DATACOM GROUP LIMITED FINANCIAL STATEMENTSreportingnz.org/.../07/31-Datacom-Group-Limited-FS... ·...

DATACOM GROUP LIMITED

FINANCIAL STATEMENTS

FOR THE YEAR ENDED

31 March 2017

Directors' Report

Statement of Comprehensive Income

Statement of Changes in Equity

Statement of Financial Position

Cash Flow Statement

Notes to and forming part of the Financial Statements

Independent Auditor's Report

DAT ACOM GROUP LTD

Index lo Financial Statements

3

5

7

8

10

11

41

DIRECTORS

CD Boyce AD Hawke

J W Holdsworth

S J Holdsworth JD Ladd BC Sutton C Steele (resigned 24 August 2016) J A Fahey (appointed 28 August 2016)

MANAGEMENT

J D Ladd - CEO Datacom Group

AK Goddard - CFO Datacom Group

G L Davidson - CEO Systems New Zealand & Australia

K Hunter - CEO Connect & Asia J D Usher - MD Solutions

SECRETARY

RA Kean

DATACO:\1 GROUP Ll:\11TED

AUDITOR

SOLICITORS

BANKERS

Ernst & Young

Duncan Cotteritl Simpson Grierson Simmonds Stewart

ANZ National Bank of New Zealand

ASS Bank

Citibank

REGISTERED OFFICE

Level 10, South Tower 68 Jervois Quay PO Box 2063

Wellington 6140 Phone: (64 4) 460 1500

Website: W\VW.datacom.co.nz

Chairman's Report 2016/2017

Datacom has completed another solid year trading for the year ended 31 March 2017 with an increase in

revenue on the previous year of 9.8%, from NZ$1.054b to NZ$1.157b. Profit after tax for the 2016/17 year was

NZ$43. 7m, up from NZ$27.2m on the previous year. Capital expenditure decreased by 10% over the prior year

to $36.3m, half of which was for growth, a fifth in data centres and the remainder to meet client commitments

and for normal business.

Datacom's growth in the 2016/17 year has been a direct result of long term strategic investments across a

number of areas in order to position Datacom strongly to deliver for customers into the future. This includes

software development in Australia, cyber-security, and private cloud for government in Australia. Investment

in new generations of network services has started to stimulate returns, as have public cloud transitions and

transformations. The wide variety of services offered out of Datacom's data centres and public cloud including

software as-a-service (Saas) solutions for payroll, local government and SAP hosting, posted additional profit

growth.

Operating expendit3ure on new investment lines of business was $14.lm. This level of expenditure was

consistent with the Group's strategy to invest and accelerate growth opportunities through the creation and

evolution of new products and services, across vertical markets, including Local Government and Health &

Aged Care. Datacom continues to invest strongly to ensure relevant and sustainable future success for both its

customers and its people.

The Systems business continued to generate the largest percentage of revenue and profit for the Datacom

Group. In order to support its customer growth strategy, in June 2016 Datacom brought the New Zealand and

Australia Systems businesses together under one leadership team. This better enabled Datacom to leverage

scale for the benefit of customers. Within the Systems business, there was significant growth in public cloud

re-sale. Combined with new customer growth in both the commercial and public sectors across New Zealand

and Australia for the IT Outsourcing business, Datacom was able to bring hybrid cloud to the market. In

2016/17 Datacom completed re-certification as a Cloud Services Provider, confirming that tools and process

for cloud management is world class. Third-party product sales continued to perform consistently well.

Datacom's software development business continued to be a strong performer and there was continuing

investment in establishing this line of business in Australia. The New Zealand software development business

continued as the largest provider in market, providing customers with superior and cost-effective

development options.

The global focus and attention on the cyber-security market continues to dominate customer's risk registers.

Datacom's specialist cyber practice, DTSS, provided services to enable customers to anticipate, prevent,

detect, and respond to cyber-security threats. Operating from a dedicated Cyber Security Incident Response

Centre (CSIRC) in Canberra, the business has grown capability to minimise proactively customers' information

security risks. During 2016, Datacom brought its New Zealand and Australia Data Centres together under a

single leadership team. In New Zealand, the Orbit (Auckland) and Kapua (Hamilton) Data Centre facilities

received Uptime re-certification as "among the very best run data centres in the world" and there was zero

earthquake impact in both the Wellington and Christchurch facilities.

The Connect customer care business continued to strengthen, with highlights for the year including the

securing of a place on the All of Australian Government Service Panel, state government assistance for

expansion to facilitate growth in South Australia and the renewal and extension of Connect's services for the

Australian Tax Office. The business continued to lead the market to deliver digital customer service solutions

to enterprise and government customers. This has been achieved by strong collaboration across the Datacom

group to build unique and innovative customer service platforms, with investment in automation and virtual

assistance.

Datacom's Payroll business achieved another excellent result with continued revenue and profit growth. The

Payroll business continued to expand product offerings and services to existing customers by broadening the

range of available solutions across the entire employee life-cycle, including performance and goal

management, learning and development, recruitment and on-boarding, and payroll analytics.

3

In Asia the global leadership team has been planning for further growth in the coming period, expanding upon

Datacom's provision of cloud-based software, market enablement and platform management services to

customers in over 30 countries.

Datacom's year-end cash position, at a net balance of $44m, was up on the previous year's $38m. At year end,

shareholders' funds were $207m with the equity to total assets ratio at 41% (last year 42%).

In the year ending March 2017 employee numbers totalled 4,880, an increase of 4.7%. New Zealand

contributed 2,857 people to this total, and Australia and Asia 2,023.

Dividends

Dividends of $3.10 per share were provided for during the year, as compared to $2.30 the previous year.

Interim dividends were paid on 30 September 2016 (80 cents) and 24 February 2017 (8S cents), with a final

dividend of $1.45 paid on 12 June 2017. In the 2015/16 financial year, interim dividends were paid on 13

October 2015 (75 cents) and 25 February 2016 (70 cents), with a final dividend of 85 cents paid on 26 May

2016.

Auditor

It is proposed the auditor, Ernst & Young, continues in office in accordance with Section 200(1) of the Companies

Act 1993.

Disclosures

The shareholders of the company have exercised their right under Section 211 (3) of the 1993 Companies Act

and unanimously agreed that this Annual Report need not comply with paragraphs a) and e) to g) of Section 211

(1) of the Act for the year ended 31 March 2017.

Appreciation

The Datacom team continues to execute our growth strategy successfully despite the market going through

very significant pace of change. Emerging new technologies are transforming how businesses operate and

Datacom has responded swiftly to stay at the leading edge of a rapidly changing industry, with our service

innovation recognised by our global customers and partners.

Our people have embraced change and understand that proactive disruption and reinvention of our own

internal systems and processes is required to remain effective and sustainable. During the 2016/17 year,

Data com embarked on a significant business transformation journey which will touch every aspect of

operations and will deliver a more efficient, higher performing and customer centric organisation. Early results

of this transformation have already been realised through continued sales success and partnerships with a

significant number of new customers, each with fresh IT challenges.

The appointment of extra senior leaders across Datacom's businesses has been a strategic move to bring

additional skills and expertise into the organisation to meet future challenges, and to set Datacom up strongly

for continued growth and success.

On behalf of the Directors and myself, I would like to record our sincere appreciation to all Data com people for

their continued support and valued effort over the last year, to our customers for their continuing backing and

belief in our delivery and innovation and to our partners for their valued support.

For and on behalf of the Board

Craig Boyce

Chairman

Datacom Group Limited

4

Continuing operations

Sale of goods Rendering of services Other operatrng income

Revenue

Cost of sales

Gross profit

Employee benefits expense Other expenses Net finance costs (revenues)

Profit before income tax

Income tax expenses

Profit after tax

Profit for the year is attributable to: Equity holders of the parent Non-controlling interest

DAT ACOM GROUP LIMITED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2017

5

Note

4(a)

4(b) 4(c,d) 4(e)

5

Consolidated 2017 2016 $000 sooo

353,801 334,374 802,993 718,947

509 889

1,157,303 1,054,210

(455,816) (423,796)

701,487 630.414

(505,745) (466,827) (135,164) (122,893)

{122) 504

60,456 41,198

(16,712) (14,012)

43,744 27,186

42,191 26,063 1,553 1,123

43,744 27,186

E.Y

DATACOM GROUP LIMITED STATEMENT OF COMPREHENSIVE INCOME


Other comprehensive income Other comprehensive income to be reclassified to profit or loss in subsequent years

Foreign currency translation gain/{loss)

Net other comprehensive income to be reclassified to profit or loss in subsequent years

Other comprehensive income not to be reclassified to profit or loss in subsequent years

Revaluation gain/(loss) on land and buildings & finance leases

Income tax effect

Net other comprehensive income not to be reclassified to profit or loss in subsequent years

Other comprehensive income for the year, net of tax

Total comprehensive income for the year, not of tax

Total comprehensive income for the year is attributable to: Equity holders of the parent Non-controlling interest

Earnings per share for profit attributable to the ordinary equity holders of the parent

Basic Earnings per share Diluted Earnings per share

Note

7

The accompanying notes form part of and are to be read in conjunction with these financial statements.

6

Consolidated 2017 2016 $000 $000

(1,172)

(1,172)

481

{236)

245

(927)

42,817

41,296 1,521

42,817

$

6.91

6.63

5,659

5,659

564

(285)

279

5,938

33,124

31,817 1,307

33,124

$

4.29 4.09

EY

DATACOM GROUP LIMITED STATEMENT OF CHANGES IN EQUITY


Foreign Employee Asset Currency

Note Equity Benefits Issued RevaluaUon Translation Retained Non•controlling Total Reserve Capital Reserve Reserve Earnings Total Interest Equity

$000 $000 $000 $000 $000 $000 $000 $000 Consolidated

As at 1 April 2015 472 10,958 12,002 (12,620) 158,413 169,225 2,034 171,259

Profit for the year 26,063 26.063 1,123 27,186

Other comprehensive income 1.306 4.191 257 5.754 184 5.938

Total comprehensive income for the year 1.306 4,191 26.320 31,817 1,307 33,124

Transactions with shareholders in their capacity as owners

Ordinary/employee shares repurchased & cancelled 24 (60) (961) (1,021) (1.021)

Equity scheme expenses 24 129 129 129

Dividends paid/payable (14.991) (14,991) (950) (15.941)

Vested Australian shares 24 321 321 321

lncrease/(decrease} in non-controlling interest 576) 576 383 193

As at 31 March 2016 601 10,898 13,308 (8,429) 168,526 184,904 2,774 187,678

Profit for the year 42,191 42,191 1,553 43,744

Other comprehensive income 4 1,234 335 895 32 927

Total comprehensive income for the year 4 {1,234) 42,526 41,296 1,521 42,817

Transactions with shareholders in their capacity as owners

Ordinary/employee shares repurchased & cancelled 24 (106) (3,539) (3,645) (3,645)

Equity scheme expenses 24 153 153 153

Dividends paid/payable (20,382) {20,382) (1,337) {21,719)

Vested NZ/Australian shares 24 1,649 135 1,784 1,784

Increase/ (decrease) in non•conlfolling Interest 200 200

As at 31 March 2017 754 12,441 13,312 (9,663} 187,266 204,110 3,158 207,268

The accompanying notes form part of and are to be read in conjunc�on with these financial statements.

E.Y

CURRENT ASSETS

Cash and cash equlvalents Trade and other receivables

Finance lease receivables

Inventories Work in progress

Total current assets

NON-CURRENT ASSETS

Property, plant & equipment Investment in associates

Intangible assets

Finance lease receivables Deferred tax assets

Other receivables

Tota! non-current assets

TOT AL ASSETS

CURRENT LIABILITIES

Trade and other payables

Interest-bearing loans and borrowings

Provisions & employee entitlements Current tax liability

Dividends payable

Total current liabllitles

DAT ACOM GROUP LIMITED

STATEMENT OF FINANCIAL POSITION

As at 31 March 2017

Note

9

10

11

12

17

13

11

5

18

19

20

6

The accompanying notes form part of and are to be read in conjunction wlth these financial statements.

8

Consolidated

2017 2016 $000 SOOD

55,916 44,752 214,079 179,534

1,140 1,147

4,720 3,293 11,088 7,907

286,943 236,633

160,298 155,413 3,800 3,981

36,016 32,863 2,414 2,198 7,630 7,747

8,266 6,588

218,424 208,790

505,367 445,423

114,696 99,125

31,836 26,357

71,290 61,589 6,930 2,784

9,508 5,533

234,260 195,388

E.Y

NON-CURRENT LIABILITIES

Other payables ProvisiOns & eml)loyee enlitlements Deferred tax Habil!tlcs Interest-bearing loans and borrowings

Tola! non-current Uabilities

TOTAL LIABILITIES

TOTAL NET ASSETS

EQUITY

Equity attributable to equity holders of the parent Issued capital Relained earnings Other re.serves

Parent lnlerests

Non-controlling interest

Total equity

DAT ACOM GROUP LIMITED STATEMENT OF FINANCIAL POSITION

As at 3i March 2017

Not,

18 20

19

21

The accompanylr,g noles form part of and are lo be read In con]unclhm Wllh those financial statements.

For and on behalf of !he Board, which oulhoriscd the issue of lho financi.:il statements on

28 July 2017

9

Consolrdated 2017 2016 $000 5000

,o,936 6,911 3,333

42,657

63,839

298,099

207,268

12,441

187,2.66 4,403

204,110

J,158

207,268

4,578

3,069

3,975 50,735

62,357

257,745

187,678

10,898 168,526

5.480

184,904

2,774

187,678

BC Sutton DirOC!()I'

Dated: 28Juty2017

E.Y

Cash Flows from Operating Activities

Cash was provided from: Receipts from customers Rent Dividends received Interest received

Cash was disbursed to: Payments to suppliers & employees Interest paid Income tax paid Rent/operating !eases paid

Net cash flows from operating activities

Cash Flows from Investing Activities

Cash was provided from: Proceeds from sale of property, plant & equipment

Cash was disbursed to: Purchase of property, plant & equipment Investment in associates

Net cash flows from investing activities

Cash Flows from Financing Activities

Cash was provided from: Proceeds of borrowings Net proceeds from employee share scheme Finance lease receipts

Cash was disbursed to: Borrowings - subsidiaries Repayment of borrowings - principal Interest on borrowings Finance !ease repayments Net change lo equity holding in subsidiaries Repurchase of shares Dividends paid on ordinary/employee shares Dividends paid to non-controlling interests

Net cash flows from financing activities

Net lncrease/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Net foreign exchange differences

Cash and cash equivalents at the end of the year

DATACOM GROUP LIMITED CASH FLOW STATEMENT


Note

22

9

The accompanying notes form part of and are to be read in conjunction with these financial statements.

10

Consolidated 2017 2016 $000

1,118,300 482

4

2,796

1,014,651

13,724 19,815

73,392

7

36,275 144

{36,412)

12,845 {1,418)

474

13,664 2,147 6,947

1,745 16,410 1,337

(30,349)

6,631 38,405

(473)

44,563

$000

1,033,019 616

5 3,356

936,595 28

12,294 18,684

69,395

303

40,571

(40,268)

1g,2s6 (440)

13,712

19,909 2,527 3,124

403

798

14,219 950

{9,372)

19,755 18,083

567

38,405

E.Y

1. Summary of Significant Accounting Policies

a) Basis of preparation

DAT ACOM GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS


Dalacom Group Limited is a company domlci!ed ln New Zealand and registered under the Companies Act 1993. The Company is a FMC reporting entity for the purposes of the Financial Markets Conduct Act 2013. The financial statements of the Group have been prepared in accordance with generally accepted accounting practice in New Zealand. The financial statements have also been prepared on a historical cost basis, except for Land & Buildings and derivative financial instruments that have been measured at fair value_

Dalacom Group Limited is primarily involved in supplying IT services and Business Process Outsourcing.

The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000).

b) Statement of compliance The financial statements have been prepared in accordance with NZ GAAP. They comply with New Zealand equivalents to International Financial Reporting Standards {NZ IFRS) and other applicable Financial Reporting Standards, as appropriate for Tier 1 for profit-oriented entities. The financial statements comply with International Financial Reporting Standards (IFRS).

c) Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 March 2017. Control is achieved when the Group is exposed, or has rights, to variable returns from lts involvement with the investee and has the ability to affect those returns through its power over the investee.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate !hat there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the dale the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting poffcies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction

d) Foreign Currency Translation Both the functional and presentation currency of Datacom Group Limited and Its New Zealand subsidiaries is New Zealand dollars ($).

As at the reporting date the assets and liabilities of the overseas subsidiaries are translated into the presentation currency of Datacom Group Limited at the rate of exchange ruling at balance date and the statement of comprehensive income is translated at the date of each transaction. The exchange differences arising on the retranslalion are taken to the foreign currency translation reserve. On disposal of a foreign entity, the proportional share of exchange differences is transferred out of reserves and reclassified to profit or toss in the statement of comprehensive income.

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling al the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at balance date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the lnllial transaction.

e) Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.

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. Bank overdrafts are included within interest-bearing loans and borrowings in current liabilities in the statement of financial posllion.

f) Inventories Inventories are stated at the lower of cost and net realisable value.

g) Work in progress Work in progress represents the gross unbilled amount expected to be collected from customers for contract work performed to dale. 1t is measured at cost plus profit recognised to date less progress billings and recognised losses.

h) Investments and Other Financial assets

Financial assets within the scope of NZ IAS 39 Financial Instruments: Recognition and Measurement are classified as financial assets at fair value through profit or loss, or loans and receivables. A!I financial assets are recognised initially at fair value plus directly attributable transaction costs, except in the case of financial assets recorded through profit or loss. The Group determines the classification of its financial assets at initial recognition.

i) Recognition and dorocognition

All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to the purchase or sale of financial asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the asset within the period established generally by regulation or convention in the market place. Financial assets are derecognised when the right to receive cash flows from the financial assets has expired or been transferred.

ii) Loans and receivables Loans and receivables, including trade and other receivables and loans to key management personnel are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method, less impairment. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Loans and receivables are included in current assets, except for those with maturities greater than 12 months after balance dale, which are classified as noncurrent.

11

OATACOM GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS


h) Investments and Other Financial assets (continued)

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. Interest income continues lo be accrued on the reduced carrying amount based on the original effective interest rate of the asset. Loans together with the associated allowance are wrllten off when there is no reallstic prospect of future recovery and all collateral has been realised or has been transferred to the Group. lf, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write•off is later recovered, the recovery is recognised in profit or loss.

i) Investments in associates The Group's investment in its associates is accounted for using the equity method of accounting in the consolidated financial statements. The associates �re entities over which the Group has significant influence and that are neither subsidiaries nor joint ventures.

j) Property, Plant and Equipment Plant and equipment is stated at cost, including costs directly attributable to bringing the asset to its working condition, less accumulated depreciation and any accumulated impairment losses.

Land and buildings are measured at cost on initial recognition and subsequently measured at falr value less accumulated depreciation on buildings and impairment fesses recognised after the date of revaluation. Valuations are done frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

Any expenditure that increases the economic benefits derived from an asset is capitalised. Expenditure on repairs and maintenance that does not increase the economic benefits is expensed in the period it occurs.

A!I items are depreciated/amortised on a straight line basis Expected useful lives are: Furniture & fillings Leasehold improvements Computers Plant & equipment Leased plant & equipment Motor vehicles Specialised data centre buildings Other buildings

Revaluation of rand and buildings

3·10years 1·25 years 2�10 years 3•20years 1·4 years 3·10 years 25 years 30 years

Any revaluaUon increment is recorded in other comprehensive income and credited to the asset revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is recognised in profit or loss.

Any revaluation decrease is recognised in profit or loss, except to the extent that it offsets a previous revaluation increase for the same asset, in which case the decrease is debited directly to the asset revaluation reserve to the extent of the credit balance existing in the revaluation reserve for that asset.

Addillonally, any accumulated depreciation as at the revaluation dale is eliminated against the gross carrying amounts of the asset and the net amounts are restated to the revalued amounts of the assets.

Upon disposal or derecognillon, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.

Impairment

The carrying values of plant and equipment are reviewed for impairment al each reporting date, based on the cash generating unit they are allocated to, with the recoverable amount being estimated when events or changes in circumstances indicate value may be impaired.

If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash--generaUng units are written down to their recoverable amount.

The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. ln 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 lime value of money and the risks specific to the asset.

k) Intangibles Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group's interest in the net fair value of the acquiree's identifiable assets {including other intangibles acquired), liabillties and contingent liabilities.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised.

As at the acquisition date, any goodwill acquired is allocated lo each of the cash-generating units expected to benefit from the combination's synergies. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is !ess than the carrying amount, an impairment loss is recognised. Impairment losses recognised for goodwill are not subsequently reversed.

12 E.Y

k) Intangibles (continued) Other intangible Assets



!ntanglble assets acquired separately or in a business combination are initially measured al cost. The intangible asset acquired in a business combinatlon !s its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried al cost less any accumulated amortisation and any accumulated impairment losses.

The useful lives of these intangible assets are assessed to be finite. Intangible assets with finlte lives including software and customer contracts are amortised over the useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finlle life is reviewed at least at each financial year end. Changes in the expected useful life or the pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, which is a change in accounting estimate. The amortisation expense on assets with finite lives, is recognised in profit or loss.

Research and development costs Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use, its intention to complete and its availability for use, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following initial recognllion of the development expenditure, the cost model is applied requiring the asset to be carried at cost less accumulated amortisation and accumulated impairment losses. Any expenditure so capllalised is amortised over the period of expected benefit from the related project.

All the Group's other intangible assets are amortised on a straight line basis as follows:

Development Costs Customer List Software

3 - 7 years - Amortisation over the expected future benefits from the related project 2 - 5 years - Amortisation over future life 3 years - Amortisation over future life

Reviews are undertaken on an annual basis of all finite life intangible assets to assess whether any indicators of impairment exist. Indicators include matters such as loss of ability to generate revenue, loss of customers or loss of market share.

l) Trade and other payables Trade payables and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.

m) Interest-bearing loans and borrowing costs AU loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs associated with the borrowing.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. The effective interest rate is calculated by taking into account any issue costs, and any discount or premium on settlement.

Borrowing costs directly attributable to !he acquisition, construction or production of a qualifying asset (ie an asset that necessarily takes a substantial period to get ready for its intended use) are capitalised as part of the cost of that asset. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds

n) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, ll is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a rellable estimate can be made of the amount of the obligation.

Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract. the reimbursement ls recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement.

Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation al the balance date. !f the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the lime value of money and, where appropriate, the risks specific to the liability.

o) Employee leave benefits i) Wages, salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits, annual !eave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in respect of employees' services up to date. They are measured al !he amounts expected to be paid when the !)abilities are settled. ii) Long service leave (Australia only)

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary !eve!s, experience of employee departures. and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.

13 EY

p) Share based payment transactions

DATACOM GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS


The Group currently has two types of plans in place to provide benefits to selected employees and directors of the Group in the fonn of share-based payments:

(i) Equity settled transactions

The Group provides benefits to employees (including senior executives) of the Group in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity settled transactions).

The cost of these equity settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares. It is recognised, together with a corresponding increase in equity, over the period in which the perfonnance and service conditions are fulfilled, ending on the dale on which the relevant employees become fully entitled to the award (the vesting period).

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects both the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market perfonnance conditions being met as the effect of these conditions is included in the detennination of fair value at grant date. The expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately.

There are currently four plans in place to provide these benefits. Three in New Zealand and one in Australia.

(ii) Cash-settled transactions

The Group also provides benefits to employees in the form of cash-settled share-based payments, whereby employees render services in exchange for cash, the amounts of which are determined by reference to movements ln the price of shares.

The cost of cash-settled transactions is measured initially at the fair value at the grant date taking into account the terms and conditions upon which the instruments were granted. The fair value is expensed over the period until vesting with recognition of a corresponding liability. The liability is remeasured lo fair value at each balance date up to and including the settlement date with changes in fair value recognised in profit or loss. The fair value of the liability is determined by an external valuer applying the Black-Scholes option pricing model.

The expense recognised by the Group is the total expense associated with all such awards.

There are currently two plans in place to provide these benefits. One in New Zealand and one in Australia.

q) Revenue

Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

(i) Sale of goods

Revenue from sale of goods is recognised when there is persuasive evidence, usually in the form of an executed sales agreement at the time of delivery of the goods to the customer, indicating that there has been a transfer of risk and rewards to the customer, no further work or processing is required, the quantity and quality of the goods has been determined, the price is fixed and generally title has passed.

(ii) Rendering of services Revenue from on-going projects is recognised by reference to the stage of completion of the contract and billing to the customer.

Stage of completion is measured by reference to labour hours incurred to dale as a percentage of total estimated labour hours for each contract which is determined by a set of quotations with the customer.

When the contract outcome cannot be estimated retiab!y, revenue is recognised only to the extent of the expenses recognised that are recoverable.

(iii) Interest

Revenue is recognised as interest accrues using the effecllve 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.

(iv) Unearned income

Where contract revenues are received prior to the delivery of services, these revenues are deferred until the company has fulfilled its obligations under the agreement.

r) Leases

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

i) Group as a Lessee

Finance leases, which transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease al the fair value of the leased property or, if lower, at the present value of the minimum !ease payments. Capitalised leased assets are depreciated over the shorter of the estimated useful llfe of the asset or the lease term.

Lease payments are apportioned between the finance charges and reduction of the !ease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are included in profit or loss as finance costs.

Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the term of the lease.

14

r) Leases (continued)

ii) Group as lessor


NOTES TO THE FINANCIAL STATEMENTS


Leases in which the Group retains substantially al! the risks and benefits of ownership of the leased asset are classified as operating leases. Initial direct costs incurred in negotiating an operating !ease are added to the carrying amount of the !eased asset and recognised as an expense over the lease term on the same basis as rental income.

s) Income Tax and Other Taxes

Current income lax assets and llabilities for the current year are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those enacted or substantially enacted at the reporting date where the Group operates and generates taxable income.

Under the tax consolidation regime only wholly owned entities are eligible to join a consolidation group. Datacom Australia Holdings Ply Limited is the head company of the consolidated tax group in Australia. Datacom Group Limited is the head company of the consolidated tax group in New Zealand.

Deferred income tax is provided on all temporary differences at balance date between the tax bases of assets and llabilitles and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except:

• Where the deferred income tax Hability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the lime of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• In respect of taxable temporary dlfferences associated wllh investments in subsidiaries, associates and interests in joint ventures, except where the liming of the reversal of the temporary differences can be controlled and ii is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be avallable against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised except:

• where the deferred income tax asset relating to the deductible temporary difference 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; and

• In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are on!y recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that ii ls no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at balance date.

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 acquisillon of the asset or as part of the expense item as applicable; and

• receivables and payables are staled 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 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.

15

OATACOM GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS


t) New accounting standards and interpretations

i) New and amended New Zealand Equivalents to International Financial Reporting Standards and interpretations as of 1 April 2016:

There were no new standards which had a material impact on the financial statements of the Group.

Ji) Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the year ended 31 March 2017. These are outlined below:

NZ JFRS 15 Revenue from Contracts with Customers, effective 1 January 2018

NZ IFRS 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers.

NZ IFRS 15 supersedes: (a) NZ IAS 11 Construction Contracts (b} NZ IAS 18 Revenue

The core principle of NZ IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps:

(a) Step 1: Identify the contract(s} with a customer (b} Step 2: Identify the performance obligations in the contract (c} Step 3: Determine the transaction price (d} Step 4: Allocate the transaction price to the performance obligations in the contract (e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

NZ IFRS 9 (2016) Financial Instruments, effective 1 January 2018

NZFRS 9 will replace NZ !AS 39: Financial Instruments: recognition and Measurement. NZ IFRS 9 introduces changes to the classification and measurement model for financial assets, impairment of financial assets and hedge accounting.

NZ IFRS 16 Leases, effective 1 January 2019

NZ !FRS 16 is the new standard on the recognition, measurement, presentation and disclosure of leases. This standard wlll replace: (a) NZ IAS 17 Leases;

(b) NZ IFR!C 4 Determining whether an Affangement contains a Lease;

(c) NZ SIC-15 Operating Leases-Incentives; and (d) NZ SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The scope of the new standard includes leases of all assets, with certain exceptions. A lease is defined as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.

NZ !FRS 16 requires lessees to account for all leases under a single on-balance sheet model (subject to certain exemptions) in a similar way to finance !eases under NZ !AS 17. Lessees recognise a liability to pay rentals with a corresponding asset, and recognise interest expense and depreciation separately. Reassessment of certain key considerations (e.g., lease term, variable rents based on an index or rate, discount rate) by the lessee is required upon certain events. Lessor accounUng ls subslanlial!y the same as today's lessor accounting, using NZ IAS 17's dual classification approach.

Application of NZ IFRS 16 is required for annual periods beginning on or after 1 January 2019.

The Group is evaluating the impact of these new standards on the financial statements of the Group.

u) Change in Accounting Policies

The accounting policies have been applied consistently to all periods presented in these financial statements. Certain figures for the 2016 year have been reclassified to conform to the current year's presentation.

2. Significant accounting judgements, estimates and assumptions

The preparation of the Group's consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosures of contingent liabill!ies at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. The key assumptions concerning the future and other key sources of estimation uncertainty at balance date, that have a significant risk of causing material adjustment to the carrying amounts of the assets and liabilities within the next financial year are discussed below.

a) Freehold land & buildings An external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the Group's properties every twelve months.

In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation.

b) Capitalised development costs

Development costs are only capitalised by the Group when ii can be demonstrated that the technical feasibility of completing the intangible asset is valid so that the asset will be available for use or sale and future cash flows support the carrying value recognised.

c) Recovery of deferred tax assets

Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise those temporary differences. Further details on deferred taxes are disclosed in note 5.

16

E.Y

OAT ACOM GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS


2. Significant accounting judgements, estimates and assumptions {continued) d) Impairment of Non.financial Assets including goodwill, intangibles and investment in associates

The Group's impairment test is based on value in use calculations that use a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset base of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash•inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the recoverable amount for the different cash generatlng units, including a sensitivity analysis, are further explained in Nole 14.

e) Revenue recognition

Work in progress on projects for the purposes of revenue recognition is determined by management utilising a percentage of completion assessment based on best available information at that time.

3. Financial risk management

The Group's principal financial instruments comprise receivables, payables, bank loans and overdrafts, finance leases, cash and short-term deposits and derivatives.

The Group has exposure to the following risks from its use of financial instruments: • credit risk • liquidity risk • market.risk.

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Group, through its training and management standards and procedures, aims lo develop a disciplined and constructive control environment in which all employees understand their roles and obligallons.

Credit risk

Credit risk relates to cash and cash equivalents, trade and other receivables and derivative instruments. The Group's exposure to credit risk arises from potential default of the counter party, with a maximum exposure to the carrying amount of these instruments.

The Group does not hold any credit derivatives to offset its credit exposure.

The Group trades only with recognised, creditworthy lhlrd parties, and as such collateral is not requested nor is it the Group's policy to securitise its trade and other receivables.

New customers are regularly analysed for creditworthiness before the Group's standard payment, delivery terms and conditions are offered. The Group's review includes external ratings, when available, and in some cases bank references.

The Group's customer base is long term by nature and credit losses have occurred very infrequently.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables This allowance is a specific loss component that relates to individually significant exposures.

There is no significant concentration of credit risk within the Group and financial instruments are spread amongst financial institutions to minimise the risk of default.

Maximum exposures to credit risk at balance date are:

Cash and cash equivalents

Finance leases Trade and other receivables

The aging of trade receivables at the reporting date was:

Not past due, nor impaired Past due but not impaired

Past due and impaired

Tota!

30-60 days over 60 days over 60 days

Consolidated 2017 2016 $000

55,916 3,554

196,556

256,026

153,564

35,617 6,087

1,288

196,556

$000

44,752 3,345

165,940

214,037

118,790 31,422 14,410

1,318

165,940

Datacom Group's largest customer accounts for 5.16% (2016: 8.54%) of total sales and 4.12% (2016: 3.79%) of trade receivables at balance date. The Datacom Group does not have any other significant concentrations of credit risk.

The Group's policy is to provide financial guarantees only to wholly-owned subsidiaries.

17

E.Y

3. Financial risk management (continued) Liquidity risk



Uquidity risk is the risk that the Group will not be able to meet its financial obligations as they fan due. The Group's approach to managing liquidity is to take a very conservative position to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

Typically the Group carries positive cash balances to ensure that it has sufficient cash on demand to meet expected operational expenses, including the servicing of financla! obligations: this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, the Group maintains the following lines of credit:

The following are the contractual maturities of financial liabilities. Including interest payments and excluding the impact of netting agreements:

31 March 2017 Carrying Contractual 6 mths 6-12 Amount cash flows or less months 1-2 years 2-5 years 5 years & over

$000 $000 $000 $000 $000 $000 $000 Non-derivative financial liabi lities Secured bank loans 57,168 60,079 13,918 3,009 42,847 305 Finance lease liabilities 5,972 6,124 3,151 2,646 238 89 Trade and other payables 114,696 114,696 114,696 Bank overdraft 11,353 11,353 11,353

31 March 2016

Non-derivative financial liabilities Secured bank loans 58.430 61,853 14,324 1,343 39,161 7,025 Finance lease liabllities 12,315 12,860 3,527 3,411 5,755 167

Trade and other payables 99,125 99,125 gg,125 Bank overdraft 6,347 6,347 53 6,294

3. Financial risk management (continued) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. a) Currency risk

The Group is exposed to currency risk on safes, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities, primarily the Australian Dollar (AUD). The Group uses forward exchange contracts as deemed necessary to hedge its currency risk, most with a maturity of less than one year from the reporting date. When necessary, forward exchange contracts are rolled over at maturity. The Group has not performed a risk sensitivity analysis for transactions in Singapore Dollars or Philippine Peso as these are considered immaterial.

Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Group. This provides an economic hedge and no derivatives are entered into.

The Group's investments in subsidiaries are not hedged as those currency positions are considered to be long-term in nature.

Datacom Group has exposure to foreign exchange risk as a result of transactions denominated in foreign currencies, arising from normal trading activitles including its Australian and Asian based operatlons. The currencies in which Datacom Group primarily transacts are New Zealand, Australian and US dollars. Where exposures are certain it is Datacom Group's policy to use derivative financial instruments to mitigate these risks as they arise.

There were no significant outstanding foreign exchange forward rate contracts at balance date.

The Group's exposure to foreign currency risk was as follows:

Malaysian Rlnggit

Philippine Peso

Australian Dollar

Trade and other receivables Trade and other payables Trade and other receivables Trade and other payables Trade and other receivables Trade and other payables

Consolidated 2017 2016 $000 S000

2,598 (585)

13 (84)

100,334 (59,782)

2,872 (537)

14 (58)

85,205 (55,01g)

If the Australian dollar had varied by plus/minus 5% at year end the profit after tax and equity would have been impacted by S347.485 (2016: $164,760). If the Malaysian Ringgit had varied by plus/minus 5% at year end the profit after tax and equity would have been impacted by $43,942 (2016: $57,348). A variation in the other currencies would be immaterial for the Group.

18 E.Y

3. Financial risk management (continued) Market risk b) Interest rate risk



The Group has a policy of having a mixture of fixed and floating interest rates to maintain flexibility in its borrowing program and moderate its interest risk exposure.

Bank balances, receivables, ESOP loan, payables, bank overdraft and borrowings The carrying value approximates the fair value for each of these classes of financial instruments apart from finance leases as disclosed below:

Capital management

Finance !ease receivables Finance lease payables

2017 Carrying Value

$000 3,554 5,972

2016 Fair Value Carrying Value

$000 $000 3,839 3,345 5,821 12,315

FalrValue

S000 3,482

12,703

For the purpose of the Group's capital management. capital includes issued capital, and all other equity reserves attributable to the equity holders of the parent.

The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirement of the financial covenants. To maintain the capital structure, the Group may adjust the dividend payment to shareholders.

The Group has agreed a banking covenant with ANZ National Bank with a focus on the Equity to Equity and Bank Debt ratio and the Group has been fully compliant with this requirement throughout the year.

From lime to time the Group purchases its own shares. Primarily the shares are intended to be used for issuing shares under the Group's share option programme. Buy and sell decisions are made on a specific transaction. The Group does not have a defined share buy-back plan.

There were no changes in the Group's approach to capital management during the year.

4. Revenue and Expenses

a) Other operating income Rental revenue Dividends Other operating income

Total other revenue

b) Wages and salaries Increase in liability for long service leave Termination expenses Net movement in share-based obllgallon Other employee expenses

Total employee benefits expense

c)

Depreciation Impairment Reversal of property, plant and equipment Impairment of goodwill Amortisation and impairment of other intangfb!e assets

Total depreciation, amortisation and impairment expense

d)

Audit Fees Bad and doubtful debts expense Contractors & temporary staff Directors Fees Donations Rental and operating lease expense Net foreign exchange differences Net losses on disposal of property, plant and equipment Share of loss of an associate Software Licensing Travel Other expenses

Total other expenses

Total depreciation and other expenses

19

Noto

12

13 13


482 616 4 5

23 268

509 889

468,156 432,120 1,236 1,240

571 1,195 (101) (71)

35,883 32,343

505,745 466,827

27,749 26,817

(235) 3,166

4,491 4,328

32,005 34,311

542 581 528 582

28,769 22,347 419 335 132 337

19,815 18,684 44 731 49 531

325 416 4,973 3,269 8,739 8,752

38,824 32,017

103,159 88,582

135,164 122,893

E.Y

4. Revenue and Expenses (continued)



Note Consolidated 2017 2016 $000 $000

e) Net finance costs (revenues) Interest received (3,263) (3,840) Bank loans and overdrafts Finance charges payable under finance leases Movement in fair value of derivatives Share scheme

Total finance costs

Amounts paid and payable to the auditors for:

Audit of financial statements Audit and review of financial statements (note 1)

Other services Tax services (note 2) Other services {note 3} Total other services Total amounts paid to the auditors:

1. Fees for the annual audit of the financial statements 2. Tax services relate to tax audit and compliance work. 3. Other services in 2017 comprised mainly of:

- Legal entity restructuring services - Preparation of Transfer Pricing documentation - Mobility advisory services and individual lax compliance support

Other services in 2016 comprised mainly of advice on transfer pricing and interpretation of the Holidays Act.

2,146 388 127

724

(122)

542

175 179

354 896

2,555 212

(129} 698

504

568

176

93 269

837

Fees pald for the audit of financial statement to audito(s other than the auditor of Datacom Group Limited were S13,250 (2016: S12,600), for tax services S5,934 (2016: $8,764).

5. Income Tax

Income tax expenses Major components of income tax expense for the years ended 31 March are:

Statement of comprehensive income Current income tax

Deferred income tax Relating to origination and reversal of temporary differences

Reconciliation of effective tax rate

Accounting profit before tax

At the statutory income tax rate of 28% (2016: 28%)

Adjustments in respect of current income tax of previous years Revenue not assessable for income tax purposes Expenditure not allowable for income tax purposes Tax losses not recognised Effect of zero depreciation rate on buildings (NZ) Effect of tax rates in foreign jurisdictions

At effective income tax rate of 27.64% (2016: 34.01% )

20

18,794 14,100

(2,082) (88)

16,712 14,012

60,456 41,198

16,928 11,535

(458) 228

(631) (4) 644 1,771

404 271 216

(42) (138)

16,712 14,012

E.Y

5. Income Tax (continued) Deferred income tax

Consolidated

Deferred income tax liabilities

Work in progress Deferred insurance proceeds Deferred cost Property, plant and equipment Fair-valued buildings

Gross deferred tax liabllities Set-off deferred tax assets

Net deferred tax liabilities

Deferred income tax assets

Employee entitlements Inventory Provisions

Gross deferred income tax assets Set-off deferred tax liabilities

Net deferred income tax assets

Reconciliation of deferred tax movements

Opening Balance Charged to income Revaluation Prior Year adjustments Foreign exchange movement Other

Closing balance



21

Balance Sheet 2017 2016 $000 $000

(783) (900) {487) {519) (766) (1,110)

{2,345) (3,185) (4,738) (4,594)

(9,119) (10,308) 5,786 6,333

(3,333) (3,975)

10,692 10,651 19

2,724 3.410

13,416 14.080 (5,786) (6,333)

7,630 7,747


3,772 2,082 (236)

(1,170) (137) (14)

4,297

5,012 88

(293) (1,601)

566

3,772

Income Statement 2017 $000

117

32

344

614

(144)

1,269 (19)

(131)

2,082

2016 $000

{435)

136

45 (19)

328

(4) 37

88

E.Y

6. Dividends paid and proposed

DAT ACOM GROUP LIMITED



Interim imputed dividends for 2017: 165 cents (2016: 145 cents)

Dividend on ordinary shares Dividend on employee shares

Final imputed dividend for 2017: 145 cents (2016: 85 cents), paid 12 Juno 2017

Dividend on ordinary shares Dividend on employee shares

Total distributions to owners

Imputation Credit Account


10,751 123

9,419 89

20,382

9,336 122

5,469 64

14,991

Imputation credits avallable as at 31 March 2017 were $16,052,913 (2016: $10,574,468). This includes imputation credits that will arise from the payment of the amount of the provision for income tax, imputation credits that will arise from the receipts of dividend recognised as receivables at the reporting date, and imputation debits that will arise from the payment of dividends recognised as payables at the reporting date.

The Company expects that future tax payments will generate sufficient imputation credits for the Company to be able to continue to fully impute future dividend payments.

7. Earnings per share

a) Earnings used in calculating earnings per share For basic and diluted earnings per share Net profit attributable to ordinary equity shareholders of the parent

b) Weighted average number of shares Weighted average number of ordinary shares for basic earnings per share Effect of dilution Share options

Weighted average number of ordinary shares adjusted for the effect of dilution

Earnings per share for profit attributable to the ordinary equity holders of the company Basic Earnings per share Dlluted Earnings per share

c) Information on tho classification of Securities

Options

Consolidated 2017 2016

sooo $000

42,191 26,063

6,106,926 6,068,926

256,300 302,500

6,363,226 6,371,426

$ s

6.91 4,29 6.63 4.09

Options granted to employees (including key management personnel) as described in note 23 are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent they are dilutive. The options have not been included in the determination of basic earnings per share,

22

EV



8. Summary of Financial Assets and Liabilities Consolidated

31 March 2017 Assets

Cash and cash equiva!enls Trade & other receivables Derivatives

Total

Liabilities Trade and other payables Interest-bearing loans and borrowings

Total

31 March 2016

Assets Cash and cash equivalents Trade & other receivables

Total

Liabilities Trade and other payables Derivatives Interest-bearing loans and borrowings

Total

9. Cash and Cash Equivalents

Cash al bank and in hand Short term deposits

Total cash and cash equivalents

Bank overdrafts (note 19)

Loans and Other

receivables liabilities at

$000 55,916

196,302

252,218

44,752 160,211

204,963

Note

amortised cost $000

(105,757) (74,493)

(180,250)

(84,395)

{77.092}

(161,487}

Consolidated 2017 2016 $000 $000

36,878 19,038

55,916

(11,353)

37,405 7,347

44,752

(6,347}

Tota! cash and cash equivalents for the purpose of the cash flow statement 44,563 38,405

Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. The carrying amounts of cash and cash equivalents represent fair value.

Short term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short term deposit rates.

10. Trade and Other Receivables

Current Trade receivables 187,417 153,845 Allowances for impairment loss (1,288) (1,318)

186,129 152,527

Prepayments 18,811 20,479 Trade receivables due from related parties 23 254 162 Other trade receivables 8,885 6,366

T otal current 214,079 179,534

Non-current Other recelvab!es 8,266 6,588

Total non.current 8,266 6,588

23

EV

10. Trade and Other Receivables (continued) Allowance for Impairment Loss

DAT ACOM GROUP LIMITED NOTES TD THE FINANCIAL STATEMENTS


Trade receivables are non-interest bearing and are generally on 30-60 day terms, An allowance for impairment loss is recognised when there is objective evidence that a trade receivable is impaired.

For terms and conditlons relating to related parties refer to note 23.

Movements in the allowance for impairment loss were as follows:

As al 1 April Additional allowance Amounts written off Foreign exchange movement

As at 31 March

11. Finance Lease Receivables


1,318 1,685 526 653

(539) (1,075) (17) 55

1,288 1,318

The Group has finance leases for various items of computer equipment with a carrying value of $3,553,563 (2016: $3,345,522). The lease contracts expire within 1 - 5 years. There are no rights of renewal but an option to transfer ownership of the assets to the Group.

Future minimum lease payments under finance leases are as follows·

Within one year After one year but not more than five years Over five years

Total minimum lease payments less amounts representing finance charges

Present value of minimum lease payments

Reconciled to

Current Non-current portion

24

1,513 2,642

198

4,353 (799)

3,554

1,140 2,414

3,554

1,4g2 2,508

197

4,197 (852)

3,345

1.147 2,1ga

3,345



12. Property, Plant & Equipment Note Consolidated

Furniture & fittings at cost Accumulated depreciation

Leasehold improvements at cost Accumulated depreciation

Computers at cost Accumulated depreciation

Plant & equipment at cost Accumulated depreciation

Leased computers, plant & equipment at cost Accumulated depreciation

Motor vehicles at cost Accumulated depreciation

Land & specialised data centre buildings at depreciated cost Accumulated depreciation

land & Buildings at fair value

Tota! net book value

Movements in property, plant and equipment

Furnl!ure and fillings

As at 1 April, net of accumulated depreciation and impairment Additions Disposals Depreciation for the year Net exchange difference

At 31 March, net of accumulated depreciation and impairment

leasehold improvements

As at 1 April, net of accumulated depreciation and impairment Additions Disposals Impairment reversal Reclassifications Depreciation for the year Net exchange difference Other


25

2017 2016 $000 $000

11,831 10,168 (8,354) (7,572)

3,477 2,596

77,276 63,929 (40,203) (36,055)

37,073 27,874

64,627 58,502 (49,065) {44,253}

15,562 14,249

61,521 55,325 (43,394) (38,703)

18,127 16,622

19,159 19,534 (17,507) (11,999)

1,652 7,535

24 47 (24) (33)

14

65,830 65,807 (13,303) (10,923)

52,527 54,884

31,880 31,639

160,298 155.413

2,596 1,718 1,896 1,644

(12) (2) (983) (792) (20) 28

3,477 2,596

27,874 28.491 13,866 3,747

{33) 235 365 187

(4,985) (5,240) (104) 544

37,073 27,874

EY



12. Property, Plant & Equipment (continued) Note

Computers

As at 1 April, net of accumulated depreciation and impairment Additions Disposals Reclassifications Depreciation for the year Net exchange difference


Plant & Equipment

As at 1 Aprll, net of accumulated depreciation and impairment Additions Disposals Reclassifications Depreciation for the year Net exchange difference


Leased computer, plant & equipment

As at 1 April, net of accumulated depreciation and impairment Additions Disposals Reclassifications Depreciation for the year Net exchange difference


Motor Vehicles

As at 1 April, net of accumulated depreciation and impairment Additions Disposals Depreciation for the year Net exchange difference


Land & specialised data centre buildings at depreciated cost

As at 1 April, net of accumulated depreciation and impairment Additions Disposals Depreciation for the year


26

Consolidated

2017 2016 $000 $000

14,249 14,305 9,524 8,136

(41) (224) (48)

(8,067) (8,163) (55) 195

15,562 14,249

16,622 14,387 6,842 7,107

(30) (16) 330 (88)

(5,472) (5,462) (165) 694

18,127 16,622

7,535 689 253 11,632

(116) (282)

(5,720) (4,731) (134) 61

1,652 7,535

14 52 3

(7) {17) (7) (26)

2

14

54,884 57,316 23

(51) (2,380) (2,381)

52,527 54,884

E.Y



12. Property, Plant & Equipment (continued)

Land & Buildings at fair value

As at 1 April, net of accumulated depreciation and impairment Additions Depreciation for the year Net exchange difference Revaluation


Total

Summary of movements in property, plant and equipment As at 1 April, net of accumulated depreciation and impairment Additions Disposals Impairment reversal Reclassifications Depreciation for the year Net exchange difference Revaluation


Revaluation of Freehold Land and Freehold Buildings

Note Consolidated 2017 2016 $000 S000

31,639 29,480 101

(135) (111) (469) 2,169

845

31,880 31,639

160,298 155,413

155.413 146,438 32.404 32,370

(90) (459) 235 365 187 (88)

(27,749) (26,906) (947) 3,693

845

160,298 155,413

Datacom Group engages Jones Lang LaSalle in Australia and Colliers in New Zealand, accredited independent valuers, to determine the fair value of its land and buildings on a regular basis lo obtain assurance that the recognised value represents fair value at any given time. Fair value is the amount for which the assets could be exchanged between a knowledgeable willlng buyer and a knowledgeable willing seller in an arm's length transaction as at the valuation date. Fair value is determined by direct reference to recent market transactions on arm's length terms for land and buildings comparable in size and location to those held by the Group, and to market based yields for comparable properties. The effective date of the last revaluation was 31 March 2017 and this is still considered appropriate in the current year.

These properties have a carrying amount of $31,880,000 (2016: $31,639,000).

The fair value measurement hierarchy for the assets is level 3.

Description of valuation techniques used and key inputs to valuatlon on properties:

Valuation technique

New Zealand

Income approach

Significant unobservable inputs

Passing Market Yield

Equivalent Market Yield

Indicated IRR on Value

Value per sqm NLA

Weighted Average Lease Duration

Range(weighted average)

9.70%

8.33%

8.89%

$1,993

4 years

Using the income approach !he fair value is estimated based on the income produced. Part of the property is purpose built to accommodate a datacentre and is leased Jong-term to a subsidiary. Therefore the company does not expect any changes in the assumptions used to calculate the forecasted income to change in the near future.

Australia

Direct comparison approach Highest & best use

Likely selling period

Most probable purchaser

Rate per square meter

Residential development site

up to 6 months

Local or international developer

$8,742 • $23.404

In determining the market, attenllon was given to restrictions under the current development controls, the property being vacant and close proximity to a communlty hub.

A large volume of development sites earmarked for residential development have sold in the area, suggesting there might a large supply of apartment stock anticipated to come on the market, therefore reducing the demand for residential development sites. This in turn may affect the market value of the property.

27

E.Y

12. Property, Plant & Equipment {continued)



Property, plant and equipment pledged as security for liabilities

The carrying value of plant and equipment held under finance leases at 31 March 2017 was $1,652,198 (2016: $7,534,827}. Leased assets are pledged as security for the related finance !ease liability.

13. Intangibles

Year ended 31 March 2017 As at 1 April 2016, net of accumulated amortisation and impairment Additions Disposals Reclassifications Net exchange difference Amortisation/Impairment

As at 31 March 2017, net of accumulated amortisation and impairment

As at 31 March 2017 Cost (gross carrying a mount) Accumulated amortisation and impairment

Net carrying amount

Goodwill is allocated to the following cash generating units:

Datacom Connect Pty Ltd Datacom Systems Pty Ltd incl Synchroplex Datacom Systems NSW Pty Ltd Datacom Metro IX Pty Ltd Datacom Business Services Ply Ltd Smartbusinosslive Ltd Datacom Solutions Ltd

Note $000

Software

13,131

8,098 (12)

(187) (28)

{4,397)

16,605

47,945 (31,340)

16,605

Country

AU

AU

AU

AU

AU

NZ

NZ

The recoverable amount of goodwill allocated to the cash generating units reflects the value in use.

Year ended 31 March 2016 As at 1 April 2015, net of accumulated amortisation and impairment Additions Disposals Reclassifications Net exchange difference Amortisation/Impairment

As at 31 March 2016, net of accumulated amortisation and impairment

As at31 March2016 Cost (gross carrying amount) Accumulated amortisatlon and impairment

Net carrying amount

The impairment testing of goodwill is described in note 14.

Note

28

$000 Software

9,765

7,429 (333)

88

133

(3,951)

13,131

40,954 {27,823)

13,131

Consolidated $000 $000

Goodwill Customer Contracts

19,638 94

(227) (94)

19,411

28,564 847

(9,152) (847)

19,411

Carrying amount 2017 $000

2,051 4,678 5,738

139

4,889 1,916

19,411

Consolidated $000

Goodwill

21,498

1,306 (3,166)

19,638

28,925 (9,287)

19,638

2016 $000

2,088 4,762 5,842

141

4,889 1,916

19,638

$000 Customer Contracts

471

{377)

94

847

{753)

94

$000 Total

32,863

8,098 (12)

{187) {255)

(4,491)

36,016

77,356 {41,339)

36,016

Recoverable amount 2017 $000

37,217 52,841 36,918

20,184 19,063 36,675

202,898

$000 Total

31,734

7,429 (333)

88

1,439 (7,494)

32,863

70,726 (37,863)

32,863

2016 $000

27,532 39,749 23,383

7,674 18,706 23,500

9,123 149,667

E.Y



14. Impairment testing of goodwill

Goodwill acquired through business combinatlons has been allocated to six individual cash generating units.

The following key assumptions apply to all cash generating units.

Australia

Gross margins are based on the margins particular to this line of business. Discount rates reflect the current commerclal borrowing rate the business units borrow their funds at plus a weighting which reflects management's estimate of the time value of money and the risks applicable to these business units. The revenue growth is based on management's view of the growth that will be achieved in these units over the 5 year period.

The recoverable amount in each of the four Australian business units has been determined based on a value in use calculation using cash flow projecUons based on financial budgets approved by the Board covering a five year period.

Value in use was determined by discounting the future cash flows generated from the continuing use of the units and was based on the following key assumptions. 3% annual sales growth over the 5 year period A terminal value after 5 years based on the 5th year's cash flow limes the selected EBITDA multiple A pre-tax discount rate applied to the cash flow projections of the current borrowing rate plus 3% ie 6.73% {2016-6.73%)

The NPV of the cash flows less the NBV or assets acquired in the business combination is compared against the carrying value of goodwill wllh any negative value being impairment for the year.

Key assumptions used in value in use calculations for Oatacom Connect Pty, Oatacom Systems Pty, Datacom Systems {NSW) Ply, Datacom Systems (VIC), Datacom Business Services, Synchroplex and Datacom Metro IX Pty and Xcite Business unit (both OMIX and Xcite are in Datacom Systems (WA))

Gross margins are based on the average values achieved over the last two years. Discount rates reflect the current commercial borrowing rate the business units borrow their funds at plus a weighting of 3% which reflects management's estimate of the time value of money and !he risks applicable to these business units. A sales growth rate of 3% pa which is management's view of the minimum growth that will be achieved in these units over the 5 year period.

With regard to sensitivity to changes ln assumptions management believe that no reasonably possible change in any of the above key assumptions would cause the carrying value of any of the units to materially exceed the recoverable amount.

New Zealand The recoverable amount in each of the New Zealand Cash Generating Units has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by the Board covering a five year period. An impairment is recognised when the Cash Generating Unit's recoverable amount is lower than the Carrying Value of the Cash Generating Unit.

Origen business in Oatacom Solutions Limited Value in use (Recoverable Amount) for the Cash Generating Unit Datacom Solutions Limited was determined by discounting the future cash flows generated from the contlnuing use of the Cash Generating Unit and was based on the following key assumptions.

55% compounded annual revenue growth over the 5 year period across service and product offerings from this line of business the line of

business

A terminal value after 5 years based on the 5th year's cash flow times the selected EBITDA multiple A pre-tax discount rate applied to the cash flow projections of 15%

The NPV of the cash flows from the Cash Generating Unit less the NBV of assets acquired in the business combination is compared against the carrying value of goodwill with any negative value being impairment for the year. The Carrying Value of the Cash Generating Unit associated with the Origen business goodwill is NZ S8.7m as at 31 March 2017.

Smartbusinesslive Limited Value in use (Recoverable amount) for Smartbusiness live Limlled was determined by discounting the future cash flows generated from the continuing use of the Cash Generating Units and was based on the following key assumptions.

A sales growth rate of 20% is based on budget projections for 2017 and a lower but stab!e growth rate of 10% for the following 4 years.

A terminal value after 5 years based on the 5th year's cash flow, A pre-tax discount rate applied to the cash flow projections of 15%

The NPV of the cash flow from the Cash Generating Unit !ess the NBV of assets is compared against the carrying value of goodwill with any negative value being impairment for the year. The Carrying Value of the Smartbusinesslive Cash Generating Unit ls NZ $6.1m as at 31 March 2017.

29

IE.Y

15. Investment in subsidiaries

Significant Subsidiaries: Datacom Holdings limited Datacom New Zealand limited

Subsidiaries: Datacom Systems limited Datacom Systems {Wellington) limited

Subsidiary; Datacom CSG Limited

Datacom South Island limited Datacom Employer Services limited

Subsidiary: Smartbusinesslive limited

Subsidiaries: Smartbooks limited Smartpayroll limited

Datacom Servlces Limited Oatacom Solutions limited

Oatacom Australia Holdings Ply limited Subsidiaries: Datacom Investments Ply Ltd

Subsidiaries: Datacom Systems (Vic) Ply Ltd Datacom Connect Ply Ltd Datacom Solutions Ply Ltd Datacom Systems Ply Ltd Datacom Systems {NSW) Pty Ltd Datacom Systems S.A. Ply Ltd Datacom Systems (W.A.) Ply Ltd Dalacom Systems (ACT) Ply ltd Datacom Business Services Ply Ltd Datacom Technical Security Services Ply Ltd Smartpayrol! Australia PTY Limited Datacom Systems Asia Sdn Bhd

Subsidiaries: Datacom IT Systems Philippines



Country of incorporation

% Equity interest

2017

New Zealand 100% New Zealand 100%



New Zealand 100%

New Zealand 55%

New Zealand 100%

New Zealand 100% NewZea!and 100% New Zealand 100%

Australia 95.1%

Australia 100%

Australia 100% Australia 100% Australia 100% Australia 100%

Australia 100% Australia 100% Australia 100%

Australia 100% Australia 100% Australia 90.4%

Australia 0%

Malaysia 100%

Philippines 100%

Datacom IT Services Southeast Asia Pte Ltd Singapore

2016

100% 100%

100% 100%

100% 100% 100%

55%

100% 100% 100% 100%

95.3%

100%

100% 100% 100% 100% 100% 100% 100% 100% 100%

90.4% 60%

100%

100%

AU subsidiaries have a balance date of 31 March and are involved in various aspects of IT Services and Business Process Outsourcing.

30 E.Y

16. Changes in holdings in subsidiary


For !he year ended 31 March 2017

In December 2015 Datacom Investment Pty ltd repurchased 13 shares (10.4%) from the non-controlling interest in Datacom Technical Services Ply limlted.

Net assets at date of transaction

10.4% acquired

from NCI

$000 103

Consideration 100% paid $000 $000 994 689

During 2016 year Datacom Investment Ply ltd invested a further $428,000 In Smartpayrotl Australia Ply ltd. Its share in the company did not increase due to the noncontrolling interest inves!lng the proportional equivalent. In October 2016 Datacom Investments so!d its share in the company to the minority shareholder.

17. Investment in associate

The Group has a 20% interest in Smartward Holdings Ply ltd. a company specialising in management of activities within hospital wards. Smart\vard is a private company and not listed on any public exchange. The Group's interest in Smartward is accounted for using the equity method in the consolidated financial statements.

a) Movements in the carrying amount

At 31 April Share of loss after income tax Additional investment December 2016

At 31 March

b) Summarised financial information The following table mustrates the summarised financial information of the Group's investment in Smartward:

Current assets Non-current assets Current liabilities Non-current liabilities

Equity

Share of associates net assets

Extract from the associate's income statement:

Revenue Other expenses Profit before tax Income tax expense Profit for the year Total comprehensive income for the year

Group's share of profit for the year

The associate had no contingent liabilities or capital commitments as at 31 March 2017.

Smartward Holdings Ply ltd has a June year end.

2017 2015/2016 $000 $000

3,981 4,397 (325) (416) 144

3,800 3,981

1,256 1,957 7,226 7,420 (181) (140) (109) (110)

8,192 9,127

1,638 1,825

388 124

3,029 3,098 (2,641) (2,974)

(1,014) (892) (1,627) (2,082)

(325) {416)

The investment in associate has been tested for Impairment as per the guidelines under NZ !AS 36. As at 31 March 2017, there is no impairment recognised as the Recoverable Amount (Value in Use) of the investment in Smartward Holdings Ply lid ls more than the Carrying Value of the investment.

31 E.Y

18. Trade And Other Payables

Current

Trade payables

Sundry payable and accruals

Advance billings

Deemed interest payable to share scheme members




Note Consolidated

2017 2016 $000 S000

76,003

17,771

19,877

1,045

67,127

15,076

15,057

1,773

114,696 99,033

Trade payables to related parties

Other related parties

Total payables current

Non-current Other payables

Share-based payments

Total payables non-current

The carrying value is the fair value for all trade and other payables.

114,696

10,866 72

10,938

92

99,125

4,251

327

4,578

Trade payables are non-interest bearing and are normally settled on 30-60 day terms. Other payables are non-interest bearing.

For terms and conditions relating to transactions with related parties refer to note 23.

19. Interest Bearing Loans and Borrowings

Current

Bank overdraft

Bank loans

Lease liability

Non-current

Bank loans

Lease liability

32

11,353 6,347

14,819 13,476

5,664 6,534

31,836 26,357

42,349 44,954

308 5,781

42,657 50,735

l:.Y

19. Interest Bearing Loans and Borrowings (continued) Terms and Conditions Bank overdrafts

Australia



2017 $000

11,353

2016 $000

6,347 Unsecured

In New Zealand any ANZ Bank overdraft balance during the year is offset against credit balances. Interest on credit balances was between 0.3-2.55% {2016: 1.05-2.16%) for NZD investments.

Secured bank loans

Australia

Asia

Parent

New Zealand

Finance leases

7,289

371

48,400

7,468

479

48,948

Secured by

Group guarantee lo the drawn down value. The loans are in the form of commercial bills which are renewed on a regular basis. The bills attracted an interest rate of between 2.92-3.54% (2016:3.32•4.76%).

It ls secured by a facility agreement, deed of covenant and deed of cross guarantee indemnity with the ANZ National Bank. The interest rate paid was 3.73·4.6% {2016: 4.1-5.62%).

The assets of Smartbusiness!ive Ltd, Smartpayroll ltd & Smartbooks 95 ltd, and by way of general security agreement with the Financer.

Interest charged in 2016: 6.12•6.69%.

The assets which were acquired with ii. The interest rate is 6.36-6.9% ---�1,_10_, _____ 1�,44_0�(2016: 6.36-8.39%).

57,168 58.430

The finance leases are secured over the assets to which they relate and attract an interest rate of between 3.71-9.8% (2016 :2.38-11.84%)

Repayable as Follows:

Less than 1 year

Between 1-2 years

Between 2-5 years

Total

20. Provisions & employee entitlements

Current Employee entitlements Maintenance warranties Onerous !ease obligations Make good provisions Contractual liabi!llies

Non-Current Employee Entitlements Onerous !ease obligations Make good provisions

Consolidated Bank Loans 2017 2016 $000 $000

14,819 13.476

42,069 38,243

280 6,711

57,168 58,430

Note

33

Consolidated Lease Liabilities

2017 2016 $000 $000

5,664 6,534

223 5,627

85 154

5,972 12.315

Consolidated 2017 2016 $000 $000

66,643 58,159

41 110 410 1,820

4,196 1,500

71,290 61,589

3,427 2,788 1,721 68 1,763 213

6,911 3,069

EY

20. Provisions & employee entitlements (continued)

At 1 Aprll 2016 Acquired during the year Arising during the year Utilised Exchange adjustment Unwind discount

At 31 March 2017

Current Non-current



Onerous lease Obligations .. 1

$000

178

1721 (131)

(6)

1,762

41 1,721

1,762

Make good Provisions �2

$000

2,033

191 (11) (40)

2,173

410 1,763

2,173

Contractual Liabilities •3

$000

1,500

4,196 (1,500)

4,196

4,196

4,196

•1 Datacom South Island Ltd leases surplus premises in Christchurch, taken on following the December 2011 earthquake. These premises are now subleased short term al market rates and with a risk of non-renewal at expiry and a potential cost of finding new tenants.

After the termination of a client contract. ending in July 2018, not al! of the assets in the Datacom (WA) datacentre relating to that client will be able to be reused. A provision has therefore been made to write-off part the assets.

Dalacom Systems (Asia) Sdn Bhd sub-leases a portion of its premises. On 1st July 2014, the lessee moved out of the premise and hence the premise is underutilized by 55%. A rent provision for onerous lease had therefore been created over the remaining life of the lease to 30 June 2067

•2 Provisions to make good leasehold premises are reviewed annually. The provisions relate to leases occupied by the Group expiring between 1 -7 years.

Because of the long-term nature of the liabllily, the greatest uncertainty in estimating the provision is the cost that will ultimately be incurred. Originally estimates are provided from professional organisations and CPI increases are applied annually.

'3 During the year the company encountered difficulties in completing two development contracts. As a result the company made year end provisions lo meet its contractual obligations in these areas. These provisions are expected to be utilised prior to 31 March 2018.

21. Contributed Equity

Share Capital Group Group 2017 2016

Number Value Number 000 $000 000

Ordinary shares 6,003 12,064 s,gs7 Employee shares 62 377 70

Total 6,065 12,441 6.057

Shares issued lo Employee Share Option Plan 248 306

Total shares 6,313 6,363

Movement of shares on issue Group

Ordinary shares Employee shares 000 $000 000

At 1 Aprll 2015 5,990 10,477 79

Vested shares

Share buy-back and cancellation 3 5 9

At 1 April 2016 5,987 10,472 70

Vested shares 50 1,649

Share buy-back and cancellation • (34) (57) (8)

At 31 March 2017 6,003 12,064 62

Value $000

10,472 426

10,ags

$000

481

55

426

(49)

377

E.Y



21. Contributed Equity (continued)

• On 31 March 2017 8,000 employee shares were bought back and cancelled. The original cost of these shares was $48,821 and they were acquired at a price of $81.56. 34,000 ordinary shares were also bought back and cancelled. The original cost of the shares was S57,766 and they were acquired at an average price of 579.82. The total cost has been deducted from share capital and retained earnings.

Each ordinary share in the Company confers on the holder:

a) The right to vote on any resolution, including any resolution to: (i) Appoint or remove a Director or auditor; (ii) Alter the constitution: (iil) Approve a major transactlon; (iv) Approve an amalgamation of the Company under Section 221; (v) Put the Company into liquidation;

b) The right to an equal share in dividends authorised by the Board; andc) The right to an equal share in the distribution of the surplus assets of the Company on winding up.

Employee Shares

These shares are non-voting except as between the ho!ders of Employee Class Shares in a vote pursuant to section 117 of the Companies Act 1993 where the holders of Employee Class Shares are entitled to vote as an "Interest Group". In those circumstances each share carries a vote of 1/61,836.

Each employee share in the Company confers on the holder:

a) The right to an equal share in the dividends authorised by the Board; andb) The right to an equal share in the distribution of the surplus assets of the company on winding up.

35 EY




22. Reconciliation from the net profit after tax to the net cash flow from operations

Net profit

Adjustments for

Depreciation & impairment of property, plant & equipment Amortisation of intangibles Impairment of goodwill Movement in deferred tax Bad debts written off Net (profil)/loss on disposal of property, plant and equipment Unrealised (gain)/loss on foreign currency Share based payments Interest Finance leases/loans Share in loss of associate Other

Changes in assets and liabil ities

lncrease/(decrease) in trade and other payables (lncrease)/decrease in prepayments lncrease/{decrease) in tax provision (lncrease)/decrease in inventories (lncrease)/decrease work in progress (lncrease)/decrease in trade and other receivables (lncrease)/decrease taxation receivable

Net cash flows from operating activities

23. Transactions with Related Parties

a) Key management personnel

Compensation of key management personnel Short-term employee benefits Termination employee benefits Directors fees Share based payments

Total

4(c) 4(c) 4(c)

4(d) 4(d)

24

43,744 27,186

27,514 26,817 4,491 4,328

3,166 (525) 1,240

528 582 49 531 44 731

623 627 2,068 2,193

325 416 455 (197)

30,731 31,349 1,668 (6,847) 4,146 (719)

(1,427) 688

(3,181) (4,038) (37,861) (18,969)

311

73,392 69,395

Consolidated 2017 2016 $000 6,213

479 419

327

7,438

$000 5,383

335 246

5,964

Key management personnel consists of 7 (2016: 8) key executives and directors involved in the operation of the company. Dividends payable to directors and key personnel at 31 March 2017 was $327,000 {2016: $246,000).

Loans are advanced to key management personnel as part of the Employee Share Schemes. For detalls of the schemes and loans advanced refer to note 24.

The company also paid directors' fees to its external directors. This includes Datacom Group and all the New Zealand, Australian and Asian subsidiaries. Directors fees paid during the year were $418,750 {2016: $334,675).

36 E.Y

23. Transactions with Related Parties (continued) b) Transactions with related parties



The ultimate parent of the Group is Evander Management Limited

The following table provides the total amount of transactions that were entered into with related parties for the relevant financial year (for information regarding outstanding balances on related party trade receivables and payables at year end, refer to notes 10 and 18 respectively):

Enuties wlth significanUcontrolling influence over the Group: Evander Management Ltd (controlling)

Guardians of New Zealand Superannuation (significant)

2017

2016

2017 2016

Revenue Expenses

$000 $000

158

88

1,191 1,101 40

As at 31 March the following balances were included in the Statement of financial posllion Receivables Payables Dividends

Evander Management Ltd (controlling)

Guardians of New Zealand Superannuation (significant)

2017

2016 2017 2016

$000 $000

143

108

No rental income on leasehold property or dividend revenue was included ln the statement of financial posltlon as at 31 March 2017 {2016: Nil).

Entities with significant influence over the Group

payable $000

4,866

2,831 3,816 2,188

During the year the Datacom Group provided IT services to the Guardians of New Zealand Superannuation, a shareholder of Oatacom Group. Fees were charged on normal terms and conditions.

Allowance for impairment loss on intercompany receivables

For the year ended 31 March 2017, the Group has not made any allowance for impairment loss relating to amounts owed by related parties as the payment history has been excellent (2016: Nil). An impairment assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates to determine whether there is objective evldence that a related party receivable is Impaired When such objective evidence exists, the Group recognises an allowance for the impairment loss

24. Employee Share Schemes Datacom Group Limited Share Scheme

The Group maintains an employee share scheme trust ("Trust") which has advanced funds to selected employees to enab!e them to purchase shares in Datacom Group Limited through transfer of shares from other shareholders or by issue of new shares. The beneficial owners of the shares are nominated employees. However the Group maintains control of the Trust and therefore consolidates lt for external reporting purposes. Each advance to employees is repayable over a maximum of ten years with all dividends on applicable shares being appropriated as a reducllon of the advance. No interest is charged to the Scheme by Datacom Group Limited.

The share price at which shares are allocated is determined by the Group Directors having regard to any recent independent valuation, any recent share transactions or any events or informa!lon that has a material effect on the value of the shares.

Oatacom Australia Holdings Pty Ltd Share Schemes

In Australia the Group maintains an employee share scheme which has advanced funds to selected employees to enable them to purchase shares in Datacom Australia Holdings Ply Limited. The owners of the shares are nominated employees. However the Group maintains control of the Scheme and therefore consolidates it for external reporting purposes. Each advance is repayable over a maximum of ten years with all dividends on applicable shares being appropriated as a reduction of the advance.

The share price at which shares are allocated is determined by the Group Directors having regard to any recent independent valuation, any recent share transactions or any events or !nformallon that has a material effect on the value of the shares.

37

EY

24. Employee Share Schemes (continued)

a) Types of share-based payment schemes

NZ Scheme 3 NZ Scheme 4

Aus Scheme 1 Aus Scheme 2



2017 2016

Ordinary number Ordinary of shares on number of

issue shares on issue

94,000 109,800 236,400 244,600

90,000 90,000 497,500 470,000

DGL Scheme 3: no interest is charged. As at 31 March 2017 the Scheme held 94,000 (1.5%) Ordinary shares (2016: 109,800-1.74%) of which all were allocated (2016: all allocated). Advances to directors & key personnel under this Scheme totalled $515,511 (2016: $714,943).

DGL Scheme 4: no interest is charged. As at 31 March 2017 the Scheme held 236,400 (3.78%) Ordinary shares (2016: 244,600-3.89%) of which all were allocated (2016: all allocated). Advances to directors and key personnel under this Scheme totalled $7,204,302 (2016: $7,790,732).

DAHL Scheme 1: no interest is charged. At 31 March 2017 the Scheme held 90,000 (0.65%) Ordinary shares (2016: 90,000. 0.65%) with a market value of AUD 822,600 - NZD 895,591 (2016: AUD 675,000 • NZD 748,088), all of which have been allocated, There were no advances to directors and key personnel under this Scheme (2016: Nil).

DAHL Scheme 2: interest between 7.1 - 7.33% (2016: 7.3 - 7.43%) is charged. As at 31 March 2017 the Scheme held 497,500 (3.57%) Ordinary shares (2016: 470,000-3.38%) with a market value of AUD 4,547,150 - NZD 4,950,626 (2016: AUD 3,525,000 • NZD 3,906,683) all of which were allocated. Advances to directors and key personnel under !hls Scheme totalled AUD 2,311,430- NZD 2,516,527 (2016: AUD 1,653,717. NZD 1,832,779).

b) Recognised share-based payment expenses

The expense recognised for employee services during the year is shown in the table below:

Expenses arising from equity-settled share based payment transactlons Expenses arising from cash-settled share based payment transactions

Total expense arising from share-based payment transactions

Consolidated

2017 2016

$000

743 (120)

623

$000

666 (39)

627

c) Share option activity for the years ended 31 March 2017 and 31 March 2016, relating to senior executives of the Group is summarised as follows:

New Zealand

Outstanding as at 1 April

Granted during the year Forfelted during the year Exercised during the year

Oulslandlng at the end of the year

Exercisable at the end of the year

• Weighted Average Exercise Price

Australia

Outstanding as at 1 April

Granted during the year

Forfelled during the year Exercised during the year

Outstanding at the end of the year

Exercisable at the end of the year

38

2017 No

306,300

(8,200) (50,000)

248,100

36,700

2017 No

227,500 65,000

(35,000) (37,500)

220,000

50,000

WAEP* $

47.53

50.83

WAEP* $

6.59

8.67

7.04

2016

No

302,500 30,000

(26,200)

306,300

50,000

No

252,500 70,000

(15,000)

(80,000)

227,500

37,500

2016

WAEP* $

45.80 67.38

47.53

WAEP* $

4.61 7.50

6.59

E.Y

24. Employee Share Schemes (continued) Cash-settled transaction



The fair value of the cash•settled options is measured at the reporting date using the Black-Scholes option pricing model taking into account the terms and conditions upon which the instruments were granted.

The following table lists the inputs to the model used for the years ended 31 March 2017 and 31 March 2016.

New Zealand

Dividend yield(%) Expected volatllity (%) Risk-free interest rate(%) Expected life of option (years) Option exercise price (S) Share price at grant dale{$)

Recognised cash-settled share based payment liability

2017

0.00% 0%

0.00% 0

$0 $0.00

2016

5.73% 20%

1.98% 1 year

$0 $33.51

The carrying amount of the liability relating to the cash-settled payment at 31 March 2017 is: opllon value - Nil (2016: $265,789), interest - $98,597 (2016: $149,598). Total option expense for the year amounted to ($265,789) (2016: (203,674)).

Australia

Dividend yield(%) Expected volatility(%) Risk-free interest rate(%) Expected life of option (years) Option exercise price($) Share price at grant date($)

Recognised cash-settled share based payment liability

2017

0.40% 20%

1.74-2.04% 2-4 years

$0 A$7.50

2016

1.22-1.66%

20% 1.87-1.98%

1-4 years $0

AS5A8-A$7.50

The carrying amount of the liability relallng lo the cash•sell!ed payment at 31 March 2017 is: option value - $71,948 (2016: $61,490), interest - $35,018 (2016: $12,448). Total option expenses for the year amounted to $11,543 (2016: ($3,462)).

Equity-settled transaction

The fair value of the equity-settled optlons is measured at the issue date using the Black-Scholes option pricing model taking into account the terms and conditions upon which the instruments were granted.

The foUowing table lists the inputs to the model used for the years ended 31 March 2017 and 31 March 2016.

Now Zealand

Dividend yield(%) Expected volatility(%) Risk-free interest rate(%) Expected life of option (years} Option exercise price($) Share price at grant date ($}

Recognised equity-settled share based payment liability

2017

4.08-7.14% 20%

1.83-2.76% 1-7 years

$0 $35.32-$73.50

2016

3.21-5.71% 20%

1,98-3.54% 2-8 years

$0 $35.32-$73.50

The carrying amount of the option value relating to the equity-settled scheme at 31 March 2017 is $754,475 (2016: $601,434), interest• $589,970 (2016: $536,045). Total amount for the year transferred to equity amounted to $153,041 (2016: $129,695).

39 E.Y

25. Commitments and Contingencies

Capital Commitments




The company had capital commitments of $8,812,000 as at 31 March 2017 (2016: $2,102,070).

Operating Lease Commitments

Lease commitments under non-cancellable operating leases:

Less than 1 year

Between 1-2 years Between 2-5 years

Greater than 5 years

Consolidated 2017 2016

$000 $000

27,596 20,638 22,874 16,797

41,994 21,755 66,428 1,150

Total operating lease commitments 158,892 60,340

Under the company's banking arrangements, bank trade performance facilities are provided to two customers totalling AUD 500,000 (2016: AUD 2,000,000}.

The parent company provides some guarantees to fully owned subsidiaries for the performance of the subsidiary's service to thelr customers. This guarantees the completion of the project to the customer.

Contingencies

At year end, the Company has a contingent liability due to a review of the charges incurred for consumption of software licences during the July 2015 to May 2016 period, The Company has taken provisions, which at 31 March 2017, amounted to approximately $500,000 for the potential licence liability that may arise in connection with the enquiry. The provisions at 31 March 2017 are based on the recent developments during the year, and relate to the accounting period which is the subject of review, but do not include accounting periods after 31 May 2016.

26. Events after the reporting period

There have been no significant events occurring since balance dale requiring disclosure (2016: Nil).

40

Building a better working world

Chartered Accountants

Independent Auditor's Report to the Shareholders of Datacom Group Limited

Report on the Audit of the Financial Statements

Opinion

We have audited the consolidated financial statements of Datacom Group Limited ("the company") and its subsidiaries (together "the Group") on pages 5 to 40, which comprise the statement of financial position of the Group as at 31 March 2017, and the statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended of the Group, and the notes to the consolidated financial statements including a summary of significant accounting policies.

In our opinion, the consolidated financial statements on pages 5 to 40 present fairly, in all material respects, the consolidated financial position of the Group as at 31 March 2017 and its consolidated financial performance and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards.

This report is made solely to the company's shareholders, as a body. Our audit has been undertaken so that we might state to the company's shareholders those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's shareholders as a body, for our audit work, for this report, or for the opinions we have formed.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the

Financial Statements section of our report.

We are independent of the Group in accordance with Professional and Ethical Standard 1 (revised) Code of Ethics

for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

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

Ernst & Young provides taxation compliance and advice, transfer pricing, mobility advisory services and legal entity restructuring advisory services to the Group. We have no other relationship with, or interest in, the Group.

Information Other than the Financial Statements and Auditor's Report

The directors of the company are responsible for the Annual Report, which includes information other than the

consolidated financial statements and auditor's report which is expected to be made available to us after the date

of this auditor's report.

Our opinion on the consolidated financial statements does not cover the other information and we do not express

any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other

information and, in doing so, consider whether the other information is materially inconsistent with the

consolidated financial statements or our knowledge obtained during the audit, or otherwise appears to be

materially misstated.

If, based upon the work we have performed, we conclude that there is a material misstatement therein, we are

required to report that fact. We have nothing to report in this regard.

Directors' Responsibilities for the Financial Statements

The directors are responsible, on behalf of the entity, for the preparation and fair presentation of the consolidated financial statements in accordance with New Zealand Equivalents to International Financial Reporting Standatds and International Financial Reporting Standards, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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In preparing the consolidated financial statements, the directors are responsible for assessing on behalf of the entity the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (New Zealand) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

A further description of our responsibilities for the audit of the consolidated financial statements is located at the External Reporting Board website:

https://xrb.govt.nz/Site/ Auditing_Assurance_Standards/Current_Standards/Description_Auditors_responsibilities.aspx.

This description forms part of our auditor's report.

The engagement partner on the audit resulting in this independent auditor's report is Grant Taylor.

Wellington 28 July 2017

A member firm of Ernst & Young G!oba! Limited

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