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CriteoResults for Announcement to the Market GTN Limited ABN 38 606 841 801 Year ended 30 June 2020 (Previous corresponding period: Year ended 30 June 2019) $’000 Revenue from ordinary activities 13.0% to 160,940 Profit from ordinary activities after tax attributable to members down down 98.0% to Net profit for the period attributable to members down 98.0% to 319 319 Dividends/distributions Amount per security Franked amount per security Final dividend Interim dividend NTA Backing N/A $0.014 N/A 70% 2020 2019 Net tangible asset backing per ordinary share Net tangible assets consist of net assets less goodwill and intangible assets without any adjustment for deferred tax liabilities related to purchased intangible assets. $0.36 $0.39 GTN Limited ABN 38 606 841 801 Annual Report 2020 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 3 6 7 21 30 31 37 80 81 85 88 CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S LETTER Dear Shareholders, On behalf of the Board of Directors, we are pleased to present GTN Limited’s (“GTN” or the “Company”) annual report for fiscal year ended 30 June 2020. The results of the year were severely impacted by economic downturn from the COVID-19 pandemic. However, revenue for the first three fiscal quarters of the year was up 2% despite several million dollars of COVID related cancellations that occurred during the last two weeks of March. Management believes that, absent the crisis, the year would have been one of solid revenue growth. GTN reported annual net revenues of $160.9 million which was down 13% when compared with the previous year. Revenue for the fourth quarter of fiscal 2020 was down 57% compared to last year, leading to the revenue decline for the year. The revenue decline caused a sharp 62% decrease in Adjusted EBITDA, which decreased to $14.2 million for the fiscal year. While operating expenses decreased by $0.8 million, the Group’s costs are primarily fixed in the short term, especially station compensation which is often contracted for multiple years. While the drop in revenue and Adjusted EBITDA was disappointing, there were a number of positive developments that occurred in the nine months leading up to the COVID-19 pandemic: ● BTN opened the Curitiba market during FY20. Although the added costs contributed to the drop in EBITDA for the year, we believe that increasing our national footprint in Brazil will increase revenue in the future. This growth strategy was paying off as Brazil was our fastest growing market up to March 2020, achieving nine consecutive months of record revenue when compared to the same month in previous years. ● After a slow start to the year, CTN, under new local management, was delivering some of the largest year on year revenue months in its history up to March 2020. ● For the first time in the Company’s history, Australia accounted for less than half of the Group’s consolidated revenue. We believe that the geographic diversification of the Group’s revenue and earnings is a positive sign for the future. ● During the past fiscal year, we returned $16.7million to shareholders, $10.2 million in the form of dividends (FY19 final and FY20 interim dividends) and $6.5 million from the share buyback, retiring 8.7 million shares. Our strategy to deal with the current difficult environment and put the Company in a position to take advantage of expected stronger markets in the future is to protect our two most valuable assets, radio and television network contracts and our seasoned sales and management teams. We have put in place measures to conserve cash and eliminate expenses where possible. In certain instances, we have had to make tough decisions, including a reduction in entry level sales staff and the termination of our Nine Radio affiliate contract. These cost cuts, combined with our strong balance sheet, enables our business to be resilient during this downturn. The Company refinanced its bank facility in May 2020, which was due to expire in February 2021. The new facility has no scheduled principal repayments and the due date has been extended to 30 September 2023. However, the revised facility limits distributions (including dividends and share buybacks) to 100% of NPATA, which will limit our ability to pay dividends or purchase shares until our business rebounds. As part of the refinance our lead lender took over the entire facility, which was previously shared among two lenders. We believe this commitment from our lead lender is a strong sign of confidence in the Company. At 30 June 2020, our cash balance was $57.0 million and our net debt (including lease liabilities recognized under AASB 16) was only $7.4 million. Our total gearing ratio of net debt to Adjusted EBITDA was 0.52x as of 30 June 2020. The Board has decided against declaring a final 1 dividend for FY20 in order to further conserve cash. While the share buyback is still in place, we have elected to conserve cash rather than repurchase shares while our business is struggling in the current economic climate. These decisions, along with our strong balance sheet and low leverage will allow the Company to navigate through these difficult global advertising conditions. We are confident that we have ample liquidity, even if the recovery is a slow one extending into calendar year 2021. It would be remiss not to point out the outstanding efforts of our operations and IT employees around the globe. Once it became clear that the COVID-19 pandemic would make it impossible to continue to work from our traditional offices, they made the transition to working remotely from home seamless. We look forward to the challenges of FY21. We have maintained a strong balance sheet and we have retained our excellent management team. These factors coupled with strategic cost cuts, positions us favourably to capitalize on the expected advertising recovery. William L. Yde III Managing Director and Chief Executive Officer Robert Loewenthal Chairman 2 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, the United Kingdom and Brazil. GTN is the largest supplier of traffic information reports to radio stations in its operating geographies. In exchange for providing these and other reports and also cash compensation in most instances, 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 most 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 and Brazil, four 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. In FY2020, 96% of GTN’s Revenues were generated through the sale of radio advertising spots and 4% were generated through the sale of television advertising spots. Overview of GTN’s divisions Country Australia Canada Kingdom Brazil United Population (millions) (years) 25.6 23 37.8 15 67.9 212.7 11 9 GTN years of operation FY 2020 revenue (1) % of FY 2020 revenue (1) GTN audience (millions) 79.0 27.0 42.6 12.4 (%) 49% 17% 26% 8% (#) 9.9m radio (2) 16.4m radio 27.3m radio 23.6m radio 5.5 m TV 10.8m TV 3 Number of affiliates FY 2020 spots inventory (#) 145 radio 117 radio 227 radio 90 radio 13 TV 6 TV (‘000’s) 1,077 686 19,448(3) 418 (1) Amounts may not add due to rounding (2) Includes 823 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 8 million persons. (3) The UK market measures inventory and units sold based on impacts instead of spots. An impact is a thousand listener impressions. 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 obtains 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. 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 most 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. 4 GTN value proposition Revenue model GTN primarily generates revenue by selling schedules of advertising spots to 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, the United Kingdom and Brazil. This enables advertisers to communicate with a large number and broad demographic of potential consumers. • 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. 5 • 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 station Affiliates. • 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 customizes 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 most 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. 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, 4th 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 2020 Corporate Governance Statement on 27 August 2020. 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 2020 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 William Yde III (“Bill”) Managing Director and Chief Executive Officer 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 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. Bill Yde has over 40 years of experience in the radio and media industry. Bill co-founded The Australia Traffic Network (“ATN”) in 1997, later co-founding Global Traffic Network, Inc. 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 had previously owned and operated radio and television stations in major markets in the United States. Bill holds a Bachelor of Arts degree in Accounting from Indiana University and is a Certified Public Accountant. 7 David Ryan AO Independent Non- Executive Director Chairman of the Audit and Risk Committee Member of the Nomination and Remuneration Committee Corinna Keller Independent Non- Executive Director Member of the Audit and Risk Committee and Nomination and Remuneration Committee Anna Sandham Joint Company Secretary David Ryan AO has over 40 years of experience in commercial banking, investment banking and operational business management. David is also currently Chairman of Visit Sunshine Coast Limited (formerly Sunshine Coast Destination Limited), a director of First American Title Insurance Company of Australia Pty Ltd, a director of First Mortgage Services Pty Ltd, a director of Sunshine Coast Airport Pty Limited and Board member of the Sunshine Coast Events Board. David has previously held positions as a non-executive director of GetSwift Limited from April 2018 to April 2019, a non-executive director of Lendlease Corporation Limited from December 2004 until his retirement in November 2017, 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 retired 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. Corinna Keller is Vice President of Advertising Sales for the Americas for CNN International Commercial (a WarnerMedia company), which she joined in 2016. Corinna oversees the pan-regional ad sales business for CNN International, CNN en Español, CNN.com/international and CNNEspañol.com for Latin America and clients based in the U.S. and Canada who want to target international viewers. From 1999 to 2015, Corinna was with Viacom in various roles, her last as Vice President, International Marketing Partnerships and Pan-regional Ad Sales, running the pan-regional advertising business for Nickelodeon, MTV, Comedy Central, Paramount Channel and VH1, and a diverse digital portfolio. She held a number of senior positions with Viacom in both the U.S. and Mexico and managed client relationships with Fortune 500 companies across the U.S., Latin America, Europe and Asia. Prior to Viacom, Corinna was in the pay television industry at Turner Broadcasting, where she assisted in distribution for the newly launched CNN en Español. Corinna holds a BAS from Kalamazoo College and speaks English, Spanish, German and Portuguese. 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, is a Certified Practicing Accountant and a Chartered Company Secretary. 8 Senior Executives The Senior Executives of the Company currently are: Scott Cody Chief Operating Officer and Chief Financial Officer Gary Worobow Executive Vice President, Business and Legal Affairs Kelly McIlwraith Commercial Sales, Marketing & Strategy Director The Australia Traffic Network (“ATN”) Scott Cody has over 30 years of experience in the radio media industry. 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. Gary Worobow has over 25 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. Kelly McIlwraith has over 20 years’ experience in the advertising industry in both the UK and Australia working in media agencies and sales organisations in sales, strategy, research and marketing roles. Kelly joined ATN in 2015 as Marketing Strategy Director. Prior to joining ATN, Kelly was General Manager of Strategy for oOh! Media and was a member of their senior executive team and held senior positions at media agencies Mediacom and Mediaedge. Kelly was previously a judge for the POPAI Marketing at Retail Awards and a member of the MOVE Committee (outdoor audience measurement). Victor Lorusso (“Vic”) Chief Operations Manager ATN Vic Lorusso has over 20 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. 9 John Quinn Chief Operating Officer United Kingdom Traffic Network (”UKTN”) 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. 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 William Yde III David Ryan Robert Loewenthal Corinna Keller 8 8 8 8 8 8 8 8 - 4 4 4 - 4 4 4 - 4 4 4 - 4 4 4 Principal activities 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 and Brazil. 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 for its 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. 10 • 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. • Expansion into additional operating regions within our current countries, such as the expansion into additional regional markets in Australia and opening the Campinas, Brasilia and Curitiba markets during the past two fiscal years in Brazil. 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 2020, 96% 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 of cash 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. Potential impact of Company’s fixed cost structure A substantial majority of Company’s costs are fixed and difficult to reduce in the short term, in particular, compensation paid to radio stations, which is the largest expense of the Group. In addition to being fixed, the majority of station compensation costs are contractual and often committed to for a number of years and thus cannot be reduced in the short run. These fixed costs mean that any decrease in revenue could largely flow through to earnings and therefore disproportionately adversely affect GTN’s future financial performance and cash flows. The impact of the Group’s fixed cost structure has been demonstrated during the COVID-19 pandemic as we have been unable to date to reduce expenses sufficiently to maintain positive Adjusted EBITDA or profit before tax. Decline in demand for traffic reports on radio Individuals have other means of getting traffic information, including the internet, smart phone apps, 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 23% 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 advertising 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: 11 • Our product is different from 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 informational programming elements that are generally read live by the announcer. In our opinion, 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 on a compounded annual basis has consistently surpassed that of the overall radio advertising category 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 continuously and proactively research additional opportunities outside of radio and television. Decline in advertising market in general Our business model is currently 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 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. However, the limitations of this approach have been demonstrated during the COVID-19 pandemic, as advertisers in our markets have sharply reduced their demand for advertising, which has had a material impact on our revenue and profitability. 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 (51% in FY 2020) are generated outside of Australia and subject to currency exchange fluctuations between AUD and the local currency of those entities. We expect the portion of revenue subject to foreign exchange fluctuations will increase in the future as we anticipate that our Canada and Brazil 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 and the profitability of the operating segment affected. Review and Results of Operations Operating and Financial Review Revenue for FY 2020 decreased 13% to $160.9 million. The entire decrease in revenue pertained to 4Q FY 2020 (which decreased 57% compared to 4Q FY 2019) as year to date revenue increased 2% through 3Q FY 2020. Due to the fixed cost nature of our business, EBITDA and Adjusted EBITDA decreased 81% and 62% respectively for FY 2020 because of 12 the decrease in revenue. The non-IFRS measurements used are defined in the table below and further discussed later in this report. (m)(4) Revenue EBITDA (2) Adjusted EBITDA (3) NPAT NPATA (1) FY20 FY19 % Difference 160.9 185.0 5.5 14.2 0.3 4.9 29.2 37.5 15.7 20.3 (13)% (81)% (62)% (98)% (76)% (75)% NPATA per share (cents) $0.02 $0.09 (1) NPATA is defined as net profit after tax (NPAT) 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, losses on debt refinancings, gains on lease forgiveness and transaction costs. (4) Amounts in tables may not add due to rounding. Percentage changes based on actual amounts prior to rounding. Revenue Group revenue was down 13% compared to FY 2019 due to the impact of the COVID-19 pandemic. The Australia market constituted 49% of the Group’s revenue for FY 2020 which is the first time Australia has accounted for less than half the Group’s revenue for a fiscal year. FY20 Revenue by Geographic Segment (m)(4) Australia (ATN) Canada (CTN) United Kingdom (UKTN) Brazil (BTN) Total FY20 FY19 % Difference 79.0 27.0 42.6 12.4 93.9 33.2 45.2 12.6 160.9 185.0 (15.9)% (18.8)% (5.9)% (1.6)% (13.0)% Revenue in local currency increased in Brazil while decreasing in Canada and United Kingdom. Fluctuations in exchange rates benefitted the Canada and United Kingdom segments while acting as a headwind in Brazil. FY20 Revenue by Geographic Segment – Local Currency (m)(4) Australia (ATN) (AUD) Canada (CTN) (CAD) United Kingdom (UKTN) (GBP) Brazil (BTN) (BRL) FY19 % Difference 93.9 31.4 25.0 34.9 (15.9)% (22.7)% (9.3)% 5.8% FY20 79.0 24.3 22.7 36.9 13 EBITDA and Adjusted EBITDA Adjusted EBITDA for FY 2020 was $14.2 million, a decrease of 62% from FY 2019 due to the decrease in revenue. Operating expenses (defined as the sum of network operations, station compensation, selling, non-cash compensation, general and administrative expenses) decreased $0.8 million for the fiscal year. The primary driver of the decrease was a $3.3 million decrease in selling, general and administrative expenses primarily related to lower commissions/bonuses due to the lower revenue for the fiscal year. Station compensation increased $2.6 million (3%) while network operations decreased $0.4 million. Some of the elements of the increase in station compensation included twelve months of Rogers in Toronto (compared to eight months in FY 2019), an expansion of the relationship with one of the key affiliate groups in Australia and additional station compensation in Brazil from additional markets. (m)(4) Revenue Network operations and station compensation expenses Selling, general and administrative expenses Equity based compensation expense Operating expenses Net F/X losses Loss on refinancing of debt/gain on lease forgiveness EBITDA Interest income on Southern Cross Austereo Affiliate Contract Net F/X losses Loss on refinancing of debt/gain on lease forgiveness Adjusted EBITDA FY20 160.9 FY19 % Difference 185.0 (13)% (119.3) (117.1) 2% (34.8) (38.1) (9)% (0.9) (0.6) (154.9) (155.7) (0.1) (0.4) 5.5 8.2 0.1 0.4 14.2 - - 29.2 8.3 - - 37.5 50% (1)% 76% 100% (81)% (1)% 76% 100% (62)% Segment Adjusted EBITDA Adjusted EBITDA by segment decreased across all markets due to the revenue decrease related to the COVID-19 pandemic. (m)(4) Australia (ATN) Canada (CTN) United Kingdom (UKTN) Brazil (BTN) Other(6) Total FY20(7) FY19(7) % Difference 18.6 (0.9) 3.0 0.5 (7.0) 14.2 32.7 6.2 4.4 1.1 (6.8) 37.5 (43)% (114)% (31)% (53)% 3% (62)% (6) Primarily corporate overhead (7) Excludes intercompany management fees charged to certain subsidiaries 14 NPATA The Group reported NPATA of $4.9 million which is a decrease of 76% from FY 2019. The decrease in NPATA was primarily due to the tax effected reduced Adjusted EBITDA for the period which is discussed above. In addition, NPATA was positively impacted by an unanticipated $1.6 million United States tax benefit due to the carry back provisions of the CARES Act. FY20 Cash Flow The Group reported strong cash flow from its operations. (m)(4) Adjusted EBITDA Non-cash items in Adjusted EBITDA Change in working capital Impact of Southern Cross Austereo Affiliate Contract Operating free cash flow before capital expenditure Capital expenditure (excludes assets acquired under leases) Net free cash flow before financing, tax and dividends FY20 14.2 0.9 16.5 2.0 33.5 (3.1) FY19 37.5 0.6 4.8 2.0 44.9 (3.9) 30.4 41.0 Due to the favourable change in working capital, positive cash impact of the Southern Cross Austereo prepayment and low cash capital expenditures, more than 100% of Adjusted EBITDA was converted into net free cash flow before financing, tax and dividends. Working capital was favourably impacted by a reduction of $18.2 million in accounts receivable as the majority of the accounts receivable from the pre-COVID-19 pandemic period were collected and replaced by the significantly lower revenue achieved during the COVID-19 pandemic. The Company paid $10.2 million in dividends during the year ended 30 June 2020, consisting of a final dividend for FY 2019 of $7.2 million and an interim dividend for FY 2020 of $3.0 million. The directors have not declared a final dividend for FY 2020. As a result, despite generating negative EBITDA during the fourth quarter of FY 2020, the Group was able to maintain a strong cash balance of $57.0 million at 30 June 2020 compared to $50.7 million at 30 June 2019. Debt Refinancing On 22 May 2020, Gridlock Holdings (Australia) Pty Limited, a wholly-owned indirect subsidiary of the Company entered into a fourth amendment of its bank loan facility, which was scheduled to expire in February 2021. The commitment under the amended facility was reduced from $75 million to $60 million, which was the amount outstanding at the time of the amendment. The amended due date of the facility is 30 September 2023 and there are no scheduled principal payments prior to the due date. The Group had outstanding bank debt principal at 30 June 2020 of $60 million, $4.5 million of finance leases (related to the adoption of AASB 16) and net debt (debt principal less cash balances) of $7.4 million. The ratio of net debt to Adjusted EBITDA is 0.52x at 30 June 2020. Based on the applicable covenants for the Group’s debt facility, the leverage was 0.44x at 30 June 2020. Commencing in FY 2022 the total gearing ratio (“TGR”) will be based on gross leverage (debt balances prior to deduction of cash balances) divided by EBITDA. The EBITDA used for the calculation of the leverage under the debt facility differs from that of Adjusted EBITDA used in this report. Some of the differences include that the debt facility is based on the actual cash outlay under the SCA agreement, the exclusion of non-cash equity- based compensation from EBITDA and the limited ability to include pro forma cost savings in 15 certain instances. The bank facility limits distributions (including dividends and share buybacks) to 100% of annual NPATA. As a result, the Company will not be able to make distributions until after its 1H FY 2021 reporting at the earliest. 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 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) Notes 1 2 3 1 2 3 4 5 6 Brazil Radio spots inventory ('000s) Radio sell-out rate (%) Average radio spot rate (BRL) 1 2 3, 7 FY20 1,077 54% 128 686 51% 64 19,448 89% 1.3 418 46% 216 FY19 1,032 64% 137 655 66% 69 19,435 99% 1.3 315 50% 258 1. 2. 3. 4. Available radio advertising spots (primarily adjacent to traffic, news and information reports). The number of radio spots sold as a percentage of the number of radio spots available. Average price per radio spot sold net of agency commission. The UK market measures inventory and units sold based on impacts instead of spots. An impact is a thousand listener impressions. The number of impressions sold as a percentage of the number of impressions available. Average price per radio impact sold net of agency commission. Not adjusted for taxes or advertising agency incentives that are deducted from net revenue. 5. 6. 7. Foreign exchange rates A significant portion of the Company’s revenue and expenses are in a currency other than Australia dollars (“AUD”). The actual annual exchange rates utilized in preparing the annual consolidated statement of profit or loss and other comprehensive income are as follows: FY2020 Actual FY2019 Actual AUD:USD AUD:CAD AUD:GBP AUD:BRL 0.67 0.90 0.53 2.97 0.72 0.95 0.55 2.76 16 Dividends An interim dividend $0.014 per share (70% franked) was paid 31 March 2020. The Board has decided to not declare a final dividend for FY 2020. 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 Group. 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 Group’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 and excludes foreign exchange gains or losses, losses on refinancings, gains on lease forgiveness and transaction costs. 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. 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. COVID-19 pandemic impact As reflected throughout the Directors Report and elsewhere, the global COVID-19 pandemic has had a material negative impact on the Company’s business in all of its operating regions. Revenue decreased 57% in fourth fiscal quarter 2020 compared to the previous year resulting in $(9.2) million of Adjusted EBITDA for the period. The Group has trimmed costs where management feels prudent while also focusing on maintaining the Group’s affiliate network as well as proven sales staff and management as it believes these will be essential to maximizing revenue and profit once the pandemic has passed. Due to the fixed cost nature of the Group’s business, management believes costs cannot be reduced sufficiently to generate positive Adjusted EBITDA or profitability should revenue remain at the levels experienced during fourth fiscal quarter 2020. The largest fixed cost for the Group is station compensation, which is payment to radio and television stations to provide the spot inventory which is virtually the Group’s sole source of revenue. Because of this, management has focused on conserving cash in order to be able to “ride out” the COVID-19 pandemic. Part of this strategy included extending the existing credit facility (which was set to expire in February 2021) until 30 September 2023. Should the Group’s financial performance continue as it has since the COVID-19 pandemic, it will enter into 17 covenant default under its facility agreement even though it has sufficient cash to pay its obligations as they come due (absent an acceleration of debt). A covenant default gives the lender the ability to accelerate the repayment of the debt facility even in the scenario where all scheduled debt service has been made on time and when due. We do not expect that the lender will exercise this option should such a scenario occur for the following reasons: 1) The lender extended the loan in May 2020, which was after the COVID-19 pandemic started to have significant negative impact on the Group’s performance, 2) The lender extended over $21 million in new funds to pay off its co-lender in order to become sole lender to the Group, and 3) The projections provided to the lender indicated the possibility of covenant defaults while having sufficient funds to continue to operate the Group. However, there can be no assurances should there be a covenant default that the bank facility will not be terminated early, and the loan be required to be repaid prior to 30 September 2023. In such a scenario, it would be extremely difficult to find a suitable replacement lender on terms that the Board finds acceptable, or even at all. Should the Group be unable to refinance its debt, it is likely it would either need to raise additional equity or sell part or all of its assets in order to repay the outstanding debt. In such a scenario, there is no guarantee that the Company would be able to raise sufficient equity or sell enough Group assets in order to satisfy its outstanding debt. Likely developments and expected results The Group’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 Group 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 Group. 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 2020 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. 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 as 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. 18 GTN has obtained insurance in respect to directors’ and officers’ liability for the year ended 30 June 2020 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. The expense related to this insurance was $333 thousand for FY 2020. 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 Group 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 for audit and non-audit services provided during the year are included in Note 10 of the Consolidated Financial Report. The Group changed auditors from PriceWaterhouse Coopers to Grant Thornton Audit Pty Limited (“Grant Thornton”) for the year ended 30 June 2020. Fees for non-audit related services to PriceWaterhouse Coopers for the year ended 30 June 2020 include services provided after the appointment of Grant Thornton as auditor on 3 June 2020. 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 fiscal year the following fees were paid or payable for non-audit services provided by the auditor of GTN and its related practices: Taxation services* Tax compliance Remuneration for taxation services Total remuneration for non-audit services 2020 $ Grant Thornton - - - 2020 $ PwC 354,000 354,000 2019 $ PwC 370,000 370,000 354,000 370,000 *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 30. 19 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 27 August 2020 20 Remuneration Report (audited) The directors present the GTN 2020 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) William Yde III David Ryan AO Robert Loewenthal Corinna Keller 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 Nomination and Remuneration committee is made up of non-executive directors (all 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 Group 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 Group and the relevant director, executive or employee; ●foster exceptional human talent and motivate and support employees to pursue the growth and success of the Group in alignment with the Group’s values; and 21 ● equitably and responsibly reward employees, having regard to the performance of the Group, individual performance and statutory and regulatory requirements. Remuneration Framework Element Purpose Fixed Remuneration (FR) Provide competitive market salary Short-term incentive (STI) Long-term incentive (LTI) Reward for in year performance Alignment to long-term shareholder value Performance metrics N/A Potential Value Varies Adjusted EBITDA Varies Vesting based on continued service only Varies Changes for FY21 Contractual increases of 5% effective 1 October 2020 Targets adjusted on an annual basis. Contractually obligated options expected to be granted in FY21. 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 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 Nomination and 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 Description CEO – $451,307, other executive management $150,127 to $232,261 100% of the maximum bonus is paid for achieving 100% of the performance metrics. Board may award discretionary bonus for performance that is less than 100% of the performance metrics. Performance Metrics Aligns executive compensation with market expectations. Metric Adjusted EBITDA Target FY20 Board approved Weighting Reason Adjusted 100% EBITDA is 22 Adjusted EBITDA target primary criteria by which investors judge performance 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 1.4486:1. (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 Current Performance Metrics 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. Vesting is subject to continued employment only. 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. (d) Link between remuneration and performance The Group’s Adjusted EBITDA performance for fiscal 2020 reached 37% of the target set by the board (1% increase over fiscal 2019). As a result, the board awarded executive management 0% of their bonus potential for the period. The Group reached its Prospectus Forecast Adjusted EBITDA target for both FY2016 and FY2017 and executive management received 100% of their short-term incentive potential. The Group reached 95% its target Adjusted EBITDA from continuing operations for FY2018 and executive management received 50% of their short-term incentive potential for the year. The Group reached 82% its target Adjusted EBITDA for FY2019 and executive management received 0% of their short-term incentive potential for the year. Performance against key measures and impact on variable remuneration (m) FY 2016(1) FY 2017(2) FY 2018(2) FY 2019 FY 2020 Adjusted EBITDA Increase/(decrease) 34,646 +21% 48,856 +41% 48,140 (1)% 37,549 (22)% 14,248 (62)% 23 STI paid (% of potential) 100% 100% 50% 0% 0% (1) Pro forma. See previous filings for detail of pro forma adjustments. (2) Adjusted to reflect disposal of United States Traffic Network LLC Statutory key performance indicators of the Company over the past five years FY 2020 FY 2019 FY 2018(1) FY 2017(1) FY 2016 Profit (loss) from continuing operations attributable to owners ($’000’s) 319 15,732 24,831 28,172 (17,234) Basic earnings (loss) per share Dividends paid ($‘000’s) Dividend pay-out ratio (%) $0.00 3,015 945% $0.07 12,561 80% $0.11 24,719 100% $0.13 23,216 82% $(0.11) - N/A Increase/(decrease) in share price (%) (55)% (58)% (9)% +19% N/A (1) Adjusted to reflect disposal of United States Traffic Network LLC (e) Remuneration expenses for executive KMP Fixed remuneration Variable Remuneration Name Year Cash Salary Non- monetary benefits Post- employment benefits Other Cash bonus Equity based comp Total (1)(2)(6) (2) (4)(6) (6) (3)(7) (5) Executive Management William Yde III (6)(4) 2020 1,161,960 2019 1,038,547 Scott Cody (6)(4) 2020 2019 749,085 669,524 Gary Worobow (6)(4) 2020 620,875 2019 554,932 - - - - - - - - - - 35,757 33,557 35,757 33,557 - - 463,933 1,661,650 322,388 1,394,492 - 213,633 - 147,288 998,475 850,369 - 35,757 - 177,069 833,701 - 33,557 - 98,963 687,452 (1) Includes superannuation where applicable. (2) Payments for annual leave are considered a component of cash salaries. (3) Amounts based on expense recognized in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. 24 (4) 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 is USD 2,000 per month. (5) All amounts translated into AUD at the average exchange rate for the year. (6) Paid in United States dollars (USD) except for equity based compensation. (7) Includes amounts expensed for financial statement purposes related to forfeited stock options. (f) Contractual arrangements with executive KMP CEO Description Component Fixed remuneration (1) Contractual term Notice by the individual/Company Termination of employment (without cause) Termination of employment (with cause) or by the individual $1,143,422 from 1 October 2019 to 1 October 2020, minimum 5% increase per annum thereafter. Ongoing contract By the Employee voluntarily upon at least twelve (12) months written notice to the Company. Should the executive terminate their employment, 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 Other executive management description Range between $610,969 and $737,134 from 1 October 2019 to 1 October 2020, minimum 5% increase per annum thereafter. Ongoing contract By the Employee voluntarily upon at least twelve (12) months written notice to the Company. Should the executive terminate their employment, 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 No STI entitlement. (1) Based on USD/AUD exchange rate of 1.4486:1. (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 current base fees were reviewed in November 2018. At that time the chair fee was increased to $200,000 per annum (from $128,000) and the independent non-executive director base fee was increased to $100,000 per annum (from $90,000). 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. Effective 1 April 2020 the directors agreed to a voluntary 20% reduction of their fees to be reviewed on a regular basis due to the impact of COVID-19 on the Company’s business. Directors are contractually required to purchase Company shares equal to one year’s initial salary within three years of joining the board. In June 2019, the Board modified this requirement 25 to allow for up to five years to purchase the requisite shares. Prior to the modification, Robert Loewenthal was not in compliance with this provision of his contract. On 23 June 2020 the Board modified the requirement to revert to three years. Currently all directors are in compliance with their obligations to purchase Company shares. Since she joined the Board on 1 March 2019, Corinna Keller has until 28 February 2022 to fulfil her share purchase obligation. The maximum annual aggregate directors’ fee pool limit is $1,000,000 and was approved by the shareholders on 8 November 2017. Director compensation plans: Chair (2)(3) Other independent non-executive directors (1)(3) Additional fees Audit and risk committee – Chair (3) Audit and risk committee – member Nomination and remuneration committee – Chair Nomination and remuneration committee – member Base Fees $200,000 $100,000 Current Fees (3) $160,000 $80,000 $40,000 - - - $32,000 - - - (1) Corinna Keller is paid $72,000 USD per annum which approximated $100,000 AUD at the time of her appointment. Currently her director fee is $57,600 USD as discussed in footnote (3) below. (2) 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. (3) Effective 1 April 2020 the directors agreed to a voluntary 20% reduction of their fees to be reviewed on a regular basis due to the impact of COVID-19 on the Company’s business. 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 R Loewenthal D Ryan C Keller (1)(2) 2020 2019 2020 2019 2020 2019 190,000 176,000 95,000 96,667 101,919 34,183 - - 38,000 40,000 - - - - - - - - Total 190,000 176,000 133,000 136,667 101,919 34,183 Total non- executive director remuneration 2020 386,919 38,000 - 424,919 2019 306,850 40,000 - 346,850 26 (1) Paid in United States dollars (USD). Amount translated into AUD based on same exchange rates as annual financial statements. (2) Appointed effective 1 March 2019 Whooska Podcasting Platform, a company controlled by Robert Loewenthal, provides podcasting hosting services to the Group at no charge. The fair-market value of the service provided is de minimus. Visit Sunshine Coast, a company of which David Ryan is chairman of the board of directors, has purchased advertising from the Group’s Australian subsidiary. The amount purchased for the past two fiscal years was as follows: FY 2020 FY 2019 $36,720 2,100 (h) Additional statutory information (i) Relative proportions of fixed vs variable remuneration expense 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 Name Executive directors W Yde Fixed remuneration 2020 72% Other key management personnel of the group 79% S Cody 79% G Worobow At Risk – STI At Risk – LTI* 2020 2020 -% -% -% 28% 21% 21% * Where applicable, the expenses include negative amounts for expenses reversed during the year (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 2020. Total STI bonus (cash) LTI Options(5) Total Opportunity $ 2020 464,149 238,871 154,400 Name W Yde (1) S Cody (2) G Worobow (3) Awarded % 2020 0% 0% 0% 27 Value granted $ 2020 808,371 372,239 308,528 Value exercised % 2020 Forfeited (4) % 2020 - - - - - - (1) USD 311,537. Amounts in the table have been translated into AUD based on the exchange rate used to prepare the financial statements. (2) USD 160,330. Amounts in the table have been translated into AUD based on the exchange rate used to prepare the financial statements. (3) USD 103,633. Amounts in the table have been translated into AUD based on the exchange rate used to prepare the financial statements. (4) Represents percentage of unvested LTI Options outstanding at 1 July 2019 that were forfeited. (5) Unvested options vest on a service time-based vesting criterion. Options vest if the grantee is employed by the Group at the vesting date without further performance hurdles. One third of the options vest on the second anniversary of the grant whilst the remainder vest on the third anniversary of the grant. FY2020 Name W Yde S Cody G Worobow (iii) Terms and conditions of equity-based payment arrangements. Balance at the start of the year Unvested Granted: 15 November 2019 Vested Exercised Forfeited # % # % Balance at the end of the year Vested Unvested 1,064,594 4,051,236 - - 490,225 1,865,519 - - 406,321 1,546,224 - - - - - - - 390,791 5,115,830 - - 176,788 2,355,744 - - 83,742 1,952,545 Ordinary Shares FY2020 Name Balance at the start of year Received during the year on exercise of stock options Shares Purchased Shares Sold Balance at the end of the year W Yde 3,603,408 D Ryan (2) R Loewenthal (2) C Keller S Cody G Worobow (1) 75,475 17,417 10,500 - 10 - - - - - - - - 80,876 47,600 - - - - - - - - 3,603,408 75,475 98,293 58,100 - 10 (1) Initial shares upon forming GTN Limited. (2) Shares held indirectly through superannuation fund. 28 (iv) Other transactions with key management In February 2020, in anticipation of spending additional time in the Australia market, the Group rented an apartment for Mr. Yde’s use. During FY 2020 the Group incurred expenses of $74,746 related to the apartment. The costs related to the apartment have not been included in Mr. Yde’s remuneration disclosures since these costs were expected to replace reimbursable hotel lodgings expense and it is expected the apartment will be available to other travelling Group employees. Mr. Yde’s daughter is employed by the Group with accounting and management duties. Her cash salary (translated from USD to AUD at the same exchange rates as the Group’s financial statements) was: ●FY2020 ●FY2019 $193,317 $178,340 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 No external remuneration consultants were engaged during FY 2020. (vi) Voting of shareholders at last year’s annual general meeting During the last annual general meeting, the shareholders voted 71.97% in favour of adoption of the remuneration report for the year ended 30 June 2019 and therefore constitutes a ‘first strike’ for the purposes of the Corporations Act 2001 (Cth). The Board is committed to ongoing and transparent engagement with all stakeholders. It will continue to review the effectiveness of the Company’s remuneration practices and their alignment with strategic performance objectives to appropriately rewards its executives and deliver shareholder value. 29 Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of GTN Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of GTN Limited for the year ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. Grant Thornton Audit Pty Ltd Chartered Accountants S M Coulton Partner – Audit & Assurance Sydney, 27 August 2020 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. GTN Limited ACN 606 841 801 Consolidated Financial Report For the year ended 30 June 2020 31 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 33 34 35 36 37 80 32 GTN Limited For the year ended 30 June 2020 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2020 Revenue Other income Interest income on long-term prepaid affiliate contract Gains on lease forgiveness Network operations and station compensation expenses Selling, general and administrative expenses Equity based compensation expenses Depreciation and amortisation Finance costs Loss on refinancing of debt Foreign currency transaction loss Profit (loss) before income tax Income tax benefit (expense) Profit for the year Notes 7 7 7 7 23 8 8 8 9 2020 $’000 160,940 252 8,242 52 (119,328) (34,751) (855) (11,771) (2,910) (447) (72) 2019 $’000 184,969 259 8,325 - (117,083) (38,093) (569) (11,208) (3,642) - (41) (648) 22,917 967 319 (7,185) 15,732 Other comprehensive income (loss) for the year, net of income tax: Items that may be reclassified to profit or loss Foreign currency translation reserve (1,609) 2,309 Total other comprehensive income (loss) for the year (1,609) 2,309 Total comprehensive income (loss) for the year (1,290) 18,041 Earnings per share attributable to the ordinary equity holders: Basic and diluted earnings per share 21 $0.00 $0.07 Total profit for the year and other comprehensive income (loss) are fully attributable to members of the Company This statement should be read in conjunction with the notes to the financial statements. 33 GTN Limited For the year ended 30 June 2020 Consolidated Statement of Financial Position As at 30 June 2020 Assets Current Cash and cash equivalents Trade and other receivables Current tax asset 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 Contract liabilities Current tax liabilities Financial liabilities Provisions Current liabilities Non-current Trade and other payables Financial liabilities Deferred tax liabilities Provisions Non-current liabilities Total liabilities Net assets Equity Share capital Reserves Accumulated losses Total equity Notes 11 12 16 13 15 14 14 16 13 17 19 16 20 18 17 20 16 18 22 2020 $’000 57,040 19,910 6,700 2,856 86,506 9,858 45,686 95,998 4,269 94,988 250,799 337,305 30,874 1,266 - 1,525 932 34,597 74 62,768 20,344 416 83,602 118,199 219,106 2019 $’000 50,728 38,091 2,479 3,481 94,779 10,459 52,172 96,179 2,975 96,139 257,924 352,703 32,596 534 306 1,155 939 35,530 73 61,393 18,997 454 80,917 116,447 236,256 437,508 8,464 (226,866) 219,106 444,041 9,218 (217,003) 236,256 This statement should be read in conjunction with the notes to the financial statements. 34 GTN Limited For the year ended 30 June 2020 Consolidated Statement of Changes in Equity For the year ended 30 June 2020 Notes Balance at 30 June 2018 Total comprehensive income: Net profit Other comprehensive income Transactions with owners in their capacity as owners: Dividends Shares repurchased and retired Equity based compensation Balance at 30 June 2019 Total comprehensive income: Net profit Other comprehensive income (loss) Transactions with owners in their capacity as owners Dividends Shares repurchased and retired Equity based compensation Balance at 30 June 2020 22 Issued Capital $’000 444,981 - - - (940) - (940) - - - - - - - 444,041 (24,655) - - - (6,533) - (6,533) 437,508 - - - - - - - (24,655) Common Control Reserve $’000 (24,655) Foreign Currency Translation Reserve $’000 28,081 Equity Based Payments Reserve $’000 2,914 Accumulated Losses $’000 (202,623) Total Equity $’000 248,698 - 2,309 2,309 - - - 2,309 30,390 - (1,609) (1,609) - - - (1,609) 28,781 - - - - - 569 569 15,732 - 15,732 (30,112) - - 15,732 2,309 18,041 (30,112) (940) 569 (14,380) (12,442) 3,483 (217,003) 236,256 - - - - - 855 855 319 - 319 (10,182) - - 319 (1,609) (1,290) (10,182) (6,533) 855 (9,863) (17,150) 4,338 (226,866) 219,106 This statement should be read in conjunction with the notes to the financial statements. 35 GTN Limited For the year ended 30 June 2020 Consolidated Statement of Cash Flows For the year ended 30 June 2020 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 Net cash used in investing activities Financing activities Shares repurchased Dividends paid Deferred financing costs Principal elements of lease payments Net cash used in financing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Exchange differences on cash and cash equivalents Notes 2020 $’000 2019 $’000 200,552 (166,021) 252 (2,402) (3,835) 209,285 (167,151) 259 (2,959) (5,993) 25 28,546 33,441 (3,131) (3,131) (3,929) (3,929) (6,533) (10,182) (195) (1,571) (18,481) 6,934 50,728 (622) (940) (30,112) - (1,291) (32,343) (2,831) 52,232 1,327 Cash and cash equivalents, end of year 11 57,040 50,728 Non-cash financing and investing activities: Property acquired under leases 2,852 4,737 This statement should be read in conjunction with the notes to the financial statements. 36 GTN Limited For the year ended 30 June 2020 Notes to the Consolidated Financial Statements 1 Corporate information Nature of operations GTN Limited (the “Company”) and its subsidiaries (the “Group”’) derives a substantial majority of its revenues from the sale of commercial advertising commercials adjacent to traffic and news information reports that are broadcast on radio and/or television stations in Australia and international markets, including Canada, the United Kingdom and Brazil. The Group obtains these advertising commercials from radio and television stations. General information 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 2020 (including comparatives) were approved and authorised for issuance on 27 August 2020. The directors have the power to amend and reissue the financial statements. 37 GTN Limited For the year ended 30 June 2020 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 periods 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), unless otherwise stated. (ii) Historical cost convention The financial statements have been prepared on a historical cost basis, except for the following: ● financial assets and liabilities (including derivative instruments) – measured at fair value in profit or loss or fair value in other comprehensive income, and ● assets held for sale – measured at fair value less cost of disposal. Certain amounts reported in prior years have been reclassified to conform to the current year presentation. 2.2 Basis of consolidation The Group’s financial statements consolidate those of GTN Limited and all of its subsidiaries as of 30 June 2020. 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 amongst the Group 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 Group. 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 combinations The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group 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 Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. 38 GTN Limited For the year ended 30 June 2020 The Group 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 presentation currency for these financial statements is AUD which is the functional currency of the largest portion of the Group’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 Group’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 Group has remained unchanged during the reporting period. 39 GTN Limited For the year ended 30 June 2020 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 The Group derives a substantial majority of its revenues from the sale of advertising commercials adjacent to traffic and news information reports that are broadcast on radio and/or television stations. The stations are suppliers of the advertising spots to the Group. The Group provides advertising commercials to advertisers and their agencies. In situations where the advertisers engage advertising agencies in executing transactions with the Group, the Group records revenue based on the amount it expects to receive from the agency and follows the agency’s directions in placing the advertisements. Cash considerations are received net of agency commissions provided and are typically due after the commercials are broadcast. Advertising revenue is earned and recognised when the performance obligation is satisfied, which is when the commercial advertisements are broadcast. Revenue is recognised over the period of time which the advertising commercial is broadcast as the customer simultaneously receives and consumes the benefits over this period. Payments received in advance are deferred until the advertisements are broadcast and the amounts are included as a component of contract liabilities in the accompanying consolidated statement of financial position. Sales taxes, goods and service taxes, value added taxes and similar charges collected by the Group on behalf of government authorities are not included as a component of revenue. There is no variable consideration or financing components associated with revenue. The Group’s revenue is disaggregated by geography based on where the advertisements are broadcast. See Note 29 (Segment information)). Interest and dividend revenue recognition 2.6 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. 2.7 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. The Group generally enters into multiyear contracts with radio and television stations. Station compensation 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 loss allowance. Trade receivables are generally due for settlement within 30 40 GTN Limited For the year ended 30 June 2020 days and are presented as current assets unless collection is not expected for more than 12 months after the reporting date. The Group applies the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all trade receivables. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. The loss allowance is based on expected lifetime credit losses. To measure the expected credit losses, trade receivables have been grouped based on the shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period of five years before 30 June 2020 or 1 July 2019 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward- looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The amount of the loss allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred), 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 any impairment loss is recognised in profit or loss within selling, general and administrative expenses. When a trade receivable for which a loss allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the loss 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, which is 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 years • advertising contracts: 4.5 years Amortisation expense is not reflected for intangible assets with indefinite lives such as trade names and the Group annually tests these assets for impairment. Trade names are considered indefinite lived assets because there is not a predetermined time when they will be no longer be of value. There is no residual value recognised with regard to intangible assets subject to amortisation. 41 GTN Limited For the year ended 30 June 2020 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 to be capable of operating in the manner intended by the Group’s management. 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. right of use assets: shorter of useful life or lease 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 The Group leases various properties and equipment. Rental contracts are typically made for fixed periods of one to five years but may have extension options as described below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Contracts may contain both lease and non-lease components and the Group applies the practical expedient per AASB 16.15 to not separate these components out in the contract and are included in the liability in full. Leases are recognised as a right of use asset and a corresponding liability at the date at which the leased asset is available for use by the Group and are recognised on a present value basis. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right of use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • fixed payments (including in-substance fixed payments), less any lease incentives receivable • variable lease payment that are based on an index or a rate 42 GTN Limited For the year ended 30 June 2020 • amounts expected to be payable by the lessee under residual value guarantees • the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and • payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. Extension and termination options are included in a number of property and equipment leases across the Group. These terms are used to maximise operational flexibility of managing the contracts. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the Group’s incremental borrowing rate. Right of use assets are measured at cost comprising the following: • the amount of the initial measurement of lease liability • any lease payments made at or before the commencement date, less any lease incentives received • any initial direct costs, and • restoration costs. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low- value assets comprise of IT equipment and small items of office furniture and equipment. 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 Group at which management monitors goodwill. Cash-generating units to which goodwill has been allocated (determined by the Group’s management as equivalent to its operating segments) and trade names are tested for impairment at least annually. All other 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 Group’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 43 GTN Limited For the year ended 30 June 2020 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 Group 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 Financial assets are classified in the following measurement categories: • • those to be measured subsequently at fair value (either through other comprehensive income or loss or through profit and loss), and those to be measured at amortised cost. Currently the Group only has one category of financial instruments which is financial assets measured at amortised cost which includes cash and cash equivalents, trade and other receivables. The measurement (other than impairment) did not change on adoption of AASB 9. See Note 2.8 (Trade receivables). The classification depends on the business model for managing the financial assets and the contractual terms of the cash flows. 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. Classification and subsequent measurement of financial liabilities The Group’s financial liabilities include borrowings and trade and other payables. Financial liabilities are measured subsequently at amortised cost using the effective interest method. All interest-related charges that are reported in profit or loss are included within finance costs. 44 GTN Limited For the year ended 30 June 2020 Deferred loan costs relate to the costs related to the debt financing and are amortised using the effective interest method over the life of the loan. Expense recognised related to the effective interest method is recognised as a component of finance costs in the Group’s consolidated statement of profit or loss and other comprehensive income. Any deferred loan costs outstanding upon repayment or refinancing of debt balances are immediately expensed as a component of loss on refinancing. 2.15 Income taxes Income tax expense for the period is the tax payable on the current period’s taxable income based on the applicable 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 Group 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 Group’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 Group has a right and intention to set off tax assets and liabilities from the same taxation authority. Changes in deferred tax assets or liabilities are recognised as a component of income 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. Tax consolidation legislation GTN Limited and its wholly-owned Australian controlled subsidiaries have implemented the tax consolidation legislation. 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. 45 GTN Limited For the year ended 30 June 2020 The subsidiaries also entered 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 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, annual leave 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 Group’s liabilities for long service leave is 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 for currencies for which there is no deep market in such high quality corporate 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 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. 46 GTN Limited For the year ended 30 June 2020 2.18 Trade and other payables These amounts represent liabilities for goods and services provided to the Group 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. 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. • 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. 2.21 Equity based remuneration The Company operates equity-settled equity-based remuneration plans for certain of the Group’s 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, 47 GTN Limited For the year ended 30 June 2020 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 Group 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 Group 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 Group 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. 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. 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. 48 GTN Limited For the year ended 30 June 2020 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 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 estimates and judgements The following are significant management judgements in applying the accounting policies of the Group 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 Group’s future taxable income against which the deferred tax assets can be utilised or liabilities assessed. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions. See Note 16 (Current and deferred tax assets and liabilities). 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 (Intangible assets). 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 15 (Property, plant and equipment). 49 GTN Limited For the year ended 30 June 2020 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 anticipated contractual term including renewal periods, if it is more likely than not the contract will be extended. See Note 13 (Other assets). Uncertain tax positions Management determines the recognition and valuation of deferred tax assets and liabilities where there is uncertainty over tax treatment. Under IFRIC 23, this requires determining the likelihood that a tax treatment will be upheld by the relevant tax authorities assuming that position is examined by the tax authorities and the tax authorities have full access to all the relevant facts and circumstances related to the tax position. Many tax positions are complex, and management must use judgment as to what the ultimate outcome of a tax position will be prior to filing returns or rulings from the relevant tax authorities. See Note 16 (Current and deferred tax assets and liabilities). Renewal options on leases Whether to consider renewal options as part of the initial recognition of leases has a significant impact on both the right of use asset and the lease liability since a longer initial lease period increases both the right of use asset and lease liability, sometimes materially based on the lease payments and length of the renewal option. Management exercises judgement as to whether a lease renewal option is reasonably certain to be exercised given the determination must be made at the commencement of the lease even though the renewal option period may not occur for a number of years in the future. See Note 20 (Financial liabilities). Appropriate discount rate on lease liabilities The appropriate discount rate for leases recognized as liabilities impacts both the initial lease liability and the initial recognition of the related right of use asset. Since leases rarely contain a proscribed interest rate as other financial liabilities, management must determine the appropriate discount rate. The discount rate utilized by management has approximated the interest rate on the Group’s bank facility. Management believes this is appropriate due to the Group’s low leverage (implying the ability to borrow additional funds) and, up until the refinancing in May 2020, the ability to access an unused $15 million credit line. See Note 20 (Financial liabilities). 2.27 Parent Entity financial information The financial information for the Parent Entity, GTN Limited disclosed in Note 27 (Parent Entity information) has been prepared on the same basis as the consolidated financial statements except as set out below. 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. 2.28 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. 50 GTN Limited For the year ended 30 June 2020 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 COVID-19 pandemic impact On 11 March 2020, the World Health Organisation declared COVID-19 as a pandemic. As at the date of the financial report the pandemic is ongoing. The outbreak and the response of governments in dealing with the pandemic is interfering with general activity levels within the community, the economy and the operations of the Group’s business. The COVID-19 pandemic has had a material negative impact on the Group’s business in all of its operating regions, including a decrease in Group revenue of 57% in fourth fiscal quarter 2020. Due to the fixed cost nature of the Group’s business, management believes costs cannot be reduced sufficiently to generate profitability should revenue remain at the levels experienced during fourth fiscal quarter 2020. The largest fixed cost for the Group is station compensation, which is payments to radio and television stations to provide the spot inventory which is virtually the Group’s sole source of revenue. Because of this, the Group has focused on conserving cash in order to be able to “ride out” the COVID-19 pandemic and at 30 June 2020 the Group had cash and cash equivalents of $57 million. Part of this strategy included extending the existing credit facility (which was set to expire in February 2021) until 30 September 2023. Should the Group’s financial performance continue as it has since the COVID-19 pandemic, it will enter into covenant default under its facility agreement even though it has sufficient cash to pay its obligations as they come due (absent an acceleration of debt). A covenant default gives the lender the ability to accelerate the repayment of the debt facility even in the scenario where all scheduled debt service has been made on time and when due. It is not expected that the lender will exercise this option should such a scenario occur for the following reasons: • The lender extended the loan in May 2020, which was after the COVID-19 pandemic started to have significant negative impact on the Group’s performance, • The lender extended over $21 million in new funds to pay off its co-lender in order to become sole lender to the Group, and • The projections provided to the lender indicated the possibility of covenant defaults while having sufficient funds to continue to operate the Group. However, there can be no assurances should there be a covenant default that the bank facility will not be terminated early, and the loan be required to be repaid prior to 30 September 2023. In such a scenario, it would be extremely difficult to find a suitable replacement lender on terms that the Group finds acceptable, or even at all and the Company may be unable to raise sufficient additional equity or sell enough Group assets to satisfy its outstanding debt obligations. Based on the factors noted above, the Directors have determined that the financial report should be prepared on a going concern basis. Whilst the estimated potential impact of COVID-19 on the future operations of the Group has been taken into account in preparing the financial statements, the scale and duration of the pandemic and impact on the Group’s operations remain inherently uncertain. 51 GTN Limited For the year ended 30 June 2020 3 Changes in accounting policies 3.1 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 for annual periods beginning on or after 1 July 2019. Information on these new standards is presented below. The Group early adopted AASB 16 Leases on 1 July 2018. Standards adopted during the period The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. The following Accounting Standards and Interpretations are most relevant to the Group: Interpretation 23 Uncertainty over Income Tax Treatments (“IFRIC 23”) IFRIC 23 explains how to recognize and measure deferred tax assets and liabilities where there is uncertainty over a tax treatment. In particular, it covers: ● how to determine the appropriate unit of account, and that each uncertain tax treatment should be considered separately or together as a group, depending on which approach better predicts resolution of the uncertainty ● that the entity should assume a tax authority will examine the uncertain tax treatments and have full knowledge of all related information, i.e. that detection risk should be ignored ● that the entity should reflect the effect of the uncertainty in its income tax accounting when it is not probable that the tax authorities will accept the treatment ● that the impact of the uncertainty should be measured using either the most likely amount or the expected value method, depending on which method better predicts the resolution of the uncertainty, and ● the judgments and estimates made must be reassessed whenever circumstances have changed or there is new information that affects the judgments. The Group adopted IFRIC 23 effective 1 July 2019. Adoption of IFRIC 23 had no material impact on the financial statements as the clarifications are consistent with the Group’s current policies. 3.2 Accounting Standards issued but not yet effective and not adopted early by the Group At the date of authorisation of these financial 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 Group. Management anticipates that all of the relevant pronouncements will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement. There are no 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 Group's activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management program seeks to minimise 52 GTN Limited For the year ended 30 June 2020 potential adverse effects on the financial performance of the Group. The Group has used 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 Group's operating units in accordance with the Board policy. The Group holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Interest bearing liabilities (a) Market risk 2020 $’000 57,040 19,910 76,950 30,948 64,293 95,241 2019 $’000 50,728 38,091 88,819 32,669 62,548 95,217 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 and foreign exchange risk. (i) Cash flow and fair value interest rate risk The Group's main interest rate risk arises from long term borrowings and cash. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The Group has previously utilized fixed rate interest rate swaps and interest rate collars to manage interest rate risk. Currently all the Group’s outstanding debt is floating based on one-month BBSY and none of the debt is subject to derivatives. As at the end of the reporting period, the Group had the following variable rate cash and borrowings outstanding: Cash and cash equivalents Borrowings Net exposure to cash flow interest rate risk 2020 2019 Weighted average interest rate % 0.46% 4.52% Weighted average interest rate % 0.57% 5.75% Balance $’000 57,040 (60,000) (2,960) Balance $’000 50,728 (60,000) (9,272) 53 GTN Limited For the year ended 30 June 2020 An official increase/decrease in interest rates of 100 (2019: 100) basis points would have favourable/adverse effect on profit before tax of $30 thousand (2019: favourable/adverse $93 thousand) per annum. (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 Group 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 Group to currency risk are disclosed below. The amounts shown are those reported to key management translated into AUD at the closing rate: 30 June 2020 Financial assets Financial liabilities Total exposure 30 June 2019 Financial assets Financial liabilities Total exposure USD $’000 5,008 (462) 4,546 3,797 (514) 3,283 Short Term Exposure CAD $’000 GBP $’000 BRL $’000 Other $’000 USD $’000 22,286 (4,607) 16,978 (4,069) 17,679 12,909 23,559 (7,100) 21,958 (5,303) 16,459 16,655 1,363 (1,950) (587) 2,205 (2,622) (417) 53 (61) (8) 18 (75) (57) - - - - - - Long Term Exposure GBP $’000 - (729) (729) - (1) (1) CAD $’000 BRL $’000 - (690) (690) - (828) (828) - (185) (185) - (372) (372) There are no material transactions of subsidiary entities made in currencies other than the functional currency of the subsidiary. Therefore, no sensitivity analysis on foreign currencies affecting profit or loss has been prepared. (b) Credit risk Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument and cause a financial loss. The Group has exposures to credit risk on cash and cash equivalents and receivables. The maximum exposure to credit risk is based on the total value of our financial assets net of any loss allowance. Ongoing credit evaluation is performed on the financial condition of customers and, where appropriate, a loss allowance is raised. The Group applies the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all trade receivables (see Note 2.8 (Trade receivables)). Debtor write-offs have historically been immaterial. The Company's policy is to engage major financial institutions to provide financial facilities to the Group, thereby minimising credit risk on cash deposits. The Group does not have any cash balances instruments with any financial institution rated below “A”. 54 GTN Limited For the year ended 30 June 2020 (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 Group 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 2020 $’000 2019 $’000 60,000 75,000 60,000 60,000 - 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 2020 Non-derivatives Non-interest bearing Trade and other payables 30,874 - 74 Interest bearing Bank loans (1)(2) Leases (1) Total 1,584 1,677 34,135 1,584 1,372 2,956 61,983 1,740 63,797 - - - - 30,948 30,948 65,151 4,789 100,888 59,810 4,483 95,241 (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 At 30 June 2019 Non-derivatives Non-interest bearing Trade and other payables 32,596 - Other liabilities Interest bearing 2,351 61,417 55 73 - - - 32,669 32,669 63,768 58,977 GTN Limited For the year ended 30 June 2020 Bank loans (1)(2) Total 1,333 36,280 923 62,340 1,665 1,738 - - 3,921 100,358 3,571 95,217 (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. (i) Valuation techniques used to determine fair values Specific valuation techniques used to value financial instruments include: ● use of quoted market prices or dealer quotes for similar instruments ● for interest rate swaps the present value of the estimated future cash flows based on observable yield curves ●for foreign currency forwards the present value of future cash flows based on the forward exchange rates at the balance sheet date ●for foreign currency options option pricing models such as Black-Scholes, and ●for other financial instruments a discounted cash flow analysis All of the resulting fair value estimates are included in level 2. Level 2 estimates involve inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. 5 Capital Management Risk management The Group’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 Group has entered into a secured bank loan. Under the terms of the loan, the borrowers are required to comply with the following financial covenants: (a) Net total gearing ratio (TGR) (not greater than 2.50x at 30 June 2020) (actual 0.44x) (b) Interest coverage ratio (at least 3.50x at 30 June 2020) (actual 8.27x) The borrowers were in compliance with these and all other requirements of the loan for all periods presented. The Group 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 30-June-2020 30-June-2019 GTN Holdings Pty Limited (“LuxCo 1”) Australia (NSW) 100% 100% 56 GTN Limited For the year ended 30 June 2020 GTN US Holdco, Inc. (‘US Hold Co”) Global Traffic Network, Inc. (“GTN”) Gridlock Holdings (Australia) Pty Limited (“Aus Hold Co”) The Australia Traffic Network Pty Limited (“ATN”) GTN Management, Inc. (“US Management Co”) GTCR Gridlock International (Luxembourg) S.a r.l. (“LuxCo 2”) Canadian Traffic Network ULC (“CTN”) GTN Holdings (UK) Limited (“UK Hold Co”) Global Traffic Network (UK) Commercial Limited (“UK Commercial”) Global Traffic Network (UK) Limited (“UKTN”) United States (Delaware) (1) United States (Nevada) (1) Australia (NSW) Australia (NSW) United States (Delaware) Luxembourg Canada (Alberta) United Kingdom (England & Wales) United Kingdom (England & Wales) United Kingdom (England & Wales) GTCR Gridlock Holdings (Brazil) S.a r.l. (“LuxCo 3”) Luxembourg BTN Informacao do Transito E Servicos Aereos Especializados Ltda (“BTN”) (2) Global Story Network LLC (3) (“GSN”) Brazil United States (Delaware) 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% (1) Resident of Australia for tax purposes but still subject to U.S. taxes. Principal place of business Australia. (2) Name changed from BTN Servicos de Informacao do Transito Ltda effective 27 March 2019. (3) Formed 4 January 2019 7 Revenue and other income Revenue from contracts with customers Sale of advertising commercials – net of agency commissions and taxes recognized over time Other income Interest on bank deposits 2020 $’000 2019 $’000 160,940 160,940 184,969 184,969 252 252 259 259 Interest income on long-term prepaid affiliate contract 8,242 8,325 Gain on forgiveness of lease payments due 52 - See Note 29 (Segment information) for the geographical allocation of the Group’s revenue. 8 Expenses Profit/(loss) before income tax includes the following specific expenses: Employee benefits expense 2020 $’000 2019 $’000 40,372 42,097 Defined contribution superannuation expenses 1,054 1,026 57 GTN Limited For the year ended 30 June 2020 Amortisation and depreciation 11,771 11,208 Finance costs - bank loan and line of credit 2,722 3,480 Finance costs - leases Rental expenses relating to short-term and low value leases Foreign exchange loss on intercompany loans within the group 188 712 72 162 963 41 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% (2019: 30%) and the reported tax expense in profit or loss are as follows: Profit (loss) before income tax Tax rate: 30% (2018: 30%) Taxes on foreign earnings Tax effect of permanent differences (Recognition of previously unrecognised tax losses)/ unrecognized tax losses State taxes Over-provision for income tax in prior year Benefit from carry back provisions of United States CARES Act Other Income tax (benefit) expense 2020 $’000 (648) (194) 285 36 (430) 3 536 (1,620) 417 (967) 2019 $’000 22,917 6,875 (341) 417 617 29 (188) - (224) 7,185 One of the provisions of the CARES Act (part of the U.S. government’s response to the COVID-19 pandemic) was to allow for the carry back of losses to previous tax periods. Prior to the lowering of the United States corporates tax rate from 35% to 21%, the Group paid taxes in the United States on its Australia earnings because the Australian corporate tax rate of 30% was lower than the Unites States corporate tax rate. Under the CARES Act, the Group was able to offset losses that occurred subsequent to the tax rate change against the previously taxed income and request a refund based on the revised tax liability. Expense Current Deferred Income tax (benefit) expense Other comprehensive income Current Deferred 2020 $’000 (1,020) 53 967 - - - 2019 $’000 4,690 2,495 7,185 - - - 58 GTN Limited For the year ended 30 June 2020 The recognition of deferred tax assets is limited to the extent that the Group anticipates making sufficient taxable profits in the future to absorb the reversal of the underlying timing differences. The Group has an unrecognised deferred tax asset of $20,748 thousand (2019: $22,994 thousand) in relation to the tax losses and deductible temporary differences as management does not anticipate the Group will make sufficient taxable profits in the foreseeable future to utilise this asset. The net operating losses that have not been recognized do not expire. 10 Auditor’s remuneration Auditor remuneration details are as follows: PricewaterhouseCoopers Australia Audit and other assurance services Auditors of the Group: Audit and review of financial statements Remuneration from audit and other assurance services Taxation services Auditors of the Group: Tax compliance Remuneration for taxation services 2020 $ 2019 $ 119,780 119,780 663,000 663,000 79,419 79,419 104,000 104,000 Total remuneration of PricewaterhouseCoopers Australia 199,199 767,000 Network firms of PricewaterhouseCoopers Australia Audit and other assurance services Auditors of the Group: Audit and review of financial statements Remuneration from audit and other assurance services Taxation services Auditors of the Group: Tax compliance Remuneration for taxation services 7,098 7,098 274,330 274,330 125,000 125,000 266,000 266,000 Total remuneration of network firms of PricewaterhouseCoopers 281,428 391,000 Total auditor’s remuneration – PricewaterhouseCoopers 480,627 1,158,000 Grant Thornton Audit and other assurance services Auditors of the Group: Audit and review of financial statements Remuneration from audit and other assurance services Total remuneration of Grant Thornton 59 2020 $ 2019 $ 295,000 295,000 295,000 - - - GTN Limited For the year ended 30 June 2020 Network firms of Grant Thornton Audit and other assurance services Auditors of the Group: Audit and review of financial statements Remuneration from audit and other assurance services Total remuneration of network firms of Grant Thornton Total auditor’s remuneration – Grant Thornton 117,365 117,365 117,365 412,365 - - - - The Company changed auditors from PricewaterhouseCoopers to Grant Thornton subsequent to the half- year review. PricewaterhouseCoopers continues to provide taxation services to the Group. The amounts above related to taxation services are for the entire fiscal year, including services provided subsequent to the appointment of Grant Thornton as the Company’s auditor. 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 Loss allowance Trade receivables 2020 $’000 48,001 9,039 57,040 2020 $’000 20,912 (1,002) 19,910 2019 $’000 41,679 9,049 50,728 2019 $’000 38,809 (718) 38,091 All amounts are short-term. The net carrying value of trade receivables is considered a reasonable approximation of fair value. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less loss allowance. A loss allowance of $432 thousand (2019: $124 thousand) has been recorded within selling, general and administrative expenses. The movement in the loss allowance can be reconciled as follows: Balance 1 July Amounts written off (uncollectable) 2020 $’000 (718) 148 2019 $’000 (666) 72 60 GTN Limited For the year ended 30 June 2020 Impairment loss Balance 30 June (432) (1,002) (124) (718) At 30 June 2020 Expected loss rate Current Not more than 3 months past due More than 3 months past due Total $’000 $’000 $’000 $’000 -%* -%* 17% 5% Gross carrying amount – trade receivables Loss allowance 13,793 1,206 5,913 20,912 - - 1,002 1,002 *Less than 1%. The expected loss rate on receivables not more than three months past due is less than one percent which is materially consistent with historical amounts written off. Current Not more than 3 months past due More than 3 months past due Total $’000 $’000 $’000 $’000 -%* -%* 17% 2% At 1 July 2019 Expected loss rate Gross carrying amount – trade receivables Loss allowance 31,172 3,386 4,251 38,809 - - 718 718 *Less than 1%. The expected loss rate on receivables not more than three months past due is less than one percent which is materially consistent with historical amounts written off. 13 Other assets Other assets reflected on the consolidated statement of financial position consist of the following: Current Prepaid station affiliate contracts(i) Prepaids and other current assets Non-Current Prepaid station affiliate contract(i) Other assets 2020 $’000 1,526 1,330 2,856 94,725 263 94,988 2019 $’000 1,860 1,621 3,481 95,881 258 96,139 61 GTN Limited For the year ended 30 June 2020 (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. Intangible assets 14 Detail of the Group’s intangible assets and their carrying amounts are as follows: Goodwill $’000 Trade names $’000 Station contracts $’000 Advertising contracts $’000 Total $’000 96,179 (181) 95,998 12,553 (40) 12,513 88,744 (283) 88,461 65,808 (209) 65,599 167,105 (532) 166,573 Gross carrying amount Balance at 1 July 2019 Net exchange differences Balance at 30 June 2020 Amortisation Balance at 1 July 2019 Amortisation Net exchange differences Balance at 30 June 2020 - - - - - - - - Carrying amount 30 June 2020 95,998 12,513 Gross carrying amount Balance at 1 July 2018 Net exchange differences Balance at 30 June 2019 Amortisation Balance at 1 July 2018 Amortisation Net exchange differences Balance at 30 June 2019 96,193 (14) 96,179 12,445 108 12,553 - - - - - - - - Carrying amount 30 June 2019 96,179 12,553 (49,125) (65,808) (114,933) (6,383) 220 (55,288) 33,173 87,984 760 88,744 - 209 (6,383) 429 (65,599) (120,887) - 45,686 65,249 559 65,808 165,678 1,427 167,105 (42,420) (65,249) (107,669) (6,314) (391) (49,125) 39,619 - (559) (6,314) (950) (65,808) (114,933) - 52,172 The Group expects to either renew or replace its advertiser contracts and renew its station contracts beyond their expected life. Amortisation expense for the years ended 30 June 2020 and 30 June 2019 was $6,383 thousand and $6,314 thousand, respectively. Due to the long term and indefinite nature of goodwill and trade names, amortisation expense is not reflected and the Group annually reviews goodwill and trade names for impairment. 62 GTN Limited For the year ended 30 June 2020 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 2020 $’000 95,721 4,015 8,775 2019 $’000 95,801 4,094 8,837 Goodwill and trade names allocation at 30 June 108,511 108,732 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. Growth rates and discount rates used in calculations: Australia Canada United Kingdom Australia Canada United Kingdom Discount Rates 2020 Post-Tax 9.8% 10.3% 10.2% 2019 Post-Tax 12.1% 15.8% 15.8% Average Growth Rates Revenue EBITDA 2020 2019 2020 2019 6% 12% 3% 3% 6% 1% 27% N/A* 4% 8% 16% (7)% *Not applicable – initial year 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. 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 Group’s approved internal budget for the coming fiscal year. The long-term growth rate utilized was 1%. The growth rates for the current assessment assume significantly lower revenue for 1Q & 2Q FY 2021 due to continued impact of the COVID-19 pandemic while 3Q FY 2021 is expected to return to 3Q FY 2020 levels and 4Q FY 2021 is projected to be the same as 4Q FY 2019 as these periods were the last comparable periods with minimal COVID impact. Should the growth rates for the projection be measured from 30 June 2019 (the last fiscal year without COVID impact) the six-year growth rates would be as follows: 63 GTN Limited For the year ended 30 June 2020 Average Growth Rates Revenue EBITDA 2020 2020 2% 5% 1% 2% 16% (3)% Australia Canada United Kingdom Discount rates The discount rates reflect appropriate adjustments relating to market risk and specific risk factors of each unit. During the year ending 30 June 2020, the Group had an independent assessment of the CGU values. This valuation was completed prior to the outbreak of COVID. The discount rates for FY 2020 have been updated to be consistent with the rates used in the valuation. Had the previous discount rates been used, no impairment would have resulted based on the remaining assumptions used but the headroom in the assessment would be reduced. 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 management does not believe exceeds the long-term average growth rates for the industry in which each CGU operates. Sensitivity Analysis Based on management’s assessment of the recovery from COVID, if the WACC was increased to 2019 values and the COVID recovery was delayed by one year to Q1 FY23, none of the Group’s CGUs would be impaired. All other reasonably possible changes do not cause an impairment charge for the Canadian and United Kingdom CGUs. For the Australian CGU, management have run various scenarios to assess the impact on the headroom and possible impairments which may be indicated: - - - - Scenario 1: increasing the WACC to 2019 value of 12.1% would not give rise to an impairment. Scenario 2: delaying the COVID recovery to Q1FY23 would not give rise to an impairment. Scenario 3: increasing the WACC by 0.7 percentage points to 10.5% and delaying the COVID recovery to Q1FY23 would not give rise to an impairment. Scenario 4: using a WACC of 10.5% and delaying the COVID recovery to Q1FY24 would give rise to an impairment. Management believes the scenarios in 1-3 to be reasonably possible for disclosure however these do not indicate an impairment which supports management’s judgement not to record an impairment charge as at 30 June 2020. 64 GTN Limited For the year ended 30 June 2020 Significant estimate: Impact of possible changes in key assumptions The COVID-19 pandemic has had an impact on the Group’s revenue that was beyond what could have been reasonably anticipated. The projections used for impairment testing assume that the Group’s markets will return to their previous state in the future. Should the impact of the COVID-19 pandemic or a similar disruption extend beyond management’s estimate or become more pronounced than the current impact it could render the assumptions of the impairment testing invalid. Management is not currently aware of any other reasonably possible changes in key assumptions that would result in impairment. 15 Property, plant and equipment Details of the Group’s property, plant and equipment and their carrying amount are as follows: Helicopters and fixed wing aircraft $’000 Recording, broadcasting and studio equipment $’000 Furniture, equipment and other $’000 Right of use assets – real property leases $’000 Gross carrying amount Balance 1 July 2019 Additions during period Disposals Net exchange differences Balance 30 June 2020 Depreciation and impairment Balance 1 July 2019 Disposals Net exchange differences Depreciation Balance 30 June 2020 Carrying amount 30 June 2020 25,279 2,559 - (2,425) 25,413 (19,244) - 1,722 (3,240) (20,762) 4,651 1,016 36 - (71) 981 (766) - 31 (79) (814) 167 2,434 536 - (177) 2,793 (1,729) - 79 (378) (2,028) 765 4,806 2,852 (757) (459) 6,442 (1,337) 663 198 (1,691) (2,167) 4,275 Total $’000 33,535 5,983 (757) (3,132) 35,629 (23,076) 663 2,030 (5,388) (25,771) 9,858 Helicopters and fixed wing aircraft $’000 Recording, broadcasting and studio equipment $’000 Furniture, equipment and other $’000 Right of use assets – real property leases $’000 Total $’000 Gross carrying amount Balance 1 July 2018 Opening adjustments for adoption of AASB 16 Additions during period Disposals Net exchange differences Balance 30 June 2019 Depreciation and impairment Balance 1 July 2018 Disposals Net exchange differences Depreciation Balance 30 June 2019 21,203 - 3,122 - 954 25,279 (15,291) - (769) (3,184) (19,244) 1,827 - 657 (112) 62 2,434 (1,584) 112 44 (301) (1,729) - 23,873 3,277 1,460 - 69 4,806 3,277 5,389 (112) 1,108 33,535 - (17,538) - (16) (1,321) (1,337) 112 (756) (4,894) (23,076) 843 - 150 - 23 1,016 (663) - (15) (88) (766) 65 GTN Limited For the year ended 30 June 2020 Carrying amount 30 June 2019 6,035 250 705 3,469 10,459 16 Current and deferred tax assets and liabilities Current taxes can be summarised as follows: Current tax assets Current tax liabilities Net current tax assets/(liabilities) 2020 $’000 6,700 - 6,700 2019 $’000 2,479 (306) 2,173 Deferred taxes arising from temporary differences can be summarised as follows: Deferred Tax Assets Annual leave accrual Long service leave provision Audit accrual Superannuation accrued Allowance for doubtful debts Leases Deferred transaction costs Fixed asset depreciation Net tax losses Recognised in Profit and Loss $’000 1 July 2019 $’000 30 June 2020 $’000 257 376 85 29 127 5 586 1,289 3,443 6,197 38 (30) 26 (6) 77 33 (586) 395 568 515 295 346 111 23 204 38 - 1,684 4,011 6,712 (2,443) 4,269 Set-off of deferred tax liabilities pursuant to set-off provisions Net deferred tax assets (3,222) 2,975 Deferred Tax Liabilities 1 July 2019 $’000 Recognised in Profit and Loss $’000 30 June 2020 $’000 Intangibles Prepaid expenses Other Set-off of deferred tax assets pursuant to set-off provisions Net deferred tax liabilities 14,779 7,434 6 22,219 (3,222) 18,997 (1,830) 2,398 - 568 12,949 9,832 6 22,787 (2,443) 20,344 Deferred tax assets consist of: Current 2020 $’000 2019 $’000 927 792 66 GTN Limited For the year ended 30 June 2020 Non-current Deferred tax liabilities consist of: Current Non-current 5,785 6,712 - 22,787 22,787 5,405 6,197 - 22,219 22,219 Recognized deferred tax assets relate primarily to the Group’s CTN subsidiary. Prior to the COVID-19 pandemic, CTN generated sufficient taxable income in fiscal years 2016 through 2019 to utilize a significant portion of the deferred tax asset and the Group forecasts that it will resume generating sufficient taxable income in the future to fully utilize the deferred tax asset. The Group had a franking balance of $76 thousand and $67 thousand at 30 June 2020 and 2019, respectively. 17 Trade and other payables Trade and other payables recognised consist of the following: Current Trade payables Accrued payroll expenses Accrued expenses and other liabilities Non-current Other 2020 $’000 19,421 3,163 8,290 30,874 2019 $’000 18,438 5,641 8,517 32,596 74 74 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 Group) is included as a component of trade and other payables on the consolidated statement of financial position. 18 Provisions Current Long service leave provision Non-Current Long service leave provision Lease restoration 2020 $’000 932 932 222 194 416 2019 $’000 939 939 314 140 454 1,348 1,393 67 GTN Limited For the year ended 30 June 2020 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 Group does not have the unconditional right to defer settlement. However, based on past experience the Group does not expect all employees to take the full amount of their long service leave or require payment within the next 12 months. The Group 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 2020 and 30 June 2019, the Group had a liability of $194 thousand and $140 thousand, respectively, accrued which it anticipates to be the amount required to restore the premises at the end of the leases. 19 Contract liabilities Contract liabilities Balance 1 July Additions during period Earned during period Net exchange differences Balance 30 June 2020 $’000 1,266 1,266 2020 $’000 534 1,231 (377) (122) 1,266 2019 $’000 534 534 2019 $’000 450 462 (402) 24 534 Payments received or amounts invoiced in advance are deferred until earned and such amounts are included as a component of contract liabilities. 20 Financial liabilities Current Current portion of long-term debt Current portion of leases Non-current Long-term debt, less current portion Leases, less current portion 2020 $’000 - 1,525 1,525 59,810 2,958 62,768 2019 $’000 - 1,155 1,155 58,977 2,416 61,393 68 GTN Limited For the year ended 30 June 2020 On 22 May 2020, Aus Hold Co entered into a fourth amendment of its bank loan facilities. Consistent with the provisions of IFRS 9 Financial Instruments, the amendment was treated as a repayment and borrowing. The Group recognized $195 thousand in deferred loan costs associated with the refinancing which will be expensed as a component of finance cost using the effective interest method over the term of the facilities. The amended due date of the facilities is 30 September 2023 and there are no scheduled principal payments prior to the due date. Facility A consists of a $10 million revolving line of credit and Facility C a $50 million revolving line of credit. The Group recognized a loss of $447 thousand in conjunction with the early repayment of the facilities related to the deferred loan costs of the previous facilities. A commitment fee of 45% of the applicable margin (currently 2.50%) is incurred on any unutilized portion of Facility A and Facility C. The outstanding loans bear interest at BBSY plus the applicable margin (2.64% (including the applicable margin) at 30 June 2020). Maturities of financial liabilities are included in Note 4 (c)(ii) (Financial risk management/Liquidity risk/Maturities of financial liabilities). Cash outflows related to financial liabilities are included in Note 25(b) (Cash flow information/Net debt reconciliation). Distributions (including dividends and share buybacks) are restricted under the bank loan agreement to 100% of net profit after tax adjusted (“NPATA”). NPATA is defined as net profit after tax adding back the tax adjusted amortization expense related to finite lived intangibles arising from acquisition accounting. Assets pledged as security Bank loan facilities are secured by a first ranking charge over all GTN Limited, ATN, Aus Hold Co, UK Hold Co, UKTN, UK Commercial, Lux Co 1, US Hold Co, GTN, US Management Co, CTN and GSN assets. 21 Earnings per share Profit attributable to shareholders 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 Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 2020 $’000 2019 $’000 319 15,732 220,914 220,914 $0.00 $0.00 224,591 224,591 $0.07 $0.07 At 30 June 2020, the Company had common stock equivalents of 10,075,440 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 2020. 22 Shareholders’ equity 2020 ‘000’s Ordinary shares 2020 $’000 Issued capital 2019 ‘000’s Ordinary shares 2019 $’000 Issued capital At beginning of reporting period Shares repurchased and retired 224,000 (8,721) 444,041 (6,533) 224,721 (721) 444,981 (940) 69 GTN Limited For the year ended 30 June 2020 At the end of the reporting period 215,279 437,508 224,000 444,041 On 25 February 2019, the Company filed an Appendix 3C announcing that it has initiated an on-market share buyback of up to 10% of its outstanding shares (up to $20 million) for a period of up to twelve months. The Company repurchased 9,396,911 shares for $7,448 thousand during the term of the initial on-market buyback. The Company subsequently filed an Appendix 3D extending the on-market buyback from 12 March 2020 to 11 March 2021 for up to 10% of its then outstanding shares. The Company has repurchased 44,691 shares for $26 thousand under this authorization. No target share price or minimum repurchase amount has been set. During the year ended 30 June 2020, the Company repurchased 8,720,971 shares at an average price per share of $0.75 for total consideration of $6,533 thousand. 23 Equity based compensation As of 30 June 2020 and 2019 there were 10,075,440 and 2,612,461 stock option grants to purchase shares of GTN Limited 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 Group 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 equity-based compensation 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. 7 April 2017 Grant The fair value at grant date was 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 equity-based compensation 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: 70 GTN Limited For the year ended 30 June 2020 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% 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 Percentage to vest EPS Compound annual growth rate 0% Less than threshold Between threshold and stretch target (inclusive) Pro rata straight line Above stretch target between 50% and 100% 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 2020 5 April 2017 31 December 2021 $2.74 $2.72 $0.695 $2.74 45.00 % 4.75 years 4.00 % 2.14 % 9 November 2018 Grant The Company has moved to a service time-based vesting criterion. Under this plan, options vest if the grantee is employed by the Group at the vesting date without further performance hurdles. The fair value of these options was estimated at the date of the grant using the Black-Scholes option pricing model with the following assumptions: Grant date Expiration date Share price at grant date Fair value at grant date Exercise price Expected volatility (based on historic and 30 June 2020 9 November 2018 9 November 2023 $2.15 $0.647 $2.15 expected volatility of Company’s shares) 49.69 % 71 GTN Limited For the year ended 30 June 2020 Expected life Expected dividends Risk-free interest rate (based on government bonds) 3.83 years 4.09 % 2.30 % 15 November 2019 Grant The Company’s 15 November 2019 grant is under the same terms as its 9 November 2018 grant. The fair value of these options was estimated at the date of the grant using the Black-Scholes option pricing model with the following assumptions: Grant date Expiration date Share price 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 2020 15 November 2019 15 November 2024 $0.76 $0.200 $0.76 % 56.62 3.83 years 7.37 % 0.80 % The Company’s outstanding stock options as of 30 June 2020 were as follows: Balance, 30 June 2019 Exercisable, 30 June 2019 Grants Exercised Forfeitures/expirations Balance, 30 June 2020 Exercisable, 30 June 2020 Weighted Average Exercise Price Shares 2,612,461 $ 2.30 651,321 $ 2.74 7,462,979 $ 0.76 - $ - $ 10,075,440 $ 1.16 651,321 $ 2.74 - - Aggregate Fair Value ,000’s Weighted Average Remaining Contractual Term 4.11 years $ 1,720 2.50 years $ 452 4.27 years $ 1,489 - $ - - - $ 4.0 years $ 3,209 1.50 years $ 452 Based on the following assumptions, the fair value with regards to all options issued and outstanding as of 30 June 2020 is $3,209 thousand. As of 30 June 2020, there was $1,533 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 2.1 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 Group. The expense with regards to stock options for the years ended 30 June 2020 and 2019 is $855 thousand and $569 thousand, respectively and is included in equity based compensation expenses. The Group recognized $0 of income tax benefit related to share-based compensation for the years ended 30 June 2020 and 2019. 24 Operating agreements The Group’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 72 GTN Limited For the year ended 30 June 2020 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 2020 30 June 2019 Minimum Payments Due Within 1 year $’000 3,349 3,434 1 to 5 years $’000 810 4,158 After 5 years $’000 - - Total $’000 4,159 7,592 The Group 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 most cases, cash compensation or reimbursement of expenses. Station compensation 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. Contractual station commitments consist of the following: 30 June 2020 30 June 2019 Minimum Payments Due Within 1 year $’000 51,370 58,167 1 to 5 years $’000 44,693 74,350 After 5 years $’000 30,984 31,854 Total $’000 127,047 164,371 The Group had no contingent liabilities at 30 June 2020. 25 Cash flow information (a) Details of the reconciliation of cash flows from operating activities are listed in the following table: Cash flows from operating activities Profit for the period Adjustments for: Allowance for doubtful accounts Equity based compensation expenses Amortisation of deferred borrowing costs 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 73 2020 $’000 2019 $’000 319 15,732 284 855 69 11,771 72 13,120 (8,242) 959 17,897 1,776 (5,515) (6,547) 53 569 46 11,208 41 13,142 (8,325) 637 537 (578) (1,538) (312) GTN Limited For the year ended 30 June 2020 Change in contract liabilities Change in current tax liabilities Change in provisions Change in deferred tax liabilities Change in other liabilities 732 (306) (45) 1,347 - 84 925 (297) 1,554 (37) Net cash from operating activities 28,546 33,441 (b) Net debt reconciliation Cash and cash equivalents Borrowings Net (debt)/cash Borrowings consist of: Financial liabilities Deferred loan costs and original issue discount Leases 2020 $’000 57,040 (64,483) (7,443) (59,810) (190) (4,483) (64,483) 2019 $’000 50,728 (63,571) (12,843) (58,977) (1,023) (3,571) (63,571) Cash and cash equivalent $’000 Borrowings $’000 Leases $’000 Net (debt)/cash $’000 Net (debt)/cash as at 1 July 2018 Adoption of AASB 16 1 July 2018 Cash flows Borrowings Repayments Net exchange differences 52,232 - (2,831) - - 1,327 Net (debt)/cash as at 30 June 2019 50,728 Cash flows Borrowings Repayments Forgiveness Write-offs Net exchange differences 6,934 - - - - (622) Net (debt)/cash as at 30 June 2020 57,040 (60,000) - - - - - (60,000) - (60,000) 60,000 - - - (60,000) - (3,277) - (1,460) 1,291 (125) (3,571) - (2,852) 1,571 52 44 273 (4,483) (7,768) (3,277) (2,831) (1,460) 1,291 1,202 (12,843) 6,934 (62,852) 61,571 52 44 (349) (7,443) 26 Transactions with Key Management Personnel Key Management Personnel remuneration includes the following expenses: Total short-term employee benefits Total equity-based compensation Total remuneration 2020 $ 3,064,110 854,635 3,918,745 2019 $ 2,710,524 568,639 3,279,163 74 GTN Limited For the year ended 30 June 2020 The majority of Key Management Personnel are all paid in USD so a portion of the change in compensation from the year ended 30 June 2019 to the year ended 30 June 2020 was due to changes in foreign exchange rates between AUD and USD. Whooska Podcasting Platform, a company controlled by Robert Loewenthal (a Company director), provides podcasting hosting services to the Group at no charge. The fair-market value of the service provided is de minimus. Visit Sunshine Coast, a company of which David Ryan (a Company director) is chairman of the board of directors, has purchased advertising from the Group’s ATN subsidiary. The amount purchased for the past two fiscal years was as follows: ●FY 2020 ●FY 2019 $37 thousand $ 2 thousand William Yde’s (chief executive officer and managing director) daughter is employed by the Group with accounting and management duties. Her cash salary (translated from USD to AUD at the same exchange rates as the Group’s financial statements) was: ●FY 2020 ●FY 2019 $193 thousand $178 thousand In February 2020, in anticipation of spending additional time in the Australia market, the Group rented an apartment for Mr. Yde’s use. During FY2020 the Group incurred expenses of $75 thousand related to the apartment. The costs related to the apartment have not been included in Mr. Yde’s remuneration disclosures since these costs were expected to replace reimbursable hotel lodgings expense and it is expected the apartment will be available to other travelling Group employees. 27 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 Accumulated profit – Dividend Profit Reserve Total equity Statement of profit or loss and other comprehensive income Profit for the year Other comprehensive income (loss) Total comprehensive income 75 2020 $’000 4,088 356,695 338 687 356,008 437,508 (82,071) 571 356,008 9,937 - 9,937 2019 $’000 6,244 363,421 327 635 362,786 444,041 (82,071) 816 362,786 30,929 - 30,929 GTN Limited For the year ended 30 June 2020 Guarantees entered into by the parent entity In addition, there are cross guarantees given by GTN Limited (as holding entity), GTN Holdings Pty Limited (“LuxCo 1”), 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 28 (Deed of cross guarantee). 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. Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2020 or 30 June 2019. For information about guarantees given by the parent entity, please see above. 28 Deed of cross guarantee GTN Limited (as holding entity), GTN Holdings Pty Limited (“LuxCo 1”), 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’. 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 2020 and 2019 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 Equity based compensation expenses Finance costs Depreciation and amortisation Foreign currency transaction loss Loss on refinancing Profit before income tax Income tax benefit (expense) Profit for the year Other comprehensive income for the year, net of income tax Total other comprehensive income for the year 76 2020 $’000 78,960 25 8,242 (55,054) (17,387) (855) (2,804) (6,335) (58) (447) 4,287 229 4,516 - - 2019 $’000 93,896 139 8,325 (54,086) (19,105) (569) (3,563) (6,044) (27) - 18,966 (6,039) 12,927 - - GTN Limited For the year ended 30 June 2020 Total comprehensive profit for the year 4,516 12,927 Summary of movement in consolidated retained earnings Accumulated losses at the beginning of the financial year Profit for the period Dividends Accumulated losses at the end of the financial year (121,546) 4,516 (10,182) (127,212) (104,361) 12,927 (30,112) (121,546) Set out below is a consolidated statement of financial position as at 30 June 2020 and 2019 of the closed group consisting of the above companies. Consolidated statement of financial position Assets Current Cash and cash equivalents Trade and other receivables Current tax assets 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 Contract liabilities Financial liabilities Provisions Current liabilities Non-current Financial liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Accumulated losses Total equity 2020 $’000 26,683 8,438 6,663 1,434 43,218 3,165 33,230 86,158 75,014 103,013 300,580 343,798 20,771 903 636 932 23,242 59,522 19,380 371 79,273 102,515 241,283 2019 $’000 20,704 18,406 1,940 1,612 42,662 2,937 38,915 86,240 73,753 103,828 305,673 348,335 17,855 58 423 939 19,275 59,417 17,903 409 77,729 97,004 251,331 437,508 (69,013) (127,212) 241,283 444,041 (71,164) (121,546) 251,331 29 Segment information The Group’s chief operating decision maker, its chief executive officer analyses the Group’s performance by geographic area and has identified four reportable segments: Australia, Brazil, Canada and United Kingdom. The segments’ revenues are as follows: 77 GTN Limited For the year ended 30 June 2020 Australia United Kingdom Canada Brazil Other 2020 $’000 2019 $’000 78,960 42,563 26,968 12,443 6 93,896 45,234 33,195 12,644 - 160,940 184,969 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, gains on lease forgiveness, losses on refinancing and other unusual non- recurring items. Adjusted EBITDA by Segments Australia United Kingdom Canada Brazil Other Adjusted EBITDA Foreign exchange loss Loss on refinancing Gain on lease forgiveness Less: Interest income on long-term prepaid affiliate contract EBITDA 2020 $’000 2019 $’000 16,809 2,473 (1,673) 532 (3,893) 14,248 (72) (447) 52 (8,242) 5,539 30,911 3,883 5,409 1,128 (3,782) 37,549 (41) - - (8,325) 29,183 Depreciation and amortization Interest income on long-term prepaid affiliate contract Financing costs net of interest income Profit (loss) before taxes (11,771) (11,208) 8,242 (2,658) (648) 8,325 (3,383) 22,917 Segment assets and liabilities are classified by their physical location. Segment assets Total Assets: Australia United Kingdom Canada Brazil Total segment assets 2020 $’000 2019 $’000 251,686 36,661 28,822 4,039 321,208 258,376 37,878 35,079 7,203 338,536 78 GTN Limited For the year ended 30 June 2020 Unallocated: Deferred tax assets Others Total assets Segment liabilities Total liabilities Australia United Kingdom Canada Brazil Total segment liabilities Unallocated: Deferred tax liabilities Borrowings Intercompany eliminations Others Total liabilities 4,269 11,828 337,305 2,975 11,192 352,703 78,986 4,511 3,727 1,959 89,183 20,344 64,293 (63,420) 7,799 118,199 80,476 7,443 5,014 2,736 95,669 18,997 62,548 (68,309) 7,542 116,447 30 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. 79 GTN Limited For the year ended 30 June 2020 Directors’ declaration In the directors’ opinion: (a) The financial statements, set out on pages 31 to 79 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 2020 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 28 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 28. 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 27th day of August 2020 80 Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of GTN Limited Report on the audit of the financial report Opinion We have audited the financial report of GTN Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for the year ended on that date; and b complying with Australian Accounting Standards and the Corporations Regulations 2001. 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 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 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 of the current period. These 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. We have determined the matters described below to be the key audit matters to be communicated in our report. Key audit matter How our audit addressed the key audit matter Recoverable amount of goodwill and intangible assets Refer to Notes 2.9, 2.10, 2.13, 2.26 and 14 As at 30 June 2020, the Group’s intangible assets and goodwill total $141.7 million. AASB 136 Impairment of Assets requires that, for the purposes of impairment testing, goodwill acquired in a business combination be allocated to each of the Group’s cash-generating units (CGU). Each CGU to which goodwill is allocated must be tested for impairment at least annually. Management has assessed that the group has three CGUs, and has allocated the goodwill and intangible assets to each of these CGUs. Management has tested the CGUs for impairment by comparing their carrying amounts with their recoverable amounts. The recoverable amounts were determined using a value-in-use model. We have determined this is a key audit matter due to the judgements and estimates required in determining the appropriate CGUs and calculating the recoverable amount, including the assessment of the impact of the COVID-19 pandemic on the calculation of recoverable amounts. Our procedures included, amongst others: Enquiring with management to obtain and document an understanding of the processes and controls related to the assessment of impairment, including identification of CGUs and the calculation of the recoverable amount for each CGU; Obtaining management’s value in use calculations to: - Test the mathematical accuracy; - Evaluate management’s ability to perform accurate estimates by comparing historical forecasting to actual results; - Test forecast cash inflows and outflows to be derived by the CGUs’ assets; and - Assess the discount rates applied to forecast future cash flows; Evaluating the value in use models against the requirements of AASB 136, including consultation with our valuations experts; Performing sensitivity analysis on the significant inputs and assumptions made by management in preparing the calculation, including those specifically related to the estimated impact of COVID-19 on the Group’s forecast cash flows; and Assessing the adequacy of financial report and accounting policy disclosures. The impacts of COVID-19 and going concern Refer to Note 2.30 The COVID-19 pandemic has had a material negative impact on the Group’s results during the last quarter of the financial year ended 30 June 2020 and should the Group’s financial performance continue as it has since the COVID-19 pandemic, it is likely to enter into covenant default under its bank loan facility agreement, absent a waiver from the lender. A covenant default gives the lender the ability to accelerate the repayment of the debt facility. Whilst the estimated potential impacts of COVID-19 on the future operations of the Group have been taken into account by the Directors and management in preparing the financial statements, including the assessment of going concern, the scale and duration of the pandemic and impact on the Group’s operations in future are inherently uncertain. The Group had cash and cash equivalents of $57m at 30 June 2020. The impacts of COVID-19 and, related to that, the Group’s use of the going concern basis of accounting is a key audit matter due to the high level of judgement required by us in evaluating the Group’s assessment of these matters. Our procedures included, amongst others: Reviewing management’s cash flow forecasts and assessing the appropriateness of the models used; Assessing key judgements and assumptions and performing a sensitivity analysis of the inputs in the model; Testing management’s ability to forecast by comparing cash flow forecasts for prior periods to actual outcomes; Considering results subsequent to balance date, cash and net working capital positions; Reviewing the terms of the Group’s bank loan facility, considering the circumstances under which the facility was renewed in May 2020 and related correspondence between the Group and its lenders; and Assessing the adequacy of disclosures for compliance in accordance with the Australian Accounting Standards. Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2020, 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 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 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 Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or 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 this 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_2020.pdf. This description forms part of our auditor’s report. Report on the remuneration report Opinion on the remuneration report We have audited the Remuneration Report included in pages 21 to 29 of the Directors’ report for the year ended 30 June 2020. In our opinion, the Remuneration Report of GTN Limited, for the year ended 30 June 2020 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. Grant Thornton Audit Pty Ltd Chartered Accountants S M Coulton Partner – Audit & Assurance Sydney, 27 August 2020 SHAREHOLDER INFORMATION AS AT 24 JULY 2020 Number of security holders and securities on issue Quoted equity securities GTN has 215,279,041 fully paid ordinary shares on issue which are held by 728 shareholders. Unquoted equity securities GTN has 10,075,440 unquoted options on issue held by 3 option holders as follows: • • • • • 651,321 options exercisable at $2.74 on or before 31 December 2021; 653,713 options exercisable at $2.15 after 9 November 2020; 1,307,427 options exercisable at $2.15 after 9 November 2021; 2,487,660 options exercisable at $0.76 after 15 November 2021, and 4,975,319 options exercisable at $0.76 after 15 November 2022. 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. Unquoted equity securities There are no voting rights attached to options. Options will rank equally with the company’s fully paid ordinary shares if and when the options vest and are thereafter exercised (prior to the applicable expiry date). Distribution of security holders Quoted equity securities Fully paid ordinary shares Holding No. of shares % of shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total 51,515 727,048 782,783 5,154,888 208,562,807 215,279,041 0.02 0.34 0.36 2.39 96.88 100 No. of shareholders 124 296 95 182 31 728 % of shareholders 17.03 40.66 13.05 25.00 4.26 100 85 Unquoted equity securities Options Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total No. of options % of Options No. of holders 0 0 0 0 3 3 0 0 0 0 10,075,440 10,075,440 0 0 0 0 100 100 % of holders 0 0 0 0 100 100 Unmarketable parcel of shares The number of shareholders holding less than a marketable parcel of fully paid ordinary shares is 203. 1,282 fully paid ordinary shares comprise a marketable parcel at GTN’s closing share price of $0.39 as at 24 July 2020. Substantial shareholders (as notified to ASX) 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 Shares of Current Interest* Notice Date 50,372,704 Viburnum Funds Pty Limited and subsidiaries and funds Perennial Value Management Limited CBA and related bodies corporate Spheria Asset Management Pty Ltd First Sentier Investors Holdings** Renaissance Smaller Companies Pty Ltd Ellerston Capital Devon Funds Management Limited ICE Investors Pty Limited Smallco Investment Manager Limited H.E.S.T Australia Limited as Trustee for Health Employees Superannuation Trust Australia Carol Australian Holdings Pty Limited and related bodies corporate (Colonial First State) Dumac Inc. *As reported by the substantial shareholder at the time of lodgement **Same as Mitsubishi UFJ Financial Group, Inc SSN lodged on 5 June 2020 26,615,695 20,647,517 19,519,255 19,368,456 18,450,745 18,077,931 14,238,765 13,810,735 13,702,318 13,653,482 11,252,423 12,103,273 22.57% 04/03/2020 12.36% 9.25% 9.07% 9.00% 8.25% 8.40% 6.34% 6.42% 6.10% 27/03/2020 18/02/2020 27/05/2020 01/06/2020 23/12/2019 27/03/2020 18/05/2018 28/05/2020 29/06/2018 6.10% 19/11/2019 5.40% 6/08/2019 5.04% 20/02/2020 86 Twenty largest shareholders Fully paid ordinary shares Details of the 20 largest shareholders of quoted securities by registered shareholding are: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 16 16 16 17 18 19 20 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD MR WILLIAM L YDE III VIBURNUM FUNDS PTY LTD CS THIRD NOMINEES PTY LIMITED COWOSO CAPITAL PTY LTD MR CRAIG COLEMAN & MRS PHYLLIS COLEMAN PT VENTURES PTY LTD COFLINK PTY LIMITED MRS EVA XIRADIS MRS CINDY TAECKE WILLRYAN PTY LIMITED TRUTEC PTY LTD HEAVENLY STAR PTY LTD MFM AUSTRALIA PTY LIMITED COMCERC INVESTMENTS PTY LTD BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD MR PAUL XIRADIS & MRS EVA XIRADIS CMCK CAPITAL PTY LIMITED Total Balance of register Grand total On-market buy-back 79,779,913 58,863,934 28,398,338 12,430,405 11,292,670 4,960,789 3,603,408 2,500,000 1,784,789 700,000 500,000 422,519 315,000 300,000 225,000 200,000 200,000 200,000 200,000 188,895 177,614 163,258 150,000 207,556,532 7,722,509 215,279,041 37.06 27.34 13.19 5.77 5.25 2.30 1.67 1.16 0.83 0.33 0.23 0.20 0.15 0.14 0.10 0.09 0.09 0.09 0.09 0.09 0.08 0.08 0.07 96.41 3.59 100.00 On 27 February 2020, the Company filed an Appendix 3D extending the on-market buyback from 12 March 2020 to 11 March 2021 for up to 10% of its then outstanding shares (up to 22,315,525 shares). Calendar of key dates 3 September 2020 Closing date for receipt of Director nominations 12 November 2020 2020 Annual General Meeting 87 Corporate Directory Directors Robert Loewenthal - Independent Non-Executive Chairman William Yde III - Chief Executive Officer and Managing Director David Ryan AO – Independent Non-Executive Director Corinna Keller – Independent Non-Executive Director Company secretaries Anna Sandham Patrick Quinlan Registered office Share register 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 Auditor Grant Thornton Level 17 383 Kent Street Sydney, NSW 2000 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 88
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