Gray Television
Annual Report 2017

Plain-text annual report

GTN Limited ABN 38 606 841 801 Annual Report 2017 CONTENTS Item Chairman and CEO’s Letter About GTN Corporate Governance Directors’ Report Remuneration Report Auditor’s Independence Declaration Consolidated Financial Report Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder information Corporate Directory Page 1 2 6 7 22 34 35 41 90 91 97 101 CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S LETTER Dear Shareholders, On behalf of the Board of Directors, we are pleased to announce that GTN Limited (“GTN” or the “Company”) has completed another productive and successful year and are pleased to present its annual report for fiscal year ending 30 June 2017. GTN reported net revenues for the year of $213.6 million, including $35.1 million for the seven month period we operated in the United States. Excluding the United States operations, which were not included in the Prospectus Forecast, GTN reported net revenues for the year of $178.5 million which was 1% ahead of Prospectus Forecast and 7% ahead of last year with all four operating segments exceeding the previous year in local currency. Adjusted EBITDA was $48.9 million which exceeded Prospectus Forecast by 7% and NPATA was $32.5 million which was 26% higher than Prospectus Forecast, also excluding the U.S. operations. In addition, revenue, EBITDA, Adjusted EBITDA, NPAT and NPATA were significantly higher than Pro Forma and statutory fiscal 2016 results, once again excluding the United States fiscal 2017 performance. We would like to commend our local management for delivering such outstanding results on the heels of a strong fiscal 2016. In December 2016, we exercised our option to acquire substantially all of the assets of Radiate Media LLC for total consideration (including assumed liabilities) of approximately $17.8 million USD (~$24.1 million AUD). Since closing the acquisition, our USTN subsidiary has commenced a multi-year affiliation with the CBS Radio group as well as entering into important new affiliation agreements with radio stations owned by Entercom, Beasley, Cox, Emmis and other prominent radio groups. As expected, we have experienced large initial losses while we work to turn the division around. We believe the upside to be significant given the United States is the largest advertising market in the world and we currently have a weekly audience in excess of 150 million people. In anticipation of the start-up losses associated with our entry into the United States, we raised additional capital during FY2017 via a non-renounceable entitlement offering and a dividend reinvestment plan which was partially underwritten. The net proceeds of these offerings were $66 million and significantly upgraded our already strong balance sheet. As of 30 June 2017, we had cash balances of $100.7 million and debt of $100 million, effectively having negative net debt. In July 2017, we commenced operations in Porto Alegre, our fourth Brazilian market. Brazil had the strongest growth of any of our markets in fiscal 2017 and we hope to significantly increase our market penetration in Brazil in the coming years. We are very pleased with our initial full year as a public company. The Company acquired a strong platform in the United States, the largest advertising market in the world, exceeded Prospectus Forecast revenue, EBITDA, Adjusted EBITDA, NPAT and NPATA with its original holdings and opened a new market in Brazil. GTN has low leverage, produces strong cash flow, and has exciting growth opportunities. Once again we would like to thank our management and employees for their outstanding effort and our shareholders for their support. We look forward to a successful and productive fiscal 2018. William L. Yde III Managing Director and Chief Executive Officer Robert Loewenthal Chairman 1 About GTN Overview of GTN GTN provides a broad reach advertising platform that enables advertisers to reach large audiences frequently and effectively. GTN is one of the largest broadcast media advertising platforms by audience reach in Australia, Canada and the United Kingdom and is progressing towards its goal of achieving this status in Brazil and the United States. GTN is the largest supplier of traffic information reports to radio stations in its operating geographies excluding the United States which commenced operations in FY 2017. In exchange for providing these and other reports and in certain cases cash compensation, GTN receives commercial advertising spots adjacent to traffic, news and information reports from its large network of radio and television stations (“Affiliates”). The spots are bundled together by GTN and sold to advertisers on a national, regional or specific market basis. GTN’s advertising platform provides advertisers with high impact campaigns because advertisements are ideally placed during peak audience times and are aired frequently across large audiences. GTN’s advertisements are short in duration, adjacent to engaging information reports and are often read live on the air by well-known radio and television personalities. This product is designed to create high audience engagement and high recall among listeners, leading to a high return on investment for advertisers. This has enabled GTN to establish longstanding relationships with large, national advertisers, resulting in strong growth in revenue since GTN’s inception. GTN has successfully established itself within its Affiliates’ operations by providing them with quality, timely and important information. In some cases, GTN also provides cash compensation to Affiliates in exchange for advertising spots, which, in many cases, allows Affiliates to convert an important programming segment from a cost centre to a profit centre. This stable income stream can constitute a material portion of the Affiliates’ overall profits, further solidifying GTN’s position within their operations. GTN currently operates in Australia, Canada, the United Kingdom, Brazil and the United States - five of the 10 largest advertising markets in the world. GTN began operations in Australia in 1997, and has selectively and successfully expanded into other attractive markets including, most recently, the United States, the largest advertising market in the world, via its purchase of Radiate Media. In FY2017, 95% of GTN’s Revenues were generated through the sale of radio advertising spots and 5% were generated through the sale of television advertising spots and fees. Overview of GTN’s divisions Country Australia Canada Kingdom Brazil States Population (millions) 24.6 36.3 65.6 207.7 323.1 United United GTN years of operation FY 2017 revenue (1) % of FY 2017 revenue (1) (years) 20 12 8 5 1 (millions) 98.7 28.0 40.9 11.0 35.1 (%) 46% 13% 19% 5% 16% GTN (#) 10.9m 14.4m 27.5m 14.8m 164.4m 2 audience radio (2) radio radio radio radio 5.6m TV 8.4m TV 120.6m TV (#) 125 radio 108 radio 247 radio 44 radio 1,051 radio 13 TV (%) 100% 5 TV 50% 57 TV 100% 55% 99% (%) 88% 86% 80% 48% 60% (‘000’s) 866 598 1,396 151 1,689 Number of affiliates Proportion of metropolitan commercial radio listeners in GTN’s existing markets GTN penetration within existing metropolitan commercial radio markets FY 2017 spots inventory (3) (1) Amounts may not add due to rounding (2) Includes 769 thousand listeners in regional markets rated by GfK. Excludes listeners in markets not rated by GfK. The population of the markets not rated by GfK but serviced by ATN is approximately 4.9 million persons. (3) USTN spots inventory only includes period of GTN Limited ownership (December 2016 – June 2017). Operating model GTN provides an advertising platform designed to enable advertisers, generally large national advertisers, to reach high-value demographics cost effectively. The advertising spots GTN offers are adjacent to information reports that listeners are typically highly engaged with, as this content is “of use” to the consumer, such as traffic and news. The advertising spots are generally 10 seconds long and read live by well-known on-air personalities. GTN is able to obtain radio spots that are primarily aired during peak listenership hours (i.e. during morning and afternoon commutes). The placement and format of GTN’s advertising spots are designed to maximise efficacy, enhance recall and minimise switching during advertisements. Advertisers purchase a schedule of radio spots on a national, regional or specific market basis. The schedule includes spots on all radio Affiliates in the relevant market. Spots sold in advertising packages are allocated on a percentage-based rotation such that each advertiser receives a pro rata share of advertising spots on each Affiliate throughout the relevant markets. GTN does not sell spots on individual radio Affiliates. 3 In order to provide this advertising platform, GTN must appeal to the radio and television stations that provide the advertising spots GTN sells to advertisers. GTN accomplishes this by providing Affiliates with information reports at no charge, and in some cases, provides cash compensation to the Affiliates in exchange for advertising spots, allowing Affiliates, in many cases, to turn an important programming segment from a cost centre into a profit centre. Affiliate contracts are typically multi-year, generally cover all of an Affiliate’s stations across the relevant market and provide a fixed number of spots over the life of the agreement. By focusing on traffic reports, GTN believes it provides a better product to its Affiliates than the stations could create on their own. GTN collates information for its traffic reports from a range of sources including aircraft, access to government traffic centres, third party providers, radio scanners and station listener lines, to provide up-to-the-minute information to Affiliates. GTN value proposition Revenue model GTN primarily generates revenue by selling schedules of advertising spots to large advertisers. The majority of GTN’s advertising revenue is generated through advertising agencies who have been engaged by advertisers. In these situations, GTN attempts to maintain a relationship with the advertisers directly to assist with the sale process. GTN also sells some spots directly to advertisers. Each of GTN’s operating geographies has generally been able to grow its spots inventory each year. Inventory is grown either through expanding the Affiliate network (in existing or new markets) or growing the number of spots under contract with existing Affiliates. GTN can accommodate orders from advertisers with short lead times, providing advertisers the flexibility to conduct timely and relevant campaigns. Advertisers book a significant portion of orders not more than four weeks in advance. This short forward sales pipeline is typical for the radio business. Value proposition to advertisers GTN provides a different value proposition to advertisers in comparison with traditional advertising models as summarised below. This has enabled GTN to build a loyal customer base, comprised primarily of large advertisers.  Audience reach: GTN operates one of the largest broadcast media advertising platforms by audience reach in Australia, Canada and the United Kingdom, and GTN’s goal is to achieve the same status in each market GTN enters, including the United States and Brazil. This enables advertisers to communicate with a large number and broad demographic of potential consumers. 4  High frequency: GTN’s advertisements are heard frequently throughout the day on every Affiliate in the purchased market or region, enabling advertisers to communicate their message repeatedly. This format is designed to maximise efficacy, enhance recall and minimise switching during advertisements.  High engagement: GTN’s advertising spots are adjacent to information reports that have been found to be useful and engaging for listeners. In 2015, GTN commissioned a research study conducted by Neuro Insight which measured brain activity and demonstrated that traffic update content was the most engaging content for listeners.  Ideal placement: A large proportion of GTN advertising spots are aired during morning and afternoon commute periods, which generally have the largest audience.  High recall: GTN’s advertisements are designed to provide high recall rates by being short in duration (10 seconds), adjacent to information reports and standalone to other advertisements.  Audience consistency: Advertisers using GTN’s platform are less exposed to ratings swings of individual radio affiliate stations since GTN’s customers receive spots on multiple radio affiliate stations.  Audience coverage: GTN sells spots on a national, regional or specific market basis. This allows the product to be relevant for both nationally and regionally-focused advertisers. Value proposition to broadcasters GTN provides a strong value proposition to broadcasters as summarised below. This has allowed GTN to develop longstanding relationships with Affiliates and consistently grow its network of Affiliates. GTN seeks to provide Affiliates with:  Tailored content: GTN customises the information reports that it provides to Affiliates by providing pertinent and geographically-relevant information that meets the content and style requirements of each Affiliate. This helps to ensure that the reports appeal to each Affiliate’s target audience;  Quality product: GTN commits substantial resources to its information gathering and dissemination capabilities, including considerable training of its reporters and producers. Consequently, Affiliates receive more substantive and higher quality reports than they would likely be able to cost effectively produce themselves;  Cost efficiencies: Affiliates utilise GTN’s reports instead of having to procure this information on their own, which could require significant capital outlay in order to acquire aircraft and other information gathering infrastructure. This allows Affiliates to eliminate the non-core operating costs associated with real time content development, which is particularly helpful to Affiliates that are not large enough to cost effectively produce traffic reports on their own;  Contractual earnings: GTN provides station compensation to certain Affiliates in the form of cash payments. These station compensation payments represent stable recurring cash flows for these Affiliates and, in some instances, form a material part of that Affiliate’s overall profits; and  Revenue opportunity: Affiliates are permitted to sell sponsorships at the opening of an information report (i.e. “this report is brought to you by”), providing them with a revenue source without a cost base. By addressing multiple needs of our radio and television station Affiliates and providing our advertising customers with a highly effective advertising vehicle, we are able to meet the needs of both constituencies and continue to grow our business. 5 Corporate Governance The Corporate Governance Statement outlining GTN Limited’s corporate governance framework and practices in the form of a report against the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations, 3rd Edition, is available on the GTN Limited website at http://www.gtnetwork.com.au/home/?page=corporate-governance in accordance with ASX listing rule 4.10.3. The Directors approved the 2017 Corporate Governance Statement on 29 August 2017. 6 Directors’ Report The Directors present their report together with the consolidated financial statements of GTN Limited and its Controlled Entities (“Group”), for the year ended 30 June 2017 and the auditor’s report thereon. Directors and Company Secretaries Robert Loewenthal Independent Non- Executive Chairman Chairman of the Nomination and Remuneration Committee Member of the Audit and Risk Committee Robert Loewenthal has over 10 years of experience in the radio industry. He currently operates a private corporate advisory and consulting business, Free Trade Hall, and is the founder of the Whooshkaa Podcasting Platform. Robert is also a director of the Media Industry Charity, ‘Unltd’. Robert formerly held the role of Managing Director of Macquarie Radio Network, where he had previously acted as Chief Operating Officer and company secretary. Robert is a Chartered Accountant and holds a Bachelor of Commerce degree from The University of Sydney. William Yde III (“Bill”) Managing Director and Chief Executive Officer Mark Anderson Non-independent Non-Executive Director Member of the Audit and Risk Committee and Nomination and Remuneration Committee Bill Yde has 34 years of experience in the radio and media industry. Bill co-founded The Australia Traffic Network (“ATN”) in 1997, later co-founding GTN and has served as Chief Executive Officer and President since its inception in 2005. Prior to forming ATN, Bill founded Wisconsin Information Systems, Inc. (trading as the Milwaukee Traffic Network) in 1994, and expanded its operations to create traffic networks in Milwaukee, Oklahoma City, Omaha and Albuquerque before the business was sold to Metro Networks, Inc. (now part of iHeartMedia, Inc.). Bill holds a Bachelor of Arts degree in Accounting from Indiana University and is a Certified Public Accountant. Mark Anderson has over 15 years of experience in the private equity and finance industry. Mark is currently a Managing Director of GTCR. In addition to GTN, he is currently a director on the boards of Beeline, Cision, Lytx, Vivid Seats and XIFIN. Mark holds a Master of Business Administration from Harvard Business School and a Bachelor of Science from the McIntire School of Commerce at the University of Virginia. 7 David Ryan AO Independent Non- Executive Director Chairman of the Audit and Risk Committee Member of the Nomination and Remuneration Committee David Ryan AO has over 40 years of experience in commercial banking, investment banking and operational business management. David has been a non-executive director on the board of Lend Lease since 2004, where he serves as the chairman of the Risk Management and Audit Committee and a member of the People and Culture Committee and the Nomination Committee. David is also currently a director of First American Title Insurance Company of Australia Pty Ltd, a director of First Mortgage Services Pty Ltd and a director of Sunshine Coast Destination Limited. David has previously held positions as a non-executive director of Aston Resources from 2011 until its merger with Whitehaven Coal and as non- executive chairman of Transurban Holdings (appointed director in 2003, chairman in 2007, and resigned in 2010). David holds a Bachelor of Business from the University of Technology, Sydney and is a Fellow of the Australian Institute of Company Directors and of CPA Australia. Anna Sandham Joint Company Secretary Anna Sandham is a Chartered Company Secretary employed by Company Matters Pty Limited. Anna is an experienced company secretary and governance professional with over 20 years’ experience in various large and small, public and private, listed and unlisted companies. Anna has previously worked for companies including AMP Financial Services, Westpac Banking Corporation, BT Financial Group and NRMA Limited. Anna is a fellow of the Governance Institute of Australia, in addition to being a member of their Legislative Review Committee. Patrick Quinlan Joint Company Secretary Patrick Quinlan is the finance manager for the Australian and Canadian entities, as well as being the joint company secretary for GTN Limited. Patrick holds a Bachelor of Business degree from University of Western Sydney and is a member of CPA Australia. Patrick is currently studying to be a chartered secretary at Governance Institute of Australia. Senior Executives The Senior Executives of the Company at any time during or since the end of the financial year are: Scott Cody Scott Cody has 30 years of experience in the radio media industry. Chief Operating Officer and Chief Financial Officer Prior to joining Global Traffic Network, Scott held various positions with Metro Networks, Inc./ Westwood One, serving as Vice President of Finance from 1997 to 2002 and Senior Vice President of Business Development from 2002 to 2005. Prior to joining Metro Networks, Inc./ Westwood One, Scott was Vice President of Finance for Tele-Media Broadcasting Company. Scott graduated with a Bachelor of Arts in Accounting and Finance from Juniata College. 8 Gary Worobow Executive Vice President, Business and Legal Affairs Christopher Thornton (“Chris”) National Sales Director The Australia Traffic Network (“ATN”) Victor Lorusso (“Vic”) Chief Operations Manager ATN John Quinn Chief Operating Officer United Kingdom Traffic Network (”UKTN”) Gary Worobow has over 20 years of experience in the radio and media industry. He was previously a member of the Global Traffic Network Board from 2006 to 2009. Prior to joining Global Traffic Network, Gary held the position of Executive Vice President and General Counsel of Five S Capital Management, Inc. from 2006 to 2009, Executive Vice President, Business Affairs and Business Development for Metro Networks Inc./ Westwood One, Inc. from 2003 to 2006 and as Senior Vice President and General Counsel from 1999 to 2002. Gary was a founder and the General Counsel of Columbus Capital Partners and held the positions of Senior Vice President, General Counsel and board member for Metro Networks, Inc./ Westwood One from 1995 to 1999. Gary holds a Bachelor of Arts from the University of Rochester, a Masters of Business Administration from the Simon School, University of Rochester and a Juris Doctor from the Fordham Law School. Chris Thornton has over 25 years of experience in the radio, media and sales industries. Chris is currently the National Sales Director for ATN after joining in 2005. Prior to joining ATN, Chris held positions as a National Agency Sales Manager for the Macquarie Radio Network and a Senior Account Manager for Southern Cross Radio. Chris obtained a Marketing Certificate from TAFE NSW, a Graduate Certificate in Management and a Masters of Business Administration from the Australian Institute of Business. Vic Lorusso has over 18 years of experience in the media industry, all of those with ATN in various operational and management positions. Vic is currently the Chief Operations Manager for ATN after joining in 1999. Vic is also an airborne traffic reporter for the Ten Network and various radio stations. In addition to his role with ATN, Vic is associated with a number of charities throughout the country including the Variety Children’s Charity, Redkite, Miracle Babies Foundation, Diabetes Association NSW, Cure Cancer Foundation and the Special Olympics Foundation. Vic has a Business Licence for Real Estate. John Quinn has over 30 years of experience in the radio and media industry. John is currently the Chief Operating Officer of Global Traffic Network’s United Kingdom operations after joining Global Traffic Network in 2009 following its acquisition of UBC Media’s commercial division. Prior to the acquisition, John was the Chief Operating Officer and a director of UBC Media (a company listed on AIM, a sub-market of the London Stock Exchange) and has held numerous other sales and management positions within the United Kingdom commercial radio industry. Lee Sibian (“Lannie”) Lannie Sibian has over 30 years of experience working in the radio and advertising industries. President and Executive Lannie joined CTN in 2012 as President and Executive Vice-President of 9 Vice-President Sales Canadian Traffic Network (“CTN”) Sales for CTN. Prior to joining CTN, Lannie was General Sales Manager at Rogers Broadcasting between 2001 and 2012 and previously held senior sales positions at Standard Broadcasting Ltd., Rawlco Communications and Rogers Media. Lannie holds an Executive Masters of Business Administration from the University of Western Ontario, Richard Ivey School of Business. Meetings of Directors The number of meetings of the Board of Directors and its committees that were held during the year and the number of meetings attended by each director are summarised in the table below. Board Audit and Risk Management Committee Nomination and Remuneration Committee Held Attended Held Attended Held Attended Gary Miles (1) William Yde III Mark Anderson David Ryan Robert Loewenthal 10 13 13 13 13 9 12 13 13 13 (1) Resigned 28 February 2017 Principal activities 5 - 7 7 2 5 - 7 7 2 3 - 5 2 5 3 - 5 2 5 The principal activity of GTN during the course of the financial year was that of provider of an advertising platform to advertisers in Australia, United Kingdom, Canada, Brazil and the United States. Operating Strategy The Company’s operating strategy is to grow its business through the obtaining of more advertising inventory and selling a higher proportion of and obtaining a higher price per unit of advertising inventory. The Company strategy to obtain more advertising inventory consists of the following:  Obtain more advertising inventory from existing radio and television stations for existing  products. This is primarily accomplished by the payment of higher station compensation. Have existing radio stations provide advertising inventory outside traditional traffic reporting, such as the number of stations in Australia where we currently receive advertising inventory adjacent to news reports. 10  Expansion into additional operating regions within our current countries, such as the expansion into regional markets in Australia and Porto Alegre in Brazil.  Expansion into additional countries, for example our commencement of operations in the United States in 2016. This growth strategy is subject to a number of risks, some of which are out of our control. Some of these risks and our strategy for mitigating them are as follows: Loss of key radio station Affiliates In FY 2017, 95% of our revenue came from the sale of advertising inventory obtained from our radio station Affiliates. Loss of significant radio station Affiliates would have a material impact on our revenue. We attempt to defend against this risk in the following ways:  Provide a high quality product that resonates with stations’ listeners and would be difficult for the stations to replicate in a cost effective manner, if at all.  For the most important radio stations, pay a significant amount to the stations in the form of station compensation. For our most important Affiliates, this amount has become a significant portion of their EBITDA based on our review of their public filings. Decline in demand for traffic reports on radio Individuals have other means of getting traffic information, including the internet, smart phone aps, navigation systems, etc. and we expect that such options will continue to proliferate in the future. It is possible that in the future that such other options will decrease the demand for our traffic reports from radio stations. We attempt to defend against this possibility in two ways:  First, by paying significant station compensation, we attempt to make it a very difficult decision to reduce or eliminate the number of traffic reports broadcast.  Second, since we sell our reports as a network of information reports, we are educating clients that the key element is that their spot be adjacent to high demand information content, rather than just traffic. In Australia, approximately 22% of our advertising inventory in the five metro markets is adjacent to news reports. We believe that combining high levels of compensation to stations to encourage their continued provision of advertising inventory with an advertiser base that understands that while traffic is a very effective area to place spots today, but is not the only attractive placement option, is the best way to protect against a decline in interest in traffic reports broadcast on traditional radio. Decline in popularity of radio and television in general Virtually all of our revenue is derived from the sale of spots on radio and television stations. A decline in the popularity of these mediums as either an entertainment option or advertising medium would likely have a material negative impact on our revenues and profitability. While to a certain extent this risk is out of our control, we have employed several strategies to attempt to mitigate this risk:  Our product is different than traditional radio despite being broadcast on radio stations. We sell a broad reach across all demographics with the spots having the further advantage of sole placement, adjacent to popular information programming elements and generally read live by the announcer. In our opinion, all of these things make our advertising product more effective than traditional radio advertising. We believe this contention is supported by the fact that our revenue growth consistently surpasses that of the overall radio market in the markets in which we operate.  We continue to explore other platforms where our content and sales ability would translate to. To date, these explorations have not been successful but we plan to continue to research and pursue additional opportunities outside of radio and television. Decline in advertising market in general Our business model is currently almost entirely based on the sale of advertising, which is cyclical in nature. While we cannot control the fluctuations in the advertising market, we attempt to mitigate this risk by providing a compelling advertising product that is both effective for 11 advertisers and not easily replicated by “buying around” our networks. A certain level of advertising is still sold even in down business cycles so we attempt to position ourselves as a key portion of an advertiser’s strategy, even if they are reducing their overall expenditures. Expansion into new markets Expansion into new markets entails risk as there is an upfront investment of monetary resources to purchase equipment (often helicopters) and to fund the initial operating losses and working capital requirements. There is also the opportunity cost of a diversion of management’s time and focus away from the current operations. The Company attempts to mitigate this risk by a thorough due diligence process prior to committing significant resources to a new market. In addition, the Company hires virtually all of its employees in the local market, which gives market insights that would not otherwise be readily available. The Company believes by training local personnel in the Company’s business model, the likelihood of success is increased. Foreign exchange fluctuations can have a negative impact on financial performance A significant portion of our revenues (54% in FY 2017) are generated outside of Australia and subject to currency exchange fluctuations between AUD and the local currency of those entities. On a pro forma basis this amount would be even higher since our current period statement of profit and loss only includes seven months of our recently acquired United States operations. We expect the portion of revenue subject to foreign exchange fluctuations will increase in the future as we anticipate that our Canada, Brazil and United States operations will grow faster than the overall group revenues. We do not hedge for foreign currency fluctuations at this time and currently do not have an intention to do so although we may enter into such hedging arrangements in the future. This risk is mitigated by each country incurring virtually all their expenses in local currency as well. The impact of this is should revenue be reduced by an unfavourable currency movement, expenses will also be reduced, which would be considered a favourable movement. The negative impact to the financial statements is only on the net difference between the revenue and expenses. However, this net amount can still be material based on the magnitude of the currency shifts. Review and Results of Operations Operating and Financial Review In June 2016, the GTN completed its initial public offering of shares (“IPO”). For FY2017, (excluding the United States operations which were not included in the forecast), GTN exceeded the Prospectus Forecast for revenue, EBITDA, Adjusted EBITDA, NPAT and NPATA on a statutory basis while exceeding pro forma and statutory FY 2016 results by a significant margin. The non-IFRS measurements used are defined in the table below and further discussed later in the report. (m)(4) Revenue EBITDA(2) Adjusted EBITDA(3) NPAT Statutory FY17 Actual 213.6 20.0 28.9 6.2 Statutory FY17 Actual Ex United States Statutory FY17 Prospectus % Difference 178.5 177.4 40.2 48.9 28.2 37.2 45.6 21.1 1% 8% 7% 33% Less: FY17 Actual United States 35.1 (20.1) (19.9) (22.0) 12 NPATA(1) NPATA per share (cents)(5) 12.3 (20.2) 32.5 25.7 $0.06 $(0.10) $0.16 $0.13 26% 26% (1) NPATA is defined as net profit after tax adjusted for the tax effected amortization arising from acquisition related intangible assets. (2) EBITDA is defined as net profit after tax (earnings) before the deduction of interest expense/income, income taxes, depreciation and amortization. (3) Adjusted EBITDA is defined as EBITDA adding back the non-cash interest income related to the long term prepaid affiliation agreement with Southern Cross Austereo which is treated as a financing transaction, foreign exchange gains and losses and transaction costs. (4) Amounts in tables may not add due to rounding (5) Statutory Ex United States and Statutory Prospectus results based on IPO shares issued of 201.2 million assuming shares were outstanding for the entire period, excluding the impact of non-renounceable entitlement offer and dividend reinvestment plan of which the purpose was to fund the United States operations. (m)(4) Revenue EBITDA(2) Adjusted EBITDA(3) NPAT NPATA(1) NPATA per share (cents)(5) (m)(4) Revenue EBITDA(2) Adjusted EBITDA(3) NPAT NPATA(1) NPATA per share (cents)(5) Statutory FY17 Actual Ex United States 178.5 40.2 48.9 28.2 32.5 Statutory Actual FY16 % Difference 166.1 12.0 35.1 (17.2) (4.2) 7% 234% 39% NM NM NM $0.16 ($0.02) Statutory FY17 Actual Ex United States 178.5 40.2 48.9 28.2 32.5 $0.16 Pro Forma FY16 Actual % Difference 166.1 31.1 34.6 5.8 18.8 7% 29% 41% 390% 73% $0.09 73% (1) NPATA is defined as net profit after tax adjusted for the tax effected amortization arising from acquisition related intangible assets. (2) EBITDA is defined as net profit after tax (earnings) before the deduction of interest expense/income, income taxes, depreciation and amortization. (3) Adjusted EBITDA is defined as EBITDA adding back the non-cash interest income related to the long term prepaid affiliation agreement with Southern Cross Austereo which is treated as a financing transaction, foreign exchange gains and losses and transaction costs. (4) Amounts in tables may not add due to rounding (5) Statutory Ex United States, Statutory FY16 and Pro Forma FY 16 results based on IPO shares issued of 201.2 million assuming shares were outstanding for the entire period, excluding the impact of non-renounceable 13 entitlement offer and dividend reinvestment plan of which the purpose was to fund the United States operations. Revenue Overall revenue exceeded Prospectus Forecast by $36.3 million, or 20%. Excluding the impact of the newly acquired United States operations, revenue exceeded Prospectus Forecast by $1.2 million or 1%. Revenue (excluding the United States operations) increased $12.4 million or 7% over FY 2016. Revenue exceeded forecast for the Australian (ATN), Brazil (BTN) and Canadian (CTN) business units while the United Kingdom business unit (UKTN) exceeded forecast revenue in local currency but was impacted by unfavourable foreign exchange differences. FY17 Revenue by Geographic Segment (m)(4) Australia (ATN) Canada (CTN) United Kingdom (UKTN) Brazil (BTN) Total before United States United States (USTN) Total FY17 Actual FY17 Prospectus % Difference 98.7 28.0 40.9 11.0 178.5 35.1 213.6 91.8 26.0 51.0 8.6 177.4 - 177.4 8% 8% (20)% 28% 1% - 20% Group revenue was up $12.4 million (7%) from FY 2016 (excluding United States) with all four forecasted operating segments exceeding the previous year’s revenue in local currency. (m)(4) Australia (ATN) Canada (CTN) United Kingdom (UKTN) Brazil (BTN) Total before United States United States (USTN) Total EBITDA FY17 Actual FY16 Actual % Difference 98.7 28.0 40.9 11.0 178.5 35.1 213.6 89.8 23.6 47.5 5.2 166.1 - 166.1 10% 19% (14)% 112% 7% - 29% Adjusted EBITDA excluding the United States for FY 2017 was $48.9 million, exceeding Prospectus Forecast by $3.2 million (+7%). (m)(4) Revenue Actual FY17 Statutory Less: Total Statutory United States Statutory Ex United States FY 17 Statutory Prospectus Forecast 213.6 35.1 178.5 177.4 1% 14 Actual FY17 Statutory Less: Total Statutory United States Statutory Ex United States FY 17 Statutory Prospectus Forecast (145.5) (43.9) (101.6) (106.9) (5)% (47.6) (11.1) (36.4) (33.1) 10% (0.1) (0.2) (0.2) (193.6) 20.0 8.5 0.2 0.2 28.9 - (0.2) - (55.2) (20.1) - 0.2 - (19.9) (0.1) - (0.2) (0.2) (40)% - - - - (1)% 8% (138.4) (140.2) 40.2 37.2 8.5 - 0.2 48.9 8.5 0% - - - - 45.6 7% (m)(4) Network operations and station compensation expenses Selling, general and administrative expenses Equity based compensation expense Transaction costs Net F/X losses Operating expenses EBITDA Interest income on Southern Cross Austereo Affiliate Contract Transaction costs Net F/X losses Adjusted EBITDA NPATA The Group reported NPATA of $32.5 million (excluding the United States), exceeding Prospectus Forecast by 26%. The stronger than forecast NPATA (ex United States) result was driven primarily by lower operating expenses due to differences in forecast and actual foreign exchange rates as well as a $5.0 million tax benefit related to the recognition of previously unrecognized CTN tax assets, primarily net operating losses from previous periods. FY17 Cash Flow The Group reported strong cash flow from operations. GTN’s strong liquidity position is underpinned by the positive cash impact of the long-term affiliate agreement signed with the Southern Cross Austereo Group in February 2016. (m)(4) FY17 Results Adjusted EBITDA Non-cash items in Adjusted EBITDA Change in working capital Impact of new Southern Cross Austereo Affiliate Contract Operating free cash flow before capital expenditure Capital expenditure Net free cash flow before financing, tax Actual USTN Actual Ex USTN FY17 Prospectus 28.9 0.1 10.3 (19.9) - 11.5 48.9 0.1 (1.2) 45.6 0.2 (1.4) 3.5 - 3.5 3.5 42.9 (3.5) (8.4) (0.2) 51.3 (3.3) 48.0 (2.5) 15 (m)(4) and dividends FY17 Results 39.4 (8.6) 48.0 45.5 Due to the modest working capital requirements, positive cash impact of the Southern Cross Austereo prepayment and low capital expenditures, a significant portion of Adjusted EBITDA is converted into net free cash flow before financing, tax and dividends (excluding the impact of the start-up United States operations which generate significant losses and accordingly use significant cash). As a result of GTN’s strong cash generation and the non-renounceable entitlement offer and dividend reinvestment offering proceeds, the Group’s cash balance was $100.7 million at 30 June 2017. The Group also has a $15 million bank facility which is undrawn as of 30 June 2017. The Group has outstanding debt principal at 30 June 2017 of $100 million and negative net debt (principal less cash balances) of $0.7 million. Due to the negative net debt, the ratio of net debt to Adjusted EBITDA is not meaningful at 30 June 2017. The Group’s debt is only secured by the Groups’ Australia and United Kingdom operations. Based on the applicable covenants for the Group’s debt facility, the leverage is 1.24x at 30 June 2017. The EBITDA used for the calculation of the leverage under the debt facility differs from that of Adjusted EBITDA used herein. Segment Adjusted EBITDA Adjusted EBITDA by segment (excluding allocation of corporate overhead) exceeded Prospectus Forecast in Australia, Brazil and Canada while UK reached forecast for the period despite lower than forecast revenue due to currency head winds. Corporate overhead was negatively impacted by FY 2017 costs not dropping from FY 2016 levels as originally forecast along with additional costs related to managing USTN, primarily in the form of additional executive management compensation. (m)(4) Australia (ATN) Canada (CTN) United Kingdom (UKTN) Brazil (BTN) Other (1) Total before United States United States (USTN) Total FY17 Actual FY17 Prospectus % Difference 43.4 5.9 4.4 1.3 (6.1) 48.9 (19.9) 28.9 40.9 4.0 4.4 0.6 (4.3) 45.6 - 45.6 6% 47% - 118% (43)% 7% - (37)% (1) Primarily corporate overhead Key operating metrics Key operating metrics by jurisdiction (local currency) Australia Radio spots inventory ('000s) Radio sell-out rate (%) Average radio spot rate (AUD) Canada Notes 1 2 3 16 FY2017 Actual 866 81% 134 Prospectus Forecast 761 82% 142 Radio spots inventory ('000s) Radio sell-out rate (%) Average radio spot rate (CAD) United Kingdom Total radio impacts available ('000) Radio sell-out rate (%) Average radio net impact rate (GBP) Brazil Radio spots inventory ('000s) Radio sell-out rate (%) Average radio spot rate (BRL) United States Radio spots inventory ('000s) Radio sell-out rate (%) Average radio spot rate (USD) 1 2 3 4 5 6 1 2 3 1,7 2,7 3,7 598 67% 66 19,055 99% 1.3 151 64% 277 1,689 74% 17 582 62% 62 19,090 94% 1.3 143 61% 280 N/A N/A N/A 1. Available radio advertising spots adjacent to traffic, news and information reports. 2. The number of radio spots sold as a percentage of the number of radio spots available. 3. Average price per radio spot sold net of agency commission. 4. The UK market measures inventory and units sold based on impacts instead of spots. An impact is a thousand listener impressions. 5. The number of impressions sold as a percentage of the number of impressions available. 6. Average price per radio impact sold net of agency commission. 7. Only includes period owned by GTN Limited (December 2016 – June 2017). Foreign exchange rates A significant portion of the Company’s revenue and expenses are in a currency other than Australia dollars (“AUD”). The actual and forecast annual exchange rates utilized in preparing the annual consolidated statement of profit or loss and other comprehensive income are as follows: FY2017 Actual FY2017 Forecast 0.75 1.00 0.60 2.43 0.70 0.93 0.47 2.80 AUD:USD AUD:CAD AUD:GBP AUD:BRL Ordinary share offerings In December 2016, the Company launched a fully underwritten 1 for 9.7 pro rata non- renounceable entitlement offer to its existing shareholders for 20.7 million shares at $2.90 per share. The institutional component was completed on 5 December 2016 and the retail component was completed on 20 December 2016. The gross proceeds of $60.2 million were offset by costs related to the equity raising of approximately $1.5 million and the net proceeds were approximately $58.6 million. 17 On 31 March 2017, pursuant to its dividend reinvestment plan, the Company issued 2.8 million shares at $2.70 per share. The gross proceeds of $7.5 million were offset by costs related to the equity raising of approximately $45 thousand and the net proceeds were approximately $7.4 million. The dividend reinvestment plan was partially underwritten. The purpose of the equity raisings is to fund the post-acquisition start-up costs of the Company’s entry in the United States and a substantial majority of the funds not utilized for that purpose were held in cash at 30 June 2017. m(4) Shares (‘000’s) Amount ($,000’s) Balance, 30 June 2016 201,212 378,948 Entitlement offering 20,744 58,612 Dividend reinvestment plan 2,765 7,421 Balance, 30 June 2017 224,721 444,981 Radiate Acquisition On 5 December 2016, the Company’s United States Traffic Network, LLC (“USTN”) subsidiary acquired substantially all the assets of Radiate Media LLC, a company that provides traffic reporting services and sells advertising on radio and television stations for consideration of approximately $18.1 million USD ($24.4 million AUD). The acquisition is the Company’s entry into the United States market as the Radiate business is similar to that of the Group’s existing operations. Radiate was the second largest traffic report service in the United States, which is the largest advertising market in the world. The acquired business contributions to the Group’s FY17 results (for the period from 5 December 2016 to 30 June 2017) were: (m)(4) Revenue EBITDA Adjusted EBITDA NPAT NPATA FY17 Actual 35.1 (20.1) (19.9) (22.0) (20.2) On a pro forma basis, if the acquisition has occurred on 1 July 2016, preliminary consolidated revenue and consolidated loss after tax for the year ended 30 June 2017 would have been approximately $57.8 million and $24.1 million, respectively. Dividends An interim dividend of $0.056 per share (fully franked) for the six month period ending 31 December 2016 was declared 28 February 2017 and paid to holders of record as of 13 March 2017. A final dividend of $0.048 per share (fully franked) was declared 31 August 2017 and will be paid to holders of record as of 7 September 2017. 18 Non-IFRS measurements ● EBITDA is earnings before interest, tax, depreciation and amortisation. Management uses EBITDA to evaluate the operating performance of the business without the non-cash impact of depreciation and amortisation and before interest and tax charges, which are significantly affected by the capital structure and historical tax position of the Company. EBITDA can be useful to help understand the cash generation potential of the business because it does not include the non-cash charges for depreciation and amortisation. However, management believes that it should not be considered as an alternative to net free cash flow from operations and investors should not consider EBITDA in isolation from, or as a substitute for, an analysis of the Company’s results of operations; ● Adjusted EBITDA is EBITDA adjusted to include the non-cash interest income arising from the long-term prepaid Southern Cross Austereo Affiliate Contract which is discussed above. Management considers that Adjusted EBITDA is an appropriate measure of GTN's underlying EBITDA performance. Otherwise, the EBITDA would reflect significant non- cash station compensation charges without offsetting non-cash interest income arising from the treatment of the contract as a financing arrangement. ● NPATA is net profit (loss) after tax adjusted to add-back the tax effected impact of amortization of intangible assets related to the purchase accounting arising from GTCR’s acquisition of Global Traffic Network, Inc. in September 2011 and the Company’s acquisition of Radiate Media in December 2016. Management considers it appropriate to disclose NPATA because the amortization of the intangibles related to purchase accounting is both a non-cash charge and there will be no future cash outlays to “replace” these assets once fully amortized. Non-IFRS information has not been audited. Likely developments and expected results The Company’s prospects and strategic direction are discussed in the Operating Strategy section of the Directors’ Report. Further information about likely developments in the operations of the Company and the expected results of those operations in future financial years has not been included in the report because disclosure of the information would be likely to result in prejudice to the Company. Significant changes in the state of affairs Except as outlined elsewhere in this Directors’ Report, there were no significant changes in the affairs of the Group during the fiscal year. Events since the end of financial year Except as outlined in the Financial Statements and elsewhere in this Directors’ Report, no matter or circumstance has arisen since 30 June 2017 that has significantly affected the Group’s operations, results or state of affairs or may do so in future years. Environmental regulation The operations of the Group are not subject to any particular or significant environmental regulation or law. 19 Insurance of officers and Directors Pursuant to its constitution, GTN may indemnify Directors and officers, past and present, against liabilities that arise from their position as a Director or officer allowed under law. Under the deeds of access, indemnity and insurance, GTN indemnifies each Director against liabilities to another person that may arise from their position as a director of GTN to the maximum extent permitted by law. The deeds of access, indemnity and insurance stipulate that GTN will reimburse and compensate each Director for any such liabilities, including reasonable legal costs and expenses, except where a Director’s act is fraudulent, criminal, dishonest or wilfully deceitful. Pursuant to its constitution, GTN may arrange and maintain directors’ and officers’ insurance for its Directors to the maximum extent permitted by law. Under the deeds of access, indemnity and insurance, GTN must use reasonable endeavours to obtain such insurance during each Director’s period of office and for a period of seven years after a Director ceases to hold office. This seven year period can be extended where certain proceedings or investigations commence before the seven year period expires. GTN has obtained insurance in respect to directors’ and officers’ liability for the year ended 30 June 2017 and thereafter. These insurance policies insure against certain liabilities (subject to exclusions) of persons that have been directors or officers of GTN or its direct or indirect subsidiaries to the extent allowed by the Corporations Act 2001. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of GTN, or to intervene in any proceedings to which GTN is a party, for the purposes of taking responsibility on behalf of GTN for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of GTN with leave of the Court under section 237 of the Corporations Act 2001. Non-audit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group is important. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers Australia and its related companies) for audit and non-audit services provided during the year are included in Note 10 of the Consolidated Financial Report. The Board has considered the position and, in accordance with advice received from the Audit and Risk Committee, is satisfied the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set forth below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: ● all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor ● none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. During the year the following fees were paid or payable for non-audit services provided by the auditor of GTN and its related practices: Other assurance services Other assurance services Due diligence Remuneration from other assurance services 2017 $ 2016 $ 123,000 123,000 1,189,000 1,189,000 20 Taxation services Tax compliance Tax advice on mergers and acquisitions Due diligence Remuneration for taxation services 441,000 49,000 139,000 629,000 244,000 167,000 1,956,000 2,367,000 Total remuneration for non-audit services 752,000 3,556,000 *Included in the above fees are amounts paid to network firms of PricewaterhouseCoopers Australia. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set forth on page 34. Rounding of amounts GTN is of a kind referred to in ASIC Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that ASIC Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Directors’ interests in shares and options of GTN The relevant interests of each Director in the equity of GTN as of the date of this Directors’ Report are disclosed in the Remuneration Report. This report was made in accordance with a resolution of the Directors. Robert Loewenthal Chairman 31 August 2017 21 Remuneration Report The directors present the GTN 2017 remuneration report, outlining key aspects of our remuneration policy and framework, and remuneration awarded this year. The report is structured as follows: a) Key management personnel (KMP) covered in this report b) Remuneration policy and link to performance c) Elements of remuneration d) Link between remuneration and performance e) Remuneration expenses for executive KMP f) Contractual arrangements with executive KMP g) Non-executive director arrangements h) Additional statutory information (a) Key management personnel covered in this report Non-executive and executive directors (see pages 7 to 8 - for details about each director) Gary Miles (resigned 28 February 2017) William Yde III Mark Anderson David Ryan AO Robert Loewenthal Other key management personnel Name Scott Cody Gary Worobow Position Chief Operating Officer and Chief Financial Officer Executive Vice President, Business and Legal Affairs Key management personnel are those executive management members that have responsibility and authority for planning, controlling and directing resources for the entire group. Other senior executives, such as jurisdictional management, are not considered to be key management personnel for the purposes of the remuneration report as their duties are related to their geographic area of operation only and do not extend to strategic direction and control of resources of the Group. Changes since the end of the reporting period None (b) Remuneration policy and link to performance Our remuneration committee is made up of non-executive directors (a majority of whom are independent). The committee reviews and makes recommendations to the Board about our remuneration policy and structure annually to align it to business needs and meet our business principles. From time to time, the committee may also engage external remuneration consultants to assist with this review (see section (h)(v) Reliance on external remuneration consultants). In particular, the policies and practices are designed to: ● enable the Company to attract, retain and motivate directors, executives and employees who will create value for shareholders within an appropriate risk management framework by providing remuneration packages that are equitable and externally competitive; ● be fair and appropriate having regard to the performance of the Company and the relevant director, executive or employee; ●foster exceptional human talent and motivate and support employees to pursue the growth and success of the Company in alignment with the Company’s values; and 22 ● equitably and responsibly reward employees, having regard to the performance of the Company, individual performance and statutory and regulatory requirements. Remuneration Framework Purpose Element Fixed Remuneration (FR) Short-term incentive (STI) Long-term incentive (LTI) Provide competitive market salary Reward for in year performance Alignment to long-term shareholder value Performance metrics N/A Potential Value Varies Adjusted EBITDA Varies Varies 50% relative total shareholder return (TSR) 50% adjusted EPS growth Changes for FY18 Reviewed in line with market positioning Targets adjusted on an annual basis Expected to be granted in FY18 Balancing short-term and long-term performance Annual incentives are set at levels designed to maximize performance. Long-term incentives consist of share options that vest one third after two years and two thirds after three years (subject to performance criteria) and are designed to align management’s interests with those of the shareholders and encourage retention. Assessing performance The Board has overall responsibility for executive remuneration and receives recommendations from the Remuneration Committee. To assist with its assessment of executive compensation the committee receives reports on performance from management which are based on independently verifiable data such as financial measures and independent market data. There are no “claw-back” provisions in any of the performance based remuneration plans. (c) Elements of remuneration (i) Fixed annual remuneration (FR) Executives may receive their fixed remuneration as cash or cash with non-monetary benefits such as health insurance and similar benefits. FR is reviewed annually or upon promotion or change in circumstance. Superannuation is included for Australia based employees and directors only. (ii) Short-term incentives (STI) Feature Maximum bonus Performance Metrics Description CEO – $370,620, other executive management $123,420 to $189,403 100% of the maximum bonus is paid for achieving 100% of the performance metrics Aligns executive compensation with market expectations. Metric Adjusted EBITDA Target FY18 Board approved Adjusted EBITDA target Weighting Reason Adjusted 100% EBITDA is primary criteria by which investors judge performance 23 Delivery of STI 100% paid upon conclusion of fiscal year after completion of Board discretion audit of financial statements The Board has discretion to adjust remuneration outcomes up or down in certain situations to prevent any inappropriate reward outcomes. Note: Amounts are paid in USD and amounts to be paid are based on estimated USD/AUD exchange rate of 1.3006:1. Feature Share price bonus Performance Metrics Description CEO – $118,866, other executive management $19,847 to $56,371. 100% based on share price being at least $2.71 on 30 June 2018. Compensate executives for granting stock options at $2.74 per share rather than IPO price of $1.90 per share due to unfavourable United States tax implications for executives. Metric Share price Weighting Reason 100% Target Share price of at least $2.71 per share at 30 June 2018. Compensation for lost value from increase in stock price from date of IPO. Delivery of STI Board discretion 100% paid upon conclusion of fiscal year. The Board has discretion to adjust remuneration outcomes up or down in certain situations to prevent any inappropriate reward outcomes. Note: Amounts are paid in USD and amounts to be paid are based on estimated USD/AUD exchange rate of 1.3006:1. (iii) Long-term incentives (“LTIP”) Executive key management personnel participate in the LTIP comprising of annual grants of options which vest one third after two years and two thirds after three years and are subject to performance conditions summarized below. Feature Allocation Description CEO 70% FR, Other executive management 50% of FR. Target allocation is based on fair value of the grant, which vests over three years. Performance Metrics 50% subject to performance condition based on the Company’s relative total shareholder return (TSR) compared to members of the ASX 300 (excluding financials and resources) over the performance period TSR ranking Up to and including the 50th percentile Between the 51st and 75th percentile (inclusive) At and above 75th percentile Percentage to vest 0% Pro rata straight line between 50% and 100% 100% 50% subject to performance condition based on Company’s 24 earnings per share (EPS) growth (adjusted for one-off items associated with the IPO and amortisation of intangibles and excluding United States Traffic Network, LLC operations, as determined by the Board) over the performance period EPS Compound annual growth rate Less than threshold Between threshold and stretch target (inclusive) Percentage to vest 0% Pro rata straight line between 50% and 100% Above stretch target 100% Exercise Price Exercise price equal to share price on date of grant. Forfeiture and termination Options will lapse if performance conditions are not met. Any unvested options granted will be forfeited where the participant resigns or is dismissed during the performance period. However, if the participant is considered a good leaver their unvested options will vest or remain on foot. Feature Description United States performance bonus Bonus pool to award shareholder value creation related to the improvement in the Group’s United States operations which commenced effective 1 December 2016. Allocation Eligibility Allocation to be determined at time of grant Offers to participants in this plan may be made at the Board’s discretion to employees of GTN involved in any US Operations or any other person that the Board determines to be eligible to receive an award under this plan (“Award”). Determination Dates 30 June 2018 and 30 June 2019 Award amount calculation The aggregate amount of Awards will be calculated on the basis of the following formula: A = (E x 10) – TCI) x 2.5% where: A = the aggregate amount of Awards to be granted in respect of a Determination Date. E = EBITDA of the US Operations for the financial year ending on the relevant Determination Date. TCI = the sum of the following (without double-counting): (a) the aggregate equity and debt capital raised and borrowings incurred by GTN and its subsidiaries to finance the acquisition of the US Operations; 25 (b) the aggregate equity and debt capital raised and borrowings incurred by GTN and its subsidiaries to otherwise finance the US Operations; and (c) any operating losses of the US Operations up to the last day of the first month in which the US Operations’ cash income is equal to or greater than cash expenses for that month (i.e., achieves break-even cash flow), (“Total Capital Invested”). TCI as of 30 June 2018 will be calculated from 18 October 2016 to that date. TCI as of 30 June 2019 will be calculated from 1 July 2018 to that date. Where “A” is not a positive number on the initial Determination Date, TCI as of 30 June 2019 will also include an additional amount calculated on the basis of the following formula: A1 = TCI1 - (E1 x 10) Where: A1 = the additional amount added to TCI as of 30 June 2019 TCI1 = TCI as of 30 June 2018 E1 = EBITDA of the US Operations for the financial year ending on 30 June 2018 . The making of an Award will be subject to the Board determining that GTN as a whole has also performed satisfactorily during the financial year preceding the relevant Determination Date. This performance condition is intended to avoid any misalignment of the incentives provided to key management with the overall performance of GTN. The amount of the Award to be allocated to the Managing Director as of the relevant Determination Date will be allocated by the Nomination and Remuneration Committee. The amount of remaining Awards to other key management for that Determination Date will be allocated by the Managing Director. The Award to the Managing Director will be paid in cash but, if shareholders approve, 50% of the Award will be paid by way of issue of restricted shares. Shareholder approval will be required under ASX Listing Rule 10.11 at the time of issue of restricted 26 Performance condition Allocation of Awards Payment shares. The Award to other members of management will be paid 50% in cash and 50% by way of issue of restricted shares. Issue price of restricted shares Restricted shares under this plan will be issued at the market price on the day of issue. Vesting of restricted shares 50% of the restricted shares issued under this plan will vest on the first anniversary of the date of issue and the other 50% on the second anniversary of the date of issue. Rights associated with restricted shares. Restricted shares will have all the same rights as other ordinary shares (including dividend and voting rights) subject to the restrictions on dealing below. Restrictions on dealing with restricted shares The holder of restricted shares must not sell, transfer, encumber, hedge or otherwise deal with the restricted shares until those restricted shares vest. Cessation of employment The holder of restricted shares will be free to deal with the ordinary shares on vesting of the restricted shares, subject to the requirements of GTN’s securities trading policy. Any unvested restricted shares issued under this plan will be forfeited where the holder of restricted shares resigns or is dismissed before the restricted shares vest. However, if the participant is considered a good leaver, their unvested restricted shares will vest immediately or in accordance with the initial vesting timetable. (d) Link between remuneration and performance The Company’s pro forma adjusted EBITDA (excluding the newly acquired United States segment) performance was strong for fiscal 2017 exceeding prospectus forecast by 7% (41% increase over pro forma fiscal 2016). As a result, executive management received 100% of their bonus potential for the period. As a recently listed entity a five year analysis of Company performance versus remuneration was not performed as the Board does not feel the Company compensation plans and performance as a private company is meaningful to its current compensation plans and performance as a listed entity. The Company has reached its Prospectus Forecast Adjusted EBITDA target for both FY2016 and FY2017 and executive management received 100% of their short-term incentive potential. (e) Remuneration expenses for executive KMP Fixed remuneration Non- Post- 27 Variable Remuneration Equity based Name Year Cash Salary monetary benefits employment benefits Other Cash bonus comp Total (1)(2) (2) (5) (3)(4) (6) Executive Management William Yde III (7)(5) 2017 655,336 2016 803,035 Scott Cody (7)(5) 2017 2016 416,840 531,796 Gary Worobow (7)(5) 2017 333,099 2016 471,778 - - - - - - - - - - 31,818 359,959 79,117 1,126,230 17,619 3,922,295 1,466 4,744,415 31,818 17,619 168,855 2,330,450 35,791 653,304 586 2,880,451 - 31,818 90,536 16,954 472,407 - 17,619 1,534,173 220 2,023,790 (1) Includes superannuation where applicable (2) Excludes non-monetary benefits such as health insurance, annual leave, long service, social security, Medicare that are extended to all or substantially all employees. Payments for annual leave are considered a component of cash salaries. (3) Amounts for FY16 relate to GTN Limited’s predecessor company which granted equity (in the form of Class D units) and phantom equity to certain management. This plan was cancelled as part of the IPO restructuring and each remaining participant (excluding Mr. Yde) received a nominal sum ($1,000 USD) as full consideration for the plan. Compensation expense is based on the amount of expense recognized in the Consolidated Statement of Profit or Loss and Other Comprehensive Income and was calculated using a Black-Scholes valuation model. Further information with regards to these calculations can be found in Note 26 (Equity based compensation) of the Consolidated Financial Report included as part of the Annual Report. (4) Amounts for FY17 based on expense recognized in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. (5) United States based executive management receives cash stipend in lieu of the provision of health insurance and similar employee benefits. The amount of the stipend was USD 1,000 per month until June 2016 when it was increased to USD 2,000 per month. (6) All amounts translated into AUD at the average exchange rate for the year. (7) Paid in United States dollars (USD). (f) Contractual arrangements with executive KMP’s Component CEO Description Fixed remuneration(1) Contractual term Notice by the individual/Company $758,175 to 30 September 2018, $931,099 from 1 October 2017 to 1 October 2018, minimum 5% increase per annum thereafter. Ongoing contract By the Employee voluntarily upon at least twelve (12) months written notice to the Company, such notice not to 28 Other executive management description Range between $395,072 and $485,457 to 30 September 2017, range between $497,519 and $600,255 from 1 October 2017 to 1 October 2018, minimum 5% increase per annum thereafter. Ongoing contract By the Employee voluntarily upon at least twelve (12) months written notice to the Company, such notice not to be given prior to 1 July 2017. Should the executive terminate their employment after 1 July 2017, they will be entitled to up to one year severance. Severance is calculated based on a formula that subtracts the required transition time (as determined by the Company) from the maximum one year period. Entitled to pro-rata STI for the year By the Company without Cause upon twelve (12) months written notice to Employee. Entitled to pro-rata STI for the year Immediately be given prior to 1 July 2017. Should the executive terminate their employment after 1 July 2017, they will be entitled to up to one year severance. Severance is calculated based on a formula that subtracts the required transition time (as determined by the Company) from the maximum one year period. By the Company without Cause upon twelve (12) months written notice to Employee. Immediately Termination of employment (without cause) Termination of employment (with cause) or by the individual No STI entitlement. (1) Based on USD/AUD exchange rate of 1.3006:1. (g) Non-executive director arrangements Non-executive directors receive a fixed monthly fee for participating on the board. They do not receive performance based fees or retirement allowances. The directors’ fees are inclusive of superannuation where applicable. The chairperson does not receive additional fees for participating in or chairing committees, rather this is taken into account as part of their overall director fee. The current base fees were reviewed in fiscal 2016 when the board of directors was established. Fees will be reviewed annually by the board taking into account comparable roles at comparable sized companies and other available market data. The board may engage an independent remuneration advisor at its discretion. The maximum annual aggregate directors’ fee pool limit is $550,000 and was approved by the shareholders on 12 May 2016. Base fees Chair Other independent non-executive directors (1) $128,000 $90,000 Additional fees Audit and risk committee – Chair Audit and risk committee – member Nomination and remuneration committee – Chair Nomination and remuneration committee – member $40,000 - - - (1) Mark Anderson is a non-executive director that is not considered independent due to GTCR’s large shareholdings in the Company. Mr. Anderson is a managing director of GTCR. Mr. Anderson receives no compensation from the Company for his directorship. 29 All non-executive directors enter into a service agreement with the Company in the form of a letter of appointment. The letter summarises the board policies and terms, including remuneration, relevant to the office of director. Non-executive director remuneration Name Year Base fee Audit and Risk Committee Remuneration and Nomination Committee Total G Miles (1)(2)(3) M Anderson R Loewenthal (4) D Ryan Total non- executive director remuneration 2017 2016 2017 2016 2017 2016 2017 2016 83,862 8,989 - - 102,667 6,250 90,000 6,250 - - - - - - 40,000 2,778 - - - - 83,862 8,989 - - 6,666 694 109,333 6,944 - - 130,000 9,028 2017 2016 276,529 21,489 40,000 2,778 6,666 694 323,195 24,961 (1) Paid in Canadian dollars (CAD). Amount translated into AUD based on same exchange rates as annual financial statements. (2) Excludes fees paid as a consultant to the Company prior to becoming a director. (3) Resigned effective 28 February 2017 (4) Named Acting Chairman effective 1 March 2017 Relative proportions of fixed vs variable remuneration expense (h) Additional statutory information (i) The following table shows the relative proportions of remuneration that are linked to performance and those that are fixed, based on the amounts disclosed as statutory remuneration expense above: Relative proportions of fixed vs variable remuneration expense Fixed remuneration 2017 At Risk – STI At Risk – LTI* 2017 2017 Name Executive directors W Yde 61% Other key management personnel of the group 69% S Cody 77% G Worobow 32% 26% 19% 7% 5% 4% * Where applicable, the expenses include negative amounts for expenses reversed during the year 30 (ii) Performance based remuneration granted and forfeited during the year The following table shows for each KMP how much of their STI cash bonus was awarded and how much was forfeited. It also shows the value of options that were granted, exercised and forfeited during FY 2017. Total STI bonus (cash) Total Opportunity $ 2017 359,959 168,855 90,536 Name B Yde (1) S Cody (2) G Worobow (3) Value granted $ LTI Options Value exercised % 2017 2017 Awarded % 2017 100 100 100 673,390 304,629 144,298 - - - Forfeited % 2017 - - - (1) USD 271,517. Includes USD 137,094 bonus to partially compensate for stock options being granted at $2.74 per share rather than the initial public offering price of $1.90. Amounts in the table have been translated into AUD based on the exchange rate used to prepare the financial statements. (2) USD 127,367. Includes USD 65,016 bonus to partially compensate for stock options being granted at $2.74 per share rather than the initial public offering price of $1.90. Amounts in the table have been translated into AUD based on the exchange rate used to prepare the financial statements. (3) USD 68,291. Includes USD 22,890 bonus to partially compensate for stock options being granted at $2.74 per share rather than the initial public offering price of $1.90. Amounts in the table have been translated into AUD based on the exchange rate used to prepare the financial statements. (iii) Terms and conditions of equity-based payment arrangements. 2017 Name & Grant Date Balance at the start of the year Unvested Granted as Compensation Vested Exercised Forfeited Balance at the end of the year # % # % Vested and exercisable Unvested Stock Options W Yde 5 Apr 2017 S Cody (1) 5 Apr 2017 G Worobow (1) 5 Apr 2017 - - - 968,906 - - - - - - 968,906 438,315 - - - - - - 438,315 207,623 - - - - - - 207,623 31 Ordinary Shares 2017 Name Balance at the start of year Received during the year on exercise of stock options W. Yde 3,426,717 M. Anderson (1) D. Ryan (3) R. Loewenthal (3) S. Cody G. Worobow (2) - 68,421 15,789 - 10 Shares Purchased Shares Sold Balance at the end of the year - - - - - - 176,691 - 7,054 1,628 - - - - - - - - 3,603,408 - 75,475 17,417 - 10 (1) Excludes GTCR holdings. (2) Initial shares upon forming GTN Limited. (3) Shares held indirectly through superannuation fund. (iv) Other transactions with key management Mr. Miles, our former non-executive chairman, prior to becoming our non-executive chairman provided consulting services to the Company. His fees, translated from CAD into AUD (based on the exchange rates used to prepare the financial statements) were as follows: ● FY 2017 ● FY 2016 N/A $143,684 In addition, Mr. Miles held 105,059 phantom Class D equity units that were granted on 30 April 2012. The expense recognized with relation to these units was as follows: ● FY 2017 ● FY 2016 N/A ($24,806) The equity-based compensation plan was cancelled in June 2016 as part of the restructuring related to the IPO and Mr. Miles received a nominal amount (USD 1,000) for his consent to the termination of the plan. Since the Phantom Equity units provide no rights to acquire equity in the Partnership and it was expected that these Phantom Equity units would be cash-settled, the Phantom Equity expense was treated as a liability rather than additional capital. Once the plan was cancelled, the liability no longer existed and the expense recognized in prior years was reversed, which resulted in the negative expense in FY 2016. The Company terminated the consulting agreement prior to Mr. Miles joining the board and no further consideration is due. Mr. Yde’s daughter is employed by the Company as an accountant. Her cash salary (translated from USD to AUD at the same exchange rates as the Company’s financial statements) was: ●FY2017 ●FY2016 $161,706 $164,710 32 The Board considers the compensation received by Mr. Yde’s daughter to be consistent with the compensation that would be paid to unrelated third parties for a similar position and thus has not included any of these payments in Mr. Yde’s remuneration disclosures. (v) Reliance on external remuneration consultants During fiscal 2017, the Board engaged KPMG for benchmarking and indicative option valuation related to executive compensation. KPMG was paid $22,550 for these services. During fiscal 2017, the Board engaged Mercer to advise on the Company’s United States performance bonus plan. Mercer was paid $12,500 for these services. (vi) Voting of shareholders at last year’s annual general meeting Resolution 7 – Approval of GTN US Incentive Plan and termination benefits For 164,191,283 (99.63%) Against Abstain Proxy’s Discretion 0 0 605,000 (0.37%) 33 Auditor’s Independence Declaration As lead auditor for the audit of GTN Limited for the year ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been: a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of GTN Limited and the entities it controlled during the period. MW Chiang Partner PricewaterhouseCoopers Sydney 31 August 2017 34 GTN Limited ACN 606 841 801 Consolidated Financial Report For the year ended 30 June 2017 35 Contents Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Page 37 38 39 40 41 90 36 GTN Limited For the year ended 30 June 2017 37 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2017 Revenue Other income Interest income on long-term prepaid affiliate contract Network operations and station compensation expenses Selling, general and administrative expenses Equity based compensation expenses Transaction expenses Depreciation and amortisation Finance costs Foreign currency transaction loss Profit (loss) before income tax Income tax expense Profit (loss) for the year Notes 7 7 7 8 26 8 8 8 8 2017 $’000 213,648 487 8,471 (145,482) (47,570) (132) (202) (11,173) (5,235) (228) 12,584 2016 $’000 166,124 256 3,581 (101,919) (32,867) 170 (14,029) (19,931) (8,160) (5,461) (12,236) 9 (6,379) (4,998) 6,205 (17,234) Other comprehensive income (loss) for the year, net of income tax: Items that may be reclassified to profit or loss Foreign currency translation reserve Unrealised gain (loss) on interest rate swaps Items that won’t be reclassified to profit or loss (2,540) (3) (200) 799 Total other comprehensive income (loss) for the year (2,543) 599 Total comprehensive income (loss) for the year 3,662 (16,635) Earnings per share attributable to the ordinary equity holders: Basic and diluted earnings per share (cents) Total profit/ (loss) for the year and other comprehensive income are fully attributable to members of the Company $0.03 24 $(0.11) This statement should be read in conjunction with the notes to the financial statements. GTN Limited For the year ended 30 June 2017 38 Consolidated Statement of Financial Position As at 30 June 2017 Assets Current Cash and cash equivalents Trade and other receivables Other current assets Current assets Non-current Property, plant and equipment Intangible assets Goodwill Deferred tax assets Other assets Non-current assets Total assets Liabilities Current Trade and other payables Deferred revenue Current tax liabilities Provisions Current liabilities Non-current Trade and other payables Financial liabilities Deferred tax liabilities Derivatives Other liabilities Provisions Non-current liabilities Total liabilities Net assets Equity Share capital Reserves Accumulated losses Total equity Notes 11 12 13 16 15 14 17 13 18 20 17 19 18 21 17 22 23 19 25 2017 $’000 100,727 53,678 4,842 159,247 6,768 85,221 97,997 4,679 98,244 292,909 452,156 57,613 5,430 683 1,167 64,893 66 97,569 16,796 5 77 409 114,922 179,815 272,341 2016 $’000 49,063 33,625 1,890 84,578 6,485 70,678 96,258 - 99,099 272,520 357,098 27,258 544 2,320 855 30,977 68 96,806 13,779 - 72 452 111,177 142,154 214,944 444,981 4,295 (176,935) 272,341 378,948 6,706 (170,710) 214,944 This statement should be read in conjunction with the notes to the financial statements. GTN Limited For the year ended 30 June 2017 39 Consolidated Statement of Changes in Equity For the year ended 30 June 2017 Common Control Reserve $’000 Foreign Currency Translation Reserve $’000 Hedging Reserve $’000 Equity Based Payments Reserve $’000 Accumulated Losses $’000 29,430 (799) 2,097 (127,795) Notes Balance at 1 July 2015 Total comprehensive income: Net loss Other comprehensive income/(loss) Transactions with owners in their capacity as owners: Preferred equity dividends Repurchase of equity units Reverse existing capital resulting from restructure Ordinary shares issued to existing shareholders Ordinary shares issued Costs relating to share issue net of tax Common control reserve from restructure Equity based compensation Balance at 30 June 2016 Total comprehensive income: Net profit Other comprehensive income (loss) Transactions with owners in their capacity as owners Dividends Ordinary shares issued Costs relating to share issue net of tax Equity based compensation Balance at 30 June 2017 25 Issued Capital $’000 248,717 - - - 25,681 (3,406) (270,992) 298,306 83,997 (3,355) - - 130,231 378,948 - - - 67,622 (1,589) - 66,033 444,981 This statement should be read in conjunction with the notes to the financial statements. - - - - - - - - - - (24,655) - (24,655) (24,655) - - - - - - - - (24,655) Total Equity $’000 151,650 (17,234) 599 (16,635) - (3,406) (270,992) 298,306 83,997 (3,355) (24,655) 34 - - - - - - - - - - 34 34 (17,234) - (17,234) (25,681) - - - - - - - (42,915) 63,294 2,131 (170,710) 214,944 - - - - - - 132 132 6,205 - 6,205 (12,430) - - - (6,225) 6,205 (2,543) 3,662 (12,430) 67,622 (1,589) 132 57,397 2,263 (176,935) 272,341 - (200) (200) - - - - - - - - (200) 29,230 - (2,540) (2,540 - - - - (2,540) 26,690 - 799 799 - - - - - - - - 799 - - (3) (3) - - - - (3) (3) GTN Limited For the year ended 30 June 2017 40 Consolidated Statement of Cash Flows For the year ended 30 June 2017 Operating activities Receipts from customers Payments to suppliers and employees Interest received Finance costs Income tax paid Net cash from operating activities Investing activities Purchase of property, plant and equipment Long-term prepaid station affiliate agreement Acquisition of business Net cash used in investing activities Financing activities Proceeds from borrowings Proceeds from offering of stock (net of transaction costs) Equity interests repurchased Dividends Repayment of borrowings Deferred financing costs Net cash from financing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Exchange differences on cash and cash equivalents Notes 2017 $’000 2016 $’000 28 216,336 (180,140) 487 (4,467) (7,730) 24,486 (3,529) - (22,027) (25,556) - 64,068 - (10,465) - - 53,603 52,533 49,063 (869) 172,304 (154,474) 244 (7,170) (6,838) 4,066 (2,270) (100,000) - (102,270) 155,459 80,642 (3,406) - (105,913) (4,229) 122,553 24,349 25,880 (1,166) Cash and cash equivalents, end of year 11 100,727 49,063 This statement should be read in conjunction with the notes to the financial statements. GTN Limited For the year ended 30 June 2017 41 41 Notes to the Consolidated Financial Statements Corporate information 1 Nature of operations GTN Limited and its subsidiaries (the “Company”’) provides traffic and news information reports to radio and/or television stations in Australia and international markets, including Canada, the United Kingdom, Brazil and the United States. The Company derives a substantial majority of its revenues from the sale of commercial advertising adjacent to information reports. The Company obtains these advertising commercials from radio and television stations in exchange for information reports and/or cash compensation. General information GTN Limited is a registered Victoria company under the Corporations Act of 2001. GTN Limited was formed on 2 July 2015 as A.C.N. 606 841 801. On 4 June 2016, pursuant to a public offering of GTN Limited’s shares, GTCR Gridlock Holdings (Cayman), L.P. (“Cayman”) was merged into GTN Limited. Any financial information prior to the merger pertains to Cayman. GTN Limited had no operations prior to the merger. Cayman was a Cayman Islands limited partnership that formed on 25 July 2011 for the purpose of acquiring Global Traffic Network, Inc. (“GTN”). The purchase of GTN was completed 28 September 2011 with GTN becoming a wholly owned indirect subsidiary of Cayman. Certain subsidiaries of GTN were transferred to other indirect subsidiaries of Cayman. GTCR Gridlock Partners, Ltd. was the General Partner (the “General Partner”) of Cayman. GTN Limited is a company limited by shares, incorporated and domiciled in Australia. The address of GTN Limited’s registered office and its principal place of business is Level 42, Northpoint, 100 Miller Street North Sydney, NSW Australia 2060. The consolidated financial statements for the year ended 30 June 2017 (including comparatives) were approved and authorised for issuance on 31 August 2017. The directors have the power to amend and reissue the financial statements. GTN Limited For the year ended 30 June 2017 42 42 Summary of significant accounting policies 2 The significant accounting policies that have been used in the preparation of these consolidated financial statements are summarised below. These policies have been consistently applied to all the period presented unless otherwise stated. The financial statements are for the group consisting of GTN Limited and its subsidiaries. 2.1 Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. GTN Limited is a for-profit entity for the purpose of preparing the financial statements. (i) Compliance with IFRS The consolidated financial statements of GTN Limited also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) Historical cost convention The financial statements have been prepared on a historical cost basis, except for the following: ● available-for-sale financial assets, financial assets and liabilities (including derivative instruments), certain classes of property, plant and equipment and investment property – measured at fair value, ● assets held for sale – measured at fair value less cost of disposal, and ● defined benefit pension plans – plan assets measured at fair value. 2.2 Basis of consolidation The Company’s financial statements consolidate those of GTN Limited and all of its subsidiaries (the “Group”) as of 30 June 2017. The Company controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 June. All transactions and balances between the Group are eliminated on consolidation, including unrealised gains and losses on transactions between the Company and its subsidiaries. Where unrealised losses on “intra- group” asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Company. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. 2.3 Business combination The Company applies the acquisition method in accounting for business combinations. The consideration transferred by the Company to obtain control of a subsidiary is calculated as the sum of the acquisition date fair values of assets transferred, liabilities incurred and the equity interests issued by the Company, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. GTN Limited For the year ended 30 June 2017 43 43 The Company recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of (a) fair value of consideration transferred; (b) the recognised amount of any non-controlling interest in the acquiree; and (c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately. 2.4 Foreign currency translation Functional and presentation currency The consolidated financial statements are presented in Australian dollars (AUD). ATN, Aus Hold Co and GTN Limited’s functional currency is Australian dollars (AUD); CTN’s functional currency is Canadian dollars (CAD); UK Hold Co, UKTN and UK Commercial’s functional currency is British pounds (GBP); and BTN’s functional currency is Brazilian real (BRL). The remaining subsidiaries functional currency is United States dollars (USD). The functional currency of GTN Limited is AUD. These financial statements presentation currency is AUD which is the functional currency of the largest portion of the Company’s operations. Foreign currency transactions and balances Foreign currency transactions are translated using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-measurement of monetary items at year end exchange rates are recognised in profit or loss. Loans between Group entities are eliminated upon consolidation. Where the loan is between Group entities that have different functional currencies, the foreign exchange gain or loss is not eliminated and is recognized in the consolidated statement of profit and loss unless the loan is not expected to be settled in the foreseeable future and thus forms part of the net investment in the foreign operation. In such a case, the foreign exchange gain or loss is recognized in other comprehensive income. Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the date of the transaction), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined. Foreign operations In the Company’s financial statements, all assets, liabilities and transactions of entities with a functional currency other than AUD are translated into AUD upon consolidation. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. The functional currency of the entities in the Company has remained unchanged during the reporting period. GTN Limited For the year ended 30 June 2017 44 44 On consolidation, assets and liabilities have been translated into AUD at the closing rate at the reporting date. Income and expenses have been translated into AUD at the average rate over the reporting period. Exchange differences are charged/credited to other comprehensive income and recognised in the currency translation reserve in equity. On disposal of a foreign operation the cumulative translation differences recognised in equity are reclassified to profit or loss and recognised as part of the gain or loss on disposal. 2.5 Revenue recognition Advertising revenue Advertising revenue is earned and recognised at the time commercial advertisements are broadcast. Advertising revenues are reported net of commissions provided to third party advertising agencies that represent a majority of the advertisers. Payments received or amounts invoiced in advance are deferred until earned and such amounts are included as a component of deferred revenue in the accompanying consolidated statement of financial position. Sales taxes, goods and service taxes, value added taxes and similar charges collected by the Company on behalf of government authorities are not included as a component of revenue. Interest and dividend income Interest income and expenses are reported on an accrual basis using the effective interest method. Dividend income, other than those from investments in associates, is recognised at the time the right to receive payment is established. 2.6 Network operations and station compensation expenses The cost of producing and distributing the radio and television traffic and news reports and services and the obtaining of advertising inventory are considered network operations and station compensation expenses. These consist mainly of personnel, aviation costs, facility costs, third party content providers and station compensation. Network operations and station compensation expenses are recognised when incurred. 2.7 Station compensation and reimbursement The Company generally enters into multiyear contracts with radio and television stations. These contracts call for the provision of various levels of service (including, but not limited to providing professional broadcasters, gathering of information, communications costs and aviation services) and, in some cases, cash compensation or reimbursement of expenses. Station compensation and reimbursement is a component of network operations and station compensation expenses on the accompanying consolidated statement of profit or loss and other comprehensive income and is recognised over the terms of the contracts, which is not materially different than when the services are performed. 2.8 Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties GTN Limited For the year ended 30 June 2017 45 45 of the debtor, probability that the debtor will enter bankruptcy or financial re-organisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in profit or loss within selling, general and administrative expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against selling, general and administrative expenses in profit or loss. 2.9 Goodwill Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately recognised. Goodwill is carried at cost less accumulated impairment losses. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being the operating segments. 2.10 Intangible assets Intangible assets are stated at cost (or fair value if acquired in a business combination) and subsequently carried at cost less accumulated amortisation and impairment losses. Intangible assets with definite lives are amortised over their expected useful lives on a straight line basis, as follows:  station contracts: 14-15 years  advertising contracts: 4.5-5 years  software: 3 years Amortisation expense is not reflected for intangible assets with indefinite lives such as trade names and the Company annually tests these assets for impairment. There is no residual value recognised with regard to intangible assets subject to amortisation. 2.11 Property, plant and equipment IT equipment, motor vehicles, aircraft and other equipment IT equipment, motor vehicles, aircraft and other equipment (comprising furniture and fittings) are initially recognised at acquisition cost or manufacturing cost, including any costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Company’s management. GTN Limited For the year ended 30 June 2017 46 46 IT equipment, motor vehicles, aircraft and other equipment are subsequently measured using the cost model, cost less subsequent depreciation and impairment losses. 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. Depreciation is recognised on a straight-line basis to write down the cost less estimated residual value of computer equipment, motor vehicles, aircraft and other equipment. The following useful lives are applied:  computer equipment: 3-5 years  motor vehicles: 7 years  helicopters and fixed wing aircraft: 6-8 years  helicopters engine rebuilds: 2-3 years   furniture, equipment and other: 5 years recording, broadcasting and studio equipment: 5 years. Material residual value estimates and estimates of useful life are updated as required, but at least annually. Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognised in profit or loss within other income or other expenses. 2.12 Leased assets Finance leases The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards of ownership of the leased asset. Where the Company is a lessee in this type of arrangement, the related asset is recognised at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any. A corresponding amount is recognised as a finance lease liability. The corresponding finance lease liability is reduced by lease payments net of finance charges. The interest element of lease payments represents a constant proportion of the outstanding capital balance and is charged to profit or loss, as finance costs over the period of the lease. Operating leases All other leases are treated as operating leases. Where the Company is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. 2.13 Impairment testing of goodwill, other intangible assets and property, plant and equipment For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Company at which management monitors goodwill. Cash-generating units to which goodwill has been allocated (determined by the Company’s management as equivalent to its operating segments) and trade names are tested for impairment at least annually. All other GTN Limited For the year ended 30 June 2017 47 47 individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Company’s latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-specific risks factors. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash- generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge is reversed if the cash- generating unit’s recoverable amount exceeds its carrying amount. 2.14 Financial instruments Recognition, initial measurement and derecognition Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial instrument, and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss, which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities are described below. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. General and specific borrowing costs that are directly attributable to the acquisition of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. Other borrowing costs are expensed in the period in which they are incurred. Classification and subsequent measurement of financial assets For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified into the following categories upon initial recognition:  loans and receivables; All financial assets are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below. GTN Limited For the year ended 30 June 2017 48 48 All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within selling, general and administrative expenses. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Company’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on recent historical counterparty default rates for each identified group. Deferred loan costs relate to the costs related to the debt financing and are amortised using the effective interest method over the five year life of the loan. Expense recognised related to the effective interest method is recognised as a component of finance costs in the Company’s consolidated statement of profit or loss and other comprehensive income. Any deferred loan costs outstanding upon prepayment or refinancing of debt balances are immediately expensed as a component of finance costs. Classification and subsequent measurement of financial liabilities The Company’s financial liabilities include borrowings, trade and other payables and derivative financial instruments. Financial liabilities are measured subsequently at amortised cost using the effective interest method, and are carried subsequently at fair value with gains or losses recognised in profit or loss. All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income. Derivative financial instruments and hedge accounting Derivative financial instruments are accounted for as hedging instruments in cash flow hedge relationships, which requires a specific accounting treatment. To qualify for hedge accounting, the hedging relationship must meet several strict conditions with respect to documentation, probability of occurrence of the hedged transaction and hedge effectiveness. All derivative financial instruments used for hedge accounting are recognised initially at fair value and reported subsequently at fair value in the statement of financial position. To the extent that the hedge is effective, changes in the fair value of derivatives designated as hedging instruments in cash flow hedges are recognised in other comprehensive income and included within the hedging reserve in equity. Any ineffectiveness in the hedge relationship is recognised immediately in profit or loss. GTN Limited For the year ended 30 June 2017 49 49 At the time the hedged item affects profit or loss, any gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss and presented as a reclassification adjustment within other comprehensive income. However, if a non-financial asset or liability is recognised as a result of the hedged transaction, the gains and losses previously recognised in other comprehensive income are included in the initial measurement of the hedged item. If a forecast transaction is no longer expected to occur any related gain or loss recognised in other comprehensive income is transferred immediately to profit or loss. If the hedging relationship ceases to meet the effectiveness conditions, hedge accounting is discontinued and the related gain or loss is held in the equity reserve until the forecast transaction occurs. 2.15 Income taxes Income tax expense for the period is the tax payable on the current period’s taxable income based on the national tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax base of the asset and liabilities and their carrying amount in the financial statements. Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with investments in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Company and it is probable that reversal will not occur in the foreseeable future. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted by the end of the reporting period. Deferred tax assets are recognised to the extent that it is probable that they will be able to be utilised against future taxable income, based on the Company’s forecast of future operating results which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. Deferred tax liabilities are always provided for in full. Deferred tax assets and liabilities are offset only when the Company has a right and intention to set off current tax assets and liabilities from the same taxation authority. Changes in deferred tax assets or liabilities are recognised as a component of tax benefit or expense in profit or loss, except where they relate to items that are recognised in other comprehensive income (such as the revaluation of land) or directly in equity, in which case the related deferred tax is also recognised in other comprehensive income or equity, respectively. (ii) Tax consolidation legislation GTN Limited and its wholly-owned Australian controlled subsidiaries will implement the tax consolidation legislation. GTN Limited For the year ended 30 June 2017 50 50 The head entity, GTN Limited, and the controlled subsidiaries in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right. In addition to its own current and deferred tax amounts, GTN Limited also recognizes the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled subsidiaries in the tax consolidated group. The subsidiaries will also enter into a tax funding arrangement under which the wholly-owned entities fully compensate GTN Limited for any current tax payable assumed and are compensated by GTN Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to GTN Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognized in the wholly-owned subsidiaries’ financial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. Assets or liabilities arising under tax funding agreements with tax consolidated subsidiaries are recognized as current amounts receivable or payable to other entities in the group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognized as a contribution to (or distribution from) wholly-owned tax consolidated subsidiaries. 2.16 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. 2.17 Employee Benefits Short-term employee benefits Short-term employee benefits are benefits, other than termination benefits, that are expected to be settled wholly within twelve months after the end of the period in which the employees render the related service. Examples of such benefits include wages and salaries, non-monetary benefits and accumulating sick leave. Short-term employee benefits are measured at the undiscounted amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The Company’s liabilities for annual leave and long service leave are included in other long term benefits when they are not expected to be settled wholly within twelve months after the end of the period in which the employees render the related service. They are measured at the present value of the expected future payments to be made to employees. The expected future payments incorporate anticipated future wage and salary levels, experience of employee departures and periods of service, and are discounted at rates determined by reference to market yields at the end of the reporting period on high quality corporate bonds or government bonds that have maturity dates that approximate the timing of the estimated future cash outflows. Any re-measurements arising from experience adjustments and changes in assumptions are recognised in profit or loss in the periods in which the changes occur. The obligations are presented as GTN Limited For the year ended 30 June 2017 51 51 current liabilities on the statement of financial position if the entity does not have an unconditional right to defer settlement for at least 12 months after the reporting period regardless of when the actual settlement is expected to occur. 2.18 Trade and other payables These amounts represent liabilities for goods and services provided to the Company prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. 2.19 Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to owners of the company, excluding any costs of servicing equity other than ordinary shares by the weighted average number of ordinary shares outstanding during the financial year adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. (ii) Diluted earnings per share Diluted earnings per share adjusts the amounts used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. Prior to the Company’s initial public offering, the share capital of the Company consisted of partnership units that were converted into share capital as part of the IPO restructuring. Earnings per share calculations presented herein assume the conversion took place at the beginning of the periods presented to provide a uniform presentation. 2.20 Equity and reserves Issued capital represents the fair value of shares that have been issued. Any transaction costs associated with the issuing of shares are deducted from issued capital. Other components of equity include the following:  Foreign currency translation reserve – comprises foreign currency translation differences arising on the translation of financial statements of the Company’s foreign entities into AUD.  Hedging reserve – comprises changes in the fair value of interest rate hedges that are deemed effective.  Equity based payments reserve – comprises the cumulative charge to the statement of profit or loss and other comprehensive income for employee equity-settled equity-based remuneration.  Common control reserve – represents difference between the fair value of the shares issued under the initial public offering net of transaction costs, plus carried forward reserves and accumulated losses and the book value of the total equity of the predecessor company. Retained earnings include all current and prior period retained profits including those related to GTCR Gridlock Holdings (Cayman), L.P, the predecessor company to GTN Limited. GTN Limited For the year ended 30 June 2017 52 52 2.21 Equity based remuneration The Company operated equity-settled equity-based remuneration plans for its employees. The Company also operated a cash-settled equity-based remuneration plan for its employees. All goods and services received in exchange for the grant of any equity-based payment are measured at their fair values. Where employees are rewarded using equity-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the equity instruments granted. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example profitability and sales growth targets and performance conditions). All equity-settled equity-based remuneration is ultimately recognised as an expense in profit or loss with a corresponding credit to equity based payments reserve. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of equity instruments expected to vest. Non-market vesting conditions are included in assumptions about the number of equity instruments that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of equity instruments expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if equity instruments ultimately exercised are different to that estimated on vesting. Upon exercise of equity instruments, the proceeds received net of any directly attributable transaction costs are allocated to issued capital. 2.22 Provisions, contingent liabilities and contingent assets Provisions for legal disputes, onerous contracts or other claims are recognised when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Company and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Restructuring provisions are recognised only if a detailed formal plan for the restructuring has been developed and implemented, and management has at least announced the plan’s main features to those affected by it. Provisions are not recognised for future operating losses. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material. Any reimbursement that the Company can be virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision. GTN Limited For the year ended 30 June 2017 53 53 No liability is recognised if an outflow of economic resources as a result of present obligation is not probable. Such situations are disclosed as contingent liabilities, unless the outflow of resources is remote in which case no liability is recognised. 2.23 Goods and services taxes (GST) Revenues, expenses and assets are recognized net of any amount of associated GST, value added taxes (VAT), Quebec sales tax (QST), harmonized sales tax (HST) and similar taxes unless the tax incurred is not recoverable from the taxation authority. In such case the tax is recognized as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST and related taxes receivable or payable. The net amount of these taxes recoverable from, or payable to, the taxation authority is included in trade and other payables in the balance sheet. Cash flows are presented on a gross basis. The components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. 2.24 Long-term prepaid affiliate contract Long term prepayments of station compensation are accounted for as a financing arrangement whereby non- cash interest income over the term of the contractual agreement is recognized based on an estimate of the radio stations’ incremental borrowing rate with similar terms which will reduce over time as the prepayment is amortised. Station compensation expense is also recognized over the contract period equal to the prepayment amount plus the total non-cash interest income on a straight line basis over the expected term of the contract including renewal periods, if it is more likely than not the contract will be extended. Additional station compensation expense over the contract period is recognized equal to any cash payments, including an estimate of inflationary adjustments expected to be paid on a straight line basis over the contract term. 2.25 Rounding of amounts The Company is of a kind referred to in ASIC Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that ASIC Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 2.26 Significant management judgement in applying accounting policies and estimation uncertainty When preparing the financial statements, management undertakes a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses. Significant management judgement The following are significant management judgements in applying the accounting policies of the Company that have the most significant effect on the financial statements. Recognition of deferred tax balances The extent to which deferred tax balances are recognised is based on an assessment of the probability of the Company’s future taxable income against which the deferred tax assets can be utilised or liabilities assessed. GTN Limited For the year ended 30 June 2017 54 54 In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions. See Note 17. Impairment In assessing impairment, management estimates the recoverable amount of each asset or cash-generating unit based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate. See Note 14. Useful lives of depreciable assets Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical obsolescence that may change the utility of certain property, plant and equipment. See Note 16. Fair value of financial instruments Management uses valuation techniques to determine the fair value of financial instruments (where active market quotes are not available) and non-financial assets. This involves developing estimates and assumptions consistent with how market participants would price the instrument. Management bases its assumptions on observable data as far as possible but this is not always available. In that case management uses the best information available. Estimated fair values may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date. See Note 4(d). Recoverability of long-term prepaid station compensation Management reviews the recoverable amount of long-term prepaid station compensation at each reporting period, analysing such factors as number of advertising spots received, market conditions for the advertising spots, ratings of the stations, counter party risk (i.e. the financial viability of the provider of the advertising spots and its ability to continue to meet its obligations) and other relevant factors to determine the recoverability of long-term prepaid station compensation over its contractual term. See Note 13. Business combinations The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the Company taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported. See Note 34. 2.27 Parent entity financial information The financial information for the parent entity, GTN Limited disclosed in Note 31 has been prepared on the same basis as the consolidated financial statements except as set out below. (i) Investment in subsidiaries Investments in subsidiaries are accounted for at cost in the financial statements of GTN Limited. Dividends received are recognized when the right to receive the dividend is established. GTN Limited For the year ended 30 June 2017 55 55 2.28 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. 2.29 Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Company, on or before the end of the reporting period but not distributed at the end of the reporting period. 2.30 Corporate restructure GTN Limited was incorporated as an Australian public company on 2 July 2015 and acquired GTCR Gridlock Holdings (Cayman), L.P. as part of a restructure in conjunction with the initial public offering of GTN Limited’s stock. The Company elected to account for the purchase of Cayman by GTN Limited as a capital re-organisation rather than a business combination. In the Company’s judgement, the continuation of the existing accounting values is consistent with the accounting that would have occurred if the assets and liabilities had already been in a structure suitable to IPO and most appropriately reflects the substance of the internal restructure. As such, the consolidated financial statements of the Company have been presented as a continuation of the pre- existing accounting values of assets and liabilities in the Cayman consolidated financial statements. In adopting this approach, the Company notes that there is an alternate view that such a restructure should be accounted for as a business combination that follows the legal structure of GTN Limited being the acquirer. If this view had been taken, the net assets of the GTN Group would have been uplifted to fair value based on the market capitalisation at completion with consequential impacts on the consolidated statement of profit or loss and other comprehensive income statement and the consolidated statement of financial position. Changes in accounting policies 3 3.1 Change in accounting policy and retrospective restatement In November 2016, the International Financial Reporting Interpretation Committee (“IFRIC”) published its findings regarding the expected manner of recovery of intangible assets with indefinite useful lives for the purpose of measuring deferred income tax. The IFRIC stated that in applying IAS 12, Income Taxes, an entity determines the expected manner of recovery of the carrying amounts of intangible assets with indefinite useful lives and reflects the tax consequences that follow from the expected manner of recovery. The IFRIC clarified that an intangible asset with an indefinite useful life is not a non-depreciable asset because non-depreciable assets have an infinite life and that indefinite is not the same as infinite. Based on the guidance of this decision, the Company has retrospectively changed its accounting policy with regard to the recognition of deferred taxes related to indefinite life intangibles. Prior to this clarification, the Company’s accounting policy for deferred income taxes assumed that its intangible assets with indefinite lives (tradenames) would be recovered through sale. Accordingly, the Company is required to change its accounting policy with regard to deferred income taxes on intangible assets with indefinite useful lives to reflect the full difference between the carrying amount and tax basis of said assets based on an assumption that the indefinite life intangible assets will be recovered through use unless there is a specific plan to sell these assets. See Note 14 and Note 17 for the detail of the restatement amounts. 3.2 New and revised standards that are effective for these financial statements A number of new and revised standards and an interpretation became effective for the first time to annual periods beginning on or after 1 July 2016. Information on these new standards is presented below. GTN Limited For the year ended 30 June 2017 56 56 AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality The Standard completes the AASB’s project to remove Australian guidance on materiality from Australian Accounting Standards. This Standard was first adopted for the year ending 30 June 2016 and there was no material impact on the financial statements. AASB 2014-1 Amendments to Australian Accounting Standards Part D of AASB 2014-1 makes consequential amendments arising from the issuance of AASB 14. These amendments were first adopted for the year ending 30 June 2017 and there was no material impact on the financial statements. Part E of AASB 2014-1 makes amendments to Australian Accounting Standards to reflect the AASB’s decision to defer the mandatory application date of AASB 9 Financial Instruments to annual reporting periods beginning on or after 1 January 2018. Part E also makes amendments to numerous Australian Accounting Standards as a consequence of the introduction of Chapter 6 Hedge Accounting into AASB 9 and to amend reduced disclosure requirements for AASB 7 Financial Instruments: Disclosures and AASB 101 Presentation of Financial Statements. Refer to the section on AASB 9 below. AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 The amendments: - - - clarify the materiality requirements in AASB 101, including an emphasis on the potentially detrimental effect of obscuring useful information with immaterial information clarify that AASB 101’s specified line items in the statement(s) of profit or loss and other comprehensive income and the statement of financial position can be disaggregated add requirements for how an entity should present subtotals in the statement(s) of profit and loss and other comprehensive income and the statement of financial position clarify that entities have flexibility as to the order in which they present the notes, but also emphasise that understandability and comparability should be considered by an entity when deciding that order remove potentially unhelpful guidance in IAS 1 for identifying a significant accounting policy. These amendments were first adopted for the year ending 30 June 2017 and there was no material impact on the financial statements. - - 3.3 Accounting Standards issued but not yet effective and not been adopted early by the Company At the date of authorisation of these financials statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Company. Management anticipates that all of the relevant pronouncements will be adopted in the Company’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Company’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company’s financial statements. AASB 9 Financial Instruments AASB 9 introduces new requirements for the classification and measurement of financial assets and liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are: a. Financial assets that are debt instruments will be classified based on: (i) the objective of the entity’s business model for managing the financial assets; and (ii) the characteristics of the contractual cash flows. GTN Limited For the year ended 30 June 2017 57 57 b. Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income (instead of in profit or loss). Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. Introduces a ‘fair value through other comprehensive income’ measurement category for particular simple debt instruments. c. d. Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. e. Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: the change attributable to changes in credit risk are presented in other comprehensive income (‘OCI’) the remaining change is presented in profit or loss - - If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Otherwise, the following requirements have generally been carried forward unchanged from AASB 139 into AASB 9: - - classification and measurement of financial liabilities; and derecognition requirements for financial assets and liabilities. AASB 9 requirements regarding hedge accounting represent a substantial overhaul of hedge accounting that enable entities to better reflect their risk management activities in the financial statements. Furthermore, AASB 9 introduces a new impairment model based on expected credit losses. This model makes use of more forward-looking information and applies to all financial instruments that are subject to impairment accounting. The amendment is effective for annual periods beginning on or after 1 January 2018 but is available for early adoption. The entity is yet to undertake a detailed assessment of the impact of AASB 9. However, based on the entity’s preliminary assessment, the Standard is not expected to have a material impact on the transactions and balances recognised in the financial statements when it is first adopted for the year ending 30 June 2019. AASB 15 – Revenue from Contracts with Customers AASB 15 replaces AASB 118 Revenue, AASB 111 Construction Contracts and some revenue-related Interpretations: - - - - establishes a new revenue recognition model changes the basis for deciding whether revenue is to be recognised over time or at a point in time provides new and more detailed guidance on specific topics (e.g., multiple element arrangements, variable pricing, rights of return, warranties and licensing) expands and improves disclosures about revenue The amendment is effective for annual periods beginning on or after 1 January 2018 but is available for early adoption. The entity is yet to undertake a detailed assessment of the impact of AASB 15. However, based on the entity’s preliminary assessment, the Standard is not expected to have a material impact on the transactions and balances recognised in the financial statements when it is first adopted for the year ending 30 June 2019. AASB 16 – Leases AASB 16 removes the balance sheet distinction between operating and finance leases for lessees. Changes under AASB 16 will predominately affect lessees with almost all leases going on the balance sheet. The asset (the right to use the leased item) and a financial liability to pay rentals are recognized under the new standard with the only exemption being short-term and low-value leases. The new standard will be effective from 1 GTN Limited For the year ended 30 June 2017 58 58 January 2019 but is available for early adoption. At this stage, the Company is not able to estimate the effect of the new rules on the financial statements. The Company does not expect to adopt the new standard before 1 July 2019. AASB 2016-1 – Recognition of Deferred Tax Assets for Unrealized Losses AASB 2016-1 amends AASB 112 – Income Taxes to clarify the requirements on the recognition of deferred tax assets for unrealized debt instruments measured at fair value. The amendment is effective for annual periods beginning on or after 1 January 2017 but is available for early adoption. The entity is yet to undertake a detailed assessment of the impact of AASB 2016-1. However, based on the entity’s preliminary assessment, the Standard is not expected to have a material impact on the transactions and balances recognised in the financial statements when it is first adopted for the year ending 30 June 2018. AASB 107 – Statement of cash flows AASB 2016-2 requires additional disclosures that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment requires disclosures of changes arising from: ● cash flows, such as drawdowns and repayments of borrowings ● non-cash changes, such as acquisitions, disposals and unrealized exchange differences. The amendment is effective for annual periods beginning on or after 1 January 2017 but is available for early adoption. Given the amendment is limited to additional disclosure the Company expects no impact on its financial statements when it is first adopted for the year ending 30 June 2018. There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. Financial risk management 4 The Company's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Company's overall risk management program seeks to minimise potential adverse effects on the financial performance of the Company. The Company uses derivative financial instruments to manage interest rate risk exposures on borrowings. Risk management is carried out by the senior management team with oversight from the audit and risk committee and the board. The senior management team identifies, evaluates, reports and manages financial risks in close co-operation with the Company's operation units in accordance with the Board policy. The Company holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Interest bearing liabilities 2017 $’000 100,727 53,678 154,405 57,613 97,569 2016 $’000 49,063 33,625 82,688 27,258 96,806 GTN Limited For the year ended 30 June 2017 Derivative financial instruments Other liabilities (a) Market risk 59 5 77 155,264 - 72 124,136 59 (i) Cash flow and fair value interest rate risk Market risk is the risk that the fair value or future cash flows of a financial asset or financial liability will fluctuate because of changes in market prices. Market risk comprises interest rate risk. The Company's main interest rate risk arises from long term borrowings, cash, receivables and derivatives. Borrowings issued at variable rates expose the Company to cash flow interest rate risk. The Company has utilized fixed rate interest rate swaps and interest rate collars to manage interest rate risk. In June 2016, the Company terminated its fixed rate interest rate swap and 30 June 2016 all of the Company’s debt was at a variable rate. In August 2016, the Company entered into an interest rate collar on $50 million of its variable debt that runs until 9 February 2018. The hedge was determined to be effective when entered into and is tested for effectiveness at each balance sheet date and been found effective. The Company has managed its cash flow interest rate risk by using various interest rate derivatives. Such interest rate derivatives have the economic effect of converting borrowings from floating rates to fixed rates. The interest rate derivatives the Company has employed are fixed rate interest rate swaps and interest rate collars. Under the fixed rate interest rate swaps, the Company agrees with other parties to exchange, at specified intervals (mainly monthly), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. Under interest rate collars, such exchanges only occur should the floating interest rate fall outside the floor or the ceiling of the collar. Otherwise the interest is paid on a floating rate basis. As at the end of the reporting period, the Company had the following variable rate cash and borrowings outstanding: 2017 2016 Weighted average interest rate % 0.61% 5.24% Weighted average interest rate % 0.94% 5.34% Cash and cash equivalents Borrowings – unhedged portion(1) Net exposure to cash flow interest rate risk Balance $’000 49,063 (100,000) (50,937) (1) A portion of the hedged debt of $50 million is subject to cash flow risk because the hedging mechanism is Balance $’000 100,727 (50,000) 50,727 an interest collar which allows the interest rate to float between the interest rate floor and ceiling. On 11 November 2011, the Company’s Aus Hold Co subsidiary borrowed $76.5 million (which included $2.85 million loan fee deducted from the proceeds by the lenders) from a consortium of three banks in Australia (Term Loan A and Term Loan B, collectively “Term Loans” or “Term Loan”). The interest rate on the majority of the Term Loan was fixed until the repayment date (either by scheduled principal payments or the date of maturity) via a fixed rate interest swap. The interest rate spread was subject to increase and decrease based on the leverage ratio as defined in the Term Loan agreement. The Term Loan was refinanced GTN Limited For the year ended 30 June 2017 60 60 in November 2015 and again in February 2016. The fixed rate interest rate swap was novated and remained in place during both refinancings prior to being settled in June 2016. See Note 21. Effective 9 August 2016, in satisfaction of the interest rate hedging requirements under the Term Loan, the Company’s Aus Hold Co subsidiary entered into interest rate collar agreements for $50 million of the Facility C bullet loan. The interest rate collar agreements expire effective 9 February 2018. The interest rate collar agreements set a range of interest rates at which below the floor interest rate (based on one month BBSY) Aus Hold Co pays the counter party the difference between the floor interest rate and actual interest rate on the nominal amount of the interest rate collar agreements whilst the counter party pays Aus Hold Co any difference between the ceiling interest rate and BBSY. The floor interest rate is 1.55% and the ceiling rate is 2.20%. Aus Hold Co incurred no upfront costs to enter into the interest rate collar agreements and to date neither party has been required to make a payment to the other. At 30 June 2017, the fair value of the interest rate collar was $5 thousand in favour of the counter party. Since the interest rate collar agreements have been determined to be effective at inception and as of 30 June 2017, the expense related to the change in fair value (net of taxes) has been charged to hedging reserve in other comprehensive income. An official increase/decrease in interest rates of 100 (2016: 100) basis points would have favourable/adverse effect on profit before tax of $507 thousand (2016: favourable/adverse $509 thousand) per annum. The favourable/adverse would be $7 thousand dollars (2016: N/A) in a scenario where the maximum possible amount of the movement occurred outside the collar ceiling or floor. (ii) Foreign currency risk Exposures to currency exchange rates arise from the sales and purchases by its subsidiaries that are denominated in currencies other than the subsidiaries’ functional currency. The Company does not enter into forward exchange contracts to mitigate the exposure to foreign currency risk. Foreign currency denominated financial assets and liabilities which expose the Company to currency risk are disclosed below. The amounts shown are those reported to key management translated into AUD at the closing rate: USD $’000 Short Term Exposure CAD $’000 GBP $’000 BRL $’000 Long Term Exposure Other $’000 USD $’000 GBP $’000 CAD $’000 BRL $’000 30 June 2017 Financial assets 28,433 Financial liabilities (31,719) 15,847 (6,029) 10,307 (3,530) Total exposure (3,286) 9,818 6,777 30 June 2016 Financial assets Financial liabilities 659 (1,178) 13,339 (6,528) 10,228 (5,390) Total exposure (519) 6,811 4,838 1,950 (1,409) 541 1,398 (1,087) 311 49 (161) (112) 35 (211) (176) - (13) (13) - - - - (5) (5) - (10) (10) - (10) (10) - (11) (11) - (17) (17) - - - There are no material transactions in subsidiaries entities made in currencies other than the functional currency. Therefore no sensitivity analysis on foreign currencies affecting profit or loss has been prepared. GTN Limited For the year ended 30 June 2017 (b) Credit risk 61 61 Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument and cause a financial loss. The Company has exposures to credit risk on cash and cash equivalents and receivables. Our maximum exposure to credit risk is based on the total value of our financial assets net of any provision for loss. Ongoing credit evaluation is performed on the financial condition of customers and, where appropriate, an allowance for doubtful debtors is raised. Increased attention is paid to past due clients to determine collectability of outstanding receivables. The credit quality of debtors that are not impaired is assessed by reference to historical information with regards to default rates. Debtor write-offs have historically been immaterial. Refer to Note 2.26 for management’s process to evaluate the recoverability of the long-term prepayment and the exposure to credit risk. The Company's policy is to engage major financial institutions to provide financial facilities to the Company, thereby minimising credit risk on cash deposits. The Company does not have any cash balances or derivative financial instruments with any financial institution rated below “A”. (c) Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities, and the ability to refinance borrowings. (i) Financing arrangement The Company had access to the following undrawn borrowing facilities at the end of the reporting period: Total facilities Bank loan facility Used at balance date Bank loan facility Unused at balance date Bank loan facility (ii) Maturities of financial liabilities Contractual maturities of financial liabilities 2017 $’000 2016 $’000 115,000 115,000 100,000 100,000 15,000 15,000 Within 1 year $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 Total contractual cash flows $’000 Carrying Amount (assets)/ liabilities $’000 At 30 June 2017 Non-derivatives GTN Limited For the year ended 30 June 2017 Non-interest bearing Trade and other payables Other liabilities Interest bearing Bank loans(1)(2) Derivatives Interest rate collars Total 57,613 - - - - 77 4,165 4,165 106,675 - 5 - 61,778 4,170 106,752 - - - - - 57,613 57,613 77 77 115,005 97,569 5 5 172,700 155,264 62 62 (1) Cash flows include an estimate of future contractual payments of interest (2) Carrying amounts are net of capitalized transaction costs Within 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows Carrying Amount (assets)/ Liabilities $’000 $’000 $’000 $’000 $’000 $’000 27,258 - - - - 72 4,400 4,400 111,452 - - - 31,658 4,400 111,524 - - - - - 27,258 27,258 72 72 120,252 96,806 - - 147,582 124,136 At 30 June 2016 Non-derivatives Non-interest bearing Trade and other payables Other liabilities Interest bearing Bank loans(1)(2) Derivatives Interest rate swaps Total (1) Cash flows include an estimate of future contractual payments of interest (2) Carrying amounts are net of capitalized transaction costs (d) Fair value measurements The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: (a) (b) (c) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) 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 inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The following table presents the Company’s assets and liabilities measured and recognised at fair value at 30 June 2017 and 30 June 2016. 63 63 GTN Limited For the year ended 30 June 2017 30 June 2017 Assets Total Assets Liabilities Derivatives – interest rate collars Total Liabilities at 30 June 2016 Assets Total Assets Liabilities Derivatives – interest rate swaps Total Liabilities Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - 5 5 - - - - 5 5 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - - - - - - - - - (i) Valuation techniques used to determine fair values Specific valuation techniques used to value financial instruments include the fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. All of the resulting fair value estimates are included in level 2. Capital Management 5 (a) Risk management The Company’s objectives when managing capital are to (i) safeguard its ability to continue as a going concern so it can continue to provide returns to the shareholders and (ii) maintain an optimal capital structure to reduce the cost of capital. In order to accomplish these goals, the Company has entered into a secured bank loan with regard to its Australia and United Kingdom operations. Under the term of the loans, the borrowers are required to comply with the following financial covenants: (a) Total gearing ratio(TGR) (not greater than 3.00x at 30 June 2017) (actual 1.24x) (b) Interest coverage ratio (at least 3.50x at 30 June 2017)(actual 11.30x) (c) Debt service ratio (at least 1.10x at 30 June 2017)(actual 9.79x) The borrowers were in compliance with these and all other requirements of the loan for all periods presented. The Group’s consolidated TGR on at 30 June 2017 was not applicable since net debt was negative. The Company targets to have a maximum total gearing ratio of less than 2.0x but does not target a minimum TGR. 6 Interests in subsidiaries Set out below details of the subsidiaries held directly and indirectly by the Company: Name of the Subsidiary Country of Incorporation & Principal Place of Business Proportion of Ownership Interests Held by the Company GTN Limited For the year ended 30 June 2017 64 30-June-2017 30-June-2016 64 Australia (3) United States (Delaware) (1) United States (Nevada) (1) Australia (NSW) GTN Holdings Pty Limited (“LuxCo 1”)(2) GTN US Holdco, Inc. (‘US Hold Co”) (6) Global Traffic Network, Inc. (“GTN”) Gridlock Holdings (Australia) Pty Limited (“Aus Hold Co”) (4) The Australia Traffic Network Pty Limited (“ATN”) GTN Management, Inc. (“US Management Co”)(7) United States (Delaware) GTCR Gridlock International (Luxembourg) S.a r.l. (“LuxCo 2”) Canadian Traffic Network ULC (“CTN”) GTN Holdings (UK) Limited (“UK Hold Co”) (5) Australia (NSW) Luxembourg Canada (Alberta) United Kingdom (England & Wales) United Kingdom (England & Wales) United Kingdom (England & Wales) Global Traffic Network Commercial (UK) Limited (“UK Commercial”) Global Traffic Network (UK) Limited (“UKTN”) GTCR Gridlock Holdings (Brazil) S.a r.l. (“LuxCo 3”) Luxembourg BTN Servicos de Informacao do Transito ltda (“BTN”) United States Traffic Network, LLC United States Brazil 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% N/A (1) Resident of Australia for tax purposes but still subject to U.S. taxes. Principal place of business Australia. (2) Formerly GTCR Gridlock Holdings (Luxembourg) S.a r.l. (3) Migrated to Australia from Luxembourg effective July 2016 (4) Formerly GTCR Gridlock Holdings (Australia) Pty Limited (5) Formerly GTCR Gridlock Holdings (UK) Limited (6) Formerly GTCR Gridlock Holdings, Inc. (7) Formerly GTCR Gridlock Management, Inc. 7 Revenue and other income From continuing operations Sales revenue Sale of advertising commercials – net of agency commissions Other income Interest on bank deposits Other 2017 $’000 2016 $’000 213,648 213,648 166,124 166,124 487 - 487 244 12 256 Interest income on long-term prepaid affiliate contract 8,471 3,581 8 Expenses Profit/(Loss) before income tax includes the following specific expenses: Employee benefits expense 51,788 43,747 2017 $’000 2016 $’000 GTN Limited For the year ended 30 June 2017 65 65 Defined contribution superannuation expenses 886 845 Amortisation and depreciation 11,173 19,931 Finance costs of bank loan and line of credit Rental expenses relating to operating leases Foreign exchange (gain) loss on intercompany loans within the group Transaction expenses 5,235 2,373 228 202 8,160 1,803 5,461 14,029 Income tax expense 9 The major components of tax expense and the reconciliation of the expected tax expense based on the statutory tax rate at 30% (2016: 30%) and the reported tax expense in profit or loss are as follows: Income (loss) before tax Tax rate: 30% (2016 30%) Taxes on foreign earnings Tax effect of permanent differences Write-off of DTA due to restructure Foreign tax credits (Recognition of previously unrecognised tax losses)/ unrecognized tax losses Foreign jurisdiction tax, net of federal tax benefit Over-provision for income tax in prior year Effect of tax rate changes Accrual of uncertain tax position Current year losses not recognised Other Income tax expense Expense Current Deferred Income tax expense Other comprehensive income Current Deferred 2017 $’000 12,584 3,775 10,938 374 - (10,610) (5,388) (1,090) (198) (312) - 8,424 466 6,379 2017 $’000 8,039 (1,660) 6,379 - (2) (2) 2016 $’000 (12,236) (3,671) 5,005 213 6,866 (5,198) 1,683 (44) (202) - 86 - 260 4,998 2016 $’000 6,440 (1,442) 4,998 - (431) (431) GTN Limited For the year ended 30 June 2017 66 66 The recognition of deferred tax assets is limited to the extent that the Company anticipates making sufficient taxable profits in the future to absorb the reversal of the underlying timing differences. The Company has an unrecognised deferred tax asset of $5,473 thousand (2016: $10,395 thousand) in relation to the tax losses as management does not anticipate the Company will make sufficient taxable profits in the foreseeable future to utilise this asset. 96++ 10 Auditor’s remuneration Auditor remuneration details are as follows: Audit and other assurance services Auditors of the Company: Audit and review of financial statements Other assurance services Due diligence Remuneration from audit and other assurance services Taxation services Auditors of the Company: Tax compliance Tax advice on mergers and acquisitions Due diligence Remuneration for taxation services 2017 $ 2016 $ 830,000 842,000 123,000 953,000 1,189,000 2,031,000 441,000 49,000 139,000 629,000 244,000 167,000 1,956,000 2,367,000 Total auditor’s remuneration 1,582,000 4,398,000 *Included in the above fees are amounts paid to network firms of PricewaterhouseCoopers Australia. 11 Cash and cash equivalents Cash and cash equivalents consist the following: Cash at bank and in hand: Cash at bank and in hand Short term deposits Cash and cash equivalents 12 Trade and other receivables Trade and other receivables consist of the following: Trade receivables Allowance for doubtful debtors Trade receivables 2017 $’000 97,339 3,388 100,727 2017 $’000 54,363 (685) 53,678 2016 $’000 49,063 - 49,063 2016 $’000 34,370 (745) 33,625 GTN Limited For the year ended 30 June 2017 67 67 All amounts are short-term. The net carrying value of trade receivables is considered a reasonable approximation of fair value. All of the Company’s trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were found to be impaired and impairment losses of $145 thousand (2016: $103 thousand) has been recorded accordingly within selling, general and administrative expenses. The movement in the allowance for doubtful debts can be reconciled as follows: Balance 1 July Amounts written off (uncollectable) Impairment reversal (loss) Balance 30 June Trade receivables aging analysis at 30 June is: Not past due Not more than 3 months More than 3 months Total 2017 $’000 (745) 205 (145) (685) 2017 $’000 37,515 12,352 4,496 54,363 2016 $’000 (672) 30 (103) (745) 2016 $’000 29,934 2,112 2,324 34,370 13 Other assets Other assets reflected on the consolidated statement of financial position consist of the following: Current Prepaid station affiliate contract(i) Option to purchase business Prepaids and other current assets Non-Current Prepaid station affiliate contract(i) Other assets 2017 $’000 3,444 - 1,398 4,842 97,927 317 98,244 2016 $’000 834 268 788 1,890 98,831 268 99,099 (i) ATN made a $100 million prepayment of station compensation to a radio station group in February 2016. This is being accounted for as a financing arrangement whereby ATN will record non-cash interest income over the term of the contractual agreement, based on an estimate of radio station group’s incremental borrowing rate with similar terms (estimated to be 8.5% per annum), which will reduce over time as the prepayment is amortised. ATN will also record station compensation expense over the contract period equal to the $100 million prepayment plus the total non-cash interest income, which will be recognised on a straight line basis over the 30 year contract term. ATN will make annual recurring cash payments commencing on 1 February 2017 of $2.75 million payable on a monthly basis that will be indexed by the lower of CPI and 2.5%. ATN will record an additional station compensation expense over the contract period equal to the total recurring indexed cash payments, which will be recognised straight line over the 30 year contract term. GTN Limited For the year ended 30 June 2017 68 68 14 Goodwill The movements in the net carrying amount of goodwill and trade names (Note 15) are as follows: Gross carrying amount Balance 1 July Trade names 2017 $’000 2016 $’000 12,464 12,663 Acquired goodwill & tradenames Net exchange difference Carrying amount at 30 June - (123) 12,341 - (199) 12,464 Goodwill 2017 $’000 96,258 2,143 (404) 97,997 2016 $’000 97,465 - (1,207) 96,258 Due to the long term and indefinite nature of goodwill and trade names, amortisation expense is not reflected and the Company annually reviews goodwill and trade names for impairment. Due to the retrospective restatement of the financial statements discussed in Note 3.1, the carrying amount of goodwill increased as follows: Gross carrying amount Balance 1 July Net exchange difference Carrying amount at 30 June $’000 Previous 93,885 (1,169) 92,716 Goodwill 2016 $’000 Adjustment 3,580 (38) 3,542 $’000 Restated 97,465 (1,207) 96,258 Impairment testing For the purpose of annual impairment testing, goodwill and trade names are allocated to the following cash- generating units, which are the units expected to benefit from the synergies of the business combinations in which the goodwill and trade names pertain. Australia Canada United Kingdom United States Goodwill and trade names allocation at 30 June 2017 $’000 96,223 3,776 8,279 2,060 110,338 2016 $’000 96,080 3,908 8,734 - 108,722 The recoverable amounts of the cash-generating units were determined based on value-in-use calculations, covering a detailed five-year forecast, followed by an extrapolation of expected cash flows for the units’ remaining useful lives using the growth rates determined by management. The present value of the expected cash flows of each segment is determined by applying a suitable discount rate. GTN Limited For the year ended 30 June 2017 Growth rates and discount rates used in calculations: 69 69 Australia Canada United Kingdom United States Australia Canada United Kingdom United States Discount Rates 2017 Pre-Tax 2016 Pre-Tax 10.8% 15.8% 15.8% 25.0% 10.9% 15.8% 15.8% N/A Average Growth Rates Revenue EBITDA 2017 2016 2017 2016 5% 6% 1% 5% 7% 1% 7% 18% 0% 10% 27% (3%) 32% N/A NM(1) N/A (1) NM – Not meaningful as beginning EBITDA is negative Growth rates The growth rates reflect lower than the historic revenue growth rate of respective cash-generating units in the local currency of the respective units (excluding the newly acquired United States cash generating unit). Expenses are then estimated based on a projected growth rate if fixed in nature or in relation to revenue if variable. The base year for each calculation is the Company’s approved internal budget for the coming fiscal year. The long term growth rate utilized was 1%. Discount rates The discount rates reflect appropriate adjustments relating to market risk and specific risk factors of each unit. Cash flow assumptions The calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period assume a 1% long term growth rate which does not exceed the long-term average growth rates for the industry in which each CGU operates. Significant estimate: Impact of possible changes in key assumptions Management is not currently aware of any other reasonably possible changes in key assumptions that would result in impairment. Intangible assets 15 Detail of the Company’s intangible assets and their carrying amounts are as follows: Gross carrying amount Station contracts $’000 Advertising contracts $’000 Software $’000 Trade names $’000 Total $’000 70 GTN Limited For the year ended 30 June 2017 Balance at 1 July 2016 Acquired intangibles Net exchange differences Balance at 30 June 2017 Amortisation Balance at 1 July 2016 Amortisation Net exchange differences Balance at 30 June 2017 Carrying amount 30 June 2017 Gross carrying amount Balance at 1 July 2015 Net exchange differences Balance at 30 June 2016 Amortisation Balance at 1 July 2015 Amortisation Net exchange differences Balance at 30 June 2016 Carrying amount 30 June 2016 88,106 13,896 (1,402) 100,600 65,346 9,194 (997) 73,543 (29,892) (65,346) (6,754) 297 (36,349) 64,251 89,481 (1,375) 88,106 (23,969) (6,575) 652 (29,892) 58,214 (1,051) 667 (65,730) 7,813 66,360 (1,014) 65,346 (55,303) (10,807) 764 (65,346) - - 12,464 165,916 70 1,055 (41) 1,014 - (201) 3 (198) 816 - - - - - - - - - (123) 24,145 (2,563) 12,341 187,498 - - - - 12,341 12,663 (199) 12,464 - - - - 12,464 (95,238) (8,006) 967 (102,277) 85,221 168,504 (2,588) 165,916 (79,272) (17,382) 1,416 (95,238) 70,678 The Company expects to either renew or replace its advertiser contracts and software and renew its station contracts beyond their expected life. Amortisation expense for the years ended 30 June 2017 and 30 June 2016 was $8,006 thousand and $17,382 thousand respectively. Indefinite life intangible assets (trade names) are also subject to impairment testing as disclosed in Note 14. 16 Property, plant and equipment Details of the Company’s property, plant and equipment and their carrying amount are as follows: Gross carrying amount Balance 1 July 2016 Additions P,P & E of acquired entities Disposals Net exchange differences Balance 30 June 2017 Depreciation and impairment Balance 1 July 2016 Disposals Net exchange differences Depreciation Balance 30 June 2017 Carrying amount 30 June 2017 Helicopters and fixed wing aircraft $’000 Recording, broadcasting and studio equipment $’000 Furniture, equipment and other $’000 15,987 3,187 - - (556) 18,618 (10,053) - 335 (2,812) (12,530) 6,088 697 53 - - (9) 741 (533) - 7 (73) (599) 142 1,561 289 169 - (59) 1,960 (1,174) - 34 (282) (1,422) 538 Total $’000 18,245 3,529 169 - (624) 21,319 (11,760) - 376 (3,167) (14,551) 6,768 Helicopters and fixed wing Recording, broadcasting Furniture, equipment and Total 71 71 GTN Limited For the year ended 30 June 2017 Gross carrying amount Balance 1 July 2015 Additions Disposals Net exchange differences Balance 30 June 2016 Depreciation and impairment Balance 1 July 2015 Disposals Net exchange differences Depreciation Balance 30 June 2016 Carrying amount 30 June 2016 aircraft $’000 and studio equipment $’000 other $’000 13,867 1,948 (185) 357 15,987 (7,967) 185 (93) (2,178) (10,053) 5,934 688 10 - (1) 697 (435) - 1 (99) (533) 164 1,569 312 (15) (305) 1,561 (932) 15 15 (272) (1,174) 387 $’000 16,124 2,270 (200) 51 18,245 (9,334) 200 (77) (2,549) (11,760) 6,485 17 Current and deferred tax assets and liabilities Current taxes can be summarised as follows: Current tax liabilities 2017 $’000 683 2016 $’000 2,320 Deferred taxes arising from temporary differences can be summarised as follows: 1 July 2016 $’000 Recognised in OCI* $’000 Recognised in Profit and Loss $’000 30 June 2017 $’000 Deferred Tax Assets Annual leave accrual Long service leave provision Audit accrual Superannuation accrued Deferred rent Hedging Allowance for doubtful debts Foreign exchange differences Deferred transaction costs Fixed asset depreciation Net tax losses Other 227 350 166 28 21 - 158 - 3,511 - 2,865 4 7,330 Set-off of deferred tax liabilities pursuant to set-off provisions Net deferred tax assets (7,330) - * Other Comprehensive Income - - - - - 2 - - - - - - 2 133 82 (166) (4) - - (59) 6 (961) 355 3,435 (4) 2,817 360 432 - 24 21 2 99 6 2,550 355 6,300 - 10,149 (5,470) 4,679 GTN Limited For the year ended 30 June 2017 72 72 Deferred Tax Liabilities 1 July 2016 $’000 Recognised in OCI* $’000 Recognised in Profit and Loss $’000 30 June 2017 $’000 Intangibles Deemed U.S. branch attribution Prepaid expenses Other Set-off of deferred tax assets pursuant to set-off provisions Net deferred tax liabilities * Other Comprehensive Income 18,203 2,229 670 7 21,109 (7,330) 13,779 - - - - - (90) (241) 1,494 (6) 1,157 18,113 1,988 2,164 1 22,266 (5,470) 16,796 Deferred tax assets consist of: Current Non-current Deferred tax liabilities consist of: Current Non-current 2017 $’000 2016 $’000 647 9,502 10,149 - 22,266 22,266 839 6,491 7,330 - 21,109 21,109 During the year ended 30 June 2017, CTN recognized previously unrecognized deferred tax assets, primarily related to previous years’ net operating losses. This was due to CTN generating taxable income during the period and the expectation that taxable income would continue at least at this amount in the future. Based upon current performance, the net operating losses of CTN would be fully utilized well before the statute of limitations to use the losses, which is 20 years. The balance of the CTN recognized net operating loss at 30 June 2017 is $6,300 thousand. Due to the retrospective restatement of the financial statements discussed in Note 3.1, the carrying amount of deferred tax liabilities increased as follows: Carrying amount at 30 June Deferred tax liabilities 2016 $’000 Previous 10,237 $’000 Adjustment 3,542 $’000 Restated 13,779 18 Trade and other payables Trade and other payables recognised consist of the following: Current Trade payables 2017 $’000 20,906 2016 $’000 17,459 GTN Limited For the year ended 30 June 2017 Accrued payroll expenses Accrued expenses and other liabilities Non-current Due to related parties 7,045 29,662 57,613 66 66 5,356 4,443 27,258 68 68 73 73 All current amounts are short-term. The carrying values of trade payables and other payables are considered to be a reasonable approximation of fair value. Goods and services, sales and value added taxes, which are charged by vendors to operating subsidiaries in Australia, Canada and United Kingdom are included in trade payables until paid. The net amount of goods and services, sales and value added tax payable (after deduction of amounts paid to vendors of the Company) is included as a component of trade and other payables on the consolidated statement of financial position. 19 Provisions Current Long service leave provision Non-Current Long service leave provision Lease restoration 2017 $’000 1,167 1,167 272 137 409 1,576 2016 $’000 855 855 312 140 452 1,307 The current portion of the long service leave provision includes all amounts that are either unconditional or scheduled to become unconditional within 12 months. The entire amount of the unconditional and scheduled to become unconditional long service leave are presented as current since the Company does not have the unconditional right to defer settlement. However, based on past experience the Company does not expect all employees to take the full amount of their long service leave or require payment within the next 12 months. 20 Deferred revenue Deferred revenue 2017 $’000 5,430 5,430 2016 $’000 544 544 Payments received or amounts invoiced in advance are deferred until earned and such amounts are included as a component of deferred revenue. The increase in deferred revenue from the year ended 30 June 2016 to 30 June 2017 was primarily due to the assumption of unfulfilled revenue liabilities as part of the Radiate Media acquisition (Note 34). 21 Financial liabilities Current 2017 $’000 2016 $’000 GTN Limited For the year ended 30 June 2017 Current portion of long term debt Non-current Long term debt, less current portion - - 97,569 97,569 - - 96,806 96,806 74 74 In February 2016, the Company amended its existing bank loan facilities to increase the total borrowing capacity to $155 million primarily to finance the $100 million long term prepayment of a radio station affiliation agreement. Facility A consisted of $15 million revolving line of credit, Facility B a $40 million term loan and Facility C a $100 million bullet loan. Deferred financing costs of $3,735 thousand were incurred and are being recognized in finance costs via the effective interest method over the term of the facilities. Part of the proceeds from the IPO were used to repay Facility A and Facility B. Facility B was automatically terminated as part of the repayment. At 30 June 2017, Facility C is outstanding and Facility A is available but undrawn. A commitment fee of 45% of the applicable margin (currently 2.50%) is incurred on unutilized portion of Facility A. The outstanding loans bear interest at BBSY plus the applicable margin. Assets pledged as security Bank loan facilities are secured by a first ranking charge over all ATN, Aus Hold Co, UK Hold Co, UKTN and UK Commercial assets. 22 Derivatives Interest rate collar contracts (i) Classification of derivatives Derivatives are classified as hedging instruments. 2017 $’000 5 5 2016 $’000 - - On 24 November 2011, as a requirement of the Term Loan, Aus Hold Co entered into fixed rate swap agreements (“Interest Rate Swaps”) under which, effective 10 February 2012, 75% of the Term Loans’ outstanding balance (prior to any voluntary or mandatory prepayments under the excess cash flow sweep provisions of the Term Loan) was fixed at 4.21% until November 11, 2016, the maturity date of the Term Loan. Interest expense related to the Interest Rate Swaps was $0 and $1,256 thousand for the years ended 30 June 2017 and 30 June 2016, respectively, and is a component of finance costs on the consolidated statement of profit or loss and other comprehensive income. The initial notional amounts of the Interest Rate Swaps were each $28,688 thousand and reduced by a portion of the scheduled principal payments of the Term Loans. The notional amount of the Interest Rate Swaps at 30 June 2017 and 2016 was $0. At inception and on a quarterly basis, the Company determined that these Interest Rate Swaps were effective and therefore, recorded the change in fair value of $799 thousand for the year ended 30 June 2016 in other comprehensive income (net of taxes) on the consolidated statement of changes in equity. Since the Interest Rate Swaps have been closed out, all of the recorded change in fair value has been re-classed from other comprehensive income to finance costs in the consolidated statement of profit or loss and other comprehensive income. Effective 9 August 2016, in satisfaction of the interest rate hedging requirements under the Term Loan, the Company’s Aus Hold Co subsidiary entered into interest rate collar agreements for $50 million of the Facility C bullet loan. The interest rate collar agreements expire effective 9 February 2018. The interest rate collar GTN Limited For the year ended 30 June 2017 75 75 agreements set a range of interest rates at which below the floor interest rate (based on one month BBSY) Aus Hold Co pays the counter party the difference between the floor interest rate and actual interest rate on the nominal amount of the interest rate collar agreements whilst the counter party pays Aus Hold Co any difference between the ceiling interest rate and BBSY. The floor interest rate is 1.55% and the ceiling rate is 2.20%. Aus Hold Co incurred no upfront costs to enter into the interest rate collar agreements and through 30 June 2017 neither party has been required to make a payment to the other. At 30 June 2017, the fair value of the interest rate collar was $5 thousand in favour of the counter party. Since the interest rate collar agreements have been determined to be effective at inception and as of 30 June 2017, the expense related to the change in fair value (net of taxes) has been charged to hedging reserve in other comprehensive income. (ii) Fair value measurement For information about the methods and assumptions used in determining the fair value of derivatives refer to Note 4(d). 23 Other liabilities Other 24 Earnings per share Profit/(loss) attributable to shareholders from continuing operations 2017 $’000 77 77 2017 $’000 6,205 Weighted average number of ordinary shares used in calculating basic earnings per share Weighted average number of ordinary shares and potential ordinary share used in calculating diluted earnings per share 213,697 213,697 2016 $’000 72 72 2016 $’000 (17,234) 161,284 161,284 Basic earnings per share (cents per share) Diluted earnings per share (cents per share) $0.03 $0.03 $(0.11) $(0.11) At 30 June 2017 the Company had common stock equivalents of 1,614,844 outstanding in the form of outstanding stock options. However, these common stock equivalents are excluded from the calculation of diluted earnings per share since they are anti-dilutive due to the exercise price of the options exceeding the Company’s share price on 30 June 2017. 25 Shareholders’ equity At beginning of reporting period Preferred equity dividends Shares redeemed Reverse existing capital structure (net) Shares issued upon initial public offering net of offering costs 2017 ‘000’s 2017 $’000 2016 ‘000’s 2016 $’000 Ordinary shares Issued capital Ordinary shares Issued capital 201,212 378,948 158,503 - - - - - - - - - (1,500) - 248,717 25,681 (3,406) 27,314 44,209 80,642 GTN Limited For the year ended 30 June 2017 Additional shares issued net of offering costs At the end of the reporting period 23,509 224,721 66,033 444,981 - 201,212 76 - 378,948 76 Initial Public Offering On 3 June 3 2016, the Company completed an initial public offering of its shares raising (net of capitalized transaction costs) $80.6 million by issuing 44.2 million shares at an issue price of $1.90 per share. Funds received by the Company were offset by $3.4 million in transaction costs (net of tax) incurred in relation to the issue of the new shares in the Company. In addition to the shares issued by the Company, existing shareholders sold 54.7 million shares of the Company’s stock. On completion of the initial public offering, the original shareholders held 102.3 million shares of the Company’s stock. These shares were subject to a voluntary escrow agreements. The escrow agreements for all the escrowed shares not previously released expire on 4:15 PM on 31 August 2017, the date of the public announcement by the Company of its financial results for the year ended 30 June 2017. Shares (‘000’s) Amount ($,000’s) Shares issued by Company 44,209 83,997 Less: Transaction expenses - (3,355) Shares sold by original shareholders 54,706 103,942 Shares held by original shareholders 102,297 194,364 201,212 378,498 Prior to the offering, the Company was a Cayman limited partnership and as part of the restructuring the existing preferred equity was converted to common shares of GTN Limited. The number of ordinary shares outstanding has been adjusted retrospectively back to 1 July 2014 for the corporate restructure described in Note 2.30. The comparative EPS balances have been calculated accordingly. In December 2016, the Company under took a fully underwritten 1 for 9.7 pro rata non-renounceable entitlement offering to its existing shareholders for 20,744 thousand shares at $2.90 per share. The institutional component was completed on 5 December 2016 and the retail component was completed on 20 December 2016. The gross proceeds of $60,157 thousand were offset by costs related to the equity raising of approximately $1,544 thousand and the net proceeds has been recognized as additional issued capital in the consolidated statement of changes in equity. The purpose of the equity raising was to fund the post-acquisition start-up costs of the Company’s entry in the United States and a substantial majority of the funds not expended for that purpose were held in cash at 30 June 2017. GTN Limited For the year ended 30 June 2017 77 77 On 31 March 2017, pursuant to its dividend reinvestment plan, the Company issued 2,765 thousand shares at $2.70 per share. The gross proceeds of $7,465 thousand were offset by costs related to the equity raising of approximately $45 thousand and the net proceeds has been recognized as additional issued capital in the consolidated statement of changes in equity. The dividend per share was $0.056. The purpose of the equity raising was to fund the post-acquisition start-up costs of the Company’s entry in the United States and a substantial majority of the funds not expended for that purpose were held in cash at 30 June 2017. At 30 June 2017 the Company had a franking balance of $2,398 thousand. 26 Equity based compensation As of 30 June 30 2017 and 2016 there were 1,614,844 and 0 outstanding stock option grants outstanding, respectively under the Company’s Long-term Incentive Plan (“the Plan”). Options granted under the Plan vest (subject to performance conditions) on an annual basis over three years (one third after two years and the remaining grant after three years) and expire after five years from the date of the grant. The Plan allows for cashless exercise under which employees surrender shares in lieu of paying the cash exercise price and remitting the required amounts to satisfy tax withholding obligations. The Company does not anticipate incurring cash costs under the Plan (other than de minimus payroll tax withholdings) since it does not currently repurchase shares issued with regards to the Plan. Stock Options Under AASB 2, share-based compensation benefits are provided to employees via the Plan. The maximum term of the options granted under the Plan is five years. The fair value of rights granted under the Plan is recognised as an employee benefits expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employee becomes unconditionally entitled to the rights. The fair value at grant date is independently determined using a number of methods including the Monte- Carlo option pricing model and the Binomial option pricing model which take into account the exercise price, the term of the right, the vesting and performance criteria, the volume weighted average share price at grant date, the expected price volatility of the underlying shares, the expected dividend yield and the risk free interest rate for the term of the right. The fair value of the rights granted is adjusted to reflect the market vesting condition, but excludes the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of rights that are expected to become exercisable. At each reporting date, the Company revises its estimate of the number of rights that are expected to become exercisable. The employee benefits expense recognised each period takes into account the most recent estimate. The impact of the revision to the original estimates is recognised in profit or loss with a corresponding adjustment to equity. Shares related to the exercise of vested options under the Plan are issuable upon payment of the strike price to the Company. The performance criteria for vesting criteria are as follows: Performance Metrics 50% subject to performance condition based on the Company’s relative total shareholder return (TSR) compared to members of the ASX 300 (excluding financials and resources) over the performance period TSR ranking Up to and including the 50th percentile Between the 51st and 75th percentile (inclusive) Percentage to vest 0% Pro rata straight line between 50% and 100% At and above 75th percentile 100% GTN Limited For the year ended 30 June 2017 78 78 50% subject to performance condition based on Company’s earnings per share (EPS) growth (adjusted for one-off items associated with the IPO and amortisation of intangibles and excluding United States Traffic Network, LLC operations, as determined by the Board) over the performance period EPS Compound annual growth rate Less than threshold Between threshold and stretch target (inclusive) Percentage to vest 0% Pro rata straight line between 50% and 100% Above stretch target 100% The inputs used in the measurement of the fair values at grant date were as follows: Grant date Expiration date Share price at grant date 5-day VWAP at grant date Fair value at grant date Exercise price Expected volatility (based on historic and expected volatility of Company’s shares) Expected life Expected dividends Risk-free interest rate (based on government bonds) 30 June 2017 5 April 2017 31 December 2021 $2.74 $2.72 $0.695 $2.74 45.00 % 4.75 years 4.00 % 2.14 % The Company’s outstanding stock options as of 30 June 2017 were as follows: Balance, 30 June 2016 Exercisable, 30 June 2016 Grants Exercised Forfeitures/expirations Balance, 30 June 2017 Exercisable, 30 June 2017 Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Fair Value ,000’s Shares - $ - $ - - 1,614,844 $ 2.74 - $ - $ 1,614,844 $ 2.74 - - $ - - - — $ — $ - — $ 1,122 - — $ - — $ 4.50 years $ 1,122 - — $ Based on the following assumptions, the fair value with regards to all options issued and outstanding as of 30 June 2017 is $1,122 thousand. As of 30 June 2017, there was $990 thousand of unrecognized compensation cost related to non-vested share-based compensation under the Plan. The cost of the unrecognized compensation is expected to be recognized over a weighted average period of 2.8 years on a pro rata basis over the vesting period. This expense is based on an assumption that there will be no non-market forfeitures; this assumption is based on the positions of the grantees of the stock options and the low number of forfeitures under previous long term incentive plans of members of the Company’s group. The expense with regards to stock options for the years ended 30 June 2017 and 2016 is $132 thousand and $0, respectively and is included in selling, general and administrative expenses. The Company recognized $0 of income tax benefit related to share-based compensation for the years ended 30 June 2017 and 2016. GTN Limited For the year ended 30 June 2017 79 79 Previous equity based compensation plan (terminated) The Company terminated its equity based compensation plan as part of the restructuring related to the initial public offering. Information related to the cancelled plans to the extent it impacts the financial statements is provided below. The Partnership refers to GTCR Gridlock Holdings (Cayman), L.P. the predecessor of GTN Limited. The Partnership made available the equivalent of 4,832,730 of Class D LP units for incentive grants to management and certain consultants (“Grantee”) of the Partnership. The Class D LP units vested 20% on each of the first five anniversary dates of the grant and immediately vested upon the sale of the Partnership but otherwise do not have a termination date. Upon separation of employment, the Partnership may repurchase any unvested Class D LP units for the lower of a) the Grantee’s original cost and b) fair market value. The Partnership may repurchase any vested Class D LP units at fair market value, except in cases of termination for cause which such Class D LP units may be repurchased at the same cost as unvested Class D LP units. In the event of a Grantee’s separation of employment, the Partnership has six months to provide notice of its intent to repurchase the Class D LP units, which in certain cases can be extended to up to eight months should not all the partners exercise their option to repurchase the Class D LP units and these Class D LP units are offered to the partners already participating in the purchase. Upon sale of the Partnership, the Partnership has the right to escrow 25% of the proceeds (“Continuing Incentive Amount”) of the Class D LP units to ensure continued service from the Grantee at their current compensation (excluding equity or other incentive based compensation) for one year. Should the Grantee either complete the year of service or be terminated by the acquirer (except for cause) the escrow shall be released to the Grantee otherwise the Continuing Incentive Amount shall be paid pro rata to the Class B LP unit holders. The Class D LP unit agreement also contains a restrictive covenant which limits the Grantees ability to compete with the Partnership (including its subsidiaries) for 48 months following the grant date. Due to the varying tax laws of the countries in which the Partnership’s subsidiaries operate, certain of these incentive grants were structured as phantom equity units, which were intended to mirror the economics of the Class D LP units (“Phantom Equity”). As such, the terms of individual country’s Phantom Equity units vary from country to country in order to best reflect the economics of the Class D LP units. Each Phantom Equity unit represents a contractual right to the economic value of a Class D LP unit. The Phantom Equity units vest 20% on each of the first five anniversary dates of the grant and immediately vests upon the sale of the Partnership but otherwise do not have a termination date. Any unvested Phantom Equity units are forfeited upon separation of employment and all Phantom Equity units (vested and unvested) are forfeited if the Grantee is terminated for cause. In the event of a Grantee’s separation of employment, the Partnership for six months following the event has a cash-out option which allows the Partnership to repurchase the vested Phantom Equity units at the fair market value of a hypothetical Class D LP unit with the same vesting schedule and a participation threshold of USD $0.10 per unit. Upon sale of the Partnership, the Partnership has the right to escrow 25% of the proceeds (“Continuing Incentive Amount”) of the Phantom Units to ensure continued service from the Grantee at their current compensation (excluding equity or other incentive based compensation) for one year. Should the Grantee either complete the year of service or be terminated by the acquirer (except for cause) the escrow shall be released to the Grantee otherwise the Continuing Incentive Amount shall be forfeited. Since the Phantom Equity units provide no rights to acquire equity in the Partnership and it is expected that these Phantom Equity units will be cash-settled, the Phantom Equity GTN Limited For the year ended 30 June 2017 80 80 expense is treated as a liability rather than additional capital. The Phantom Equity unit agreement also contains a restrictive covenant which limits the Grantees ability to compete with the Partnership (including its subsidiaries) for 48 months following the grant date. Noncash compensation expense related to Class D LP units (and Phantom Equity units) is included as a component of selling, general and administrative expenses in the consolidated statements of operations and was $0 thousand and $(170) thousand for the years ended 30 June 2017 and 30 June 2016, respectively. The Partnership did not incur (other than de minimus) cash costs relating to the Class D LP units upon termination of the plan. Class D LP units that are issued, outstanding or available for future issuance is summarised below: Class D LP units available for incentive compensation Class D LP units outstanding Phantom Equity outstanding (Class D LP unit equivalents) Class D LP units available for issuance Class D LP units outstanding, beginning of period Class D LP units issued Class D LP units cancelled Class D LP units outstanding, end of period Phantom Equity outstanding (Class D LP unit equivalents) outstanding, beginning of period Phantom Equity issued (Class D LP unit equivalents) Phantom Equity cancelled (Class D LP unit equivalents) Phantom Equity outstanding (Class D LP unit equivalents) end of period 2017 2016 - - - - 2017 - - - - - - - - - - - - 2016 3,572,018 - (3,572,018) - 840,955 - (840,955) - The fair value of these units was estimated at the date of the grant with an option allocation methodology utilising the Black-Scholes option pricing model. The option allocation methodology determines the fair value of each participating class of equity based on the Partnership’s fair value of total equity and liquidation preferences with the following assumptions: (i) (ii) (iii) (iv) estimated term based on simplified plain-vanilla method (4 years), a historical volatility over a period commensurate with the expected term based on observations of volatility of publicly traded peers on a weekly basis (30.0%), a risk-free interest rate consistent with the expected term and based on the U.S. Treasury yield curve in effect at the time of the grant (0.71%), annual dividend yield on preferred units consistent with the equity based compensation agreements (8% for Class A LP units, 0% for Class B and Class D LP units). The Partnership estimated the fair value of total equity at the date of grant using the market approach. Based on these assumptions, the fair value with regards to all granted Class D LP units as of the grant date is $1,985 thousand. As of 30 June 2017 and 30 June 2016, there was $0 and $0 of total unrecognised compensation cost related to equity based compensation, respectively. GTN Limited For the year ended 30 June 2017 81 81 Based on these assumptions, the fair value with regards to all granted Phantom Equity units as of the grant date is $435 thousand. As of 30 June 2017 and 30 June 2016, there was $0 and $0 of total unrecognised compensation cost related to equity based compensation, respectively. The Company recognised $0 thousand and $(29) thousand of income tax (expense)/benefit related to the terminated equity-based compensation for the years ended 30 June 2017 and 30 June 2016, respectively. Leases 27 The Company has various non-cancellable, long-term operating leases for its facilities, aviation services, broadcast services and office equipment. The facility leases have escalation clauses and provisions for payment of taxes, insurance, maintenance and repair expenses. Total expense under these leases is recognised rateably over the lease terms or based on usage, based on the type of agreement. Renewal options are not included in future minimum payments. Future minimum payments, by year and in the aggregate, under such non-cancellable operating leases with initial or remaining terms of one year or more, consist of the following as of 30 June 2017: 30 June 2017 30 June 2016 Within 1 year $’000 3,435 1,759 Minimum Lease Payments Due After 5 years $’000 1 to 5 years $’000 6,686 2,730 30 95 Total $’000 10,151 4,584 The Company has an obligation to restore certain of its leased premises back to their original condition at the end of their respective leases. As of 30 June 2017 and 30 June 2016, the Company had a liability of $137 thousand and $140 thousand, respectively, accrued which it anticipates to be the amount required to restore the premises at the end of the leases. The Company’s UK Commercial subsidiary outsources the majority of its radio traffic and entertainment news operations pursuant to contracts with unrelated third parties. These expenses are a component of network operations and station compensation expense on the accompanying consolidated statement of profit or loss and other comprehensive income and are recognised over the term of the applicable contracts, which is not materially different than when the services are provided. The minimum future payments under these contracts are as follows: 30 June 2017 30 June 2016 Minimum Payments Due Within 1 year $’000 1 to 5 years $’000 After 5 years $’000 3,569 3,841 1,736 1,868 - - Total $’000 5,305 5,709 The Company generally enters into multiyear contracts with radio and television stations. These contracts call for the provision of various levels of service (including, but not limited to providing professional broadcasters, gathering of information, communications costs and aviation services) and, in some cases, cash compensation or reimbursement of expenses. Station compensation and reimbursement is a component of network operations and station compensation expenses on the accompanying consolidated statement of profit or loss and other comprehensive income and is recognised over the terms of the contracts, which is not GTN Limited For the year ended 30 June 2017 82 82 materially different than when the services are performed. Contractual station commitments consist of the following: 30 June 2017 30 June 2016 Minimum Payments Due Within 1 year $’000 1 to 5 years $’000 After 5 years $’000 134,281 26,668 265,266 16,993 37,355 40,105 Total $’000 436,902 83,766 The Company had no contingent liabilities at 30 June 2017. 28 Reconciliation of cash flows from operating activities Details of the reconciliation of cash flows from operating activities are listed in the following table: Cash flows from operating activities Profit (loss) for the period Adjustments for: Allowance for doubtful accounts Equity based compensation expenses Amortisation of deferred borrowing costs Fair value movement on derivatives Depreciation and amortisation Foreign currency loss Non-cash station compensation from long-term prepaid affiliate contract Interest income on long-term prepaid affiliate contract Interest expense from amortisation of original issue discount Net changes in working capital: Change in trade and other receivables Change in other assets Change in deferred tax assets Change in trade and other payables Change in deferred revenue Change in current tax liabilities Change in provisions Change in deferred tax liabilities Change in other liabilities Net exchange gain/(loss) Net cash from operating activities 2017 $’000 2016 $’000 6,205 (17,234) (60) 132 51 5 11,173 228 11,996 (8,471) 712 (6,010) (6,058) (4,679) 19,342 (2,080) (1,637) 269 3,017 5 346 24,486 73 (170) 149 (1,229) 19,931 5,461 5,476 (3,581) 2,070 (4,850) 190 2,099 (613) 338 1,242 122 (4,558) (707) (143) 4,066 29 Related party transactions The Company has entered into a professional services agreement with GTCR Management X LP, an affiliate of the majority partnership owners, to provide management services. For the years ended 30 June 2017 and 30 June 2016 the Company incurred $0 and $635 thousand of expense, which is included as a component of selling, general and administrative expenses in the consolidated statement of profit or loss and other comprehensive income, respectively. The management agreement was terminated in June 2016. As of 30 June 2017 and 30 June 2016, the Company had a liability of $66 thousand and $68 thousand to entities affiliated with the majority shareholders. GTN Limited For the year ended 30 June 2017 83 83 30 Transactions with Key Management Personnel Key Management Personnel remuneration includes the following expenses: Total short term employee benefits Total equity based compensation Total remuneration 2017 $ 2,120,079 131,862 2,251,941 2016 $ 9,646,384 2,272 9,648,656 The Key Management Personnel are all paid in USD so a portion of the change in compensation from the year ended 30 June 2016 to the year ended 30 June 2017 was due to changes in foreign exchange rates between AUD and USD. 31 Parent Entity information The below information relates to GTN Limited (the “Parent Entity”) which was incorporated on 2 July 2015. Statement of financial position Current assets Total assets Current liabilities Total liabilities Net assets Share capital Accumulated losses Reserves Total equity Statement of profit or loss and Other Comprehensive Income Profit (loss) for the year Other comprehensive income (loss) Total comprehensive income (loss) Guarantees entered into by the parent entity 2017 $’000 50,480 435,926 604 894 435,032 444,981 (9,949) - 435,032 11,986 - 11,986 2016 $’000 27,544 370,688 1,245 1,245 369,443 378,948 (9,505) - 369,443 (9,505) - (9,505) In addition, there are cross guarantees given by GTN Limited (as holding entity), GTCR Gridlock Holdings (Australia) Pty Limited (“Aus Hold Co”), The Australia Traffic Network Pty Limited (“ATN”), GTCR Gridlock Holdings, Inc. (‘US Hold Co”) and Global Traffic Network, Inc. (“GTN”) as described in Note 32. No liability was recognised by the parent entity or the group in relation to the above guarantees, as the fair value of the guarantees is immaterial. (b) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2017 or 30 June 2016. For information about guarantees given by the parent entity, please see above. GTN Limited For the year ended 30 June 2017 32 Deed of cross guarantee 84 84 GTN Limited (as holding entity), Gridlock Holdings (Australia) Pty Limited (“Aus Hold Co”), The Australia Traffic Network Pty Limited (“ATN”), GTN US Holdco, Inc. (‘US Hold Co”) and Global Traffic Network, Inc. (“GTN”) are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and directors’ report under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 issued by the Australian Securities and Investments Commission. The above companies represent a ‘closed group’ for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by GTN Limited, they also represent the ‘extended closed group’. (a) Consolidated statement of profit or loss and other comprehensive income, summary of movements in consolidated retained earnings and consolidated statement of financial position Set out below is a consolidated statement of profit or loss and other comprehensive income for the years ended 30 June 2017 and 2016 of the closed group consisting of the above companies. Consolidated statement of profit or loss and other comprehensive income Revenue Other income Interest income on long-term prepaid affiliate contract Network operations and station compensation expenses Selling, general and administrative expenses Transaction expenses Finance costs Depreciation and amortisation Foreign currency transaction loss Profit (loss) before income tax Income tax expense Profit (loss) for the year Other comprehensive income for the year, net of income tax Unrealised (loss) gain on interest rate swaps Total other comprehensive income for the year 2017 $’000 98,692 474 8,471 (48,345) (19,690) - (5,235) (5,434) (194) 28,739 (10,528) 18,211 (5) (5) 2016 $’000 89,813 238 3,581 (45,870) (16,511) (13,983) (8,160) (13,608) (3,593) (8,093) (4,541) (12,634) 799 799 Total comprehensive profit (loss) for the year 18,206 (11,835) Summary of movement in consolidated retained earnings Accumulated losses at the beginning of the financial year Profit (loss) for the period Dividends Accumulated losses at the end of the financial year (46,735) 18,211 (11,450) (39,974) (34,101) (12,634) - (46,735) Set out below is a consolidated balance sheet as at 30 June 2017 and 2016 of the closed group consisting of the above companies. Consolidated statement of financial position 2017 $’000 Restated* 2016 $’000 Assets Current 85 85 GTN Limited For the year ended 30 June 2017 Cash and cash equivalents Trade and other receivables Other current assets Current assets Non-current Property, plant and equipment Intangible assets Goodwill Investment in subsidiaries Other assets Non-current assets Total assets Liabilities Current Trade and other payables Deferred revenue Current tax liabilities Provisions Current liabilities Non-current Financial liabilities Deferred tax liabilities Derivatives Other liabilities Provisions Total non-current Total liabilities Net assets Equity Share capital Reserves Accumulated losses Total equity 78,369 19,472 1,169 99,010 1,197 49,332 86,660 108,604 107,946 353,739 452,749 14,839 59 303 1,167 16,368 97,569 15,514 5 33 367 113,488 129,856 322,893 444,981 (82,114) (39,974) 322,893 38,498 18,542 1,054 58,094 1,091 54,152 86,519 70,593 108,280 320,635 378,729 12,966 89 2,121 855 16,031 96,806 11,816 - 53 407 109,082 125,113 253,616 378,948 (78,597) (46,735) 253,616 *Goodwill and deferred tax liabilities were restated in a manner consistent with the Company’s consolidated statement of financial position discussed in Note 3.1. 33 Segment information The Company’s chief operating decision maker, its chief executive officer analyses the Company’s performance by geographic area and has identified five reportable segments: Australia, Brazil, Canada, United Kingdom and United States. The segments’ revenues are as follows: Australia United Kingdom Canada Brazil United States 2017 $’000 2016 $’000 98,692 40,869 28,014 10,962 35,111 89,814 47,542 23,601 5,167 - 213,648 166,124 The chief operating decision maker tracks performance primarily by Adjusted EBITDA which is defined as EBITDA adjusted for any foreign exchange profit or loss, interest income on the long-term prepaid affiliate agreement, transaction costs and other unusual non-recurring items. GTN Limited For the year ended 30 June 2017 86 86 Adjusted EBITDA by Segments Australia United Kingdom Canada Brazil United States Other Adjusted EBITDA Foreign exchange loss Transaction costs Less: Interest income on long-term prepaid affiliate contract EBITDA 2017 $’000 2016 $’000 41,602 3,914 5,194 1,279 (19,922) (3,132) 28,935 (228) (202) (8,471) 20,034 31,285 4,302 2,263 (1,315) - (1,434) 35,101 (5,461) (14,029) (3,581) 12,030 Depreciation and amortization Interest income on long-term prepaid affiliate contract Financing costs net of interest income Profit/(loss) before taxes and discontinued operations (11,173) (19,931) 8,471 (4,748) 3,581 (7,916) 12,584 (12,236) Segment assets and liabilities are classified by their physical location. Segment assets Total Assets: Australia United Kingdom Canada Brazil United States Total segment assets Unallocated: Deferred tax assets Intercompany eliminations Others Total assets Segment liabilities Total liabilities Australia United Kingdom Canada Brazil 2017 $’000 2016 $’000 283,794 31,109 22,778 5,686 46,944 390,311 271,268 30,395 23,852 4,488 - 330,003 4,673 (926) 58,098 - (1,486) 28,581 452,156 357,098 59,811 6,390 3,575 1,822 53,931 6,701 6,041 1,562 GTN Limited For the year ended 30 June 2017 87 87 United States Total segment liabilities Unallocated: Deferred tax liabilities Borrowings Derivatives Intercompany eliminations Others Total liabilities 68,494 140,092 - 68,235 16,796 97,569 5 (76,951) 2,304 179,815 13,779 96,806 - (50,970) 14,304 142,154 *Goodwill and deferred tax liabilities were restated in a manner consistent with the Company’s consolidated statement of financial position discussed in Note 3.1 34 Business Combination On 5 December 2016, the Company’s United States Traffic Network LLC (“USTN”) subsidiary acquired substantially all the assets of Radiate Media LLC (“Radiate”), a company that provides traffic reporting services and sells advertising on radio and television stations for consideration of approximately $18,067 thousand USD ($24,393 thousand AUD). The acquisition is expected to be the Company’s entry into the United States market as the Radiate business is similar to that of the Group’s existing operations. Details of the purchase consideration, the net assets acquired and goodwill are as follows: Purchase consideration Cash paid Option payments previously paid Purchase price hold-back Total purchase consideration $’000 22,027 338 2,028 24,393 The preliminary assets and liabilities recognized as a result of the acquisition are as follows (purchase accounting has not been completed as of filing of report). In line with AASB3, the above fair values of balances associated with the acquisition are provisional at the reporting date. The fair value of the assets and liabilities recognised will be adjusted to reflect new information during the measurement period, and this will not exceed one year from acquisition date: Accounts receivable Fair value $’000 13,983 88 88 GTN Limited For the year ended 30 June 2017 Prepaids Property, plant and equipment Software Station contracts Advertiser contracts Payables and accrued expenses Deferred revenue Net identifiable assets acquired Add: goodwill 469 169 1,055 13,896 9,194 (9,550) (6,966) 22,250 2,143 24,393 The goodwill is attributable to Radiate’s position as the second largest traffic report service in the United States, which is the largest advertising market in the world. Goodwill related to the acquisition has been allocated to the United States segment. The goodwill is expected to be deductible over fifteen years for United States tax purposes. The fair value of the station contracts and advertiser contracts of $23,090 thousand is provisional pending completion of the final valuation of those assets. The station and advertiser contracts are expected to be deductible for United States tax purposes over fifteen years which will differ from the amortization expense recognition for financial reporting. No deferred tax has been recognized related to the acquisition at this date. Acquisition-related costs Acquisition related costs of $202 thousand are included in transaction costs in the consolidated statement of profit or loss and other comprehensive income. Contingent consideration There is no contingent consideration. However, the Company has held back $2,028 thousand from the purchase consideration for post-closing liabilities not identified as of closing. This amount (adjusted for identified differences in the preliminary purchase consideration) is included as a component of trade and other payables in the accompanying consolidated statement of financial position. GTN Limited For the year ended 30 June 2017 Acquired receivables 89 89 The acquired receivables fair value is $13,983 thousand which consists of gross accounts receivable of $14,393 thousand and an allowance for uncollectible accounts of $410 thousand. The fair value will be adjusted to the amounts actually received via the holdback mechanism described above. Revenue and loss contribution The acquired business contributed revenue of $35,111 thousand and net loss of $21,967 thousand to the group for the period from 5 December 2016 to 30 June 2017. On a pro forma basis, if the acquisition has occurred on 1 July 2016, preliminary consolidated revenue and consolidated loss after tax for the year ended 30 June 2017 would have been $57,844 thousand and $24,112 thousand, respectively. 35 Events subsequent to the reporting period No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the group, the results of those operations, or the state of affairs of the group in future financial years. GTN Limited For the year ended 30 June 2017 Directors’ declaration In the directors’ opinion: 90 90 (a) The financial statements, set out on pages 35 to 89 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date, and (b) (c) 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 at the date of this declaration, there are reasonable grounds to believe that the members of the closed group identified in Note 32 will be able to meet any obligations or liabilities to which they are, or may become, subject to virtue of the deed of cross guarantee described in Note 32. Note 2.1 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001. Robert Loewenthal Chairman Dated, this 31th day of August 2017 91 Independent auditor’s report To the shareholders of GTN Limited Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of GTN Limited (the Company or GTN) and its controlled entities (together, the Group) is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its financial performance for the year then ended b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group’s financial report comprises:      the Consolidated Statement of Financial Position as at 30 June 2017 the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year then ended the Consolidated Statement of Changes in Equity for the year then ended the Consolidated Statement of Cash Flows for the year then ended the Notes to the Consolidated Financial Statements, which include a summary of significant accounting policies  the Directors’ Declaration Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. PricewaterhouseCoopers, ABN 52 780 433 757 One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 92 Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. GTN is the largest supplier of traffic information reports to radio stations in Australia, Canada, the United Kingdom and Brazil. In December 2016, the Group established its presence in the United States through the acquisition of Radiate Media, which is one of the leading short form advertising platforms in the United States. In exchange for providing these reports, GTN receives commercial advertising spots adjacent to traffic, news and information reports. These spots are bundled together by GTN and sold to Advertisers. The financial report is a consolidation of these 5 geographical operating segments. Materiality  For the purpose of our audit of GTN Limited (the Company or GTN) and its controlled entities (together, the Group) we used overall quantitative materiality of $629,000, which represents 5% of the Group’s profit before tax.  We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole.  We chose Group profit before tax because, in our view, it is the metric against which the performance of the Group is most commonly measured and is a generally accepted benchmark.  We selected 5% based on our professional judgement noting that it is also within the range of commonly acceptable profit related thresholds. Audit scope  Our audit focused on where the directors made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events.  We conducted full scope audit work over Australia, the United States, Canada and the United Kingdom operating segments. We engaged auditors from another PwC network firm to conduct a full scope audit over the United Kingdom. Audit instructions were issued by our Group audit team from the PwC Australia firm to the component audit team. On-going dialogue was held throughout the year between the Group audit team and the component audit team including consideration of how component audits are planned and executed.  Where the directors made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events, we focused our audit work on these areas. Key audit matters  Amongst other relevant topics, we communicated the following key audit matters to the Audit and Risk 93 Committee: – Recoverability of long-term prepaid affiliate contract – Impairment of goodwill and indefinite life intangible assets – Completeness, Valuation and Accuracy of Income taxes – Fair value assessment on acquisition of Radiate  They are further described in the Key audit matters section of our report Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. Key audit matter How our audit addressed the key audit matter Recoverability of long-term prepaid affiliate contract Refer to  Note 2.24 Long-term prepaid affiliate contract  Note 2.26 Significant management judgement in applying accounting policies and estimation uncertainty compensation This is a key audit matter because of the magnitude of the contract prepayment ($100m) and because the assessment of recoverability involves significant judgement. The contract is to provide a service over 30 years which has been paid for upfront. Management’s assessment of recoverability of the asset held includes consideration of factors including the number of advertising spots received, market conditions for the advertising spots, ratings of the stations, counter party risk (i.e. the financial viability of the provider of the advertising spots and its ability to continue to meet its obligations). We assessed the terms of the contract in light of the Group’s accounting policies. We evaluated management’s assessment of recoverability of the asset held by assessing internal and external information including:  average sell-out rates of advertising spots provided by the Affiliate;  meeting minutes of the Board and key management personnel;   information about the Affiliate such as ASX market announcements, latest publically available financial information; information about the media industry was considered such as ‘IBISWorld Industry Report J5610 - Radio Broadcasting in Australia’ and the 'PwC Australia Australian Entertainment and Media Outlook 2017 - 2021. We assessed the disclosure for compliance with the Group’s accounting policies. Impairment of goodwill and indefinite life intangible assets Refer to We performed the following procedures:  Note 2.9 Goodwill  Note 2.13 Impairment testing of goodwill, other intangible assets and property, plant and equipment  Note 2.26 Significant management judgement in applying accounting policies and estimation uncertainty The goodwill and trade names balance is $110.3 million. This is a key audit matter because of the magnitude of the balance and the judgement involved in the assessment of potential impairment as at 30 June 2017.    evaluated and challenged management’s cash flow forecasts and the process by which they were developed. tested that the forecast cash flows used in the impairment model were consistent with the most up- to-date budgets and business plans formally approved by the Board, including the publicly released company Prospectus. compared previous forecasts to actual results, to assess the performance of the business and the accuracy of management’s forecasting. Actual results Key audit matter The Group’s impairment assessment includes assumptions in the forecasted future results of each CGU including terminal growth rate, revenue forecasts and the discount rates applied to future cash flow forecasts. Valuation, Completeness and Accuracy of Income taxes Refer to  Note 2.15 Income Taxes  Note 2.26 Significant management judgement in applying accounting policies and estimation uncertainty We consider this to be a key audit matter due to the multiple tax jurisdictions in which the Group operates and the judgement involved in recognition of deferred tax balances. How our audit addressed the key audit matter for the current year were found to be in line with forecast. 94 We challenged the following assumptions in the forecast using internal valuation experts,:  terminal growth rate - by comparing it to economic and industry forecasts; and discount rate - by assessing the costs of capital for the Group against comparable organisations, as well as considering territory specific factors.  We tested the sensitivity calculations by varying the assumptions. We determined the impairment testing result was most sensitive to assumptions for revenue and EBITDA growth rates and discount rates. We worked with our internal taxation experts from both Australia and another PwC network firm in the audit of balances relating to the Group’s consolidated tax position. This included:    assessment of uncertain tax positions and challenge of management’s position with consideration being given to applicable tax law, relevant case law and alternate positions. evaluation of management’s assessment of the recoverability of deferred tax balances and assessment of indicators of impairment or non-recoverability based on consideration of factors such as taxable income status. testing the accuracy of deferred tax balances and income tax expense recognised by management in the Consolidated Statement of Profit or Loss and Other Comprehensive Income and Consolidated Statement of Financial Position. Fair value assessment on acquisition of Radiate Refer to We performed the following audit procedures to assess the fair value assessment performed by management:  Note 34 Business Combinations  Note 2.26 Significant management judgement in applying accounting policies and estimation uncertainty During the year, the Group exercised the option to acquire substantially all of the assets of Radiate Media LLC. The acquisition is a key audit matter because of the magnitude of the balances acquired and the determination of fair values of the assets and liabilities acquired and allocation of the purchase price involves judgement.  We read purchase agreements relating to the acquisition and due diligence reports in relation to the acquisition to consider the appropriateness and completeness of managements accounting treatments in light of the terms and conditions of the agreements. For the valuation of advertising relationships and station contracts we performed the following procedures with the assistance of internal valuation experts:  assessed the competence of management’s experts by considering their qualifications and experience assessed the valuation methodology used to value the intangible assets assessed the useful economic lives of the assets assessed the discount rate and revenue and EBITDA forecasts used in the valuation    95 Key audit matter How our audit addressed the key audit matter We assessed the disclosure of the business combination for compliance with the Group’s accounting policies. Other information The directors are responsible for the other information. The other information comprises the Chairman and Chief Executive Officer’s Letter, “About GTN”, Corporate Governance, Director’s Report, Shareholder Information and Corporate Directory included in the Company’s annual report for the year ended 30 June 2017 but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report. 96 Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 22 to 33 of the directors’ report for the year ended 30 June 2017. In our opinion, the remuneration report of GTN Limited, for the year ended 30 June 2017 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers M W Chiang Partner Sydney 31 August 2017 SHAREHOLDER INFORMATION AS AT 1 August 2017 Number of security holders and securities on issue Quoted equity securities GTN has 224,720,643 fully paid ordinary shares on issue which are held by 328 shareholders. Unquoted equity securities GTN has no unquoted equity securities. Voting rights Quoted equity securities The voting rights attached to fully paid ordinary shares are that on a show of hands, every member present, in person or proxy, has one vote and upon a poll, each share shall have one vote. Distribution of security holders Quoted equity securities Fully paid ordinary shares Number of shareholders 66 124 38 73 27 Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 – and 10,001 100,000 100,001 over Total Number of shares % 28,792 223,742 307,794 1,892,996 222,267,319 20.12 37.80 11.59 22.26 8.23 100 328 224,720,643 97 Unmarketable parcel of shares The number of shareholders holding less than a marketable parcel of fully paid ordinary shares is 25. 227 fully paid ordinary shares comprise a marketable parcel at GTN’s closing share price of $2.21 as at 1 August 2017. Substantial shareholders The number of securities held by substantial shareholders and their associates as notified to ASX are set out below: Fully paid ordinary shares Name Number of Shares 102,296,985* 21,208,710 Current Interest 50.80% 9.44% Notice Date 06/06/2016 08/06/2017 GTCR Funds Smallco Investment Manager Limited JCP Investment Partners Ltd Ausbil Investment Management Limited Renaissance Smaller Companies Pty Ltd Devon Funds Management Limited *includes 3,426,717 shares held on escrow by William Louis Yde III 18,086,987 13,226,174 8.05% 6.57% 12,764,407 11,257,094 5.75% 5.59% 24/04/2017 08/09/2016 19/12/2016 23/06/2016 Twenty largest shareholders Fully paid ordinary shares Details of the 20 largest shareholders of quoted securities by registered shareholding are: Name 1 2 3 4 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED Number of shares %IC 109,063,335 48.53 32,637,856 17,446,668 16,147,579 14.52 7.76 7.19 98 5 6 7 8 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BNP PARIBAS NOMS (NZ) LTD UBS NOMINEES PTY LTD BNP PARIBAS NOMINEES PTY LTD 9 MR WILLIAM L YDE III 10 MIRRABOOKA INVESTMENTS LIMITED 11 CITICORP NOMINEES PTY LIMITED 12 ANACACIA PTY LIMITED (WATTLE FUND) 13 UBS NOMINEES PTY LTD 14 CS FOURTH NOMINEES PTY LIMITED 15 MRS EVA XIRADIS 16 BNP PARIBAS NOMS PTY LTD 17 18 BRISPOT NOMINEES PTY LTD RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED 19 COFLINK PTY LIMITED 20 WILLRYAN PTY LIMITED Total Balance of register Grand total Voluntary escrow Escrow period – GTCR Funds 13,082,931 12,699,779 6,737,742 4,509,028 3,603,408 790,625 727,033 697,136 683,853 511,357 448,959 412,899 390,025 5.82 5.65 3.00 2.01 1.60 0.35 0.32 0.31 0.30 0.23 0.20 0.18 0.17 290,000 0.13 241,632 200,000 221,321,845 3,398,798 0.11 0.09 98.49 1.51 224,720,643 100.00 25% of Shares held by GTCR Funds (as defined in GTN’s Prospectus dated 12 May 2016) held in voluntary escrow commencing on the date on which completion of the Offer occurred were released from escrow on 13 March 2017. The remaining 75% of Shares held by GTCR Funds will be released from escrow after 4.15pm on the date of the public announcement by GTN of its financial results for FY2017. No shares will remain in escrow after this release. Escrow period – William Yde III All Shares held in voluntary escrow commencing on the date on which completion of the Offer occurred by William Yde III will be released from escrow after 4.15pm on the date of the public announcement by GTN of its financial results for FY2017. 99 No shares will remain in escrow after this release. On-market buy-back There is no current on-market buy-back. Use of Funds In accordance with Listing Rule 4.10.19, the Group states that it has used the cash and assets for the whole reporting period in a form readily convertible to cash that it had at the time of admission in a way consistent with its business objectives. 100 Corporate Directory Directors Robert Loewenthal - Independent Non-Executive Chairman William Yde III - Chief Executive Officer and Managing Director Mark Anderson - Non-Executive Director David Ryan AO – Independent Non-Executive Director Company secretaries Anna Sandham Patrick Quinlan Registered office Share register Auditor Level 42, Northpoint 100 Miller Street North Sydney NSW 2060 Telephone: +61 2 9955 3500 Link Market Services Limited Level 12 680 George Street Sydney, NSW 2000 Share registry telephone: +61 1300 554 474 PricewaterhouseCoopers One International Towers Sydney Watermans Quay, Barangaroo GPO Box 2650 Sydney, NSW 2001 Stock exchange listing GTN Limited shares are listed on the Australian Securities Exchange (ASX code: GTN) Website www.gtnetwork.com.au ABN 38 606 841 801 101 

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