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PIPE Networks Limited Preliminary Final ReportFor the 12 months...

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    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 1 of 18
    PIPE Networks Limited
    ABN 21 099 104 122
    Appendix 4E
    ASX Preliminary Final Report
    30 June 2006
    Lodged with the ASX under Listing Rule 4.3A
    Contents
    Results for Announcement to the Market ................................................................................................................2
    Summary of Financial Information ............................................................................................................................2
    Highlights of Results ................................................................................................................................................3
    Review of Operations...............................................................................................................................................3
    Full Year Financial Statements.................................................................................................................................4
    Condensed Income Statement.................................................................................................................................4
    Condensed Balance Sheet ......................................................................................................................................5
    Condensed Statement of Changes in Equity ............................................................................................................6
    Condensed Statement of Cash Flows ......................................................................................................................7
    Notes to the Financial Statements ............................................................................................................................8
    Compliance Statement ............................................................................................................................................18
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 2 of 18
    Results for Announcement to the Market
    Summary of Financial Information
    Extracts from this report for announcement to the market:
    Comparative information presented in this financial report is for the year ended 30 June 2005.
    Full Year Comparison
    12 months ended
    30 June 2006
    $ (,000)
    12 months ended
    30 June 2005
    $ (,000)
    Movement
    $(,000)
    Movement
    %
    Revenue from continuing operations 13,213 4,716 8,497 180%
    Profit (loss) after income tax for the halfyear
    attributable to members 2,838 846 1,992 235%
    Net profit (loss) for the period attributable
    to members
    2,838 846 1,992 235%
    Earnings before Interest, Tax,
    Depreciation and Amortisation (EBITDA)
    4,723 1,471 3,252 221%
    Earnings per Share and Net Tangible Asset backing
    Ratios
    30 June
    2006
    %
    30 June
    2005
    %
    Profit before tax / revenue
    Profit (loss) from ordinary activities before tax as a
    percentage of revenue 30% 25%
    Profit after tax / equity interests
    Net profit (loss) from ordinary activities after tax
    attributable to members as a percentage of equity
    (similarly attributable) at the end of the period
    13% 16%
    Dividends
    The Company has not paid any dividend in the current period. At a meeting of the board of directors on the 9th
    August 2006, the Directors declared a fully franked dividend on ordinary shares of 2 cents per share payable on
    13th November, 2006 to shareholders registered as at 5:00pm on the 31st October, 2006.
    Significant Dates
    Date
    Annual Report and Notice of Proxy mailed by. 20 September 2006
    Annual General Meeting * 24 October 2006
    * The Annual General Meeting will be held on Tuesday 24th October, 2006 at 11:00am at the Riverside Auditorium,
    Level 5, Riverside Centre, 123 Eagle Street, Brisbane, Queensland 4000.
    30 June
    2006
    Cents
    30 June
    2005
    Cents
    Basic earnings per security 8.28 2.90
    Diluted earnings per security 8.24 2.89
    Net tangible assets per security 54.70 16.60
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 3 of 18
    Highlights of Results
    The Company achieved a net profit after tax from ordinary activities of $2.84 million for the year being an increase
    of 235% on the prior year. This reflects a 180% increase in revenue to $13.21 million on the back of a 772% growth
    in fibre capacity.
    Profit margins overall rose to 30% over the year from 25% for the prior year. Return on Equity fell slightly to 13% as
    a result of increased equity from a rights issue and placement in the second half of the year. Investment in new
    revenue generating assets can be seen by the growth in net tangible assets (NTA) to 54.70 cents per share from
    16.60 cents per share as at the same period last year.
    Review of Operations
    A review of the operations of the Company during the financial year and significant changes in the state of affairs of
    the Company is as follows:
    The 2005/06 financial year is the first full year of operations of the Company as an ASX listed public company. The
    Company has focussed efforts in expanding its fibre optic network beyond the Company’s initial Brisbane network
    while continuing to organically increase revenues from co-location and peering services.
    The growth in assets has seen NTA improve from 16.60 cents per share as at June 2005 to 54.70 cents per share
    as at June 2006 and has driven revenue growth of 180%. The growth in revenue combined with an improved profit
    margin has seen diluted EPS grow from 2.89 cents per share for the prior financial year, to 8.24 cents per share
    this financial year.
    Fibre assets have been the primary driver of revenue growth due to investment in new capacity and increased fibre
    available for lease. Total fibre available for lease has risen from 10.66 million metres at June 2005 to 26.25 million
    metres at December 2005 and to 92.92 million metres available at June 2006. Of total fibre available, leased fibre
    has risen from 2.02 million metres at June 2005 to 3.50 million metres at December 2005 and 14.42 million metres
    leased as at June 2006. Available capacity for new sales stands at 84.5% with the network footprint being 559
    kilometres in metropolitan Brisbane, Sydney and Melbourne.
    In accordance with our stated investment approach, the investment in fibre assets is on the back of quality medium
    to long term contracts with large corporate, government and ISP customers. The Company has won over $50
    million in contracts during the financial year with most being signed on a 3 to 5 year basis. Of particular note were
    contracts to supply dark fibre to Springfield Land Corporations new Greater Springfield development, backhaul
    capacity to both iiNet and TPGi to support ADSL2+ rollouts on the east coast and establishing Brisbane
    metropolitan networks for various State Government departments including Premier and Cabinet as well as
    Transport.
    The increased demand for the Company’s Dark Fibre is in line with recent research from Market Clarity as reported
    in the leading industry publication Communications Day. This research points to growth in Dark Fibre service
    revenues of 165% over the next few years, with Ethernet and IP revenues also growing strongly. PIPE Networks is
    well positioned to capitalise on this expected growth.
    Growth in the business has seen an increase in costs associated with the delivery of services ($1.54 million in 2005
    rising to $3.44 million in 2006), as well as staff numbers from 15 to 40 ($1.00 million in 2005 rising to $2.87 million
    in 2006). Due to the increase in network capacity and engineering involved, the Company has actively worked to
    contain costs to ensure margins are maintained and cash flow protected during this expansion phase. Cost savings
    through containment of staffing costs and the re-alignment of supplier service agreements in response to greater
    certainty and control over projects has delivered better than originally forecasted profit while delivering services to
    customers ahead of schedule.
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 4 of 18
    Full Year Financial Statements
    Condensed Income Statement
    12 Months ended 12 Months ended
    30 June 2006 30 June 2005
    Note $ (,000) $ (,000)
    Revenue from ordinary activities
    Revenue from operating activities 3
    12,699 4,690
    Revenue from non operating activities 3
    514 26
    13,213 4,716
    Direct costs of providing services
    (3,442) (1,540)
    Network operating and maintenance costs
    (451) (155)
    Marketing and advertising costs
    (268) (66)
    Employee benefits expense
    (2,869) (1,002)
    Depreciation and amortisation expense
    (820) (315)
    Finance costs - net
    (74) -
    Building and equipment rental costs
    (383) (216)
    Corporate and administrative costs
    (431) (159)
    Other expenses
    (504) (81)
    Profit (loss) before income tax
    3,971 1,182
    Income tax expense
    (1,133) (336)
    Net profit (loss) for the year attributable to members
    of PIPE Networks Limited
    2,838 846
    Total transactions and adjustment recognised directly in
    equity
    - -
    Total changes in equity not resulting from
    transactions with owners as owners
    2,838 846
    Earnings per share Cents Cents
    Basic earnings per share 10 8.28 2.90
    Diluted earnings per share 10 8.24 2.89
    The above income statement is to be read in conjunction with the accompanying notes to the financial statements.
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 5 of 18
    Condensed Balance Sheet
    Note
    30 June
    2006
    $ (,000)
    30 June
    2005
    $ (,000)
    Current assets
    Cash and cash equivalents 9,000 2,116
    Receivables 3,866 666
    Prepayments 271 11
    Other assets 419 12
    Total current assets 13,556 2,805
    Non-current assets
    Property, Plant and Equipment 20,537 3,482
    Deferred tax assets 354 113
    Total non-current assets 20,891 3,594
    Total assets 34,447 6,400
    Current liabilities
    Interest bearing liabilities 13 -
    Payables 3,836 193
    Deferred revenue 861 260
    Accrued expenses 2,307 267
    FBT payable 11 -
    Current tax liabilities 304 335
    Provisions 178 86
    Total current liabilities 7,510 1,141
    Non-current liabilities
    Deferred revenue 1,593 36
    Interest bearing liabilities 3,560 -
    Deferred tax liabilities 2 -
    Provisions 16 6
    Total non-current liabilities 5,171 42
    Total liabilities 12,681 1,183
    Net assets 21,766 5,217
    Equity
    Contributed equity 6 17,311 3,691
    Reserves 131 40
    Retained profits (accumulated losses) 4,324 1,486
    Total equity
    21,766 5,217
    The above balance sheet is to be read in conjunction with the accompanying notes to the financial statements.
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 6 of 18
    Condensed Statement of Changes in Equity
    30 June
    2006
    $ (,000)
    30 June
    2005
    $ (,000)
    Contributed equity
    Ordinary shares at beginning of period 4,052 2
    Shares issued during period 14,190 4,050
    Transaction costs (931) (361)
    Balance of shares at end of period 17,311 3,691
    Options reserve
    Options reserve at beginning of period 40 -
    Share options recognised during the period 91 40
    Balance of options reserve at end of period 131 40
    Retained earnings
    Retained earnings at beginning of period 1,486 640
    Profit attributable to members of the entity 2,838 846
    Retained earnings at end of period 4,324 1,486
    Total equity at the end of the period 21,766 5,217
    The above statement of changes in equity should be read in conjunction with the accompanying notes.
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 7 of 18
    Condensed Statement of Cash Flows
    Note
    30 June
    2006
    $ (,000)
    30 June
    2005
    $ (,000)
    Cash flows related to operating activities
    Receipts from customers (inclusive of GST) 12,927 4,848
    Payments to suppliers and employees (inclusive of GST) (5,493) (4,141)
    7,434 707
    Interest received 142 26
    Net operating cash flows 7,576 733
    Cash flows related to investing activities
    Payment for property, plant and equipment (17,712) (2,291)
    Net investing cash flows (17,712) (2,291)
    Cash flows related to financing activities
    Proceeds from issues of shares and other equity securities 13,460 3,628
    Proceeds from borrowings 3,560 -
    Advances from related parties - (199)
    Net financing cash flows 17,020 3,429
    Net increase (decrease) in cash held 6,884 1,871
    Cash and cash equivalents at beginning of period 2,116 246
    Cash and cash equivalents at end of period 7 9,000 2,116
    The above statement of cash flows is to be read in conjunction with the accompanying notes to the financial statements.
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 8 of 18
    Notes to the Financial Statements
    Note 1 Basis of accounting
    This financial report is a general purpose financial report prepared in accordance with ASX Listing Rules, The
    Corporations Act 2001 and AASB Standards.
    Where necessary, comparative information has been reclassified to achieve consistency in disclosure with current
    year financial amounts and other disclosures.
    (a) Basis of preparation of financial report
    The principal accounting policies adopted in the preparation of the financial report are set out below. These policies
    have been consistently applied to all periods presented, unless otherwise stated.
    This financial report is the first PIPE Networks Limited full year financial report to be prepared in accordance with
    Australian equivalents to International Financial Reporting Standards ('AIFRS').
    Financial statements of PIPE Networks Limited until 30 June 2005 had been prepared in accordance with previous
    Australian Generally Accepted Accounting Principles (AGAAP). AGAAP differs in certain respects from AIFRS.
    When preparing the PIPE Networks Limited financial report for the full year ended 30 June 2006, management has
    amended certain accounting and valuation methods applied in the previous AGAAP financial statements to comply
    with AIFRS. With the exception of financial instruments, the comparative figures were restated to reflect these
    adjustments. The Company has taken the exemption available under AASB 1 to only apply AASB 132 Financial
    Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement
    from 1 July 2005.
    Reconciliations and descriptions of the effect of transition from previous AGAAP to AIFRSs on the Company’s
    equity and its net income are given in Note 12.
    Historical cost convention
    These financial statements have been prepared under the historical cost convention, as modified by the revaluation
    of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value
    through profit or loss, certain classes of property, plant and equipment and investment property.
    (b) Revenue recognition
    Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue
    are net of returns, trade allowances and duties and taxes paid. Revenue is recognised for the major business
    activities as follows:
    (i) Revenue from Dark Fibre and Tele-housing services are recognised on a straight-line basis over the
    lease term, unless another systematic basis is more representative of the time pattern in which use
    benefit derived from the leased asset is diminished.
    (ii) Metered internet traffic revenue and peering revenue are recognised upon the acceptance of the
    service delivered to the customer.
    (iii) Interest revenue is recorded when received in cash, or accrued at the rate applicable to the financial
    instrument on which it is earned.
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 9 of 18
    Note 1 Basis of accounting (continued)
    (c) Income Tax
    The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based
    on the current tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary
    differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements,
    and to unused tax losses.
    Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when
    the assets are recovered or liabilities are settled, based on those rates which are enacted or substantively enacted
    for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable
    temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary
    differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised
    in relation to these temporary differences if they arose in a transaction, other than a business combination, that at
    the time of the transaction did not affect either accounting profit or taxable profit or loss.
    Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable
    that future taxable amounts will be available to utilise those temporary differences and losses.
    (d) Acquisitions of assets
    The purchase method of accounting is used for all acquisitions of assets regardless of whether equity instruments
    or other assets are acquired. Cost is measured as the fair value of the assets given up, shares issued or liabilities
    undertaken at the date of acquisition plus incidental costs directly attributable to the acquisition.
    (e) Impairment of assets
    Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment.
    Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances
    indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by
    which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an
    asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped
    at the lowest levels for which there are separately identifiable cash flows (cash generating units).
    (f) Recoverable amount of non-current assets valued on cost basis
    The recoverable amount of an asset is the net amount expected to be recovered through the cash inflows and
    outflows arising from its continued use and subsequent disposal.
    Where the carrying amount of non-current asset is greater than its recoverable amount, the asset is written down to
    its recoverable amount. Where net cash inflows are derived from a group of assets working together, recoverable
    amount is determined on the basis of the relevant group of assets. The decrement in the carrying amount is
    recognised as an expense in net profit or loss in the reporting period in which the recoverable amount write-down
    occurs.
    The expected net cash flows included in determining recoverable amounts of non-current assets are discounted to
    their present value.
    (g) Depreciation of property, plant and equipment
    Depreciation is calculated on a straight line basis to write off the net cost or re-valued amount of each item of
    property, plant and equipment over its expected useful life to the entity. Estimates of remaining useful lives are
    made on a regular basis for all assets, with annual reassessments for major items. The expected useful lives are
    as follows:
    Plant and equipment 3 – 7 years
    Fibre optic cable 25 years [see Note 2 Changes in Accounting Estimates]
    Network equipment 3 – 5 years
    Computer hardware software 3 – 5 years
    Leasehold improvements 5 years
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 10 of 18
    Note 1 Basis of accounting (continued)
    (h) Capital Works in progress
    The cost of assets constructed in-house is accumulated as capital works-in-progress until the asset is ready for
    use. Costs include the relevant proportion of directly attributable overheads, incurred in construction of an asset.
    Where assets from partially completed projects are placed in service, depreciation is recorded from the date of first
    use.
    (i) Leased Non-current assets
    A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially
    all the risks and benefits incident to ownership of leased non-current assets, and operating leases under which the
    lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and
    liability are established at the present value of minimum lease payments. Lease payments are allocated between
    the principal component of the lease liability and the interest expense.
    The leased asset is amortised on a straight line basis over the term of the lease, or where it is likely that the entity
    will obtain ownership of the asset, the life of the asset. Other operating lease payments are charged to the income
    statement in the periods in which they are incurred, as this represents the pattern of benefits derived from the
    leased assets.
    (j) Provisions
    Provisions are recognised when there is a legal, equitable or constructive obligation as a result of a past event and
    it is probable that a future sacrifice of economic benefits will be required to settle the obligation, the timing or
    amount of which is uncertain.
    (k) Employee benefits
    (i) Wages, salaries and annual leave
    Liabilities for employee benefits for wages, salaries and annual leave expected to be settled within 12
    months of the period-end represent present obligations resulting from employees' services provided to
    reporting date, calculated at undiscounted amounts based on remuneration wage and salary rates that
    the entity expects to pay as at reporting date.
    (ii) Long service leave
    The provision for employee benefits for long service leave represents the present value of the
    estimated future cash outflows to be made resulting from employees' services provided to reporting
    date.
    The provision is calculated using expected future increases in wage and salary rates including related
    on-costs and expected settlement dates based on turnover history and is discounted using the rates
    attaching to national government bonds at reporting date which most closely match the terms of the
    maturity of the related liabilities. The unwinding of the discount is treated as long service leave
    expense.
    (iii) Superannuation plan
    The Company contributes to several defined benefit and defined contribution superannuation plans.
    Contributions are recognised as an expense as they are made.
    (l) Borrowing costs
    Borrowing costs are recognised as expenses in the period in which they are incurred. Borrowing costs include
    interest, amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs incurred in
    connection with the arrangement of borrowings and foreign exchange differences net of hedged amounts on
    borrowings, including trade creditors and lease finance charges.
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 11 of 18
    Note 1 Basis of accounting (continued)
    (m) Cash and cash equivalents
    Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term,
    highly liquid investments with original maturities of three months or less that are readily convertible to known
    amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank
    overdrafts are shown within borrowings in current liabilities on the balance sheet.
    For purposes of the statement of cash flows, cash includes deposits at call which are readily convertible to cash on
    hand and are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts.
    (n) Share-based payments
    Benefits are provided to employees in the form of share based payment transactions, whereby employees render
    services in exchange for shares or rights over shares. Shares issued under the Executive Share Option Plan are
    'equity-settled transactions' and have the characteristics of an option to buy shares and are therefore treated as
    options. Options are recognised in full on grant date, where services have already been rendered by the employee
    to the Company; or over the vesting period, where the services will be rendered by the employee at some future
    point in time.
    (o) Goods and services tax (GST)
    Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where
    the amount of the GST incurred is not recoverable from the taxation authority. In these circumstances, GST is
    recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are
    stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is
    included as a current asset or liability in the statement of financial position.
    Note 2 Changes in accounting estimates
    The Company has reassessed the useful life of its fibre optic cable assets to 25 years. Previously this estimate was
    15 years in accordance with warranty periods and expected obsolescence of the fibre optic cable. The directors
    believe this reassessment gives a more accurate representation of the period of time in which the economic
    benefits arising from this asset are recognised. In addition, the decline in value of the asset can be more reliably
    matched to the economic benefits arising from the asset.
    This change has been applied prospectively from 1 July 2005. The effect of this change on the current period is a
    decrease in depreciation expense for fibre optic cable of $44,589.
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 12 of 18
    Note 3 Revenue and expenses from ordinary activities
    30 June
    2006
    $(,000)
    30 June
    2005
    $(,000)
    Operating revenues:
    Lease income from Dark Fibre operating leases 10,119 2,926
    Lease income from Tele-housing operating leases 1,031 615
    11,150 3,541
    Revenue from sales or services 1,549 1,149
    12,699 4,690
    Non-operating revenues:
    Interest revenue 142 26
    Gain on settlement of liability 370 -
    Gain on disposal of fixed assets 2 -
    514 26
    13,213 4,716
    Details of relevant expenses:
    Direct costs of providing services (3,442) (1,540)
    Employee costs (2,869) (1,002)
    Network maintenance and operating costs (451) (155)
    Operating lease rental expense (383) (216)
    Borrowing costs (74) -
    Marketing and advertising costs (268) (66)
    Depreciation expense (820) (315)
    Corporate and administrative costs (431) (159)
    Other expenses from ordinary activities (504) (81)
    Expenses from ordinary activities (9,242) (3,534)
    Capitalised outlays
    Interest costs capitalised in asset values - -
    Outlays capitalised in intangibles (unless arising
    from an acquisition of a business) - -
    Note 4 Dividends
    No Dividend has been paid for the year ending 30 June 2006. . At a meeting of the board of directors on the 9th
    August 2006, the Directors declared a fully franked dividend on ordinary shares of 2 cents per share payable on
    13th November, 2006 to shareholders registered as at 5:00pm on the 31st October, 2006.
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 13 of 18
    Note 5 Segment Information
    PIPE Networks Limited operates predominantly in one business segment being Telecommunication services.
    PIPE Networks Limited’s customers are located predominantly in Australia.
    Note 6 Issued and quoted securities at end of current period
    Category of securities
    Number
    quoted
    Issue price
    per security
    Amount paid
    up per security
    $ (,000)
    Ordinary securities at 30 June 2005 30,750,000 4,052
    Transaction costs (422)
    Adjustments to opening balances on transition to AIFRS (40)
    Increases through issue of shares:
    10 Feb 2006 One-for-Seven Rights Issue 4,393,297 1.50 6,590
    6 June 2006 Share Placement 4,000,000 1.90 7,600
    Transaction costs arising from capital raisings (469)
    Total ordinary securities at 30 June 2006 39,143,297 17,311
    Category of securities Grant Date
    Total
    Number
    Exercise
    Price
    Exercise
    Date From Expiry Date
    $
    Share Options at 30 June 2005
    Orbit Capital Pty Ltd 17 May 2005 200,000 0.40 16 May 2006 17 May 2008
    Issued during current period
    Share Options issued under ESOP
    during current period
    10 February
    2006 150,000 1.80 17 May 2006 16 May 2008
    Share Options issued under ESOP
    during current period
    24 March
    2006 10,000 1.80 17 May 2006 29 June
    2008
    Total Share options at 30 June 2006 360,000
    Note 7 Reconciliation of cash and cash equivalents
    30 June 2006
    $ (,000)
    30 June 2005
    $ (,000)
    Cash on hand and at bank 9,000 2,116
    Total cash and cash equivalents at end of period 9,000 2,116
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 14 of 18
    Note 8 Contingent assets and liabilities
    ANZ Banking Group Limited registered a fixed and floating charge over the assets of the Company as part of the
    $2,000,000 credit facility announced by the Company to ASX on 24 May 2005. The Company announced an
    increase in available credit facilities to a maximum of $10,000,000 on 19 April 2006.
    Directors are not aware of any other contingent liabilities that are likely to have material effect on the results of the
    entity as disclosed in the financial statements.
    Note 9 Commitments for expenditure
    The Company has entered into arrangements with suppliers for the construction of fibre optic network in
    accordance with contracts in Brisbane, Sydney and Melbourne. At this time, the directors estimate the amount of
    expenditure to which these arrangements will commit the Company to be approximately $3,718,623 to be incurred
    during the 2007 financial year. The specific timing of the expenditure is not yet able to be reliably estimated as it is
    reliant on the progress of construction of the network.
    Note 10 Earnings per security (EPS)
    Details of the basic and diluted EPS are as follows:
    30 June
    2006
    Cents
    30 June
    2005
    Cents
    Basic EPS 8.28 2.90
    Diluted earnings per security 8.24 2.89
    Earnings used in calculation of both basic and diluted EPS 2,837,557 845,809
    Weighted average number of ordinary shares used in
    calculation of Basic earnings per security 34,287,615 29,207,056
    Weighted average number of ordinary shares used in
    calculation of Diluted earnings per security** 34,443,506 29,235,947
    ** The weighted average number of ordinary shares used in calculating diluted earnings per share included the following
    weighted average numbers, deemed to represent the portion of the options assumed to be issued at nil consideration, weighted
    with reference to the date of conversion:
    On 17 May 2005, 200,000 share options were granted to Orbit Capital Pty Ltd for services rendered in provision of the
    IPO. The weighted average number included is 155,699.
    On 10 February 2006, 150,000 options were issued to employees. The weighted average number included is 187.
    On 7 June 2006, 10,000 options were issued to an employee. The weighted average number included is 2.
    Note 11 Events occurring subsequent to balance date
    At a meeting of the board of directors on the 9th August 2006, the Directors declared a fully franked dividend on
    ordinary shares of 2 cents per share payable on 13th November, 2006 to shareholders registered as at 5:00pm on
    the 31st October, 2006.
    No other matters or circumstances have arisen since 30 June 2006 that have significantly affected or may
    significantly affect the operations of the Company, the results of those operations, or the state of affairs of the
    Company in subsequent financial years.
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 15 of 18
    Note 12 Explanation of transition to Australian equivalents to IFRSs
    (1) Reconciliation of equity reported under previous Australian Generally Accepted Accounting
    Principles (AGAAP) to equity under Australian equivalents to IFRSs (AIFRS)
    (a) At the date of transition to AIFRS: 1 July 2004
    Notes
    Previous
    AGAAP
    $(,000)
    Effect of
    transition to
    AIFRS
    $(,000)
    AIFRS
    $(,000)
    Non-current assets
    Receivables - - -
    Investments accounted for using the equity method - - -
    Property, Plant and Equipment 1,506 - 1,506
    Deferred tax assets 12(4i) 13 - 13
    Intangible assets - - -
    Total non-current assets 1,519 - 1,519
    Equity
    Contributed equity 2 - 2
    Reserves - - -
    Retained profits (accumulated losses) 12(4i) 640 - 640
    Total equity 642 - 642
    (b) At end of the last half-year reporting period under previous AGAAP: 31 December 2004
    Notes
    Previous
    AGAAP
    $
    Effect of
    transition to
    AIFRS
    $
    AIFRS
    $
    Non-current assets
    Receivables - - -
    Investments accounted for using the equity method - - -
    Property, Plant and Equipment 2,100 - 2,100
    Deferred tax assets 12(4i) 29 - 29
    Intangible assets - - -
    Total non-current assets 2,129 - 2,129
    Equity
    Contributed equity 552 - 552
    Retained profits (accumulated losses) 12(4i) 979 - 979
    Total equity 1,531 - 1,531
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 16 of 18
    Note 12 Explanation of transition to Australian equivalents to IFRSs
    (Continued)
    (c) At end of the last reporting period under previous AGAAP: 30 June 2005
    Notes
    Previous
    AGAAP
    $(,000)
    Effect of
    transition to
    AIFRS
    $(,000)
    AIFRS
    $(,000)
    Non-current assets
    Property, Plant and Equipment 3,482 - 3,482
    Deferred tax assets 12(4ii) 11 101 113
    Total non-current assets 3,493 101 3,595
    Equity
    Contributed equity 12(4ii) 3,630 61 3,691
    Share option reserve 12(4iii) - 40 40
    Retained profits (accumulated losses) 12(4ii) 1,486 - 1,486
    Total equity 5,116 101 5,217
    (d) Reconciliation of equity reported under previous AGAAP to equity under AIFRS
    As at
    30 June
    2005
    $(,000)
    As at 31
    December
    2004
    $(,000)
    As at
    1 July 2004
    $(,000)
    Reconciliation of Equity:
    Total contributed equity (per previous AGAAP and under
    AIFRS)
    4,052 552 2
    - -
    Transaction Costs as reported (per previous AGAAP) (422) - -
    - Increase in transaction costs resulting from
    recognition
    of share options issued
    12(4iii) (40) - -
    - Capital raising costs amortised to equity 12(4ii) 101
    Transaction contributed equity (under AIFRS) 3,691 552 2
    Option Reserves as reported (per previous AGAAP) - - -
    - Increase in reserves resulting from recognition of
    share options issued to Orbit Capital Pty Ltd under
    IPO management agreement
    12(4iii) 40 - -
    Option Reserves (under AIFRS) 40 - -
    Retained earnings as reported (as per previous AGAAP) 1,486 979 640
    - Increase in retained earnings resulting from
    conversion
    of opening balances to AIFRS
    12(4i) 0 0 0
    Retained earnings (under AIFRS) 1,486 979 640
    Total equity under AIFRS 5,217 1,531 642
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 17 of 18
    Note 12 Explanation of transition to Australian equivalents to IFRSs
    (Continued)
    (2) Reconciliation of profits reported under previous Australian Generally Accepted Accounting
    Principles (AGAAP) to profits under Australian equivalents to IFRSs (AIFRS)
    Year ended
    30 June
    2005
    $’000
    Half year ended
    31 December
    2004
    $’000
    Reconciliation of net profit
    Net profit reported (as per previous GAAP) 846 339
    Net profit under AIFRS 846 339
    (3) Reconciliation of cash flow statement for the year ended 30 June 2005 and 6 months ended 31
    December 2004.
    The adoption of AIFRSs has not resulted in any material adjustments to the cash flow statement.
    (4) The Company recognised the following transactions on transition to AIFRS:
    i. At date of transition to AIFRS, 1 July 2004, the Company recognised an increase in deferred tax
    assets of $216 on conversion of opening balances to AIFRS. Retained earnings were also increased
    by this amount.
    ii. For the period ended 30 June 2005, the Company recognised a deferred tax asset for capital raising
    costs incurred in that year for the IPO of the Company. This increased deferred tax assets and
    Retained earnings by $101,224. The amount shown is net of the amortisation of the expense over a
    period of five years.
    iii. Under AASB 2 Share-based Payment from 1 July 2004 the Company is required to recognise an
    expense for those options that were issued to Orbit Capital Pty Ltd under the private equity raising
    agreement. These options were vested and exercisable as at 30 June 2005. This has resulted in the
    creation of a Share option reserve at 30 June 2005 of $40,040. As the services received are Capital
    raising costs and as such are allocated against the proceeds from the raising as transaction costs,
    they offset the increase in reserves and the net effect is nil.
    PIPE Networks Limited Preliminary Final Report
    For the 12 months ended 30 June 2006
    Appendix 4E Page 18 of 18
    Compliance Statement
    1 This Appendix 4E has been prepared in accordance with AASB Standards, the Corporations Act 2001
    and Corporations Regulations 2001; and other standards acceptable to the ASX.
    2 This Appendix 4E and the accounts upon which the Appendix 4E is based (if separate) until 30 June
    2005 had been prepared in accordance with previous Australian Generally Accepted Accounting
    Principles (AGAAP). AGAAP differs in certain respects from AIFRS. When preparing the PIPE
    Networks Limited preliminary financial report for the year ended 30 June 2006, management has
    amended certain accounting and valuation methods applied in the previous AGAAP financial
    statements to comply with AIFRS.
    3 This Appendix 4E does give a true and fair view of the matters disclosed.
    4 This Appendix 4E is based on financial statements which are in the process of being audited.
    5 The entity has a formally constituted audit and risk management committee.
    PIPE NETWORKS LIMITED
    Malcolm Thompson
    COMPANY SECRETARY
    Signed at Brisbane
    9 August 2006
 
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