A}}$	$\mathcal{L}^{\star}$	31.324
R Kaye	60.000	14	$\mathbf{r}$	$\overline{\phantom{a}}$	10.037	4.3%	5.309
J Craig	30,000	٠.	$\cdot$	$\cdot$	$\sim$		2.700

Details of shares issued to and held by director-related entities are disclosed earlier in this report and in Note 26 to the financial statements.

Emoluments of the five most highly paid executive officers of the Company and the consolidated entity

		Amual emoluments		Long term emoluments
	Base Salary	Bonus	Otherfil		Options(ii)		Superarmuation
				Granted during the period	Amertised cost of taivested options.	-% of remuneration
	S	S	S.		\$		S.
M Kristmapilla)	171.696	56.051	23.398		4.093	$0.8\%$	10.519
J Losco- G Noble	275.756 187.885	93.000 80.100	15.706. 15.000	200.000	14.4 4.093	$\sim$ 0.5%	30.519 10.519
G Thomson P Thomson	206.769 245.855	61.751	15.000 122.273	200.000	3.821 6.371	0.3% 0.4%	10.519

The terms "director" and "executive officer" have been treated as mutually exclusive for the ourcoses 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.

Notes

(i) The category "Other" for executive officers includes the value of any non-cash benefits provided including expatriate package costs, and motor vehicle allowances.
(@) The directors have issued potions 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.
(@)The Company has adopted the fair value measurement provisions of ED108 "Share-based Payment" prospectively for all potions granted to directors and relevant executives. which had not vested as at 1 July 2002. The fair value of such grants is being amortised and disclosed as part of director and executive emoluments on a straight line basis. over the vesting period. No adjustments have been made or will be made to reverse amounts previously disclosed. in relation to options that never vest lie forfeitures). From 1 July 2002, all unvested options and options granted as part of director and executive empluments have been valued using a Black-Scholes option pricing model, which takes account of factors including the option exercise price. the current level and volatility of the underiving share price. the risk-free interest rate, expected dividends on the underlying shares, current market price of the underlying shares and the expected life of the options. This model requires the input of highly subjective assumptions, including future stock price volatility and expected timing. until exercise. As changes in any of the assumptions. can materially affect the fair value estimate, the existing model may not necessarily provide a singe reliable measure. of the fair value of the options.

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
		Audit and Risk Management	Corporate Governance and Remuneration
Number of
meetings held:	16	4	З
Number of
meetings attended:
d Priest	16	4	3
D Tudehope	16	a si	3
A firdetwpe	15	$\cdots$
R Kaye	16	4	3
J Craig	6	27	$-3^{\circ}$

'appointed as director 1 January 2003.

eppointed as committee member 20 February 2003.

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

The members of the Audit and Risk Management Committee are R Kave. J Priest and J Craid. The members of the Corporate Governance and Remuneration Committee are J Priest, D. Tudehope, R Kaye and J Craig.

ROUNDING

The amounts contained in this report and in the financial report have been rounded off under the option available to the Company under Australian Securities and Investments Commission Class Order 98/100. The Company is an entity to which the Class Order applies.

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 on a prorata basis. 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.

CORPORATE GOVERNANCE

Macquarie operates in a challenging, rapidly changing telecommunications environment and the Board focus is on how to be most effective in enhancing stakeholder value. The Board believes it must be proactive to add value and leans towards timely involvement with management on a range of key issues.

Composition of the Board

The Board is composed of non-executive directors and executive directors with an appropriate mix of skills to provide the necessary breadth and depth of knowledge and experience. The Chairman is selected from and is appointed by the nonexecutive directors.

The Board has established a schedule of monthly meetings, although additional meetings can be held where the Chairmanconsiders such meetings necessary.

Board responsibilities

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

The responsibility for the 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 responsible for ensuring that management's objectives and activities are aligned with the expectations and risks identified by the Board. The Board reviews and approves the strategic plan and the underlying operating plans and budgets. to ensure they are consistent with shareholders' needs.

Independent professional advice

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

Committees

The Board uses committees to deal with specific responsibilities. This allows greater attention, and targets experience and expertise. However, the Board processes are flexible and mirror the Company's priorities.

Audit and Risk Management Committee

The Board has established an Audit and Risk Manadement Committee comprising all the non-executive directors. At the discretion of the committee, the Chief Executive, Chief Operating Officer, Chief Financial Officer and external auditors may be invited to attend. Where executives participate in Audit and Risk Management Committee discussions, they will be requested to leave the meeting for a period to ensure the non-executive directors have an opportunity to discuss matters with the external auditors in the absence of members of management.

The committee is responsible for ensuring that the organisation has in place an effective process to identify risk and proactively. manade it.

In addition, the committee reviews the scope and effectiveness. of the external audit functions and the appointment. performance and remuneration of external auditors.

Corporate Governance and Remuneration Committee The Comorate Governance and Remuneration Committee comprises all the non-executive directors and the Chief-Executive, its main responsibilities are to review all matters. relating to corporate governance including the appointment. retirement and performance of the Board of directors. the Board committees and the Chief Executive of the Company.

It ensures that continuous disclosure requirements are met and there is compliance with other laws and requlations.

The committee addresses the people management processes and reviews the remuneration arrangements for non-executive and executive directors. The committee also reviews and approves the issue of shares and options under the Company's share and option plans. The Chief Operating Officer joins the committee to determine the remuneration for the senior. management team.

The Board acknowledges its responsibility for ensuring that all significant business risks are identified and that appropriate arrangements are in place to manage these risks. The riskmanagement function requires that mechanisms be in place to review and monitor corporate performance across a broad range of risk and compliance issues affecting assets, personal safety, management, finance, business operations, corporate povernance and environmental issues.

Code of conduct

The Board is committed to the highest standards of conduct. To ensure management and employees have quidance in the performance of their duties, the Board has adopted the code of conduct issued by the Australian Institute of Company Directors and a separate code of conduct for employees.

Dealings in Macquarie shares

In order to quard against the misuse of price sensitive. information, the directors have established quidelines in relation to directors and employees dealing in Company shares. These guidelines are as follows:

a) directors and employees are prohibited from dealing in shares during the following two "blackout periods":
i) from 1 July to the date of announcement of the full year. results; and
ii) from 1 January to the date of announcement of the half year results; and
b) outside these blackout periods, trading in shares will be permitted. Directors and senior managers have the responsibility to advise the appropriate officer of any trading outside these blackout periods.

Signed in accordance with a resolution of directors:

Ador Print.

JOHN PRIEST CHARMAN

DAVID TUDEHOPE CHIEF EXECUTIVE

SYDNEY, 9 SEPTEMBER 2003

	Notes	Consolidated		Parent entity
STATEMENT OF FINANCIAL PERFORMANCE		2003 \$'000	2002 \$1000	2003 \$'000	2002 S OOO
For the year ended 30 June 2003
Revenue from ordinary activities Expenses from ordinary activities	2 2	235,532 (240, 772)	236.780 (260.982)	11,746 (105.993)	47,068 (44, 347)
(Loss)/profit from ordinary activities before income tax expense income tax benefit/(expense) relating to		(5, 240)	(24.202)	(94.247)	2,721
erdinary activities	Ą	516	6.475	(233)	(816)
Net (loss)/profit attributable to members	16(5)	(4,724)	(17.727)	(94, 480)	1,905
Net exchange differences on translation of financial statements of foreign controlled entity	16(a)	(573)	(240)
(Decrease) in retained profits on adoption of revised Accounting Standard: AASB 1028: Employee Benefits	$\frac{1}{2}$ (b)	(38)
Total revenues, expenses and valuation adjustments attributable to members and recognised directly in equity.		(611)	(240)
Total changes in equity other than those resulting from transactions with ewners as owners		(5,335)	(17.967)	(94, 480)	1,905
Basic loss per share Diluted loss per share	22 22	Cerds (2.3) (2.3)	Cerris (8.7) (8.7)

	Notes	Consolidated		Parent entity
STATEMENT OF FINANCIAL POSITION		2003 \$1000	2002 \$1000	2003 \$1000	2002 \$'000
At 30 June 2003
Current assets
Cash assets		29,920	25,920	15,224	14.556
Receivables	5	24,901	36,305	73	336
Work in progress	6	17.898	18,578	19	163
Investments	7	1.738	1,430
Other	8	1.678	831
Total current assets		76.135	83,064	15,316	15,055
Non-current assets
Receivables	5			93,564	94,450
Investments	9			70,400	165.649
Plant and equipment.	30	24,798	28,370
Deferred tax assets	$\mathcal{L}_g$	3.650	3,868	3,508	163
Other	33	4.055	4,389
Total non-current assets		32.503	36,627	167,472	260.262
Total assets		108.638	119,691	182,788	275,317
Current liabilities
Payables	12	42.974	47,940	3,037	7.602
Current tax liabilities	4
Provisions	13	1.158	1,212
Other	斗杀	-85
Total current liabilities		44.217	49,152	3,037	7.602
Non-current liabilities
Payables	$^{\rm 12}$			6,532
Deferred tax liabilities	4	244	1,278	102	118
Provisions	13	467	323
Other	斗杀	107
Total non-current liabilities		818	1,601	6,634	118
Total liabilities		45.035	50,753	9,671	7.720
Net assets		63.603	68,938	173,117	267.597
Equity
Contributed equity	15	86,823	86,823	86,823	86.823
Reserves	16	(847)	(274)
(Accumulated losses)/retained profits	16	(22.373)	(17,611)	86,294	180,774
Total equity		63.603	68,938	173, 117	267.597

	Notes		Consolidated		Parent entity
STATEMENT OF CASH FLOWS		2003 \$'000	2002. \$'000	2003 \$1000	2002 \$1000
For the year ended 30 June 2003
Cash flows from operating activities
Receipts from customers		266,598	261,170		4.498
Payments to suppliers and employees		(253, 452)	(258, 603)		(7.395)
Interest received Goods and services tax paid		1.023 (4,072)	1.282	668	980
Income tax refund received			(2.817) 192		192
Net cash flows from/(used in) operating activities	17(a)	10.097	3.224	668	(1,805)
Cash flows from investing activities
Acquisition of plant and equipment Proceeds from sale of commercial bills and		(5,789)	(8.573)
promissory notes			14,937		14.937
Cash inflow/(outflow) for short term deposits		(308)	9.016		10.446.
Net cash flows (used in)/from investing activities		(6,097)	15.380		25,383
Cash flows from financing activities
Advances to related parties					(9,023)
Net cash flows (used in) financing activities					(9,023)
Net increase in cash held		4,000	16.604	668	14.555
Opening cash brought forward		25.920	9.316	14.556
Closing cash carried forward	77 ₍₅₎	29,920	25,920	15,224	14,556

A BASIS OF ACCOUNTING

The financial report is a general purpose financial report which bas been prepared in accordance with the requirements of the Corporations Act 2001 including applicable Accounting Standards. Other mandatory professional reporting requirements (Urgent Issues Group Consensus Views) have also been complied with.

The financial report has been prepared in accordance with the historical cost convention.

B CHANGES IN ACCOUNTING POLICIES

The accounting policies adopted are consistent with those of the previous year unless otherwise stated.

Employee benefits

The consolidated entity has adopted the revised Accountino Standard AASB 1028: Employee Benefits, which has resulted in a change in the accounting policy for the measurement of employee benefits liabilites. Previously, the consolidated entity measured the provision for employee benefits based on remuneration rates at the date of recognition of the liability. In accordance with the requirement of the revised Standard, the provision for employee benefits is now measured based on the remuneration rates expected to be paid when the liability is settled. The effect of the revised policy has been to decrease consolidated retained profits by \$38,000.

C PRINCIPLES OF CONSOLIDATION

The consolidated financial statements are those of the consolidated entity, comprising Macquarie (the parent entity) and all entities which Macquarie controlled from time to time during the year and at balance date.

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.

D 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 rulling at the end of the year.

Translation of financial reports of overseas operation

The Company's overseas operation is deemed self sustaining as it is financially and operationally independent of the Company. The financial reports of the overseas operation are translated using the current rate method and any exchange. differences are taken directly to the foreign currency translation reserve.

E CASH AND CASH FOIBVALENTS.

Cash on hand and in banks and short-term deposits are stated at nominal value.

For the purposes of the Statement of Cash Flows, cashincludes cash on hand and in banks, and money market. investments readily convertible to cash within two working days, net of outstanding bank overdrafts.

RECEIVABLES É.

Trade receivables are recognised and carried at original invoice amount less a provision for any uncollectable debts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

Receivables from related parties are recognised and carried. at the nominal amount due.

Provision for settlement claims represent the estimate of potential customer disputes which cannot be claimed from the Company's suppliers.

G INVESTMENTS

Bank deposits are measured at their nominal amount.

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

EL WORK EN PROGRESS

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

E RECOVERABLE AMOUNT

Non-current assets are not carried at an amount above their recoverable amount, and where carrying values exceed this recoverable amount assets are written down. In determining recoverable amount, the expected net cash flows have been discounted to their present value using a market determined. risk adjusted discount rate.

PLANT AND EQUIPMENT $\mathcal{L}_{\mathcal{L}}$

Cost and valuation

Plant and equipment are recorded at cost. Plant and equipment include costs in relation to IT development and infrastructure. development projects where future benefits are expected. beyond any reasonable doubt, to exceed these costs.

Depreciation

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

	2003	2002
Major depreciation periods are: Plant and equipment: I	-1 to 10 years.	1 to 10 years.

Leasehold improvements are amortised over the lease term.

K TRANSMISSION CAPACITY

Expenditure, relating to the acquisition of transmission capacity, is deferred to the extent that it is expected to provide future economic benefits to the Company. Deferred expenditure is amortised over the period in which the related benefits are expected to be realised or 15 years, whichever is the shorter.

E 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 fessor 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.

M. PAYABLES

Liabilities for carrier suppliers 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.

Pavables to related parties are carried at the principal amount.

N PROVISIONS

A provision for dividends is not recognised as a flability. unless the dividends are declared, determined or publicly recommended on or before the reporting date.

O CONTRIBUTED FOULTY

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.

Ć, REVENUE RECOGNITION

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

Sprving revenue

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

Interest

Control of a right to receive consideration for the provision of, or investment in, assets has been attained.

O TAXES

Income taxes

Tax-effect accounting is applied using the liability method. whereby income tax is regarded as an expense and is calculated on the accounting profit after allowing for permanent differences. To the extent timing differences occur between the time items are recognised in the financial statements and when items are taken into account in determining taxable income, the net related taxation benefit or liability, calculated at appropriate rates, is disclosed as a future income tax benefit or a provision for deferred income tax. The net future income tax benefit relating to tax losses and timing. differences is not carried forward as an asset unless the benefit is virtually certain of being realised.

Where assets are revalued, no provision for potential capital pains tax has been made.

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, inwhich case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as apolicable: and
receivables and pavables 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 Statement of Financial Position.

Cash flows are included in the Statement of Cash Flows 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. EMPLOYEE BENEFITS

Provision is made for employee benefits accumulated as a result of employees rendering services up to the balance. date. These benefits include wages and salaries, annual leave and long service feave.

Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled within 12 months of the balance date are measured at their nominal amounts based on the remunaration rates which are expected. to be paid when the liability is settled. All other employee benefits fabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the balance date.

Employee benefits expenses and revenues arising in respect. of the following categories:

wages and salaries, non-monetary benefits, annual leave, fond service leave and other leave benefits; and
other types of employee benefits,

are charged against profit from ordinary activities in their respective categories.

The value of the employee share scheme described in Note 19 is not being charged as an employee benefits expense.

S EARNINGS/LOSS PER SHARE

Basic earnings/loss per share is calculated as net profit/loss, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Dituted earnings/loss per share is calculated as net profit/loss attributable to members, adjusted for:

costs of servicing equity (other than dividends);
the after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and
other non-discretionary changes in revenues or expenses. during the year that would result from the dilution of potential ordinary shares,

divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus. element.

T COMPARATIVES

Where necessary, comparative information has been reclassified and repositioned for consistency with current year disclosures.

As a result of the first time application of the revised Accounting Standard AASB 1028: Employee Benefits, comparatives for employee options, as set out in Note 19, have been classified and positioned to be consistent with current year disclosures.

	Notes		Consolidated	Parent entity
PROFIT FROM ORDINARY ACTIVITIES		2003 \$'000	2002 \$'000	2003 \$1000	2002 S OOO

A REVENUE FROM ORDINARY ACTIVITIES Revenue from operating activities
Revenue from services		234,453	228.370	1.124	3,853
Revenue from non-operating activities
Management fee	26(b)			9.941	42,315
Interest - other persons/corporations		1,079	3,310	681	980
Settlement of outstanding claims	2(c)		7.100
Total revenue from non-operating activities		1,079	8.410	10.622	43,215
Total reversue from ordinary activities		235,532	236,780	11.746	47,068

B EXPENSES FROM ORDINARY ACTIVITIES Amortisation of non-current assets
Leasehold improvements		160	102
Transmission capacity		334	333
Depreciation of non-current assets
Plant and equipment		8,613	9.514
l'otal depreciation and amortisation expense		9,107	9.949
Bad and doubtful debts
Trade debtors		1,961	3.795
Operating lease rental
Minimum lease payments		2,600	2.275
Decrement in recoverable amount of plant
and equipment Decrement in recoverable amount of investment	10(a)	588
in related party - wholly owned subsidiary	2(c)			95.249
Provision for data hosting facility	2(c)		10,000
Employment costs		39,718	34.059
Management fee Carrier costs	26(b)		188,450	1,107 9.467	3,796
Other		173,174 13,624	14,454	170	40,300 251
		231,665	251.033	105.993	44,347
Total expenses from ordinary activities		240,772	260.982	105.993	44,347

C SIGNIFICANT FTEMS

Settlement of outstanding claims

Loss from ordinary activities before income tax expense for the prior year ended 30 June 2002 included a net revenue amount of \$7.1 million relating to the settlement of commercial disputes.

Provision for data hosting facility

During the prior year ended 30 June 2002, the Board performed a financial analysis, including an assessment of the present value of future cash flows, and took a conservative view of the carrying value of the data hosting facility (shown under plant and equipment), and reduced the carrying value by \$10 million at 31 December 2001. As required by Accounting Standard AASB 1010: Recoverable Amount of Non-Current Assets, a \$10 million provision was created and a non-cash charge of \$10 million was made to the Statement of Financial Performance for the year ended 30 June 2002.

As part of the Company's ongoing review and in line with the Company's accounting policy and Accounting Standard AASB 1010. the directors have conducted a comprehensive review of the carrying value of these assets at 30 June 2003 and have determined that the carrying value of these assets, after taking account of this provision, represents recoverable amount.

Decrement in recoverable amount of investment in related party

During the year ended 30 June 2003, the Board performed a financial analysis, including an assessment of the present value of future cash flows, and took a conservative view of the carrying value of the investment of the Company in its wholly owned. subsidiary, Macquarie Corporate Telecommunications Pty Limited, and reduced the carrying value by \$95.2 million.

As required by Accounting Standard AASB 1010: Recoverable Amount of Non-Current Assets, a non-cash charge of \$95.2 million was made to the Statement of Financial Performance of the Company for the year. This non-cash charge is eliminated upon consolidation, and does not impact the consolidated Statement of Financial Performance, consolidated Statement of Financial Position or consolidated Statement of Cash flows for the year.

		Consolidated	Parent entity
3 DIVIDENDS PAID OR PROVIDED FOR ON ORDINARY SHARES	2003 \$1000	2002 \$1000	2003 \$1000	2002 \$'000
a) There were no dividends proposed or paid
during the year (2002: nil).
b) Franking credit 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%	137	137	337	137

INCOME TAX
The prima facie tax, using tax rates applicable
in the country of operation, on (loss)/profit from
ordinary activities differs from the income tax
provided in the financial statements as follows:
Prima facie tax on (loss)/profit from ordinary activities	(1.572)	(7,261)	(28.274)	816
Tax effect of permanent differences:
Singapore tax losses not brought to account	533	642
Decrement in recoverable amount of investment in related party.			28,575
Non deductible expenses	259	144
Under/(over) provision of previous year	217		(68)
Other items (net)	47
income tax (benefit)/expense attributable to ordinary activities.	(516)	(6, 475)	233	816
Deferred tax assets and fiabilities
Current tax payable
Provision for deferred income tax - non-current	244	1,278	102	118
Future income tax benefit - non-current	3.650	3.868	3.508	163
Income tax losses
Future income tax benefit arising from tax	3.452	2.971	3.452
losses brought to account
Future income tax benefit arising from tax
losses not brought to account at balance date as realisation of the benefit is not regarded as
virtually certain.	1.900	1.367
100 and 100 million of the control of the control of the control of the control of the control of the control of

The future income tax benefit will only be obtained if:

a) future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised:

b) the conditions for deductibility imposed by the tax legislation continues to be complied with: and

c) no changes in tax logislation adversely affect the consolidated entity in realising the benefit.

Tax consolidation

Effective 1 July 2002, for the purposes of income tax, 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 on a pro-rata basis. 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. At balance date, the possibility of default is remote. The head entity of the tax consolidated group is Macquarie Corporate Telecommunications Holdings Limited.

There has been no material effect on the provision for deferred tax liabilities. Macquarie has not yet formally notified the Australian Taxation Office of its adoption of the tax consolidation regime.

	Notes	Consolidated		Parent entity
5 RECEIVABLES		2003 \$1000	2002 \$'000	2003 \$1000	2002 \$1000
Current. Trade debtors Provision for doubtful debts		28,407 (4,744)	38.189 (3.412)	16	292
Provision for settlement claims Other receivables	20(a)	1,238	(774) 2.302	57	44
		24,901	36.305	73	336
Non-current Amounts other than trade debts receivable from related parties:
Wholly owned group - controlled entities	26(b)			93.564	94,450
				93.564	94,450
a) Australian dollar equivalents
Australian dollar equivalent of amounts receivable in foreign currencles not effectively hedged: - Singapore dollars		777	705
b) Terms and conditions relating to the above financial instruments: i) Credit sales are on 14 day terms; and ii) Details of the terms and conditions of related party receivables are set out in Note 26(b).
6 WORK IN PROGRESS
Work in progress		17,898	18.578	19	363
INVESTMENTS (CURRENT) 7.
Bank deposits		1,738	3.430

a) Terms and conditions relating to the above financial instruments:

Short-term deposits include interest bearing term deposit accounts for facilities existing at 30 June 2003 and effective lixterest rates of 0.72% to 4.75% (2002: 4.35% to 4.55%) per annum.

	Consolidated		Parent enaity
8 OTHER CHRRENT ASSETS	2003 \$1000	2002 \$1000	2003 \$1000	2002 \$'000
Prepayments	1.678	-831
			Parent enaity 2003	2002

9 INVESTMENTS (NON-CURRENT)

2003 $$°000$

\$1000

interests in subsidiaries

Name	Country of incorporation	Percentage of equity interest held by the consolidated entity
		2003 %	2002 %
Macquarie Corporate Telecommunications Pty Limited
- ordinary shares	Australia	100.	100.	59,400	154.649
Macquarie Corporate Telecommunications Services Pty Limited
- ordinary shares	Australia	10O	100	11,000	31.000
Macquarie Corporate Telecommunications Carrier Services Pty Limited	Australia	100 ₁	100
- ordinary shares
Macquarie Corporate Telecommunications Network Carrier Services Pty Limited - ordinary shares	Australia	$100 -$	100
Macquarie Corporate Telecommunications Pte Ltd
- ordinary shares	Singapore	$100 -$	100	$\sim$
				70,400	165,649

investments at cost comprise:

70.400 Uniisted shares	165.649
---------------------------	---------

The valuations of the businesses reflected in the subsidiaries are not reflected by the current share market value of the Company; however, the directors believe the investments in, and advances to (Note 5), these subsidiaries are fully recoverable based upon the estimated present value of net cash flows expected to be derived from the underlying businesses.

	Notes	Consolidated		Parent entity
10 PLANT AND EQUIPMENT		2003 \$1000	2002 \$1000	2003 \$1000	2002 \$000

Leasehold improvements At cost		1,035	831
Accumulated amortisation		(359)	(199)
		676	632
Plant and equipment
At cost		59,624	54,768
Provision for data hosting facility	2(c)	(10,000)	(10.000)
		49,624	44,768
Accumulated depreciation		(25, 502)	(17.030)
		24,122	27.738
Total written down amount		24,798	28,370

RECONCILIATIONS Reconciliation of the carrying amounts of
plant and equipment at the beginning and
end of the current financial year:
Leasehold improvements
Opening balance Additions		632 204	679 55
Amortisation expense		(180)	(102)
		676	632

Plant and equipment
Opening balance Additions	2(0)	27,738 5,585	38,376 8.518
Decrement in recoverable amount of plant
and equipment.		(588)
Other			358
Depredation expense Provision for data hosting facility		(8,613)	(9.514) (10.000)
		24,122	27.738

11 OTHER NON-CURRENT ASSETS
Transmission capacity		5,000	5.000
Accumulated amortisation		(945)	(611)
		4,055	4,389

	Notes		Consolidated		Parent enaity
12 PAYABLES		2003 \$1000	2002 \$1000	2003 \$1000	2002 \$1000

Current
Trade creditors	20	34,554	40,335	2,459	5.353
Other creditors and accruals		8.163	7,186	578	783
Withholding tax payable		257	419
Amounts due to related parties:					1.466
Wholly owned group - controlled entities	26(b)
		42.974	47,940	3,037	7.602
Non-current Amounts due to related parties: Wholly owned group - controlled entities	26(b)			6,532
a) Australian dollar equivalents

Australian dollar equivalent of amounts payable in foreign currencies not effectively hedged:
Singapore dollars $\ldots$		258	525
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: {} Trade liabilities are normally settled on 30 and 60 day terms; and a) Details of the terms and conditions of related party payables are set out in Note 26(b). 13 PROVISIONS
Current
Employee benefits	49	1,158	1,212
Non-current. Employee benefits	49	467	323

Terms and conditions relating to the above are outlined in Note 19.
14 OTHER LIABILITIES

Current Lease incentive	18(b)	85
Non-current Lease incentive	18(b)	107

	Notes		Consolidated		Parent entity
15 CONTRIBUTED EQUITY		2003 \$1000	2002 \$1000	2003 \$1000	2002 \$1000
A ISSUED AND PAID UP CAPITAL Ordinary shares fully paid		86.823	86.823	86.823	86.823
		2003 Number of shares	2003 參	2002 Number of shares	2002 -5
B MOVEMENTS IN SHARES ON ISSUE Opening balance Issue of shares to employees	39.	204.855.258 $\sim 100$	-86.823.235- $\sim$	203.641.258 1.214.000	86.823.235
		204.855.258	86.823.235	204.855.258	86.823.235

C SHARE OPTIONS

Options over ordinary shares

The following cotions over ordinary shares under the Employee Option Plan were issued during the year:

0 On 15 August 2002, 200,000 options were issued over ordinary shares, exercisable on or before 31 December 2003 at an exercise price of \$0.14. Of the options issued, nil were forfelted during the financial year.
8) On 15 August 2002, 200,000 options were issued over ordinary shares, exercisable on or before 1 July 2007 at an exercise price of \$0.14. Of the options issued, nil were forfeited during the financial year.
i) On 18 June 2003, 200,000 options were issued over ordinary shares, exercisable on or before 6 May 2007 at an exercise price of \$0.14. Of the options issued, nil were forfeited during the financial year.
iv) On 18 June 2003, 250,000 options were issued over ordinary shares, exercisable on or before 18 June 2008 at an exercise price of \$0.14. Of the options issued, nil were forfeited during the financial year.

At the end of the year, there were 8,625,000 (2002: 8,675,000) 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.

Information with respect to the number of options is as follows:

	2003 Namber of options	2003 Weighted average exercise price	2002 of obtions.	2002 Number Weighted average exercise price
Opening balance Granted Forfeited Exercised	8.675.000 850.000 (900,000)	0.69 0.14 0.50	2.815.000 6.360.000 (500.000) $\cdot$	2.10. 0.15 1.88 $\sim$
Balance at end of year	8.625,000	0.65	8.675.000	0.69
Exercisable at end of year	3,045,000	1.67	550.000	3.44

The following rable summarises information about total options outstanding and exercisable at 30 June 2003:

Option price	Ousstanding options.	Average option life (years)	Exercisable mitaber of options
\$1.44	150.000	6.25	150,000
\$2.16	2.075.000	1.99	695,000
\$0.17	1.400.000	3.42	$\sim$
\$0.34	5.000.000	2.50	200,000
	8.625.000	2.65	1.045.000

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.

		Notes		Consolidated		Parent entity
	16 RESERVES AND (ACCUMULATED LOSSES)/RETAINED PROFITS		2003 \$'000	2002 \$1000	2003 \$1000	2002 \$'000
	Foreign currency translation reserve	16(a)	${847}$	(274)
	(Accumulated losses)/retained profits	16(b)	(22.373)	(17,611)	86,294	180.774
	A FOREIGN CURRENCY TRANSLATION Nature and purpose of reserve i). The foreign currency translation reserve is used to record exchange differences arising from the translation of self-sustaining foreign operation.
	ii) Movements in reserve Opening balance Loss on translation of foreign		(274)	(34)
	controlled entity		(573)	(240)
	Balance at end of year		(847)	(274)
6	(ACCUMULATED LOSSES)/RETAINED PROFITS Opening balance (Loss)/profit attributable to members Adjustment arising from adoption of revised Accounting Standard: AASB 1028: Employee Benefits		(17,611) [4.724] (38)	116 (17, 727)	180.774 (94, 480)	178,869 1.905
	Total available for appropriation Dividends paid or provided for		(22.373)	(17,611)	86.294	180.774
	Balance at end of year		(22.373)	(17,611)	86.294	180.774

	Notes		Consolidated		Parent entity
	17 STATEMENT OF CASH FLOWS	2003 \$1000	2002 \$1000	2003 \$1000	2002 \$1000

	A RECONCELATION OF THE (LOSS)/PROFIT FROM ORDINARY
	ACTIVITIES AFTER INCOME TAX BENEFIT/(EXPENSE) TO THE
	NET CASH FLOWS FROM OPERATIONS
	(Loss)/profit from ordinary activities after income tax	(4,724)	(17.727)	(94, 480)	1.905
	Amortisation of non-current assets.	494	435
	Depreciation of non-current assets	8.613	9.514
	Decrement in recoverable amount of plant and equipment	588
	Decrement in recoverable amount of investment in related party			95.249
	Other non-cash items included in income		(358)
	Net foreign currency gains	(573)
	Provision for data hosting facility		10.000
	CHANGES IN ASSETS AND LIABILITIES
	Trade receivables	10,340	367	276	549
	Other receivables	1.064	1,954	(13)	33
	Related party receivables			7.418
	Work in progress	680	9.115	144	82
	Prepayments	(847)	(248)
	Deferred tax assets	218	(295)	(3.345)	(163)
	Trade and other creditors	(4,966)	(5.680)	(3,099)	(3,898)
	Related party payables			(1.466)
	Current tax liabilities		192		192
	Other liabilities	192	$\alpha$
	Deferred tax liabilities	(1,034)	(6.435)	(16)	(485)
	Provision for employee benefits	52	390
	Net cash inflow/(outflow) from operating activities	10,097	3.224	668	(1,805)

ß	RECONCILIATION OF CASH
	Cash balance comprises:
	– Cash on handi	14.697	11,365	Ĩ.
	On-call deposits with financial institutions	15,223	14,555	15.223	14,555
		29,920	25.920	15.224	14,556

C FINANCING FACILITIES AVAILABLE
At the end of the year, there were no financing facilities available to the consolidated entity.

Notes		Consolidated	Parent enaity
18 EXPENDITURE COMMITMENTS	2003 \$1000	2002 \$1000	2003 \$1000	2002 \$'000
A CAPITAL EXPENDITURE COMMITMENTS Estimated capital expenditure contracted for at balance date but not provided for
Payable not later than one year	695	56
Payable later than one year and not later than five years Payable fater than five years.
	695	-56
- LEASE EXPENDITURE COMMITMENTS ß. Operating leases (non-cancellable): Minimum lease payments
Not later than one year	2.542	1.334
Later than one year and not fater than five years.	4.584	3,239
Later than five years		857
	7.126	5,430
Aggregate expenditure commitments comprise: Amounts provided for:
Lease incentive liability - current	-85
Lease incentive liability - non-current.	107
Amounts not provided for: Rental commitments	7.126	5.430

	7.318	5.430

All operating leases relate to premises and parking spaces in various locations and have a lease term of between one and five years.

		Consolidated	Parent entity
19 EMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTS	2003 \$1000	2002 \$'000	2003 \$1000	2002 \$1000
EMPLOYEE BENEFITS
The aggregate employee benefit liability is comprised of: Accrued wages, salaries and on costs.	2.636	3.473
Provisions (current)	1.158	3.212.
Provisions (non-current)	-467	323
	-4.261	3.008

EMPLOYEE SHARE SCHEMES

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

1 Employee Option Plan:
2 Discretionary Share Plan: and
3 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 Australian Stock Exchange ("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 337 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, 850,000 (2002; 4.960,000) options were issued under the Employee Option Plan to eligible employees. At 30 June 2003, there were 6,775,000 (2002: 6,825,000) options on issue under this plan. No options have been exercised up to 30 June 2003, and 900,000 options lapsed during the year and accordingly, no amount has been received or is due and receivable from holders of the options.

During the year, there were no shares issued under the Discretionary Share Plan (2002: 1,214,000), and no shares issued under the Share Purchase Plan (2002: nil). Ordinary shares issued under the Discretionary Share Plan are not disposable for two years from the date of issuance, and forfeit 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 10 cents on 30 June 2003.

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.

Information in respect to the number of options

granted under the Employee Option Plan is as follows:

	-2603 of options.	2003 Number Weighted average exercise price.	2002 Number of options.	2002. Weighted average exercise price
Opening balance Granted Forfeited Exercised	6.825.000 850.000 (900.000)	0.71 0.34 0.50	2.365.000 4.960.000 (500,000)	2.10 0.14 1.88
Balance at end of year	6,775,000	0.67	6.825.000	0.73
Exercisable at end of year.	595.000	1.48

A OPTIONS RELD AT THE BEGINNING OF THE YEAR.

The following table summarises information about the options held by employees as at 1 July 2002:

				Weighted average
Number of options	Grant date	Vesting date	Expiry date	exercise price

115.000	28 September 1999	27 September 2002	27 September 2005	2.16
1,240,000	1 April 2000	31 March 2003	31 March 2005	2.16
390,000	-24 August 2000	23 August 2003	23 August 2005	2.16
190.000	20 October 2000	19 October 2003	20 October 2005	2.16
4.890,000	6 May 2002	1 Jaiy 2004.	1 July 2007	0.14

B OPTIONS GRANTED DURING THE YEAR

The following table summarises information about options granted by the Company to employees during the year:

				Weighted average
Number of options	Grant date	Vesting date	Expiry date	exercise price
200.000	15 August 2002	31 December 2002	-31 December 2003 -	0.14
200.000	-15 August 2002	1 July 2005	-1 July 2007.	0.14
200,000	18 June 2003.	17 Jane 2006	-6 May 2007	0.14
250.000	18 June 2003 -	17 Jane 2006.	-18 June 2008.	0.14

C OPTIONS EXERCISED

There were no options exercised by employees during the year.

D OPTIONS HELD AS AT THE END OF THE YEAR

The following table summarises information about options held by the employees as at 30 June 2003:

Number of options.	Grant date	Vesting date	Expiry date	Weighted average exercise price

115.000	28 September 1999.	27 September 2002	27 September 2005	2.16
1.120.000	1 April 2000	31 March 2003	31 March 2005	2.16
350,000	24 August 2000	23 August 2003	23 August 2005	2.16
190,000	20 October 2000	19 October 2003	20 October 2005	2.16
4.150.000	6 May 2002	1 July 2004.	1 July 2007	0.14
200.000	15 August 2002.	31 December 2002.	31 December 2003	0.14
200,000	15 August 2002.	1 July 2005.	-1 July 2007	0.14
200,000	18 June 2003.	17 June 2006	6 May 2007	0.14
250.000	18 June 2003.	17 Jane 2006.	18 June 2008	0.14

Superannuation commitments

Macquarie Corporate Telecommunications Pty Limited makes contributions in accordance with the superannuation faw in respect of each eligible employee. At the end of the financial year, contributions of up to 9% (2002: 8%) of employees' salaries and wages are legally enforceable in Australia.

20 CONTINGENT LIABILITIES

a) The consolidated entity currently disputes certain charges levied by some of its suppliers which total \$2.1 million (2002; \$2.0) million). In each case, the sugplier has indicated certain amounts it alleges are due or payable for the period to 30 June 2003. in respect of services provided up to that date. The consolidated entity is disputing that not all of these charges are either due or pavable.

The consolidated entity is disputing certain of these charges 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, being the net amount it expects to have to pay each supplier, in respect of the services received. A contingent asset or liability could exist for the difference between the amount recorded in trade creditors and the negotiated settlement of these disputes, the extent of which cannot currently be determined.

b) The Company has provided a letter of proping financial support to Macquarie Corporate Telecommunications Pty Limited l''MCT''), a wholly owned subsidiary of the Company, for the purpose of assisting MCT to meet its liabilities as and when they fall due. but only to the extent that money is not otherwise made available to MCT to meet such liabilities. The period of the financial support and quarantee is until 31 October 2004.
c) On 7 September 2001, MCT entered into a strategic alliance with PowerTel Limited ("PowerTel"). Under the terms of the alliance, PowerTel provides access to the PowerTel network. The Company has quaranteed MCT's performance, including payments owed, under the strategic alliance.
d) On September 2002, MCT entered into a service agreement with an external party. The Company has provided, by way of deed, a performance quarantee to the external party to take the place of MCT or remedy any expenses incurred in the event that MCT fails to execute and perform its undertakings under the agreement. The quarantee will continue in force and effect. until completion of MCT's obligations under the agreement.

21 SUBSEQUENT EVENTS

On 8 August 2003, Macquarie Corporate Telecommunications Pte Ltd ("MCS"), a wholly owned. Singapore based subsidiary of the Company, accepted a settlement from an external party in relation to a claim resulting from defamatory statements made against MCS. The details of the settlement are subject to confidentiality.

This settlement has no impact on the state of affairs or result of the Company.

22 EARNINGS PER SHARE	2003	Consolidated 2002
Basic loss per share (cents per share) Dituted toss per share (cents per share)	(2.3) (2.3)	(8.7) (8.7)
	2003 \$1000	2002 \$1000
The following reflects the loss and share data used in the calculations of basic and diluted loss per share: Net loss attributable to members Adjustments	[4.724]	(17, 727)
Loss used in calculating basic and diluted loss per share.	(4.724)	(17,727)
	Number of shares	Number of shares
Weighted average number of ordinary shares used in calculating basic loss per share Effect of dilutive securities: Share options	204,855,258	203.917.318
Adjusted weighted average number of ordinary shares used in calculating basic loss per share	204,855,258	203.917,318
There have been no issues of shares during the year.
Number of potential ordinary shares that are not dilutive and not included in the calculation of diluted loss per share
- Options over ordinary shares	8,625,000	8.675,000
Notes 23 REMUNERATION OF DIRECTORS	2003 S	Consolidated 2002 ß.	2003 S	Parent entity 2002
Income paid or payable, or otherwise made available, in respect of the year, to all directors of each entity in the consolidated entity, directly or indirectly, by the entities of which they are directors or any related party	965.372	778,652
Income paid or payable, or otherwise made available, in respect of the year, to all directors of Macquarie, directly or indirectly, from the entity or any related party.			962,372	775,635
	No.	No.	抱ひ.	No.
The number of directors of Macquarie whose income (including superannuation contributions) falls within the following bands is:
\$0 \$9,999 \$30,000 \$39,999 000,000 \$69,999 \$120,000 \$129,999 \$130,000 - \$139,999 \$290,000 - \$299,999 \$350,000 - \$359,999 \$380,000 - \$389,999	Ĩ. Î. Ţ Ŧ. Ĵ. Ï	1 2	÷, Ť ÷,	Ť Ť. 2

2003 2002

	Consolidated		Parent entity
			2002



			Ño.
















			2002


			139,000

			165,637
493,034	304.637	493.034	304,637

26 RELATED PARTY DISCLOSURES

A THE DIRECTORS OF MACQUAREE DURING THE YEAR WERE: J Priest
D Tudehope
A Tudehope
R Kaye

J Craio (appointed 1 January 2003).

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, Macquarie Corporate Telecommunications Pty Limited ("MCT"). Under this agreement, the Company charged MCT a fee for the provision of services to customers of \$9,940,469 (2002: \$42,315,004) and was charged a management fee of \$1,107,336 (2002: \$3,795,612) by MCT for servicing customers still contracted to the Company.

Tax consolidation

Effective 1 July 2002, for the purposes of income taxation. Macquarie and its 100% owned Australian subsidiaries have formed a tax consolidated proup. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the whelly owned Australian subsidiaries on a prorata basis, 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.

As a result of entering into tax consolidation, the Company incurred the following intercompany charges with its wholly owned Australian subsidiaries in relation to the transfer of tax assets and flabilities:

1 A charge of \$641,077 by MCT in respect of its net tax assets;
2 A charge of \$2,700,475 by Macquarie Corporate Telecommunications Carrier Services Pty Limited ("MCTCS") in respect of its net tax assets; and
3 A charge of \$22,499 by Macquarie Corporate Telecommunications Services Pty Limited ("MCTS") in respect of its net tax assets.

Amounts due from/payable to wholly owned entities On 30 June 2003, the Company had a non-current net receivable of \$93,564,022 (2002: \$94,450,000) due from MCT, which was a result of charges relating to the Business. Development Agreement, tax consolidation and advances made to MCT in relation to normal commercial transactions.

On 30 June 2003, the Company had an amount payable to MCTCS of \$6,509,277 (2002: \$1,466,000), which was a result. of tax losses transferred to the Company during the year for full consideration and charges relating to tax consolidation.

On 30 June 2003, the Company had an amount payable to MCTS of \$22,493 (2002; nil) which was for charges relating. to tax consolidation.

C. FOLKEY 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 2003, being the number of instruments held, were:

i) D Tudehope and A Tudehope collectively wholly own Claiward Pty Limited, an entity which owns 61% (2002: 61%) of the ordinary shares of Macquarie. The relevant ownership interests in Claiward Pty Limited are held by Semark Pty Limited at 84% and Fenton Australia Pty Limited at 16%. The shares in these latter companies are held by D Tudehope and A Tudehope respectively.
ii) At 30 June 2003, 72,326 ordinary shares and 345,000 options over ordinary shares were on issue to a directorrelated entity of D Tudehope and A Tudehope.
iii) At 30 June 2003, 204,500 ordinary shares were on issue. to a director-related entity of D Tudehope.
iv) At 30 June 2003, 1.549,727 ordinary shares were on issue. to director-related entities of J Priest. J Priest also has an interest in 1,000,000 options over ordinary shares.
v) At 30 June 2003, 50,000 ordinary shares were on issue to a director-related entity of R Kaye. R Kaye also has an interest in 400,000 options over ordinary shares.
vi) At 30 June 2003, 50,000 ordinary shares were on issue to J Craig. These shares were acquired in June 2003 through an arm's tength transaction.

Apart from shares acquired by J Craig noted in paragraph (vi), there have been no other changes in equity instruments of directors during the year.

D DIRECTOR-RELATED ENTITY TRANSACTIONS Services

R Kaye was paid \$30,387 for the provision of consulting services to the consolidated entity during the year.

27 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 conorate. Australian government and Singapore corporate customers. The data segment relates to the provision of services utilising the Macquarie data network and data hosting facility, to Australian corporate and Australian government customers. The mobiles segment relates to the provision of mobile telecommunications services to Australian corporate and Australian government customers. This segment commenced operations on 1 January 2003.

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

SEGMENT ACCOUNTING POLICIES.

Segment accounting policies are the same as the consolidated entity's policies described in Note 1.

SEGMENT INFORMATION ON PRIMARY BUSINESS SEGMENTS

		Voice		Data		Mobiles		Consolidated
	2003 \$1000	2002 \$1000	2003 \$1000	2002 \$1000	2003 \$1000	2002 \$1000	2003 \$1000	2002 \$'000
Revenue Sales to customers outside
the consolidated entity Other revenues from customers outside the	193,411	201,161	40.773	27.209	269		234,453	228,370
consolidated entity		7.100						7,100
Segment revenue Unattocated revenue	193,411	208,261	40,773	27.209	269		234,453 1,079	235,470 1,310
Total consolidated revenue							235,532	236,780
Results Segment result before tax Non-cash expenses other	9,133	7,150	(8,523)	(18.183)	(1.620)		(1,008)	(11,033)
than amortisation and depreciation			$\cdot$	(10.000)				(10,000)
Adjusted segment result before tax	9,133	7,150	(8, 523)	(28.183)	(1.620)		(1,008)	(21,033)
Unallocated expenses							(4,232)	(3,169)
Consolidated entity loss from ordinary activities
before income tax benefit Income tax benefit							(5,240) 516	(24, 202) 6,475
Consolidated entity loss from ordinary activities after income
tax benefit. Extraordinary benefit							(4,724)	(17, 727)
Net loss							(4,724)	(17, 727)

SEGMENT INFORMATION ON PRIMARY BUSINESS SEGMENTS

		Voice		Data		Mobiles		Consolidated
	2003 \$'000	2002 \$1000	2003 \$1000	2002 \$1000	2003 \$1000	2002 \$'OOO	2003 \$1000	2002 \$1000

Assets
Segment assets	63.607	72.110	25.400	32,361	359		89.366	104.471
Unallocated assets							19,272	35,220
Total assets							108.638	119,691
Liabilities
Segment #abilities	40.824	38.998	876	5,501	196		41.896	44.499
Unallocated liabilities							3.139	6.254
Total liabilities							45.035	50.753
Other segment information Acquisition of plant and equipment, intangible assets and other non-current assets	2.089	4.306	3.425	4,267	275		5.789	8.573
Depreciation	3.712	3.121	4,883	6,393	38		8.613	9.514
Amortisation	160	102	334	333			494	435
SEGMENT INFORMATION ON SECONDARY SEGMENTS			2003 \$1000	Australia 2002 \$1000	Singapore 2003 \$1000	2002 \$'000	2003 \$1000	Consolidated 2002 \$'000
Segment revenue			224.330	230,082	11,202	6,698	235.532	236,780
Segment assets			103.644	115,655	4,994	4,036	108.638	119,691
Other segment information Acquisition of plant and equipment, intangible assets and other non-current assets.			5,262	7,043	527	1,530	5,789	8.573

28 FINANCIAL INSTRUMENTS

A 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:

		interest rate Floating		in 1 year or tess rate maturing Fixed interest	rate maturing in	Fixed interest 1 to 5 years		Fixed interest rate meturing in more than 5 years		Not-interest bearing 1 year or less		Total carrying arount as per the Statement of Financial Position	Weighted average interest rate effective
	200 2003	ECS: 2002	2003 esse	\$300 2002	2003 $200$	\$000 Ì	\$300 Ê	$$000$ $\widetilde{\mathbb{R}}$	ECS: 2003	\$000 Ì	2003 $$000$	$\frac{1}{2}$ (MO 2002	2003 L	2002 %00
t) Financial assets 5 Sep	29,920	25,920									29,920	25,920	$\frac{2}{4}$	4.45
Receivables - trade									23,663 17,898	18,578 34,003	23,663 17,898	18,578 34,003	$\lessapprox$ \$	$\mathbb{S}^2$ Ś
Strentern deposits Work in progress			1,738	SER							1,738	1,450	$\frac{88}{6}$	$\frac{6}{4}$
Other									1,239	2.302	1,238	2,302	Ś	S) 2
Total financial assets	29,920	25,920	1738	$\frac{1}{2}$					42,799	54.883	74,457	82.233
ii) Financial liabilities Payables									42.974	47,940	42,974	47,940
Other - non-current Other - current									್ ಐ ē		s. ē		Í. ≦ ≥	$\lessapprox$ §≤ ≥
Total financial liabilities									43,166	47,940	43,166	47.940

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

B NET FAIR VALUES

All financial assets and liabilities have been recognised at the balance date at their net fair values.

The following methods and assumptions are used to determine the net fair values of recognised financial instruments:

i) Cash, cash equivalents and short-term investments The carrying amount approximates fair value because of their short term to maturity.

ii) Trade receivables, work in progress and payables The carrying amount approximates fair value.

No financial assets are carried at an amount in excess of their net fair value.

C CREDIT RISK EXPOSURES

The consolidated entity's maximum exposures to credit risk at balance date in relation to each class of recognised financial assets is the carrying amount of those assets as indicated in the Statement of Financial Position.

As at 30 June 2003, the consolidated entity had no significant concentration of credit risk with any single counterparty or group. of counterparties.

DIRECTORS' DECLARATION

In accordance with a resolution of the directors of Macquarie Corporate Telecommunications Holdings Limited, we state that:

In the opinion of the directors:

a) the financial statements 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 2003 and of their performance for the year ended on that date; and a) complying with Accounting Standards and Corporations Requlations 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.

On behalf of the Board:

Gaber Priest.

JOHN PRIEST CHAIRMAN

DAVID TUDEHOPE CHEF EXECUTIVE

SYDNEY, 9 SEPTEMBER 2003

INDEPENDENT AUDIT REPORT

To the members of Macquarie Corporate Telecommunications Holdings Limited

SCOPE

The financial report and directors' responsibility

The Financial report comprises the Statement of Financial Position, Statement of Financial Performance, Statement of Cash Flows, accompanying notes to the financial statements, and the Directors' Declaration for Macquarie Corporate Telecommunications Holdings Limited (the Company) and the consolidated entity, for the year ended 30 June 2003. The consolidated entity comprises both the Company and the entities it controlled during that year.

The directors of the Company are responsible for preparing a financial report that gives a true and fair view of the financial position and performance of the Company and the consolidated entity, and that complies with Accounting Standards in Australia, in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Audit approach

We conducted an independent audit of the financial report in order to express an opinion on it to the members of the Company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot quarantee that all material misstatements have been defected.

We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards in Australia, and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the Company's and the consolidated entity's financial position, and of their performance as represented by the results of their operations and cash flows.

We formed our audit opinion on the basis of these procedures, which included:

· examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report: and
· assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.

While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.

We nerformed procedures to assess whether the substance of business transactions was accurately reflected in the financial report. These and our other procedures did not include consideration or judgement of the appropriateness or reasonableness of the business plans or strategies adopted by the directors and management of the Company.

Independence

We are independent of the Company, and have met the independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.

Audit opinion

In our opinion, the financial report of Macquarie Corporate Telecommunications Holdings Limited is in accordance with:

a) the Corporations Act 2001, including:

4 giving a true and fair view of the financial position of Macquarie Corporate Telecommunications Holdings Limited and the consolidated entity at 30 June 2003 and of their performance for the year ended on that date; and
a) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
other mandatory financial reporting requirements in Australia. $\mathbb{D}}$

Ernst a Young

Meredith Scott

Meredith Scott Partner SYDNEY, 9 SEPTEMBER 2003

AI assistant

MACQUARIE TECHNOLOGY GROUP LIMITED — Management Reports 2003

65295_rns_2003-09-08_1960c1f2-6c92-4f5c-a189-ca9a145f3ba8.pdf

DIRECTORS' REPORT

DIRECTORS

JOHN PRIEST (CHAIRMAN AND NON-EXECUTIVE BIRECTOR)

DAVID TUDEHOPE (CHIEF EXECUTIVE)

AIDAN TUDEHOPE (CHIEF OPERATING OFFICER)

ROBERT KAYE (NON-EXECUTIVE DIRECTOR)

JANE CRAIG (NON-EXECUTIVE DIRECTOR)

DIRECTORS' INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATE

PRINCIPAL ACTIVITIES

DIVIDENDS

REVIEW AND RESULTS OF OPERATIONS.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

EIKELY DEVELOPMENTS AND EXPECTED RESULTS.

SHARE OPTIONS

Unissued shares

INDEMINIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS.

DIRECTORS' AND OTHER OFFICERS' EMOLUMENTS.

Emoluments of directors of Macquarie

Notes

DIRECTORS' MEETINGS

ROUNDING

TAX CONSOLIDATION

CORPORATE GOVERNANCE

Composition of the Board

Board responsibilities

Independent professional advice

Committees

Audit and Risk Management Committee

Code of conduct

Dealings in Macquarie shares

A BASIS OF ACCOUNTING

B CHANGES IN ACCOUNTING POLICIES

Employee benefits

C PRINCIPLES OF CONSOLIDATION

D FOREIGN CURRENCIES

Translation of foreign currency transactions

Translation of financial reports of overseas operation

E CASH AND CASH FOIBVALENTS.

RECEIVABLES É.

G INVESTMENTS

EL WORK EN PROGRESS

E RECOVERABLE AMOUNT

PLANT AND EQUIPMENT $\mathcal{L}_{\mathcal{L}}$

Cost and valuation

Depreciation

K TRANSMISSION CAPACITY

E LEASES

Operating leases

M. PAYABLES

N PROVISIONS

O CONTRIBUTED FOULTY

Ć, REVENUE RECOGNITION

Sprving revenue

Interest

O TAXES

Income taxes

Goods and services tax ("GST").

R. EMPLOYEE BENEFITS

S EARNINGS/LOSS PER SHARE

T COMPARATIVES

C SIGNIFICANT FTEMS

Provision for data hosting facility

Decrement in recoverable amount of investment in related party

Tax consolidation

9 INVESTMENTS (NON-CURRENT)

C SHARE OPTIONS

Options over ordinary shares

i) On 18 June 2003, 200,000 options were issued over ordinary shares, exercisable on or before 6 May 2007 at an exercise price of \$0.14. Of the options issued, nil were forfeited during the financial year.

D TERMS AND CONDITIONS OF CONTRIBUTED EQUITY

EMPLOYEE SHARE SCHEMES

Information in respect to the number of options

A OPTIONS RELD AT THE BEGINNING OF THE YEAR.

B OPTIONS GRANTED DURING THE YEAR

C OPTIONS EXERCISED

D OPTIONS HELD AS AT THE END OF THE YEAR

Superannuation commitments

MACQUARIE TECHNOLOGY GROUP LIMITED Management Reports 2003