ZIN Zintel Group Limited

It has been a privilege for me to become involved in the Zintel Group with my appointment to the role of CEO on 1st November 2006, but I am very aware of the challenges and opportunities which lie before us.

It would be fair to say that the company in November 2006 looked markedly similar to the company at the end of 2003 in terms of the proposition it was taking to the market. However this has been in the context of an industry which has always been competitive and changing but which in the past 18 months has been in complete turmoil. Therefore it has been critical that the group creates and develops new propositions for our customers. I will elaborate more on this later.

As the Chairman has pointed out, FY2007 produced a disappointing result for a company which was seeking to grow. However, there are many positive outcomes as a result of the FY2007 year which are important for our future. Key in these were:
1. Enterprise business turn-around: We saw an important turn-around in our Enterprise
business in New Zealand which has been selling and supporting Ericsson telephony solutions.

In the first half of FY2007 this business was not in profit, largely owing to operational
inefficiencies and slow closure of opportunities. In the second half as a result of making
operational gains and winning key accounts, this result turned around and this business unit finished with a positive bottom line.

2. Sales Management: In each of our three business operations new sales management was put in place in FY2007. We now have three well qualified and very experienced sales managers, two in New Zealand and one in Australia, who are driving the correct processes and measures within the sales teams in these units. This has also significantly improved our ability to forecast in a more predictable manner.

3. Key Customer wins: We secured a number of key customer wins in New Zealand in the year notably Auckland Regional Council, Wellington City Council, Mighty River Power and we continued to provide support for NZ Police in a contract being lead by Ericsson. I point to these because as a group we know that the thousands of customers we transact business with on both sides of the Tasman are a foundational rock for our future business and we strive with all the energy we can muster to ensure that we remain relevant and become indispensable to them.

4. Commitment to strategy: The executive team invested significant time at the end of last year to review and update our direction and strategy which defines how and where we will invest our resources. This executive team is committed to executing this strategy and are goaled on its success.

Important points to note on our FY2007 performance are:
a. At an operating level NZ vs. Aus revenue was 76% vs. 24%
b. At an operating level NZ vs. Aus profit was 78% vs. 22%
c. At an operating profit level 2HYFY07 delivered a 63% increase on 1HYFY07 which illustrates the marked operational improvement in the New Zealand Enterprise business.

I mentioned earlier that there is complete turmoil in the telecommunications industry today and for the foreseeable future. This is the case for both Australia and New Zealand. We are seeing a massive change in the regulatory environment in New Zealand with LLU, structural separation and a review of mobile interconnect rates; we will continue to see the consolidation of organisations - Vodafone's acquiring of iHug in NZ; Telecom acquiring PowerTel in Australia are but two examples. Telstra has just
Zintel Group Limited recently carved yet another piece off its Kaz ICT division; new entrants such as M2 are coming to the market in New Zealand. Established players such as Vodafone are widening their offering.

The decline in traditional carriage revenues is continuing - between 6-12% depending on which analyst is commenting, and margins continue to thin. These trends will continue and the environment will remain very competitive. But this change creates opportunity for nimble and responsive companies focussed on servicing customer needs rather than looking for return on large infrastructure investments.

To capitalise on this situation we have determined:
- having a unique customer proposition has been important to us. No one else in the market does toll free was well as us. No one else in New Zealand represents Ericsson Enterprise products. We do not wish to be a "me too" player and so we will acquire and develop products and services which provide compelling differentiation
- we do not plan to play in infrastructure ... we believe this shifts the focus away from servicing customer needs
- we will focus on providing value-add services where uniqueness can be created and valued by customers, demonstrated by higher returns
- we see that the proposition of a single converged "Information & Communications Technology" (ICT) provider is attractive to customers, and therefore worthy of us pursuing
- being nimble and flexible yet professional is an advantage available to us and we must continue to invest to meet customers' expectations in this area
- we will develop more new IP-based offerings as IP is the technology foundation for the future of ICT
- we will identify and commit to providing key applications relevant to contact centre customers

The Road Ahead
Our board is ambitious and enthusiastic about growth and the strategic work we have been doing is intended to fulfill these aspirations.

We are a group whose activities can be captured by the purpose statement:
Zintel brings businesses and their customers closer together by delivering quality technologies, expert solutions and reliable services that enhance these customer interactions.

The group has had most success over the past few years in securing profitable business in the "middle" business market on both sides of the Tasman, as well as in larger organisations and especially in those businesses which have contact centre needs. Indeed this is an area where research tells us there continues to be an increasing level of customer expenditure.

Moving ahead we are building on our foundation of loyal customers and have determined that the customers with whom we have enjoyed past success will continue to provide profitable opportunity for us as long as we introduce new products and services to them to enable them to communicate better with their customers. This will see us augment our traditional toll-free and Ericsson Enterprise product offerings with a broader range of technologies for contact centre and "middle" business customers.

To that end we have embarked on a programme of work which will see us provide customers with a broader ICT proposition driven out of the following activities:

1. Building organic growth opportunities from the normal activities of our existing three operating businesses. Such examples are:-
- providing new communications services such as "text services"
- adding new product technologies to our enterprise telephony solutions

2. Creating and developing brand new services through a Research & Development (R&D)
programm - a number of initiatives are currently being explored and will be taken as quickly aspossible to prototype stage

3. Strong partnering with complementary organisations, and

4. Acquiring new capability through acquisition activity
- We don't believe in reinventing wheels and so are looking to acquire capabilities that
already exist in other organisations. We would expect these to be cash flow positive
from day one and represent significant growth opportunities in their own right.
Progress to date

As we execute on this strategy we are making purposeful decisions. Of significance recently are:

a. Concert Telecom: We acquired a customer base in Australia specifically to increase the number of customers with whom we transact business. This acquisition is profitable for us, but significantly it also adds some new services into our group in Australia in mobile and data services.

b. Business Lines & Access: Earlier this calendar year we increased the breadth of
telecommunications services we provide to our New Zealand customers following the
successful implementation of a Wholesale Services Agreement with Telecom New Zealand.

c. Juniper: We have recently added Juniper data networking to our portfolio of products being sold through our Enterprise business in New Zealand.

d. Contact Centre Applications: We have added Autonomy eTalk software products to
increase the application offerings to our customers as part of an enhanced solution for
contact centres.

e. Research & development: The Board has committed to support an internal R&D
programme which is currently developing three different new services to prototype stage so that they can be effectively evaluated with our "middle" market customers.

f. Our People: As important as these is the addition of a number of new staff to our business who bring with them new skills, particularly in the ICT space. In a tight labour market we have been able to attract some superb new talent to the business and as such this represents a leading indicator for us as to our ability to execute on the strategy.

Future Expectations
The level of business achieved in 2HFY07 is expected to continue in each of the two halves of FY08 ignoring any variances attributable to further acquisitions or to our R&D programme. As the Chairman indicated we expect our full year operating profit to be in line with last years $2.9M excluding R&D and acquisition initiatives.

It is critical that we execute on our strategy and to that end we have an action-focussed executive team who are committed to our direction. In addition we have an intelligent, skilful and professional staff who individually and collectively get their work done in an effective and customer-driven manner.

So in summary:
- We are moving through a period of huge change where we have been required to make
significant adjustments to our business to align to the new market and regulatory environments
- We have a clear strategy to move forward into this new environment - focusing on the contact centre market and middle businesses in both New Zealand and Australia
- We are building momentum in executing this strategy with solid customer wins and significant new service deployments
- The foundations of the business are sound, with thousands of strong customer relationships, leading sales processes, and a terrific team on-board
- We are excited about the journey we are on

ENDS
Background of Zintel Group Limited
Zintel's two businesses, Communications and Enterprise, provide businesses with everything from Toll free services to complete state of the art Ericsson phone systems. Established in 1995 and listed on the NZAX in November 2003, Zintel now employs over 120 staff with offices in Auckland, Sydney, Wellington, Christchurch and Dunedin.

Chairman's report

Dear Shareholders:

We are pleased to present the annual report for Zintel Group Limited to 31 March 2007. The year in review shows that the Group has achieved revenue of $40.12m, slightly down on the previous year’s $40.74m. This produced profit before tax of $3.74m, down on last year’s $4.72m. This was mainly attributable to a poor result in the first half year owing to restructuring costs in the New Zealand operations, along with unprofitable trading of the Enterprise business in New Zealand. Pleasingly, the operating profit from continued operations in the second half year was up 84 per cent over the first half.

Net profit after tax of $2.70m is down 16 per cent compared with $3.24m last year. Net operating cash flow of $3.62m for the year, a cash realisation (operational cash flow/net profit) of 134 per cent (111 per cent for 2006), and cash on hand has increased to $6.58m ($5.11m for 2006) at balance date, with no debt or long-term liabilities. Overall, the result is unsatisfactory given the intention of the Company to grow profits.

DIVIDEND

The Company’s Directors have declared a final dividend for the financial year ended 31 March 2007 of 1.0 cent per share, carrying full imputation credits of 0.4925 cps (nonresident shareholders will receive a supplementary dividend of 0.1764 cps). This brings the full year dividend to 2.74 cps net (3.48 cps in 2006), plus imputation credits of 1.3495, making a gross dividend of 4.095 cps. This represents 51 per cent of the Company profit for the year, against a policy of paying at least 40 per cent of profits to shareholders in the form of dividend. The Directors are constantly considering dividend payments in light of the cash reserves and growth plans.

BUSINESS UNIT PERFORMANCE

Zintel operates three business units: Zintel Communications Ltd and Zintel Communications Pty Ltd which primarily manage toll and tollfree 0800 and 1800 in New Zealand and Australia, respectively, and Zintel Enterprise Ltd in New Zealand which distributes Ericsson enterprise products and provides maintenance and support services.

The Group previously represented Ericsson in Australia and the sale of this part of our business was successfully completed in the second half of the year as announced previously. The telecommunications industry is generally difficult with intense competition, shrinking market sectors, reducing margins, and increasing costs. In this environment Zintel is focussed on broadening its offering and differentiating on service and added value. Pending regulation in New Zealand provides opportunity for which we are endeavouring to position the Group.

Zintel Communications Ltd in New Zealand defied market trends by maintaining revenues close to the previous year. This was as a result of new customer service initiatives which were designed to reduce churn. Increased management focus led Zintel Communications Pty Ltd in Australia to grow revenue by 10.2 per cent. However market conditions had a significant impact on margins resulting in a NPBT decline of around 28 per cent.

Initiatives are underway to improve the profit performance in Australia for FY08. Zintel Enterprise Ltd in New Zealand arrested a first half decline in performance in the second half where a significant first half loss was turned into a small overall annual trading profit. A continuing strong NZ Dollar affected Group earnings by generating unrealised foreign exchange losses and reduced translation of Australian profits.

HIGHLIGHTS

There were some significant milestones for the company during the year as it executed on the strategies outlined in the 2006 report. Peter Revell was appointed Chief Executive Officer in November 2006 to lead a capable and experienced executive team who are committed to the company’s strategic direction and growth. The executive team has reviewed, updated, and is executing on the Group’s three-year strategy.

We elected to exit the business which sold and supported Ericsson products in Australia. The outcome was a sale of that business which made a positive contribution to the Group’s profit for the year of $0.37m. The re-organisation of the New Zealand business into two distinct operating units, separating the Communications and Enterprise businesses, has been completed, and the benefits of increased management focus and customer focus is reflected in a significant improvement in the second half year compared to first half, particularly in the Enterprise business where costs have been reduced over the year.

Enterprise customer wins were evident throughout the year, notably Mighty River Power, Auckland Regional Council, and North Shore City Council. A contract with Mighty River Power valued at more than $3 million over two years to implement a radio network based on Ericsson technology was a significant win. The Communications business in New Zealand held revenues close to the levels of the previous year despite a sharp drop (approx 6%) in the market. In addition, a significant proportion of customers have elected for contracted supply of 0800 services, and this has increased the predictability of these revenues moving into the new year.

CHALLENGES

Recruitment of suitably skilled staff is an on-going challenge in a tight labour market on both sides of the Tasman. Notwithstanding this we are delighted with the calibre of people we have attracted to the Group, and they will be important contributors to our future success.

Worldwide, the telecommunications market is in a significant state of change, and we must ensure that we position ourselves to maximise the opportunity such changes represent for Zintel. It remains a highly competitive market in Australia and New Zealand, but customers are consistently demonstrating their willingness to take advantage of the value in the service offered by Zintel.

COMPANY STRATEGY AND BUSINESS PLAN

In January 2006, a strategic review of the company was commenced. This was reviewed and updated in January 2007. This update confirmed that the existing business units’ focus on communications on both sides of the Tasman, along with the Enterprise business in New Zealand provides us with a platform for future growth.

The Group has embarked upon dual initiatives to both broaden its offering to existing and new customers, and also to establish new offerings that have synergy with the existing business. The latter is planned to be achieved by a mix of internal investment in new offerings, and by external acquisition(s).

Investment (primarily people resource) will be required to fund these activities, and we have budgeted $750k (excluding the capital cost of any acquisitions identified). Of this sum, $250k has been allocated to invest during the first half year to 30 September 2007, and during the second half year we will only make further allocation of funds if management have identified opportunities we wish to pursue further. This investment is material to the bottom line in a Group the size of Zintel, and should resulting revenue not be generated during this financial year, overall profit will reduce accordingly. The Group has a balance sheet which can accommodate this investment.

FUTURE OUTLOOK

The improvement in business performance in the second half FY07 over the first half is expected to be maintained through this financial year. However the approval for investment in developing new products and services will mean that we expect the overall operating profitability of the Group’s continuing activities to remain at the same levels as FY07.

Margins in our communications businesses are likely to continue to decline, as has been the case over a number of years, and this, along with customer churn expectations, has been reflected in our budgeting for the year. Revenues in the New Zealand business will continue to have “lumpiness“ owing to project work until such time as contracted and managed services make up a larger part of the revenue stream.

The Annual Meeting date has been set for Tuesday the 28th of August 2007. In closing, thank you to the board of directors for their direction and support, and to all our staff for their commitment, tireless work, and loyalty over the year.

Yours sincerely,

Nick Gordon

Chairman

Peter Revell

Chief Executive Officer