Fairfax Media Limited
Annual Report 2013

Plain-text annual report

LEADING THE CHANGE ANNUAL REPORT 2013  FAIRFAX MEDIA ANNUAL REPORT 2013 1 FAIRFAX MEDIA ANNUAL REPORT 2013 1 Fairfax Media. Independent. Always. Every moment of the day we are delivering quality independent journalism and content. While we are proud to be more than 180 years old, we are even prouder to be the media company leading the change, rapidly adapting to new ways of working, new ways of keeping people informed. Our multi- platform media business – spanning print, online and radio – ensures our audiences have the information they want, when they want it. We’re focused on building, and profitably monetising, our large-scale and highly engaged news media audiences in Australia and New Zealand. We connect advertisers to our audiences in creative and highly effective ways. Working together, and with an unwavering focus on our journalism and content, Fairfax is implementing its strategy, simplifying operations, reducing costs, aggressively pursuing new revenue opportunities and improving how we engage with customers and audiences. We’re lean, agile and clear-sighted about our future. Fairfax is ready for today – and more prepared than ever for tomorrow. Fairfax’s 2013 Annual Report features a selection of images from The Sydney Morning Herald Photos1440 exhibitions held in 2012 and 2013. There are 1440 minutes in a day. In these minutes photographers capture a moment. These moments make up a day. The exhibition features published and unpublished work by The Sydney Morning Herald’s photographers. Photos1440 is supported by Canon Australia and held annually alongside the World Press Photo exhibition. Dawn at Bondi Beach. Photo: DAllAs KIlP onEn THE SYDNEY MORNING HERALDPHOTOS1440 2 Announced the rescaling and upgrading of North Richmond print site NOVEMBER PAnPA AwARDs wIns The Examiner, The Border Mail, The Land, The Sunday Age, The Australian Financial Review iPad app, The Courier (Ballarat) iPhone app, stuff.co.nz, The Press JULY Gmail enterprise solution introduced FAIRFAX jouRnAlIsts wIn At 57th wAlKlEy AwARDs • Walkley Journalism Leadership Award – The Border Mail • The Nikon Walkley Press Photographer of the Year – Justin McManus, The Age DECEMBER Sale of Trade Me investment Sale of US agricultural titles the sun-herald City2surf event attracts 85,000 Essential Mums parenting site launches in New Zealand REAl-tIME woRKIng In syDnEy AnD MElBouRnE IntRoDuCED OCTOBER OVER 4 YEARS DonAtIon oF FAIRFAX’s glAss PlAtE PhotogRAPhs to the National Library of Australia 2012augustSEPTEMBER2013$32m SAVINGS2 FAIRFAX MEDIA ANNUAL REPORT 2013 3 FEBRUARY Daily life turns one with a monthly audience of UNIQUE USERS Ultimate Footy launch BRw REDEsIgn, wEBsItE AnD APP lAunCh JANUARY nEw BRAnD CAMPAIgns FoR thE syDnEy MoRnIng hERAlD AnD thE AgE sMARt InvEstoR RElAunCh ‘A syDnEy MoRnIng’ AnD ‘youR BusInEss DAy’ start broadcasting on 2UE live from The Sydney Morning Herald newsroom The Sydney Morning Herald and The Age introduce digital subscriptions for overseas readers Consolidated Commercial Real Estate brand launched APRIL Announced the upgrading of Ballarat print site Simplified organisational structure introduced FInAnCIAl REvIEw unvEIls nEw looK 70,000 people pound the pavements for the Auckland Round the Bays fun run The Age and The Sydney Morning Herald go compact on weekdays MARCH Contact centre partnering with TeleTech commences FAIRFAX MEDIA nZ wIns MultIPlE CAtEgoRIEs At CAnon MEDIA AwARDs • Best Website award – stuff.co.nz • Best Innovation in Multimedia Storytelling award – Zone Life in The Press • Weekly Newspaper of the Year award – Dominion Post FInAnCIAl REvIEw sunDAy PRogRAM DEButs VIEWERS MAY 909,000june286,0004 ChAIRMAn’s REPoRt FAIRFAX MEDIA ANNUAL REPORT 2013 5 FAIRFAX MEDIA ANNUAL REPORT 2013 5 CHAIRMAN’s REPORT Significant milestones were achieved during the year that contributed to our objective of simplifying our business and reducing the costs of our business. Important milestones for Fairfax Media’s future were achieved during the 2013 financial year, a year in which structural changes in the media industry continued to unfold. Responding to these changes has been, and will continue to be, our greatest priority. Our challenge is to develop strategies that position our Company to continually adapt to a world where the direction of change is clear, but the end point is not. In the 2012 Annual Report I set out a number of the elements that would contribute to our transformation. In 2013, we made substantial progress in delivering the benefits of the Fairfax of the Future program. Earnings before interest, tax, depreciation and amortisation (EBITDA) will benefit from the $311 million of annualised cost savings that we are on track to deliver by 2015, including the additional cost savings announced in June. We continue to work on further cost reduction and revenue opportunities. While the 2013 result reflected continued cyclical weakness and structural change in the advertising sector, it also incorporated the first material contribution from the implementation of these initiatives. Without Fairfax of the Future, the EBITDA recorded by our businesses of $366 million would have been $118 million lower. Total Group revenue declined 8.2 per cent to $2,033.8 million from the prior year and the Company reported a net loss after tax of $16.4 million. The result included a gain of $303 million on the sale of Trade Me and US Agricultural businesses in the first half, and a non-cash impairment charge of $444.6 million predominantly from the Regional, Printing and Agricultural operations in the second half. This charge was necessary as our Regional and Agricultural business experienced weaker trading conditions during the year due to subdued mining-exposed markets, poor mining employment trends, and a downturn in national advertising. However, it is important to stress that there has been no deterioration in our mastheads’ local reach, which underpins the resilience of this business. Our mastheads remain highly valued by our audiences and advertisers in the communities we serve. Following the write-down, the Company has net assets in excess of $1.8 billion. 4 FAIRFAX MEDIA ANNUAL REPORT 2013 5 FAIRFAX MEDIA ANNUAL REPORT 2013 5 STATuToRy neT loSS AFTeR TAx $16.4m undeRlyinG neT PRoFiT AFTeR TAx $128m A Manly ferry approaches Circular Quay. PHOTO: BEN RUSHTON Significant milestones were achieved during the year that contributed to our objective of simplifying our business and reducing the costs of our business. Projects successfully executed included: • Publication of weekday editions of The Age and The Sydney Morning Herald in a compact format from March 2013. The convenience of the new format has been welcomed by many of our readers and positions us for the planned closure of the Chullora and Tullamarine printing plants, scheduled for June 2014. We continue to expect annual cost savings of $44 million from the consolidation of our printing activity as we more efficiently utilise our network of smaller, more flexible, printing plants. • Achieving significant cost reductions through the outsourcing of contact centres, and reducing the real-estate footprint of our main Sydney and Melbourne offices. • Establishing the Australian Publishing Media division, which consolidates our core publishing activities – spanning metropolitan, regional and community titles – resulting in lower costs and timely content delivery to our audiences across the day. • Establishing our digital transaction businesses, which include Stayz and RSVP, as freestanding units that have the support, resources and autonomy needed to deliver on their potential. • Establishing Domain on a standalone basis, providing investors with transparency around the financial performance of the high-growth digital elements of the business. • Introducing digital subscriptions for smh.com.au and theage.com.au with a metered model that allows a base level of free access. At our Investor Day held in June we shared insights into a number of our divisions with investors. We also announced a product review. In early 2013, we published 431 publications and 337 websites, had seven radio stations and almost 100 apps. One element of a Board-led review of the Company’s products and strategy is to thoroughly review each of our products and the contribution made to our overall business. This is one area of a strategy review which has also involved the development of plans for the pursuit of significant new revenue opportunities. The Chief Executive Officer’s Report THE SYDNEY MORNING HERALDPHOTOS14406 ChAIRMAn’s REPoRt FAIRFAX MEDIA ANNUAL REPORT 2013 7 ToTAl diVidendS 2¢FULLY FRANKED neT deBT ReduCed By $760m TO $154m AT JUNE 30 contains information in relation to a range of new business initiatives that sit adjacent to our existing activities. I look forward to reporting on our progress in developing these businesses in the future. While we have been busy transforming the operations of our business, your Board has been mindful of the importance of maintaining balance sheet strength and flexibility through this period of industry change. Fairfax finished the 2013 year with net debt of $154 million, a reduction of $760 million over the 12 month period. Significant contributors to the strengthened balance sheet include the sale of the Company’s remaining interest in Trade Me and our United States agricultural publishing business, which delivered combined sale proceeds of $682.3 million net of transaction fees. A further important project undertaken by the Board during the year was a comprehensive review of remuneration arrangements. The Remuneration Report contains detail of the outcomes of this review, which includes implementation of a remuneration plan that reflects the evolution of our business, and is appropriate for the current period of transformation and consolidation. As we reflect on this year of change, the importance of maintaining our core editorial values of independence and integrity is foremost in protecting our mastheads and providing us a unique position in the media space in Australia and New Zealand. These editorial values are fundamental to the way we do business, and ensure our continued relevance to our audiences. In closing, I would like to acknowledge the significant contribution of my fellow Board members – and the contribution of our chief executive Greg Hywood, who has done an outstanding job in leading our Company through these challenging times. He has relentlessly and tenaciously pursued a strategy to secure the future of our Company using to effect his many years’ experience, editorial knowledge and standing in the media industry. Your Board is committed to ensuring Fairfax Media is run in the best interests of all shareholders and that we carry our legacy with pride into a bright future. Roger Corbett, AO Chairman 6 FAIRFAX MEDIA ANNUAL REPORT 2013 7 FAIRFAX MEDIA ANNUAL REPORT 2013 7 T H E S Y D N E Y M O R N I N G H E R A L D PHOTOS1440 Thousands of budgerigars in Central Australia. PHoTo: Glenn CAMPBell 8 ChIEF EXECutIvE oFFICER’s REPoRt FAIRFAX MEDIA ANNUAL REPORT 2013 9 CHIEF ExECUTIVE OFFICER’s REPORT Fairfax Media has established a reputation as the undisputed leader in innovation and change in the traditional media sector in Australia and New Zealand. We have delivered some of the most significant structural and operational changes in our Company’s long history. We committed to you we would transform our business and we are meeting or surpassing all critical milestones as we implement our strategy. This includes developing our leading multi-media, cross-platform business so it operates within a simple yet effective organisational structure. We are confident our strategy will deliver the best outcomes for our shareholders, customers and our audiences. The changes will ensure Fairfax is a lean and agile company. We are making all the necessary decisions to prepare for what we know will be a predominantly digital future. The trading environment has been challenging. Group revenue declined by 8.2 per cent in the financial year. Achieving an operating earnings before interest, tax, depreciation and amortisation (EBITDA) of $366 million was a challenge. Cost savings under our Fairfax of the Future program made a substantial contribution to operating profits. Excluding businesses divested during the year, underlying EBITDA was $315.7 million. Cash flow from trading activities was $377 million. We are targeting a total of $311 million in annualised cost savings by fiscal 2015 from a cost base in 2011 of $1.8 billion. If fixed production charges are excluded, the effective addressable cost base is $1.2 billion. Our simplified organisational structure, announced in April, has allowed us to streamline middle management, share services and reduce duplication. We have a strong management team committed to driving collaboration across the business and the aggressive pursuit of new revenue opportunities. We are working smarter. The newsrooms of The Sydney Morning Herald and The Age have been restructured to deliver timely journalism and content to our audiences across the day. Our main offices in Sydney and Melbourne have also introduced real-time working practices, saving $32 million over four years. We have also changed the way we engage with our customers and audiences. We have moved to improve our contact centres through the centralisation and partnering with specialist service provider TeleTech, which will reduce our costs in this area and result in significant savings. We know the future is about a mix of both cost discipline and revenue growth. The turnaround of our Broadcasting business continues, having achieved cross-platform benefits in content and sales. Overall ratings and market share have improved, with 96fm currently the highest rating station in Perth and 3AW holding its top spot in Melbourne. Group digital revenue increased to $295 million and now comprises 14 per cent of total revenue. One new source of digital revenue, introduced just after the end of the 2013 financial year, is digital subscriptions for The Sydney Morning Herald and The Age. On 22 August 2013, we told the market that the two mastheads had 68,000 paid digital subscribers and 98,000 bundled print and digital subscribers, tracking ahead of expectations. 8 ‘‘ We are confident our strategy will deliver the best outcomes for our shareholders, customers and our audiences. ‘‘ Businesses such as Domain continue to go from strength to strength. Domain grew the number of real estate agents with listings by 21 per cent. Digital growth was a highlight, with investment in mobile apps paying off in strong performance. At Fairfax we have exposure to more than $300 million of real estate-related revenue, and we have the brand, the expertise and the commitment to build the Domain business. During the year we announced a new organisational structure, one element of which is the consolidation of our core publishing activities into the new Australian Publishing Media division. This division is led by Allen Williams, who previously ran our New Zealand business and before that held several senior positions in the Company’s regional operations. The formation of Australian Publishing Media allows us to reduce duplication through a more ordered grouping of our businesses and activities, and to drive additional revenue by leveraging our core business – news, business media, lifestyle and community media – and extensive portfolio of media assets. We have also formed a Digital Ventures unit, with a new management structure that is empowered to deliver the full potential of our digital transaction businesses such as Stayz and RSVP. These are both market-leading transactions businesses that generate strong margins. Parkour group in Parramatta. PHOTO: WOLTER PEETERS FAIRFAX MEDIA ANNUAL REPORT 2013 9 undeRlyinG eBiTdA excluding businesses divested $315.7m CASHFloW FRoM TRAdinG $377m THE SYDNEY MORNING HERALDPHOTOS144010 ChIEF EXECutIvE oFFICER’s REPoRt FAIRFAX MEDIA ANNUAL REPORT 2013 11 ‘‘ Through a period of great structural change, Fairfax has maintained its core vales of independence and integrity. ‘‘ We have a proven track record of growing smaller digital businesses. We will continue to look at our digital businesses and new opportunities in terms of both value and earnings. We are also pursuing several revenue opportunities where we will take an existing niche presence that sits within Fairfax, imposing more structure around our activities, and building a substantial business: • Events – Fairfax currently generates more than $25 million of revenue a year from Events across the Group, and real potential exists to expand these activities. Our Events activities are currently structured as an adjunct to our other businesses, and have succeeded because we only organise events that leverage Fairfax’s audiences and capabilities. Our broad reach provides a real boost to mass participation events such as fun runs and ocean swims, while The Australian Financial Review leverages our strong content, editorial positions and brands through events including the Future Forums and Women of Influence. We also do well organising events in verticals where we have a leading presence, such as the connection between Good Food Month and our Good Food Guides. We see a three to five year opportunity to build a business that is several times larger than our existing Events activities; • Content Marketing – there is a significant revenue opportunity for a separate business arm that produces and supplies content for third-party customers, including provision of content for third-party newsletters, websites and apps. Today, around 25 per cent of marketing budgets in Australia are allocated to content marketing, with spend in the area growing at around 20 per cent annually. As Fairfax has strong City2Surf in William Street . PHOTO: STEVE CHRISTO THE SYDNEY MORNING HERALDPHOTOS144010 FAIRFAX MEDIA ANNUAL REPORT 2013 11 undeRlyinG eBiTdA for continuing businesses (excludes Corporate/Other) 5% RadiO 18% nEw zEaland 29% mETRO 48% REgiOnal capabilities in content creation and distribution to mass audiences, as well as digital step-outs such as Essential Baby, we are well-placed to offer clients real differentiation in their content marketing; • Small to Medium Enterprise (SME) Digital and Marketing Services – leveraging our strong local sales relationships with clients, particularly in regional Australia, we will assist smaller businesses to build an online marketing presence. Our local websites, Facebook presence and content will all be utilised as we provide a suite of integrated marketing services. This is an area where Fairfax already has expertise as we provide these services to 4,000 SME clients, with plans to expand the product offering and the client base; and • Data – audience insights will drive revenue and deliver increased advertising yields. We are making the investment required – in terms of both systems and human resources – to deliver advertisers greater insight into our audience, and more tailored, higher value, advertising opportunities. I have recently visited many parts of Fairfax to speak with as many of our 8,400 employees as possible. What struck me was the overwhelming enthusiasm for what we do. Through a period of great structural change, Fairfax has maintained its core values of independence and integrity. The dimensions of change have put enormous stress on our people. I would like to thank them for their resilience and positive attitude through a difficult period. We are resolutely confident that our collective efforts will deliver a prosperous future. Our teams are now in place and clear about their responsibilities. They will drive real change through the business and be held accountable and appropriately recognised for delivering results in our efforts to reduce costs and develop new revenue opportunities. I am pleased with the progress we are making on our journey. We will continue to implement our strategy with great confidence. Greg Hywood Chief Executive Officer & Managing Director 12 sustAInABIlIty AnD CoRPoRAtE soCIAl REsPonsIBIlIty FAIRFAX MEDIA ANNUAL REPORT 2013 13 sUsTAINABILITY AND CORPORATE sOCIAL REsPONsIBILITY Fairfax Media operates within a commercial model. Ensuring the Company’s financial sustainability is critical to our ability to continue to provide long-term benefits to the community. Our financial sustainability cannot be separated from our corporate social responsibility. Sustainability begins with being financially sustainable and serving shareholders’ interests so as to be able to fulfil our business objectives and serve our communities. Fairfax has a long and proud history of serving local communities with high-quality independent content – across print, digital and radio – in Australia and New Zealand. Fairfax has deeply engaged audiences. Quality independent journalism is a central part of Fairfax’s strategy to build, and profitably monetise, its large and highly engaged news media audience. We have now successfully introduced digital subscriptions for The Sydney Morning Herald and The Age. This initiative enhances resources and so too our ability to continue to serve our audiences with quality content. What we do as a business contributes in a very meaningful way to community and to open government – the bedrock of an effective functioning democracy. Fairfax facilitates public debate on important issues, holds leaders and people of power and influence to account, and informs the communities we serve. There is a reason the media are called the ‘fourth estate’ – after the parliament, the judiciary and the bureaucracy. Like us or loathe us, we are an important pillar of a healthy society. Our job is to ask the questions that often people don’t want asked. We take seriously our responsibility to the communities we serve. We strive to be as accurate and as fair-minded in our reporting as possible. At Fairfax, we have set up internal processes to make this happen and embrace self-regulation for the industry, which we fund extensively. The business changes being implemented at Fairfax over the past year are all about ensuring the sustainability of the important work we do amid very real structural and cyclical challenges in the media industry, both locally and abroad. We are taking steps to ensure the Company is structured and operated in a sustainable way. 2012 Cole Classic at Manly’s Shelly Beach. PHOTO: PETER RAE THE SYDNEY MORNING HERALDPHOTOS144012 FAIRFAX MEDIA ANNUAL REPORT 2013 13 Fairfax is well into its three-year journey of transformation, meeting or exceeding all key milestones to date. This puts us in a strong position to continue our important work to deliver the key areas of corporate social responsibility that we as a media business have identified as being integral to the privileged role that news publishers have in the community. The four key areas are: • editorial integrity; • environment; • people and culture; and • community. EDItoRIAl IntEgRIty Fairfax is proud of its quality independent journalism. We will continue to maintain our uncompromising approach to media ethics and integrity. Fairfax journalists, producers and editors relentlessly seek out the truth. Fairfax has a long-standing commitment to delivering balanced and accountable journalism that is in the public’s interest. InFluEnCIng ChAngE AnD thE soCIAl AgEnDA During the past year, Fairfax editorial content in print, radio, online, mobile and video has brought urgency to several important public debates and meaningful context to the most pressing issues facing our audiences in Australia, New Zealand and around the world. Some examples of such journalism are below. violence in Kings Cross In July 2012, The Sydney Morning Herald led a march to hold local, state government and industry bodies accountable when community concern about violence in Sydney’s CBD reached a climax after an 18-year-old died after a random attack on him. The Sydney Morning Herald used its digital resources to give the community a voice. The Safer Sydney campaign came to a head with a community forum held at Sydney’s Town Hall. A panel including Lord Mayor Clover Moore, federal MP Malcolm Turnbull, NSW Hospitality Minister George Souris and members of the police and hotel associations answered questions from the hundreds in attendance and the thousands watching via smh.com.au. The tag #safersydney trended on Twitter. suicide Prevention The Border Mail’s Ashley Argoon produced a series of stories about mental health in regional Australia that won her the Walkley Young Australian Journalist of the Year as well as the category award for text-based journalism. The Border Mail’s year-long campaign, “Ending the Suicide Silence”, led to an announcement that the youth mental health service Headspace would open an Albury facility in November 2014. Child Abuse Joanne McCarthy from The Newcastle Herald was awarded the Graham Perkin Australian Journalist of the Year for her investigations and reporting of abuse within the Catholic Church in the Hunter Valley. Her work helped bring about a Royal Commission into child sex abuse. Commenting on McCarthy’s work, the judges said she showed “relentless campaigning spirit on behalf of the victims of sex abuse in the Catholic Church in the community in which she lives in a series of reports, features and opinion pieces. This kind of story is hard to tell on a big newspaper and requires guts to pursue on a regional one. She never gave up.” 14 sustAInABIlIty AnD CoRPoRAtE soCIAl REsPonsIBIlIty FAIRFAX MEDIA ANNUAL REPORT 2013 15 EnvIRonMEnt The media has a unique opportunity to influence others to take positive action towards reducing energy consumption, as well as the ability to responsibly manage its own carbon footprint. CoMMunIty EDuCAtIon Fairfax makes an important contribution to environmental sustainability by educating and informing the community about environmental issues through editorial coverage of important issues such as climate change and water conservation. The Sun-Herald was the only newspaper to board the supertrawler Abel Tasman as part of reporting on the related environmental and political debate. When the Coonabarabran fires happened, Fairfax sent a reporter and photographer to cover the events. The same team tracked progress as the community began to rebuild. Over the year, The Sun-Herald reported on issues at Sydney Water, the Department of Health and NSW Police, and worked with Taronga Zoo to raise awareness of animal conservation and animal adoption. The same masthead also raised awareness of organ donation by following six recipients for 12 months and telling their stories. In Canberra, politicians and decision-makers have found The Canberra Times’ ‘Send Them Home Safe’ campaign on workplace safety impossible to ignore. The campaign began in November 2012 with a page-one exclusive revealing the extent to which the ACT WorkSafe inspectorate’s funding, staff and capacity had been downgraded over recent years, and had possibly contributed to the ACT losing four workers to shocking construction accidents in the space of a year, and recording the nation’s worst serious injury rate. The Canberra Times’ campaign raised public awareness of the issues and helped to prompt the ACT government to take action and accept all 28 recommendations arising from its independent inquiry into construction industry safety standards. Consistent with its strong editorial stance on sustainability and water conservation, The Age worked with RMIT to showcase environmental awareness initiatives. EnERgy AuDIt & EMIssIons tARgEt Energy efficiency is a cost saving measure and a key part of our carbon footprint reduction. Fairfax is on target to meet its emissions reduction commitments through office and print facility consolidation, recycling and waste minimisation programs, energy reduction through the use of efficient lighting and service equipment, and changes to its technology infrastructure and usage. In 2011, Fairfax made a commitment to reduce its carbon emissions by 20 to 25 per cent by 2020. Under the NGER Act 2007, Fairfax reported to the Clean Energy Regulator that, from 2011 to 2012, it had already achieved a 9.6 per cent decline of its Scope 1 and Scope 2 Greenhouse Gas (GHG) emissions. The Company is achieving its overall target through a number of key projects, which include: • Replacement of high-energy-use lighting at 10 of its regional printing sites with low- energy CFL and LED lighting. The project attracted 33 per cent Government funding under the Clean Energy Investment Program. We will replace more than 1,070 light fittings and reduce our carbon emissions from high-energy lighting by about 67 per cent at those sites. • Consolidation of printing assets, including the closure of the large-scale Tullamarine and Chullora print sites by mid-2014 and moving printing to smaller, more energy- efficient regional sites which will contribute to a reduction in our carbon emissions. 14 FAIRFAX MEDIA ANNUAL REPORT 2013 15 • Review of property assets and office accommodation. This has seen a reduction in floor space requirements at our main offices in Sydney and Melbourne. Fairfax-utilised floor space will be reduced by two floors at One Darling Island in Sydney and three floors at Media House in Melbourne. The review is also looking into effective utilisation of all properties within the Fairfax Group across both Australia and New Zealand, which will further reduce the Company’s energy requirements and carbon emissions. In addition to these projects, our ongoing commitment to recycling and waste management minimisation programs continues. EnvIRonMEntAl IMPACts oF nEwsPAPER PRIntIng The print industry continues to invest in a program to educate the public about recycling and newsprint recovery programs, with support from industry group The Newspaper Works. Along with the Commonwealth and leading newsprint supplier, Norske Skog, our industry is also a co-signatory to the National Environmental Sustainability Agreement. Fairfax continues to promote sustainable technologies and materials such as inks with a vegetable oil base. All of the newsprint used by Fairfax comes from sustainable plantations. In the calendar year 2012, the Australian market recycled 78 per cent of its newsprint, a result that mirrored its achievement in 2011. FAIRFAX PRIntIng AnD thE EnvIRonMEnt Fairfax is a member of the Publishers National Environment Bureau (PNEB), part of an association of Australia’s leading newspaper and magazine publishers known as The Newspaper Works that has been working since 1990 to promote the sustainable recovery of old newspapers and magazines. Since The Newspaper Works was established, disposal of newsprint in landfill has decreased by 40 per cent at a time when landfill volumes increased significantly. Just 0.65 per cent of landfill volume now constitutes newsprint. Australia has been widely recognised as having one of the highest newspaper recycling rates in the world. Fairfax, in conjunction with the PNEB, has been working continuously to promote the sustainable recovery of old newspapers and magazines. Together, we have been able to help lift Australia’s newspaper recycling rate from 28 per cent in 1990 to a recycling rate of almost 78 per cent in 2012. Fairfax is focused on reducing waste while reusing recycled materials in the printing process. We are continuing to explore and implement creative and effective ideas to reduce our carbon footprint and consumption of water. optimising our printing operations The move to compact-size of The Age and The Sydney Morning Herald weekday editions, with the weekend editions to go compact in 2014, enables the closure of two of our large print facilities. We will consolidate printing more efficiently into our network of 14 printing sites. Fairfax will move printing of its two major Australian metropolitan mastheads, The Age and The Sydney Morning Herald, to Ballarat in Victoria and North Richmond in NSW respectively, in 2014. This will boost productivity in these regional Australian towns. Fairfax print facilities continue to proactively manage waste minimisation, recycling, water management and energy efficiency. Each print facility monitors and sets weekly targets for the reduction of newsprint and ink-related waste. Sites are benchmarked against each other and the wider industry to ensure that best practice processes and efficiencies are in place. In the 2013 reporting year, Fairfax’s printing plants reduced printed waste by 17.74 per cent over the previous year. That reduction was achieved through a combination of reduced print volumes and improved efficiencies at all print sites. 16 sustAInABIlIty AnD CoRPoRAtE soCIAl REsPonsIBIlIty FAIRFAX MEDIA ANNUAL REPORT 2013 17 Environmental benefits of real-time working Following the implementation of real-time working at our main Sydney and Melbourne offices, we have significantly reduced our real-estate footprint by optimising the use of space to better align with desk usage and adopting more contemporary working practices. The move to real-time working has produced environmental returns in the form of recycling stationery, work stations and computer technology. As the Sydney and Melbourne offices have adopted real-time working, several charities have benefited from donations of surplus equipment as well as some cash raised by staff. For example, the NSW Department of Education and Grace Removals assisted with the distribution of 300 under- desk pedestal units that were donated to schools in the community that were in need. PEoPlE AnD CultuRE A diverse, innovative and engaged workforce is important in enhancing the quality and creativity which underpins our brands and businesses. Fairfax is in the middle of a significant transformation and understands its business has a predominantly digital future. The transformation involves a three-year restructuring program that will see the workforce reduced to about 8,000 and the adoption of new business practices and behaviours. We are on track to deliver total annualised cost savings of $311 million by 2015. In addition, there are several new revenue streams that are actively being pursued. Despite headcount reductions, we’ve implemented smarter processes, and overall efficiency and output has increased in many business areas. A new digital-facing way of working and greater sharing of content within our Australian metropolitan newsrooms has seen a reduction in staff numbers of about 22 per cent within the editorial departments. Smaller teams of producers are now working across print, online and the tablet app, replacing traditionally fractured sub-editing roles and removing production silos. Reporters are filing digital-first stories throughout the day, increasing original content by 25 per cent on these platforms. Common publishing systems across all metropolitan publishing platforms allow news lists and all content across digital and print to be shared seamlessly, resulting in increased efficiency. Some more key figures about our people: • 730 employees in Australia use Fairfax-subsidised gym facilities. • 2106 employees in Australia and New Zealand took up the offer of a free flu vaccination. • 827 employees participated in the Fairfax-managed fun runs and swim events offered free of charge to staff. • Established in 1959, the Fairfax Foundation operates separately from the business for the purpose of helping current and former Fairfax employees and their dependents. During the past financial year, the Foundation has provided financial grants, loans and other benefits to the value of $359,251. • Fairfax continued to offer independent external assistance and counselling services to all Fairfax employees and their immediate families, as well as an independent external “whistleblower” hotline for staff to report concerns about ethics and harassment. 16 to deliver growth to shareholders a strong commercial focus We will balance everything we do with outstanding products and services to provide our audiences and customers with We need to work together across the company deliver on our commitments We are highly accountable and quickly to our audiences, customers and each other We value transparency. We listen and respond of our audiences and customers we make are based on the needs The way we work and decisions CULTURE our customers and audiences in our dealings with each other, We are responsible and honest Integrity or organisation or favour to any individual to operate without fear We have the freedom Independence VALUES constantly challenging the status quo To achieve this we need to be innovative, FAIRFAX MEDIA ANNUAL REPORT 2013 17 OUR CULTURE AND VALUES STORY EngAgEMEnt Maintaining and improving staff engagement is important to our ability to attract and retain talented people and to deliver on our business strategy. We obtain staff feedback via annual comprehensive staff surveys, interim pulse surveys, our company intranet, and annual performance reviews. We benchmark staff engagement levels and set clear goals for improvement. Our annual company-wide alignment and engagement staff survey, held during July and August 2012, received a response rate of 63 per cent. Compared with last year, the survey revealed improved understanding by staff and better communication by senior management of the Company’s strategic direction. Focus groups across the business identified “investment in people” as a key area of focus for the year to further improve results. Initiatives to address this focus area included the introduction of reward and recognition programs, improved communication around learning and development programs, and the implementation of a new performance management framework. CultuRE & vAluEs Following the launch of Fairfax’s Culture and Values program in 2012, several initiatives have been underway to embed our values. Initiatives include integrating company values into our performance management system, which brings a focus on both our business and behavioural goals. Recognition awards have also been established to commend employees for outstanding achievement, behaviours and contributions to the Company in line with Fairfax’s Culture and Values. Our values and cultural drivers are also embedded within our internal projects. For example, many of our internal programs such as the Fairfax Mentoring Program and our Leadership Development programs emphasise teaching, role-modelling and demonstrating Fairfax’s Culture and Values. In 2013, about 475 employees participated in leadership programs across the business, while 572 employees participated in Fairfax’s mentoring programs. REAl-tIME woRKIng Real-time working is a set of physical, behavioural and technological strategies that enable more flexible and efficient work practices by individuals and teams. It recognises a wide spectrum of work styles and acknowledges that, on any given day, people will have different activities that require varying levels of concentration or collaboration. Real-time working is supported by appropriate tools such as wireless and cloud IT solutions. Real-time working has provided Fairfax with a workplace that is much more flexible and adaptive to the needs of our people. woRKPlACE sAFEty Fairfax has continued to improve its workplace safety record during the past 12 months. The number of Lost Time Injuries has decreased, and the Company’s commitment to injury management and return to work processes has improved. This is reflected in reductions in Workers Compensation premiums since 2009. Lost Time Injury frequency rates have increased slightly during the past 12 months as a result of reduced employment hours attributed to staff reductions. The Company has also introduced a new internal safety auditing process that aligns with the Australian and New Zealand National 4801 Safety Standards. The audits will be in addition to operational site audits and will assist the organisation to achieve best practice in Work Health and Safety and compliance. lost tIME InjuRIEs & lost tIME InjuRy FREQuEnCy RAtE 100 NO. OF LTIs LTIFR 5 80 60 40 20 0 08/09 09/10 10/11 11/12 12/13 LTIs LTIFR 4 3 2 1 0 18 sustAInABIlIty AnD CoRPoRAtE soCIAl REsPonsIBIlIty FAIRFAX MEDIA ANNUAL REPORT 2013 19 CoMMunIty Fairfax is a vital member of the hundreds of communities in which it operates. We are committed to being a socially responsible organisation that supports and engages with those communities. We do this through a combination of funding, resources, volunteering, sponsorships, editorial coverage and promoting charitable activities. Fairfax’s management and sponsorship of events such as City2Surf (Sydney), City2Sea (Melbourne) and City2South (Brisbane) have continued to raise important funds for their charity partners. Participants in the many Fairfax events run throughout the past 12 months have raised more than $6 million for the various charities associated with each event. These community events are an important way that the Company builds and maintains key partnerships with charities, clubs and associations. In July 2013, The Sun-Herald City2Surf celebrated reaching $20 million in charitable funds raised since its inception, making it one of the most successful initiatives of its kind in Australia. Race Director, Rebecca Wilmer, said: “The City2Surf and its associated sister events have become incredibly important fundraising drives for hundreds of charities across the country. For some, they are the biggest initiatives of the year. The events give them the opportunity to raise much-needed funds and awareness for their cause. “Through initiatives like the City2Surf Gold Charity program, there is now the opportunity for participants to apply even more of a focus on fundraising, and each year we’re seeing this continue to grow.” The Sun-Herald City2Surf is an integral part of the community, and the world’s biggest run with 85,000 participants last year. The Sun-Herald also hosts the SurfSwim and Run4Fun. In supporting and promoting active lifestyles of all kinds, Fairfax through its masthead The Sydney Morning Herald, is also proud to be part of Australia’s longest-running and largest ocean swim – the Cole Classic. The carnival, held in conjunction with Manly Life Saving Club, continues to grow in popularity and this year attracted more than 3,800 swimmers. Families are encouraged to take part in The Sydney Morning Herald Sun Run which is held on the day before the swim. Together, these two events raised $224,511 for more than 700 charities. In New Zealand, Round the Bays, which started in 1972 with 1,200 participants, is co- owned by Fairfax Media and the Auckland Joggers Club. The 8.4km run, which follows the contours of Auckland’s Waitemata harbour, has grown to more than 70,000 participants each year. It is one of the world’s largest fun runs and New Zealand’s largest mass participation sporting event. Each year, several charities receive donations of about NZD$120,000 from the race. In the past decade, about NZD$1.5 million has gone to a range of charitable causes supporting the health, well-being and development of Auckland’s children via Round the Bays. ChARItABlE ContRIButIons There are many heroic organisations that perform vital roles of protection and support in our communities, and which have raised needed funds for hundreds of special groups and projects. We are proud to have helped many hundreds of organisations during the past 12 months. 18 FAIRFAX MEDIA ANNUAL REPORT 2013 19 Fairfax contributed in excess of $6 million in cash and kind to a range of charitable and community causes during the year. These contributions help Fairfax form connections in communities in which its mastheads, radio stations and brands operate in. For example, the Fairfax Radio Network (FRN) supports communities its radio stations broadcast to. FRN does so by becoming involved in a range of community-based activities, sponsorships, community service announcements and through the participation by our staff in community events. FRN stations also assisted hundreds of non-profit organisations by providing community service announcement airtime. In addition, FRN’s national content distribution company, Fairfax Radio Syndication, supplied commercial distribution and campaign monitoring for a number of charities free of charge. In New Zealand, Fairfax sponsors several nation-wide causes as well as running its own successful charities. Each year, via the Ports of Auckland Round the Bays, it donates about NZD$110,000 to a range of charities involved in the well-being and education of children. The Fairfax First Books program puts four picture books a year into the hands of every child at more than 80 kindergartens across New Zealand to foster a love of reading and build early literacy skills. In 2012, Fairfax’s New Zealand division launched Creative Spirit (creativespirit.org.nz), an employment program designed to boost employment of people with disabilities, starting with businesses in the creative communication space. And Fairfax has started in its own Auckland office by employing two administration staff who job-share 30 hours a week and who, since joining the Company in March 2012, have become valued team members. Since Fairfax launched Creative Spirit, several advertising and media agencies have signed on and are employing people with disabilities as part of the program. Fairfax workplace giving Program – More than words Fairfax’s Australian businesses participate in a workplace giving program, More Than Words, which started in 2005. The program encourages and enables employees to donate part of their pre-tax salary to a range of nominated charities. Through the program, more than $739,000 has been donated since 2005. literacy programs One area in which Fairfax believes its news outlets are particularly well-placed to make a difference is literacy. Last year, over the course of 24 weeks, The Sunday Age and The Sun-Herald campaigned strongly on the importance of reading by challenging students around Victoria and NSW to read 12 books in six months. The challenge, known as The Premier’s Reading Challenge, is a team effort at home, in school and through the masthead. The Fairfax First Books program is improving early childhood literacy in New Zealand. Boots For Kids Young people feature prominently in Fairfax’s scope of charitable support. A recent initiative started with a casual conversation between The Age football writer Michael Gleeson and former Collingwood and All-Australian player Leon Davis about indigenous children who had never owned a pair of footy boots but loved the game passionately. Known as Boots for Kids, the program encourages families in Victoria to donate their children’s used footy boots for use in remote indigenous communities in the Northern Territory and Western Australia where kids play barefoot. 20 sustAInABIlIty AnD CoRPoRAtE soCIAl REsPonsIBIlIty DIvERsIty Diversity in employment is a crucial issue these days. Diversity of gender, ethnicity and able-bodiedness creates diversity of thought. That diversity of thought is exactly what companies like ours need especially in times of transformation. Even though the newspaper industry has historically demonstrated a bias in favour of men in senior roles, our organisation employs many women in senior editorial and general management positions. There is still room for more diversity. Fairfax wants to encourage even more women to take on leadership roles within the Company while still ensuring that promotion is based on merit rather than quotas. Last year, The Australian Financial Review partnered with Westpac to run the inaugural 100 Women of Influence Awards, which was launched with a keynote address by then Prime Minister Julia Gillard. The program identified Australia’s 100 Women of Influence during a 10-week editorial campaign across 10 categories. In 2013, the 100 Women of Influence further cemented its standing as an awards program of note, culminating in a gala event and awards ceremony in October in Sydney. Fairfax in New Zealand and Westpac New Zealand have also entered into an exciting partnership that aims to recognise women who have demonstrated outstanding achievements and used their influence to make a positive impact on New Zealand society. The NZ Women of Influence awards is an annual program that identifies the 60 most inspiring women of New Zealand across a broad range of categories: management & business; local & regional; entrepreneur; community service & social enterprise; innovation & science; and emerging leader. The emerging leader category is run through Fairfax’s Stuff.co.nz brand. The NZ Women of Influence program was launched on June 26 this year. Nominations ran until August 25, with winners to be announced and celebrated on October 23. By recognising women in a broad range of roles, we hope to not only celebrate their successes and contribution to New Zealand and Australia but also to encourage other women to make a difference. Following the external programs in Australia and New Zealand, Fairfax Women of Influence has recently been rolled out internally at Fairfax to recognise and celebrate the successes of our female staff. Through the program, female staff will have the chance to learn from some of the external program finalists and winners through workshops, seminars, and leadership programs. The Fairfax Women of Influence awards recognise our female employees in six categories: young leader; community leadership; public agenda setting; leadership; innovation; and change champion. Our involvement in Women of Influence is an important step towards encouraging greater acceptance of the importance of diversity in employment. TABLE OF CONTENT s FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 FAIRFAX MEDIA LIMITED 2013 ACN 008 663 161 21 Board of Directors.............................................................................................................................22 Directors’ Report................................................................................................................................ 24 Auditor’s Independence Declaration ........................................................................ 28 Remuneration Report ................................................................................................................. 29 Remuneration Report (Audited) .......................................................................................31 Corporate Governance.............................................................................................................. 45 Management Discussion and Analysis Report ............................................. 54 Consolidated Income Statement ................................................................................... 56 Consolidated Statement of Comprehensive Income ............................57 Consolidated Balance Sheet................................................................................................ 58 Consolidated Cash Flow Statement ........................................................................... 59 Consolidated Statement of Changes in Equity ............................................ 60 Notes to the Financial Statements 1. Summary of significant accounting policies ................................... 62 2. Revenues ....................................................................................................................................72 3. Expenses .....................................................................................................................................73 4. Significant items .................................................................................................................74 5. Discontinued operations .........................................................................................75 6. Income tax expense ..................................................................................................... 76 7. Dividends paid and proposed .........................................................................77 8. Receivables ..............................................................................................................................78 9. Inventories ............................................................................................................................... 79 10. Assets and liabilities held for sale ................................................................. 79 11. Other financial assets ................................................................................................. 80 Investments accounted for using the equity method ....... 80 12. 13. Available for sale investments.......................................................................... 82 14. Intangible assets ............................................................................................................... 82 15. Property, plant and equipment ....................................................................... 85 16. Derivative financial instruments .....................................................................87 17. Deferred tax assets and liabilities .................................................................89 18. Payables ..................................................................................................................................... 90 19. Interest bearing liabilities ......................................................................................... 91 20. Provisions .................................................................................................................................. 92 21. Pension assets and liabilities ..............................................................................94 22. Contributed equity .........................................................................................................96 23. Reserves ..................................................................................................................................... 97 24. Retained profits ..................................................................................................................99 25. Earnings per share .........................................................................................................99 26. Commitments ..................................................................................................................100 27. Contingencies ....................................................................................................................101 28. Controlled entities .........................................................................................................101 29. Acquisition and disposal of controlled entities..........................106 30. Business combinations .......................................................................................... 107 31. Employee benefits.......................................................................................................108 32. Remuneration of auditors ..................................................................................109 33. Director and executive disclosures..........................................................110 34. Related party transactions .................................................................................112 35. Notes to the cash flow statement ...............................................................113 36. Financial and capital risk management ...............................................114 37. Segment reporting .......................................................................................................121 38. Parent entity information .....................................................................................124 39. Events subsequent to reporting date ...................................................124 Directors’ Declaration ................................................................................................................125 Independent Auditor’s Report ....................................................................................... 126 Shareholder Information ...................................................................................................... 128 Directory .................................................................................................................................................. 129 22 BOARD OF DIRECTORs RoGeR CoRBeTT, Ao non-exeCuTiVe CHAiRMAn, APPoinTed To THe BoARd 4 FeBRuARy 2003 Mr Corbett was elected Chairman of the Board in October 2009. He has been involved in the retail industry for more than 40 years. In 1984, Mr Corbett joined the Board of David Jones Australia as Director of Operations. In 1990, he was appointed to the Board of Woolworths Limited and to the position of Managing Director of BIG W. In 1999, Mr Corbett was appointed Chief Executive Officer of Woolworths Limited. He retired from that position in 2006. Mr Corbett is a Director of the Reserve Bank of Australia, a Director of Wal-Mart Stores, Chairman of PrimeAg Australia Limited and Chairman of Mayne Pharma Group Limited. He is also Chairman of the Salvation Army Advisory Board (Australian Eastern Territory); a member of the Dean’s Advisory Group of the Faculty of Medicine at the University of Sydney; a member of the Advisory Council of the Australian School of Business; Chairman of the University of New South Wales Centre for Healthy Brain Ageing Advisory Board and a member of the Australian Indigenous Chamber of Commerce Advisory Board. GREGORY HYWOOD exeCuTiVe diReCToR, APPoinTed To THe BoARd (non-exeCuTiVe) eFFeCTiVe 4 oCToBeR 2010 APPoinTed AS Ceo And MAnAGinG diReCToR 7 FeBRuARy 2011 Mr Hywood has enjoyed a long career in the media and government. A Walkley Award winning journalist, he held a number of senior management positions at Fairfax including Publisher and Editor-in-Chief of each of The Australian Financial Review, The Sydney Morning Herald/Sun Herald and The Age. He also held the position of Group Publisher Fairfax magazines. He was Executive Director Policy and Cabinet in the Victorian Premier’s Department between 2004 and 2006, and from 2006 to 2010 was Chief Executive of Tourism Victoria. Mr Hywood is a Director of The Victorian Major Events Company. MICHAEL ANDERSON non-exeCuTiVe diReCToR, APPoinTed To THe BoARd 2 SePTeMBeR 2010 Mr Anderson has had a long career in the radio industry including as Chief Executive of Austereo Limited from 2003 until January 2010. During his time as Chief Executive he focused the company on building strong station brands and adapting the business to the changing media market including building and maintaining market leadership and developing new strategic directions, focusing on target audiences and adapting to increased competition. He launched a nationwide digital network and Australia’s first digital radio station. He has been a leader in adapting radio to the digital era and is a Director of Oztam Pty Limited and Ooh Media. JACK COWIN non-exeCuTiVe diReCToR, APPoinTed To THe BoARd 19 July 2012 Mr Cowin is the Founder and Executive Chairman of Competitive Foods Australia Pty Limited. The company was founded in 1969. Competitive Foods owns and operates over 350 fast food restaurants in Australia, it also operates several food manufacturing plants for the supermarket and food service industries exporting to 29 countries. Mr Cowin is a Director of Network Ten, Director of BridgeClimb and Chandler Macleod Pty Limited, and is on the Board of Directors for Sydney Olympic Park. BOARD OF DIRECTORs FAIRFAX MEDIA LIMITED 2013 23 SANDRA MCPHEE, AM non-exeCuTiVe diReCToR, APPoinTed To THe BoARd 26 FeBRuARy 2010 Ms McPhee is a Director of AGL Energy Limited, Westfield Retail Trust, Kathmandu Holdings Limited and Tourism Australia. Her previous directorships include Australia Post, Coles Group Limited and Perpetual Limited. Prior to becoming a Non- Executive Director, Ms McPhee held senior executive positions in a range of consumer oriented industries including retail, tourism and aviation, most recently with Qantas Airways Limited. JAMES MILLAR, AM non-exeCuTiVe diReCToR, APPoinTed To THe BoARd 1 July 2012 Mr Millar is an experienced Corporate Executive, Advisor and Director of a number of companies and organisations. He is the former Chief Executive Officer and Oceania Area Managing Partner of Ernst & Young and was a member of the Ernst & Young Global Board. His career prior to the leadership roles at Ernst & Young was as a corporate reconstruction professional. Mr Millar is currently a Director of Jetset Travelworld Limited, Mirvac Limited and Fantastic Holdings Limited, as well as a Director, trustee or member of a number of not-for-profit and charitable organisations. He has qualifications in business and accounting and is a Fellow of both the Institute of Chartered Accountants and the Australian Institute of Company Directors. SAM MORGAN non-exeCuTiVe diReCToR, APPoinTed To THe BoARd 26 FeBRuARy 2010 Mr Morgan is the founder, former CEO and now a Director of Trade Me Limited, New Zealand’s largest online transaction site. He is the Chairman of software company Visfleet and a Director of listed online business Xero Limited. Mr Morgan was previously a Director of Sonar6. LINDA NICHOLLS, AO non-exeCuTiVe diReCToR, APPoinTed To THe BoARd 26 FeBRuARy 2010 Ms Nicholls is a Corporate Advisor and Director of a number of leading Australian companies and organisations. She is Chair of KDR (Yarra Trams) and a Director of Sigma Pharmaceutical Group, the Walter and Eliza Hall Institute of Medical Research and Low Carbon Australia Pty Limited. She is a former Chair of Australia Post, former Chair of Healthscope Limited and former Director of St. George Bank Limited. Prior to becoming a professional Director, Mrs Nicholls held senior executive positions in the banking and finance industry. PETER YOUNG, AM non-exeCuTiVe diReCToR, APPoinTed To THe BoARd 16 SePTeMBeR 2005 Over the last 30 years, Mr Young has been an investment banking Executive in Australia, New Zealand and the USA. He is currently the Chairman of Barclays Australia and New Zealand. He was a member of the Royal Bank of Scotland’s Advisory Council in Australia. He also served as Chairman of Investment Banking for ABN AMRO in Australia and New Zealand. From 1998 to 2002, Mr Young was Executive Vice Chairman, ABN AMRO Group (Australia and New Zealand) and Head of Telecommunications, Media & Technology Client Management for Asia Pacific. He is also currently the Chairman of Queensland Investment Corporation, and a Director of PrimeAg Australia and the Sydney Theatre Company, as well as a member of the Queensland Art Gallery Board of Trustees. He is involved in a number of community, environmental and artistic activities. 24 DIRECTORs’ REPORT The Board of Directors presents its report together with the financial report of Fairfax Media Limited (the Company) and of the consolidated entity, being the Company and its controlled entities for the period ended 30 June 2013 and the auditor’s report thereon. DIRECTORS The Directors of the Company at any time during the financial year or up to the date of this report are as follows. Directors held office for the entire period unless otherwise stated. ROGER CORBETT, AO Non-Executive Chairman GREGORY HYWOOD Chief Executive Officer and Managing Director SANDRA MCPHEE, AM Non-Executive Director SAM MORGAN Non-Executive Director LINDA NICHOLLS, AO Non-Executive Director ROBERT SAVAGE, AM Non-Executive Director Resigned 30 June 2012 PETER YOUNG, AM Non-Executive Director MICHAEL ANDERSON Non-Executive Director JAMES MILLAR, AM Non-Executive Director Appointed 1 July 2012 JACK COWIN Non-Executive Director Appointed 19 July 2012 A profile of each Director holding office at the date of this report is included on pages 22 – 23 of this report. DIRECTORs’ REPORT FAIRFAX MEDIA LIMITED 2013 25 COMPANY SECRETARY Gail Hambly was appointed to the position of Group General Counsel and Company Secretary in 1993. Before joining Fairfax Media Limited she practised as a solicitor at a major law firm. She has expertise in commercial and media and communication law. Ms Hambly is a Chair of CopyCo Pty Limited and a Director of Trade Me Limited, Company B Belvoir Limited and Sydney Story Factory. She is a member of the Media and Communications Committee and the Privacy Committee for the Law Council of Australia, a member of the Advisory Board for the Centre of Media and Communications Law at the Melbourne Law School and a member of Chartered Secretaries Australia. She holds degrees in Law, Economics, Science and Arts. CORPORATE STRUCTURE Fairfax Media Limited is a company limited by shares that is incorporated and domiciled in Australia. PRINCIPAL ACTIVITIES The principal activities of the consolidated entity during the course of the financial year were the publishing of news, information and entertainment, advertising sales in newspaper, magazine and digital formats, and radio broadcasting. There were no significant changes in the nature of the consolidated entity during the year other than the matters set out as significant changes in the state of affairs below. CONSOLIDATED RESULT The loss attributable to the consolidated entity for the financial year was $16,432,000 (2012 Loss: $2,732,397,000). DIVIDENDS An interim fully franked dividend of 1 cent per ordinary share and debenture was paid on 20 March 2013 in respect of the year ended 30 June 2013. Since the end of the financial year, the Board has declared a fully franked dividend of 1.0 cent per ordinary share and debenture in respect of the year ended 30 June 2013. This dividend is payable on 17 September 2013. REVIEW OF OPERATIONS Revenue for the Group was lower than the prior year at $2,045 million (2012: $2,225 million). After significant expenses of $144.5 million the Group generated a net loss after tax of $16.4 million (2012: $2,732.4 million). Earnings per share increased to a loss of 0.7 cents (2012: loss $1.16). Further information is provided in the Management Discussion and Analysis Report on pages 54 – 55. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Significant changes in the state of affairs of the consolidated entity during the financial year were as follows: On 23 December 2011, the Company announced that it had entered into an agreement to merge Fairfax Community Network Ltd in Victoria with Metro Media Publishing Pty Ltd. The merger was completed on 13 July 2012 and resulted in the Company holding a 50.01 per cent interest in MMP Holdings Pty Ltd. The Company disposed of its US Agricultural Media business for US$79.9 million on 14 November 2012. On 21 December 2012, the Company disposed of its remaining 51 per cent interest in Trade Me Group Ltd for A$605.5 million net of transaction fees. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The consolidated entity’s prospects and strategic direction are discussed in the Management Discussion and Analysis Report on pages 54 – 55 of this report. Further information about likely developments in the operations of the consolidated entity and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the consolidated entity. ENVIRONMENTAL REGULATION AND PERFORMANCE No material non-compliance with environmental regulation has been identified relating to the 2013 financial year. The Company reported to the Department of Climate Change on the total carbon emissions of the Group generated in the 2012 financial year under the National Greenhouse and Energy Reporting legislation. The Group’s main source of carbon emissions overall was from electricity consumption at its larger sites and total scope 1 and 2 emissions reported was 84,976 (2012: 93,951) tonnes CO2-e. EVENTS AFTER REPORTING DATE The Group undertook a tender offer to repurchase some of its outstanding Senior Notes in July 2013. Acceptances under the tender totalled US$224 million of the outstanding total of US$430 million. The repurchased notes comprised US$25 million of floating rate notes and US$199 million of fixed rate notes. Approximately A$270 million of funds were used to repurchase the Senior Notes through the exercise of US$224 million of existing cross currency swaps. The early redemption of the Senior Notes will result in a $4.6 million gain net of tax recorded in the income statement in the 2014 financial year. 26 DIRECTORs’ REPORT In July 2013, the Group entered into a new loan facility for NZ$40 million. The loan facility is available to the Group until July 2015. On 13 August, the Group entered into an agreement to sell InvestSMART to Australasian Wealth Investments Limited (AWI) for cash consideration of $7 million. The completion of the transaction is dependent on a capital raising process by AWI. REMUNERATION REPORT A remuneration report is set out on pages 29 – 44 and forms part of this Directors’ Report. DIRECTORS’ INTERESTS The relevant interest of each Director in the equity of the Company and related bodies corporate as at the date of this report is: ACQUISITION DISPOSALS CLOSING BALANCE POST YEAR END ACQUISITIONS POST YEAR END DISPOSALS POST YEAR END BALANCE ORDINARY SHARES R Corbett G Hywood* M Anderson J Cowin S McPhee J Millar S Morgan* L Nicholls R Savage P Young ToTAl OPENING BALANCE 99,206 1,682,834 – – 40,220 – 2,090,348 40,387 47,899 131,117 – 200,000 – 3,000,000 70,673 100,000 – 67,371 – – 4,132,011 3,438,044 – – – – – – – – – – – 99,206 1,882,834 – 3,000,000 110,893 100,000 2,090,348 107,758 47,899 131,117 7,570,055 – – – – – – – – – – – – – – – – – – – – – – 99,206 1,882,834 – 3,000,000 110,893 100,000 2,090,348 107,758 47,899 131,117 7,570,055 * Balance includes Trade Me shares which was a related body corporate until 21 December 2012. In the case of retired Directors, the closing balance represents the number of shares at the date the Director retired from the Board. No Director holds options over shares in the Company. DIRECTORS’ MEETINGS The following table shows the number of Board and Committee meetings held during the financial year ended 30 June 2013 and the number attended by each Director or Committee member. BOARD MEETING AUDIT AND RISK NOMINATIONS PEOPLE AND CULTURE SUSTAINABILITY AND CORPORATE RESPONSIBILITY MEETINGS* R Corbett** G Hywood*** M Anderson J Cowin S McPhee J Millar S Morgan L Nicholls R Savage P Young NO. HELD NO. ATTENDED NO. HELD NO. ATTENDED NO. HELD NO. ATTENDED NO. HELD NO. ATTENDED NO. HELD NO. ATTENDED 16 16 16 14 16 15 16 16 – 16 16 16 15 13 16 15 13 15 – 14 4 4 – – – 2 – 4 – 4 4 4 – – – 2 – 4 – 4 – – – – – – – – – – – – – – – – – – – – 6 6 6 3 6 – – – – 3 6 6 6 3 6 – – – – 3 3 3 3 – 3 – 2 – – – 3 3 3 – 3 – 1 – – – * The number of meetings held refers to the number of meetings held while the Director was a member of the Board or Committee. ** Mr Corbett, Chairman, is an ex officio member of all Board committees. *** Mr Hywood attends the Audit and Risk, People and Culture and Sustainability and Corporate Responsibility Committee meetings as an invitee of the Committees. FAIRFAX MEDIA LIMITED 2013 27 DIRECTORs’ REPORT OPTIONS There are no unissued shares under option as at the date of this report. No options over unissued shares were granted during or since the end of the financial year. There were no movements in options during the financial year. No shares were issued during or since the end of the financial year as a result of the exercise of an option. INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS The Directors of the Company and such other officers as the Directors determine, are entitled to receive the benefit of an indemnity contained in the Constitution of the Company to the extent allowed by the Corporations Act 2001, including against liabilities incurred by them in their respective capacities in successfully defending proceedings against them. During or since the end of the financial year, the Company has paid premiums under contracts insuring the Directors and officers of the Company and its controlled entities against liability incurred in that capacity to the extent allowed by the Corporations Act 2001. The terms of the policies prohibit disclosure of the details of the liability and the premium paid. Each Director has entered into a Deed of Access, Disclosure, Insurance and Indemnity which provides for indemnity by the Company against liability as a Director to the extent allowed by the law. There are no indemnities given or insurance premiums paid during or since the end of the financial year for the auditors. NO OFFICERS ARE FORMER AUDITORS No officer of the consolidated entity has been a partner of an audit firm or a Director of an audit company that is the auditor of the Company and the consolidated entity for the financial year. NON-AUDIT SERVICES Under its Charter of Audit Independence, the Company may employ the auditor to provide services additional to statutory audit duties where the type of work performed and the fees for services do not impact on the actual or perceived independence of the auditor. Details of the amounts paid or payable to the auditor, Ernst & Young, for non-audit services provided during the financial year are set out below. Details of amounts paid or payable for audit services are set out in Note 32 to the financial statements. The Board of Directors has received advice from the Audit and Risk Committee and is satisfied that the provision of the non-audit services did not compromise the auditor independence requirements of the Corporations Act 2001 because none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditor’s own work, acting in a management or a decision- making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. A copy of the auditor’s independence declaration under section 307C of the Corporations Act 2001 is on page 28 of this report. During the financial year, Ernst & Young received or were due to receive the following amounts for the provision of non-audit services: Subsidiary company and other audits required by contract or regulatory or other bodies: • Australia $243,809 • Overseas $98,020 Other assurance and non-assurance services: • Australia $225,449. ROUNDING The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report. Amounts contained in the Directors’ Report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. Signed on behalf of the Directors in accordance with a resolution of the Directors. Roger Corbett, Ao Chairman Greg Hywood Chief Executive Officer and Managing Director 22 August 2013 28 AUDITOR’s INDEPENDENCE DECLARATION Ernst & Young 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor’s Independence Declaration to the Directors of Fairfax Media Limited In relation to our audit of the financial report of Fairfax Media Limited for the financial year ended 30 June 2013, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Douglas Bain Partner 22 August 2013 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation REMUNERATION REPORT FAIRFAX MEDIA LIMITED 2013 29 Dear Shareholder On behalf of the Board, I am pleased to present Fairfax Media’s 2013 Remuneration Report. OUR REACTION TO CHANGES IN OUR MARKET Fairfax Media has not stood still in another challenging year for the media business. We have confronted the fundamental changes in the media market and developed a strategy that we believe will deliver a lean and agile Fairfax Media in a highly competitive market. We are implementing our transformation strategy. Through this transition, Fairfax Media has moved its organisational focus from print to digital and has profitable cash positive newspapers. The 2013 financial year has been a time of real progress on the critical milestones to achieving the business transformation we have previously announced. We have: • consolidated our core Australian publishing businesses into a single unit, Australian Publishing Media, which is removing duplication from our business and driving revenue; • launched the compact editions of the weekday Sydney Morning Herald and The Age, so as to enable printing plant rationalisation; • established Domain as a standalone operation recognising the significance of the real estate sector and Domain’s strong position in this sector; • • formed the Digital Ventures unit to maximise the full potential of our digital transaction businesses such as Stayz and RSVP and to grow new digital opportunities; reduced our cost structure significantly; reflected in the $251 million in savings we have previously announced, plus an additional $60 million in savings including the restructure of Australian Publishing Media; • begun a comprehensive product review to do those things that we do well and profitably and not do those things that are not efficient or that are not part of our core business; and • begun new revenue generation initiatives across our business including a focus on leveraging our mastheads and powerful brands in the growing business of events. We have advised the market that traditional print advertising revenue continues to decline. The transition from a traditional print media company to a cross-platform business is not instantaneous. We are confident that we are on a path that will lead us to maximise the opportunities available to a company with our brands, reputation and people. We believe this will generate competitive returns for our shareholders over the medium to long term. But we acknowledge that short term returns to shareholders have suffered through this transition. This development has been reflected in 2013 remuneration and in a comprehensive review of incentive arrangements for 2014 and beyond. REMUNERATION IN THE 2013 FINANCIAL YEAR In the 2013 financial year, a year of challenges and of change: • • the majority of senior executive salaries were frozen as were fees paid to Non-Executive Directors. The Chairman also fulfilled his commitment made at the last AGM and agreed to a reduction in his fees from $432,730 per annum to $396,760; there will be no annual bonuses paid to senior executives for 2013, unless there was a pre existing contractual payment commitment; and • the long term incentives, granted previously and tested at the end of the performance period this year, did not vest. This report provides details of our remuneration practices and the incentive plans in place in the 2013 financial year. We also want to share with you what we plan to do for the 2014 financial year and beyond. REMUNERATION 2014 AND BEYOND The Board has gone back to the drawing board to design a ‘fit for purpose’ remuneration plan that is better reflective of the journey we are asking our shareholders to go on with us in this period of consolidation and transformation followed by the emergence of a new Fairfax Media. The plan recognises that: 30 REMUNERATION REPORT • the transformation journey we are on is not a short one, meaning that while we are positioning ourselves for the future, it may take a little while for the transformation to be reflected in significantly improved shareholder returns; • we now have a smaller, highly dedicated and skilled team of the best people to lead Fairfax on this journey; and • as our business evolves, our current remuneration structure has become less relevant for the Fairfax of tomorrow. In the 2014 financial year, as the Board and management continues the hard work required to deliver on our strategy and to transform your company: • the vast majority of our senior executives will not receive any increase in fixed remuneration; • our most senior executives have volunteered to sacrifice 10% of their fixed remuneration to purchase Company shares. The shares will be restricted for two years. Further details of this are set out in the Remuneration Report; • Non-Executive Directors have agreed to a reduction of 10% in their base fees from 1 July 2013; • our existing short term and long term incentive plans will be replaced with a single transformation incentive scheme. The new scheme will comprise two components for our most senior executives in the 2014 financial year, a proportion of long term options and a smaller proportion of deferred performance shares granted at the end of the year for achieving milestones in the year as follows: • in order to align the majority of the incentive with growth in shareholder returns, options will be granted following our 2013 AGM with an exercise price set at that time. These options will only vest if the absolute total shareholder return growth performance condition is satisfied. This condition will be tested between July 2016 and June 2017. Performance conditions are set out in the following Remuneration Report; • a smaller percentage of incentive opportunity will be in the form of deferred performance shares. These shares will be granted for achieving annual milestones in the transformation strategy. These milestones will be set at the start of each year by the Board in line with the strategic plan. These milestones are set to reflect specific accountabilities for our management including variously revenue, earnings, market share and cost reduction targets at Group and/or business level. The specific targets are currently being finalised for 2014 and we will report on achievements against these targets and the associated outcomes in our 2014 Remuneration Report; and • in order to align the value of these rewards with our longer term prospects, half of the shares granted following testing of performance in 2014 will be deferred for 12 months (i.e. until 2015) and the other half for two years (i.e. until 2016). The shares will be forfeited if the executive resigns or is terminated for poor performance during the deferral period. The Board is confident that this new remuneration structure better aligns executive rewards with our shareholders and provides an appropriate incentive to deliver our strategy. We hope shareholders will see that the Board has not stood idle in the face of the dramatic change in the media industry. Our 2013 financial year remuneration outcomes, notwithstanding a lot of hard work from all of our employees, reflect our financial performance in the year. As shareholders will be aware, last year we received a ‘first strike’ under the Corporations Act, as more than 25 per cent of the votes cast in relation to our Remuneration Report were against the non-binding resolution. Accordingly, this year a ‘second strike’ would cause us to propose a motion at the AGM to spill your Board. Our 2014 financial year remuneration structure is designed to support our strategy of building the Fairfax of tomorrow. Your Board ask that you support our remuneration policies and practices by voting in favour of this Report at our 2013 AGM. Yours faithfully Sandra McPhee, AM Chair – People and Culture Committee REMUNERATION REPORT (AUDITED) FAIRFAX MEDIA LIMITED 2013 31 1. INTRODUCTION This report forms part of the Company’s 2013 Directors’ Report and sets out the Fairfax Group’s remuneration arrangements for ‘key management personnel’ (KMP) in accordance with the requirements of the Corporations Act 2001 and its regulations. KMP comprises Directors and members of the senior executive team who have authority and responsibility for planning, directing and controlling the activities of the Fairfax Group. At the 2012 Annual General Meeting the Company received a ‘first strike’ under the Corporations Act as more than 25% of votes cast in relation to the Remuneration Report were cast against the non-binding resolution. Accordingly, at the 2013 Annual General Meeting, a ‘second strike’ will cause the Company to propose a motion at that Annual General Meeting to spill the Board. The Board has subsequently changed the executive incentive plans as set out below. 2. REMUNERATION FRAMEWORK AND GOVERNANCE 2.1 ReMuneRATion PRinCiPleS And FRAMeWoRk 2013 And 2014 CHAnGeS FAIRFAX MEDIA EXECUTIVE REMUNERATION FRAMEWORK The objectives of the Company’s executive remuneration framework are to align executive remuneration with the achievement of strategic objectives, the creation of value for shareholders, and to have regard to market so as to be able to attract and retain key people. The People and Culture Committee (P&CC) assists the Board to achieve the goal that the executive remuneration framework address the following: • attract, retain and motivate talented, qualified and experienced people in the context of industry changes over recent • years, and the market in which Fairfax is currently operating; fairly remunerate and reward for achievement of Group strategic milestones, with incentive payments deferred to promote alignment with shareholder interests; • align remuneration with achievement of business strategy; and • be transparent and fair. The executive remuneration framework comprises a mix of fixed and performance-based components. Fixed remuneration package Performance Incentives • • • • includes cash, superannuation and any benefits employees choose to salary sacrifice (eg motor vehicle and parking) represents the total fixed cost to the Company including fringe benefits tax payable in recognition of Group financial performance in recent years, most senior executives’ fixed remuneration has been frozen for 2014 executive KMP have volunteered to sacrifice 10% of fixed remuneration into restricted shares • short term incentive (STI) payments subject to annual financial performance of the Company, as well as specific strategic and operational objectives relevant to the executive • on recommendation from the CEO, the P&CC reviews and approves STI payments and the key performance indicators for the following year • • financial gateway for FY13 STI was not met, and therefore no payments made for that year for FY13 and prior, long term incentive linked to performance against total shareholder return and earnings per share conditions over 3 years • prior years' LTI vesting criteria were tested following end of FY13 and not met, therefore no LTI awards for prior years which have reached the vesting date will vest • for 2014 new incentive plan to be implemented 32 REMUNERATION REPORT (AUDITED) 2.2 ReMuneRATion GoVeRnAnCe The Board’s goal is that Fairfax’s executive remuneration strategy align with Company performance and shareholder interests. Importantly, the Board is focused on delivering a remuneration framework that attracts and retains the right executive team to set and deliver upon company strategy, and that remuneration arrangements support achievement of that strategy and growth in shareholder value. The P&CC, comprising solely of Non-Executive Independent Directors, assists the Board in discharging its duties. The members of the P&CC during 2013 were: • Sandra McPhee (Chair); • Roger Corbett; • Michael Anderson; • Peter Young (member until 6 December 2012); and • Jack Cowin (member from 6 December 2012). The CEO, CFO, Group General Counsel/Company Secretary and Group Director Human Resources attend P&CC meetings as invitees except when their own performance or remuneration arrangements are being discussed. The Board has a formal Charter for the P&CC which sets out the responsibilities, composition and meeting rules of the Committee. The Committee’s primary responsibilities include making recommendations in relation to Director and executive remuneration, that support the remuneration strategy, and the performance conditions that underpin it, to promote the achievement of the Group’s strategy. Further details of the role and responsibilities of the Committee are set out in its Charter, which is available on the Fairfax Media website; www.fairfaxmedia.com.au The P&CC’s key focus during the 2013 financial year was to review the Group’s remuneration arrangements during the year in the context of the industry changes over recent years, and the market in which Fairfax is currently operating. Further details of the outcomes of the review are set out in Section 3, below. The Committee engages independent remuneration consultants to provide advice and information regarding market relativities as required. During the year jws consulting was engaged by the Committee to assist with the review outlined above. As part of that engagement jws consulting provided remuneration recommendations in relation to the Group’s incentive plan arrangements, fixed remuneration and Non-Executive Director fee levels. As required to be disclosed by the Corporations Act, within the context of the work described above, fees paid to jws consulting for the remuneration recommendations were $65,000 (excluding GST) and the fees for other advice were $22,000 (excluding GST). In addition to the above, advice was also provided by PricewaterhouseCoopers on market trends on short term incentive gateways and clawback provisions. Fees for this work were $13,000 (excluding GST). jws consulting and PricewaterhouseCoopers have provided confirmation that the recommendations provided were free from ‘undue influence’ by the members of the KMP to whom the recommendations related and, based on these confirmations, the Board is satisfied that the recommendations were made free from any undue influence. REMUNERATION REPORT (AUDITED) FAIRFAX MEDIA LIMITED 2013 33 2.3 ReMuneRATion Mix The Board considers that a significant proportion of executive remuneration should be ‘at risk’, and linked to Fairfax’s short and long term strategy and performance. The following diagram shows senior executives’ remuneration mix for the 2013 financial year. CEO 45% 33% 22% CFO 54% 24% 22% OTHER KMP EXECUTIVES 57% 26% 17% Fixed STI (on-target) LTI (max) 0 20 40 60 80 100 3. SUMMARY OF EXECUTIVE REMUNERATION OUTCOMES FOR 2013 The media market and, in particular, the print media business has had another challenging year. Market conditions remain difficult, and traditional print advertising revenue continues to decline. 2013 saw Fairfax implement a number of cost saving initiatives and continue to implement its strategy to respond to industry changes, but the transition from a traditional print media company to a cross-platform business is not instantaneous. In this year of challenges and change and consistent with the impact on our shareholders: • senior executive salaries remained frozen unless there was a substantial role change; • no annual bonuses were paid to senior executives because short term incentives did not meet the required financial gateway, unless there was a contractual pre-existing obligation; and • the long term incentives, granted in prior years and tested at the end of their performance periods this year, did not vest. The detailed remuneration tables set out in Section 6.3 show full details of KMP remuneration for the 2013 financial year. Numbers include the expense relating to equity instruments under the LTI, as required by the Accounting Standards notwithstanding that these amounts were not actually delivered to executives. The following table has been included voluntarily to provide a better understanding of the amounts actually received by current KMP (as set out in section 5) for each component of remuneration during the 2013 financial year. Table 1 NAME Greg Hywood David Housego (1) Gail Hambly Allen Williams (2) FIXED REMUNERATION (3) 1,611,239 491,089 635,830 189,934 BONUS – 100,000 – – LTI – – – – TOTAL 1,611,239 591,089 635,830 189,934 1) David Housego commenced with the Company in the role of Chief Financial Officer (CFO) on the 3 December 2012 (with an annual fixed remuneration of $825,000). As part of his recruitment arrangements Mr Housego was entitled to a one off payment of $100,000 at the end of the FY13 subject to performance objectives being achieved. 2) Allen Williams commenced as Managing Director Australian Publishing Media on 4 April 2013 (with an annual fixed remuneration of $775,000). Prior to this Mr Williams was the CEO of Fairfax New Zealand. 3) Fixed remuneration comprises of base pay, superannuation and long service leave. In addition, over the prior two financial years: • STI payments have been below on-target performance; and • no LTI awards vested. 34 REMUNERATION REPORT (AUDITED) 4. EXECUTIVE REMUNERATION CHANGES FOR 2014 The Board, through the P&CC, undertook a comprehensive review of the Group’s remuneration arrangements during the year in the context of the industry changes and the market in which Fairfax is currently operating. The Board recognises that, at this pivotal point in the Company’s life cycle, the remuneration and incentive framework needs, more than ever, to be generally market competitive (to guard against key people leaving the business) and to drive a performance culture, encouraging and rewarding the achievement of milestones in the transformation strategy. The review confirmed that the current remuneration arrangements are not appropriate to motivate executives to achieve the transformation proposed over the coming years, the current performance metrics, in particular, do not support achievement of the transformational objectives. The Board, however, is acutely aware of the position of shareholders and the levels of return over recent years. Accordingly, a key objective of the review was to achieve a remuneration framework that rewards performance, but ensures that such reward is aligned with shareholder interests. The key considerations and outcomes from the review in respect of remuneration arrangements for the executive KMP are set out in the following table: Table 2: Findings from review REMUNERATION COMPONENT KEY CONSIDERATIONS AND FINDINGS FROM REVIEW OUTCOMES AND FY14 CHANGES Fixed remuneration • More than ever, Fairfax needs to attract and retain high calibre executives to transform the Company. • Particularly in the context of the transformation journey that is ahead and as a result of previous incentive grants not vesting and the consequent retention risk, fixed remuneration plays an even greater role in attracting and retaining the right people. incentives • The current incentive plans are not valued by executives and are not achieving their purpose of providing an incentive to achieve organisational objectives. • A ‘fit for purpose’ incentive is required to reward the most senior executives if they achieve turning around the performance of the Company. • Steps in the transformation are designed to translate into enhancement of shareholder wealth over time. • The Board recognises loss of shareholder wealth over recent years. • No fixed remuneration increases for FY14 for executive KMP. • Key management personnel have agreed to sacrifice 10% of their fixed 2014 remuneration into shares in Fairfax which are restricted for two years. At the end of two years, if participants in the salary sacrifice plan are still employed by the Company then the Company would provide one additional “bonus” share for every five shares purchased from the participants salary sacrifice. • The salary sacrifice is intended to reduce cash remuneration payable, while still providing a benefit to executives aligned with shareholder benefits. • No further grants will be made under existing short term and long term incentive plans. • Replacing the existing plans is a single transformation incentive scheme to be implemented for FY14 (the Fairfax Transformation Incentive Plan (“FTIP”)). • The new scheme provides the issue of long term options that are exercisable only if shareholder wealth objectives are achieved. • A smaller proportion of deferred performance shares will be granted at the end of FY14 if specific business metrics linked to the transformation of the Company have been achieved. • Rewards under the FTIP will be delivered in equity (i.e. no cash outlay) in order to further incentivise growth in shareholder wealth. • Any deferred performance shares earned in initial years are deferred, so that executives do not become entitled to access the equity until later in the transformation process. • Further detail as to how the Transformation Incentive Plan will operate is set out below. The Board is confident that this new remuneration structure better aligns executive rewards with our shareholders over the medium and longer term and provides an appropriate incentive to deliver our strategy. REMUNERATION REPORT (AUDITED) FAIRFAX MEDIA LIMITED 2013 35 The new scheme will comprise two components for our most senior executives in the 2014 financial year: 1. a proportion of long term options; and 2. a smaller proportion of deferred performance shares granted at the end of the year for achieving milestones in the year: • in order to align the majority of the incentive with growth in shareholder returns, options will be granted following our 2013 AGM with an exercise price set at that time. These options will only vest if the absolute total shareholder return growth performance condition is satisfied. This condition will be tested between July 2016 and June 2017. Performance conditions are set out below; • • a smaller percentage of incentive opportunity will be in the form of deferred performance shares. These shares will be granted for achieving annual milestones in the transformation strategy. These milestones will be set at the start of each year by the Board in line with the strategic plan. These milestones are set to reflect specific accountabilities for our management including variously revenue, earnings, market share and cost reduction targets at Group and/or business level. The specific targets are currently being finalised for 2014 and we will report on achievements against these targets and the associated outcomes in our 2014 Remuneration Report; and in order to align the value of these rewards with our longer term prospects, half of the shares granted following testing of performance in 2014 will be deferred for 12 months (i.e. until 2015) and the other half for two years (i.e. until 2016). The shares will be forfeited if the executive resigns or is terminated for poor performance during the deferral period. The following diagram shows how the scheme will operate and the objectives that it aims to achieve. In order to align the majority of the reward with growth in our share price, options will be granted following our 2013 AGM with an exercise price set at that time and that will be subject to an absolute total shareholder return growth performance condition that must be satisfied before they vest. This condition will be tested between July 2016 and June 2017 July’13 July’14 July’15 July’16 Jan’17 July’17 70% Majority of award delivered in Options Vesting subject to achievement of longer term shareholder wealth objectives 30% Remainder delivered in Performance Shares, subject to achievement of transformational objectives If transformational objectives met, Performance shares granted, subject to deferral 50% become unrestricted 50% become unrestricted In order to align the value of these rewards with our longer term prospects, half of the shares granted following testing of performance in 2014 will be deferred for 12 months and the other half for two years. The shares will be forfeited if the executive resigns or is terminated for poor performance during the derral period. 1ST TEST 2ND TEST 3RD TEST In order to provide a degree of market competitive remuneration to our key people, deferred performance shares will be granted for achieving annual milestones in transformation strategy. These milestones will be: • • set at the start of each year by the Board in line with the long range strategy (and any refinement of that strategy) set in line with specific accountabilities for our management and reflect variously revenue, earnings, market share and cost reduction targets at Group and/or business level reported (both targets and the associated outcomes) in our 2014 Remuneration Report • • under the new plan the KMP participants have an opportunity to earn up to the equivalent of 200% of their fixed remuneration in allocations of a combination of options and deferred performance shares. 36 REMUNERATION REPORT (AUDITED) oPTionS HuRdleS: ABSoluTe TSR Following consideration of the likely forms by which shareholder wealth may be generated by Fairfax over the next three years (share price growth, ‘ordinary’ dividends and potentially ‘special’ distributions in the form of dividend or capital returns), the performance hurdle to apply to the vesting of the options is absolute total shareholder return growth (“Absolute TSR”). Absolute TSR will measure growth in shareholder wealth over the applicable performance period as it measures both share price growth as well as dividends to shareholders. The applicable compound annual growth rates hurdles for the Absolute TSR are set out in the table below. PERFORMANCE % EXERCISABLE ABSOLUTE TSR GROWTH Threshold Target Stretch 25% 50% 100% 15% CAGR 20% CAGR 25% CAGR The Board has discretion to deem the performance conditions not met if vesting would otherwise only occur as a result of extraneous factors, for example the effect of sustained speculation regarding a takeover bid for the Company on the share price, which are not, in the reasonable opinion of the Board, reflective of the quality of the Company’s performance. HuRdleS FoR deFeRRed PeRFoRMAnCe SHAReS Proposed metrics aligned with the business transformation strategy during 2014 are designed to drive financial growth for shareholders over time. By the end of 2016/17 the Company should effectively be through most of the transformation work. It should have achieved a smaller and more variable cost base; significant transition to a predominantly digital future for major mastheads; a viable digital business in regional; established revenue adjacencies; Domain and Radio should be substantially larger businesses; and we should have optimised our portfolio of digital and transactional businesses. The specific initiatives set as the target for each of the 2014, 2015 and 2016 years will be different and will have potentially different weighting between the years. The intention is that the delivery of each of the targets in each year should deliver the overall transition by 2016/17. Appropriate metrics will be set at the start of each new financial year. This aims to ensure that, as the transition develops, there will be enough flexibility to respond along the way and moderate, change or introduce new measures that will give confidence that the plan will operate effectively. All measures will be clearly defined and measurable. FACiliTy FoR kMP SAlARy SACRiFiCe inTo SHAReS Executive KMP members have voluntarily agreed to salary sacrifice 10% of their fixed remuneration for the purchase of Company shares in 2014. In order to recognise that executives who elect to participate in the salary sacrifice have given up some of their cash remuneration entitlement to have ‘skin in the game,’ the Company provides a part matching offer. Pursuant to this offer, at the end of two years, assuming that the participant in the salary sacrifice plan is still employed by Fairfax, the Company would provide 1 additional ‘bonus’ share for every 5 shares acquired under the salary sacrifice arrangements. 5. KEY MANAGEMENT PERSONNEL (KMP) During the financial year, the business undertook an organisational restructure which resulted in a number of changes to roles and responsibilities. This resulted in a change in the people having authority and responsibility for planning, directing and controlling the organisation. The key management personnel (KMP) for the financial year are set out in Table 3. REMUNERATION REPORT (AUDITED) FAIRFAX MEDIA LIMITED 2013 37 Table 3 NAME non-executive directors Roger Corbett Michael Anderson Jack Cowin Sandra McPhee James Millar Sam Morgan Linda Nicholls Peter Young executive director Greg Hywood other executives David Housego Gail Hambly Allen Williams Former executives Brian Cassell ROLE Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer Chief Financial Officer (effective from 3 December) Group General Counsel/Company Secretary Managing Director, Australian Publishing Media Chief Financial Officer (until 3 December) 6. REMUNERATION OF EXECUTIVE KMP 6.1 PeRFoRMAnCe-BASed SHoRT-TeRM inCenTiVeS (“BonuS PAyMenTS”) FoR SenioR exeCuTiVeS As the 2013 incentive gate target was not met, no STI is payable to KMP for the financial year. The Board reviewed the Group’s STI arrangements during the year and determined to wind up the existing Plan. The following table sets out how the Group’s STI arrangements operated during the 2013 financial year. Table 4 DETAIL OF 2013 STI ARRANGEMENTS What is the STi? What were the performance measures and why were they chosen? Annual bonus payments for senior executives with an emphasis on the achievement of annual financial performance criteria for the Group as well as specific strategic and operational criteria. For key senior executives other than the CEO, the bonus criteria were set by the P&CC. Bonus criteria for the CEO were set by the Board. For the 2013 financial year, an incentive gate applied which required a threshold level of financial performance to be achieved before any bonuses became payable. The incentive gate was set at the achievement of the Group’s budgeted EBIT. This was not achieved in 2013 so no STI was paid. Three components applied in respect of FY13. LEVEL Corporate Level (50%) Business Unit Level (25%) Strategic Level (25%) COMPONENT drives corporate financial results (EBIT) and encourages senior management to work together for the overall benefit of the Group drives business unit financial and other operational metrics to encourage team behaviour (e.g. EBIT, cost reductions, audience, market position and revenue) indicators of future Group, business unit and personal success (delivery against milestones and personal development) to drive the delivery of the Corporate strategy. What could executives earn under the STi? Each senior executive had a target opportunity depending on the accountabilities of the role and impact on Company or business unit performance. There are two levels of performance: PERFORMANCE LEVEL OPPORTUNITY “on-target” performance – e.g. for EBIT the “on- target” performance is typically achievement of budget or prior year “maximum” performance – requires stretching performance targets to be met. CEO – 75% of fixed remuneration Other executive KMP – 45% of fixed remuneration CEO – 150% of fixed remuneration Other executive KMP – 90% of fixed remuneration 38 REMUNERATION REPORT (AUDITED) DETAIL OF 2013 STI ARRANGEMENTS did the STi provide for deferral? How is performance then assessed? To what extent were performance conditions met during the year? The STI provided for a cash payment and a component deferred into shares (Deferred Component). Any amounts earned from the Strategic component and 50% of any amounts earned above “on-target” performance for Corporate and Business Unit performance would be deferred into shares. The balance of the bonus is paid to the senior executive as cash. Any Deferred Shares awarded are required to be held in the Trust for two years (as the STI has been earned by the executive, dividends are paid on the shares during this period). Commencing in the 2013 financial year, the Deferred Component was subject to a claw-back provision. This means that the Board may exercise its discretion to reduce or cancel shares subject to trading restrictions in fairness to all parties where a senior executive has engaged in fraud or gross misconduct, or where material risk or financial-related information has come to light since the grant of the deferred equity and the Board subsequently considers that the initial grant was not justified. As the financial gateway was not met for FY13, no Deferred Shares were awarded. At the end of the financial year, actual performance is assessed against the measures set at the beginning of the year. The 2013 incentive gate target was not met and therefore no short term incentives were paid to executives in respect of the financial year. In the 2013 financial year, the KMP performance based short-term incentive opportunity and outcomes are set out below: SuMMARy oF THe STi FoR THe 2013 FinAnCiAl yeAR Table 5 NAME Greg Hywood David Housego (2) Brian Cassell Gail Hambly Allen Williams MAXIMUM OPPORTUNITY -PERFORMANCE-BASED SHORT-TERM INCENTIVES (1) % OF MAXIMUM OPPORTUNITY EARNED % OF MAXIMUM OPPORTUNITY FORFEITED 150% 90% 90% 90% 90% 0% 23% 0% 0% 0% 100% 77% 100% 100% 100% 1) As a percentage of Fixed Remuneration. 2) As part of his recruitment arrangements Mr Housego was entitled to a one off payment of $100,000 at the end of the FY13 subject to achievement of performance goals. 6.2 lonG TeRM equiTy-BASed inCenTiVe SCHeMe (lTi) The 2009 LTI grant was tested at the end of the performance period this year, and did not vest. The Board reviewed the Group’s LTI arrangements during the year, and determined to wind up the Plan as it currently operates. The following table sets out how the Group’s LTI arrangements operated during the 2013 financial year. Table 6 DETAIL OF LTI ARRANGEMENTS What was the lTi and who participates? Senior executives whose roles and skills are critical to the strategy of the Group were eligible to participate in the Company’s equity-based LTI. The LTI aims to reward executives for creating growth in shareholder value. How is the lTi grant determined? For 2013, participants in the LTI received an allocation of performance rights (rights) which allow the executive to acquire shares for no consideration subject to achievement of the performance hurdles. No dividends are payable to participants on the unvested rights. The number of rights to which a participant is entitled depends on the participant’s role and responsibilities. Allocations were set at a fixed percentage of the executive’s Fixed Remuneration at the time they participate in the LTI scheme. The value of the rights at the time of allocation is determined by an independent external valuer. In the allocations for the 2008 to 2012 financial years, participants in the LTI received an allocation of Company shares. The shares were allocated to the executives and held by the trustee in trust until the performance conditions are met and the allocation vests, or is forfeited. Details of these awards are set out in the Company’s 2012 remuneration report available at www.fairfaxmedia.com.au REMUNERATION REPORT (AUDITED) FAIRFAX MEDIA LIMITED 2013 39 DETAIL OF LTI ARRANGEMENTS What is the performance period? What are the performance hurdles? Three years. For allocations prior to 2013, if an allocation does not vest at the end of the three year period, a re-test of the performance hurdles will occur at the end of the fourth. This re-test was removed in respect of the 2013 allocation. Two performance hurdles apply to the 2013 allocation, both linked to the Company’s return to shareholders. Fifty percent of the allocation will vest on achievement by the Company of the total shareholder return (TSR) target. TSR will be measured against the S&P/ASX 300 Consumer Discretionary Index and vest as described in the table below TSR PERFORMANCE Below 50th percentile 50th percentile 50th to 75th percentile Above 75th percentile % OF ALLOCATION THAT VESTS Nil 50% of allocation Vest on a straight line basis 100% The other 50% of the allocation will vest if the Company achieves the earnings per share (EPS) target. EPS will be measured by the compound annual growth rate (CAGR) of the Company’s EPS and vesting will be according to the table below: EPS PERFORMANCE Less than 7% CAGR 7% CAGR 7% to 10% CAGR 10% CAGR or above % OF ALLOCATION THAT VESTS Nil 25% Vest on a straight line basis 100% The base case to be used for the EPS performance hurdle test for the 2013 allocation of rights will be the underlying 2012 financial year EPS of 8.7 cents per share as set out in the Fairfax Media 2012 Annual Report. Underlying EPS is calculated excluding significant items which are set out in note 4 to the 2012 financial year audited accounts. In order to be consistent, underlying EPS will also be used at the test date. What happens in the event of a change of control? The Board has discretion regarding vesting. What happens if the executive ceases employment? If an executive resigns, unvested allocations will, in general, be forfeited. On termination for misconduct, allocations will be forfeited. If an executive is terminated without cause, for example made redundant or dies or is permanently disabled, then vesting will be at the Board’s discretion STATuS And key dATeS – unVeSTed lTi SCHeMe Table 7 GRANT DATE AWARD INSTRUMENT 18 January 2008 Performance Shares 26 August 2008 Performance Shares 23 June 2010 Performance Shares 17 November 2010 Performance Shares 13 September 2011 Performance Shares PERFORMANCE TESTING WINDOW EXPIRY DATE (IF HURDLE NOT MET)* AWARD STILL ELIGIBLE FOR VESTING? 1 July 2007 – 30 June 2010 1 July 2008 – 30 June 2011 1 July 2009 – 30 June 2012 1 July 2010 – 30 June 2013 1 July 2011 – 30 June 2014 30 June 2011 30 June 2012 30 June 2013 No.** No.** No.** 30 June 2014 In re-testing period. 30 June 2015 Base EPS was FY10 = 11.8c. Retest minimum target FY14 = 15.5c Performance testing window not yet commenced Base EPS FY11 = 11.6c. Three year test minimum FY14 = 14.2c. Minimum retest FY15 = 15.2c 40 REMUNERATION REPORT (AUDITED) GRANT DATE AWARD INSTRUMENT 31 October 2012 Performance Rights PERFORMANCE TESTING WINDOW 1 July 2012 – 30 June 2015 EXPIRY DATE (IF HURDLE NOT MET)* 30 June 2016 AWARD STILL ELIGIBLE FOR VESTING? Performance testing window not yet commenced. Base EPS FY12 = 8.7c. Three year test minimum FY15 = 10.7c. Minimum retest FY16 = 11.4c. * Retest of conditions performed in the fourth year in respect of LTI allocations prior to 2013, if performance hurdle is not met in the initial performance testing window. Performance is re-tested over the 4 year period. ** Shares have been forfeited. 6.3 ReMuneRATion oF key MAnAGeMenT PeRSonnel This table sets out details of remuneration during the financial year. Table 8 G Hywood – Chief Executive Officer D Housego – Chief Financial Officer (1) G Hambly – Group General Counsel & Company Secretary A Williams – Managing Director Australian Publishing Media (2) B Cassell – Chief Financial Officer (3) C Maher – Director of Strategy and Corporate Development (4) (5) A Lam-Po-Tang – Chief Information Officer and Director Group Services (4) M Williams – Group Director Human Resources (4) ToTAl BASE SALARY, TERMINATION & OTHER BENEFITS CASH BONUS SUPER- ANNUATION LONG SERVICE LEAVE EXPENSE TOTAL EXCLUDING SHARES/RIGHTS VALUE OF SHARES/ RIGHTS (6) TOTAL INCLUDING SHARES/RIGHTS 2013 2012 2013 2013 2012 2013 2013 2012 2012 1,575,000 1,551,846 – 420,000 464,166 100,000 554,210 542,189 184,083 – 190,000 – 274,411 726,847 – 225,000 337,174 110,000 25,000 48,077 26,923 70,790 69,235 2,885 9,615 48,077 28,916 11,239 5,084 1,611,239 2,025,007 371,468 333,548 – 591,089 250,556 1,982,707 2,358,555 841,645 10,830 29,486 2,966 14,654 24,167 10,910 635,830 830,910 189,934 298,680 1,024,091 487,000 82,366 107,360 125,537 (79,828) 138,989 47,483 718,196 938,270 315,471 218,852 1,163,080 534,483 2012 217,361 150,000 19,562 – 386,923 – 386,923 2012 306,768 95,000 26,316 18,520 446,604 38,063 484,667 2013 2012 3,051,870 3,682,185 100,000 1,190,000 135,213 240,183 39,689 88,167 3,326,772 5,200,535 750,099 665,443 4,076,871 5,865,978 1) D Housego commenced with the Company in the role of Chief Financial Officer (CFO) on the 3 December 2012 (with an annual fixed remuneration of $825,000). As part of his recruitment arrangements Mr Housego was entitled to a one off payment of $100,000 at the end of FY13 subject to achievement of performance goals. 2) A Williams met the definition of a KMP on his appointment as Managing Director Australian Publishing Media on 4 April 2013 (with an annual fixed remuneration of $775,000). Prior to this Mr Williams was the CEO of Fairfax New Zealand. 3) B Cassell retired from the position of CFO on 3 December and was no longer deemed to be KMP. 4) Following the structural changes within the group this person no longer met the definition of a KMP since 25 June 2012. 5) C Maher resigned on 12 October 2012. 6) Amount includes the amortised cost of the fair value of rights to shares issued but not yet vested. Credits relate to the reversal of the prior years amortised cost following forfeiture due to departure. No Deferred Component of the annual bonus was paid. REMUNERATION REPORT (AUDITED) FAIRFAX MEDIA LIMITED 2013 41 RiGHTS GRAnTed To exeCuTiVeS WHo ARe key MAnAGeMenT PeRSonnel duRinG THe PeRFoRMAnCe yeAR Table 9 G Hywood – Chief Executive Officer D Housego – Chief Financial Officer G Hambly – Group General Counsel & Company Secretary A Williams – Managing Director Australian Publishing Media PERFORMANCE CONDITION(1) NUMBER OF RIGHTS GRANTED(2) FAIR VALUE PER RIGHTS(3) MAXIMUM VALUE OF GRANT(4) TSR EPS TSR EPS TSR EPS TSR EPS 4,444,444 4,444,444 1,833,333 1,833,333 1,041,667 1,041,667 918,562 918,562 $0.08 $0.35 $0.09 $0.40 $0.09 $0.40 $0.09 $0.40 $355,556 $1,555,555 $1,911,111 $165,000 $733,333 $898,333 $93,750 $416,667 $510,417 $82,670 $367,425 $450,095 The maximum value of unvested shares in the LTI plans for FY10, FY11, and FY12 is $1,971,843. The minimum total value of all unvested shares for all plan years is nil. 1) LTI rights are subject to performance hurdles that are outlined in section 6.2. Rights to LTI shares lapse where the applicable performance conditions are not satisfied on testing. As the LTI rights only vest on satisfaction of performance conditions which are to be tested in future fiscal periods, fiscal 2013 LTI shares have not yet been forfeited or vested. 2) The rights granted to Executives constituted their full LTI entitlement for fiscal 2013 and were made on 17 September 2012 and 24 October 2012 for the CEO subject to the terms summarised in section 6.2. 3) Fair value per LTI share was calculated by independent consultants PwC as at the grant date of 17 September 2012 and 24 October 2012. 4) The maximum value of the grant has been estimated based on the fair value per instrument. The minimum total value of the grant is nil (this assumes none of the applicable performance conditions are met). The maximum value has been calculated to be nil for Executives who have departed during the period. 6.4 ReTiReMenT BeneFiTS FoR exeCuTiVeS Except for a very small number of long serving executives who are members of a defined benefit superannuation plan, retirement benefits are delivered through contribution accumulation superannuation plans. The defined benefit funds (which are closed to new entrants) provides defined lump sum benefits based on years of service, retirement age and the executive’s remuneration at the time of retirement. 6.5 loAnS To diReCToRS And key MAnAGeMenT PeRSonnel During the year ended 30 June 2013, there were no loans to Directors or to key management personnel (2012: nil). 6.6 HedGinG RiSk on SeCuRiTieS FoRMinG PART oF ReMuneRATion The rules of the Fairfax Employee Share Plans prohibit employees from creating any encumbrance on unvested share rights. Under the Board approved Fairfax Securities Trading Policy, the Directors and certain senior employees are not permitted to enter a financial transaction (whether through a derivative, hedge or other arrangement) which would operate to limit the economic risk of an employee’s holding of unvested Company securities which have been allocated to the employee as part of his or her remuneration. Employees who are found not to have complied with the Securities Trading Policy risk disciplinary sanctions which may include termination of employment. 6.7 ClAW-BACk Currently, the deferred component of the STI is subject to a claw-back provision. This means that the Board may exercise its discretion to reduce or cancel shares in fairness to all parties where a senior executive has engaged in fraud or gross misconduct, or where material risk or financial-related information has come to light since the grant of the deferred equity and the Board subsequently considers that the initial grant was not justified. No deferred shares have been earned under the existing STI. The Board proposes to incorporate a similar ability to claw back a proportion of incentives under the new plan being implemented during 2014. 42 REMUNERATION REPORT (AUDITED) 7. EXECUTIVE SERVICE AGREEMENTS The remuneration and other terms of employment for the executive KMP are set out in written agreements. These service agreements are unlimited in term but may be terminated by written notice by either party or by the Company making payment in lieu of notice. They may also be terminated with cause as set out below. Each agreement sets out the Fixed Remuneration, performance-related bonus opportunities, termination rights and obligations and eligibility to participate in the LTI. Key details of executive service agreements are set out below. 7.1 TeRMinATion oF eMPloyMenT WiTH noTiCe oR WiTH PAyMenT in lieu oF noTiCe The Company may terminate the employment of the executive at any time by giving the executive notice of termination or payment in lieu of such notice. The amount of notice required from the Company in these circumstances is set out in the table below. If the Company elects to make payment in lieu of all or part of the required notice, the payment is calculated on the basis of fixed remuneration excluding bonuses and non-cash incentives. Also set out in the table below is the notice that the executive is required to give. Table 10 NAME OF EXECUTIVE COMPANY TERMINATION NOTICE PERIOD EMPLOYEE TERMINATION NOTICE PERIOD POST-EMPLOYMENT RESTRAINT Greg Hywood 12 months 6 months 12 month no solicitation of employees or clients David Housego 12 months 4 months 12 month no solicitation of employees or clients 6 months no work for a competitor of the Fairfax Group 6 months no work for a competitor of the Fairfax Group Gail Hambly (1) 18 months 3 months 12 month no solicitation of employees or clients 6 months no work for a competitor of the Fairfax Group Allen Williams 12 months 6 months 12 month no solicitation of employees or clients 6 months no work for a competitor of the Fairfax Group (1) Participant in the Fairfax defined benefit superannuation scheme. 7.2 TeRMinATion oF eMPloyMenT WiTHouT noTiCe The Company may terminate the employment of the executive without notice and without payment in lieu of notice in some circumstances. Generally this includes if the executive: a) commits an act of serious misconduct b) commits a material breach of the executive service agreement c) is charged with any criminal offence which, in the reasonable opinion of the Company, may embarrass or bring the Fairfax Group into disrepute, or d) unreasonably refuses to carry out his or her duties including complying with reasonable, material and lawful directions from the Company. 8. REMUNERATION OF NON-EXECUTIVE DIRECTORS Under the Fairfax Constitution, the aggregate remuneration of Non-Executive Directors is set by resolution of shareholders. The aggregate was last reviewed by shareholders at the 2010 Annual General Meeting and set at $2,100,000 per annum. Within this limit, the Board annually reviews Directors’ remuneration with advice from the P&CC. The Board also considers survey data on Directors’ fees paid by comparable companies, and any independent expert advice commissioned. The Board resolved that there would be no increase in Directors’ fees in 2013. The Board also resolved that fees will no longer be paid for Nominations Committee membership effective 1 January 2013. The Chairman of the Board agreed to a reduction in his Directors fees from 1 January 2013 by $35,970. All Directors have also agreed to reduce Directors’ base fees by a further 10% from 1 July 2013. REMUNERATION REPORT (AUDITED) FAIRFAX MEDIA LIMITED 2013 43 Board and committee fees payable as at the date of this report are as follows: Table 11 Chairman of the Board* Other Non-Executive Director Chair of Audit and Risk Committee Members of Audit and Risk Committee Chair of People and Culture Committee Members of People and Culture Committee Chair of the Nominations Committee Members of Nominations Committee Chair of the Sustainability and Corporate Responsibility Committee Members of Sustainability and Corporate Responsibility Committee *The Chairman of the Board does not receive committee fees for membership of Committees. The fees above do not include statutory superannuation payments. 8.1 ReTiReMenT BeneFiTS FoR non-exeCuTiVe diReCToRS Other than superannuation contributions made on behalf of Non-Executive Directors in accordance with statutory requirements, Non-Executive Directors are not entitled to any retirement benefits. 8.2 non-exeCuTiVe diReCToRS’ FeeS The following table outlines fees paid to Non-Executive Directors during the financial year. Table 12 M Anderson (1) R Corbett (2) J Cowin (3) J Millar (4) S McPhee S Morgan L Nicholls P Young directors BASE SALARY, BONUS & OTHER BENEFITS NON-EXECUTIVE DIRECTORS FEES SUPERANNUATION 2013 2012 2013 2012 2013 2013 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 – – – – – – – – – – – – – – – – 180,290 119,296 380,500 397,000 136,178 148,869 185,000 175,156 142,579 130,000 174,000 174,000 184,000 212,678 1,531,416 1,208,130 29,644 35,931 34,245 35,730 12,256 13,398 16,650 15,764 12,832 11,700 15,660 15,660 16,560 10,763 151,245 125,548 $ 327,600 117,000 39,600 29,700 29,700 19,800 0 0 29,700 19,800 TOTAL 209,934 155,227 414,745 432,730 148,434 162,267 201,650 190,920 155,411 141,700 189,660 189,660 200,560 223,441 1,682,661 1,333,678 1) M Anderson took part in a strategic review of advertising sales across the Group from 1 March 2013 to 31 May 2013 and acted as Executive Chairman of Fairfax Radio from 27 October 2011 to 1 March 2012. He received salary of $149,083 (2012: $279,942) for these services. 2) R Corbett agreed to reduce his Directors fees by $35,970 from 1 January 2013 3) J Cowin was appointed on 19 July 2012 4) J Millar was appointed on 1 July 2012 44 REMUNERATION REPORT (AUDITED) 9. FIVE YEAR FINANCIAL PERFORMANCE OF THE COMPANY IN KEY SHAREHOLDER VALUE MEASURES The financial performance of the Company in key shareholder value measures over the past five years is shown below. Table 13 Underlying operating revenue Underlying net profit after tax Earnings per share after significant items Dividends per share *Total Shareholder Returns (TSR) IFRS 2013 (1) IFRS 2012 IFRS 2011 IFRS 2010 IFRS 2009 $m $m Cents Cents % 2,074 143.5 5.4 2.0 (3.4) 2,328 212.0 8.7 3.0 (40.5) 2,466 285.0 11.6 3.0 (23.9) 2,482 290.7 11.8 2.5 11.3 2,600 241.3 12.4 2.0 (52.1) * TSR comprises share price appreciation and dividends, gross of franking credits, reinvested in the shares. Source: Bloomberg. 1) Trade Me revenue has been included in 2013 for comparative purposes up to the date of sale on 21 December 2012 (refer note 5) CORPORATE GOVERNANCE FAIRFAX MEDIA LIMITED 2013 45 The Company’s compliance with the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations, 2nd edition (“ASX Recommendations”) is set out in the following table. COMPLIANCE PAGES Principle 1: lay solid foundations for management and oversight 1.1 Establish the functions reserved to the Board and those delegated to senior executives and disclose those functions 1.2 1.3 Disclose the process for evaluating the performance of senior executives Provide the information indicated in the Guide to reporting on Principle 1 Principle 2: Structure the Board to add value 2.1 A majority of the Board should be independent Directors 2.2 2.3 2.4 2.5 2.6 The chair should be an independent Director The roles of chair and Chief Executive Officer should not be exercised by the same individual The Board should establish a nomination committee Disclose the process for evaluating the performance of the Board, its committees and individual Directors Provide the information indicated in Guide to reporting on Principle 2 Principle 3: Promote ethical and responsible decision making 3.1 Establish a code of conduct and disclose the code or a summary of the code as to: • the practices necessary to maintain confidence in the Company’s integrity • the practices necessary to take into account legal obligations and the reasonable expectations of shareholders, and • the responsibility and accountability of individuals for reporting and investigating reports of unethical practices Establish a policy concerning diversity and disclose the policy or a summary of that policy Disclose the measurable objectives for achieving gender diversity set by the Board in accordance with the diversity policy and progress towards achieving them Disclose the proportion of women employees in the whole organisation, women in senior executive positions and women on the Board Provide the information indicated in the Guide to reporting on Principle 3 3.2 3.3 3.4 3.5 Principle 4: Safeguard integrity in financial reporting The Board should establish an audit committee 4.1 4.2 Structure the audit committee so that it: • consists of only Non-Executive Directors • consists of a majority of independent Directors • is chaired by an independent chair, who is not chair of the Board, and • has at least three members. The audit committee should have a formal charter Provide the information indicated in Guide to reporting on Principle 4 4.3 4.4 Principle 5: Make timely and balanced disclosure 5.1 Establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies 5.2 Provide the information indicated in Guide to reporting on Principle 5 Principle 6: Respect the rights of shareholders 6.1 Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose the policy or a summary of the policy 6.2 Provide the information indicated in Guide to reporting on Principle 6 ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü 46 31 – 42 31 –42, 46 47 47 47 47 47 22 – 23, 26, 47, 48 48 53 53 53 48, 53 47 47 49 26, 49 50 50 50 50 46 CORPORATE GOVERNANCE Principle 7: Recognise and manage risk 7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies 7.2 7.3 Board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the Company’s management of its material business risks Board should disclose whether it has received assurance from the Chief Executive (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks 7.4 Provide the information indicated in Guide to reporting on Principle 7 Principle 8: Remunerate fairly and responsibly 8.1 The Board should establish a remuneration committee 8.2 8.3 8.4 The remuneration committee should be structured so that it consists of a majority of independent directors, is chaired by an independent director and has at least three members Clearly distinguish the structure of Non-Executive Directors’ remuneration from that of executive Directors and senior executives Provide the information indicated in Guide to reporting on Principle 8 COMPLIANCE PAGES ü ü ü ü ü ü ü ü 50, 51 50, 51 50, 51 50, 51 47 47 31 –43 26, 32, 41, 52 The key corporate governance principles of the Fairfax Group are set out below. This section contains summaries of the Fairfax Board Charter, Nomination Committee Charter, Code of Conduct, Sustainability and Corporate Responsibility Committee Charter, Audit and Risk Committee Charter, Charter of Audit Independence, policy on market disclosure and shareholder communications, risk management policy, securities trading policy (including policy on hedging unvested securities issued as part of remuneration) and the Diversity Policy and data. The People and Culture Committee Charter is summarised in the Remuneration Report. BOARD OF DIRECTORS The Board of Directors is responsible for the long-term growth and profitability of the Group. The Board has adopted a Board Charter which sets out the responsibilities of the Board and its structure and governance requirements. Under the Board Charter, the responsibilities of the Board are to: (a) set the strategic direction of the Fairfax Group (b) provide overall policy guidance and ensure that policies and procedures for corporate governance and risk management are in place to ensure shareholder funds are prudently managed and that the Group complies with its regulatory obligations and ethical standards (c) set and monitor performance against the financial objectives and performance targets for the Group (d) determine the terms of employment and review the performance of the Chief Executive Officer (CEO) (e) set and monitor the Group’s programs for succession planning and key executive development with the aim to ensure these programs are effective (f) approve acquisitions and disposals of assets, businesses and expenditure above set monetary limits, and (g) approve the issue of securities and entry into material finance arrangements, including loans and debt issues. Subject to the specific authorities reserved to the Board under the Board Charter, and to the authorities delegated to the Board committees, the Board has delegated to the CEO responsibility for the management and operation of the Fairfax Group. The CEO is responsible for the day-to-day operations, financial performance and administration of the Fairfax Group within the powers authorised to him from time-to-time by the Board. The CEO may make further delegation within the delegations specified by the Board and is accountable to the Board for the exercise of these delegated powers. CORPORATE GOVERNANCE FAIRFAX MEDIA LIMITED 2013 47 Membership of the Board and its committees at the date of this report is set out below. DIRECTOR R Corbett G Hywood M Anderson J Cowin S McPhee J Millar S Morgan L Nicholls P Young MEMBERSHIP TYPE Independent Chair CEO/Managing Director Independent Independent Independent Independent Independent Independent Independent COMMITTEE MEMBERSHIP AUDIT AND RISK NOMINATIONS PEOPLE AND CULTURE Member Chair – – – – Member – Chair Member – – – – Member – Member Member Member – Member Member Chair – – – – SUSTAINABILITY AND CORPORATE RESPONSIBILITY Member – Chair – Member – Member – – The qualifications and other details of each member of the Board are set out on pages 22 – 23 of this report. Except for the Chief Executive Officer, all Directors (including the Chair) are considered by the Board to be independent, Non-Executive Directors. The Constitution authorises the Board to appoint Directors to vacancies and to elect the Chair. One third of Directors (excluding the Chief Executive Officer and a Director appointed to fill a casual vacancy and rounded down to the nearest whole number) must retire at every Annual General Meeting. Other than the Chief Executive Officer, no Director may remain in office for more than three years or the third annual general meeting following appointment without resigning and being re-elected. Any Director appointed by the Board must stand for election at the next general meeting of shareholders. Any Director may seek independent professional advice at the Company’s expense. Prior approval by the Chair is required, but approval must not be unreasonably withheld. The Board has a Nominations Committee which reviews potential Board candidates as required. The Committee is comprised of Non-Executive Independent Directors. The Committee may seek expert external advice on suitable candidates. The Board has adopted a formal Nominations Committee Charter. Under the Charter, the purpose of the Committee is to identify individuals qualified to become Board members and recommend them for nomination to the Board and its Committees; to ensure Board members’ performance is reviewed regularly and to recommend changes from time to time to ensure the Board has an appropriate mix of skills and experience. The Committee uses the following principles to recommend candidates and provide advice and other recommendations to the Board: • a majority of the Directors and the Chair should be independent, and • the Board should represent a broad range of expertise consistent with the Company’s strategic focus. Duties of the Nominations Committee include: • making recommendations to the Board on the size and composition of the Board • identifying and recommending individuals qualified to be Board members, taking into account such factors as it deems appropriate • identifying Board members qualified to fill vacancies on the Committees • recommending the appropriate process for the evaluation of the performance of each director and the Board, and • other duties delegated to it from time to time relating to nomination of Board or Committee members or corporate governance. The Board conducts a review of its structure, composition and performance annually. The Board may seek external advice to assist in the review process. During this financial year a review of Board performance was conducted by the Chairman with the Non Executive Directors participating. 48 CORPORATE GOVERNANCE INDEPENDENT DIRECTORS Under the Board Charter, the majority of the Board and the Chair must be independent. A Director must notify the Company about any conflict of interest, potential material relationship with the Company or circumstance relevant to his/ her independence. Directors have determined that all Directors except the Chief Executive Officer are independent. In assessing whether a Director is independent, the Board has considered Directors’ obligations to shareholders, the requirements of applicable laws and regulations, criteria set out in the Board Charter and the ASX Recommendations. The Board has not set specific materiality thresholds, considering it more effective to assess any relationship on its merits on a case-by-case basis, and where appropriate, with the assistance of external advice. The ASX Recommendations, in summary, state that the Board should consider whether the Director: • is a substantial shareholder or officer or associated with a substantial shareholder of the Company • was employed in an executive capacity by the Group within the last three years • within the last three years, was a principal of a material professional adviser or a material consultant or an employee materially associated with a service • is, or is associated with a material supplier or customer of the Group, and • has a material contractual relationship with the Group other than as a Director. CODE OF CONDUCT All Directors, managers and employees are required to act honestly and with integrity. The Company has developed and communicated to all employees and Directors the Fairfax Code of Conduct. The Code assists in upholding ethical standards and conducting business in accordance with applicable laws. The Code also sets out the responsibility of individuals for reporting Code breaches. The Fairfax Code of Conduct aims to: • provide clear guidance on the Company’s values and expectations while acting as a representative of Fairfax • promote minimum ethical behavioural standards and expectations across the Group, all business units and locations • offer guidance for shareholders, customers, readers, suppliers and the wider community on our values, standards and expectations, and what it means to work for Fairfax • raise employee awareness of acceptable and unacceptable behaviour and provide a means to assist in avoiding any real or perceived misconduct. Supporting the Code of Conduct is the Company’s range of guidelines and policies. These policies are posted on the Company intranet, are communicated to employees at the time of employment and are reinforced by training programs. The Code of Conduct is a set of general principles relating to employment with Fairfax, covering the following areas: • business integrity – conducting business with honesty, integrity and fairness; reporting concerns without fear of punishment; making public comments about the Company and disclosing real or potential conflicts of interest • professional practice – dealings in Fairfax shares; disclosing financial interests; protecting Company assets and property; maintaining privacy and confidentiality; undertaking employment outside Fairfax; personal advantage, gifts and inducements, recruitment and selection; and Company reporting • health, safety and environment • Equal Employment Opportunity and anti-harassment • compliance with Company policies, and • implementation of and compliance with the Code of Conduct. The Code of Conduct is to be read in conjunction with the codes of ethics for each masthead and the other Fairfax policies as amended from time to time. CORPORATE GOVERNANCE FAIRFAX MEDIA LIMITED 2013 49 AUDIT AND RISK COMMITTEE The Audit and Risk Committee operates in accordance with a Charter which sets out its role and functions. In summary, the Committee’s role is to advise and assist the Board on the establishment and maintenance of a framework of risk management, internal controls and ethical standards for the management of the Fairfax Group and to monitor the quality and reliability of financial information for the Group. To carry out this role, the Committee: • recommends to the Board the appointment of the external auditor, reviews its performance, independence and effectiveness, approves the auditor’s fee arrangements and enforces the Company’s Charter of Audit Independence • ensures that appropriate systems of control are in place to effectively safeguard assets • ensures accounting records are maintained in accordance with statutory and accounting requirements • monitors systems designed to ensure financial statements and other information provided to shareholders is timely, reliable and accurate • formulates policy for Board approval and oversees key finance and treasury functions • formulates and oversees an effective business risk plan • ensures appropriate policies and procedures are in place for compliance with all legal, regulatory and ASX requirements • monitors compliance with regulatory and ethical requirements • reviews the external audit process with the external auditor, including in the absence of management • reviews the performance of internal audit • reviews and approves the internal audit plan and receives summaries of significant reports by internal audit • meets with the Internal Audit Manager including in the absence of management if considered necessary, and • does anything else it considers necessary to carry out the above functions. Under its Charter, all members of the Committee must be Non-Executive Directors. Executives may attend by invitation. The Chair of the Committee is required to be independent and have relevant financial expertise and may not be the Chair of the Board. The members of the Audit and Risk Committee and details of their attendance at Committee meetings are set out on page 26. The Chair of the Committee may, at the Company’s expense, obtain external advice, or obtain assistance and information from officers of the Group, or engage other support as reasonably required from time to time. CHARTER OF AUDIT INDEPENDENCE The Board has also adopted a Charter of Audit Independence. The purpose of this Charter is to provide a framework for the Board and management to ensure that the external auditor is both independent and seen to be independent. The purpose of an independent statutory audit is to provide shareholders with reliable and clear financial reports on which to base investment decisions. The Charter sets out key commitments by the Board and procedures to be followed by the Audit and Risk Committee and management aimed to set a proper framework of audit independence. To promote audit quality and effective audit service by suitably qualified professionals, the Board ensures that the auditor is fairly rewarded for the agreed scope of the statutory audit and audit-related services. The auditor is required to have regular communications with the Committee, at times without management present. Audit personnel must be appropriately trained, meet the required technical standards and maintain confidentiality. Restrictions are placed on non-audit work performed by the auditor. Non-audit fees above a fixed level may not be incurred without the approval of the Chair of the Audit and Risk Committee. The Company requires the rotation of the lead audit partner and the independent review partner for the Company at least every five years. The Committee requires the auditor to confirm annually that it has complied with all professional regulations and guidelines issued by the Australian accounting profession relating to auditor independence. The auditor must also confirm that neither it nor its partners has any financial or material business interests in the Company outside of the supply of professional services. 50 CORPORATE GOVERNANCE MARKET DISCLOSURE AND SHAREHOLDER COMMUNICATIONS The Company has a Market Disclosure Policy which sets out requirements aimed to ensure full and timely disclosure to the market of material issues relating to the Group to ensure that all stakeholders have an equal opportunity to access information. The Policy reflects the ASX Listing Rules and Corporations Act continuous disclosure requirements. The Market Disclosure Policy requires that the Company notify the market, via the ASx, of any price sensitive information (subject to the exceptions to disclosure under the Listing Rules). Information is price sensitive if a reasonable person would expect the information to have a material effect on the price or value of the Company’s securities or if the information would, or would be likely to, influence investors in deciding whether to buy, hold or sell Fairfax securities. The Chief Executive Officer, Chief Financial Officer and Group General Counsel/Company Secretary are designated as Disclosure Officers who are responsible for reviewing potential disclosures and deciding what information should be disclosed. Only the Disclosure Officers may authorise communications on behalf of the Company to the ASX, media, analysts and investors. This safeguards the premature exposure of confidential information and aims to ensure proper disclosure is made in accordance with the law. ASX and press releases of a material nature must be approved by a Disclosure Officer. The Disclosure Officers, in conjunction with the Chair of the Board are authorised to determine whether a trading halt will be requested from the ASx to prevent trading in an uninformed market. The onus is on all staff to inform a Disclosure Officer of any price sensitive information as soon as becoming aware of it. The Executive Leadership Team is responsible for ensuring staff understand and comply with the policy. As well as its Listing Rules and statutory reporting obligations, the Company actively encourages timely and ongoing shareholder communications. To ensure ready access for shareholders to information about the Company, Company announcements, annual reports, analyst and investor briefings, financial results and other information useful to investors such as press releases are placed on the Company’s website at www.fairfaxmedia.com.au as soon as practical after their release to the ASX. Several years’ worth of historical financial information is available on the website. The results briefings given to analysts by senior management are webcast on the website. The full text of notices of meetings and the accompanying explanatory materials are posted on the website for each Annual General Meeting. The Chair’s and the Chief Executive Officer’s addresses, proxy counts and results of shareholder resolutions at the meeting are also posted on the website. At the Annual General Meeting, shareholders are encouraged to ask questions and are given a reasonable opportunity to comment on matters relevant to the Company. The external auditor attends the Annual General Meeting and is available to answer shareholder questions about the audit and the audit report. RISK MANAGEMENT AND INTEGRITY OF FINANCIAL REPORTING The Board oversees the risk management and internal compliance and control system. The system seeks to provide a consistent approach to identifying, assessing, and reporting risks, whether they are related to Company performance, reputation, safety, environment, internal control, compliance or other risk areas. Key aspects of the Company’s risk management and internal compliance and control system are summarised as follows: • risks are assessed at least annually and revised periodically for each division through the business planning, budgeting, forecasting, reporting, internal audit and performance management processes • the Board, through the Audit and Risk Committee, receives regular reports from management (and independent advisers where appropriate) on key risk areas such as treasury, health safety and environment, regulatory compliance, taxation, finance and internal audit and the effectiveness of the risk management system • formal risk assessments are required as part of business case approvals for one-off projects or initiatives of a significant nature. Project teams are responsible for managing the risks identified • under the direction of the Audit and Risk Committee, Internal Audit conducts a program of internal process control reviews over key areas, based on their importance to the Company, and provides assurance over the internal control assessments undertaken by management. CORPORATE GOVERNANCE FAIRFAX MEDIA LIMITED 2013 51 The Company’s risk framework is overseen and monitored by both the Board and the Audit and Risk Committee. As part of the risk framework, specific policies and approval processes have been developed to cover key risk areas such as material investments and contracts, treasury, capital expenditure approval, occupational health and safety and environmental processes. The Company’s Internal Audit function comprises the Manager, Corporate Risk and Assurance and a team of professionals who work through a schedule of prioritised risk areas across all the major business units to provide an independent risk assessment and evaluation of operating and financial controls. The Internal Audit and Risk function is independent from the external auditor and the Manager, Corporate Risk and Assurance may meet with the Audit and Risk Committee in the absence of management. Internal Audit and Risk reports its results to each meeting of the Audit and Risk Committee and the Manager, Corporate Risk and Assurance attends the meetings. The Board has received written assurances from the Chief Executive and the Chief Financial Officer that in their opinion: (a) the financial statements and associated notes comply in all material respects with the accounting standards as required by the Corporations Act 2001 (b) the financial statements and associated notes give a true and fair view, in all material respects, of the financial position as at the end of the financial year and performance of the Company and Consolidated Entity for the period then ended as required by the Corporations Act 2001 (c) there are reasonable grounds to believe the Company will be able to pay its debts as and when they become due and payable (d) the financial records of the Company have been properly maintained in accordance with the Corporations Act 2001 (e) the statements made above regarding the integrity of the financial statements are founded on a sound system of financial risk management and internal compliance and control which, in all material respects, implements the policies adopted by the Board (f) the risk management and internal compliance and control systems of the Company and Consolidated Entity relating to financial reporting compliance and operations objectives are operating efficiently and effectively, in all material respects. Management has reported to the Board as to the effectiveness of the Company’s management of its material business risks (g) subsequent to the end of the financial year, no changes or other matters have arisen that would have a material effect on the operation of the risk management and internal compliance and control systems of the Company and Consolidated Entity. These statements to the Board are underpinned by the requirement for appropriate senior executives to provide a signed letter of representation addressed to the Chief Executive Officer and Chief Financial Officer verifying material issues relating to the executive’s areas of responsibility and disclosing factors that may have a material effect on the financial results or operations of the Group. REMUNERATION Information about the Board’s People and Culture Committee, its Charter, the Company’s remuneration policies for Non-Executive Directors and the remuneration of the CEO and senior executives is set out in the Remuneration Report beginning on page 29. TRADING IN COMPANY SECURITIES Directors and managers must not trade directly or indirectly in Fairfax securities while in possession of price sensitive information. Price sensitive information is information which has not been made public, usually about the Group or its intentions, which a reasonable person would expect to have a material effect on the price or value of Fairfax securities or which would be likely to influence an investment decision in relation to the securities. The Fairfax Securities Trading Policy regulates dealings by Directors and certain senior employees (“Designated People”) in Fairfax securities (including shares, convertible notes derivatives and options). The purpose of the Policy is to ensure that Designated People comply with the legal and company-imposed restrictions on trading in securities whilst in possession of unpublished price sensitive information. The Policy sets out blackout periods when no trading is to be undertaken and a process for authorisation of trading at other times. Designated People means the Directors, CEO, Company Secretary, those employees who report directly to the CEO and those employees who are notified that they are subject to the Policy. 52 CORPORATE GOVERNANCE A Designated Person must not trade in breach of the Policy either directly or indirectly through another entity, such as a partner, child, nominee or controlled company acting on his/her behalf. Under the Policy, Designated People are prohibited from trading in Fairfax securities without approval under the Policy or when in possession of price-sensitive information about Fairfax. In addition, Designated People must not tip anyone else on Fairfax securities, engage in short term speculative trading in Fairfax securities or trade in Fairfax derivatives. Black-out periods occur before the announcement of the half-yearly and annual results, other trading updates and the Annual General Meeting. During black-out periods Designated People will not be authorised to trade. Outside of the trading black-out periods, Directors must obtain approval from the Chair (or the chairman of the Audit and Risk Committee for approvals for the Chair to trade). Other Designated People must obtain approval from the Company Secretary who will consult with the Chair. Each Director must notify the Company Secretary of any change in the Director’s interest in Fairfax securities so as to ensure compliance with the disclosure requirements of the ASX Listing Rules. The Policy prohibits Designated People from entering into any financial transactions that operate to limit the economic risk of unvested Fairfax securities which have been allocated to an employee as part of his/her remuneration, prior to the securities vesting. Any breach of this prohibition risks disciplinary sanctions. SUSTAINABILITY AND CORPORATE RESPONSIBILITY COMMITTEE The Board has established a Sustainability and Corporate Responsibility Committee. The Committee’s Charter is summarised below. The primary purpose of the Committee is to advise and assist the Board in setting an overall direction for the Company’s commitment to building a long term future, which includes operating its business responsibly, ethically and sustainably (financially and otherwise). To fulfil this purpose, the Committee’s role includes: 1. providing strategic leadership to the Board and management in overseeing the development and implementation of a sustainability and corporate social responsibility (CSR) strategy and related policies 2. fostering a workplace culture which values sustainable and socially responsible business practices 3. identifying and monitoring current and emerging CSR trends, risks and opportunities and ensuring that the Board is kept up to date with market and investor expectations on CSR activities 4. considering and endorsing proposals by management to enhance the Group’s CSR profile, reputation and activities 5. ensuring the Board, employees, the investment community and other stakeholders are kept properly informed of the Group’s CSR initiatives and performance 6. overseeing the Group’s compliance with corporate governance and legal requirements in relation to CSR issues and related reporting 7. monitoring that executives are remunerated having regard to performance metrics that recognise both tangible and intangible value creation 8. dealing with such matters as the Committee deems necessary to carry out the functions set out above including interaction with other Board Committees where appropriate, and 9. reviewing the adequacy of this Charter in light of emerging CSR trends and obligations and making recommendations to the Board for approval. The Committee’s membership and Chair are determined by the Board from time to time and must consist of at least three Directors. No more than one member may be an executive Director. Other Directors are entitled to attend the Committee meetings. The members of the Sustainability and Corporate Responsibility Committee, and details of their attendance at Committee meetings, are set out on page 26. In order to carry out the Committee’s duties, the Chair of the Committee is authorised (at the Company’s expense) to engage external advice, obtain assistance and information from officers of the Group and engage such other support as is reasonably required from time to time. CORPORATE GOVERNANCE FAIRFAX MEDIA LIMITED 2013 53 DIVERSITY The Company is committed to creating a workplace that is fair and inclusive. The measures and actions undertaken to achieve our commitments in the financial year are outlined in the following table: OVERARCHING MEASURE SUPPORTING ACTIONS UNDERTAKEN 30% female participation in Senior Management by 2015 • Conducted a pilot “Women in Leadership” presentation and focus group session comprising of 20 senior women from across the Company. • Increased opportunities for flexible work arrangements by expanding the ability to take additional annual leave each year to more staff. • Where identified, high potential women were strategically matched with senior leaders across the business as part of the Fairfax Mentoring Program. More than half of the participants in the program were female. • More than half of the participants in the 2013 Fairfax Leadership Programs were female. PERFORMANCE On track to achieving target. There was an increase in the percentage of females in senior management positions to 28% this year, compared to 26% last year. ACTIONS COMMITTED IN THE LAST REPORT PROGRESS Conduct further research to gather robust diversity metrics across the business and in individual business units. New reporting has been introduced providing management with monthly data on employee demographics. This includes diversity metrics including employment type, gender, tenure, age bracket and job family. The 2013 Workplace Gender Equality Agency report in Australia has been submitted in accordance with the Act. In line with the Act, the report is available on the Fairfax website and the intranet for comment by staff, employee organisations and shareholders. The Company is a member of the Diversity Council of Australia and has recently joined the HR Corporate Executive Board. This enables managers and Human Resources staff to gain access to market trends on and best practice on diversity. Conduct a pay equity audit across Fairfax Media To complement the data collected for the 2013 Workplace Gender Equality Act report in Australia, additional analysis was conducted regarding pay equity. Some preliminary findings included: The recruitment process for all Senior Management appointments to include a senior female on the interview panel and at least one female candidate in the shortlist. • Across Australia the female percentage difference of average annualised total package value (TPV) for full time and part time staff is -32%. • The largest disparity in job families between male and female TPV is in Printing and Distribution (-35%) and the lowest is in Editorial (-17%). • Further data collection and analysis will be conducted in next financial year to determine possible causes of negative percentage difference for female employees. This will in turn help support specific action plans. There have been several senior executive roles appointed this year where at least one female was included in the recruitment process, and where appropriate, a female candidate was included in the shortlist. Senior executive roles have included: • Chief Financial Officer • Director of Strategy • Managing Director, New Zealand • Group Director, Digital Ventures • Director, Life Media Further work will occur in 2014 for this process to become a standard way of working across the Company. The Company has submitted and is compliant with the Workplace Gender Equality Act 2012 report in Australia. The workforce gender demographics were, as at 30 June 2013: • Proportion of women on the Board: 25% • Proportion of women in senior management: 28% • Proportion of women across the organisation: 52% 54 MANAGEMENT DIsCUssION AND ANALYsIs REPORT TRADING OVERVIEW The 2013 financial year saw a continuation of difficult trading conditions with subdued advertising markets in both Australia and New Zealand. Total reported Group revenue declined by 8.2% to $2,033.8 million from the prior year. Operating segment revenue trends, as compared to the prior year, show Metropolitan Media down 11.9%, Regional Media down 10.4% and New Zealand Media down 4.7%. Broadcasting revenue improved 8.1% from the prior year. Group digital revenue increased to $295 million and now comprises 14% of total revenue. During the year there was a focus on improving circulation revenue by removing unprofitable distribution channels, a reduction in discounting, and a series of cover price increases. As a result, Metropolitan Media circulation revenue increased by 5% in the year. Our real estate business, Domain, continues to move through the transition from a largely print-based business to a predominantly digital business with 2013 being the first year where digital advertising exceeded print. The Regional and New Zealand divisions saw deterioration in revenue which accelerated in the second half of the year. Revenue declines were experienced across most advertising categories and improvement in cost reduction run rates assisted in offsetting some of the impact on profitability. Performance of the Radio division improved in the year, with revenue and market share growth, improved profitability and a higher degree of integration into other parts of the Fairfax Media business. The decline in Group revenue has been mitigated to some extent by an on-going focus on cost management. Total Group expenses declined by 5.9% to $1,690.5 million, excluding significant items. Metropolitan Media cost reduced by 10.7%, Regional Media by 8.0% and New Zealand Media by 2.3% offset by an increase of 4.8% in Broadcasting and costs associated with the implementation of the Fairfax of the Future program. The business remains on track to deliver the Fairfax of the Future savings that have previously been communicated. Annualised run-rate savings of $311 million are on track to be delivered by June 2015. We continue to work on further revenue and cost opportunities. The second half of the financial year saw a number of significant milestones and operational changes, including the launch of the weekday compact editions of The Sydney Morning Herald and The Age in March 2013. We also announced a major restructure of our Australian operations with the formation of Australian Publishing Media as well as moving a number of digital operating businesses to act on a more standalone basis. In July 2013 we introduced a digital subscriptions model for The Sydney Morning Herald and The Age. We are pleased with the early progress of this important initiative. As reported in the December 2012 interim results, the company disposed of its US Agricultural Media business for US$79.9m on 14 November 2012, and its remaining 51% interest in Trade Me Group Ltd for A$605.5 million (net of transaction fees) on 21 December 2012. As previously stated, proceeds from the sale of these businesses have been applied to the reduction of debt. The Group booked a significant impairment charge of $444.6 million after tax in 2013. The charge was predominately in the Regional Media business along with smaller impairment charges in the Metropolitan Media and Broadcasting segments. Details of the nature of the impairment charges can be found in Note 4 and the assumptions used in the estimation of the recoverable amount of intangible assets and the sensitivities around the key assumptions are outlined in Note 14. FINANCIAL POSITION Net cash inflow from operating activities was $186.5 million. After capital expenditure of $60.6 million, dividends paid of $61.4 million, the impact of the sale of Trade Me and US Agricultural Media and repayment of borrowings, cash and cash equivalents increased by $171.1 million. Net debt for covenant purposes was $154.5 million at 30 June 2013 and remains within covenant limits. The Company continues to have substantial headroom with debt repayments in the 2014 financial year covered by $533.5 million of cash on deposit and undrawn committed facilities, plus free cash flows that will be generated during the year. On 25 July 2013 the Company completed the redemption of US$224 million of US Private Placement (USPP) notes. MANAGEMENT DIsCUssION AND ANALYsIs REPORT FAIRFAX MEDIA LIMITED 2013 55 RECONCILIATION OF STATUTORY TO UNDERLYING PERFORMANCE AS REPORTED SIGNIFICANT ITEMS (IV) TRADING PERFORMANCE EXCLUDING SIGNIFICANT ITEMS 30 June 2013 $’000 NOTE 24 JUNE 2012 $’000 30 June 2013 $’000 24 JUNE 2012 $’000 30 June 2013 $’000 24 JUNE 2012 $’000 Total revenue Associate (losses)/profits Expenses (i) 2,033,786 2,214,487 19,830 (2,239) 1,311 – – – 2,013,956 2,214,487 (2,239) 1,311 (2,150,758) (4,860,417) (460,302) (3,064,628) (1,690,456) (1,795,789) operating eBiTdA (119,211) (2,644,619) (440,472) (3,064,628) 321,261 420,009 Depreciation and amortisation (100,762) (103,478) – – (100,762) (103,478) eBiT (219,973) (2,748,097) (440,472) (3,064,628) 220,499 316,531 Net finance costs (ii) (54,967) (109,731) – – (54,967) (109,731) net profit/(loss) before tax (274,940) (2,857,828) (440,472) (3,064,628) 165,532 206,800 Tax (expense)/benefit (37,912) 73,043 12,569 126,807 (50,481) (53,764) net profit/(loss) after tax from continuing operations Net profit after tax from discontinued operations (312,852) (2,784,785) (427,903) (2,937,821) 115,051 153,036 (iii) 311,881 58,982 283,444 – 28,437 58,982 net profit/(loss) after tax (971) (2,725,803) (144,459) (2,937,821) 143,488 212,018 Net profit attributable to non-controlling interest net profit/(loss) attributable to members of the Company (15,461) (6,594) – – (15,461) (6,594) (16,432) (2,732,397) (144,459) (2,937,821) 128,027 205,424 earnings/(loss) per share (0.7) (116.2) 5.4 8.7 notes: (i) Revenue from ordinary activities excluding interest income and trading results of discontinued operations. (ii) Finance costs less interest income. (iii) The remaining 51% of Trade Me Group Ltd was disposed of on 21 December 2012 and classified as a discontinued operation. The “As reported” net profit after tax from discontinued operations includes both trading results of this business up to the date of disposal and the profit on disposal. Certain numbers shown here do not correspond to the 2012 financial statements and reflect adjustments due to discontinued operations as detailed in Note 5. (iv) Significant items are those items of such a nature or size that separate disclosure will assist users to understand the accounts. Refer to Note 4 for further details of significant items. RECONCILIATION OF TRADING TO OPERATING CASH FLOW Cash flow from trading activities Redundancy payments Interest and dividends received Finance costs and income tax paid Net cash flow from operating activities 30 June 2013 $’000 376,645 (96,018) 14,330 (108,506) 186,451 24 JUNE 2012 $’000 534,903 (42,511) 13,591 (238,334) 267,649 56 CONsOLIDATED INCOME sTATEMENT FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 Continuing operations Revenue from operations Other revenue and income Total revenue and income Share of net (losses)/profits of associates and joint ventures Expenses from operations excluding impairment, depreciation, amortisation and finance costs Depreciation and amortisation Impairment of intangibles, investments and property, plant and equipment Finance costs net loss from continuing operations before income tax expense Income tax (expense)/benefit net loss from continuing operations after income tax expense discontinued operations Net profit from discontinued operations after income tax expense net loss after income tax expense net profit/(loss) is attributable to: Non-controlling interest Owners of the parent earnings per share (cents per share) Basic loss per share (cents per share) Diluted loss per share (cents per share) earnings per share from continuing operations (cents per share) Basic loss per share (cents per share) Diluted loss per share (cents per share) NOTE 30 June 2013 $’000 24 JUNE 2012 RESTATED* $’000 2(A) 2(B) 2,010,488 34,902 2,045,390 12(C) (2,239) 2,199,881 25,064 2,224,945 1,311 3(A) 3(B) 3(C) 6 5 25 25 25 25 (1,690,820) (1,995,357) (100,762) (103,478) (459,938) (2,865,060) (66,571) (120,189) (274,940) (2,857,828) (37,912) 73,043 (312,852) (2,784,785) 311,881 58,982 (971) (2,725,803) 15,461 (16,432) 6,594 (2,732,397) (971) (2,725,803) (0.7) (0.7) (13.3) (13.3) (116.2) (116.2) (118.4) (118.4) * Certain numbers shown here do not correspond to the 2012 financial statements and reflect adjustments due to discontinued operations as detailed in Note 5. The above Consolidated Income Statement should be read in conjunction with the accompanying Notes. CONsOLIDATED sTATEMENT OF COMPREHENsIVE INCOME FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 FAIRFAX MEDIA LIMITED 2013 57 Net loss after income tax expense other comprehensive income Items that may be reclassified to profit or loss: Changes in fair value of available for sale financial assets Changes in fair value of cash flow hedges Changes in value of net investment hedges Exchange differences on translation of foreign operations Income tax relating to these items Items that will not be reclassified to profit or loss: Actuarial gain/(loss) on defined benefit plans Income tax relating to these items other comprehensive income for the period, net of tax Total comprehensive income for the period Total comprehensive income is attributable to: Non-controlling interest Owners of the parent NOTE 30 June 2013 $’000 24 JUNE 2012 $’000 (971) (2,725,803) 6 6 296 3,407 (18,431) 28,033 4,532 (675) (11,869) (3,568) 14,352 4,545 2,353 (702) 19,488 18,517 (3,732) 1,117 170 (2,725,633) 15,461 3,056 18,517 6,594 (2,732,227) (2,725,633) The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying Notes. 58 CONsOLIDATED BALANCE sHEET FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES AS AT 30 JUNE 2013 CuRRenT ASSeTS Cash and cash equivalents Trade and other receivables Inventories Derivative assets Assets held for sale Income tax receivable Other financial assets Total current assets non-CuRRenT ASSeTS Receivables Investments accounted for using the equity method Available for sale investments Intangible assets Property, plant and equipment Derivative assets Deferred tax assets Pension assets Other financial assets Total non-current assets Total assets CuRRenT liABiliTieS Payables Interest bearing liabilities Derivative liabilities Liabilities directly associated with held for sale assets Provisions Current tax liabilities Total current liabilities non-CuRRenT liABiliTieS Interest bearing liabilities Derivative liabilities Deferred tax liabilities Provisions Pension liabilities Other non-current liabilities Total non-current liabilities Total liabilities neT ASSeTS equiTy Contributed equity Reserves Retained profits Total parent entity interest Non-controlling interest ToTAl equiTy NOTE 35(B) 8 9 16 10(A) 11 8 12 13 14 15 16 17(A) 21(A) 11 18 19 16 10(B) 20 19 16 17(A) 20 21(A) 30 June 2013 $’000 24 JUNE 2012 $’000 533,531 298,330 30,908 11,018 6,979 8,466 4,386 893,618 1,046 80,490 1,929 358,364 334,466 36,622 123 25,674 2,592 3,914 761,755 2,479 30,811 1,991 1,438,034 2,502,045 478,933 7,815 107,895 709 6,222 547,004 27,040 122,530 149 10,768 2,123,073 3,016,691 3,244,817 4,006,572 235,919 284,323 47,978 – 191,319 1,333 760,872 282,637 6,439 – 4,956 193,887 10,680 498,599 353,889 1,200,934 26,939 3,581 53,942 1,273 – 439,624 1,200,496 1,816,195 95,628 15,225 149,305 3,933 271 1,465,296 1,963,895 2,042,677 22 23 24 4,646,248 4,646,248 35,517 (45,520) (2,867,387) (2,805,566) 1,814,378 1,817 1,795,162 247,515 1,816,195 2,042,677 The above Consolidated Balance Sheet should be read in conjunction with the accompanying Notes. net cash inflow from operating activities 35(A) CONsOLIDATED CAsH FLOw sTATEMENT FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Redundancy payments Interest received Dividends and distributions received Finance costs paid Net income taxes paid Cash flows from investing activities Payment for purchase of controlled entities, associates and joint ventures (net of cash acquired) Payment for purchase of businesses, including mastheads Payment for property, plant, equipment and software Proceeds from sale of property, plant and equipment Proceeds from sale of investments, net of transaction fees and cash disposed * Loans repaid by other parties net cash inflow/(outflow) from investing activities Cash flows from financing activities Payment for purchase of non-controlling interests in subsidiaries Proceeds from disposal of non-controlling interest in subsidiary, net of transaction fees ** Proceeds from borrowings and other financial liabilities Repayment of borrowings and other financial liabilities Dividends paid to shareholders Dividends paid to non-controlling interests in subsidiaries net cash outflow from financing activities net increase in cash and cash equivalents held Cash and cash equivalents at beginning of the financial year Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of the financial year FAIRFAX MEDIA LIMITED 2013 59 30 June 2013 $’000 NOTE 24 JUNE 2012 $’000 2,326,259 2,564,435 (1,949,614) (2,029,532) (96,018) 10,963 3,367 (60,456) (48,050) 186,451 (51,935) (10,048) (60,584) 2,047 644,099 6,056 529,635 (2,999) – – (480,586) (47,040) (14,407) (545,032) 171,054 358,364 4,113 7 35(B) 533,531 (42,511) 9,986 3,605 (127,633) (110,701) 267,649 (13,232) (1,443) (42,788) 3,315 18,237 4,750 (31,161) (92) 421,885 321,270 (756,933) (82,318) (491) (96,679) 139,809 207,137 11,418 358,364 * The proceeds relate to the disposal of the remaining 51% interest in Trade Me Group Ltd on 21 December 2012 and the disposal of the US Agricultural Media business on 14 November 2012. ** The proceeds relate to the sale of 34% of Trade Me Group Ltd on 13 December 2011 and the further 15% divestment on 21 June 2012. The above Consolidated Cash Flow Statement should be read in conjunction with the accompanying Notes. 60 l A T o T i y T u q e 0 0 0 $ ’ , 7 7 6 2 4 0 2 , ) 0 4 0 7 4 ( , – ) 0 4 0 7 4 ( , ) 5 0 0 3 ( , 0 3 5 , 1 – – ) 7 6 0 4 1 ( , ) 7 6 0 4 1 ( , , ) 7 1 4 2 8 1 ( , ) 8 9 7 0 4 2 ( – ) 4 9 2 6 ( , – – – – – ) 9 9 9 4 4 2 ( , ) 9 5 1 , 1 6 2 ( ) 0 4 0 7 4 ( , 5 9 1 , 6 1 8 , 1 7 1 8 , 1 e M e d a r T e h T . , ) 7 8 3 7 6 8 2 ( , – – 1 8 3 8 5 , 4 9 2 6 , ) 5 0 0 3 ( , 0 3 5 , 1 7 1 5 , 5 3 0 0 2 , 3 6 ) 1 7 9 ( 8 8 4 9 1 , 1 6 4 5 1 , ) 2 3 4 6 1 ( , – – 1 5 6 , 1 7 3 8 7 1 , 7 1 5 8 1 , 1 6 4 5 1 , ) 1 8 7 4 1 ( , 7 3 8 7 1 , – – – ) 1 0 9 2 1 ( , 5 8 3 , 2 3 5 0 8 2 , ) 1 0 9 2 1 ( , 5 8 3 , 2 3 5 0 8 2 , 0 0 0 $ ’ , 5 1 5 7 4 2 - n o n i d e n A T e R G n i l l o R T n o C S T i F o R P T S e R e T n i ) 4 2 e T o n ( 0 0 0 $ ’ 0 0 0 $ ’ l A T o T S e V R e S e R 0 0 0 $ ’ l A R e n e G e V R e S e R ) 3 2 e T o n ( ) 6 6 5 , 5 0 8 2 ( , ) 0 2 5 , 5 4 ( ) 7 3 8 6 ( , 0 0 0 $ ’ 4 6 7 7 , e V R e S e R ) 3 2 e T o n ( T n e M y A P e G d e H e V R e S e R ) 3 2 e T o n ( 0 0 0 $ ’ 9 6 6 2 , e G d e H e V R e S e R ) 3 2 e T o n ( 0 0 0 $ ’ ) 8 8 0 7 ( , 0 0 0 $ ’ e V R e S e R ) 3 2 e T o n ( 0 0 0 $ ’ e V R e S e R ) 3 2 e T o n ( ) 8 2 5 9 1 2 ( , 9 5 7 7 7 1 , 0 0 0 $ ’ ) 9 5 2 ( e V R e S e R ) 3 2 e T o n ( 0 0 0 $ ’ i y T u q e ) 2 2 e T o n ( , 8 4 2 6 4 6 4 , i n o T A l S n A R T i n o T i S i u q C A i n o T A u l A V e R i d e T u B R T n o C 2 1 0 2 r e b m e v o N 4 1 n o s s e n s u b a d e M i i l a r u t l u c i r g A S U e h t f o l i a s o p s d e h t d n a 2 1 0 2 r e b m e c e D 1 2 n o d t L p u o r G e M e d a r T n i t s e r e t n i i i % 1 5 g n n a m e r e h t . i s e t o N g n y n a p m o c c a e h t h t i w n o i t c n u n o c n j i l d a e r e b d u o h s y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C e v o b a e h T . l a s o p s d s t i i o t n o i t a e r n l i s e r u s o c s d i l l a n o i t i d d a r o f 5 e t o N o t r e f e R . i n o i t a r e p o d e u n i t n o c s d a s a d e i f i s s a c n e e b s a h s s e n s u b i l 6 7 8 8 5 , 9 8 2 , 3 ) 2 3 2 0 1 ( , ) 3 0 7 4 ( , ) 9 9 5 , 2 3 1 ( 8 4 0 , 1 8 1 1 4 , 8 4 2 6 4 6 4 , – – – – – – – – – – ) 7 3 8 6 ( , – – – – – – – ) 5 9 4 ( 0 3 5 , 1 5 3 0 , 1 9 9 7 8 , – – – – – – – – – – – – – – – – 6 7 8 8 5 , – – – – – – – – – – 4 9 2 6 , ) 5 0 0 3 ( , – 0 0 3 0 0 3 – – – – – – – – – – – – – – – – – : s r e n w o s a y t i c a p a c r i e h t n i s r e n w o h t i w s n o i t c a s n a r T e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i i e v s n e h e r p m o c r e h t O d o i r e p e h t r o f d o i r e p e h t r o f s s o L 2 1 0 2 e n u J 4 2 t a e c n a l a B l s r e d o h e r a h s o t d a p s d n e d v D i i i n i s t s e r e t n i g n i l l o r t n o c - n o n i s e i r a d s b u s i , i s e i r a d s b u s i f o l a s o p s D i * x a t f o t e n g n i l l o r t n o c - n o n f o l a s o p s D i i o t d a p s d n e d v D i i i i y r a d s b u s n i t s e r e t n i g n i l l o r t n o c - n o n f o n o i t i s u q c A i t s e r e t n i , s t n e m y a p d e s a b - e r a h S x a t f o t e n s r e n w o h t i w s n o i t c a s n a r t l a t o T f o l i a s o p s d e h t o t s e t a e r l i s h T * 3 1 0 2 e n u J 0 3 t a e c n a l a B S e V R e S e R T e n n G i e R o F d e S A B - e R A H S T n e M T S e V n i W o l F H S A C y C n e R R u C T e S S A 3 1 0 2 E N U J 0 3 D E D N E D O R E P I E H T R O F S E I T I T N E D E L L O R T N O C D N A D E T M L I I I A D E M x A F R I A F Y T I U q E N I s E G N A H C F O T N E M E T A T s D E T A D I L O s N O C L A T O T I Y T U Q E 0 0 0 $ ’ , 8 0 7 8 3 4 4 , , ) 3 0 8 5 2 7 2 ( , 0 7 1 , ) 3 3 6 5 2 7 2 ( , ) 8 1 3 2 8 , ( - N O N I D E N A T E R I G N L L O R T N O C I S T F O R P T S E R E T N I ) 4 2 E T O N ( 0 0 0 $ ’ 0 9 9 6 , – 4 9 5 6 , 4 9 5 6 , – 0 0 0 $ ’ 4 6 7 1 1 , , ) 7 9 3 2 3 7 2 ( , ) 5 1 6 2 ( , , ) 2 1 0 5 3 7 2 ( , ) 8 1 3 2 8 , ( ) 4 5 3 ( ) 4 5 3 ( 3 7 5 1 1 4 , 4 9 0 5 3 2 , ) 2 9 ( 3 9 7 2 0 6 9 2 3 , , 7 7 6 2 4 0 2 , ) 9 0 8 ( – , 1 3 9 3 3 2 5 1 5 7, 4 2 – – – – ) 8 1 3 2 8 , ( ) , 6 6 5 5 0 8 2 ( , 0 0 0 $ ’ L A T O T S E V R E S E R ) 4 9 2 6 2 2 ( , – 5 8 7 2 , 5 8 7 2 , – – 9 7 4 6 7 1 , 7 1 7 3 9 7 9 8 9 7, 7 1 ) 0 2 5 5 4 ( , 0 0 0 $ ’ L A R E N E G E V R E S E R ) 3 2 E T O N ( ) 7 3 8 6 , ( 0 0 0 $ ’ 1 7 9 6 , T N E M Y A P E V R E S E R ) 3 2 E T O N ( E G D E H E V R E S E R ) 3 2 E T O N ( 0 0 0 $ ’ 7 6 1 5 , E G D E H E V R E S E R ) 3 2 E T O N ( 0 0 0 $ ’ 0 2 2 1 , D E S A B E R A H S - T N E M T S E V N I W O L F H S A C T E N S E V R E S E R – – – – – – – – – ) 7 3 8 6 , ( – – – – – – – 3 9 7 3 9 7 4 6 7 7, – – ) 8 9 4 2 ( , ) 8 9 4 2 ( , ) 8 0 3 8 , ( ) 8 0 3 8 , ( – – – – – – – – – – – – – – – – – – 9 6 6 2 , ) 8 8 0 7, ( ) , 8 2 5 9 1 2 ( 0 0 0 $ ’ E V R E S E R ) 3 2 E T O N ( ) 4 8 8 3 3 2 ( , I N G E R O F Y C N E R R U C I N O T A L S N A R T – 6 5 3 4 1 , 6 5 3 4 1 , 3 6 5 0 0 0 $ ’ E V R E S E R ) 3 2 E T O N ( 0 0 0 $ ’ 6 0 5 E V R E S E R ) 3 2 E T O N ( 0 0 0 $ ’ I Y T U Q E ) 2 2 E T O N ( , 8 4 2 6 4 6 4 , I I N O T S U Q C A I T E S S A I N O T A U L A V E R I D E T U B R T N O C – – – – – 9 7 4 6 7 1 , – 7 1 7 6 9 1 7, 7 1 9 5 7 7, 7 1 – ) 5 6 7 ( ) 5 6 7 ( – – – e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i i e v s n e h e r p m o c r e h t O d o i r e p e h t r o f d o i r e p e h t r o f s s o L 1 1 0 2 e n u J 6 2 t a e c n a l a B – – – – – – ) 9 5 2 ( – – – – – – l s r e d o h e r a h s o t d a p s d n e d v D i i i g n i l l o r t n o c - n o n f o l a s o p s D i s t s e r e t n i g n i l l o r t n o c - n o n i i s e i r a d s b u s n i i o t d a p s d n e d v D i i g n i l l o r t n o c - n o n f o n o i t i s u q c A i t s e r e t n i , s t n e m y a p d e s a b - e r a h S x a t f o t e n * x a t f o t e n , i i y r a d s b u s n i t s e r e t n i s r e n w o h t i w s n o i t c a s n a r t l a t o T , 8 4 2 6 4 6 4 , 2 1 0 2 e n u J 4 2 t a e c n a l a B : s r e n w o s a y t i c a p a c r i e h t n i s r e n w o h t i w s n o i t c a s n a r T Y T I U q E N I s E G N A H C F O T N E M E T A T s D E T A D I L O s N O C 2 1 0 2 E N U J 4 2 D E D N E D O R E P I E H T R O F S E I T I T N E D E L L O R T N O C D N A D E T M L I I I A D E M x A F R I A F FAIRFAX MEDIA LIMITED 2013 61 . i s e t o N g n y n a p m o c c a e h t h t i w n o i t c n u n o c n j i l d a e r e b d u o h s y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C e v o b a e h T . 2 1 0 2 e n u J 1 2 n o t n e m i t s e v d % 5 1 r e h t r u f e h t d n a 1 1 0 2 r e b m e c e D 3 1 n o d t L p u o r G e M e d a r T f o % 4 3 f l o e a s e h t o t s e t a e r l i s h T * 62 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 1. sUMMARY OF sIGNIFICANT ACCOUNTING POLICIEs The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes the consolidated entity consisting of Fairfax Media Limited and its controlled entities. The financial report is for the period 25 June 2012 to 30 June 2013 (2012: the period 27 June 2011 to 24 June 2012). Reference in this report to ‘a year’ is to the period ended 30 June 2013 or 24 June 2012 respectively, unless otherwise stated. Fairfax Media Limited is a for profit company limited by ordinary shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Group are described in the Directors’ Report. (A) BASIS OF PREPARATION The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The Group has prepared the financial statements in compliance with amendments to the Corporations Act 2001 in June 2010 which removed the requirement for the Group to lodge parent entity financial statements. Parent entity financial statements have been replaced by the specific parent entity disclosures in Note 38. HiSToRiCAl CoST ConVenTion These financial statements have been prepared on a going concern basis and on the basis of historical cost principles except for derivative financial instruments and certain financial assets which are measured at fair value. The carrying values of recognised assets and liabilities that are hedged with fair value hedges are adjusted to record changes in the fair values attributable to the risks that are being hedged. (B) PRINCIPLES OF CONSOLIDATION (i) ConTRolled enTiTieS The consolidated financial statements incorporate the assets and liabilities of the Company, Fairfax Media Limited, and its controlled entities. Fairfax Media Limited and its controlled entities together are referred to in this financial report as the Group or the consolidated entity. Controlled entities are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of controlled entities by the Group (refer to Note 1(C)). All inter-entity transactions, balances and unrealised gains on transactions between Group entities have been eliminated in full. Non-controlling interests in the earnings and equity of controlled entities are shown separately in the income statement, statement of comprehensive income, statement of changes in equity and balance sheet respectively. (ii) ASSoCiATeS And JoinT VenTuReS Investments in associates and joint ventures are accounted for in the consolidated financial statements using the equity method. Associates are entities over which the Group has significant influence and are neither subsidiaries or joint ventures. The Group’s share of its associates’ and joint ventures’ post- acquisition profits or losses are recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post- acquisition movements are adjusted against the carrying amount of the investment. Dividends received from associates and joint ventures are recognised in the consolidated financial statements as a reduction in the carrying amount of the investment. When the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in associates and joint ventures. (C) ACCOUNTING FOR ACQUISITIONS Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity issued by the acquirer, the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in other expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree. FAIRFAX MEDIA LIMITED 2013 63 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 1. sUMMARY OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through the income statement. Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability is recognised in accordance with AASB 139 either in the income statement or as a change to other comprehensive income. If the contingent consideration is classified as equity, it will not be remeasured until it is finally settled within equity. (D) IMPAIRMENT OF ASSETS Intangibles, property, plant and equipment and investments accounted for using the equity method are tested for impairment annually, or at each reporting date where there is an indication that the asset may be impaired. 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. In assessing value in use, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets, or groups of assets, which are called cash generating units. Assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. (E) INTANGIBLES (i) GoodWill Goodwill represents the excess of cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired entity at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is not amortised. It is carried at cost less accumulated impairment losses. Impairment losses relating to goodwill cannot be reversed in future periods. Goodwill is allocated to a cash generating unit (CGU) for the purposes of impairment testing. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which goodwill relates. Refer to Note 1(D). Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity disposed. (ii) oTHeR inTAnGiBle ASSeTS Mastheads and tradenames The majority of mastheads and tradenames have been assessed to have indefinite useful lives. Accordingly, they are not amortised and are carried at cost less accumulated impairment losses. Mastheads and tradenames are tested for impairment in accordance with Note 1(D). The Group’s mastheads and tradenames operate in established markets with limited license conditions and are expected to continue to complement the Group’s new media initiatives. On this basis, the Directors have determined that the majority of mastheads and tradenames have indefinite lives as there is no foreseeable limit to the period over which the assets are expected to generate net cash inflows for the Group. There are a small number of tradenames that have been assessed to have a definite useful life and are amortised using a straight-line method over twenty years. Radio licences Radio licences, being commercial radio licences held by the consolidated entity under the provisions of the Broadcasting Services Act 1992, have been assessed to have indefinite useful lives. Accordingly, they are not amortised and are carried at cost less accumulated impairment losses. Radio licences are tested for impairment in accordance with Note 1(D). Websites Internal and external costs directly incurred in the development of websites are capitalised and amortised using a straight-line method over two to four years. Capitalised website costs are reviewed annually for potential impairment. Computer software Computer software licences acquired are capitalised as an intangible as are internal and external costs directly incurred in the purchase or development of computer software, including subsequent upgrades and enhancements when it is probable that they will generate future economic benefits attributable to the consolidated entity. These costs are amortised using the straight-line method over three to five years. other Other intangibles, where applicable, are stated at cost less accumulated amortisation and impairment losses. The useful life of the intangible assets are assessed to be either finite or indefinite and are examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Other intangible assets created within the business are not capitalised and are expensed in the income statement in the period the expenditure is incurred. 64 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 1. sUMMARY OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) (F) FOREIGN CURRENCY (i) CuRRenCy oF PReSenTATion All amounts are expressed in Australian dollars, which is the consolidated entity’s presentation currency. Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). (ii) TRAnSACTionS And BAlAnCeS Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at reporting date exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity and qualifying cash flow hedges, which are deferred in equity until disposal. Tax charges and credits attributable to exchange differences on borrowings are also recognised in equity. Translation differences on 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 initial transaction. Translation differences on non-monetary items, such as available for sale financial assets, are translated using the exchange rates at the date when the fair value was determined and included in the asset revaluation reserve in equity. (iii) GRouP enTiTieS The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each income statement are translated at average monthly exchange rates during the financial year; and • all resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of the borrowings designated as hedges of the net investment in foreign entities are taken directly to a separate component of equity; the net investment hedge reserve. On disposal of a foreign entity, or when borrowings that form part of the net investment are repaid, the deferred cumulative amount of the exchange differences in the net investment hedge reserve relating to that foreign entity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. (G) REVENUE RECOGNITION Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the amount of the revenue can be reliably measured. Revenue from advertising, circulation, subscription, online services, radio broadcasting and printing is recognised when control of the right to be compensated has been obtained and the stage of completion of the contract can be reliably measured. For newspapers, magazines and other publications the right to be compensated is on the publication date. Revenue from the provision of online advertising on websites is recognised in the period the advertisements are placed or the impression occurs. Amounts disclosed as revenue are net of commissions, rebates, discounts, returns, trade allowances, duties and taxes paid. Dividend revenue is recognised when the Group’s right to receive the payment is established, which is generally when the Board declares the dividend. Interest revenue is recognised as it accrues, based on the effective yield of the financial asset. (H) INCOME TAX AND OTHER TAXES The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributed to temporary differences and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the reporting date between the tax bases of assets and liabilities 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 liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. FAIRFAX MEDIA LIMITED 2013 65 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 1. sUMMARY OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) 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 available 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 only 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 reporting date and reduced to the extent that it is 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 the reporting date. Income taxes relating to items recognised directly in equity are recognised in equity. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable group and the same taxation authority. GoodS And SeRViCeS TAx (GST) Revenues, expenses and assets are recognised net of the amount of GST except: (i) where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and (ii) receivables and payables are stated with the amount of GST included. This net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cashflows are included in the cash flow statement on a gross basis and the GST component of cashflows arising from investing and financing activities, which are recoverable from, or payable to the taxation authority are classified as operating cashflows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. TAx ConSolidATion – AuSTRAliA Fairfax Media Limited (the head entity) and its wholly-owned Australian entities implemented the tax consolidation legislation as of 1 July 2003. The current and deferred tax amounts for each member in the tax consolidated group (except for the head entity) have been allocated based on stand-alone calculations that are modified to reflect membership of the tax consolidated group. On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which, in the opinion of the Directors, limits the joint and several liability of the wholly-owned entities in the case of a default of the head entity, Fairfax Media Limited. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Fairfax Media Limited for any current tax payable assumed and are compensated by the Company for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits transferred to Fairfax Media Limited under the tax consolidation legislation. Assets or liabilities arising under tax funding arrangements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the group. The amounts receivable/payable under the tax funding arrangements are due upon demand from the head entity. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. (I) LEASES (i) FinAnCe leASeS Assets acquired under finance leases which result in the consolidated entity receiving substantially all the risks and rewards of ownership of the asset are capitalised at the lease’s inception at the lower of the fair value of the leased property or the estimated present value of the minimum lease payments. The corresponding finance lease obligation, net of finance charges, is included within interest bearing liabilities. The interest element is allocated to accounting periods during the lease term to reflect a constant rate of interest on the remaining balance of the liability for each accounting period. The leased asset is included in property, plant and equipment and is depreciated over the shorter of the estimated useful life of the asset or the lease term. 66 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 1. sUMMARY OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) (ii) oPeRATinG leASeS Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Net rental payments, excluding contingent payments, are recognised as an expense in the income statement on a straight-line basis over the period of the lease. (iii) oneRouS PRoPeRTy CoSTS Property leases are considered to be an onerous contract if the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Where a decision has been made to vacate the premises or there is excess capacity and the lease is considered to be onerous, a provision is recorded. (J) CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short term investments with original maturities of three months or less that are readily convertible to cash and subject to insignificant risk of changes in value. Bank overdrafts are shown within interest bearing liabilities in current liabilities on the balance sheet. (K) TRADE AND OTHER RECEIVABLES Trade receivables are initially recognised at fair value and subsequently measured at amortised cost which is the original invoice amount less an allowance for any uncollectible amount. Collectability of trade receivables is reviewed on an ongoing basis and a provision for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Interest receivable on related party loans is recognised on an accruals basis. (L) INVENTORIES Inventories including work in progress are stated at the lower of cost and net realisable value. The methods used to determine cost for the main items of inventory are: • raw materials (comprising mainly newsprint and paper on hand) are assessed at average cost and newsprint and paper in transit by specific identification cost; • finished goods and work in progress are assessed as the cost of direct material and labour and a proportion of manufacturing overheads based on normal operating capacity; and • in the case of other inventories, cost is assigned by the weighted average cost method. (M) AVAILABLE FOR SALE INVESTMENTS Available for sale financial assets are investments in listed equity securities in which the Group does not have significant influence or control. They are stated at fair value based on current quoted prices and unrealised gains and losses arising from changes in the fair value are recognised in the asset revaluation reserve. The assets are included in non- current assets unless management intends to dispose of the investment within twelve months of the reporting date. (N) INVESTMENTS AND OTHER FINANCIAL ASSETS The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held to maturity investments and available for sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held to maturity, re-evaluates this designation at each reporting date. The consolidated entity classifies and measures its investments as follows: (i) FinAnCiAl ASSeTS AT FAiR VAlue THRouGH PRoFiT And loSS This category has two sub-categories: financial assets held for trading and those designated at fair value through profit and loss on initial recognition. The policy of management is to designate a financial asset at fair value through profit and loss if there exists the possibility it will be sold in the short term and the asset is subject to frequent changes in fair value. These assets are measured at fair value and realised and unrealised gains and losses arising from changes in fair value are included in the income statement in the period in which they arise. (ii) loAnS And ReCeiVABleS Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are included in receivables and other financial assets in the balance sheet. These assets are measured at amortised cost using the effective interest method. (iii) oTHeR FinAnCiAl ASSeTS These assets are non-derivatives that are either designated or not classified in any of the other categories and measured at fair value. Any unrealised gains and losses arising from changes in fair value are included in equity, impairment losses are included in the income statement. FAIRFAX MEDIA LIMITED 2013 67 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 1. sUMMARY OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) (iV) Held To MATuRiTy inVeSTMenTS Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. These assets are measured at amortised cost using the effective interest method. Financial assets other than derivatives are recognised at fair value or amortised cost in accordance with the requirements of AASB 139 Financial Instruments: Recognition and Measurement. Where they are carried at fair value, gains and losses on remeasurement are recognised directly in equity unless the financial assets have been designated as being held at fair value through profit and loss, in which case the gains and losses are recognised directly in the income statement. All financial liabilities other than derivatives are carried at amortised cost. The Group uses derivative financial instruments such as forward foreign currency contracts, and foreign currency and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Derivatives, including those embedded in other contractual arrangements, are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The measurement of the fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. Hedge accounting For the purposes of hedge accounting, hedges are classified as: • Fair value hedges: hedges of the fair value of recognised assets or liabilities or a firm commitment; • Cash flow hedges: hedges of highly probable forecast transactions; or • Net investment hedges: hedges of the net investment in a foreign operation. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Any gain or loss attributable to the hedged risk on remeasurement of the hedged item is adjusted against the carrying amount of the hedged item and recognised in the income statement within finance costs. Where the adjustment is to the carrying amount of a hedged interest bearing financial instrument, the adjustment is amortised to the income statement such that it is fully amortised by maturity. When the hedged firm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within finance costs. Gains or losses that are recognised in equity are transferred to the income statement in the same year in which the hedged firm commitment affects the net profit and loss, for example when the future sale actually occurs. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement. net investment hedge Hedges of a net investment in a foreign operation are accounted for in a similar way to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in the income statement. On disposal of the foreign operation, the cumulative value of such gains or losses recognised directly in equity is transferred to the income statement based on the amount calculated during the direct method of consolidation. derivatives that do not qualify for hedge accounting For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the income statement. (O) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost less accumulated depreciation and any accumulated impairment losses. Directly attributable costs arising from the acquisition or construction of fixed assets, including internal labour and interest, are also capitalised as part of the cost. 68 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 1. sUMMARY OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) ReCoVeRABle AMounT All items of property, plant and equipment are reviewed annually to ensure carrying values are not in excess of recoverable amounts. Recoverable amounts are based upon the present value of expected future cashflows. dePReCiATion And AMoRTiSATion Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows: Buildings Printing presses Other production equipment Other equipment Computer equipment up to 60 years up to 10 years up to 15 years up to 20 years up to 6 years The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with carrying amount. These are included in the income statement. (P) NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the income statement. Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale. (Q) TRADE AND OTHER PAYABLES Liabilities for trade creditors and other amounts are carried at amortised cost which is the fair value of the consideration to be paid in the future for goods and services received. Loans payable to related parties are carried at amortised cost and interest payable is recognised on an accruals basis. (R) PROVISIONS Provisions are recognised when the Group has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to others as a result of past transactions, or past events, it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date using a discounted cash flow methodology. The risks specific to the provision are factored into the cash flows and as such a risk-free government bond rate relative to the expected life of the provision is used as a discount rate. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs. A provision for dividends is not recognised as a liability unless the dividends are declared, determined or publicly recommended on or before reporting date. (S) INTEREST BEARING LIABILITIES Subsequent to initial recognition at fair value, net of transaction costs incurred, interest bearing liabilities are measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Finance lease liabilities are determined in accordance with the requirements of AASB 117 Leases (refer to Note 1(I)). BoRRoWinG CoSTS Borrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation or ancillary costs incurred in connection with arrangement of borrowings and foreign exchange losses net of hedged amounts on borrowings, including trade creditors and lease finance charges. Borrowing costs are expensed as incurred unless they relate to qualifying assets. Qualifying assets are assets which take more than twelve months to get ready for their intended use or sale. In these circumstances, borrowing costs are capitalised to the cost of the asset. Where funds are borrowed generally, borrowing costs are capitalised using a weighted average capitalisation rate. FAIRFAX MEDIA LIMITED 2013 69 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 1. sUMMARY OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) (T) EMPLOYEE BENEFITS (i) WAGeS, SAlARieS, AnnuAl leAVe And lonG SeRViCe leAVe Current liabilities for wages and salaries, holiday pay, annual leave and long service leave are recognised in the provision for employee benefits and measured at the amounts expected to be paid when the liabilities are settled. The employee benefit liability expected to be settled within twelve months from reporting date is recognised in current liabilities. The non-current provision relates to entitlements, including long service leave, which are expected to be payable after twelve months from reporting date and are measured as the present value of expected future payments to be made in respect of services, employee departures and periods of service. Expected future payments are discounted using market yields at reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Employee benefit on-costs are recognised and included in employee benefit liabilities and costs when the employee benefits to which they relate are recognised as liabilities. (ii) SHARe-BASed PAyMenT TRAnSACTionS Share-based compensation benefits can be provided to employees in the form of equity instruments. The cost of share-based payments is recognised over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become entitled to the award (the vesting date). At each reporting date until vesting, the cumulative charge to the income statement is the product of (i) the grant date fair value of the award; (ii) the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met; and (iii) the expired portion of the vesting period. The market value of equity instruments issued to employees for no cash consideration under the Long Term Incentive Plan is recognised as an employee benefits expense over the vesting period (refer to Note 31). Shares purchased, but which have not yet vested to the employee as at reporting date are offset against contributed equity of the Group (refer to Note 1(U)). (iii) deFined BeneFiT SuPeRAnnuATion PlAnS Fairfax Media Limited and certain controlled entities participate in a number of superannuation plans. An asset or liability in respect of defined benefit superannuation plans is recognised in the balance sheet, and is measured as the present value of the defined benefit obligation at the reporting date plus unrecognised actuarial gains (less unrecognised actuarial losses), less the fair value of the superannuation fund’s assets at that date and any unrecognised past service cost. The present value of the defined benefit obligation is based on expected future payments which arise from membership of the fund to the reporting date, calculated annually by independent actuaries using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Actuarial gains and losses are recognised in retained earnings in the periods in which they arise. Contributions made by the Group to defined contribution superannuation funds are charged to the income statement in the period the employee’s service is provided. (iV) TeRMinATion BeneFiTS Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. (V) BonuS PlAnS The Group recognises a provision and an expense for bonuses where contractually obliged or where there is a past practice that has created a constructive obligation. (U) CONTRIBUTED EQUITY Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are recognised in equity as a reduction from the proceeds. Incremental costs directly attributable to the issue of new shares for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. If the Group reacquires its own equity instruments, e.g. under the Long Term Incentive Plan, those instruments are deducted from equity. deBenTuReS Debentures have been included as equity as the rights attaching to them are in all material respects comparable to those attaching to the ordinary shares. Such debentures are unsecured non-voting securities that have interest entitlements equivalent to the dividend entitlements attaching to the ordinary voting shares and rank equally with such shares on any liquidation or winding up. These interest entitlements are treated as dividends. 70 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 1. sUMMARY OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) The debentures are convertible into shares on a one-for-one basis at the option of the holder provided that conversion will not result in a breach of any of the following: (i) any provision of the Foreign Acquisitions and Takeovers Act 1975; (ii) any undertaking given by the Company to the Foreign Investment Review Board or at the request of the Foreign Investment Review Board from time to time; or (iii) any other applicable law including, without limitation the Broadcasting Act 1942. (V) EARNINGS PER SHARE BASiC eARninGS PeR SHARe Basic earnings per share (EPS) is calculated by dividing the net profit attributable to members, adjusted to exclude costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for any bonus elements in ordinary shares issued during the financial year. diluTed eARninGS PeR SHARe Diluted earnings per share is calculated by dividing the basic EPS earnings adjusted by the after tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the effect on revenues and expenses of conversion to ordinary shares associated with dilutive potential ordinary shares by the weighted average number of ordinary shares and dilutive potential ordinary shares adjusted for any bonus issue. (W) SEGMENT REPORTING An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenue and expense relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the Board of Directors. Operating segments have been identified based on the information provided to the chief operating decision makers, being the Board of Directors, Chief Executive Officer and Chief Financial Officer and are disclosed in Note 37. The group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in each of the following respects: • Nature of the products and services; • Nature of the production processes; • Type or class of customer for the products and services; • Methods used to distribute the products or provide the services; and if applicable • Nature of the regulatory environment. Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category for “Other segments”. (X) SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS The carrying amounts of certain assets and liabilities are determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next financial year are: (i) iMPAiRMenT oF GoodWill And inTAnGiBleS WiTH indeFiniTe uSeFul liVeS The Group tests annually or at each reporting date where there is an indication of impairment. This requires an estimation of the recoverable amount of the cash generating units (CGU), using a value in use methodology, as detailed in Note 1(D). The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill and intangibles with indefinite useful lives, along with a sensitivity analysis, are detailed in Note 14. (ii) inCoMe TAxeS The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Judgement is required in determining the Group’s provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. (iii) SHARe-BASed PAyMenT TRAnSACTionS The Group measures the cost of equity-settled transactions with employees by reference to the fair value of equity instruments at the date at which they are granted. The fair value is determined by an external independent valuer using a Monte Carlo model, using the assumptions detailed in Note 31. FAIRFAX MEDIA LIMITED 2013 71 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 1. sUMMARY OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) (iV) deFined BeneFiT PlAnS Various actuarial assumptions are required when determining the Group’s superannuation plan obligations. These assumptions and the related carrying amounts are discussed in Note 21. (V) ReSTRuCTuRinG And RedundAnCy PRoViSion A provision for restructuring and redundancy has been disclosed in Note 20 as a result of the Group having a constructive obligation and a detailed formal plan for restructuring. (Y) ROUNDING OF AMOUNTS The consolidated entity is of a kind referred to in Class Order 98/0100, as amended by Class Order 04/667, issued by the Australian Securities and Investments Commission relating to the “rounding off” of amounts in the financial report. Amounts in this report have been rounded to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated. (Z) NEW ACCOUNTING STANDARDS AND URGENT ISSUES GROUP (UIG) INTERPRETATIONS (i) CHAnGeS in ACCounTinG PoliCy And diSCloSuRe As of 25 June 2012, the Group has adopted AASB 2011-9 Amendments to Australian Accounting Standards – AASB 101 Presentation of Items of Other Comprehensive Income. The adoption resulted in a disclosure change in the Statement of Comprehensive Income. (ii) ACCounTinG STAndARdS And inTeRPReTATionS iSSued BuT noT yeT eFFeCTiVe Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2013 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is as follows: • AASB 10 Consolidated Financial Statements (applicable to the Group from 1 July 2013) This standard broadens the situations where an entity is likely to be considered to control another entity and includes new guidance for determining control of an entity. Based on investments held at 30 June 2013 there will be no impact on the Group. • AASB 11 Joint Arrangements (applicable to the Group from 1 July 2013) This standard uses the principle of control in AASB 10 to define joint control and removes the option to choose to account for jointly controlled entities using the proportionate consolidation method or the equity method. This standard will have no impact on the Group. • AASB 12 Disclosure of Interests in Other Entities (applicable to the Group from 1 July 2013) The standard introduces new disclosures about the judgements made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests. This standard is not expected to have a significant impact on the Group. • AASB 13 Fair Value Measurement (applicable to the Group from 1 July 2013) The standard establishes a single source of guidance for determining the fair value of assets and liabilities. This standard is not expected to have a significant impact on the Group. • AASB 119 Employee Benefits (applicable to the Group from 1 July 2013) This amendment revises the accounting for defined benefit plans and changes the definition of short-term employee benefits. The Group has yet to fully assess the prior year impact of this amendment. • AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] (applicable to the Group from 1 July 2013) This amendment deletes from AASB 124 individual key management personnel (KMP) disclosure requirements for disclosing entities that are not companies. It also removes the individual KMP disclosure requirements for all disclosing entities in relation to equity holdings, loans and other related party transactions. This amendment is not expected to have a significant impact on the Group. • AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities [AASB 7 and AASB 132] (applicable to the Group from 1 July 2013) This amendment requires disclosure of the effect or potential effect of netting arrangements. This amendment will have no impact on the Group. The Group has yet to fully assess the impact the following accounting standards and amendments to accounting standards will have on the financial statements, when applied in future periods: • AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities [AASB 132] (applicable to the Group from 30 June 2014); and • AASB 9 Financial Instruments (applicable to the Group from 29 June 2015). 72 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 2. REVENUEs (A) REVENUE FROM OPERATIONS Total revenue from sale of goods ** Total revenue from services Total revenue from operations (B) OTHER REVENUE AND INCOME Interest income Dividend revenue Foreign exchange gains Gains on sale of property, plant and equipment Gains on sale of controlled entities Gain on derivative at fair value through profit and loss Other Total other revenue and income Total revenue and income 30 June 2013 $’000 24 JUNE 2012 RESTATED * $’000 489,764 1,520,724 2,010,488 453,931 1,745,950 2,199,881 11,604 112 1,541 1,011 19,830 785 19 34,902 10,458 142 8,767 135 – 3,900 1,662 25,064 2,045,390 2,224,945 * Certain numbers shown here do not correspond to the 2012 financial statements and reflect adjustments due to discontinued operations as detailed in Note 5. ** Revenue from the sale of goods includes revenue from circulation, subscription, printing and printing-related products. Circulation revenue will be impacted by fees payable for home delivery of newspapers which were previously netted against revenue in the prior year. Following a change in contractual terms, the fees have been disclosed in distribution costs in the current year. NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 3. ExPENsEs FAIRFAX MEDIA LIMITED 2013 73 30 June 2013 $’000 24 JUNE 2012 RESTATED * $’000 (A) EXPENSES BEFORE IMPAIRMENT, DEPRECIATION, AMORTISATION AND FINANCE COSTS Staff costs excluding staff redundancy costs 786,915 Redundancy costs Newsprint and paper Distribution costs ** Production costs Promotion and advertising costs Rent and outgoings Repairs and maintenance Outsourced services Communication costs Maintenance and other computer costs Fringe benefits tax, travel and entertainment Other Total expenses before impairment, depreciation, amortisation and finance costs (B) DEPRECIATION AND AMORTISATION Depreciation of freehold property Depreciation of plant and equipment Amortisation of leasehold buildings Amortisation of tradenames Amortisation of software Amortisation of customer relationships Total depreciation and amortisation (C) FINANCE COSTS External parties Finance lease Hedge ineffectiveness Total finance costs (D) DETAILED EXPENSE DISCLOSURES Operating lease rental expense Defined contribution superannuation expense Share-based payment expense 522 165,487 151,069 157,801 107,831 63,903 29,129 3,517 19,812 25,218 25,179 154,437 1,690,820 5,370 60,024 3,745 31 29,485 2,107 100,762 56,734 4,513 5,324 66,571 43,077 53,275 1,695 844,693 199,533 209,988 138,320 183,368 109,537 59,899 29,767 – 22,174 24,352 25,468 148,258 1,995,357 5,109 65,520 4,287 28 26,155 2,379 103,478 118,954 3,896 (2,661) 120,189 40,455 57,689 916 * Certain numbers shown here do not correspond to the 2012 financial statements and reflect adjustments due to discontinued operations as detailed in Note 5. ** In the prior year, fees payable for home delivery of newspapers were netted against revenue. Following a change in contractual terms, the fees have been disclosed in distribution costs in the current year. 74 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 4. sIGNIFICANT ITEMs The net profit after tax includes the following items whose disclosure is relevant in explaining the financial performance of the consolidated entity. Significant items are those items of such a nature or size that separate disclosure will assist users to understand the financial statements. impairment of intangibles, investments, inventories and property, plant and equipment – Comprising: Impairment of mastheads, goodwill, licences, customer relationships and software Impairment of investments, inventories and property, plant and equipment Income tax benefit impairment of intangibles, investments, inventories and property, plant and equipment, net of tax Restructuring and redundancy – Comprising: Restructuring and redundancy charges Income tax benefit Restructuring and redundancy, net of tax Gains on sale of controlled entities – Comprising: Gain on sale of US Agricultural Media business disclosed in other revenue and income * Gain on sale of Trade Me business disclosed in net profit from discontinued operations ** Income tax expense Gains on sale of controlled entities, net of tax 30 June 2013 $’000 24 JUNE 2012 $’000 (418,655) (2,758,061) (37,189) 11,232 (106,120) 66,689 (444,612) (2,797,492) (4,458) 1,337 (3,121) (200,447) 60,118 (140,329) 19,830 283,444 – 303,274 – – – – net significant items after income tax (144,459) (2,937,821) * On 14 November 2012, the Group disposed of the US Agricultural Media business for US$79.9 million. ** On 21 December 2012, the Group disposed of its remaining 51% interest in Trade Me Group Ltd for proceeds of A$605.5 million net of transaction fees. Previous disposals of the Group’s interest in this entity have resulted in a gain on sale of $182.8 million recorded in equity as an acquisition reserve while the Group still retained control. FAIRFAX MEDIA LIMITED 2013 75 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 5. DIsCONTINUED OPERATIONs On 21 December 2012, the Group disposed of its remaining 51% interest in Trade Me Group Ltd for proceeds of A$605.5 million net of transaction fees. The Trade Me business had its own operating segment within the segment reporting disclosures (refer Note 37). As at 30 June 2013, the Trade Me business has been classified as a discontinued operation. The financial information presented below is for the period ended 21 December 2012 and the comparative period is for the year ended 24 June 2012. Total revenue and income Share of net profits of associates and joint ventures Expenses net profit before income tax expense Income tax expense net profit after income tax expense Gain on sale of discontinued operations * Income tax expense 2013 $’000 60,871 – (21,229) 39,642 (11,205) 28,437 283,444 – 2012 $’000 114,243 435 (34,694) 79,984 (21,002) 58,982 – – net profit from discontinued operations after income tax expense 311,881 58,982 * The gain on sale is associated with the disposal of the Group’s 51% interest in Trade Me Group Ltd. Previous disposals of the Group’s interest in this entity have resulted in a gain on sale of $182.8 million recorded in equity as an acquisition reserve while the Group still retained control. earnings per share Basic earnings per share from discontinued operations Diluted earnings per share from discontinued operations Cash flows of discontinued operations The net cash flows incurred by discontinued operations are as follows: Operating Investing Financing net cash (outflow)/inflow 2013 ¢ PeR SHARe 2012 ¢ PER SHARE 13.3 13.3 2013 $’000 2.5 2.5 2012 $’000 27,010 (4,020) (26,894) (3,904) 56,489 (21,275) (9,393) 25,821 76 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 6. INCOME TAx ExPENsE CONSOLIDATED INCOME STATEMENT Income tax expense is reconciled to prima facie income tax payable as follows: Net loss from continuing operations before income tax expense Net profit from discontinued operations before income tax expense Profit/(loss) before income tax expense Prima facie income tax at 30% (2012: 30%) Tax effect of differences: Overseas tax rate and accounting differentials Share of net losses/(profits) of associates and joint ventures Capital gains not taxable Non-assessable dividends (Under)/over provision in respect of current tax in prior financial years Under provision in respect of deferred tax in prior financial years Temporary differences not recognised on intangible and other asset write-offs Non-deductible items Impact of tax consolidation Other income tax expense/(benefit) Income tax expense/(benefit) for continuing operations Income tax expense for discontinued operations income tax expense/(benefit) The major components of income tax expense in the income statement are: Current income tax expense Deferred income tax expense/(benefit) (Under)/over provision in respect of current tax in prior financial years income tax expense/(benefit) in the income statement 30 June 2013 $’000 24 JUNE 2012 $’000 (274,940) (2,857,828) 323,086 48,146 79,984 (2,777,844) 14,444 (833,353) (8,030) 1,313 (83,774) (5) (941) (966) 125,486 2,309 – (719) 49,117 37,912 11,205 49,117 27,620 11,233 (941) 37,912 4,289 (442) (552) (11) 3,420 (5,475) 780,269 2,861 (2,612) (435) (52,041) (73,043) 21,002 (52,041) 39,325 (115,584) 3,216 (73,043) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Deferred tax related to items charged or credited directly to other comprehensive income during the year: Unrealised gain/(loss) on available for sale financial assets Net (loss)/gain on actuarial gains and losses Net (loss)/gain on revaluation of cash flow hedges Net gain on hedge of net investment Net gain on exchange differences on translation of foreign operations income tax on items of other comprehensive income 30 June 2013 $’000 24 JUNE 2012 $’000 4 (702) (1,022) 5,530 20 3,830 (90) 1,117 3,561 1,070 4 5,662 FAIRFAX MEDIA LIMITED 2013 77 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 7. DIVIDENDs PAID AND PROPOsED (A) ORDINARY SHARES ConSolidATed 30 June 2013 $’000 CONSOLIDATED 24 JUNE 2012 $’000 CoMPAny 30 June 2013 $’000 COMPANY 24 JUNE 2012 $’000 Interim 2013 dividend: fully franked 1.0 cent – paid 20 March 2013 (2012: fully franked dividend 2.0 cents – paid 21 March 2012) 23,520 47,039 23,520 47,039 2012 dividend: fully franked 1.0 cent – paid 21 September 2012 (2011: fully franked dividend 1.5 cents – paid 27 September 2011) Total dividends paid 23,520 47,040 35,279 82,318 23,520 47,040 35,279 82,318 (B) DIVIDENDS PROPOSED AND NOT RECOGNISED AS A LIABILITY Since reporting date the Directors have declared a dividend of 1.0 cent per fully paid ordinary share, fully franked at the corporate tax rate of 30%. The aggregate amount of the dividend to be paid on 17 September 2013 out of profits, but not recognised as a liability at the end of the year, is expected to be $23.5 million. (C) FRANKED DIVIDENDS Franking account balance as at reporting date at 30% (2012: 30%) Reduction in franking credits that will arise from the receipt of income tax receivable balances as at the end of the financial year Franking credits that will arise from the payment of income tax payable balances as at the end of the financial year CoMPAny 2013 $’000 COMPANY 2012 $’000 60,043 74,182 (3,901) (778) – Total franking credits available for subsequent financial years based on a tax rate of 30% 56,142 73,404 On a tax-paid basis, the Company’s franking account balance is approximately $60.0 million (2012: $74.2 million). The impact on the franking account of the dividend declared by the Directors since reporting date will be a reduction in the franking account of approximately $10.1 million. 78 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 8. RECEIVABLEs Current Trade debtors * Provision for doubtful debts Loans and deposits Prepayments Other Total current receivables non-current Loans and deposits Other Total non-current receivables 30 June 2013 $’000 24 JUNE 2012 $’000 274,797 (10,014) 264,783 3,045 11,919 18,583 316,940 (10,059) 306,881 52 12,763 14,770 298,330 334,466 716 330 1,046 1,539 940 2,479 * Trade debtors are non-interest bearing and are generally on 7 to 45 day terms. IMPAIRED TRADE DEBTORS As at 30 June 2013, trade debtors of the Group with a nominal value of $10.0 million (2012: $10.1 million) were impaired and provided for. No individual amount within the provision for doubtful debts is material. Refer to Note 36(C) for the factors considered in determining whether trade debtors are impaired. As at 30 June 2013, an analysis of trade debtors that are not considered impaired is as follows: Not past due Past due 0 – 30 days Past due 31 – 60 days Past 60 days 30 June 2013 $’000 24 JUNE 2012 $’000 205,999 45,960 8,291 4,533 224,013 64,103 11,633 7,132 264,783 306,881 Based on the credit history of the trade debtors, it is expected that these amounts will be received. All other receivables are not past due and do not contain impaired assets. Movements in the provision for doubtful debts are as follows: Balance at the beginning of the financial year Additional provisions Acquisition of controlled entities Disposal of controlled entities Discontinued operations Receivables written off as uncollectible Exchange differences Balance at the end of the financial year 2013 $’000 10,059 4,807 – (80) (56) (4,886) 170 10,014 2012 $’000 10,061 3,576 5 (318) – (3,290) 25 10,059 FAIRFAX MEDIA LIMITED 2013 79 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 9. INVENTORIEs Raw materials and stores – at net realisable value Finished goods – at cost Work in progress – at cost Total inventories 30 June 2013 $’000 24 JUNE 2012 $’000 25,552 4,358 998 30,908 31,815 4,242 565 36,622 During the year, newsprint and paper expense (excluding cartage) of $164.0 million (2012: $208.6 million) was recognised in the income statement. During the year, a $6.1 million (2012: nil) write down to net realisable value on raw materials and stores was recognised within other expenses in the income statement. 10. AssETs AND LIABILITIEs HELD FOR sALE (A) Assets held for sale Freehold land and buildings Plant and equipment Fairfax Community Network Ltd disposal group Intangible assets Other assets Total assets held for sale (B) liabilities directly associated with held for sale assets Fairfax Community Network Ltd disposal group Provisions Other liabilities Total liabilities directly associated with held for sale assets 30 June 2013 $’000 24 JUNE 2012 $’000 6,979 – – – 6,979 8,949 514 15,262 949 25,674 – – – 3,918 1,038 4,956 FReeHold lAnd And BuildinGS Assets held for sale comprise properties in Australia and New Zealand that are being actively marketed and for which the sale is highly probable. During the current year, three of these properties were sold. Prior to being transferred to held for sale, the properties are remeasured at the lower of carrying amount and fair value less costs to sell. An impairment charge of $0.5 million (2012: nil) was recognised in the income statement against the assets. FAiRFAx CoMMuniTy neTWoRk lTd diSPoSAl GRouP On 13 July 2012, the sale of Fairfax Community Network Ltd was completed. 80 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 11. OTHER FINANCIAL AssETs CURRENT Loan receivable Total current other financial assets NON-CURRENT Shares in unlisted entities – at fair value Loan receivable Total non-current other financial assets 30 June 2013 $’000 24 JUNE 2012 $’000 4,386 4,386 3,914 3,914 67 6,155 6,222 67 10,701 10,768 The loan receivable has quarterly repayments, consisting of both interest and principal, and matures on 30 September 2015. 12. INVEsTMENTs ACCOUNTED FOR UsING THE EqUITY METHOD Shares in associates Shares in joint ventures Total investments accounted for using the equity method (A) INTERESTS IN ASSOCIATES NAME OF COMPANY Australian Associated Press Pty Ltd PRINCIPAL ACTIVITY News agency business and information service Digital Radio Broadcasting Melbourne Pty Ltd (i) Digital audio broadcasting Digital Radio Broadcasting Perth Pty Ltd Digital audio broadcasting Digital Radio Broadcasting Brisbane Pty Ltd Digital audio broadcasting Digital Radio Broadcasting Sydney Pty Ltd (i) Digital audio broadcasting Earth Hour Limited Environmental promotion Homebush Transmitters Pty Ltd Rental of a transmission facility MMP Holdings Pty Ltd (ii) Newspaper House Limited (iii) New Zealand Press Association Ltd NGA.net Pty Ltd Perth FM Facilities Pty Ltd Community newspaper publisher Property ownership News agency business and financial information service Provider of e-recruitment software to corporations Rental of a transmission facility The Video Network Pty Ltd (iv) Internet delivered television network Times Newspapers Limited Xchange IT Software Pty Ltd Xchange IT Newsagents Pty Ltd Newspaper publishing Provider of EDI software Provider of EDI software NOTE (A) (B) 30 June 2013 $’000 24 JUNE 2012 $’000 63,103 17,387 80,490 12,671 18,140 30,811 OWNERSHIP INTEREST PLACE OF INCORPORATION 30 June 2013 24 JUNE 2012 Australia Australia Australia Australia Australia Australia Australia Australia New Zealand New Zealand Australia Australia Australia New Zealand Australia Australia 47.0% 18.2% 33.3% 25.0% 11.3% 33.3% 50.0% 50.01% – 49.2% 24.6% 33.3% 28.6% 49.9% 33.3% 25.0% 47.0% 18.2% 33.3% 25.0% 11.3% 33.3% 50.0% – 45.5% 49.2% 24.6% 33.3% – 49.9% 33.3% 25.0% (i) The Group has significant influence in the entity due to its right to participate in policy setting for the entity. (ii) Investment was acquired on 13 July 2012. The Group does not have control of this company as it does not have power to govern the financial and operating policies of the company, such as power over budget, operational plans and appointment and removal of key personnel. The investment has been classified as an associate, rather than a joint venture, as all significant decisions do not require unanimous consent. (iii) Company was deregistered on 23 April 2013. (iv) Investment was acquired on 21 December 2012. NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 12. INVEsTMENTs ACCOUNTED FOR UsING THE EqUITY METHOD (CONTINUED) (i) Share of associates’ profits Revenue Loss before income tax expense Non-recurring impairment charge in associate Income tax (expense)/benefit net loss after income tax expense (ii) Share of associates’ assets and liabilities Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities FAIRFAX MEDIA LIMITED 2013 81 30 June 2013 $’000 24 JUNE 2012 RESTATED (v) $’000 76,193 (1,856) (2,805) (96) (4,757) 18,205 30,685 48,890 13,627 3,280 16,907 44,586 (1,029) – 29 (1,000) 15,136 24,158 39,294 11,057 4,315 15,372 (v) Certain income statement numbers shown here do not correspond to the 2012 financial statements and reflect adjustments due to discontinued operations as detailed in Note 5. (B) INTERESTS IN JOINT VENTURES NAME OF COMPANY PRINCIPAL ACTIVITY OWNERSHIP INTEREST PLACE OF INCORPORATION 30 June 2013 24 JUNE 2012 Dog Lovers Show Pty Limited Organisation of canine industry exhibitions Australia Farm Progress/VX LLC (vi) Organisation of agricultural events Fermax Distribution Company Pty Ltd Letterbox distribution of newspapers Gilgandra Newspapers Pty Ltd Newspaper publishing and printing Gippsland Regional Publications Partnership Newspaper publishing and printing Torch Publishing Company Pty Ltd Newspaper publishing and printing USA Australia Australia Australia Australia (vi) Investment was disposed as part of the US Agricultural Media business sale on 14 November 2012. (i) Share of joint ventures’ profits Revenues Expenses Profit before income tax expense Income tax expense net profit after income tax expense (ii) Share of joint ventures’ assets and liabilities Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities (C) SHARE OF NET (LOSSES)/PROFITS OF ASSOCIATES AND JOINT VENTURES (Loss)/profit before income tax expense Income tax expense net (loss)/profit after income tax expense 50.0% – 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 30 June 2013 $’000 24 JUNE 2012 $’000 11,257 (8,631) 2,626 (108) 2,518 4,786 16,466 21,252 1,223 257 1,480 (2,035) (204) (2,239) 11,274 (8,812) 2,462 (151) 2,311 4,107 16,990 21,097 1,198 339 1,537 1,433 (122) 1,311 82 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 13. AVAILABLE FOR sALE INVEsTMENTs Listed equity securities – at fair value Total available for sale investments 30 June 2013 $’000 24 JUNE 2012 $’000 1,929 1,929 1,991 1,991 Available for sale investments consist of investments in ordinary shares at fair value and have no fixed maturity date. During the year, an impairment charge of $0.4 million was recognised in the income statement due to a significant decline in the share price in respect of one investment. 14. INTANGIBLE AssETs Mastheads and tradenames Goodwill Radio licences Software Customer relationships Total intangible assets RECONCILIATIONS 30 June 2013 $’000 966,223 294,385 114,037 56,840 6,549 24 JUNE 2012 $’000 1,286,843 1,009,085 121,637 76,006 8,474 1,438,034 2,502,045 Reconciliations of the carrying amount of each class of intangible at the beginning and end of the current financial year are set out below: MASTHEADS & TRADENAMES $’000 NOTE GOODWILL $’000 RADIO LICENCES $’000 SOFTWARE $’000 CUSTOMER RELATIONSHIPS $’000 TOTAL $’000 At 26 June 2011 Cost Accumulated amortisation and impairment net carrying amount Period ended 24 June 2012 Balance at beginning of the financial year Additions Capitalisations from works in progress 15 Reallocation from purchase price accounting Disposals Assets classified as held for sale Acquisition through business combinations Amortisation for continuing operations 3(B) Amortisation for discontinued operations Impairment Exchange differences At 24 June 2012, net of accumulated amortisation and impairment 3,714,053 2,468,101 (459,657) (669,083) 3,254,396 1,799,018 156,678 (24,461) 132,217 253,229 (182,205) 71,024 8,008 6,600,069 (4,555) (1,339,961) 3,453 5,260,108 3,254,396 1,799,018 132,217 1,443 – – – (15,211) 2,895 (28) – 46 – (8,263) (2,000) (11) 6,518 – – (1,963,624) (794,295) 6,972 8,072 – – – (10,580) – – – – – – 71,024 17,011 7,843 2,899 (134) (40) 5,675 (26,155) (2,113) (251) 247 3,453 5,260,108 – – 7,384 – – – 18,500 7,843 2,020 (12,714) (15,262) 15,088 (2,379) (28,562) – – 16 (2,113) (2,758,170) 15,307 1,286,843 1,009,085 121,637 76,006 8,474 2,502,045 FAIRFAX MEDIA LIMITED 2013 83 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 14. INTANGIBLE AssETs (CONTINUED) MASTHEADS & TRADENAMES $’000 NOTE GOODWILL $’000 RADIO LICENCES $’000 SOFTWARE $’000 CUSTOMER RELATIONSHIPS $’000 TOTAL $’000 At 24 June 2012 Cost 3,692,719 2,455,250 Accumulated amortisation and impairment (2,405,876) (1,446,165) net carrying amount 1,286,843 1,009,085 143,700 (22,063) 121,637 269,976 (193,970) 76,006 15,417 6,577,062 (6,943) (4,075,017) 8,474 2,502,045 Period ended 30 June 2013 Balance at beginning of the financial year Additions Capitalisations from works in progress 15 Disposals Discontinued operations Disposal of controlled entities Acquisition through business combinations Amortisation for continuing operations 3(B) Amortisation for discontinued operations Impairment Exchange differences At 30 June 2013, net of accumulated amortisation and impairment At 30 June 2013 Cost 1,286,843 1,009,085 121,637 76,006 8,474 2,502,045 – – – – – – (26,199) (585,939) (26,196) 1,766 (23,143) 13,872 (31) – – – – – – – – – – – 7,954 9,364 (286) (8,814) (96) 2,154 (29,485) (2,010) – – – – – 375 (2,107) – 7,954 9,364 (286) (620,952) (49,435) 18,167 (31,623) (2,010) (280,100) (130,706) (7,600) – (249) (418,655) 10,140 11,216 – 2,053 56 23,465 966,223 294,385 114,037 56,840 6,549 1,438,034 3,707,070 1,809,157 143,700 276,874 15,921 5,952,722 Accumulated amortisation and impairment (2,740,847) (1,514,772) (29,663) (220,034) (9,372) (4,514,688) net carrying amount 966,223 294,385 114,037 56,840 6,549 1,438,034 The carrying value of intangibles should be considered with reference to accounting policies described in Note 1(D) and (E). The carrying value of intangible assets is an area of significant accounting estimate and judgement as described in Note 1(X) of the Group’s accounting policies. The assumptions used in this estimation of recoverable amount and the sensitivities around the key assumptions are outlined in (i)-(ii) below. iMPAiRMenT oF CASH GeneRATinG uniTS (CGu) inCludinG GoodWill And indeFiniTe liFe ASSeTS (i) A CGU is the grouping of assets at the lowest level for which there are separately identifiable cash flows. CGU Groups are an aggregation of CGUs which have similar characteristics. The recoverable amount of each CGU which includes goodwill or indefinite life intangibles has been tested. The value in use calculations prepared by the company use discounted cash flow methodology. Key components of the calculation and the basis for each component are set out below: year 1 cash flows This is based upon the annual budget for 2014 which includes the impact of the Fairfax of the Future program. year 2 and 3 cash flows These cash flows are forecast using year 1 as a base and a growth or decline factor applied to revenue and expenses in years 2 and 3. The rate of change takes account of management’s best estimate of the likely results in these periods, industry forecasts, historical actual rates and the impact of the Fairfax of the Future restructure. Revenue declines of between 3% and 8.5% have been used in publishing where management expect the cyclical downturn and structural change to continue. In the digital businesses, revenue growth of 5% to 25% depending on the maturity of the market, has been adopted including the introduction of digital subscription models. Expenses have been adjusted to account for the revenue growth or decline, Fairfax of the Future restructuring and other committed management initiatives. Terminal growth factor A terminal growth factor that estimates the long term average growth for that CGU is applied to the year 3 cash flows into perpetuity. A rate of 3.5% (2012: 3.5%) has been used for digital cash flows. Metropolitan Media, Australian Regional Media, New Zealand Media and Printing Operations were calculated at nil growth (2012: Regional/New Zealand 2.5%; Metropolitan/ Printing nil) and Broadcasting calculated at 2.5% (2012: 2.5%). 84 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 14. INTANGIBLE AssETs (CONTINUED) discount rate The discount rate is an estimate of the post-tax rate that reflects current market assessment of the time value of money and the risks specific to the CGU. The post-tax discount rates applied to the CGU Groups’ cash flow projections were in a range producing a mid point of 11.0% for Australian and 10.9% for New Zealand Media (2012: Aust: 11.5%; NZ: 11.2%), 12.9% for Australian Online (2012: 12.8%) and 12.7% for New Zealand Online (2012: 12.6%). Each of the above factors is subject to significant judgement about future economic conditions and the ongoing structure of the publishing and digital industries. Specifically, the Directors note that the extent and duration of the current cyclical downturn in advertising is difficult to predict. The Directors have applied their best estimates to each of these variables but cannot warrant their outcome. To assess the impact of this significant uncertainty, and the range of possible outcomes, sensitivity analysis is disclosed below. (ii) iMPACT oF PoSSiBle CHAnGe in key ASSuMPTionS Holding all assumptions constant, if year 1 cash flow forecasts declined by 5%, an additional impairment in aggregate of $50 million would arise for the Regional, Metropolitan, Agricultural and New Zealand CGU Groups. If year 1 cash flow forecasts increased by 5%, in aggregate, the impairment would be reduced by $34 million. Holding all assumptions constant, if year 3 cash flow forecasts declined by 5%, an additional impairment in aggregate of $64 million would arise for the Regional, Metropolitan, Agricultural and New Zealand CGU Groups. If year 3 cash flow forecasts increased by 5%, in aggregate, the impairment would be reduced by $21 million. Holding all assumptions constant, if the discount rate applied to the cash flow projections was increased by 0.5%, an additional impairment of $59 million would arise for the Regional, Metropolitan, Agricultural and New Zealand CGU Groups. If the rate was decreased by 0.5%, the impairment would be reduced by $25 million. Holding all assumptions constant, if terminal growth factors were reduced by a further 0.5% across all CGU’s then a further impairment of $49 million would arise for the Regional, Metropolitan, Agricultural and New Zealand CGU Groups. If terminal growth factors were increased by 0.5% across all CGU’s then the impairment would be reduced by $22 million. (iii) AlloCATion oF GoodWill, liCenCeS, MASTHeAdS And TRAdenAMeS To CGuS For the financial year ended 30 June 2013, goodwill, licences, mastheads and tradenames were allocated to the CGU Groups below. The table below also indicates which operating segment each CGU Group belongs to. Operating segments are defined at Note 1(W) and Note 37 with further disclosure on the results for each operating segment. At 30 June 2013 Allocation to CGu Groups Metropolitan Media Australian Digital Transactions Australian Regional Media Agricultural Media Broadcasting New Zealand Media OPERATING SEGMENT Metropolitan Media Metropolitan Media Fairfax Regional Media Fairfax Regional Media Broadcasting New Zealand Media LICENCES, MASTHEADS AND TRADENAMES $’000 GOODWILL $’000 33,041 205,159 – – 56,185 – 393,389 18,739 283,519 122,333 114,037 148,243 TOTAL $’000 426,430 223,898 283,519 122,333 170,222 148,243 Total goodwill, licences, mastheads and tradenames 294,385 1,080,260 1,374,645 At 24 June 2012 Allocation to CGu Groups Metropolitan Media Australian Digital Transactions Australian Regional Media Agricultural Media Broadcasting New Zealand Media OPERATING SEGMENT Metropolitan Media Metropolitan Media Fairfax Regional Media Fairfax Regional Media Broadcasting New Zealand Media Trade Me (discontinued operation) Trade Me LICENCES, MASTHEADS AND TRADENAMES $’000 GOODWILL $’000 33,041 192,057 121,987 31,861 56,185 – 573,954 393,390 23,750 473,453 232,747 121,637 137,790 25,713 Total goodwill, licences, mastheads and tradenames 1,009,085 1,408,480 TOTAL $’000 426,431 215,807 595,440 264,608 177,822 137,790 599,667 2,417,565 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 15. PROPERTY, PLANT AND EqUIPMENT Freehold land and buildings At cost Accumulated depreciation and impairment Total freehold land and buildings leasehold buildings At cost Accumulated depreciation and impairment Total leasehold buildings Plant and equipment At cost Accumulated depreciation and impairment Total plant and equipment Capital works in progress – at cost Total property, plant and equipment RECONCILIATIONS FAIRFAX MEDIA LIMITED 2013 85 30 June 2013 $’000 24 JUNE 2012 $’000 273,198 (59,774) 213,424 257,582 (38,220) 219,362 110,574 (70,785) 39,789 103,904 (36,166) 67,738 1,061,360 (868,862) 192,498 1,083,690 (831,535) 252,155 33,222 7,749 478,933 547,004 Reconciliations of the carrying amount of each class of property, plant and equipment during the financial year are set out below: At 26 June 2011 Cost Accumulated depreciation and impairment net carrying amount Period ended 24 June 2012 Balance at beginning of financial year Additions/capitalisations Capitalisation to software Disposals Acquisition through business combinations Depreciation for continuing operations Depreciation for discontinued operations Assets classified as held for sale Impairment Exchange differences At 24 June 2012, net of accumulated depreciation and impairment At 24 June 2012 Cost Accumulated depreciation and impairment net carrying amount CAPITAL WORKS IN PROGRESS $’000 NOTE FREEHOLD LAND & BUILDINGS $’000 LEASEHOLD BUILDINGS $’000 PLANT AND EQUIPMENT $’000 TOTAL $’000 16,547 – 16,547 16,547 (936) (7,843) (38) – – – – – 19 267,103 (34,530) 232,573 232,573 781 – (2,654) – (5,109) – (6,881) – 652 100,101 (25,285) 74,816 1,112,149 (713,739) 398,410 1,495,900 (773,554) 722,346 74,816 3,274 – (181) 11 (4,287) – (96) (6,039) 240 398,410 23,917 – (2,044) 185 (65,520) (1,912) (783) 722,346 27,036 (7,843) (4,917) 196 (74,916) (1,912) (7,760) (100,559) (106,598) 461 1,372 7,749 219,362 67,738 252,155 547,004 14 3(B) 10 7,749 – 7,749 257,582 (38,220) 219,362 103,904 1,083,690 (36,166) 67,738 (831,535) 252,155 1,452,925 (905,921) 547,004 86 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 15. PROPERTY, PLANT AND EqUIPMENT (CONTINUED) CAPITAL WORKS IN PROGRESS $’000 NOTE FREEHOLD LAND & BUILDINGS $’000 LEASEHOLD BUILDINGS $’000 PLANT AND EQUIPMENT $’000 Period ended 30 June 2013 Balance at beginning of financial year Additions/capitalisations Capitalisation to software Disposals Disposal of controlled entities Discontinued operations Acquisition through business combinations Depreciation for continuing operations Depreciation for discontinued operations Assets classified as held for sale Reclasses between asset categories Impairment Exchange differences At 30 June 2013, net of accumulated depreciation and impairment At 30 June 2013 Cost Accumulated depreciation and impairment net carrying amount 14 3(B) 10 7,749 35,715 (9,364) – – (1,047) – – – – 123 – 46 219,362 2,313 – (259) (979) – 1,350 (5,370) – 1,052 4,838 (11,430) 2,547 67,738 762 – – (209) (46) 4 252,155 13,130 – (2,132) (406) (3,111) 1,218 TOTAL $’000 547,004 51,920 (9,364) (2,391) (1,594) (4,204) 2,572 (3,745) (60,024) (69,139) – – 2,692 (27,534) 127 (1,114) 524 (7,653) (1,967) 1,878 (1,114) 1,576 – (40,931) 4,598 33,222 213,424 39,789 192,498 478,933 33,222 – 33,222 273,198 (59,774) 213,424 110,574 (70,785) 39,789 1,061,360 1,478,354 (868,862) (999,421) 192,498 478,933 During the current year, an impairment charge of $40.9 million was recorded on property, plant and equipment. This impairment primarily relates to leasehold improvements and freehold land and buildings at various sites in the Group’s print network. The impairment was recognised following a review of the fair value less costs to sell. FAIRFAX MEDIA LIMITED 2013 87 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 16. DERIVATIVE FINANCIAL INsTRUMENTs Current assets Cross currency swap – cash flow hedge Cross currency swap – net investment hedge Forward contracts Call option derivative Total current derivative assets non-current assets Cross currency swap – cash flow hedge Cross currency swap – net investment hedge Call option derivative Total non-current derivative assets Current liabilities Interest rate swap – cash flow hedge Cross currency swap – cash flow hedge Cross currency swap – fair value hedge Forward contracts Obligation under put option * Total current derivative liabilities non-current liabilities Interest rate swap – cash flow hedge Cross currency swap – fair value hedge Cross currency swap – cash flow hedge Obligation under put option * Total non-current derivative liabilities 30 June 2013 $’000 24 JUNE 2012 $’000 3,193 5,617 1,808 400 11,018 7,107 708 – 7,815 4,381 598 35,741 822 6,436 47,978 19,453 7,290 196 – 26,939 – – 123 – 123 2,464 23,976 600 27,040 – – – – – – 27,243 59,172 1,792 7,421 95,628 * Present value of exercise price of the put option over subsidiary shares. The put and the call option are exercisable in the period July 2013 – September 2013. The Group uses derivative financial instruments to reduce the exposure to fluctuations in interest rates and foreign currency rates. The Group formally designates hedging instruments to an underlying exposure and details the risk management objectives and strategies for undertaking hedge transactions. The Group assesses at inception and on a semi-annual basis thereafter, as to whether the derivative financial instruments used in the hedging transactions are effective at offsetting the risks they are designed to hedge. Due to the high effectiveness between the hedging instrument and underlying exposure being hedged, value changes in the derivatives are generally offset by changes in the fair value or cash flows of the underlying exposure. Any derivatives not formally designated as part of a hedging relationship are fair valued with any changes in fair value recognised in the income statement. The derivatives entered into are over the counter instruments within liquid markets. HEDGING ACTIVITIES (i) CASH FloW HedGeS – inTeReST RATe And CRoSS CuRRenCy SWAPS At 30 June 2013, the Group held cross currency swaps designated as hedges of future contracted interest payments on the USD denominated senior notes issued in July 2007. The cross currency swaps are being used to hedge a combination of future movements in interest rates and foreign currency exchange rates. 88 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 16. DERIVATIVE FINANCIAL INsTRUMENTs (CONTINUED) At 30 June 2013, the notional principal amounts and period of expiry of the swaps for each counterparty are as follows: Pay fixed, receive floating – AUD$59.5m Pay fixed, receive floating – AUD$59.5m INTEREST RATE MATURITY DATE 10 July 2017 10 July 2017 2013 7.52% 7.46% 2012 7.52% 7.46% The contracts require settlement on interest receivable semi-annually and interest payable each 90 days. These dates coincide with the interest payable dates on the underlying Senior Notes. At 30 June 2013, the Group held an interest rate swap designated as hedging the future contracted interest payments on AUD denominated bank borrowings. The interest rate swap is being used to hedge future movements in interest rates. At 30 June 2013, the notional principal amount and period of expiry of the swap is as follows: Pay fixed, receive floating – AUD$125m INTEREST RATE MATURITY DATE 12 October 2015 2013 6.52% 2012 6.52% The contract requires settlement on interest receivable and interest payable each 90 days. These dates coincide with the interest payable dates on the underlying AUD denominated bank borrowings. At 30 June 2013, the above hedges were assessed to be highly effective with a combined unrealised gain in fair value of $1.7 million (2012: $8.3 million loss) recognised in equity for the period. During the period an unrealised loss of $0.4 million (2012: $0.1 million unrealised gain) was recognised in the income statement attributable to the ineffective portion of the cash flow hedges. During the year there was no gain or losses transferred from equity to the income statement (2012: $1.2 million gain). (ii) CASH FloW HedGeS – FoReiGn exCHAnGe ConTRACTS During the year, forward exchange contracts were used by the Group to hedge future foreign capital and non-capital purchase commitments across the Australian and New Zealand business. The contracts are timed to mature as payments are scheduled to be made to suppliers. At 30 June 2013, the Group held forward exchange contracts of $1.0 million (2012: $0.1 million). The foreign currency contracts are considered to be fully effective hedges as they are matched against the highly probable foreign capital and non-capital purchases with any gain or loss on the contracts taken directly to equity. When the contract is delivered, the Group will adjust the initial measurement of any component recognised on the balance sheet by the related amount deferred in equity. During the current and prior financial period there was no material ineffectiveness recognised in the income statement attributable to cash flow hedges of foreign exchange contracts. (iii) FAiR VAlue HedGeS At 30 June 2013, the Group held cross currency swap agreements designated as hedging changes in the underlying value of USD denominated senior notes (refer to Note 19). The terms of certain cross currency swap agreements exchange USD obligations into AUD obligations and other agreements exchange USD obligations into NZD obligations. The latter are also designated to hedge value changes in the Group’s New Zealand controlled entities, as discussed in Note (iv) below. At 30 June 2013, the cross currency swap agreements had a combined derivative liability position of $43.0 million (2012: $59.2 million). The cross currency swaps are designated based on matched terms to the debt and also have the same maturity profile as the USD denominated senior notes. The terms of these cross currency swaps are as follows: Pay floating AUD receive fixed USD – USD$125m Pay floating AUD receive floating USD – USD$25m Pay floating NZD receive fixed USD – USD$50m Pay floating NZD receive fixed USD – USD$90m Pay floating NZD receive fixed USD – USD$40m MATURITY DATE 10 July 2014 10 July 2014 15 January 2014 15 January 2016 15 January 2019 FAIRFAX MEDIA LIMITED 2013 89 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 16. DERIVATIVE FINANCIAL INsTRUMENTs (CONTINUED) For the Group, the remeasurement of the hedged items resulted in a loss before tax of $21.4 million (2012: $11.0 million loss) and the changes in the fair value of the hedging instruments resulted in a gain before tax of $16.1 million (2012: $14.6 million gain) resulting in a net loss before tax of $5.3 million (2012: $3.6 million gain) recorded in finance costs. (iV) neT inVeSTMenT HedGeS The NZD/USD cross currency swap agreements have also been designated to hedge the net investment in New Zealand controlled entities acquired as part of the acquisition of the business assets of Independent News Limited in June 2003. At 30 June 2013, the hedges were assessed to be highly effective with an unrealised loss of $12.9 million (2012: $2.5 million loss) recognised in equity. During the current financial period there was an unrealised loss of $0.8 million (2012: $0.2 million gain) recognised in the income statement attributable to the ineffective portion of the net investment hedges. 17. DEFERRED TAx AssETs AND LIABILITIEs (A) RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets and liabilities are attributable to the following: ASSETS LIABILITIES NET 30 June 2013 $’000 24 JUNE 2012 $’000 30 June 2013 $’000 24 JUNE 2012 $’000 30 June 2013 $’000 24 JUNE 2012 $’000 Property, plant and equipment 11,607 16,117 Inventories Investments Intangible assets Other assets Provisions Payables Other liabilities Tax losses Other Gross deferred tax assets/liabilities Set-off of deferred tax assets/liabilities net deferred tax assets/liabilities – – 6,286 16,946 62,524 10,669 9,747 8,144 1,415 127,338 (19,443) 107,895 – – 6,278 18,792 100,620 15,004 4,917 – 2,853 164,581 (42,051) 122,530 10,111 3,055 515 5,038 4,182 – – 475 – (352) 23,024 (19,443) 3,581 22,275 3,121 1,133 13,018 17,487 – – 393 – (151) 57,276 (42,051) 15,225 1,496 (3,055) (515) 1,248 12,764 62,524 10,669 9,272 8,144 1,767 104,314 – (6,158) (3,121) (1,133) (6,740) 1,305 100,620 15,004 4,524 – 3,004 107,305 – 104,314 107,305 (B) MOVEMENT IN TEMPORARY DIFFERENCES DURING THE FINANCIAL YEAR Property, plant and equipment Inventories Investments Intangible assets Other assets Provisions Payables Other liabilities Tax losses Other BALANCE 24 JUNE 2012 RECOGNISED ON ACQUISITION RECOGNISED IN INCOME RECOGNISED IN EQUITY BALANCES DISPOSED DISCONTINUED OPERATIONS BAlAnCe 30 June 2013 (6,158) (3,121) (1,133) (6,740) 1,305 100,620 15,004 4,524 – 3,004 107,305 (102) – – (113) – 195 47 – – 4 31 7,659 66 614 (647) 10,205 (38,078) (4,058) 4,881 8,144 (19) (11,233) – – 4 – 4,190 – – – – (1,211) 2,983 55 – – 8,748 (1,987) – – – – – 42 – – – (949) (213) (324) (133) – (11) 1,496 (3,055) (515) 1,248 12,764 62,524 10,669 9,272 8,144 1,767 6,816 (1,588) 104,314 90 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 17. DEFERRED TAx AssETs AND LIABILITIEs (CONTINUED) Property, plant and equipment Inventories Investments Intangible assets Other assets Provisions Payables Other liabilities Other BALANCE 26 JUNE 2011 RECOGNISED ON ACQUISITION RECOGNISED IN INCOME RECOGNISED IN EQUITY BALANCES DISPOSED DISCONTINUED OPERATIONS BALANCE 24 JUNE 2012 (32,625) (3,155) (10,915) (32,350) (1,689) 50,001 12,152 4,530 2,748 (11,303) 7 – – (2,215) – 240 9 – – 26,410 34 9,872 27,825 (567) 50,618 2,865 (6) (587) (1,959) 116,464 – – (90) – 3,561 – – – 843 4,314 50 – – – – (239) (22) – – (211) – – – – – – – – – – (6,158) (3,121) (1,133) (6,740) 1,305 100,620 15,004 4,524 3,004 107,305 (C) TAX LOSSES AND FUTURE DEDUCTIBLE TEMPORARY DIFFERENCES The Group has realised Australian capital losses for which no deferred tax asset is recognised on the balance sheet of $280.0 million (2012: $216.5 million) which are available indefinitely for offset against future capital gains subject to continuing to meet relevant statutory tests. The Group has deductible temporary differences for which no deferred tax asset is recognised on the balance sheet of $770.2 million (2012: $684.7 million). (D) FUTURE ASSESSABLE TEMPORARY DIFFERENCES At 30 June 2013, there are no material unrecognised future assessable temporary differences associated with the Group’s investments in associates or joint ventures, as the Group has no material liability should the associates or joint ventures retained earnings be distributed (2012: Nil). 18. PAYABLEs Trade and other payables * Interest payable Income in advance Total current payables * Trade payables are non-interest bearing and are generally on 30 day terms. 30 June 2013 $’000 24 JUNE 2012 $’000 160,726 9,445 65,748 235,919 204,233 12,038 66,366 282,637 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 19. INTEREsT BEARING LIABILITIEs Current interest bearing liabilities – unsecured Other loans Senior notes Other Finance lease liability Total current interest bearing liabilities non-current interest bearing liabilities – unsecured Bank borrowings Other loans Senior notes Other Finance lease liability Total non-current interest bearing liabilities neT deBT FoR FinAnCiAl CoVenAnT PuRPoSeS Cash and cash equivalents Current interest bearing liabilities Non-current interest bearing liabilities Derivative financial instruments liabilities * net debt for financial covenant purposes FAIRFAX MEDIA LIMITED 2013 91 NOTE 30 June 2013 $’000 24 JUNE 2012 $’000 (C) (D) (D) (B) (C) (D) (D) 277,700 2,185 4,438 284,323 – 2,308 4,131 6,439 123,548 718,177 220,508 466,302 3,819 6,014 6,003 10,452 353,889 1,200,934 (533,531) 284,323 353,889 49,812 154,493 (358,364) 6,439 1,200,934 65,089 914,098 * Debt hedging instruments are measured against the undiscounted contractual AUD cross currency swap obligations and therefore may not equate to the values disclosed in the balance sheet (inclusive of transaction costs). (A) FINANCING ARRANGEMENTS The Group net debt for financial covenant purposes, taking into account all debt related derivative financial instruments, was $154.5 million as at 30 June 2013 (2012: $914.1 million). The Group has sufficient unused committed facilities and cash at the reporting date to finance maturing current interest bearing liabilities. The Group has a number of finance facilities which are guaranteed by Fairfax Media Limited and are covered by deeds of negative pledge. (B) BANK BORROWINGS A $441.6 million syndicated bank facility (2012: $1,155.6 million) is available to the Group maturing in April 2015. At 30 June 2013, $125.0 million was drawn down (2012: $590.0 million). The interest rate for drawings under this facility is the applicable bank bill rate plus a credit margin. (C) SENIOR NOTES The Group issued Senior Notes in the US private placement market with a principal value of US$230 million (A$289.8 million) in January 2004 with a fixed coupon of between 4.7% p.a. and 5.9% p.a. payable semi-annually in arrears. The interest and principal on the Senior Notes are payable in US dollars and were swapped into floating rate New Zealand dollars and floating rate Australian dollars via cross currency swaps. This issue of Senior Notes comprises maturities ranging from January 2011 to January 2019. In January 2011 Senior Notes of US$50 million were repaid. The weighted average maturity of the issue is approximately 2.7 years. The applicable cross currency swap credit margin includes the cost of hedging all currency risk and future interest and principal repayments on a quarterly basis. 92 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 19. INTEREsT BEARING LIABILITIEs (CONTINUED) The Group issued further Senior Notes in the US private placement market with a principal value of US$250 million (A$308.2 million) in July 2007 comprising maturities ranging from July 2013 to July 2017. The weighted average maturity of this issue is approximately 2.1 years. The issued notes include fixed rate coupon notes, paying a weighted average coupon of 6.9% p.a. semi- annually in arrears, and floating rate coupon notes. The interest and principal on the Senior Notes are payable in US dollars and were swapped into fixed and floating rate Australian dollars via cross currency swaps. An additional 1.0% p.a. step up margin is payable on the coupons, effective from 10 July 2009. Refer to Note 39 for details of events that have occurred subsequent to reporting date in relation to the early redemption of the Senior Notes. (D) OTHER LOANS AND FINANCE LEASE LIABILITY The Chullora printing facility in Sydney is partially financed by a finance lease facility and loans with a maturity date of 30 September 2015. This comprises a finance lease of $10.5 million (2012: $14.6 million), which was entered into in February 1996, and principal and interest outstanding of $6.0 million (2012: $8.3 million) in the form of a fixed rate loan with an established repayment schedule. 20. PROVIsIONs Current Employee benefits Defamation Property Restructuring and redundancy Other Total current provisions non-current Employee benefits Property Restructuring and redundancy Other Total non-current provisions 30 June 2013 $’000 24 JUNE 2012 $’000 92,198 3,072 686 94,640 723 191,319 12,529 40,433 – 980 99,385 2,849 576 90,889 188 193,887 14,750 37,539 97,016 – 53,942 149,305 FAIRFAX MEDIA LIMITED 2013 93 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 20. PROVIsIONs (CONTINUED) RECONCILIATION Reconciliations of the carrying amount of each class of provision, other than employee benefits, during the financial year are set out below: At 24 June 2012 Current Non-current Total provisions, excluding employee benefits Period ended 30 June 2013 Balance at beginning of the financial year Additional provision Utilised Transfers from liabilities classified as held for sale Discontinued operations Exchange differences DEFAMATION $’000 PROPERTY $’000 RESTRUCTURING AND REDUNDANCY $’000 2,849 – 2,849 2,849 1,751 (1,528) – – – 576 37,539 38,115 38,115 4,603 (1,619) – (54) 74 90,889 97,016 187,905 187,905 522 (96,018) 2,083 – 148 OTHER $’000 188 – 188 188 1,896 (381) – – – Balance at end of the financial year 3,072 41,119 94,640 1,703 At 30 June 2013 Current Non-current Total provisions, excluding employee benefits NATURE AND TIMING OF PROVISIONS 3,072 – 3,072 686 40,433 41,119 94,640 – 94,640 723 980 1,703 (i) eMPloyee BeneFiTS Provisions for employee benefits include liabilities for annual leave and long service leave and are measured at the amounts expected to be paid when the liabilities are settled, refer to Note 1(T)(i). (ii) deFAMATion From time to time, entities in the Group are sued for defamation and similar matters in the ordinary course of business. The defamation provision maintained is with respect to various matters across the Group. At the date of this report there were no legal actions against the consolidated entity that have not been adequately provided for or that are expected to have a material impact on the Group. (iii) PRoPeRTy The provision for property costs is in respect of make good provisions, deferred lease incentives and onerous lease provisions. The make good provisions and deferred lease incentives are amortised over the shorter of the term of the lease or the useful life of the assets, being up to sixteen years. (iV) ReSTRuCTuRinG And RedundAnCy The provision is in respect of amounts payable in connection with restructuring and redundancies, including termination benefits, on-costs, outplacement and consultancy services. (V) oTHeR Other provisions includes various other costs relating to the business. 94 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 21. PENsION AssETs AND LIABILITIEs SUPERANNUATION PLAN The Group contributes to defined contribution and defined benefit plans which provide benefits to employees and their nominated dependants on retirement, disability or death. All defined benefit plans are closed to new members. The superannuation arrangements in Australia are managed in a sub-plan of the Mercer Super Trust, called Fairfax Media Super. The Trustee of the Trust is Mercer Investment Nominees Limited. The superannuation arrangements in New Zealand are managed by AoN Consulting New Zealand Limited in three funds – Fairfax NZ Retirement Fund, Fairfax New Zealand Superannuation Fund and Fairfax NZ Senior Executive Superannuation Scheme. All New Zealand funds have defined contribution plans and the Fairfax NZ Retirement Fund has a defined benefit section. The defined contribution plans receive fixed contributions from employees and from Group companies and the Group’s legally enforceable obligation is limited to these contributions. The defined benefit plans receive employee contributions plus Group company contributions at rates recommended by the plans’ actuaries. The following sets out details in respect of the defined benefit plans only and in the case of the Fairfax NZ Retirement Fund, excludes $59.2 million (2012: $49.8 million) of defined contribution assets and entitlements. (A) BAlAnCe SHeeT The amounts recognised in the balance sheet are determined as follows: Pension assets Pension liabilities net pension liabilities Present value of the defined benefit plan obligation Fair value of defined benefit plan assets net pension liabilities NOTE 30 June 2013 $’000 24 JUNE 2012 $’000 709 (1,273) (564) (14,128) 13,564 (564) 149 (3,933) (3,784) (21,974) 18,190 (3,784) (B) (C) (B) ReConCiliATion oF THe PReSenT VAlue oF deFined BeneFiT PlAn oBliGATion Balance at the beginning of the financial year 21,974 22,644 Current service cost Interest cost Contributions by employees Actuarial (gains)/losses Benefits paid Taxes, premiums and expenses paid Exchange differences on foreign plans Curtailments Settlements Balance at the end of the financial year (C) ReConCiliATion oF THe FAiR VAlue oF deFined BeneFiT PlAn ASSeTS Balance at the beginning of the financial year Expected return on plan assets Actuarial losses/(gains) Contributions by Group companies and employees Benefits paid Taxes, premiums and expenses paid Exchange differences on foreign plans Settlements Balance at the end of the financial year 768 497 160 (463) (3,376) (109) 24 (924) (4,423) 14,128 18,190 1,131 1,890 204 (3,376) (109) 57 (4,423) 13,564 917 999 234 2,364 (1,585) (590) 4 (410) (2,603) 21,974 19,309 1,257 (1,368) 3,761 (1,585) (590) 9 (2,603) 18,190 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 21. PENsION AssETs AND LIABILITIEs (CONTINUED) (d) AMounTS ReCoGniSed in inCoMe STATeMenT The amounts recognised in the income statement are as follows: Current service cost Interest cost Curtailments Expected return on plan assets Total included in employee benefits expense Actual return on plan assets (e) CATeGoRieS oF PlAn ASSeTS FAIRFAX MEDIA LIMITED 2013 95 30 June 2013 $’000 24 JUNE 2012 $’000 768 497 (924) (1,131) (790) 917 999 (410) (1,257) 249 2,527 (40) The major categories of plan assets as a percentage of the fair value of the total defined benefit plan assets are as follows: Cash Australian equities Overseas equities Fixed interest securities Property Other (F) PRinCiPAl ACTuARiAl ASSuMPTionS The principal actuarial assumptions used (expressed as weighted averages) were as follows: Discount rate Expected return on plan assets Future salary increases 30 June 2013 % 24 JUNE 2012 % 26 18 26 17 4 9 2013 % 2.7 6.8 4.0 6 25 28 19 7 15 2012 % 2.6 7.0 4.0 The expected rate of return on assets has been determined by weighting the expected long term return for each class by the target allocation of assets to each asset class. This resulted in a 6.8% p.a. rate of return, net of tax and expenses (2012: 7.0% p.a.). (G) EMPLOYER CONTRIBUTIONS Employer contributions to the defined benefit section of the plans are based on recommendations by the plans’ actuaries. Actuarial assessments are made at two yearly intervals for Australia and the last actuarial assessment of Fairfax Media Super was carried out as at 1 July 2012 by Mercer Human Resource Consulting Pty Ltd. Actuarial assessments are made at three yearly intervals for New Zealand and the last actuarial assessment of Fairfax NZ Retirement Fund was carried out as at 1 April 2011 by AoN Consulting New Zealand Limited. Fairfax New Zealand Superannuation Fund and Fairfax NZ Senior Executive Superannuation Scheme are defined contribution funds and do not require an actuarial assessment. The objective of funding is to ensure that the benefit entitlements of members and other beneficiaries are fully funded by the time they become payable. To achieve this objective, the actuary has adopted a method of funding benefits known as the aggregate funding method. This funding method seeks to have benefits funded by means of a total contribution which is expected to be a constant percentage of members’ salaries over their working lifetimes. Total employer contributions expected to be paid by Group companies for the 2014 financial year are $0.9 million. 96 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 21. PENsION AssETs AND LIABILITIEs (CONTINUED) (H) NET FINANCIAL POSITION OF PLAN In accordance with AAS 25 Financial Reporting by Superannuation Plans the plans’ net financial position is determined as the difference between the present value of the accrued benefits and the net market value of plan assets. This has been determined as a deficit of $2 million at the most recent financial position of the plans, being 1 July 2012 for Australia and 1 April 2011 for New Zealand. In accordance with the actuarial assessment of Fairfax Media Super as at 1 July 2012, additional contributions are being made to meet the financing objective of the plan. The Directors, based on the advice of the trustees of the plan, are not aware of any changes in circumstances since the date of the most recent financial statements of the plans (1 July 2012 for Australia and 1 April 2011 for New Zealand), which would have a material impact on the overall financial position of the defined benefit plan. (I) HISTORIC SUMMARY Defined benefit plan obligation Defined benefit plan assets deficit Experience adjustments arising on plan liabilities Experience adjustments arising on plan assets 22. CONTRIBUTED EqUITY 2009 $’000 (20,560) 17,875 (2,685) (1,513) 6,283 2010 $’000 (21,512) 16,712 (4,800) 1,551 (756) 2011 $’000 (22,644) 19,309 (3,335) (490) (585) 2012 $’000 (21,974) 18,190 (3,784) – 1,184 2013 $’000 (14,128) 13,564 (564) 795 (841) ordinary shares 2,351,955,725 ordinary shares authorised and fully paid (2012: 2,351,955,725) unvested employee incentive shares 11,723,026 unvested employee incentive shares (2012: 11,723,026) debentures 281 debentures fully paid (2012: 281) Total contributed equity * Amount is less than $1000 30 June 2013 $’000 NOTE 24 JUNE 2012 $’000 (A) 4,667,944 4,667,944 (B) (21,696) (21,696) (C) * * 4,646,248 4,646,248 RECONCILIATIONS Movements for each class of contributed equity, by number of shares and dollar value, are set out below: (A) ORDINARY SHARES Balance at beginning of the financial year Balance at end of the financial year 30 June 2013 no. oF SHAReS 24 JUNE 2012 NO. OF SHARES 30 June 2013 $’000 24 JUNE 2012 $’000 2,351,955,725 2,351,955,725 2,351,955,725 2,351,955,725 4,667,944 4,667,944 4,667,944 4,667,944 (B) UNVESTED EMPLOYEE INCENTIVE SHARES Balance at beginning of the financial year Balance at end of the financial year 11,723,026 11,723,026 11,723,026 11,723,026 (21,696) (21,696) (21,696) (21,696) FAIRFAX MEDIA LIMITED 2013 97 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 22. CONTRIBUTED EqUITY (CONTINUED) (C) DEBENTURES Balance at beginning of the financial year Balance at end of the financial year Total contributed equity * Amount is less than $1000 30 June 2013 no. oF SHAReS 24 JUNE 2012 NO. OF SHARES 30 June 2013 $’000 24 JUNE 2012 $’000 281 281 281 281 * * * * 2,363,678,751 2,363,678,751 4,646,248 4,646,248 TERMS AND CONDITIONS OF CONTRIBUTED EQUITY (A) oRdinARy SHAReS Ordinary shares entitle the holder to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person, or by proxy, at a meeting of the Company. (B) unVeSTed eMPloyee inCenTiVe SHAReS Shares in Fairfax Media Limited are held by the Executive Employee Share Plan Trust for the purpose of issuing shares under the Long Term Incentive Plan. Holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at a meeting of the Company. (C) deBenTuReS Debenture holders terms and conditions are disclosed in Note 1(U). 23. REsERVEs Asset revaluation reserve, net of tax Foreign currency translation reserve, net of tax Cashflow hedge reserve, net of tax Net investment hedge reserve, net of tax Share-based payment reserve, net of tax Acquisition reserve General reserve Total reserves (A) ASSET REVALUATION RESERVE Balance at beginning of the financial year Revaluation of available for sale investments Impairment losses transferred to the income statement Tax effect on available for sale investments Balance at end of the financial year (B) FOREIGN CURRENCY TRANSLATION RESERVE Balance at beginning of the financial year Exchange differences on currency translation Disposal of subsidiaries, net of tax Tax effect of net changes on foreign currency translation reserve Balance at end of the financial year 30 June 2013 $’000 NOTE 24 JUNE 2012 $’000 (A) (B) (C) (D) (E) (F) (G) 41 (132,599) (4,703) (10,232) 8,799 181,048 (6,837) 35,517 (259) (61) 357 4 41 (259) (219,528) (7,088) 2,669 7,764 177,759 (6,837) (45,520) 506 (675) – (90) (259) (219,528) 28,033 58,876 20 (233,884) 14,356 – – (132,599) (219,528) 98 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 23. REsERVEs (CONTINUED) (C) CASHFLOW HEDGE RESERVE Balance at beginning of the financial year Gains/(losses) arising during the year on interest rate and cross currency swaps Gains arising during the year on currency forward contracts Reclassification adjustments for gains included in the income statement Tax effect of net changes on cashflow hedges Balance at end of the financial year (D) NET INVESTMENT HEDGE RESERVE Balance at beginning of the financial year Effective portion of changes in value of net investment hedges Tax effect on net investment hedges Balance at end of the financial year (E) SHARE-BASED PAYMENT RESERVE Balance at beginning of the financial year Share-based payment expense Disposal of subsidiaries, net of tax Tax effect on share-based payment expense Balance at end of the financial year (F) ACQUISITION RESERVE Balance at beginning of the financial year Acquisition of non-controlling interest Disposal of non-controlling interest in subsidiary Tax effect of disposal of non-controlling interest in subsidiary Balance at end of the financial year (G) GENERAL RESERVE Balance at beginning of the financial year Balance at end of the financial year nATuRe And PuRPoSe oF ReSeRVeS 30 June 2013 $’000 24 JUNE 2012 $’000 (7,088) 2,543 864 – (1,022) (4,703) 2,669 (18,431) 5,530 (10,232) 7,764 2,038 (495) (508) 8,799 177,759 (3,005) 6,294 – 181,048 1,220 (10,731) 82 (1,220) 3,561 (7,088) 5,167 (3,568) 1,070 2,669 6,971 1,068 – (275) 7,764 563 717 187,321 (10,842) 177,759 (6,837) (6,837) (6,837) (6,837) (A) Asset revaluation reserve The asset revaluation reserve is used to record increments and decrements on the revaluation of non-current assets. From 1 July 2004, changes in the fair value of investments classified as available for sale investments are recognised in the asset revaluation reserve, as described in Note 1(M). (B) Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising on translation of foreign controlled entities and associated funding of foreign controlled entities, as described in Note 1(F). (C) Cashflow hedge reserve The hedging reserve is used to record the portion of gains and losses on a hedging instrument in a cash flow hedge that is determined to be an effective hedge, as described in Note 1(N). Refer to further disclosures at Note 16. (d) net investment hedge reserve The net investment hedge reserve is used to record gains and losses on a hedging instruments in a fair value hedge, as described in Note 1(N). Refer to further disclosures at Note 16. (e) Share-based payment reserve The share-based payment reserve is used to recognise the fair value of shares issued but not vested and transfers to fund the acquisition of Share Trust shares, as described in Note 1(T)(ii). FAIRFAX MEDIA LIMITED 2013 99 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 23. REsERVEs (CONTINUED) (F) Acquisition reserve The acquisition reserve is used to record differences between the carrying value of non-controlling interests and the consideration paid/received, where there has been a transaction involving non-controlling interests that does not result in a loss of control. The reserve is attributable to the equity of the parent. (G) General reserve The general reserve is used to record Stapled Preference Share (SPS) issue costs that have been transferred from contributed equity. The SPS were repurchased on 29 April 2011. 24. RETAINED PROFITs Balance at beginning of the financial year Net loss for the financial year Actuarial gain/(loss) on defined benefit plans, net of tax Dividends paid Balance at end of the financial year 25. EARNINGs PER sHARE Basic earnings per share Net loss attributable to owners of the parent Net loss from continuing operations diluted earnings per share Net loss attributable to owners of the parent Net loss from continuing operations earnings reconciliation – basic Net loss attributable to owners of the parent Net loss from continuing operations earnings reconciliation – diluted Net loss attributable to owners of the parent Net loss from continuing operations Weighted average number of ordinary shares used in calculating basic ePS NOTE 30 June 2013 $’000 (2,805,566) 24 JUNE 2012 $’000 11,764 (16,432) (2,732,397) 1,651 7 (47,040) (2,615) (82,318) (2,867,387) (2,805,566) 30 June 2013 ¢ PeR SHARe 24 JUNE 2012 ¢ PER SHARE (0.7) (13.3) (0.7) (13.3) (116.2) (118.4) (116.2) (118.4) 30 June 2013 $’000 24 JUNE 2012 $’000 (16,432) (312,852) (2,732,397) (2,784,785) (16,432) (312,852) (2,732,397) (2,784,785) 30 June 2013 nuMBeR ’000 24 JUNE 2012 NUMBER $’000 2,351,956 2,351,956 Weighted average number of ordinary shares used in calculating diluted ePS 2,351,956 2,351,956 100 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 26. COMMITMENTs OPERATING LEASE COMMITMENTS – GROUP AS LESSEE The Group has entered into commercial leases on office and warehouse premises, motor vehicles and office equipment. Future minimum rentals payable under non-cancellable operating leases as at the period end are as follows: Within one year Later than one year and not later than five years Later than five years Total operating lease commitments 30 June 2013 $’000 24 JUNE 2012 $’000 39,861 122,219 284,111 446,191 41,805 140,921 311,320 494,046 Non-cancellable leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases can be renegotiated. The leases have remaining terms of between five and sixteen years. All property leases include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions. FINANCE LEASE COMMITMENTS – GROUP AS LESSEE The Group has a finance lease for property, plant and machinery with a carrying amount of $8.2 million (2012: $28.9 million). The lease has a remaining term of two years (2012: three years) and a weighted average interest rate of 13.3% (2012: 13.3%). Future minimum lease payments under the finance lease together with the present value of the net minimum lease payments are as follows: Within one year Later than one year and not later than five years Later than five years Minimum lease payments Less future finance charges Total finance lease liability MINIMUM PAYMENTS 2013 $’000 5,076 6,344 – 11,420 (968) 10,452 NOTE 19(D) PRESENT VALUE OF PAYMENTS 2013 $’000 4,438 6,014 – 10,452 – 10,452 MINIMUM PAYMENTS PRESENT VALUE OF PAYMENTS 2012 $’000 5,076 11,420 – 16,496 (1,913) 14,583 2012 $’000 4,131 10,452 – 14,583 – 14,583 CONTINGENT RENTALS UNDER FINANCE LEASE A component of the finance lease payments are contingent on movements in the consumer price index. At reporting date, the rent payable over the remaining lease term of two years which is subject to such movements amounts to $10.4 million (2012: $14.4 million). CAPITAL COMMITMENTS At 30 June 2013, the Group has commitments principally relating to the purchase of property, plant and equipment. Commitments contracted for at reporting date but not recognised as liabilities are as follows: Within one year Later than one year and not later than five years Later than five years Total capital commitments 30 June 2013 $’000 24 JUNE 2012 $’000 30,407 1,322 – – – – 30,407 1,322 Commitments contracted at reporting date include a $29.1 million upgrade to the regional printing network. FAIRFAX MEDIA LIMITED 2013 101 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 27. CONTINGENCIEs GUARANTEES Under the terms of ASIC Class Order 98/1418 (as amended), the Company and certain controlled entities (refer Note 28), have guaranteed any deficiency of funds if any entity to the class order is wound-up. No such deficiency exists at reporting date. The Group has provided a bank guarantee of $2.5 million in relation to a property sublease for a period of 30 months commencing 4 July 2013. DEFAMATION From time to time, entities in the Group are sued for defamation and similar matters in the ordinary course of business. At the date of this report, there were no legal actions against the consolidated entity, other than those recognised at Note 20, that are expected to result in a material impact. 28. CONTROLLED ENTITIEs The following entities were controlled as at the end of the financial year: OWNERSHIP INTEREST Fairfax Media Limited ConTRolled enTiTieS 2GTHR Pty Ltd ACN 000 128 281 Pty Ltd ACN 000 834 257 Pty Ltd ACN 001 004 815 Pty Ltd ACN 001 260 671 Pty Ltd ACN 091 950 462 Pty Ltd ACN 101 806 302 Pty Ltd ACN 113 587 527 Pty Ltd Agricultural Publishers Pty Limited Allure Media Pty Ltd Associated Newspapers Ltd Aussie Destinations (1) Pty Ltd Australian Property Monitors Pty Limited AZXC Pty Ltd Border Mail Printing Pty Ltd Bridge Printing Office Pty Limited Carpentaria Newspapers Pty Ltd Central Districts Field Days Limited Commerce Australia Pty Ltd Communication Associates Limited Country Publishers Pty Ltd CountryCars.com.au Pty Ltd Creative House Publications Pty Ltd David Syme & Co Pty Limited Debt Retrieval Agency Limited Examiner Properties Pty Ltd Fairfax Business Media (South Asia) Pte Ltd Fairfax Business Media Pte Ltd Fairfax Business Media Sdn. Bhd. Fairfax Community Newspapers Pty Limited Fairfax Corporation Pty Limited NOTES (a) (a), (b) (n) (h) (m) (l) (j) (a) (k) (a) (a), (b) (a) (a) (a) (a) (a) (a) (a) (g) (a) (f) (a) (a) (a) (a) (a) (a) COUNTRY OF INCORPORATION Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia New Zealand Australia Australia Australia Australia New Zealand Australia Singapore Singapore Malaysia Australia Australia 2013 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 – 100 100 60 100 100 100 100 100 100 100 100 2012 % – 100 100 100 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 60 100 100 100 100 100 100 100 100 102 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 28. CONTROLLED ENTITIEs (CONTINUED) Fairfax Digital Holdings NZ Limited Fairfax Digital Assets NZ Limited Fairfax Digital Australia & New Zealand Pty Limited Fairfax Digital Limited Fairfax Group Finance New Zealand Limited Fairfax Media (UK) Limited Fairfax Media Group Finance Pty Limited Fairfax Media Management Pty Limited Fairfax Media Operations Limited Fairfax Media Productions UK Limited Fairfax Media Publications Pty Limited Fairfax New Zealand Holdings Limited Fairfax New Zealand Limited Fairfax News Network Pty Limited Fairfax OF Limited Fairfax OSI Limited Fairfax Print Holdings Pty Limited Fairfax Printers Pty Limited Fairfax Radio Network Pty Limited Fairfax Radio Syndication Pty Limited Fairfax Regional Media (Tasmania) Pty Limited Fairfax Regional Printers Pty Limited Farm Progress Companies, Inc Farm Progress Holding Co, Inc Farm Progress Insurance Services, Inc Financial Essentials Pty Ltd Find a Babysitter Pty Ltd Golden Mail Pty Limited Gunnedah Publishing Co Pty Ltd Harris and Company Pty Limited Harris Enterprises Pty Ltd Harris Print Pty Ltd Hunter Distribution Network Pty Ltd Illawarra Newspapers Holdings Pty Ltd Indiana Prairie Farmer Insurance Services, Inc Integrated Publication Solutions Pty Limited Internet Marketing Australia Pty Ltd Internet Products Sales & Services Pty Ltd InvestSMART Financial Services Pty Ltd John Fairfax & Sons Ltd John Fairfax (US) Limited John Fairfax Limited Lime Digital Pty Limited Mackamedia Pty Ltd Mamiko Co Pty Ltd Mayas Pty Ltd Mayas Unit Trust Media Investments Pty Ltd Micosh Pty Ltd OWNERSHIP INTEREST NOTES COUNTRY OF INCORPORATION 2013 % New Zealand New Zealand Australia Australia New Zealand United Kingdom Australia Australia New Zealand United Kingdom Australia New Zealand New Zealand Australia New Zealand New Zealand Australia Australia Australia Australia Australia Australia United States United States United States Australia Australia Australia Australia Australia Australia Australia Australia Australia United States Australia Australia Australia Australia Australia United States Australia Australia Australia Australia Australia Australia Australia Australia (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (d) (d) (d) (a) (a) (a) (a) (a) (a) (a) (a) (d) (a) (a) (a) (a) (a) (a) (a) (a) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – – 100 100 66 100 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2012 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 66 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 28. CONTROLLED ENTITIEs (CONTINUED) FAIRFAX MEDIA LIMITED 2013 103 OWNERSHIP INTEREST Miller Publishing Co, Inc Milton Ulladulla Publishing Co. Pty Ltd Mistcue Pty Limited MMP Community Network Limited Mountain Press Pty Ltd Namoi Media & Marketing Pty Ltd Netus Pty Ltd Newcastle Newspapers Pty Ltd Newsagents Direct Distribution Pty Ltd North Australian News Pty Ltd Northern Newspapers Pty Ltd NZ Rural Press Limited Occupancy Pty Limited Ollority Pty Ltd Online Marketing Group Pty Limited OSF Australia Pty Limited Personal Investment Direct Access Pty Limited Port Lincoln Times Pty Ltd Port Stephens Publishers Pty Ltd Port Stephens Publishers Trust Queensland Community Newspapers Pty Ltd Radio 1278 Melbourne Pty Limited Radio 2UE Sydney Pty Ltd Radio 3AW Melbourne Pty Limited Radio 4BC Brisbane Pty Limited Radio 4BH Brisbane Pty Limited Radio 6PR Perth Pty Limited Radio 96FM Perth Pty Limited Regional Press Australia Pty Limited Regional Printers Pty Limited Regional Publishers (Tasmania) Pty Ltd Regional Publishers (Victoria) Pty Limited Regional Publishers (Western Victoria) Pty Limited Regional Publishers Pty Ltd RSVP.com.au Pty Limited Rural Press (USA) Inc Rural Press (USA) Limited Rural Press Printing (Victoria) Pty Limited Rural Press Printing Pty Limited Rural Press Pty Limited Rural Press Queensland Pty Ltd Rural Press Regional Media (WA) Pty Limited Rural Publishers Pty Limited Southern Weekly Partnership S.A. Regional Media Pty Limited Satellite Music Australia Pty Limited Stayz Limited Stayz Pty Limited Stock Journal Publishers Pty Ltd NOTES (d) (a) (c), (i) (a) (a), (b) (a) (a) (a) (a) (g) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (d) (d) (a) (a) (a) (a) (a) (a) (a) (a) (a) COUNTRY OF INCORPORATION United States Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United States United States Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Australia 2013 % – 100 65 – 88 100 100 100 100 100 100 – 97 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – 100 100 100 100 100 100 75 100 100 97 97 100 2012 % 100 100 65 100 88 100 – 100 100 100 100 100 95 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 75 100 100 95 95 100 104 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 28. CONTROLLED ENTITIEs (CONTINUED) Suzannenic Pty Limited The Advocate Newspaper Proprietary Limited The Age Company Pty Ltd The Age Print Company Pty Limited The Barossa News Pty Limited The Border Morning Mail Pty Limited The Border News Partnership The Federal Capital Press of Australia Pty Limited The Independent News Pty Ltd TheVine.com.au Pty Limited The Wagga Daily Advertiser Pty Ltd The Warrnambool Standard Pty Ltd The Weather Company Pty Limited Trade Me Group Ltd Trade Me Ltd Tricom Group Pty Ltd Weatherzone Japan LLC West Australian Rural Media Pty Ltd West Australian Primary Industry Press Pty Ltd Western Magazine Pty Ltd Western Magazine Settlement Trust Whyalla News Properties Pty Ltd Winbourne Pty Limited OWNERSHIP INTEREST NOTES COUNTRY OF INCORPORATION (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (e) (e) (a) (a) (a) (a) Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand New Zealand Australia Japan Australia Australia Australia Australia Australia Australia 2013 % 100 100 100 100 100 100 63 100 100 70 100 100 75 – – 100 75 100 100 75 75 100 100 2012 % 100 100 100 100 100 100 63 100 100 70 100 100 75 51 51 100 75 100 100 75 75 100 100 (a) The Company and the controlled entities incorporated within Australia are party to Class Order 98/1418 (as amended) issued by the Australian Securities & Investment Commission. These entities have entered into a Deed of Cross Guarantee dated June 2007 (as varied from time to time) under which each entity guarantees the debts of the others. These companies represent a ‘Closed Group’ for the purposes of the Class Order and there are no other members of the ‘Extended Closed Group’. Under the Class Order, these entities have been relieved from the requirements of the Corporations Act 2001 with regard to the preparation, audit and publication of accounts. (b) Acquired on 21 December 2012. (c) This company was formerly called Fairfax Community Network Ltd and was disposed on 13 July 2012. (d) Disposed on 14 November 2012. (e) Disposed on 21 December 2012. (f) Amalgamated with Fairfax New Zealand Limited on 1 July 2012. (g) Amalgamated with Fairfax New Zealand Limited on 1 October 2012. (h) This company was formerly called Cudgegong Newspapers Pty Ltd. (i) This company was formerly called Fairfax Community Network Limited. (j) This company was formerly called Fairfax Media Operations Pty Limited. (k) This company was formerly called Fairfax New Zealand Finance Pty Limited. (l) This company was formerly called Leeton Newspapers Pty Ltd. (m) This company was formerly called Riverina Newspapers (Griffith) Pty Ltd. (n) This company was formerly called The Murrumbidgee Irrigator Pty Ltd. FAIRFAX MEDIA LIMITED 2013 105 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 28. CONTROLLED ENTITIEs (CONTINUED) DEED OF CROSS GUARANTEE Fairfax Media Limited and certain wholly-owned entities (the ‘Closed Group’) identified at (a) above are parties to a Deed of Cross Guarantee under ASIC Class Order 98/1418 (as amended). Pursuant to the requirements of that Class Order, a summarised consolidated income statement for the period ended 30 June 2013 and consolidated balance sheet as at 30 June 2013, comprising the members of the Closed Group after eliminating all transactions between members are set out below: (A) BALANCE SHEET Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative assets Assets held for sale Income tax receivable Other financial assets Total current assets non-current assets Receivables Investments accounted for using the equity method Available for sale investments Intangible assets Property, plant and equipment Derivative assets Deferred tax assets Other financial assets Total non-current assets Total assets Current liabilities Payables Interest bearing liabilities Derivative liabilities Liabilities directly associated with held for sale assets Provisions Current tax liabilities Total current liabilities non-current liabilities Interest bearing liabilities Derivative liabilities Provisions Pension liabilities Total non-current liabilities Total liabilities net assets equity Contributed equity Reserves Retained losses Total equity 30 June 2013 $’000 24 JUNE 2012 $’000 449,780 244,349 25,394 11,018 3,176 3,200 4,386 56,029 263,250 31,756 123 18,268 14,345 3,914 741,303 387,685 19,611 80,396 1,929 1,213,572 406,958 7,815 109,159 647,107 2,486,547 3,227,850 176,052 284,323 41,957 – 175,630 – 677,962 258,134 30,551 1,991 1,637,134 470,352 27,040 119,635 1,042,873 3,587,710 3,975,395 203,475 6,439 – 4,956 180,090 2,595 397,555 353,889 1,070,560 26,939 51,467 1,273 433,568 1,111,530 89,607 146,534 3,933 1,310,634 1,708,189 2,116,320 2,267,206 4,646,248 4,646,248 (66,921) (2,463,007) 2,116,320 (53,283) (2,325,759) 2,267,206 106 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 28. CONTROLLED ENTITIEs (CONTINUED) (B) INCOME STATEMENT Total revenue Share of net profits of associates and joint ventures Expenses before finance costs Finance costs net loss from operations before income tax expense Income tax (expense)/benefit net loss from operations after income tax expense 1,834,598 1,782,584 (2,251) 1,244 (1,895,265) (3,956,037) (58,683) (121,601) (13,812) (135,413) (66,569) (2,238,778) 76,738 (2,162,040) 29. ACqUIsITION AND DIsPOsAL OF CONTROLLED ENTITIEs (A) ACQUISITIONS The Group gained control over the following entities or businesses during the year: ENTITY OR BUSINESS ACQUIRED Beaudesert Times Pty Ltd Tradevine Limited YesBookit Partnership Midac Technologies Pty Ltd PRINCIPAL ACTIVITY Newspaper publisher Online e-commerce management Online accommodation advertising Online accommodation advertising Baches and Holiday Homes to Rent Limited Holiday accommodation classifieds 2GTHR Pty Ltd Netus Pty Ltd Allure Media Pty Ltd Investor in online business Investor in online business Online publisher DATE OF ACQUISITION 27 August 2012 27 August 2012 29 October 2012 29 October 2012 12 December 2012 21 December 2012 21 December 2012 21 December 2012 OWNERSHIP INTEREST (i) (ii) (iii) (iii) (ii) 100% 100% 100% (i) The business of Beaudesert Times Pty Ltd was acquired. (ii) The businesses of Tradevine Limited and Baches and Holiday Homes to Rent Limited were acquired by Trade Me Group Ltd. The businesses were subsequently disposed of with Trade Me Group Ltd (refer Note 29(B)). (iii) The businesses of YesBookit Partnership and Midac Technologies Pty Ltd were acquired. (B) DISPOSALS The Group disposed of its interests in the following businesses during the year: ENTITY OR BUSINESS DISPOSED PRINCIPAL ACTIVITY Fairfax Community Network Ltd Community newspaper publisher Rural Press USA Ltd Rural Press USA Inc Farm Progress Holding Company Inc Farm Progress Companies Inc The Miller Publishing Company Inc Farm Progress Insurance Services Inc Agricultural publishing Agricultural publishing Agricultural publishing Agricultural publishing Agricultural publishing Agricultural publishing Indiana Prairie Farmer Insurance Services Inc Agricultural publishing Trade Me Group Ltd Trade Me Ltd Internet-auction website Internet-auction website DATE OF DISPOSAL 13 July 2012 14 November 2012 14 November 2012 14 November 2012 14 November 2012 14 November 2012 14 November 2012 14 November 2012 21 December 2012 21 December 2012 OWNERSHIP INTEREST 100% (i) 100% 100% 100% 100% 100% 100% 100% 51% 51% (i) Fairfax Community Network Ltd was sold to the MMP Holdings Pty Ltd venture. Refer to Note 12 for the Group’s share of this venture. FAIRFAX MEDIA LIMITED 2013 107 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 30. BUsINEss COMBINATIONs ACQUISITIONS DURING THE PERIOD Acquisitions, none of which were individually significant to the consolidated entity, are listed in Note 29(A). The fair values of the identifiable assets and liabilities acquired were: RECOGNISED ON ACQUISITION $’000 Value of net assets acquired Cash and cash equivalents Receivables Inventories Property, plant and equipment Investments and other assets Intangible assets Deferred tax assets Total assets Payables Provisions Current tax liabilities Deferred tax liabilities Total liabilities Value of identifiable net assets Goodwill arising on acquisition Total identifiable net assets and goodwill attributable to the Group Purchase consideration Cash paid Contingent consideration liability Total purchase consideration net cash outflow on acquisition Net cash acquired with subsidiary Cash paid net cash outflow 13,159 1,269 225 2,572 2,470 4,295 285 24,275 1,549 649 209 254 2,661 21,614 13,872 35,486 32,372 3,114 35,486 13,159 (32,372) (19,213) The income statement includes revenue and net profit for the year ended 30 June 2013 of $11.9 million and $1.3 million respectively, as a result of acquisitions of business combinations made during the reporting period. Had the acquisitions occurred at the beginning of the reporting period, the income statement would have included revenue and net profit of $16.5 million and $1.1 million respectively. Included in the business acquisitions made during the reporting period were mastheads, trademarks, software, business and domain names. 108 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 31. EMPLOYEE BENEFITs (A) NUMBER OF EMPLOYEES As at 30 June 2013 the consolidated entity employed 7,043 full-time employees (2012: 8,416) and 1,384 part-time and casual employees (2012: 1,748). This includes 1,813 (2012: 2,094) full-time employees and 285 (2012: 310) part-time and casual employees in New Zealand. (B) EMPLOYEE SHARE PLANS The Company had three employee share plans during the period. The terms of each plan are set out below: 1. FAiRFAx exeMPT eMPloyee SHARe PlAn This plan is open to all Australian employees with at least twelve months service with the consolidated entity in Australia, whose adjusted taxable income is $180,000 per annum or less. Under this Plan, participants may salary sacrifice up to $1,000 of pre tax salary per annum for the purchase of issued Fairfax shares at the market price on the open market of the ASx. The shares are purchased by an independent trustee company on predetermined dates. 2. FAiRFAx deFeRRed eMPloyee SHARe PlAn This plan is open to all Australian employees with at least twelve months service with the consolidated entity in Australia. Under this Plan, participants may salary sacrifice a minimum of $1,000 and up to a maximum of $5,000 of salary per annum for the purchase of issued Fairfax shares at the market price on the open market of the ASx. The shares are purchased by an independent trustee company on predetermined dates. Participants must nominate a ‘lock’ period of either 3, 5 or 7 years during which their shares must remain in the plan, unless they leave the consolidated entity in Australia. 3. lonG TeRM equiTy BASed inCenTiVe SCHeMe The long term incentive plan is available to certain permanent full-time and part-time employees of the consolidated entity. 2008 – 2012 Financial year Under this plan, the cash value of a percentage of an eligible executive’s annual total fixed remuneration will be in the form of nominally allocated Fairfax shares, which are beneficially held in a trust. The shares will vest if the eligible employee remains in employment three years from the date the nominal shares are allocated and certain performance hurdles are satisfied. If the allocation does not vest at the end of year three, a re-test of the performance hurdles occurs in the fourth year. There are currently no cash settlement alternatives. Dividends on the allocated shares during the vesting period are paid directly to the eligible employee and the Company does not have any recourse to dividends paid. 2013 Financial year For 2013, participants in the plan received an allocation of performance rights (rights) which allow the executive to acquire shares for no consideration subject to achievement of the performance hurdles. No dividends are payable to participants on the unvested rights. The number of rights to which a participant is entitled will depend on the participant’s role and responsibilities. Allocations are set at a fixed percentage of the executive’s fixed remuneration at the time they participate in the scheme. The value of the rights at the time of allocation is determined by an independent external valuer. FAIRFAX MEDIA LIMITED 2013 109 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 32. REMUNERATION OF AUDITORs During the financial year the following amounts were paid or payable for services provided by the auditor of the Company and its related parties: Audit services Ernst & Young Australia Audit and review of financial reports Affiliates of Ernst & Young Australia Audit and review of financial reports Non Ernst & Young Firms Audit and review of financial reports Total audit services other assurance services Ernst & Young Australia Regulatory and contractually required audits Other Affiliates of Ernst & Young Australia Regulatory and contractually required audits Other Non Ernst & Young Firms Regulatory and contractually required audits Other Total other assurance services Total remuneration for assurance services non assurance services Ernst & Young Australia Other services Affiliates of Ernst & Young Australia Other services Non Ernst & Young Firms Other services Total non assurance services Total remuneration of auditors 30 June 2013 $ 24 JUNE 2012 $ 1,088,401 1,031,030 244,044 266,770 26,498 1,358,943 25,854 1,323,654 243,809 225,449 238,692 376,167 98,020 – 213,515 603,008 8,151 – 11,818 – 575,429 1,934,372 1,443,200 2,766,854 – – – – 1,000 – – 1,000 1,934,372 2,767,854 110 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 33. DIRECTOR AND ExECUTIVE DIsCLOsUREs (A) EQUITY INSTRUMENT DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL (i) SHAReHoldinGS 2013 directors R Corbett J Cowin G Hywood S McPhee J Millar S Morgan L Nicholls P Young M Anderson key management personnel B Cassell * G Hambly D Housego A Williams Total 2012 directors R Corbett NJ Fairfax * G Hywood S McPhee S Morgan L Nicholls R Savage * P Young M Anderson key management personnel B Cassell * G Hambly A Lam-Po-Tang ** C Maher ** M Williams ** Total BALANCE 24 JUNE 2012 NET CHANGE OTHER BALANCE 30 JUNE 2013 POST YEAR-END ACQUISITIONS POST YEAR-END DISPOSALS POST YEAR-END BALANCE 99,206 – 99,206 – 3,000,000 3,000,000 118,343 40,220 200,000 70,673 318,343 110,893 – 100,000 100,000 1,564,668 – 1,564,668 40,387 131,117 – 1,061,014 104,815 67,371 – – – – – – 291,139 – 107,758 131,117 – 1,061,014 104,815 291,139 – 3,159,770 3,729,183 6,888,953 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 99,206 3,000,000 318,343 110,893 100,000 1,564,668 107,758 131,117 – 1,061,014 104,815 291,139 – 6,888,953 BALANCE 26 JUNE 2011 NET CHANGE OTHER BALANCE 24 JUNE 2012 POST YEAR-END ACQUISITIONS POST YEAR-END DISPOSALS POST YEAR-END BALANCE 99,206 3,892,481 – 4,783 181,500 5,401 47,899 131,117 – 1,061,014 177,631 – 641 1,281 – – 118,343 35,437 99,206 3,892,481 118,343 40,220 1,383,168 1,564,668 34,986 – – – – (72,816) – – – 40,387 47,899 131,117 – 1,061,014 104,815 – 641 1,281 – – – 13,156 – 12,875 – – – – – – – – 5,602,954 1,499,118 7,102,072 26,031 – – – – – – – – – – – – – – – 99,206 3,892,481 118,343 53,376 1,564,668 53,262 47,899 131,117 – 1,061,014 104,815 – 641 1,281 7,128,103 * In the case of retired Directors, the closing balance represents the number of shares at the date the Director retired from the Board. For KMP, the closing balance represents the number of shares at the date of resignation. NJ Fairfax resigned from the Board on 29 November 2011 and R Savage on 30 June 2012. B Cassell ceased in the position of CFO on 3 December 2012, on which date he was appointed Project Director and no longer considered KMP. ** Following the structural changes within the Group this person no longer met the definition of a KMP since 25 June 2012. FAIRFAX MEDIA LIMITED 2013 111 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 33. DIRECTOR AND ExECUTIVE DIsCLOsUREs (CONTINUED) (B) RIGHTS OVER SHARE HOLDINGS OF DIRECTORS AND KEY MANAGEMENT PERSONNEL Details of equity-based incentive schemes are included in section 6.2 of the remuneration report. 2013 directors G Hywood key management personnel B Cassell * G Hambly D Housego A Williams Total 2012 directors G Hywood key management personnel B Cassell * G Hambly A Lam-Po-Tang ** C Maher ** M Williams ** Total OPENING BALANCE 24 JUNE 2012 GRANTED AS REMUNERATION NET CHANGE OTHER *** CLOSING BALANCE 30 JUNE 2013 1,514,491 8,888,889 – 10,403,380 785,983 – (121,057) 664,926 717,949 2,083,333 (110,969) 2,690,313 – – 3,666,667 1,837,124 – – 3,666,667 1,837,124 3,018,423 16,476,013 (232,026) 19,262,410 OPENING BALANCE 26 JUNE 2011 GRANTED AS REMUNERATION NET CHANGE OTHER *** CLOSING BALANCE 24 JUNE 2012 – 1,514,491 – 1,514,491 599,889 504,754 – 149,261 120,567 274,077 221,030 – 129,081 93,716 (87,983) (7,835) – (24,635) (15,177) 785,983 717,949 – 253,707 199,106 1,374,471 2,232,395 (135,630) 3,471,236 * In the case of retired Directors, the closing balance represents the number of shares at the date the Director retired from the Board. For KMP, the closing balance represents the number of shares at the date of resignation. NJ Fairfax resigned from the Board on 29 November 2011 and R Savage on 30 June 2012. B Cassell ceased in the position of CFO on 3 December 2012, on which date he was appointed Project Director and no longer considered KMP. ** Following the structural changes within the Group this person no longer met the definition of a KMP since 25 June 2012. *** Net change movements include forfeitures. (C) LOANS TO KEY MANAGEMENT PERSONNEL (i) AGGReGATeS FoR key MAnAGeMenT PeRSonnel There were no loans made to Directors of Fairfax Media Limited or to other key management personnel of the Group, including their personally related parties, during the financial period ended 30 June 2013 (2012: Nil). (ii) indiViduAlS WiTH loAnS duRinG THe FinAnCiAl yeAR There are no outstanding loans for the financial years ended 30 June 2013 and 24 June 2012. (D) OPTIONS No options over unissued shares in the Company were in existence at the beginning of the financial year, or granted during, or since the end of the financial year. 112 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 34. RELATED PARTY TRANsACTIONs (A) ULTIMATE PARENT Fairfax Media Limited is the ultimate parent company. (B) CONTROLLED ENTITIES Interests in controlled entities are set out in Note 28. (C) KEY MANAGEMENT PERSONNEL A number of Directors of Fairfax Media Limited also hold directorships with other corporations which provide and receive goods or services to and from the Fairfax Group in the ordinary course of business on normal terms and conditions. None of these Directors derive any direct personal benefit from the transactions between the Fairfax Group and these corporations. Transactions were entered into during the financial year with the Directors of Fairfax Media Limited and its controlled entities or with Director-related entities, which: • occurred within a normal employee, customer or supplier relationship on terms and conditions no more favourable than those which it is reasonable to expect would have been adopted if dealing with the Director or Director-related entity at arm’s length in the same circumstances; • do not have the potential to adversely affect decisions about the allocation of scarce resources or discharge the responsibility of the Directors; or • are minor or domestic in nature. (D) TRANSACTIONS WITH RELATED PARTIES The following transactions for the sale and purchase of goods and services occurred with related parties on normal market terms and conditions: Associates 30 June 2013 24 June 2012 Joint ventures 30 June 2013 24 June 2012 SALES TO RELATED PARTIES $’000 PURCHASES FROM RELATED PARTIES $’000 AMOUNT OWED BY RELATED PARTIES $’000 AMOUNT OWED TO RELATED PARTIES $’000 13,688 2,690 54 116 7,307 9,110 241 2,905 246 2,412 – 3 3,413 115 1 – FAIRFAX MEDIA LIMITED 2013 113 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 35. NOTEs TO THE CAsH FLOw sTATEMENT (A) RECONCILIATION OF NET LOSS AFTER INCOME TAX EXPENSE TO NET CASH INFLOW FROM OPERATING ACTIVITIES Net loss for the period non-cash items Depreciation and amortisation for continuing operations Depreciation and amortisation for discontinued operations Impairment of property, plant and equipment, intangibles and investments Amortisation of borrowing costs Share of losses of associates and joint ventures not received as dividends Straight-line rent adjustment Net loss on disposal of property, plant and equipment Net gain on disposal of investments and other assets Fair value adjustment to derivatives Net foreign currency loss/(gain) Share-based payment expense Non-cash superannuation expense Gain on revaluation of investment in associate Other non-operating gains Changes in operating assets and liabilities, net of effects from acquisitions Decrease in trade receivables Decrease in other receivables Decrease in inventories Increase in other assets (Decrease)/increase in payables (Decrease)/increase in provisions Increase/(decrease) in tax balances net cash inflow from operating activities NOTE 30 June 2013 $’000 24 JUNE 2012 $’000 (971) (2,725,803) 3(B) 100,762 3,124 103,478 4,025 459,938 2,865,060 1,191 5,528 513 92 (299,413) 4,539 660 2,038 (833) – 142 34,033 7,611 6,180 (788) (41,020) (100,942) 4,067 186,451 1,921 1,717 470 401 (1,005) (6,561) (9,070) 1,068 (716) (2,541) 19 33,924 3,121 2,506 (919) 6,897 155,398 (165,741) 267,649 (B) RECONCILIATION OF CASH AND CASH EQUIVALENTS Reconciliation of cash at end of the financial year (as shown in the Statement of Cash Flow) to the related items in the financial statements is as follows: Cash on hand and at bank Total cash at end of the financial year 533,531 533,531 358,364 358,364 114 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 36. FINANCIAL AND CAPITAL RIsk MANAGEMENT FINANCIAL RISK MANAGEMENT The Group’s principal financial instruments, other than derivatives, comprise cash, short term deposits, bills of exchange and bank loans. The main purpose of these financial instruments is to manage liquidity and to raise finance for the Group’s operations. The Group has various other financial instruments, such as trade and other receivables and trade and other payables, which arise directly from its operations. The Group uses derivatives in accordance with Board approved policies to reduce the Group’s exposure to fluctuations in interest rates and foreign exchange rates. These derivatives create an obligation or right that effectively transfers one or more of the risks associated with an underlying financial instrument, asset or obligation. Derivative instruments that the Group uses to hedge risks such as interest rate and foreign currency movements include: • cross currency swaps; • interest rate swaps; • forward foreign currency contracts; and • forward rate agreements. The Group’s risk management activities for interest rate and foreign exchange exposures are carried out centrally by Fairfax Media Group Treasury department. The Group Treasury department operates under policies as approved by the Board. The Group Treasury department operates in co-operation with the Group’s operating units so as to maximise the benefits associated with centralised management of Group risk factors. CAPITAL RISK MANAGEMENT The capital structure of Group entities is monitored using net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio. The ratio is calculated as net debt divided by underlying EBITDA. Net debt is calculated as total interest bearing liabilities less cash and cash equivalents. Where interest bearing liabilities are denominated in a currency other than the Australian dollar functional currency, and the liability is hedged into an Australian dollar obligation, the liability is measured for financial covenant purposes as the hedged Australian dollar amount. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, buy back shareholder equity, issue new shares or sell assets to reduce debt. The Group reviews the capital structure to ensure: • sufficient finance capacity for the business is maintained at a reasonable cost; and • sufficient funds are available for the business to implement its capital expenditure and business acquisition strategies. Where excess funds arise with respect to the funds required to enact the Group’s business strategies, consideration is given to increased dividends or buy back of shareholder equity. The net debt to EBITDA ratio for the Group at 30 June 2013 and 24 June 2012 is as follows: Net debt for financial covenant purposes EBITDA * Net debt to EBITDA ratio NOTE 19 2013 $’000 154,493 366,474 0.42 2012 $’000 914,098 506,022 1.81 * For the purposes of the debt to EBITDA ratio, underlying EBITDA is adjusted for specific items of a non-recurring nature and excludes any unrealised profit/(loss) arising from mark to market revaluations of financial instruments. In respect of the first 12 month period after the acquisition of any acquired business, EBITDA will include acquired EBITDA in respect of the acquired business for any period not covered in the consolidated EBITDA of the Group. FAIRFAX MEDIA LIMITED 2013 115 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 36. FINANCIAL AND CAPITAL RIsk MANAGEMENT (CONTINUED) RISK FACTORS The key financial risk factors that arise from the Group’s activities, including the Group’s policies for managing these risks are outlined below. Market risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market prices. The market risk factors to which the Group is exposed to are discussed in further detail below. (A) inTeReST RATe RiSk Interest rate risk refers to the risks that the value of a financial instrument or future cash flows associated with the instrument will fluctuate due to movements in market interest rates. Interest rate risk arises from interest bearing financial assets and liabilities that the Group utilises. Non-derivative interest bearing assets are predominantly short term liquid assets. Long term debt issued at fixed rates exposes the Group to fair value interest rate risk. The Group’s borrowings which have a variable interest rate attached give rise to cash flow interest rate risk. The Group’s risk management policy for interest rate risk seeks to reduce the effects of interest rate movements on its asset and liability portfolio through management of the exposures. The Group seeks to maintain a mix of foreign and local currency fixed rate and variable rate debt, as well as a mix of long term debt versus short term debt. The Group primarily enters into interest rate swap, interest rate option and cross currency swap agreements to manage these risks. The Group designates which of its financial assets and financial liabilities are exposed to a fair value or cash flow interest rate risk, such as financial assets and liabilities with a fixed interest rate or financial assets and financial liabilities with a floating interest rate that is reset as market rates change. The Group hedges the currency risk on foreign currency borrowings by entering into cross currency swaps, which have the economic effect of converting foreign currency borrowings to local currency borrowings. Over the counter derivative contracts are carried at fair value, which are estimated using valuation techniques based wherever possible on assumptions supported by observable market prices or rates prevailing at the reporting date. For other financial instruments for which quoted prices in an active market are available, fair value is determined directly from those quoted market prices. Refer to Note 16 for further details of the Group’s derivative financial instruments and details of hedging activities. At reporting date, the Group had the following mix of financial assets and financial liabilities exposed to interest rate risks: As at 30 June 2013 Financial assets Cash and cash equivalents Trade and other receivables Available for sale investments Other financial assets Derivatives Total financial assets Financial liabilities Payables Interest bearing liabilities: Bank borrowings and loans Senior notes Finance lease liability Total interest bearing liabilities Derivatives Total financial liabilities Total interest bearing liabilities Notional principal hedged net exposure to cash flow interest rate risk FloATinG RATe $’000 Fixed RATe $’000 non-inTeReST BeARinG $’000 533,531 – – 10,541 6,325 550,397 – 123,549 27,338 10,452 161,339 43,826 205,165 161,339 (123,526) 37,813 – – – – – – – 6,003 470,870 – 476,873 23,833 500,706 476,873 (116,495) 360,378 ToTAl $’000 533,531 287,457 1,929 10,608 18,833 852,358 – 287,457 1,929 67 12,508 301,961 235,919 235,919 – – – – 7,258 243,177 – – – 129,552 498,208 10,452 638,212 74,917 949,048 638,212 (240,021) 398,191 116 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 36. FINANCIAL AND CAPITAL RIsk MANAGEMENT (CONTINUED) As at 24 June 2012 Financial assets Cash and cash equivalents Trade and other receivables Available for sale investments Other financial assets Derivatives Total financial assets Financial liabilities Payables Interest bearing liabilities: Bank borrowings and loans Senior notes Finance lease liability Total interest bearing liabilities Derivatives Total financial liabilities Total interest bearing liabilities Notional principal hedged net exposure to cash flow interest rate risk FLOATING RATE $’000 FIXED RATE $’000 NON-INTEREST BEARING $’000 358,364 – – 14,615 23,976 396,955 – 718,177 24,361 14,583 757,121 60,964 818,085 757,121 (122,132) 634,989 – – – – – – – 8,311 441,941 – 450,252 27,243 477,495 450,252 (108,525) 341,727 TOTAL $’000 358,364 323,242 1,991 14,682 27,163 – 323,242 1,991 67 3,187 328,487 725,442 282,637 282,637 – – – – 7,421 726,488 466,302 14,583 1,207,373 95,628 290,058 1,585,638 – – – 1,207,373 (230,657) 976,716 Sensitivity analysis The table below shows the effect on net profit and equity after income tax if interest rates at reporting date had been 30% higher or lower with all other variables held constant, taking into account all underlying exposures and related hedges. Concurrent movements in interest rates and parallel shifts in the yield curves are assumed. A sensitivity of 30% (2012: 30%) has been selected as this is considered reasonable given the current level of both short term and long term Australian interest rates. A 30% sensitivity would move short term interest rates at 30 June 2013 from around 2.82% to 3.67% representing a 85 basis point shift (2012: 106 basis point shift). In 2013, 66% (2012: 72%) of the Group’s debt, taking into account all underlying exposures and related hedges was denominated in Australian Dollars; therefore, only the movement in Australian interest rates is used in this sensitivity analysis. Based on the sensitivity analysis, if interest rates were 30% higher, net profit would be impacted by the interest expense being higher on the Group’s net floating rate Australian Dollar positions during the year. If interest rates were 30% higher with all other variables held constant - increase/(decrease) If interest rates were 30% lower with all other variables held constant - increase/(decrease) IMPACT ON POST-TAX PROFIT IMPACT ON EQUITY 2013 $’000 2012 $’000 2013 $’000 2012 $’000 (2,603) (4,352) 1,670 2,663 2,603 4,352 (1,704) (2,755) (B) FoReiGn CuRRenCy RiSk Foreign currency risk refers to the risk that the value or the cash flows arising from a financial commitment, or recognised asset or liability will fluctuate due to changes in foreign currency rates. The Group’s foreign currency exchange risk arises primarily from: • borrowings denominated in foreign currency; and • firm commitments and/or highly probable forecast transactions for receipts and payments settled in foreign currencies and prices dependent on foreign currencies respectively. FAIRFAX MEDIA LIMITED 2013 117 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 36. FINANCIAL AND CAPITAL RIsk MANAGEMENT (CONTINUED) The Group is exposed to foreign exchange risk from various currency exposures, primarily with respect to: • United States Dollars; and • New Zealand Dollars. Forward foreign exchange contracts are used to hedge the Group’s known non-debt related foreign currency risks. These contracts generally have maturities of less than twelve months after the reporting date and consequently the net fair value of the gains and losses on these contracts will be transferred from the cash flow hedging reserve to the income statement at various dates during this period when the underlying exposure impacts earnings. The derivative contracts are carried at fair value, being the market value as quoted in an active market. The Group’s risk management policy for foreign exchange is to only hedge known or highly probable future transactions. The policy only permits hedging of the Group’s underlying foreign exchange exposures. Benefits or costs arising from currency hedges for revenue and expense transactions that are designated and documented in a hedge relationship are brought to account in the income statement over the lives of the hedge transactions depending on the effectiveness testing outcomes and when the underlying exposure impacts earnings. For transactions entered into that hedge specific capital or borrowing commitments, any cost or benefit resulting from the hedge forms part of the initial asset or liability carrying value. When entered into, the Group formally designates and documents the financial instrument as a hedge of the underlying exposure, as well as the risk management objectives and strategies for undertaking the hedge transactions. The Group formally assesses both at the inception and at least semi-annually thereafter, whether the financial instruments that are used in hedging transactions are effective at offsetting changes in either the fair value or cash flows of the related underlying exposure. Because of the high degree of effectiveness between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair values or cash flows of the underlying exposures being hedged. Any ineffective portion of a financial instrument’s change in fair value is immediately recognised in the income statement and this is mainly attributable to financial instruments in a fair value hedge relationship. Derivatives entered into and not documented in a hedge relationship are revalued with the changes in fair value recognised in the income statement. All of the Group’s derivatives are straight forward over the counter instruments with liquid markets. Refer to Note 16 for further details of the Group’s derivative financial instruments and details of hedging activities. SENSITIVITY ANALYSIS The tables below show the effect on net profit and equity after income tax as at reporting date from a 15% weaker/stronger base currency movement in exchange rates at that date on a total derivative portfolio with all other variables held constant. A sensitivity of 15% has been selected as this is considered reasonable given the current level of exchange rates and the volatility observed both on a historical basis and market expectations for potential future movement. The Group’s foreign currency risk from the Group’s long term borrowings denominated in foreign currencies has no significant impact on profit from foreign currency movements as they are effectively hedged. (A) Aud / nZd Comparing the Australian Dollar exchange rate against the New Zealand Dollar, a 15% weaker Australian Dollar would result in an exchange rate of 1.0045 and a 15% stronger Australian Dollar in an exchange rate of 1.3590 based on the year end rate of 1.1818. This range is considered reasonable given over the last five years, the Australian Dollar exchange rate against the New Zealand Dollar has traded in the range of 1.0781 to 1.3746. If the AUD exchange rate was 15% weaker against the NZD with all other variables held constant – increase/(decrease) If the AUD exchange rate was 15% stronger against the NZD with all other variables held constant – increase/(decrease) IMPACT ON POST-TAX PROFIT IMPACT ON EQUITY (HEDGING RESERVES) * 2013 $’000 2012 $’000 2013 $’000 2012 $’000 852 1,092 (31,522) (29,424) (630) (1,932) 23,299 21,748 * Hedging reserves includes both the cash flow hedge reserve and net investment hedge reserve 118 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 36. FINANCIAL AND CAPITAL RIsk MANAGEMENT (CONTINUED) (B) Aud / uSd Comparing the Australian Dollar exchange rate against the United States Dollar, a 15% weaker Australian Dollar would result in an exchange rate of 0.7763 and a 15% stronger Australian Dollar in an exchange rate of 1.0503 based on the year end rate of 0.9133. This range is considered reasonable given over the last five years, the Australian Dollar exchange rate against the United States Dollar has traded in the range of 0.6120 to 1.1028. If the AUD exchange rate was 15% weaker against the USD with all other variables held constant – increase/(decrease) If the AUD exchange rate was 15% stronger against the USD with all other variables held constant – increase/(decrease) IMPACT ON POST-TAX PROFIT IMPACT ON EQUITY (CASH FLOW HEDGE RESERVE) 2013 $’000 2012 $’000 2013 $’000 2012 $’000 1 (3) (1) (1,249) (1,496) (148) 1,786 2,955 (C) CRediT RiSk Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument and cause the Group to make a financial loss. The Group has exposure to credit risk on all financial assets included in the Group’s balance sheet. To help manage this risk, the Group: • has a policy for establishing credit limits for the entities it deals with; • may require collateral where appropriate; and • manages exposures to individual entities it either transacts with or enters into derivative contracts with (through a system of credit limits). The Group is exposed to credit risk on financial instruments and derivatives. For credit purposes, there is only a credit risk where the contracting entity is liable to pay the Group in the event of a closeout. The Group has policies that limit the amount of credit exposure to any financial institution. Derivative counterparties and cash transactions are limited to financial institutions that meet minimum credit rating criteria in accordance with the Group’s policy requirements. At 30 June 2013 counterparty credit risk was limited to financial institutions with S&P credit ratings ranging from A to AA. The Group’s credit risk is mainly concentrated across a number of customers and financial institutions. The Group does not have any significant credit risk exposure to a single or group of customers or individual institutions. Financial assets are considered impaired where there is objective evidence that the Group will not be able to collect all amounts due according to the original trade and other receivable terms. Factors considered when determining if an impairment exists include ageing and timing of expected receipts and the credit worthiness of counterparties. A provision for doubtful debts is created for the difference between the assets carrying value and the present value of estimated future cash flows. The Group’s trading terms do not generally include the requirement for customers to provide collateral as security for financial assets. Refer to Note 8 for an ageing analysis of trade receivables and the movement in the provision for doubtful debts. All other financial assets are not impaired and are not past due. Based on the credit history of these classes, it is expected that these amounts will be received when due. (d) liquidiTy RiSk Liquidity risk is the risk that the Group cannot meet its financial commitments as and when they fall due. To help reduce this risk the Group: • has a liquidity policy which targets a minimum level of committed facilities and cash relative to EBITDA; • has readily accessible funding arrangements in place; and • staggers maturities of financial instruments. Refer to Note 19(B) for details of the Group’s unused credit facilities at 30 June 2013. The contractual maturity of the Group’s fixed and floating rate derivatives, other financial assets and other financial liabilities are shown in the tables below. The amounts represent the future undiscounted principal and interest cash flows and therefore may not equate to the values disclosed in the balance sheet. FAIRFAX MEDIA LIMITED 2013 119 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 36. FINANCIAL AND CAPITAL RIsk MANAGEMENT (CONTINUED) As at 30 June 2013 Financial liabilities* Payables Bank borrowings and loans Notes and bonds Finance lease liability derivatives – inflows* Cross currency swaps – foreign leg (fixed)** Cross currency swaps – foreign leg (variable)** Forward foreign currency contracts derivatives – outflows* Cross currency swaps – AUD leg (fixed)** Cross currency swaps – AUD leg (variable)** Cross currency swaps – NZD leg (variable)** Interest rate swaps *** Forward foreign currency contracts Put option As at 24 June 2012 Financial liabilities* Payables Bank borrowings and loans Notes and bonds Finance lease liability derivatives – inflows* Cross currency swaps – foreign leg (fixed)** Cross currency swaps – foreign leg (variable)** Forward foreign currency contracts derivatives – outflows* Cross currency swaps – AUD leg (fixed)** Cross currency swaps – AUD leg (variable)** Cross currency swaps – NZD leg (variable)** Interest rate swaps *** Forward foreign currency contracts Put option (noMinAl CASH FloWS) 1 yeAR oR leSS $’000 1 To 2 yeARS $’000 2 To 5 yeARS $’000 MoRe THAn 5 yeARS $’000 (235,919) – (9,101) (133,366) – (516) (276,057) (122,009) (108,390) (9,453) (9,848) (2,533) 248,714 27,388 28,203 (43,221) (58,491) (224,510) (4,275) (25,937) (6,436) 122,009 108,443 – – – – (6,149) (94,560) (125,059) (892) (4,275) – – – (26,742) (127,138) – – (NOMINAL CASH FLOWS) 1 YEAR OR LESS $’000 1 TO 2 YEARS $’000 2 TO 5 YEARS $’000 (282,637) (44,862) (27,111) (11,323) 26,584 527 64,328 (8,911) (9,000) (8,128) (2,825) (64,428) (3,711) – (193,485) (75,478) (9,491) 75,073 527 – (8,911) (9,000) (71,327) (2,825) – (3,710) – (603,881) (275,674) (12,428) 251,027 24,873 – (26,734) (178,712) (127,294) (129,238) – – – – – – – – – – – – – – – MORE THAN 5 YEARS $’000 – – (142,900) – 143,006 – – (119,221) – (54,264) – – – * For floating rate instruments, the amount disclosed is determined by reference to the interest rate at the last repricing date. ** Contractual amounts to be exchanged representing gross cash flows to be exchanged. *** Net amount for interest rate swaps for which net cash flows are exchanged. 120 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 36. FINANCIAL AND CAPITAL RIsk MANAGEMENT (CONTINUED) (e) FAiR VAlue The carrying amounts and fair values of financial assets and financial liabilities at reporting date are: Financial assets Cash and cash equivalents Receivables Derivative assets Available for sale investments Other financial assets Financial liabilities Payables Interest bearing liabilities: Bank borrowings Senior notes Finance lease liability Derivative liabilities CARRyinG VAlue 2013 $’000 533,531 287,457 18,833 1,929 10,608 FAiR VAlue 2013 $’000 CARRYING VALUE 2012 $’000 FAIR VALUE 2012 $’000 533,531 287,457 18,833 1,929 10,608 358,364 323,242 27,163 1,991 14,682 358,364 323,242 27,163 1,991 14,682 852,358 852,358 725,442 725,442 235,919 235,919 282,637 282,637 129,552 498,208 10,452 74,917 949,048 129,552 498,848 17,929 74,917 957,165 726,488 466,302 14,583 95,628 726,488 467,348 23,840 95,628 1,585,638 1,595,941 Market values have been used to determine the fair value of listed available for sale investments. The fair value of the senior notes and lease liabilities have been calculated by discounting the future cash flows by interest rates for liabilities with similar risk profiles. The discount rates applied range from 1.93% to 13.29% (2012: 2.12% to 13.32%). The carrying value of all other balances approximate their fair value. The Group uses various methods in estimating the fair value of a financial instrument. The methods comprise: (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); (b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2); and (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The fair value of the financial instruments as well as the methods used to estimate the fair value are summarised in the table below: As at 30 June 2013 Financial assets Derivative assets Available for sale investments Financial liabilities Derivative liabilities As at 24 June 2012 Financial assets Derivative assets Available for sale investments Financial liabilities Derivative liabilities leVel 1 $’000 – 1,929 1,929 – – LEVEL 1 $’000 – 1,991 1,991 – – leVel 2 $’000 18,833 – 18,833 74,917 74,917 LEVEL 2 $’000 27,163 – 27,163 95,628 95,628 leVel 3 $’000 – – – – – LEVEL 3 $’000 – – – – – ToTAl $’000 18,833 1,929 20,762 74,917 74,917 TOTAL $’000 27,163 1,991 29,154 95,628 95,628 FAIRFAX MEDIA LIMITED 2013 121 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 37. sEGMENT REPORTING (A) DESCRIPTION OF SEGMENTS The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors, CEO and CFO in assessing performance and in determining the allocation of resources. During the 2013 financial year, the Printing Operations division was restructured to form part of corporate services. As a result, Printing Operations is no longer a reportable segment and its results have been allocated to the Metropolitan Media, Fairfax Regional Media and New Zealand Media segments. The Group is organised into five reportable segments based on aggregated operating segments determined by similar product and services provided, economic characteristics and geographical considerations. The prior year financial information has been restated under the new reportable segments. Refer to Note 1(W) for disclosure on operating segments. On 21 December 2012, the Group disposed of its remaining 51% interest in Trade Me Group Ltd. The Group disposed of the US Agricultural Media business on 14 November 2012. The US Agricultural Media business was part of the Fairfax Regional Media reportable segment. REPORTABLE SEGMENT Fairfax Regional Media Metropolitan Media PRODUCTS AND SERVICES Newspaper publishing and online for all Australian regional and agricultural media. Metropolitan news, sport, lifestyle and business media across various platforms including print, online, tablet and mobile. Also includes classifieds for metropolitan and community publications and transactional businesses. New Zealand Media Newspaper, magazine and general publishing and online for all New Zealand media. Broadcasting Other Metropolitan radio networks. Comprises corporate and other entities not included in the segments above. Trade Me (discontinued operations) Transactional businesses of Trade Me in New Zealand. Although the broadcasting segment does not meet the quantitative thresholds required by AASB 8, management has concluded that disclosure of this segment would be beneficial to users of the financial statements. (B) RESULTS BY OPERATING SEGMENT The segment information provided to the Board of Directors, CEO and CFO for the reportable segments for the year ended 30 June 2013 is as follows: 30 June 2013 Fairfax Regional Media Metropolitan Media New Zealand Media Broadcasting Other Total for continuing operations Trade Me (discontinued operations) Total for the Group SeGMenT ReVenue $’000 inTeRSeGMenT ReVenue $’000 FRoM exTeRnAl CuSToMeRS $’000 undeRlyinG eBiT $’000 ReVenue 573,354 1,003,400 339,334 105,374 2,449 2,023,911 60,187 (2,281) (9,695) 55 (273) – 571,073 993,705 339,389 105,101 2,449 (12,194) 2,011,717 – 60,187 2,084,098 (12,194) 2,071,904 133,705 48,800 49,494 15,482 (26,982) 220,499 41,634 262,133 122 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 37. sEGMENT REPORTING (CONTINUED) 24 June 2012 Fairfax Regional Media Metropolitan Media New Zealand Media Broadcasting Other Total for continuing operations Trade Me (discontinued operations) Total for the Group (C) OTHER SEGMENT INFORMATION (i) SeGMenT ReVenue Segment revenue reconciles to total revenue and income as follows: Total segment revenue from external customers for continuing operations Interest income Share of net losses/(profits) of associates and joint ventures Gains on sale of controlled entities Total revenue and income SEGMENT REVENUE $’000 INTERSEGMENT REVENUE $’000 REVENUE FROM EXTERNAL CUSTOMERS $’000 UNDERLYING EBIT $’000 634,050 1,132,997 348,262 97,164 8,670 2,221,143 114,014 2,335,157 (2,223) (2,402) (653) (67) – 631,827 1,130,595 347,609 97,097 8,670 (5,345) 2,215,798 – 114,014 168,670 72,571 59,539 11,304 4,447 316,531 81,987 (5,345) 2,329,812 398,518 30 June 2013 $’000 24 JUNE 2012 $’000 2,011,717 2,215,798 11,604 2,239 19,830 10,458 (1,311) – 2,045,390 2,224,945 Revenue from external customers includes the operating segments share of net profits from associates and joint ventures. Transactions between operating segments relating to advertising are at a discount from the rate card and management charges between operating segments are on third party terms. The consolidated entity operates predominantly in two geographic segments, Australia and New Zealand. The amount of its revenue from external customers in Australia is $1,686.1 million (2012: $1,870.3 million) and the amount of revenue from external customers in New Zealand is $359.3 million (2012: $354.6 million). Segment revenues are allocated based on the country in which the customer is located. (ii) SeGMenT ReSulT – eBiT The Board of Directors, CEO and CFO assess the performance of the operating segments based on a measure of underlying EBIT. This measurement basis excludes the effects of significant items from the operating segments such as restructuring costs and goodwill, masthead or radio licence impairments when the impairment is the result of an isolated, significant event. The gains on the sale of Trade Me and the US Agricultural Media business have been excluded from the reportable segment results. Interest income and expenditure are not allocated to segments, as this type of activity is driven by the centralised treasury function, which manages the cash position of the Group. A reconciliation of underlying EBIT to operating loss before income tax is provided as follows: underlying eBiT for continuing operations Interest income Finance costs Gains on sale of controlled entities in other revenue and income Impairment of mastheads, goodwill, licences, customer relationships and software Impairment of investments, inventories and property, plant and equipment Restructuring and redundancy charges Reported net loss before tax 30 June 2013 $’000 220,499 11,604 (66,571) 19,830 24 JUNE 2012 RESTATED * $’000 316,531 10,458 (120,189) – (418,655) (2,758,061) (37,189) (4,458) (106,120) (200,447) (274,940) (2,857,828) FAIRFAX MEDIA LIMITED 2013 123 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 37. sEGMENT REPORTING (CONTINUED) Information provided to the Board of Directors, CEO and CFO in respect of assets and liabilities is presented on a group basis consistent with the consolidated financial statements. • Certain numbers shown here do not correspond to the 2012 financial statements and reflect adjustments due to discontinued operations as detailed in Note 5. A summary of significant items by operating segments is provided for the period ended 30 June 2013 and 24 June 2012. iMPAiRMenT oF MASTHeAdS, GoodWill, liCenCeS And CuSToMeR RelATionSHiPS $’000 iMPAiRMenT oF inVeSTMenTS, inVenToRieS And PRoPeRTy, PlAnT And equiPMenT $’000 ReSTRuCTuRinG And RedundAnCy CHARGeS $’000 GAin on SAle oF uS AGRiCulTuRAl MediA BuSineSS $’000 406,055 5,000 – 7,600 – 418,655 – 36,832 – – 357 37,189 2,844 – – – – – – – 1,614 4,458 (19,830) (19,830) IMPAIRMENT OF MASTHEADS, GOODWILL, CUSTOMER RELATIONSHIPS AND SOFTWARE $’000 IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT AND INVESTMENTS $’000 RESTRUCTURING AND REDUNDANCY CHARGES $’000 1,186,746 912,823 608,351 50,000 141 2,758,061 – 92,926 10,266 721 2,207 106,120 10,625 102,269 70 720 86,763 200,447 ToTAl $’000 408,899 41,832 – 7,600 (17,859) 440,472 TOTAL $’000 1,197,371 1,108,018 618,687 51,441 89,111 3,064,628 30 June 2013 Fairfax Regional Media Metropolitan Media New Zealand Media Broadcasting Other Consolidated entity 24 June 2012 Fairfax Regional Media Metropolitan Media New Zealand Media Broadcasting Other Consolidated entity In the prior year, $225.4 million of goodwill impairment and $159.7 million of other impairment and restructuring charges were recorded in the Printing Operations segment. This has been restated by reallocating $225.4m to Fairfax Regional Media and $159.7m to Metropolitan Media. (iii) SeGMenT ASSeTS The total of non-current assets other than financial instruments, deferred tax assets and employment benefit assets (there are no rights arising under insurance contracts) located in Australia is $1,773.0 million (2012: $2,217.8 million) and the total of these non-current assets located in New Zealand is $227.4 million (2012: $866.5 million). Segment assets are allocated to countries based on where the assets are located. 124 NOTEs TO THE FINANCIAL sTATEMENTs FAIRFAx MEDIA LIMITED AND CONTROLLED ENTITIES FOR THE PERIOD ENDED 30 JUNE 2013 38. PARENT ENTITY INFORMATION The following disclosures relate to Fairfax Media Limited as an individual entity, being the ultimate parent entity of the Fairfax Media group. Financial position of parent entity Current assets Total assets Current liabilities Total liabilities Total equity of parent entity Contributed equity General reserve Acquisition reserve Share-based payment reserve Retained losses Total equity Result of parent entity Loss for the period Other comprehensive income Total comprehensive income for the period 30 June 2013 $’000 24 JUNE 2012 $’000 1,419,568 1,829,633 12,912 13,438 1,647,871 2,061,419 18,323 18,742 4,646,248 4,646,248 (722) (10,672) 8,799 (722) (10,672) 7,612 (2,827,458) (2,599,789) 1,816,195 2,042,677 (180,630) (2,303,255) – – (180,630) (2,303,255) Fairfax Media Limited has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of its subsidiaries within the Closed Group. Further details regarding the deed are set out in Note 28. OPERATING LEASE COMMITMENTS – PARENT ENTITY AS LESSEE Fairfax Media Limited has entered into commercial leases on office premises. Future minimum rentals payable under non-cancellable operating leases as at the period end are as follows: Within one year Later than one year and not later than five years Later than five years Total operating lease commitments 39. EVENTs sUBsEqUENT TO REPORTING DATE 30 June 2013 $’000 24 JUNE 2012 $’000 109 – – 109 161 82 – 243 The Group undertook a tender offer to repurchase some of its outstanding Senior Notes in July 2013. Acceptances under the tender totalled US$224 million of the outstanding total of US$430 million. The repurchased notes comprised US$25 million of floating rate notes and US$199 million of fixed rate notes. Approximately A$270 million of funds were used to repurchase the Senior Notes through the exercise of US$224 million of existing cross currency swaps. The early redemption of the Senior Notes will result in a $4.6 million gain net of tax recorded in the income statement in the 2014 financial year. In July 2013, the Group entered into a new loan facility for NZ$40 million. The loan facility is available to the Group until July 2015. On 13 August, the Group entered into an agreement to sell InvestSMART to Australasian Wealth Investments Limited (AWI) for cash consideration of $7 million. The completion of the transaction is dependent on a capital raising process by AWI. FAIRFAX MEDIA LIMITED 2013 125 DIRECTORs’ DECLARATION In accordance with a resolution of the Directors of Fairfax Media Limited, we state that: 1. In the opinion of the Directors: (a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1; (c) (d) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in Note 28 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee. 2. This declaration has been made after receiving the declarations required to be made to the Directors from the Chief Executive Officer and the Chief Financial Officer in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2013. On behalf of the Board Roger Corbett, Ao Chairman Greg Hywood Chief Executive Officer and Managing Director 22 August 2013 126 INDEPENDENT AUDITOR’s REPORT INDEPENDENT AUDITOR’s REPORT FAIRFAX MEDIA LIMITED 2013 127 128 sHAREHOLDER INFORMATION FAIRFAX MEDIA LIMITED TWENTY LARGEST HOLDERS OF SECURITIES AT 18 SEPTEMBER 2013 oRdinARy SHAReS (FxJ) National Nominees Limited Timeview Enterprises Pty Ltd HSBC Custody Nominees (Australia) Limited JP Morgan Nominees Australia Limited Citicorp Nominees Pty Limited BNP Paribas Noms Pty Ltd JP Morgan Nominees Australia Limited UBS Nominees Pty Ltd RBC Investor Services Australia Nominees Pty Limited Citicorp Nominees Pty Limited Hanrine Investments Pty Ltd AMP Life Limited Pacific Custodians Pty Limited QIC Limited UBS Wealth Management Australia Nominees Pty Ltd BNP Paribas Nominees Pty Ltd ACF Pengana Share Direct Nominees Pty Ltd <10026 A/C> Sandhurst Trustees Ltd Y S Chains Pty Ltd Woodross Nominees Pty Ltd deBenTuReS National Financial Services Corp. OPTIONS There were no options exercisable at the end of the financial year. NUMBER OF SECURITIES 543,506,169 328,382,124 316,973,001 263,817,996 179,060,681 83,608,351 51,824,649 26,360,242 24,916,653 24,803,569 24,073,540 19,510,165 12,089,742 9,657,478 8,860,948 6,500,000 6,151,261 5,951,849 5,500,000 4,433,198 1,945,981,616 % 23.11 13.96 13.48 11.22 7.61 3.55 2.20 1.12 1.06 1.05 1.02 0.83 0.51 0.41 0.38 0.28 0.26 0.25 0.23 0.19 82.74 281 100 SUBSTANTIAL SHAREHOLDERS Substantial shareholders as shown in substantial shareholder notices received by the Company as at 18 September 2013 are: Hancock Prospecting Pty Ltd Gutenberg Investments Pty Ltd (pursuant to Consultation Agreement) Allan Gray Australia Pty Ltd Maple-Brown Abbott Limited National Australia Bank Limited Group Ausbil Dexia Limited Vinva Investment Management SAS Trustee Corporation IOOF Holdings Limited Dimensional Fund Advisors Group DISTRIBUTION OF HOLDINGS AT 18 SEPTEMBER 2013 NO. OF SECURITIES 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total number of holders Number of holders holding less than a marketable parcel ORDINARY SHARES 352,455,664 3,554,783 356,010,447 268,884,017 186,558,910 164,869,006 149,340,606 118,872,757 118,279,205 117,884,540 117,713,482 NO. OF ORDINARY SHAREHOLDERS 8,900 13,688 4,841 6,028 454 33,911 7,155 NO. OF DEBENTURE HOLDERS 1 – – – – 1 – VOTING RIGHTS Voting rights of ordinary shareholders are governed by Rules 5.8 and 5.9 of the Company’s Constitution which provide that every member present personally or by proxy, attorney or representative shall on a show of hands have one vote and on a poll, shall have one vote for every share held. Debentures do not carry any voting rights. FAIRFAX MEDIA LIMITED 2013 129 DIRECTORY FAIRFAX MEDIA LIMITED ANNUAL GENERAL MEETING WEBSITE The Annual General Meeting will be held at 10.30am on Thursday, 7 November 2013 at the Banquet Hall, Level 1, Sydney Masonic Centre, corner Castlereagh and Goulburn Streets, Sydney NSW. Corporate information and the Fairfax annual report can be found via the Company’s website at www.fairfaxmedia.com.au, where links to the Company’s family of websites can also be accessed. FINANCIAL CALENDAR 2014 HOW TO OBTAIN THE FAIRFAX ANNUAL REPORT A soft copy of the annual report is available at www.fairfaxmedia.com.au. To obtain a hard copy of the report, contact Link Market Services – see contact details under Share Registry. CONSOLIDATION OF SHAREHOLDINGS Shareholders who wish to consolidate their separate shareholdings into one account should advise the Share Registry in writing. DIRECT PAYMENT TO SHAREHOLDERS’ ACCOUNTS The Company pays dividends by direct credit to shareholders’ bank accounts. The Company no longer issues cheques except in exceptional circumstances. A direct credit form can be obtained from the Share Registry. Payments are electronically credited on the dividend date and confirmed by a mailed payment advice. Shareholders are advised to notify the Share Registry (although it is not obligatory) of their tax file number so that dividends can be paid without tax being withheld. Interim result Preliminary final result February 2014 August 2014 Annual General Meeting November 2014 COMPANY SECRETARY Gail Hambly REGISTERED OFFICE 1 Darling Island Road, Pyrmont NSW 2009 Ph: +61 2 9282 2833 Fax: +61 2 9282 1633 SHARE REGISTRY Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Ph: 1300 888 062 (toll free within Australia) Ph: +61 2 8280 7670 Fax: +61 2 9287 0303 Email: registrars@linkmarketservices.com.au Website: www.linkmarketservices.com.au SECURITIES EXCHANGE LISTING The Company’s ordinary shares are listed on the Australian Securities Exchange as FxJ. Designed and produced by ArmstrongQ – www.armstrongQ.com.au FAIRFAX MEDIA LIMITED GPO 506 Sydney NSW 2001 1 Darling Island Road Pyrmont NSW 2009 Telephone 02 9282 2833 www.fairfaxmedia.com.au 

Continue reading text version or see original annual report in PDF format above