P R I M E M E D I A G R O U P 2 00 9 A N N UA L R E P O R T The best things in life are free FREE TO AIR TELEVISION THE MOST POWERFUL ENTERTAINMENT MEDIUM Contents Chairman’s Address 2 Chief Executive Offi cer’s Report 4 CEO, Television Report 8 CEO, Radio Report 10 Directors’ Report 14 Financial Statements 34 Prime Media Group Limited ABN 97 000 764 867 This annual report covers both Prime Media Group Limited as an individual entity and the consolidated entity comprising Prime Media Group Limited and its subsidiaries. The Group’s functional and presentation currency is AUD ($). Directors Paul Joseph Ramsay AO Chairman (Appointed 17 April 1985) Michael Stanley Siddle Deputy Chairman (Appointed 17 April 1985) Peter John Evans (Appointed 27 March 1991) Alexander Andrew Hamill (Appointed 2 October 2003) Ian Patrick Grier (Appointed 6 June 2008) Ian Richard Neal (Appointed 6 June 2008) Siobhan Louise McKenna (Appointed 20 August 2009) Warwick David Syphers Chief Executive Offi cer (Appointed 5 December 2006) Patrick Terry Jackman (Appointed 22 February 1996. Resigned 27 November 2008) Company Secretaries Robert Reeve (Appointed 20 February 2009) Andrew Cooper (Appointed 16 June 2005) Susan Howie (Appointed 25 September 2006. Resigned 20 February 2009) Prime is an entertainment and information link to regional Australia Prime Media Group reaches 6 million regional Australians daily through its television, radio, outdoor cinema and online networks. This audience reach provides advertisers with an eff ective means of establishing infl uential relationships with consumers. Prime Media Group continues to keep pace with a changing market place through the development of more effi cient broadcast infrastructure and diverse content delivery which collectively provide integrated marketing opportunities for its clients. Queensland New South Wales ACT Victoria Western Australia PRIME TELEVISION PRIME RADIO >>1 FROM THE CHAIRMAN ON BEHALF OF THE BOARD OF DIRECTORS Notwithstanding challenging trading conditions, the Company’s core operations in regional free-to-air television and radio showed their resilience On behalf of the Directors of Prime Media Group Limited, I am pleased to present the Annual Report covering the 2009 fi nancial year. As is well documented, the 2008/9 year witnessed severe shocks in the world fi nancial systems which impacted the global economy. Despite a relatively resilient performance, the Australian economy has also experienced a signifi cant downturn, including the markets in which Prime’s businesses operate. Faced with some of the toughest conditions in advertising markets ever experienced in Australia, particularly during the second half of the fi nancial year, the Company has recorded a signifi cant reduction in earnings year on year. Notwithstanding these dramatic changes in trading conditions, the Company’s core operations in free-to-air television delivered a commendable fi nancial result, demonstrating again the resilient and high cash fl ow generating capabilities of the business. We are now well advanced in the transition from analog to digital services and our confi dence levels in the long term outlook for free-to-air television and radio in regional Australia remains high. In light of rapid technology advances driving various forms of ‘new media’, the Board and management have sought in recent periods to take advantage of emerging opportunities that are related to our core advertising based businesses to diversify and expand our earnings base. These new investments have advanced to varying degrees however the turbulence experienced in the past year in particular has generated signifi cant headwinds and delayed their anticipated PAUL RAMSAY AO CHAIRMAN OF THE BOARD >>2 contribution to the Company’s earnings. In view of these factors, the Board has engaged with management in an extensive strategy review of all the Company’s businesses to re-focus on earnings quality in a shifting media marketplace. All shareholders will, no doubt, be disappointed to have witnessed the reduction in value of their stock during the past twelve months, despite the high quality of the Company’s underlying assets. Following a capital raising of $110 million in April of this year, the Company has welcomed two new substantial shareholders being Illyria Pty Ltd, a company associated with Mr Lachlan Murdoch, and the Seven Network Limited. The presence of these two high profi le media groups underscores the confi dence we share in the future of the Company’s operations. In the context of the Illyria group becoming a substantial shareholder, I am very pleased to note the appointment of Ms Siobhan McKenna as a member of the Board. Siobhan brings a wealth of experience and capabilities in commerce and media in particular, and we look forward to her valued contribution in the future. MICHAEL SIDDLE PETER EVANS FCA SIOBHAN McKENNA BEc (Hons) M Phil (Int Rels) ALEXANDER HAMILL We continue to benefi t from our close working relationship with the industry leading Seven Network, underpinned by our Program Supply PATRICK GRIER MAICD Agreement which runs until 2017. There are imminent announcements relating to an expansion of multi-channeling services and our role in the exciting ‘Free View’ platform which will deliver to Australian households a suite of free-to-air services of world standing and drive the future success of free-to-air television in the Australian media market. IAN NEAL B.COM SF FIN On behalf of the Board I would like to extend my thanks to my fellow Directors and to all our hard working and industrious Prime employees for their tireless eff orts in what has been a very challenging year. WARWICK SYPHERS LLB CPA >>3 REPORT FROM THE CHIEF EXECUTIVE TV REVENUE GROWTH (%) 15 12 9 6 3 0 -3 -6 03/04 04/05 05/06 06/07 07/08 08/09 Prime Market Digital transmission will bring new growth opportunities SUMMARISED INCOME STATEMENT Continuing operations Group revenues from continuing operations EBITDA from continuing operations (pre-signifi cant items) Depreciation EBIT from continuing operations (pre-signifi cant items) Interest (Net) Pre-Signifi cant Profi t before tax Tax on Pre-Signifi cant profi t Core Pre-Signifi cant Profi t after tax Signifi cant items (net of tax) Profi t after tax before minorities Profi t after tax attributable to members of Prime Media Group Limited Core earnings per share pre-signifi cant items (cents) Final dividend per share (cents) Earnings per share from continuing operations (fully diluted) (cents) YEAR ENDED 30 JUNE 2009 $’000 2008 $’000 CHANGE 278,862 264,279 +5.5% -20.0% -23.3% -41.7% -44.3% 59,029 (15,298) 43,731 (17,541) 26,190 (8,683) 17,507 (63,051) (45,544) 73,789 (12,763) 61,026 (16,132) 44,894 (13,484) 31,410 (16,878) 14,532 (44,435) 14,041 9.9 1.0 (24.5) 24.9 9.0 10.8 WARWICK SYPHERS CHIEF EXECUTIVE OFFICER >>4 REVIEW OF FINANCIAL PERFORMANCE As noted in the accompanying Summarised Income Statement, the Company’s net profi t for the year, before signifi cant and non-recurring items, was $17.5 million. After signifi cant items, primarily comprising ‘market to market’ and asset impairment recognition, the Company recorded a loss of $44.4 million. The 2009 fi nancial year marked some of the most challenging trading conditions ever encountered in Australia, with advertising demand falling precipitously in the second half of the fi nancial year. Notwithstanding these adverse macro economic conditions, the Company’s core broadcast assets in regional television and radio performed credibly to their peer groups and demonstrated their continuing resilience. REVIEW OF OPERATIONS I) TELEVISION The ratings performance of our regional television was again buoyed by the strong programming schedules delivered under our Program Supply Agreement with the Seven Network. In particular, our coverage of the Beijing Olympics in the fi rst half proved highly successful in revenue generation prior to the onset of the global fi nancial crisis in the December quarter. We are now well advanced in the transition from analog to digital transmission, which will bring new growth opportunities however this has resulted in a duplication of our cost base in many areas of our infrastructure until the simulcast period completes. The cessation of licence fee rebates previously available under the Government’s Regional Equalisation Plan (‘REP’), worth up to $5.1 million per annum in prior periods, has impacted our ability to generate growth in television earnings, however we are confi dent that a level of recognition of this impost will be made in the context of the Government’s Digital Implementation Plan in the form of new or extended forms of subsidy pending completion of the simulcast period. REVENUE FROM TELEVISION ($MILLIONS) COMPARATIVE PERFORMANCE FOR THE FULL YEAR ENDING 30 JUNE REVENUE FROM RADIO ($MILLIONS) COMPARATIVE PERFORMANCE FOR THE FULL YEAR ENDING 30 JUNE 250 200 150 100 50 0 20 15 10 5 0 2004 2005 2006 2007 2008 2009 2006 2007 2008 2009 >>5 REPORT FROM THE CHIEF EXECUTIVE (CONTINUED) RADIO STUDIO II) RADIO The extensive operations restructure to establish a centralised facility in Maroochydore was completed towards the end of the fi nancial year which will enable the Queensland radio network to realise substantial synergies and cost savings in the current year. Concurrent with this major facilities initiative, we have also realigned and strengthened the branding of the FM and AM stations in the network to present a more cohesive and consistent face to audiences and advertisers. It is pleasing to note that in the current period, notwithstanding the continuing challenging conditions, we are generating growth in several local markets, although national markets continue to lag at this point. We continue to seek opportunities to leverage our skills and infrastructure in regional radio through the provision of sales and programming services to third parties with whom we do not compete. NEW ZEALAND VEHICLES BROADCAST PRODUCTION SERVICES LIMITED (‘BPS’) (FORMERLY BECKER GROUP LIMITED) The Company is currently completing a takeover of minority interests in BPS, having received acceptances enabling Prime to move to above 98% of the issued shares. BPS has operations in outdoor cinema, television production and outside broadcasting services. It is expected that BPS will be delisted from the Australian Securities Exchange in due course with the consequent removal of signifi cant corporate overhead costs. DIGITAL AND ONLINE MEDIA We have continued to develop our presence in both online proprietary websites and in the out-of-home digital media sector. I) IPRIME During the 2009 fi nancial year we completed establishment of 45 ‘hyper-local’ websites within the Prime broadcast footprint. From January this year, >>6 this has enabled our sales teams to present ‘bundled’ cross platform WESTFIELD SPECTACULAR: PDM off erings incorporating traditional television and radio advertising with an extension into the online environment. The growth of broadcaster sponsored websites is a consistent trend across all major developed media markets in the world. These sites are garnering increased shares of advertising budgets through their unique ability to leverage the brand building power of mass audience reach with the accountability and fast response mechanisms which are features of the online environment. II) PRIME DIGITAL MEDIA (‘PDM’) PDM is a leading out-of-home digital (‘OOHD’) signage business in Australia. PDM has operations in digital content production, managed networks and related media sales. As a video and advertising based business Prime is well positioned to leverage its relationships with advertising agencies and clients to support organic growth potential. PRIME COMMUNITY PARTNER: ROYAL CHILDREN’S HOSPITAL FOUNDATION (QUEENSLAND) During the period under review, Prime moved to 100% ownership of PDM, leading to a consolidation of all early stage development losses. IPRIME In the current period, PDM has reset its strategy to more closely align with current market conditions, in particular by securing an extension of its managed network properties which utilise a fee for service business model. STRATEGY The impact of the current economic downturn has caused all media companies to review and refi ne their business models and strategy, particularly in the context of continuing rapid technology change. Prime has developed a solid and diversifi ed media asset portfolio however the headwinds generated by recent economic events has suppressed earnings contributions from recent investments. The Board and management are strongly focussed on generating adequate returns from all the Company’s businesses. >>7 TELEVISION The free-to-air television industry is changing rapidly, providing many new challenges and opportunities over the coming years The 2009 fi nancial year has been challenging for all broadcasters. Prime’s strength in programming and sales has seen it weather these challenges better than most of its peer group, enabling the network to remain competitive and in a strong leverage position as advertising markets improve. Prime’s market position has been market leading, underpinned by its strong relationship with the Seven Network which continues to provide programming from Australia and overseas. Following on from a very successful telecast of the Beijing Olympics in August 2008, the strong line-up of sport in particular has continued its strong performance through the current calendar year. DOUG EDWARDS CEO, TELEVISION >>8 Western Australia New South Wales ACT Victoria The depth and quality of the Seven Network Australian produced drama, news and current aff airs is meeting the many challenges from new and traditional media that our competitors bring and reinforces confi dence in our future. Since the beginning of 2009, the free-to-air television programming landscape has changed dramatically with the introduction of multi-channeling that will by the end of 2009 have given life to 10 new free-to-air channels in standard and high defi nition viewing. These new channels give opportunities for Prime to provide a more diverse range of programming which will generate opportunities to grow audiences. With multi-channeling and new technologies comes the challenge and opportunity of audience fragmentation, which Prime is proactively addressing through the implementation of its ‘iPrime’ online site network that operates throughout its regional television footprint. The ‘iPrime’ online network provides further opportunity for Prime to develop contact points and deeper relationships with its local audiences and clients. Prime has also continued to progress the transition to digital broadcasting with 97% of our east coast audience now able to receive a digital signal. In June 2009, GWN commenced its fi rst digital transmission in regional WA. Prime is continuing to complete its digital transmission network with analogue switch-off due to commence in 2010 and continuing progressively through until 2013. SEVEN/PRIME NEWS NO. 1 IN NEWS AND CURRENT AFFAIRS TENNIS AUSTRALIAN OPEN MENS FINAL - NO. 1 REACHING REGIONAL SPORTS PROGRAM IN 09 PACKED TO THE RAFTERS AUSTRALIA’S NO. 1 FAMILY DRAMA V8 MOTOR RACING BATHURST 2008 REACHED 1.7 MILLION REGIONAL AUSTRALIANS BETTER HOMES AND GARDENS AUSTRALIA’S LONGEST RUNNING LIFESTYLE PROGRAM >>9 RADIO Prime Radio is evolving New listeners New opportunities The past twelve months has seen some major changes in the Prime Radio Network. In March 2009, our state-of-the-art operations hub in Maroochydore became fully operational. This new hub facility has enabled the management of all programming, production and transmission of the 10 Prime Radio stations to be brought in-house and centralised. This will underpin Prime’s ability to improve the quality and effi ciency of its output across all areas of operations. To augment the synergies delivered by the operations hub and new programming strategies, we also embarked on a signifi cant re-branding exercise with the launch of the Zinc Radio Network from the Sunshine Coast through to Cairns. The launch of Zinc also provided the opportunity to move two heritage talk stations in Cairns and Mackay back to the AM band to recapture their pre-incumbency, compiled with other initiatives such as the remodelling of our 106.3FM station in Townsville. ROB GAMBLE CEO, RADIO >>10 Cairns (4CA FM and 4EL AM) Townsville (SEA FM) Townsville (MIX106.3 FM) Mackay (4MK FM and 4AA AM) Rockhampton (4RO AM) Gladstone (4CC AM) Noosa (ZINC 96.1 FM) Maroochydore (HOT 91 FM) The Zinc Network is a male skewing Rock Station playing a variety of classic and modern rock music. The target audience LOCCO of males 25 to 49 leads to a strong 70s, 80s and early 90s music line up. There are three heritage stations on the AM band which have a strong talk and Classic Hits focus and our Hits stations in Townsville and the Sunshine Coast target the younger 18 + age groups. The new branding has given the network a greater capacity to meets the needs of clients across the network bringing greater synergies to our sales and promotions. MORNING ANNOUNCER, 4CA CAIRNS. PHEBE LUNCH TIME ANNOUNCER ACROSS Our commitment to our local communities and true localism ZINC NETWORK was highlighted during the past year with a continued focus on taking our radio stations into the community. Close to 400 outside broadcasts were undertaken across the network BIG AL AND NUGGET to support our clients and the many community projects which Prime Radio is associated with. With new resources and fresh new sound and look into each market comes some great advantages, both commercially and community based, with all markets locking down extremely strong relationships across the group on a community level and forging partnerships throughout the ZINC 96.1FM SUNSHINE COAST COMMUNITY NEARLY 400 OUTSIDE BROADCASTS DURING network that will contribute to maintaining strong positions 2008/09. in each area. The Australian Radio Industry entered the digital age during the current year with digital transmission commencing in the fi ve major metropolitan markets. The Government and industry are still in the planning phase for the switchover to digital radio in regional areas which will bring with it new challenges and opportunities for the Prime Radio Network. >>11 NEW MEDIA Transitioning to new media platforms, the current and future challenge PDM TELSTRA T-SHOP Prime has continued to extend and develop opportunities emerging in the new media sector. Drawing on our experience and relationships developed from more than 25 years in the media sector, we are moving ahead in some areas whilst evaluating strategies to follow in others. The iPrime website network has expanded signifi cantly in the past twelve months now covering the entire Prime/GWN television footprint creating new connections within our local communities. During the year, the Group also acquired 100% ownership of the Prime Digital Media (‘PDM’) business which is a leading out-of-home business. The deregulated nature of the new media sector gives rise to many challenges which demand innovative strategies to ensure the integration between traditional and new media businesses is effi cient and creates added value. >>12 FINANCIAL AND STATUTORY INFORMATION Contents Directors’ Report 14 Corporate Governance Statement 28 Financial Statements 34 Independent Audit Report 120 ASX Additional Information 122 Company Information 124 >>13 DIRECTORS’ REPORT Your directors submit their report for the year ended 30 June 2009. DIRECTORS The names and details of the Company’s directors in offi ce during the fi nancial year and until the date of this report are as follows. Directors were in offi ce for this entire period unless otherwise stated. Names, qualifications, experience and special responsibilities Paul Joseph Ramsay AO Non-Executive Chairman (appointed 17 April 1985) Mr Ramsay is Chairman of the Paul Ramsay Group of companies, which have operated for more than 45 years in real estate, health care and communications. He is the Chairman and majority shareholder of Ramsay Health Care Limited. Mr Ramsay is also currently a director of the “George Gregan Foundation”, the “Youth Mental Health Advisory Board” and “The Australian Science Media Centre.” Michael Stanley Siddle Non-Executive Deputy Chairman (appointed 17 April 1985) Mr Siddle has been Deputy Chairman of the Paul Ramsay Group since 1967. He is Deputy Chairman of Ramsay Health Care Limited and has been a Director of Prime Media Group since 1985. He is a member of the Audit Committee. Peter John Evans FCA Non-Executive Director (appointed 27 March 1991) Mr Evans is a Chartered Accountant, and was in public practice for almost 20 years as a Partner in an international accounting fi rm before becoming a sole practitioner. He has been a Director of the Paul Ramsay Group since 1987. He is the Chairman of the Audit Committee and a member of the Remuneration Committee. Alexander Andrew Hamill Non-Executive Director (appointed 2 October 2003) Mr Hamill has worked in marketing and advertising in Australia and globally for over 45 years. He is the Chairman of the John MacLean Foundation and patron of the Dymocks Literacy Foundation. Mr Hamill was the Media Director of the Australian Olympic Team in Sydney (2000), Athens (2004) and Beijing (2008). He was until 20 August 2009, a member of the Audit Committee and is a member of the Remuneration Committee. Ian Patrick Grier MAICD Non-Executive Director (appointed 6 June 2008) Mr Grier has been employed as an executive in the private health care industry for more than 20 years. In June 2008, he retired as Managing Director of Ramsay Health Care Limited after joining the Company in 1988 and serving at the helm since 1994. Mr Grier has served as both President and Chairman of the Australian Private Hospitals Association and sits on a number of industry committees. Mr Grier has served as an Executive Director on the Ramsay Health Care Board for 12 years and from 1 July 2008 continues as a Non-Executive Director of Ramsay Health Care. He is the Chairman of the Remuneration Committee. >>14 Ian Richard Neal Non-Executive Director (appointed 6 June 2008) Mr Neal is the principal of Management Abroad Pty Limited. He is a Chairman for the Executive Connection and consults on business strategy and implementation from a perspective of maximising shareholder value. Prior to Management Abroad, Mr Neal was co-founder and Managing Director of Nanyang Ventures Pty Limited from 1993-2004. Mr Neal’s prior professional background is in fi nancial markets, commencing as an equities analyst and moving through various banking positions until establishing Nanyang. Mr Neal is a Fellow of the Financial Services Institute of Australia. He is a member of the Audit Committee. Siobhan Louise McKenna Non-Executive Director (appointed 20 August 2009) Ms McKenna has extensive media and government experience. She is the Managing Partner of Illyria, a media-focused investment company, and was previously a Partner of leading global strategy management consulting fi rm, McKinsey and Company. She is a Commissioner of the Productivity Commission and her other directorships include NBNCo, the entity established by the Australian Government to implement its national broadband network initiative. Ms McKenna was appointed as a member of the Audit Committee on 20 August 2009. Warwick David Syphers Chief Executive Offi cer (appointed 22 August 2005) Executive Director (appointed 5 December 2006) Mr Syphers has over 25 years industry experience having joined STW 9 in Perth in 1982 and has held senior management positions with Prime Television since joining the Company in 1987. He was appointed Chief Financial Offi cer in March 2003 and Group General Manager in March 2004. He has been a Certifi ed Practising Accountant for over 20 years. Patrick Terry Jackman AM Non-Executive Director (appointed 22 February 1996) (resigned 27 November 2008) Mr Jackman has 40 years experience in the entertainment industry. He formerly held the positions of Managing Director of Hoyts Theatres Limited, Chief Executive of Birch, Carroll and Coyle Limited, and Chairman of Indycar Australia and Tourism Queensland. Mr Jackman is currently sole proprietor of Pacifi c Cinemas Pty Ltd, one of Australia’s largest privately owned cinema exhibition groups. He is currently Chairman of Sunland Group Limited. >>15 DIRECTORS’ REPORT DIRECTORS’ INTERESTS The relevant interest of each director in the shares and options issued by the Company at the date of this report is as follows: P. J. Ramsay M. S. Siddle P. J. Evans A. A. Hamill I. P. Grier I. R. Neal S. L. McKenna W. D. Syphers ORDINARY SHARES 107,993,654 984,082 24,286 – – – – 201,000 OPTIONS OVER ORDINARY SHARES – – – – – – – – Interests in contracts or proposed contracts with the Company No director has any interest in any contract or proposed contract with the Company other than as disclosed elsewhere in this report. DIRECTORSHIPS IN OTHER LISTED ENTITIES Directorships of other listed entities held by directors of the Company during the three years immediately before the end of the year are as follows: DIRECTOR COMPANY Paul Joseph Ramsay AO Michael Stanley Siddle Peter John Evans Ian Patrick Grier Ian Richard Neal Warwick David Syphers Ramsay Healthcare Limited (Chairman) Broadcast Production Services Limited Ramsay Healthcare Limited (Deputy Chairman) Ramsay Healthcare Limited Broadcast Production Services Limited (Chairman) destra Corporation Limited Ramsay Healthcare Limited Intrapower Limited Dyesol Limited Arasor Limited Broadcast Production Services Limited (Managing Director) destra Corporation Limited PERIOD OF DIRECTORSHIP FROM TO May 1975 September 2004 May 1975 June 1990 July 2007 April 2008 June 1997 May 2007 September 2006 June 2006 July 2007 May 2007 Present May 2008 Present Present Present Present Present Present Present July 2008 Present Present COMPANY SECRETARIES Mr Robert Reeve, B.A, L.L.B. Mr Reeve was appointed as Group General Counsel and Company Secretary of Prime Media Group Limited on 20 February 2009. Mr Reeve was admitted as a solicitor in New South Wales in 1977 and practised as a commercial lawyer in the Sydney CBD from that time until joining Broadcast Production Services Limited, as its General Counsel and Head of Business Aff airs in 1996. He is a Director of Hope Media Limited, former Secretary and Public Offi cer of the Australian Independent Distributors’ Association Inc. and a former member of the Administration Committee for the Film Exhibition and Distribution Code of Conduct. Mr Andrew Cooper BEc CA Mr Cooper was appointed as Company Secretary in June 2005. He has been a Chartered Accountant for the past 15 years and currently holds the role of Group Financial Controller for Prime Media Group Limited. >>16 EARNINGS PER SHARE Basic earnings per share Basic earnings per share – continuing operations Diluted earnings per share Diluted earnings per share – continuing operations Basic earnings per share from continuing operations before signifi cant items (Note 7(d)) Diluted earnings per share from continuing operations before signifi cant items (Note 7(d)) DIVIDENDS Final dividend recommended: Final dividend recommended: on ordinary shares Dividends paid in the year: Interim for the year on ordinary shares Final for 2008 shown as recommended in the 2008 report on ordinary shares Principal activities The principal activities during the fi nancial year of entities within the consolidated entity were: » » » » operation of commercial television and radio stations; outside broadcast production; fi lm exhibition under the Moonlight Cinema brand; and television program production. There have been no other signifi cant changes in the nature of these activities during the year. Operating and financial review Operating Results for the Year The consolidated loss of the economic entity after providing for income tax was $45,544,000 (2008: profi t $14,532,000). Review of Operations CONTINUING OPERATIONS The continuing operations of the Company before signifi cant items refl ects a 44% decrease in net profi t after tax (refer note 7). Gross revenues from continuing operations increased by 5.5%, mainly arising from the acquisition of the zer01zer0 outside broadcast business in August 2008. Revenues from Visual and Radio Broadcasting were in line with the prior year but increased operating and administration costs gave rise to reduced results in these segments. The current year result includes impairments and other one-off charges totalling $63,051,000 (net of tax). These items are outlined in note 7(d). DISCONTINUING OPERATIONS 2009 There have been no disposals of business operations during the current period. CENTS (24.5) (24.5) (24.5) (24.5) 9.9 9.9 CENTS $’000 1.0 2.0 9.0 3,584 2,581 11,472 14,053 2008 Disposal of Dendy Film and Cinema Operations On 30 April 2008, Broadcast Production Services Limited completed the sale of its Dendy Film Distribution and Exhibition businesses. Risk management The Group takes a proactive approach to risk management. The Board is responsible for ensuring that risks, and also opportunities, are identifi ed on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identifi ed by the Board. The Group believes that it is crucial for all Board members to be a part of this process and, as such, the Board has not established a separate risk management committee. Instead, sub-committees are convened as appropriate in response to issues and risks identifi ed by the Board as a whole, and the sub-committee further examines the issue and reports back to the Board. The Board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identifi ed by the Board. These include the following: » Board approval of a strategic plan, which encompasses the Group’s vision, mission and strategy statements, designed to meet stakeholders’ needs and manage business risk. Implementation of Board approved operating plans and budgets and Board monitoring of progress against these budgets, including the establishment and monitoring of KPIs of both a fi nancial and non-fi nancial nature. The active participation of the Audit Committee chairman in the review of management operations. This participation includes regular consultation with the senior executives to discuss ongoing operations and strategy review. » » Risk management is further addressed in the Corporate Governance Statement. >>17 DIRECTORS’ REPORT Significant changes in the state of affairs Acquisition of zer01zer0 HD Pty Limited and related business assets by Broadcast Production Services Limited On 21 August 2008, On Site Broadcasting Pty Ltd, a controlled entity of Broadcast Production Services Limited, completed the acquisition of all the shares in zer01zer0 HD Pty Limited and certain business assets from Dergat Pty Limited that together make up the outside broadcasting business “zer01zer0”. This business operates in the outside broadcasting industry and has major supply contracts with Fox Sports. Acquisition of Prime Digital Media Pty Ltd and controlled entities On 24 November 2008, Prime Television Digital Media Pty Limited (“Prime”), a controlled entity of Prime Media Group Limited, completed the acquisition of 100% of the shares in Prime Digital Media Pty Ltd (“PDM”). PDM is a digital Out-of-Home broadcasting business selling advertising, creating and selling content and managing third party digital networks. Appointment of Administrator to destra Corporation Limited On 13 November 2008, the directors of destra Corporation Limited, appointed PPB as Voluntary Administrator of the company. Also on 13 November 2008, KordaMentha were appointed Receivers and Managers of the company on behalf of the secured creditors of the company. As a result of these events the directors have decided to take a provision for impairment against the Group’s investment in the company, taking its carrying value to Nil. Significant events after the balance date Reduction in financing facilities On 23 July 2009 the Group reduced the facility limits of its existing Debenture Subscription Facility from $350 million to $260 million. Takeover Offer for Minority Interest in Broadcast Production Services Limited On 7 September 2009, Prime Media Broadcasting Services Pty Limited, a wholly owned group entity, increased its off er for the acquisition of the minority shares in Broadcast Production Services Limited (“BPSL”) from 0.257 New Prime Media Group Limited shares per BPSL share to 0.35 New Prime Media Group Limited shares per BPSL share. On 11 September 2009, the Group announced it had received acceptances of its revised off er which took its shareholding in Broadcast Production Services Limited to 97.23%. On 22 September 2009, Prime Media Broadcasting Services Pty Limited announced its intention to proceed with the compulsory acquisition of the outstanding shares in Broadcast Production Services Limited. As at the date of this report the compulsory acquisition process is still underway and is expected to be completed prior to 30 November 2009. >>18 Likely developments and expected results The broad areas of focus for the 2010 fi nancial year will be: » consolidation and growth of the core businesses of the Group in an environment of anticipated cautious and gradual economic recovery and ongoing technological and communications diversity; continued active monitoring and analysis of the performance and profi tability of each of the Group’s business segments, including the implementation of appropriate strategies; and continued prudent management of debt and risk generally, » » with a view to optimising returns to shareholders. Environmental regulation and performance The economic entity’s operations are subject to various environmental regulations in the jurisdictions and industry in which it has a presence. In each of the jurisdictions, the Group has established an environmental management system, which monitors compliance with existing environmental regulations and new regulations as they are enacted. The management system includes procedures to be followed, in conjunction with actions to be taken by third parties, should an incident occur which adversely impacts the environment. The Group’s operations hold all relevant licences and permits and have implemented monitoring procedures to ensure that it complies with licence conditions. The Directors are not aware of any breaches of any legislation during the fi nancial year, which are material in nature. Share options Unissued shares As at the date of this report and the balance date, there were no unissued ordinary shares under options. Refer to note 27 of the fi nancial statements for further information. Shares issued as a result of the exercise of options During the fi nancial year, employees have not exercised any options to acquire ordinary shares in Prime Media Group Limited. Indemnification and insurance of directors and officers In accordance with the Corporations Act 2001, the directors disclose that the Company has a Directors’ and Offi cers’ Liability policy covering each of the directors and certain executive offi cers for liabilities incurred in the performance of their duties and as specifi cally allowed under the Corporations Act 2001. The premiums in respect of the policy are payable by the Company. The terms of the policy specifi cally prohibit the disclosure of any other details relating to the policy and therefore the directors are not disclosing further particulars relating thereto. REMUNERATION REPORT (AUDITED) This report outlines the remuneration arrangements in place for directors and executives of Prime Media Group Limited and its controlled entities in accordance with the requirements of the Corporations Act 2001 and its regulations. It also provides the remuneration disclosures required by paragraphs Aus 25.4 to Aus 25.7.2 of AASB124 Related Party Disclosures, which have been transferred to the Remuneration Report in accordance with Corporation Regulation 2M.6.04. For the purposes of this report Key Management Personnel (KMP) of the Group are defi ned as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company. For the purposes of this report, the term ‘executive’ encompasses the Chief Executive, senior executives, general managers and secretaries of the Parent and the Group. Remuneration Committee The Remuneration Committee of the Board of Directors determines and reviews the remuneration packages and employment conditions applicable to executive directors and the senior management staff . Salaries are customarily set prior to the commencement of an operating period. In making these determinations, regard is had to comparable industry or professional salary levels, and to the specifi c performance of the individuals concerned. Remuneration policy To prosper the Company must be able to recruit, motivate and retain highly skilled directors and executives. The remuneration policy of Prime Media Group Limited has been established within a framework that ensures alignment of director and executive objectives with those of shareholders and the general business objectives of the Group. Employee share incentive scheme The Group has in place an Employee Share Option Scheme. At two Annual General Meetings (1992 and 1995), shareholders have given approval to the terms of the Prime Media Group Employee Share Option Scheme presented to these meetings. Participation in the Scheme is available to any Director of the parent entity and any person who is in the employment of the Group. Recommendations in respect of allocations of share options under the Scheme are made by the Remuneration Committee, for approval by the Board. In accordance with the Listing Rules of the Australian Securities Exchange, options proposed to be issued to executive directors are submitted for approval by shareholders in General Meeting. The total number of Options on issue by the parent entity shall not at any time exceed fi ve per cent (5%) of the parent entity’s total number of ordinary shares on issue of which the total number of Options on issue by the parent entity to directors of the parent entity shall not exceed two point fi ve per cent (2.5%) of the total number of ordinary shares on issue. Remuneration structure In accordance with best practice corporate governance, the structure of non-executive director and senior management remuneration is separate and distinct. Non-executive director remuneration Objective The remuneration of non-executive directors is determined by the Board as a whole. The Board seeks to set aggregate remuneration at a level which provides the Company with an ability to attract and retain directors of the highest calibre, within a cost that is acceptable to shareholders. Structure In accordance with the Company’s Constitution and the ASX Listing rules the total quantum of non-executive directors’ fees is subject to the approval of shareholders in general meeting. The last aggregate increase in annual remuneration was approved by shareholders in November 2007, when shareholders approved an aggregate remuneration of $750,000 per annum (excluding superannuation and retirement benefi ts arising under the Directors’ Retirement Plan). The amount of aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed annually. The Board considers the advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process. The remuneration for each non-executive director is set out in Tables 1 and 2 in this report. The Directors’ Retirement Plan, approved by shareholders in November 1997, only applies to Mr Alex Hamill. During the current year, Mr Jackman retired from the Board and was paid a retiring benefi t of $180,000. Executive director and senior manager remuneration Objective The remuneration of executive directors and senior managers is determined by the Remuneration Committee of the Board. The Company seeks to reward executives with a level and mix of remuneration commensurate with their positions and responsibilities within the Company so as to: » » align the interests of the executives with those of shareholders; link rewards with the strategic goals and performance of the Company; and ensure that total remuneration is competitive by market standards. » Structure The executive remuneration levels are reviewed on an annual basis in accordance with the guidelines approved by the Board as part of the annual operational review and budget setting process. In order to determine the appropriate level and composition of executive remuneration, the Remuneration Committee considers information obtained from the formal performance appraisal process as well as market data obtained from a number of independent sources. Executive remuneration packages consist of the following elements: » Fixed remuneration comprises salary, superannuation, and other benefi ts that are not subject to any target achievement. Variable remuneration comprises a mixture of short term and long term incentives. These incentives usually consist of cash payments but have also included the issue of share options under the Prime Media Group Employee Share Option Scheme. » >>19 The maximum aggregate of short-term incentive payments available to executives is subject to the approval of the Board of Directors as part of the annual operational review and budget setting process, with the minimum payable being zero if no performance conditions are met. Payments of short-term incentives are usually delivered as a cash bonus or additional superannuation contributions, subject to compliance with relevant eligible contribution rules. Payments arising from the short-term incentive pool are generally made within three months of the reporting date. For the 2008 fi nancial year, 100% of the STI cash bonus pool vested to executives and was paid during the 2009 fi nancial year. The Remuneration Committee has considered the STI performance for the 2009 fi nancial year and has determined to pay 60% of the STI pool. The total STI pool for 2009 was $1,300,000. The short-term incentive remuneration components of the key management executives are outlined in Tables 1 and 2 later in this report. VARIABLE REMUNERATION – LONG-TERM INCENTIVES (LTI) Objective The objective of long-term incentives is to reward senior executives in a manner which aligns their interests more closely with those of the Company’s shareholders. Long-term incentive grants are generally made only to executives who are able to infl uence the generation of shareholder wealth and thus have an impact on the Group’s performance against the relevant long-term performance hurdle. Structure The long-term incentives have until 30 June 2009 been delivered through the granting of options to selected executives. In light of recent structural changes within the Group and legislative changes aff ecting the treatment of share options the Remuneration Committee has suspended the current share option scheme and is reviewing alternatives for a more appropriate long-term incentive scheme. On 30 June 2009, 2,845,000 executive options were surrendered by executives. DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) FIXED REMUNERATION Objective Prime aims to set fi xed annual remuneration levels at competitive market levels for jobs of comparable nature, size and level of responsibility. Fixed remuneration levels are reviewed annually and the process consists of a review of Company, business unit and individual performance appraisal as well as analysis of the external market conditions. Structure Senior management staff are given the opportunity to receive their fi xed remuneration in a variety of forms including cash, superannuation and fringe benefi ts such as motor vehicles. The methods of payment available are intended to give optimal benefi t to the recipient without creating undue cost for the Company. The fi xed remuneration components for key management personnel are outlined in Tables 1 and 2 later in this report. VARIABLE REMUNERATION – SHORT-TERM INCENTIVES (STI) Objective The short-term incentives are set in a manner that aims to link the achievement of the Company’s operational targets with the remuneration received by the executives responsible for meeting those targets. The levels of short-term incentives are set so as to provide suffi cient incentive for executives to strive to achieve the set operational targets whilst maintaining a reasonable cost to the Company. Structure The actual short-term incentive payments granted to each senior manager are dependent on the extent to which specifi c operational targets set at the beginning of the fi nancial year are achieved. The operational targets consist of a number of Key Performance Indicators (KPIs) covering both fi nancial and non-fi nancial performance measures. Typically the KPIs will include a combination of direct targets such as sales and expenditure budgets, market share objectives and operational management objectives as well as broader Company targets such as Company and divisional earnings targets. Each executive’s STI scheme consists of a combination of benchmarks against which the executive is measured. Some of these benchmarks have fi xed targets which trigger payments whilst other benchmarks may trigger proportional payment based on performance towards meeting the benchmark. During the current year, the Remuneration Committee have approved the payment of bonuses to executives where they have achieved their established KPI targets. Mr Edwards and Mr Gamble had KPIs linked to the maintenance of advertising revenue shares as well as operational management targets which were achieved during the period. Mr Smith has milestone KPIs linked to the continued implementation of the Prime Television Digital Broadcast Rollout. On an annual basis the performance of each executive is assessed against their KPIs in determining the eligibility for payments from the short term incentive pool. The short-term incentives for some executives are calculated in relation to pre-determined formulas tied to their KPIs and fi xed remuneration packages, whilst other executives are assessed against their KPIs and the extent of the short-term incentive payment made to these executives is at the discretion of the Remuneration Committee within the pre-determined and authorised short-term incentive pool. >>20 Details of Directors and Key Management Personnel (i) Directors P. J. Ramsay Chairman (non-executive) M. S. Siddle Deputy Chairman (non-executive) P. J. Evans Director (non-executive) P. T. Jackman Director (non-executive) – resigned 27 November 2008 A. A. Hamill Director (non-executive) I. P. Grier Director (non-executive) I. R. Neal Director (non-executive) S. L. McKenna Director (non-executive) – appointed 20 August 2009 W. D. Syphers Director (Chief Executive Offi cer) (ii) Executives D. Edwards Chief Executive Offi cer – Television R. Gamble Chief Executive Offi cer – Radio and Digital Media G. Smith R. Reeve Chief Technology Offi cer and General Manager, Broadcast Production Services Group General Counsel and Company Secretary (eff ective 1 July 2008) P. Stubbings Chief Financial Offi cer (joined Group 15 December 2008) The remuneration of the directors and key management personnel are set out in Tables 1 and 2 on the following pages. EMPLOYMENT CONTRACTS Chief Executive Offi cer The CEO, Mr Syphers, is employed under an ongoing contract of no fi xed term. The current employment contract commenced on 22 August 2005. Under the terms of the present contract: » For the year ended 30 June 2009, Mr Syphers was entitled to receive fi xed remuneration of $500,000 plus superannuation. During the current year, Mr Syphers also received $13,885 as a payout of a portion of accrued leave entitlements. Mr Syphers’ salary is reviewed annually by the Remuneration Committee and recommendations are put to the Board for their approval. Mr Syphers’ contract also provides for short-term incentives, such as KPI bonuses, which are set by the Board at the commencement of each fi nancial year. Mr Syphers may resign from his position and thus terminate this contract by giving six months written notice. The Company may terminate this employment contract by providing 12 months written notice or providing payment in lieu of the notice period. Payment in lieu of notice will be based on fi xed remuneration and does not include any options or any short-term incentive amounts. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, Mr Syphers is entitled only to that portion of his remuneration contract that is fi xed, and only to the date of termination. Mr Syphers’ employment contract provides for a long-term employment bonus that is payable upon termination of employment or material change of status of duties or position. The terms of the long-term employment bonus are: • If termination occurs after 22 August 2008, Mr Syphers is entitled to receive a bonus payment of 1.25 times average annual salary of the preceding three years; and • If termination occurs after 22 August 2010, Mr Syphers is entitled to receive a bonus payment of 1.5 times average annual salary of the preceding three years. Should a termination event occur, any entitlements to options will remain for a period of 12 months. » » » » » Other Executives (Standard Contracts) All key management personnel executives have ongoing contracts of no fi xed term with the exception of Mr Robert Gamble, CEO- Radio and Digital Media, who has a fi xed term contract that expires on 31 December 2012. The Company may terminate the executive’s employment by providing six months written notice or providing payment in lieu of the notice period (based on the fi xed component of the executive’s remuneration). Executives may terminate their employment agreements by providing three to six months written notice depending on the terms of their agreement. On termination or notice by the Company, any LTI options that have vested or that will vest during the notice period will be released. LTI options that have not yet vested will be forfeited. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, the executive is entitled only to that portion of remuneration that is fi xed, and only up to the date of termination. On termination with cause any unvested options will immediately be forfeited. >>21 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) Remuneration of key management personnel Table 1: Remuneration for the year ended 30 June 2009 SHORT-TERM TOTAL SALARIES PAID NON-CASH BENEFITS BONUS $ – – – – – – – – – 75,000 60,000 226,666 25,000 98,604 65,000 65,000 – 616,270 $ – – – – – – – – – POST EMPLOYMENT LONG TERM BENEFITS % PERFOR- MANCE RELATED SUPER- ANNUATION RETIRE- MENT BENEFITS LONG SERVICE LEAVE REMUNERA- TION REQUIRED TO BE EXPENSED $ – 5,400 15,695 $ – – – 2,250 180,000 – 5,850 – – – – – – 29,195 180,000 $ – – – – – – – – – $ % 75,000 65,400 242,361 207,250 98,604 70,850 66,000 – 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 825,465 0.0% FBT $ – – – – – – – – – – 513,885 98,418 85,542 13,744 150,000(6) 8,333 869,922 0.0% 144,000 453,519 185,441 161,470 150,000 496,771 21,214 18,439 20,000 313,546 88,568 76,980 279,686 – – 13,744 17,919 18,157 13,744 127,420 1,790 1,556 8,061 – – – – – – – 5,158 819,332 17.6% – 554,343 27.1% 4,892 502,143 5,033 298,463 – 138,827 4.0% 0.0% 0.0% SALARY & FEES FOR PARENT ENTITY $ 75,000 60,000 SALARY & FEES FOR OTHER GROUP ENTITIES $ – – 126,666 100,000 25,000 65,400 65,000 66,000 – – 33,204 – – – 483,066 133,204 513,885 309,519 346,771 293,546 279,686 127,420 – – – – – – 1,870,827 – 314,000 2,184,827 395,431 343,987 85,369 150,000 23,416 3,183,030 2,353,893 133,204 314,000 2,801,097 395,431 343,987 114,564 330,000 23,416 4,008,495 Non-executive directors P. J. Ramsay (Chairman) M. S. Siddle (Deputy Chairman) P. J. Evans T. Jackman (2) A. Hamill P. Grier (1) I. Neal (1) S. McKenna (3) Sub-total non-executive directors Executive directors W. Syphers (5) Other key management personnel D. Edwards (5) R. Gamble G. Smith (5) R. Reeve P. Stubbings (4) Sub-total executive KMP Totals (1) Mr Grier and Mr Neal were appointed to the Board of Directors 6 June 2008, current fees include payment for June 2008 fees as well as current fi nancial year. (2) Mr Jackman retired 27 November 2008. (3) Ms McKenna was appointed as a director on 20 August 2009. (4) Mr Stubbings joined the Group on 15 December 2008. (5) Options expensed during 2009 but not exercised (no value received) W. Syphers $530,320, D. Edwards $253,558, G. Smith $122, 843. (6) Represents an accrual pursuant to Mr Syphers’ contract. >>22 Remuneration of key management personnel Table 2: Remuneration for the year ended 30 June 2008 SHORT-TERM TOTAL SALARIES PAID NON-CASH BENEFITS BONUS POST EMPLOYMENT LONG TERM BENEFITS % PERFOR- MANCE RELATED SUPER- ANNUATION RETIRE- MENT BENEFITS LONG SERVICE LEAVE REMUNERA- TION REQIRED TO BE EXPENSED SALARY & FEES FOR PARENT ENTITY $ 75,000 60,000 SALARY & FEES FOR OTHER GROUP ENTITIES $ – – 210,000 50,000 60,000 65,400 – – – – – – $ – – – – – – – 75,000 60,000 260,000 60,000 65,400 – – $ – – – – – – – – 567,307 – 150,000 717,307 14,519 286,870 315,000 194,797 258,054 159,578 155,366 – – – – – – 218,883 505,753 231,595 546,595 41,971 236,768 70,000 328,054 39,150 198,728 50,000 205,366 60,470 24,635 32,432 37,860 22,934 3,614 FBT $ – – – – – – – – – – – – – – – $ – 5,400 13,129 5,400 – – – 23,929 $ – – – – – – – – $ % $ – – 75,000 65,400 – 273,129 – – – – 65,400 65,400 – – 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13,129 150,000(3) 8,333 903,288 16.6% 13,129 24,545 13,129 13,129 16,653 13,129 – – – – – – 4,781 584,133 37.5% – 595,775 38.9% – 282,329 14.9% 4,300 383,343 18.3% 3,041 241,356 16.2% – 222,109 22.5% 470,400 50,000 – 520,400 – 544,329 0.0% 1,936,972 – 801,599 2,738,571 196,464 – 106,843 150,000 20,455 3,212,333 2,407,372 50,000 801,599 3,258,971 196,464 – 130,772 150,000 20,455 3,756,662 Non-executive directors P. J. Ramsay (Chairman) M. S. Siddle (Deputy Chairman) P. J. Evans T. Jackman A. Hamill P. Grier (1) I. Neal (1) Sub-total non-executive directors Executive directors W. Syphers (2) Other key management personnel D. Edwards (2) R. Gamble R. Howarth G. Smith (2) A. Butorac (2) A. Cooper (2) Sub-total executive KMP Totals (1) Mr Grier and Mr Neal were appointed to the Board of Directors 6 June 2008. (2) Options expensed during 2008 but not exercised (no value received) W. Syphers $220,154, D. Edwards $96,117, G. Smith $67,454, A. Butorac $7,890, A. Cooper $10,586. (3) Represents an accrual pursuant to Mr Syphers’ contract. >>23 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) Remuneration of key management personnel (continued) Table 3: Compensation options: Granted and vested during the year (Consolidated) 2009 There were no executive options granted during the fi nancial year ended 30 June 2009. As at 30 June 2009, all executive options on issue had been surrendered. 2008 During the fi nancial year options were granted as equity compensation benefi ts under the long-term incentive plan to certain key management personnel as disclosed below. No share options have been granted to the non-executive directors of the Board of Directors under this scheme. The options were issued at a price of $0.001 per option. Each option entitled the holder to subscribe for one fully paid ordinary share in the entity at an exercise price determined by reference to the market price of the shares in the period immediately prior to the date of the grant. The contractual life of each option granted was fi ve years. Vesting Date These options were subject to specifi c conditions regulating their exercise which included phased vesting on an annual basis with full vesting after three years, and the requirement for the parent entity share price to appreciate by at least 20% above the Off ering Price (Exercise Price) for a continuous period of at least three ASX trading days prior to the vesting date, as a pre-condition to exercise. GRANTED TERMS AND CONDITIONS FOR EACH GRANT VESTED FAIR VALUE PER OPTION AT GRANT DATE ($) GRANT DATE NUMBER EXERCISE PRICE PER OPTION ($) EXPIRY DATE FIRST EXERCISE DATE LAST EXERCISE DATE NUMBER % GRANTED TERMS AND CONDITIONS FOR EACH GRANT VESTED FAIR VALUE PER OPTION AT GRANT DATE ($) GRANT DATE NUMBER EXERCISE PRICE PER OPTION ($) EXPIRY DATE FIRST EXERCISE DATE LAST EXERCISE DATE NUMBER % 900,000 20/05/08 $0.52 $3.65 20/05/13 20/05/09 20/05/13 157,500 9.8 450,000 20/05/08 200,000 20/05/08 – 80,000 20/05/08 – 1,630,000 $0.52 $0.52 – $0.52 $3.65 20/05/13 20/05/09 20/05/13 $3.65 20/05/13 20/05/09 20/05/13 – $3.65 20/05/13 20/05/09 20/05/13 – – – 93,000 69,750 6,600 6,600 333,450 12.4 16.4 33.0 6.6 30 JUNE 2009 NIL 30 JUNE 2008 Directors W. Syphers Executives D. Edwards G. Smith A. Butorac A. Cooper Total >>24 Remuneration of directors and named executives (continued) Table 4: Options granted as part of remuneration NIL For details on the valuation of the options, including models and assumptions used, please refer to note 27. There were no alterations to the terms and conditions of options granted as remuneration since their grant date. There were no forfeitures during the period. As at 30 June 2009, all executive options on issue had been surrendered. The maximum grant, which was payable assuming that all service and performance criteria were met, was equal to the number of options or rights granted multiplied by the fair value at the grant date. The minimum payable assuming that service and performance criteria were not met was zero. Table 5: Shares issued on exercise of remuneration options 30 JUNE 2009 Executives Total 30 JUNE 2008 Executives Total SHARES ISSUED NUMBER NIL NIL SHARES ISSUED NUMBER NIL NIL PAID $ PER SHARE NIL PAID $ PER SHARE NIL UNPAID $ PER SHARE NIL UNPAID $ PER SHARE NIL >>25 DIRECTORS’ REPORT Directors’ Meetings The number of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director were as follows: DIRECTORS’ MEETINGS MEETINGS OF COMMITTEES NUMBER OF MEETINGS HELD NUMBER OF MEETINGS ATTENDED NUMBER OF MEETINGS HELD NUMBER OF MEETINGS ATTENDED NUMBER OF MEETINGS HELD NUMBER OF MEETINGS ATTENDED AUDIT REMUNERATION P. J. Ramsay M. S. Siddle P. J. Evans A. A. Hamill I. R. Neal I. P. Grier W. D. Syphers P. T. Jackman 14 14 14 14 14 14 14 4 11 14 14 12 14 12 14 3 Committee membership Members acting on the committees of the Board during the year were: AUDIT P. J. Evans (Chairman) M. S. Siddle A. A. Hamill (Resigned 20 August 2009) I. R. Neal S. L. McKenna (Appointed 20 August 2009) – 5 5 5 5 – – – – 5 5 2 4 – – – REMUNERATION I. P. Grier (Chairman) P. J. Evans A. A. Hamill – – 2 2 – 2 – – – – 2 2 – 2 – – Rounding The amounts contained in this report and in the fi nancial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies. Auditor independence and non-audit services The Directors have received and are satisfi ed with the ‘Audit Independence Declaration’ provided by the Prime Media Group Limited’s external auditors, Ernst & Young. The Audit Independence Declaration has been attached to the Directors’ Report on the following page. Non-Audit Services The following non-audit services were provided by the entity’s auditor, Ernst & Young. The directors are satisfi ed that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that the auditor’s independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Income Tax Return, FBT Return & GST compliance services Advisory Services 53,730 54,808 CORPORATE GOVERNANCE In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Prime Media Group Limited support and have, unless otherwise disclosed in the corporate governance statement, adhered to the principles of corporate governance. The Company’s corporate governance statement is contained in the following section of this report. Signed in accordance with a resolution of the directors. P. J. Evans Director Sydney, 29 September 2009 >>26 Ernst & Young Centre 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 www.ey.com/au Auditor’s Independence Declaration to the Directors of Prime Media Group Limited In relation to our audit of the fi nancial report of Prime Media Group Limited for the year ended 30 June 2009, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young David Simmonds Partner Sydney 29 September 2009 Liability limited by a scheme approved under Professional Standards Legislation >>27 CORPORATE GOVERNANCE STATEMENT The Board of Directors of Prime Media Group Limited is responsible for the corporate governance of the Group. The Board guides and monitors the business and aff airs of Prime Media Group Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. Management recognise their responsibility in the implementation and maintenance of an eff ective system of corporate governance. Prime Media Group Limited’s corporate governance practices were in place throughout the year ended 30 June 2009 and were compliant with the Corporate Governance Council’s principles and recommendations except as noted in this statement. For further information on corporate governance policies adopted by Prime Media Group Limited, refer to our website: www.primemedia.com.au/corporategovernance PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT The Company has an established Board charter that outlines the roles and responsibilities of the Board and its committees. The charter also outlines the operational structure that the Company is to follow. A copy of the Board charter is provided to all new directors and is available on the Company website. Board responsibilities As the Board acts on behalf of and is accountable to the shareholders, the Board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the Board is responsible for identifying areas of signifi cant business risk and ensuring arrangements are in place to adequately manage those risks. The Board is responsible for formulating matters of strategy, the appointment of executive management, the review and approval of annual operating budgets and assessment of the performance of executive management against the operating budgets and assessment of the performance of executive management against the operating and strategic plans previously determined. The Board ensures that the management team is appropriately qualifi ed and experienced to discharge its responsibilities and has in place procedures to assess the performance of the Chief Executive Offi cer and the executive management team. The Board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identifi ed by the Board. Structure of the Board and Board Committee meetings The Board normally holds up to nine scheduled meetings during each fi nancial year. With two exceptions, all members of the Board reside in Sydney. Coupled with the relatively small size of the Board (comprising seven non-executive directors and one executive director), this proximity makes it relatively easy for members of the Board to meet in whole or in part outside of the formal meeting structure (making use of teleconferencing facilities as required). For this reason, the Board as a whole is able to exercise its functions without the requirement for excessive formal subcommittee structures with the exception of the following: » » Audit Committee Remuneration Committee. The roles and responsibilities of these committees are discussed later in this report. Executive management has ready access to members of the Board, and all Board members are consulted on signifi cant decisions which have to be made between formal meetings. On at least an annual basis the Board sets aside two days for detailed discussions on the Group’s business strategies at which presentations are received from senior managers. In January 2003 the Board constituted an Executive Committee comprising Messrs Ramsay, Siddle and Evans to oversight the executive functions of the Company. This committee is currently in recess following the appointment of the Chief Executive Offi cer in September 2005. Should for any reason the Chief Executive Offi cer be unable to perform his duties then this committee will again oversight the executive functions on behalf of the Board. Performance review The performance of senior executives is reviewed regularly against measureable and qualitative indicators. Whilst such reviews are included within the responsibilities of the Remuneration Committee, the Board also monitors the performance of senior executives as part of its review of the performance of the Group’s business segments at each meeting of the Board. During the reporting period, the Board has conducted performance evaluations of each senior executive. The performance indicators against which the directors and executives are assessed are aligned with the fi nancial and non-fi nancial objectives of the Company. Subject to applicable laws, the employment of senior executives whose performance is considered to be unsatisfactory may be terminated. >>28 PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE Composition of the Board at the date of this report NAME POSITION Paul J. Ramsay Michael S. Siddle Peter J. Evans Alex A. Hamill Ian R. Neal Ian Patrick S. Grier Warwick D. Syphers Non-Executive Chairman (appointed 1985) Non-Executive Deputy Chairman (appointed 1985) Non-Executive Director (appointed 1991) Non-Executive Director (appointed 2003) Non-Executive Director (appointed 2008) Non-Executive Director (appointed 2008) Chief Executive Officer (appointed May 2005) and Executive Director (appointed Dec 2006) Siobhan L. McKenna Non-Executive Director (appointed August 2009) Details of the skills, experience and expertise relevant to the position of director held by each Director are set out in the Directors’ Report. In order to achieve the objectives of the Board as stated above, the composition of the Board is determined by applying the following principles: » » » The Board consists of primarily non-executive directors; The Chairman of the Board should be a non-executive director; The directors should possess a broad range of skills, qualifi cations and experience; and The Board should meet on a regular basis. » Board composition The Company has not complied with the ASX Corporate Governance Council’s Recommendation 2.3 that the Board should establish a Nomination Committee. The ongoing composition of the Board is a regular discussion item at most Board meetings. The Board make consistent and regular use of industry experts in the fi elds of new business opportunity. The skills and industry experience of the Board as a whole is regularly reviewed and where there is a need for additional experience or knowledge to supplement the existing Board, the appointment of additional Board members will be considered. Each of the above-mentioned appointments has been approved unanimously by the Board, following a recommendation from the Chairman. The appointment and removal of directors are governed by Articles 82-94 of the parent entity’s Constitution. Directors appointed to fi ll casual vacancies must off er themselves for re-election, and be elected, at the next following Annual General Meeting of the Company in order to continue in offi ce. Also, at each Annual General Meeting, one-third of the directors must resign and, in order to continue in offi ce, must off er themselves for re-election and be elected at the meeting. No director shall serve more than three years without being a candidate for re-election. Board independence The directors of Prime Media Group Limited have an overriding duty to perform their duties in the best interests of the Company. Directors are required to declare possible confl icts of interest, interests in contracts, other directorships or offi ces held, potential related party transactions and the acquisition or disposal of Company shares. Under the Prime Board Charter, where a confl ict of interest arises, the director concerned declares the possible confl ict of interest. The director is then excluded from all Board discussions relating to the issue around which the confl ict of interest has arisen. Recommendation 2.1 of the ASX Corporate Governance Council’s Recommendations recommends that a majority of the Board should be independent directors. As at the date of this report, the Prime Board consists of four independent non-executive directors (Siobhan McKenna, Alexander Hamill, Ian Neal and Patrick Grier), three non-executive directors (Paul Ramsay, Michael Siddle and Peter Evans) and one executive director (Warwick Syphers). For the period from 27 November 2008 until 20 August 2009, the Board included three independent directors as the Company was in the process of appointing a suitable replacement for Mr Jackman. Although the Company has not complied with Recommendation 2.1, the Board considers that the non-executive directors, who represent Paul Ramsay Holdings Pty Ltd, have management, corporate, fi nancial and operational expertise and skills which are of particular relevance to their duties and functions as directors of the Company. Each of the non- independent non-executive directors, Paul Ramsay, Michael Siddle and Peter Evans, have over 25 years experience in television industry matters, having been part of the foundation of Prime Media Group Limited. >>29 PRINCIPLE 3 – PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING The Board and the Company’s commitment to ethical and responsible decision making is refl ected in the internal policies and procedures of Prime Media Group Limited. Ethical conduct The Company promotes ethical and responsible behaviours for its directors and employees through the implementation of a range of internal policies and procedures that apply to all companies within the Group. These policies and procedures outline the standards of honest, ethical and law abiding behaviour expected by the Company. All parties are encouraged to address problems to the attention of either management or the Board, where there may be non-compliance with policies and procedures governing ethical and law abiding conduct. The policies and procedures relating to ethical and law abiding conduct are currently included in the employee handbook which is available to all employees on the Company Intranet. All new employees are provided with a copy of the employee handbook upon commencement of employment and they are required to confi rm that they have reviewed and acknowledge understanding of the guidelines and policies outlined in this handbook. The employee handbook forms part of a policy library that addresses required conduct in relation to: » » » » » » » Personal behaviour; Security; Privacy; Discrimination; Workplace safety; Confl ict of interests; and Others. The Company also requires all employees to undertake regular online training covering topics that promote their understanding of ethical and safe work practices and conduct. As part of its ongoing commitment to improved corporate governance disclosure, the Board is currently reviewing its documented policies and procedures with the view that these be published on the Company website. The Company has not complied with the ASX Corporate Governance Council’s Recommendation 3.1 that it should establish and disclose a code of conduct because the Board considers that the current policies and practices are eff ective in promoting ethical and responsible decision making. However, as part of its ongoing commitment to improved corporate governance disclosure, the Board is currently reviewing its documented policies and procedures with the view to preparing and adopting a code of conduct. CORPORATE GOVERNANCE STATEMENT Chairman independence The Chairman of the Board for the fi nancial year was Mr Paul Ramsay. The Board recognises the ASX Corporate Governance Council’s Recommendation 2.2 that the Chairman of the Board should be an independent director. The Board further recognises that, as Mr Ramsay is a Director of a substantial shareholder of the Company, it can be argued that he does not meet the defi nition of independence. The Company has not complied with Recommendation 2.2 because the Board believes that Mr Ramsay is the most appropriate person to lead the Board and that he is able to and does bring to the Board quality and independent judgment to all relevant issues falling within the scope of the role of chairman and that the Group as a whole benefi ts from his knowledge, experience and leadership. Mr Ramsay has had 35 years experience in the television and media industry, as well as extensive experience as a director and chairman of two listed entities, which he founded. This experience is considered to be invaluable to the Company in both industry expertise as well as the management and review of growth opportunities for the Company. Performance evaluation The Company has not complied with the ASX Corporate Governance Council’s Recommendation 2.5 that it should disclose the process for evaluating the performance of the Board, its committees and individual Directors in the following respects: » whilst the Board regularly evaluates its performance and the performance of its committees and the individual Directors, it has not established formal processes for those purposes, other than review of the executive Director’s remuneration and of non-executive Directors’ fees and benefi ts by the Remuneration Committee as appropriate (because fi rstly, the size of the Board and the close and frequent interaction between the executive and non-executive Directors means that the Board is self-evaluating in terms of its performance corporately and the performance of its committees and the individual Directors and secondly, the Board considers that the most appropriate forum for evaluating the performance of the Board is at general meetings of the Company); it has not established or implemented formal induction procedures for new Board appointees or new key executives because it has a practice that new Board appointees and new key executives are given a comprehensive briefi ng on the Group’s activities and operations by the Chief Executive Offi cer and Chief Financial Offi cer. » Independent professional advice Each Director has full access to the Company Secretary and the right of access to all relevant Company information. Any Director who requires legal advice in relation to the performance of his or her duties as a Director of the Company is to inform the Chairman of the issue and, upon approval for the Director to proceed, advice is then to be obtained in consultation with the Chairman. The costs reasonably incurred are reimbursable by the Company. When the advice is to hand, it is to be made available to the Board. >>30 Securities trading policy Under the Company’s Securities Trading policy, an executive or Director must not trade in any securities of the Company at any time when they are in possession of unpublished, price sensitive information in relation to those securities. Before undertaking any trading of securities, including the exercise of executive share options, an executive must fi rst obtain approval of the Company Secretary and a Director must fi rst obtain approval of the Chairman. Only in exceptional circumstances will approval for trading of securities be given outside the following periods: » 28 days from the day following the announcement of the half yearly and full year results of the Company to the Australian Securities Exchange; 28 days from the day following the holding of the Annual General Meeting; 28 days from the day following any other provision to the markets of an earnings forecast update. » » As required by the ASX Listing Rules, the Company notifi es the ASX of any transaction conducted by Directors in the securities of the Company. PRINCIPLE 4 – SAFEGUARD INTEGRITY IN FINANCIAL REPORTING Audit Committee The Board has established an Audit Committee whose conduct is governed by a formal charter of responsibilities. This charter is published on the Company’s website. The Audit Committee meets between four and six times each year. Members of the Audit Committee as at the date of this report are as follows: » » » » Mr P.J. Evans FCA (Chairman) Mr M.S. Siddle Mr A.A. Hamill Mr I.R. Neal Members of the Audit Committee must be non-executive directors. Details of the qualifi cations of the members of the Audit Committee, the number of meetings of the Audit Committee held during the year and the attendees at those meetings are set out in the Directors’ Report. » The objectives of the Audit Committee include: » » To improve the quality of fi nancial reporting; To ensure the Board makes informed decisions regarding accounting policies, practices and disclosures; To provide a safeguard for directors’ liability; To review the scope of the external audit; and To facilitate the maintenance of independence of the external auditor. » » » The responsibilities of the Audit Committee include: » » Approval of the external audit plan; Liaison with external auditors on the results and fi ndings of the audit, and on recommendations made; Review of the performance of the external auditors; Oversight of accounting policies and procedures used within the economic entity and its subsidiaries; Reviewing drafts of interim and full year fi nancial statements and making recommendations to the full Board in respect of their adoption; and Oversight of the controls and procedures used within the economic entity, and recommendations in respect of systems of internal control. » » » » The Group’s auditor attended the Audit Committee meetings and reported to the Committee at those meetings. In addition, the Directors considered and discussed numerous audit related matters during the course of Directors’ meetings held throughout the year and were in regular communication with the Company’s auditors to discuss and seek advice on specifi c matters concerning the Company’s fi nancial and reporting obligations. In accordance with section 295A of the Corporations Act 2001, the Chief Executive Offi cer and the Chief Financial Offi cer have declared in writing to the Board that the fi nancial records of the Group for the fi nancial year have been properly maintained, that the Group’s fi nancial reports for the year ended 30 June 2009 comply with accounting standards and present a true and fair view of the Group’s fi nancial position and performance, that the integrity of the Group’s fi nancial statements is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; and that the Company’s risk management and internal compliance and control system is operating effi ciently and eff ectively in all material respects. The Company has not complied with the ASX Corporate Governance Council’s Recommendation 4.2 in the following respects: » the Audit Committee does not have a majority of independent directors. It currently comprises an equal number of independent and non-independent directors who have been selected on the basis of their qualifi cations, skills and experience and who are accordingly considered to be the most appropriate persons to carry out the functions and duties of the Committee; and the Chairman of the Audit Committee, Mr Peter Evans, is not an independent director because, having considered the functions and responsibilities of the Chairman of the Audit Committee and the qualifi cations and experience of Mr Evans, the directors consider that Mr Evans is the most appropriate of the directors to be the Chairman of the Audit Committee. Mr Evans is a Board member on many of the subsidiaries’ boards, giving him a comprehensive oversight of the risks facing the Group as whole. Details of the qualifi cations of audit committee members are set out in the Directors’ Report. >>31 CORPORATE GOVERNANCE STATEMENT PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE PRINCIPLE 6 – RESPECT THE RIGHTS OF SHAREHOLDERS The Board has established policies and procedures to ensure that the disclosure requirements of the ASX Listing Rules are maintained. These policies are outlined in the Board Charter published on the Company website. Established processes require that all disclosures relating to the release to the market of potentially price sensitive information must be reviewed by the Board and approved for release. The Chairman and Chief Executive Offi cer are the only parties approved to make public comment in relation to the fi nancial disclosures of the Company. The Board has an established practice whereby all proposed ASX releases are circulated to the Board for review and sign off prior to the release being made. The Board has also established a reporting process requiring the Company Secretary to report to the Board at each Board meeting of all disclosures made to the ASX under the Listing Rules as well as confi rmation that the listing rules have been complied with. The Company Secretary is responsible for all communications with the ASX and for educating senior management in relation to the Company’s continuous disclosure obligations. The Company acknowledges the importance of eff ective investor relations through providing clear communications and information channels for all shareholders. The Board aims to ensure that the shareholders are informed of all major developments aff ecting the Group’s state of aff airs. Communication of information to shareholders includes the following: » The annual report is distributed to all shareholders. The Board ensures that the annual report includes relevant information about the operations of the Group during the year, changes in the state of aff airs of the Group and details of future developments, in addition to the other disclosures required by the Corporations Act 2001; The half-yearly report contains summarised fi nancial information and a review of the operations of the Group during the period. Half-year fi nancial statements prepared in accordance with the requirements of the Accounting Standards and the Corporations Act 2001 are lodged with the Australian Securities and Investments Commission and the ASX. The fi nancial statements are sent to any shareholder who requests them; The Company ensures that all price sensitive information is disclosed to the ASX in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the ASX Listing Rules; Notices of all general meetings are sent to all shareholders; and The Company’s website. The Company is constantly looking at ways of making its communications more eff ective and has been undergoing an active review of the information it publishes on its website. The Company has acknowledged its developing diversifi ed business and following on from its name change from Prime Television Limited to Prime Media Group Limited, the Company has developed a separate corporate website, www.primemedia.com.au. The Company aims to ensure that all material releases to the ASX are also published on the Company’s website in a timely manner after the release to the ASX has been confi rmed. » » » » Annual general meetings The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identifi cation with the Group’s strategy and goals. The shareholders are requested to vote on the appointment of directors, the granting of securities to directors and changes to the Constitution. A copy of the Constitution is available to any shareholder who requests it.. In accordance with the Corporations Act, the Company provides its auditors with a notice of its Annual General Meeting and makes time available within this meeting for the auditor to address the meeting if required and for members of the Company to ask questions of the auditors in this forum. >>32 PRINCIPLE 7 – RECOGNISE AND MANAGE RISK The Board oversees the establishment, implementation and review of the Group’s risk management practices, seeks to identify, assess, monitor and manage material risk throughout the Group and has continued its approach to proactive risk management. The Board has taken the view that it is crucial for all Directors, in close partnership with senior management, to be part of this process and as such, has not established a separate risk management committee. The task of undertaking and assessing risk management and internal control eff ectiveness are delegated to management through the Chief Executive Offi cer, including responsibility for the day to day implementation of the Company’s risk management and internal control systems. Management reports to the Board on the Company’s key risks and the extent to which it believes these risks are being adequately managed. The reporting on risk management is a standard agenda item at all regular Board meetings. Risk management focuses on strategic, fi nancial, operational and legal/ compliance risks through the following compliance and control systems: » Requiring management to supply comprehensive fi nancial and operational reports, which specifi cally highlight variances and areas of potential exposure. Regular reports to the Board include reports from the heads of the Group’s business segments; Requiring actual results to be reported against budgets approved by the Directors and revised forecasts for the year to be prepared regularly. The Company has a comprehensive budgeting system with an annual budget approved by the Directors. Actual results against budget and revised forecasts for the year are prepared and supplied to the Board at least monthly; Requiring Board approval for signifi cant capital expenditure and expenditure on revenue account. Procedures adopted in this regard include annual budgets, detailed appraisal and review prior to expenditure or commitment, and comprehensive due diligence requirements where businesses are being acquired or strategic alliances are being entered into; Monitoring and reviewing continuous disclosure (refer to comments under Principle 5 relating to disclosure); Instigating an action plan or policy as soon as a risk is identifi ed and monitoring its implementation; Implementing occupational health and safety strategies and management systems (including monitoring and review procedures) in all business segments to achieve high standards of performance and compliance with regulations; Promoting risk identifi cation and management within the Group as a signifi cant obligation of every employee; and Including in the roles of the Chief Executive Offi cer and Company Secretary, identifi cation of risks aff ecting each business segment and the development of strategies to minimise those risks. » » » » » » » The Company has not implemented an internal audit procedure function. The Board believes that the nature of the Company’s operations currently do not require this to be instigated as a separate function to those functions undertaken by the external auditors or the Audit Committee. Assurance In accordance with section 295A of the Corporations Act 2001, the Chief Executive Offi cer and the Chief Financial Offi cer have declared in writing to the Board that in their view the Company’s fi nancial reports are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board and that the Company’s risk management and internal compliance and control system is operating eff ectively in all material respects. PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY Remuneration Committee The Company has established a Remuneration Committee. The committee is governed by an established charter that is published on the Company website. Members of the Remuneration Committee as at the date of this report are as follows: » » » Mr I.P. Grier (Chairman) Mr P.J.Evans Mr A.A.Hamill Details of the number of meetings of the Remuneration Committee held during the year and the attendees at those meetings are set out in the Directors’ Report. The Remuneration Committee reviews the remuneration packages and employment conditions applicable to senior executives and any executive directors. In making these determinations, regard is had to comparable industry or professional salary levels, and to the specifi c performance of the individuals concerned. The Company clearly distinguishes the structure of non-executive Directors’ remuneration (paid in the form of a fi xed fee) and that of any executive Director and senior executives. The remuneration of managers and staff other than senior executives and executive directors is within the authority of the Chief Executive Offi cer. The Chief Executive Offi cer has discretion in regard to the remuneration of individual managers subject to the proviso that the overall level of remuneration is within budget guidelines as approved by the Board prior to preparation of the annual budget. Recommendations in respect of allocations of share options under the Prime Media Group Employee Share Option Scheme are made by the Remuneration Committee, for approval by the Board. In accordance with the Listing Rules of the Australian Securities Exchange, options issued to executive directors are required to be approved by shareholders in general meeting. The terms and conditions of such options were approved by shareholders at the Annual General Meeting in 1992, and again in November 1995. In light of recent structural changes within the Group and legislative changes aff ecting the treatment of share options, the Remuneration Committee has suspended the current share option scheme and is reviewing alternatives for a more appropriate long-term incentive scheme. A full discussion of the Company’s remuneration philosophy and framework and the remuneration received by Directors and senior executives during the year is set out in the Remuneration Report, which comprises part of the Directors’ Report. >>33 INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2009 NOTES CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Continuing operations Income Expenses Share of losses of associates Profi t from continuing operations before fi nance costs and income tax Finance costs Profi t from continuing operations before income tax Income tax benefi t/(expense) Net profi t after tax from continuing operations Discontinuing operations Income Gain on sale of discontinued operations Expenses Profi t before income tax from discontinuing operations Income tax (expense) Net profi t after tax from discontinuing operations Net profi t after tax Attributable to: Minority interest Members of the Parent Basic earnings per share (cents per share) – profi t for the year – profi t from continuing operations Diluted earnings per share (cents per share) – diluted for profi t for the year – diluted for profi t from continuing operations Franked dividends per share (cents per share) 4(a) 4(b) 12 4(c) 5(c) 4(e) 6 4(f) 5(c) 7 7 7 7 8 279,663 (280,983) (3,081) (4,401) (42,400) (46,801) 1,257 (45,544) – – – – – – (45,544) (1,109) (44,435) (24.5) (24.5) (24.5) (24.5) 11.0 270,273 (228,066) (3,587) 38,620 (17,312) 21,308 (7,171) 14,137 23,840 5,421 (28,634) 627 (232) 395 14,532 491 14,041 11.0 10.9 10.9 10.8 17.5 74,276 (2,918) – 71,358 (41,296) 30,062 2,883 32,945 – – – – – – 32,945 – 32,945 68,546 (2,463) – 66,083 (18,816) 47,267 (14,299) 32,968 – – – – – – 32,968 – 32,968 >>34 BALANCE SHEET AS AT 30 JUNE 2009 Assets Current assets Cash and cash equivalents Trade and other receivables Intangible assets Other assets Current tax assets Derivative fi nancial instruments Non–current assets classifi ed as held for sale Total current assets Non–current assets Receivables Investments in associates Investment in available for sale fi nancial assets Investments in subsidiaries Property, plant and equipment Deferred tax assets Intangible assets and goodwill Other assets Total non–current assets Total assets Liabilities Current liabilities Trade and other payables Interest–bearing loans and borrowings Current tax liabilities Provisions Derivative fi nancial instruments Total current liabilities Non–current liabilities Trade and other payables Interest–bearing loans and borrowings Deferred income tax liabilities Provisions Total non–current liabilities Total liabilities Net assets Equity Equity attributable to equity holders of the parent interest Contributed equity Reserves (Accumulated losses)/Retained earnings Parent interests Minority interests Total Equity NOTES CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 9 10 16 11 5 23 6(c) 10 12 14 13 15 5 16 11 17 18 5 19 23 17 18 5 19 20 21 21 6,669 51,385 1,700 2,931 5,352 57 68,094 – 68,094 815 4,299 4,214 – 93,584 8,719 278,802 – 390,433 458,527 61,252 14,880 66 3,576 4,595 84,369 1,423 172,608 163 2,626 176,820 261,189 197,338 4,010 54,189 4,694 2,547 – 9,632 75,072 414 75,486 706 13,187 5,090 – 82,470 1,849 286,568 124 389,994 465,480 40,437 11,009 5,360 2,589 – 59,395 888 255,706 2,483 357 259,434 318,829 146,651 305,643 (16) (108,941) 196,686 652 197,338 196,569 (1,233) (50,453) 144,883 1,768 146,651 47 255 – 44 5,241 57 5,644 – 5,644 715,082 – 3 121,554 1 1,677 – – 838,317 843,961 630 – – 98 4,595 5,323 369,798 147,283 – – 517,081 522,404 321,557 305,643 2,028 13,886 321,557 – 321,557 31 311 – 10 – 9,632 9,984 – 9,984 642,742 – 3 118,054 2 – – – 760,801 770,785 132 – 4,466 266 – 4,864 333,405 236,314 3,582 – 573,301 578,165 192,620 196,569 1,057 (5,006) 192,620 – 192,620 >>35 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2009 ACCUM- ULATED LOSSES $’000 EMPLOYEE BENEFITS RESERVE $’000 FOREIGN CURRENCY TRANSLATION RESERVE $’000 NET UNREALISED GAINS RESERVE $’000 MINORITY EQUITY INTEREST $’000 ISSUED CAPITAL $’000 TOTAL $’000 196,569 (50,453) 1,057 (1,912) (378) 1,768 146,651 – – – – – – – – – – (44,435) – (44,435) – – – – – – – – 110,092 (3,395) 3,440 – (1,063) – – – – – – (14,053) 305,643 (108,941) – – – 971 – – 2,028 – (132) (132) – – (132) – – – – – – – (2,044) 378 – 378 – – 378 – – – – – – – – – – 378 (132) – – (1,109) (1,109) (7) 246 (44,435) (1,109) (45,298) (7) – 110,092 (3,395) – 3,440 – – 971 (1,063) – (14,053) – 652 197,338 ACCUM- ULATED LOSSES $’000 EMPLOYEE BENEFITS RESERVE $’000 FOREIGN CURRENCY TRANSLATION RESERVE $’000 NET UNREALISED GAINS RESERVE $’000 MINORITY EQUITY INTEREST $’000 ISSUED CAPITAL $’000 TOTAL $’000 187,499 (42,096) 624 – – – – – – – – – – – – – 14,041 – 14,041 – – – – – – – – – – – 10,636 – (1,566) – 196,569 – – – (22,398) (50,453) – 433 – – 1,057 1,337 1,903 149,287 20 – (378) – – – – – 491 491 (300) (326) – – – – 1,768 (378) (1,337) (1,932) (3,647) 14,041 491 10,885 (300) (326) 10,636 433 (1,566) (22,398) 146,651 – (1,932) (1,337) – (1,932) (1,715) – – – (1,932) – – – – – – (1,912) – (1,715) – – – – – – (378) Consolidated Group At 1 July 2008 Reversal of fair value adjustment of available-for-sale fi nancial assets that has been impaired Foreign currency translation Total income/(expense) for the period recognised directly in equity (Losses) for the period attributable to members of the parent entity (Losses) for the period attributable to minority shareholders Total income/(expense) for the period Minority interests in controlled entities acquired Equity transactions: Shares issued as part of equity raising Costs of equity raising (net of tax) Shares issued as consideration Cost of share-based payments Buyback of shares Dividends At 30 June 2009 Consolidated Group At 1 July 2007 Fair value revaluation of available-for-sale fi nancial assets (net of applicable tax) Reversal of fair value adjustment of available-for-sale fi nancial assets upon recognition of investment in associate Foreign currency translation Total income and expense for the period recognised directly in equity Profi t for the period attributable to members of the parent entity Profi t/(Losses) for the period attributable to minority shareholders Total income and expense for the period Minority interests in controlled entities (disposed) Acquisition of minority interests in controlled entities Equity transactions: Shares issued as consideration Cost of share-based payments Buyback of shares Dividends At 30 June 2008 >>36 Parent Entity At 1 July 2008 Profi t for the period attributable to members of the parent entity Total income and expense for the period Shares issued as part of equity raising Cost of equity raising (net of tax) Shares issued as consideration of equity settled transactions Cost of share-based payments Buyback of shares Dividends At 30 June 2009 Parent Entity At 1 July 2007 Profi t for the period attributable to members of the parent entity Total income and expense for the period Shares issued as consideration of equity settled transactions Cost of share-based payments Buyback of shares Dividends At 30 June 2008 ISSUED CAPITAL $’000 ACCUM- ULATED LOSSES $’000 EMPLOYEE BENEFITS RESERVE $’000 FOREIGN CURRENCY TRANSLATION RESERVE $’000 NET UNREALISED GAINS RESERVE $’000 TOTAL $’000 196,569 – – 110,092 (3,395) 3,440 – (1,063) (5,006) 32,945 32,945 – – – – – – (14,053) 13,886 305,643 1,057 – – – – – 971 – – 2,028 – – – – – – – – – – – 192,620 32,945 – – 32,945 – 110,092 (3,395) – 3,440 – 971 – (1,063) – (14,053) – – 321,557 ISSUED CAPITAL $’000 187,499 – – 10,636 – (1,566) – 196,569 ACCUM- ULATED LOSSES $’000 (15,576) 32,968 32,968 – – – (22,398) (5,006) EMPLOYEE BENEFITS RESERVE $’000 FOREIGN CURRENCY TRANSLATION RESERVE $’000 NET UNREALISED GAINS RESERVE $’000 624 – – – 433 – – 1,057 – – – – – – – – – – – – – – – – TOTAL $’000 172,547 32,968 32,968 10,636 433 (1,566) (22,398) 192,620 >>37 CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2009 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Borrowing costs paid Income tax paid Net cash fl ows from/(used in) operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Proceeds from sale of business operations Proceeds from sale of available-for-sale fi nancial assets Refund of escrow payments for purchase of radio businesses in prior years Purchase of controlled entities Purchase of associates Purchase of business assets and intangibles Purchase of available-for-sale fi nancial assets Loan Funds (to)/from related entities Funds transferred from/(to) controlled entities Net cash fl ows from/(used in) investing activities Cash flows from financing activities Proceeds from issues of share options Proceeds from issues of ordinary shares Costs of issue of ordinary shares Payments for the share buy back Proceeds from borrowings Finance lease liability payments Repayments of borrowings Payments to terminate interest rate swap Dividends paid Net cash fl ows from/(used in) fi nancing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Net foreign exchange diff erences Cash and cash equivalents at end of Period NOTES CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 306,824 (228,454) 801 (20,482) (15,984) 42,705 323,089 (264,477) 1,044 (18,417) (17,204) 24,035 376 (1,224) 469 (16,958) (14,195) (31,532) 379 (1,258) 706 (15,599) (13,312) (29,084) 9(a) 349 (14,166) – 433 662 (11,317) – – (708) (9,077) – (34,324) – 110,092 (4,850) (1,063) 40,868 (7,550) (119,126) (9,831) (14,053) (5,513) 2,868 4,010 (209) 6,669 9 77 (7,181) 21,005 3,724 – (23,917) (19,127) (3,607) (14,814) (8,503) – (52,343) 1 – – (1,566) 45,000 (2,262) (16,719) – (22,398) 2,056 (26,252) 31,896 (1,634) 4,010 – – – – – (3,500) – – – – 41,502 38,002 – 110,092 (4,850) (1,063) 29,000 – (115,749) (9,831) (14,053) (6,454) 16 31 – 47 – – – – – – – – – – 7,903 7,903 1 – – (1,566) 45,000 – – – (22,398) 21,037 (144) 175 – 31 >>38 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 1 CORPORATE INFORMATION The fi nancial report of Prime Media Group Limited (the Company) for the year ended 30 June 2009 was authorised for issue in accordance with a resolution of the directors on 29 September 2009. Prime Media Group Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Group are described in the directors’ report. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation The fi nancial report is a general-purpose fi nancial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements from the Australian Accounting Standards Board. The fi nancial report has been prepared on a historical cost basis, except for derivative fi nancial instruments, land and buildings, available-for-sale investments, and investments in associates that have been measured at fair value. The fi nancial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC Class order 98/0100. The Company is an entity to which the class order applies. (b) Statement of compliance with IFRS The fi nancial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Table of Contents (a) Basis of preparation (b) Statement of compliance with IFRS (c) New Accounting Standards and Interpretations (d) Basis of consolidation (e) Business combinations (f ) Signifi cant accounting judgements, estimates and assumptions (g) Segment reporting (h) Foreign currency translation (i) Cash and cash equivalents (j) Trade and other receivables (k) Property, plant and equipment (l) Goodwill and intangible assets (m) Investments and other fi nancial assets (n) Investment in associates (o) Trade and other payables (p) Interest-bearing loans and borrowings (q) Provisions and employee leave benefi ts (r) Share-based payment transactions (s) Leases (t) Revenue recognition (u) Government grants Income tax (v) (w) Other taxes (x) Derivative fi nancial instruments and hedging (y) Derecognition of fi nancial assets and fi nancial liabilities (z) (aa) Impairment of non-fi nancial assets other than goodwill (bb) Contributed equity (cc) Earnings per share (dd) Non-current assets and disposal groups held for resale Impairment of fi nancial assets and discontinued operations >>39 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) New accounting standards and interpretations Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet eff ective have not been adopted by the Group for the annual reporting period ended 30 June 2009. These are outlined in the table below. REFERENCE TITLE SUMMARY APPLICATION DATE OF STANDARD IMPACT ON GROUP FINANCIAL REPORT APPLICATION DATE FOR GROUP AASB Int. 16 Hedges of a Net Investment in a Foreign Operation AASB Int. 17 and AASB 2008-13 AASB Int. 18 Distributions of Non-cash Assets to Owners and consequential amendments to other Australian Accounting Standards Transfers of Assets from Customers The Interpretation is unlikely to have any impact on the Group since it does not signifi cantly restrict the hedged risk or where the hedging instrument can be held. The Interpretation is unlikely to have any impact on the Group as it has not previously made or have any plans for future distributions in other forms than cash or shares. The Interpretation is unlikely to have any impact on the Group as it has not previously received assets from its customers other than cash settlements for services provided. 1 July 2009 1 July 2010 1 July 2009 This Interpretation requires that the hedged risk in a hedge of a net investment in a foreign operation is the foreign currency risk arising between the functional currency of the net investment and the functional currency of any parent entity. This also applies to foreign operations in the form of joint ventures, associates or branches. The Interpretation outlines how an entity should measure distributions of assets, other than cash, as a dividend to its owners acting in their capacity as owners. This applies to transactions commonly referred to as spin-off s, split off s or demergers and in-specie distributions. 1 October 2008 1 July 2009 Applies prospectively to transfer of assets from customers received on or after 1 July 2009 This Interpretation provides guidance on the transfer of assets such as items of property, plant and equipment or transfers of cash received from customers. The Interpretation provides guidance on when and how an entity should recognise such assets and discusses the timing of revenue recognition for such arrangements and requires that once the asset meets the condition to be recognised at fair value, it is accounted for as an ‘exchange transaction’. Once an exchange transaction occurs the entity is considered to have delivered a service in exchange for receiving the asset. Entities must identify each identifi able service within the agreement and recognise revenue as each service is delivered. AASB 8 and AASB 2007-3 Operating Segments and consequential amendments to other Australian Accounting Standards New standard replacing AASB 114 Segment Reporting, which adopts a management reporting approach to segment reporting. 1 January 2009 AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group’s fi nancial statements, although it may indirectly impact on the level at which goodwill is tested for impairment. In addition, the amendments may have an impact on the Group’s segment disclosures. AASB 1039 (revised) Concise Reporting AASB 1039 was revised in August 2008 to achieve consistency with AASB 8 Operating Segments. The revisions include changes to terminology and descriptions to ensure consistency with the revised AASB 101 Presentation of Financial Statements. 1 January 2009 Refer to AASB 8. AASB 123 (Revised) and AASB 2007-6 Borrowing Costs and consequential amendments to other Australian Accounting Standards The amendments to AASB 123 require that all borrowing costs associated with a qualifying asset be capitalised. 1 January 2009 These amendments to AASB 123 require that all borrowing costs associated with a qualifying asset be capitalised. The Group has no borrowing costs associated with qualifying assets and as such the amendments are not expected to have any impact on the Group’s fi nancial report. 1 July 2009 1 July 2009 1 July 2009 >>40 REFERENCE TITLE SUMMARY AASB 101 (Revised), AASB 2007-8 and AASB 2007-10 Presentation of Financial Statements and consequential amendments to other Australian Accounting Standards Introduces a statement of comprehensive income. Other revisions include impacts on the presentation of items in the statement of changes in equity, new presentation requirements for restatements or reclassifi cations of items in the fi nancial statements, changes in the presentation requirements for dividends and changes to the titles of the fi nancial statements. APPLICATION DATE OF STANDARD 1 January 2009 AASB 2008-1 AASB 2008-2 Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions and Cancellations The amendments clarify the defi nition of ‘vesting conditions’, introducing the term ‘non-vesting conditions’ for conditions other than vesting conditions as specifi cally defi ned and prescribe the accounting treatment of an award that is eff ectively cancelled because a non-vesting condition is not satisfi ed. 1 January 2009 Amendments to Australian Accounting Standards – Puttable Financial Instruments and Obligations arising on Liquidation The amendments provide a limited exception to the defi nition of a liability so as to allow an entity that issues puttable fi nancial instruments with certain specifi ed features, to classify those instruments as equity rather than fi nancial liabilities. 1 January 2009 AASB 3 (Revised) Business Combinations AASB 127 (Revised) Consolidated and Separate Financial Statements 1 July 2009 1 July 2009 The revised standard introduces a number of changes to the accounting for business combinations, the most signifi cant of which allows entities a choice for each business combination entered into – to measure a non-controlling interest (formerly a minority interest) in the acquiree either at its fair value or at its proportionate interest in the acquiree’s net assets. This choice will eff ectively result in recognising goodwill relating to 100% of the business (applying the fair value option) or recognising goodwill relating to the percentage interest acquired. The changes apply prospectively. There are a number of changes arising from the revision to AASB 127 relating to changes in ownership interest in a subsidiary without loss of control, allocation of losses of a subsidiary and accounting for the loss of control of a subsidiary. Specifi cally in relation to a change in the ownership interest of a subsidiary (that does not result in loss of control) – such a transaction will be accounted for as an equity transaction. IMPACT ON GROUP FINANCIAL REPORT These amendments are only expected to aff ect the presentation of the Group’s fi nancial report and will not have a direct impact on the measurement and recognition of amounts disclosed in the fi nancial report. The Group has not determined at this stage whether to present a single statement of comprehensive income or two separate statements. The Group has share-based payment arrangements that may be aff ected by these amendments. The current executive option scheme has been suspended and the Group has not yet determined the extent of the impact, if any. These amendments are unlikely to have any impact on the Group as it has not issued any puttable fi nancial instruments that would be subject to these amendments. The Group has not yet determined the extent of impact, if any. The Group has not yet assessed the impact of adoption, including which accounting policy to adopt. APPLICATION DATE FOR GROUP 1 July 2009 1 July 2009 1 July 2009 1 July 2009 1 July 2009 If the Group changes its ownership interest in existing subsidiaries in the future, the change will be accounted for as an equity transaction. This will have no impact on the goodwill, nor will it give rise to a gain or loss in the Group’s income statement. AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 Amending standard issued as a consequence of revisions to AASB 3 and AASB 127. 1 July 2009 Refer to AASB 3 (Revised) and AASB 127 (Revised) above. 1 July 2009 >>41 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) New accounting standards and interpretations (continued) REFERENCE TITLE SUMMARY AASB 2008-5 Amendments to Australian Accounting Standards arising from the Annual Improvements Project AASB 2008-6 AASB 2008-7 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate AASB 2008-8 Amendments to Australian Accounting Standards – Eligible Hedged Items AASB 2009-2 Amendments to Australian Accounting Standards – Improving Disclosures about Financial Instruments [AASB 4, AASB 7, AASB 1023 & AASB 1038] The improvements project is an annual project that provides a mechanism for making non-urgent, but necessary, amendments to IFRSs. The IASB has separated the amendments into two parts: Part 1 deals with changes the IASB identifi ed resulting in accounting changes; Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact. This was the fi rst omnibus of amendments issued by the IASB arising from the Annual Improvements Project and it is expected that going forward, such improvements will be issued annually to remove inconsistencies and clarify wording in the standards. The AASB issued these amendments in two separate amending standards; one dealing with the accounting changes eff ective from 1 January 2009 and the other dealing with amendments to AASB 5, which will be applicable from 1 July 2009 [refer below AASB 2008-6]. Refer to AASB 2008-5 above. The main amendments of relevance to Australian entities are those made to AASB 127 deleting the ‘cost method’ and requiring all dividends from a subsidiary, jointly controlled entity or associate to be recognised in profi t or loss in an entity’s separate fi nancial statements (i.e. parent company accounts). The distinction between pre- and post-acquisition profi ts is no longer required. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment. AASB 127 has also been amended to eff ectively allow the cost of an investment in a subsidiary, in limited reorganisations, to be based on the previous carrying amount of the subsidiary (that is, share of equity) rather than its fair value. The amendment to AASB 139 clarifi es how the principles underlying hedge accounting should be applied when (i) a one-sided risk in a hedged item and (ii) infl ation in a fi nancial hedged item existed or was likely to exist. The main amendment to AASB 7 requires fair value measurements to be disclosed by the source of inputs, using the following three-level hierarchy: » quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). » » APPLICATION DATE OF STANDARD 1 January 2009 IMPACT ON GROUP FINANCIAL REPORT APPLICATION DATE FOR GROUP The Group has not yet determined the extent of the impact of the amendments, if any. 1 July 2009 1 July 2009 The Group has not yet determined the extent of the impact of the amendments, if any. 1 July 2009 1 January 2009 The Group has not yet determined the extent of the impact of the amendments, if any. 1 July 2009 1 July 2009 1 July 2009 1 July 2009 These amendments currently do not have any application to the Group as it does not currently apply hedge accounting. AASB 7 is a disclosure standard so will have no direct impact on the amounts included in the Group’s fi nancial statements, although it is likely to increase the information disclosed. Annual reporting periods beginning on or after 1 January 2009 that end on or after 30 April 2009. These amendments arise from the issuance of Improving Disclosures about Financial Instruments (Amendments to IFRS 7) by the IASB in March 2009. The amendments to AASB 4, AASB 1023 and AASB 1038 comprise editorial changes resulting from the amendments to AASB 7. >>42 APPLICATION DATE OF STANDARD 1 July 2009 IMPACT ON GROUP FINANCIAL REPORT These amendments are not expected to have any signifi cant impacts on disclosures or amounts disclosed in the Group’s fi nancial statements. APPLICATION DATE FOR GROUP 1 July 2009 1 January 2010 The Group has not yet determined the extent of the impact of the amendments, if any. 1 July 2010 The amendments to some Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments that relate to terminology and editorial changes are expected to have no or minimal eff ect on accounting. The main amendment of relevance to Australian entities is that made to IFRIC 16 which allows qualifying hedge instruments to be held by any entity or entities within the Group, including the foreign operation itself, as long as the designation, documentation and eff ectiveness requirements in AASB 139 that relate to a net investment hedge are satisfi ed. More hedging relationships will be eligible for hedge accounting as a result of the amendment. These amendments arise from the issuance of the IASB’s Improvements to IFRSs. The amendments pertaining to IFRS 5, 8, IAS 1,7, 17, 36 and 39 have been issued in Australia as AASB 2009-5 (refer below). The amendments to some Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments that relate to terminology and editorial changes are expected to have no or minimal eff ect on accounting. The main amendment of relevance to Australian entities is that made to AASB 117 by removing the specifi c guidance on classifying land as a lease so that only the general guidance remains. Assessing land leases based on the general criteria may result in more land leases being classifi ed as fi nance leases and if so, the type of asset which is to be recorded (intangible v property, plant and equipment) needs to be determined. These amendments arise from the issuance of the IASB’s Improvements to IFRSs. The AASB has issued the amendments to IFRS 2, IAS 38, IFRIC 9 as AASB 2009-4 (refer above). REFERENCE TITLE SUMMARY AASB 2009-4 Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 2 and AASB 138 and AASB Interpretations 9 & 16] AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 5, 8, 101, 107, 117, 118, 136 & 139] Amendments to Australian Accounting Standards [AASB 5, 7, 107, 112, 136 & 139 and Interpretation 17] Amendments to IFRS 2 AASB 2009-Y Amendments to International Financial Reporting Standards* These comprise editorial amendments and are expected to have no major impact on the requirements of the amended pronouncements. 1 July 2009 These are editorial amendments and are not expected to have any signifi cant impacts on disclosures or amounts disclosed in the Group’s fi nancial statements. 1 July 2009 1 January 2010 The Group has not yet determined the extent of the impact of the amendments, if any. 1 July 2010 The amendments clarify the accounting for Group cash-settled share-based payment transactions, in particular: » » the scope of AASB 2; and the interaction between IFRS 2 and other standards. An entity that receives goods or services in a share- based payment arrangement must account for those goods or services no matter which entity in the Group settles the transaction, and no matter whether the transaction is settled in shares or cash. A “group” has the same meaning as in IAS 27 Consolidated and Separate Financial Statements, that is, it includes only a parent and its subsidiaries. The amendments also incorporate guidance previously included in IFRIC 8 Scope of IFRS 2 and IFRIC 11 IFRS 2—Group and Treasury Share Transactions. As a result, IFRIC 8 and IFRIC 11 have been withdrawn. *designates the beginning of the applicable annual reporting period unless otherwise stated >>43 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Basis of consolidation The consolidated fi nancial statements comprise the fi nancial statements of Prime Media Group Limited (the parent company) and all entities that Prime Media Group Limited controlled from time to time during the year and at reporting date. Interests in associates are equity accounted and are not part of the consolidated Group (see note (n) below). Subsidiaries are all those entities over which the Group has the power to govern the fi nancial and operating policies so as to obtain benefi ts from their activities. The existence and eff ect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity. The fi nancial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the consolidated fi nancial statements, all intercompany balances and transactions, income and expenses and profi t and losses resulting from intra-group transactions have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Investments in subsidiaries held by Prime Media Group Limited are accounted for at cost in the fi nancial statements of the parent entity less any impairment charges. The acquisition of subsidiaries is accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition (see note (e)). Minority interests not held by the Group are allocated their share of net profi t or loss after tax in the income statement and are presented within equity in the consolidated balance sheet, separately from parent shareholders’ equity. (e) Business combinations During the current period the following companies were acquired by the Group: » » » Broadcast Rentals Pty Limited zer01zer0 HD Pty Ltd Prime Digital Media Pty Limited & its subsidiaries Fireback Digital Pty Limited and POP Digital Media Pty Limited Prime National Radio Sales Pty Limited » >>44 The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the combination. Where equity instruments are issued in a business combination, the fair value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Except for non-current assets or disposal groups classifi ed as held for sale (which are measured at fair value less costs to sell), all identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of the business combination over the net fair value of the Group’s share of the identifi able net assets acquired is recognised as goodwill. If the cost of acquisition is less than the Group’s share of the net fair value of the identifi able net assets of the subsidiary, the diff erence is recognised as a gain in the income statement, but only after a reassessment of the identifi cation and measurement of the net assets acquired. Where settlement of any part of the consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent fi nancier under comparable terms and conditions. (f) Significant accounting judgements, estimates and assumptions The preparation of the fi nancial statements requires management to make judgements, estimates and assumptions that aff ect the reported amounts in the fi nancial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may diff er from these estimates under diff erent assumptions and conditions. Management has identifi ed the following critical accounting policies for which signifi cant judgements, estimates and assumptions are made. Actual results may diff er from these estimates under diff erent assumptions and may materially aff ect fi nancial results or the fi nancial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the fi nancial statements. (i) Significant accounting judgements In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most signifi cant eff ect on the amounts recognised in the fi nancial statements: OPERATING LEASE COMMITMENTS – GROUP AS LESSOR The Group has entered into site sharing agreements on its transmission sites and equipment it owns. The Group has determined that it retains substantially all the signifi cant risks and rewards of ownership of these properties and has thus classifi ed the leases as operating leases. RECOVERY OF DEFERRED TAX ASSETS Deferred tax assets are recognised for deductible temporary diff erences as management considers that it is probable that future taxable profi ts will be available to utilise those temporary diff erences. IMPAIRMENT OF NON-FINANCIAL ASSETS OTHER THAN GOODWILL The Group assesses impairment of all assets at each reporting date by evaluating conditions specifi c to the Group and to the particular asset that may lead to impairment. These include product and manufacturing performance, technology, economic and political environment and future product expectations. If an impairment trigger exists the recoverable amount of the asset is determined. IMPAIRMENT OF INVESTMENTS IN FINANCIAL ASSETS (INCLUDING ASSOCIATES) The Group assesses impairment of investments in fi nancial assets including associates at each reporting date in accordance with the measurement rules established in the accounting standards. For fi nancial assets determined to be associates, the Group assesses at each balance date the circumstances and conditions specifi c to that associate. These include operating performance, market and environmental factors. If management believes that an impairment trigger exists then the recoverable value of the investment in the associate is determined. RENEWAL OF BROADCASTING LICENCES – REFER 2(l) The Group’s television and radio broadcasting licences consists of the right to broadcast television and radio services to specifi c market areas. These licences are issued by the relevant broadcasting authority for periods of fi ve years. The ownership and renewal processes of these licences is such that in the absence of major breaches of licensing and broadcasting regulations, licence renewal is virtually guaranteed for the existing licence holders. TAXATION The Group’s accounting policy for taxation requires management’s judgment as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgment is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the balance sheet. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary diff erences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of suffi cient future taxable profi ts. Deferred tax liabilities arising from temporary diff erences in investments, caused principally by retained earnings held in foreign tax jurisdictions, are recognised unless repatriation of retained earnings can be controlled and are not expected to occur in the foreseeable future. Assumptions about the generation of future taxable profi ts and repatriation of retained earnings depend on management’s estimates of future cash fl ows. These depend on estimates of future production and sales volumes, operating costs, restoration costs, capital expenditure, dividends and other capital management transactions. Judgments are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the balance sheet and the amount of other tax losses and temporary diff erences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the income statement. (ii) Significant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a signifi cant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: VALUATION OF INVESTMENTS The Group has decided to classify investments in listed and unlisted securities as “available-for-sale” investments and movements in fair value are recognised directly in equity. The fair value of listed shares has been determined by reference to published price quotations in an active market. IMPAIRMENT OF GOODWILL AND INTANGIBLES WITH INDEFINITE USEFUL LIVES The Group determines whether goodwill and intangibles with indefi nite useful lives are impaired on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill and intangibles with indefi nite useful lives are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill and intangibles with indefi nite useful lives are discussed in note 16. SHARE-BASED PAYMENT TRANSACTIONS The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using a binomial model, using the assumptions detailed in note 27. FAIR VALUE OF FINANCIAL DERIVATIVES The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profi les. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. ESTIMATION OF USEFUL LIVES OF ASSETS The estimation of the useful lives of assets has been based on historical experience as well as external evidence such as warranties, lease terms and general renewal policies of the Group. The condition of assets is assessed regularly, at least annually, and considered against the remaining useful life. >>45 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 (iii) Translation of Group Companies functional currency to presentation currency The functional currencies of the Group’s overseas subsidiaries are as follows: » » » Prime Television New Zealand Limited, New Zealand dollars (NZ$) Prime Ventures New Zealand Limited, New Zealand dollars (NZ$) Producer Representatives Organization Inc, United States dollars (US$) Producer Representatives Organization International Inc., United States dollars (US$) Family Bloom Productions Inc, United States dollars (US$) OSB (NZ) Equipment Limited, New Zealand dollars (NZ$) On Site Broadcasting (NZ) Limited, New Zealand dollars (NZ$) Becker Entertainment (Singapore) Pte Ltd, Singapore dollars (S$) Prime Media Singapore Pte Ltd, Singapore dollars (S$) » » » » » » As at the reporting date the assets and liabilities of these overseas subsidiaries are translated into the presentation currency of Prime Media Group Limited at the rate of exchange ruling at the balance sheet date and the income statement is translated at the weighted average exchange rates for the period. The exchange diff erences arising on the translation are taken directly to a separate component of equity. The exchange diff erences arising on the translation of foreign currency denominated intercompany balances held by the parent entity are recognised in the income statement of the parent entity but on consolidation they are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement. (i) Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and on hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignifi cant risk of changes in value. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defi ned above, net of outstanding bank overdrafts. Bank overdrafts are included within interest-bearing loans and borrowings in current liabilities on the balance sheet. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Segment reporting A business segment is a distinguishable component of the entity that is engaged in providing products or services that are subject to risks and returns that are diff erent to those of other business segments. A geographical segment is a distinguishable component of the entity that is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are diff erent than those of segments operating in other economic environments. (h) Foreign currency translation (i) Functional and presentation currency Both the functional and presentation currency of Prime Media Group Limited and its Australian subsidiaries is Australian dollars (A$). Each overseas entity in the Group determines its own functional currency and items included in the fi nancial statements of each entity are measured using that functional currency. The fi nancial statements of each foreign entity within the Group are translated to the Group’s presentation currency of $A (refer point ii and iii). (ii) Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rate as at the date when the fair value was determined. >>46 Trade and other receivables (j) Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the eff ective interest method less an allowance for impairment. Credit terms for advertisers, generally 30 – 45 days, may be extended based upon an assessment of the credit standing of each customer. An allowance for impaired debts is made when there is objective evidence that the Group will not be able to collect the debt. Bad debts are written off when identifi ed. Objective evidence may be in the form of legal rulings and determinations, defaults on agreed payment plans, age of debtors etc. (k) Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the part is incurred. All other repairs and maintenance are recognised in the profi t and loss as incurred. Land and buildings are measured at cost less accumulated depreciation on buildings. Depreciation is provided on a straight-line basis on all property, plant and equipment, other than freehold and leasehold land, over the estimated useful life of the assets as follows: MAJOR DEPRECIATION PERIODS ARE: 2009 2008 Land: Freehold buildings: Leasehold improvements: Plant and equipment: Plant and equipment under lease: Motor vehicles: Not depreciated 40 years Not depreciated 40 years The lease term The lease term 3 to 15 years 3 to 15 years 5 to 15 years 6 years 5 to 15 years 6 years The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each fi nancial year end. Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. For an asset that does not generate largely independent cash infl ows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment exists when the carrying value of an asset or cash- generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. For property, plant and equipment, impairment losses are recognised in the income statement in the cost of sales line item. Derecognition and disposal An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefi ts are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the diff erence between the net disposal proceeds and the carrying amount of the asset) is included in profi t or loss in the year the asset is derecognised. (l) Goodwill and intangible assets Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifi able assets, liabilities and contingent liabilities. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefi t from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated: » represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with AASB 114 Segment Reporting. » Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. When the recoverable amount of the cash-generating unit (group of cash generating units) is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of a cash-generating unit (group of cash-generating units) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Impairment losses recognised for goodwill are not subsequently reversed. >>47 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Goodwill and intangible assets (continued) Television and Radio Broadcast Licences, acquired both separately and as part of a business combination Intangible assets, television and radio licences, acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, the intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Television and Radio broadcast licences consist of the right to broadcast television and radio services to specifi c market areas. The licences are subject to renewal by the respective broadcasting authorities operating in Australia. The directors have no reason to believe the licences will not be renewed at the end of their legal terms and have not identifi ed any factor that would aff ect their useful life. Therefore, the television and radio licences are deemed to have indefi nite useful lives. Intangible assets with indefi nite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefi nite life is reviewed each reporting period to determine whether indefi nite life assessment continues to be supportable. If not, the change in the useful life assessment from indefi nite to fi nite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. A summary of the policies applied to the Group’s intangible assets is as follows: Useful lives Method used Internally generated/ Acquired Impairment test/Recoverable amount testing TELEVISION AND RADIO BROADCAST LICENCES Indefi nite Not depreciated or revalued Acquired Annually and where an indicator of impairment exists. Derecognition Gains or losses arising from derecognition of an intangible asset are measured as the diff erence between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised. Investments and other financial assets (m) Investments and fi nancial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are categorised as either fi nancial assets at fair value through profi t or loss, loans and receivables, held-to-maturity investments, or available-for-sale fi nancial assets as appropriate. The classifi cation depends on the purpose for which the investments were acquired. Designation is re-evaluated at each fi nancial year end, but there are restrictions on reclassifying to other categories. When fi nancial assets are recognised initially, they are measured at fair value, plus, in the case of fi nancial assets not at fair value through profi t or loss, directly attributable transaction costs. Recognition and Derecognition All regular purchases and sales of fi nancial assets are recognised on the trade date i.e. the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of fi nancial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the market place. Financial assets are derecognised when the right to receive cash fl ows from the fi nancial assets have expired or been transferred. (i) Financial assets at fair value through profit and loss Financial assets classifi ed as held for trading are included in the category ‘fi nancial assets at fair value through profi t or loss’. Financial assets are classifi ed as held for trading if they are acquired for the purpose of selling in the near term with the intention of making a profi t. Derivatives are also classifi ed as held for trading unless they are designated as eff ective hedging instruments. Gains or losses on investments held for trading are recognised in profi t or loss and the related assets are classifi ed as current assets in the balance sheet. (ii) Loans and receivables Loans and receivables including loan notes and loans to key management personnel are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the eff ective interest method. Gains and losses are recognised in profi t or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. These are included in current assets, except for those with maturities greater than 12 months after balance date, which are classifi ed as non-current. >>48 (iii) Available-for-sale investments Available-for-sale investments are those non-derivative fi nancial assets, principally equity securities, that are designated as available-for-sale or are not classifi ed as any of the two preceding categories. After initial recognition available-for-sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profi t or loss. The fair value of investments that are actively traded in organised fi nancial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash fl ow analysis and option pricing models making as much use of available and supportable market data as possible and keeping judgemental inputs to a minimum. (iv) Investments in controlled entities Investments in controlled entities are recorded at cost. Investments in associates (n) The Group’s investments in its associates are accounted for using the equity method of accounting in the consolidated fi nancial statements. The associate is an entity in which the Group has signifi cant infl uence and which is neither a subsidiary nor a joint venture. The Group generally deems they have signifi cant infl uence if they have over 20% of the voting rights. Under the equity method, the investment in the associate is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the associate. The Group’s share of its associates’ post-acquisition profi ts or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post- acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s income statement, while in the consolidated fi nancial statements they reduce the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The reporting dates of the associate and the Group are identical and the associate’s accounting policies conform to those used by the Group for like transactions and events in similar circumstances. (o) Trade and other payables Trade payables and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the Group prior to the end of the fi nancial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually settled within 30 days of recognition. Interest-bearing loans and borrowings (p) All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the eff ective interest method. Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans and borrowings. Borrowings are classifi ed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowing costs Borrowing costs are recognised as an expense when incurred. (q) Provisions and employee leave benefits Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date using a discounted cash fl ow methodology. The risks specifi c to the provision are factored into the cash fl ows and as such a risk-free government bond rate relative to the expected life of the provision is used as a discount rate. If the eff ect of the time value of money is material, provisions are discounted using a current pre-tax rate that refl ects the time value of money and, where appropriate, the risks specifi c to the liability. The increase in the provision resulting from the passage of time is recognised in fi nance costs. >>49 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (q) Provisions and employee leave benefits (continued) Employee leave benefits (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefi ts, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (ii) Long service leave The liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outfl ows. Share-based payment transactions (r) The Group provides benefi ts to its employees (including directors) in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’). There is currently one scheme in place to provide these benefi ts: » The Prime Employee Share Option Plan, which provides benefi ts to directors and senior executives. The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using a binomial model, further details of which are given in note 27. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Prime Media Group Limited (‘market conditions’) if applicable. The cost of equity–settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfi lled (the vesting period), ending on the date on which the relevant employees become fully-entitled to the award (the vesting date). At each subsequent reporting date until vesting, the cumulative charge to the income statement is the product of: (i) the grant date fair value of the award; (ii) the number of awards that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the aff ect of these conditions is included in the determination of fair value at grant date; and (iii) the expired portion of the vesting period. The charge to the income statement for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding credit to equity. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective of whether or not that market condition is fulfi lled, provided that all other conditions are satisfi ed. If the terms of an equity-settled award are modifi ed, as a minimum an expense is recognised as if the terms had not been modifi ed. In addition, an expense is recognised for any modifi cation that increases the total fair value of the share-based payment arrangement, or is otherwise benefi cial to the employee, as measured at the date of modifi cation. If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modifi cation of the original award, as described in the previous paragraph. The dilutive eff ect, if any, of outstanding options is refl ected as additional share dilution in the computation of diluted earnings per share (see note 7). Leases (s) The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfi lment of the arrangement is dependent on the use of a specifi c asset or assets and the arrangement conveys a right to use the asset. Leases are classifi ed at their inception as either operating or fi nance leases based on the economic substance of the agreement so as to refl ect the risks and benefi ts incidental to ownership. (i) Group as a lessee OPERATING LEASES Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Operating lease incentives are recognised on a straight-line basis over the lease term. LEASEHOLD IMPROVEMENTS The cost of improvements to or on leasehold property are capitalised, disclosed as leasehold improvements, and amortised over the unexpired period of the lease or the estimated useful lives of the improvements, whichever is the shorter. >>50 Rendering of services Revenue from the provision of production facilities is brought to account after services have been rendered and the fee is receivable. Commission revenue Commission revenue is brought to account as it is received. Interest Interest revenue is recognised as interest accrues using the eff ective interest method. This is a method of calculating the amortised cost of a fi nancial asset and allocating the interest income over the relevant period using the eff ective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the fi nancial asset to the net carrying amount of the fi nancial asset. Dividends Dividends revenue is recognised when the Group’s right to receive the payment is established. Rental income Rental income is derived from the sub-letting of the Group’s property, plant and equipment. This rental is recognised on a straight-line basis over the lease term. Contingent rental income is recognised as income in the periods in which it is earned. Lease incentives are recognised as an integral part of the total rental income. (u) Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be recovered and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. They are not credited directly to shareholders equity. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments. Income tax (v) Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred income tax is provided on all temporary diff erences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes. FINANCE LEASES Finance leases, which eff ectively transfer substantially all of the risks and benefi ts incidental to ownership of the leased item, are capitalised at inception of the lease at the fair value of the leased property or, if lower, at present value of the minimum lease payments. Lease payments are allocated between fi nance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. (ii) Group as a Lessor Leases in which the Group retains substantially all the risks and benefi ts of ownership of the leased asset are classifi ed as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as rental income. (t) Revenue recognition Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefi ts will fl ow to the Group and the revenue can be reliably measured. The following specifi c recognition criteria must also be met before revenue is recognised: Advertising revenue Broadcasting operations derive revenue primarily from the sale of advertising time, to local, regional and national advertisers. Revenue is recognised when the commercial advertisements are broadcast. Commercial ad production revenue Revenue is recognised at the time of invoicing the customers, which is on completion of the production. Cinema exhibition revenue Revenue from the exhibition of fi lms was brought to account as it was received. Film & television production revenue Revenue from the production of fi lms and television programs is recognised by reference to the stage of completion of a program or programs in progress at balance date or at the time of completion of the contract and billing to the customer. Stage of completion is measured by reference to costs incurred to date as a percentage of total estimated costs of the program. Sponsorship revenue Revenue from sponsorships for the “Moonlight Cinema” business is brought to account after sponsorship agreements have been contracted and conditions for receipt of the income have been fulfi lled. Screen advertising revenue Revenue from the sale of cinema screen advertising is brought to account after advertising agreements have been contracted and the commercial advertisements have been screened. >>51 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 Tax consolidation Eff ective 1 July 2002, for the purposes of income taxation, Prime Media Group Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group. Prime Media Group Limited is the head entity of the tax consolidated group. Members of the group entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote. Prime Media Group Limited formally notifi ed the Australian Taxation Offi ce of its adoption of the tax consolidation regime when it lodged its 30 June 2003 consolidated tax return. Tax effect accounting by members of the consolidated group Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group in accordance with their taxable income for the period, while deferred taxes are allocated to members of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes. Allocations under the tax funding agreement are made at the end of each half year. The allocation of taxes under the tax funding agreement is recognised as an increase/decrease in the subsidiaries’ intercompany accounts with the tax consolidated group head company, Prime Media Group Limited. In accordance with UIG 1052: Tax Consolidation Accounting, the Group has applied the “separate Taxpayer within group” approach in determining the appropriate amount of current taxes to allocate to members of the tax consolidated group. (w) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: » where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included. » The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash fl ows are included in the Cash Flow Statement on a gross basis and the GST component of cash fl ows arising from investing and fi nancing activities, which is recoverable from, or payable to, the taxation authority, are classifi ed as operating cash fl ows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income tax (continued) (v) Deferred income tax liabilities are recognised for all taxable temporary diff erences: » except where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, aff ects neither the accounting profi t nor taxable profi t or loss; and in respect of taxable temporary diff erences associated with investments in subsidiaries, except where the timing of the reversal on the temporary diff erences can be controlled and it is probable that the temporary diff erences will not reverse in the foreseeable future. » Deferred income tax assets are recognised for all taxable temporary diff erences, carried forward unused tax credits and unused tax losses except: » when the deferred income tax asset relating to the deductible temporary diff erence arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, aff ects neither the accounting profi t nor taxable profi t or loss; or when the deductible temporary diff erence is associated with investments in subsidiaries, associates or joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary diff erence will reverse in the foreseeable future and taxable profi t will be available against which the temporary diff erence can be utilised. » The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that suffi cient taxable profi t will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future tax profi t will be available to allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement. Deferred tax assets and deferred tax liabilities are off set only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. >>52 (x) Derivative financial instruments and hedging The Group uses derivative fi nancial instruments such as forward currency contracts and interest rate swaps to manage its risks associated with interest rate and foreign currency fl uctuations. Such derivative fi nancial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to net profi t or loss for the year. The fair values of forward currency contracts are calculated by reference to current forward exchange rates for contracts with similar maturity profi les. The fair values of interest rate swap contracts are determined by reference to market values for similar instruments. (y) Derecognition of financial assets and financial liabilities Financial assets A fi nancial asset (or, where applicable, a part of a fi nancial asset or part of a group of similar fi nancial assets) is derecognised when: » » the rights to receive cash fl ows from the asset have expired; the Group retains the right to receive cash fl ows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or the Group has transferred its rights to receive cash fl ows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. » When the Group has transferred its rights to receive cash fl ows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration received that the Group could be required to repay. Financial assets When continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. Financial Liabilities A fi nancial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing fi nancial liability is replaced by another from the same lender on substantially diff erent terms, or the terms of an existing liability are substantially modifi ed, such an exchange or modifi cation is treated as a derecognition of the original liability and the recognition of a new liability, and the diff erence in the respective carrying amounts is recognised in profi t or loss. Impairment of financial assets (z) The Group assesses at each balance sheet date whether a fi nancial asset or group of fi nancial assets is impaired. Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows (excluding future credit losses that have not been incurred) discounted at the fi nancial asset’s original eff ective interest rate (i.e. the eff ective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in profi t or loss. The Group fi rst assesses whether objective evidence of impairment exists individually for fi nancial assets that are individually signifi cant, and individually or collectively for fi nancial assets that are not individually signifi cant. If it is determined that no objective evidence of impairment exists for an individually assessed fi nancial asset, whether signifi cant or not, the asset is included in a group of fi nancial assets with similar credit risk characteristics and that group of fi nancial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in profi t or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Financial assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value (because its fair value cannot be reliably measured), or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows, discounted at the current market rate of return for a similar fi nancial asset. >>53 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (aa) Impairment of non-financial assets other than goodwill Intangible assets that have an indefi nite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Group conducts an annual internal review of asset values, which is used as a source of information to assess for any indicators or impairment. External factors, such as changes in expected future processes, technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated. (bb) Contributed equity Ordinary shares are classifi ed as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (cc) Earnings per share Basic earnings per share is calculated as net profi t attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. (dd) Non current assets and disposal groups held for sale and discontinued operations Non-current assets and disposal groups are classifi ed as held for sale and measured at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction. They are not depreciated or amortised. For an asset or disposal group to be classifi ed as held for sale, it must be available for immediate sale in its present condition and its sale must be highly probable. An impairment loss is recognised for any initial or subsequent write- down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition. A discontinued operation is a component of the entity that has been disposed of or is classifi ed as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the income statement and the assets and liabilities are presented separately on the face of the balance sheet. Diluted earnings per share is calculated as net profi t attributable to members of the parent, adjusted for: » costs of servicing equity (other than dividends) and preference share dividends; the after-tax eff ect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; » » divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. >>54 3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal fi nancial instruments, other than derivatives, comprise receivables, payables, bank loans, bank overdrafts, available-for-sale investments, fi nance lease contracts, cash and short-term deposits. The main purpose of these fi nancial instruments is to raise fi nance for the Group’s operations. The Group has various other fi nancial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The Group also enters into derivative transactions, including principally interest rate swaps and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of fi nance. It is, and has been throughout the period under review, the Group’s policy that no trading of fi nancial instruments shall be undertaken. The main risks arising from the Group’s fi nancial instruments are cash fl ow interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks as summarised below. Primary responsibility for identifi cation and control of fi nancial risks rests with the Chief Executive Offi cer and Audit Committee under the authority of the Board. The Board reviews and agrees policies for managing each of the risks identifi ed below, including the setting of limits for hedging cover of foreign currency and interest rate risk, credit allowances, and future cash fl ow forecast projections. Risk exposures and responses Interest rate risk The Group’s exposure to market interest rates relates primarily to the Group’s long-term debt obligations as well as derivative interest rate swap contracts. The level of debt is disclosed in note 18. At balance date, the Group had the following mix of fi nancial assets and liabilities exposed to Australian Variable interest rate risk that are not designated in cash fl ow hedges: Financial assets Cash and cash equivalents Derivatives Unsecured related party loans Financial liabilities $350 million Secured bank facility Secured Bank Loans – Broadcast Production Services Derivatives Unsecured related party loans Net exposure CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 6,669 – – 6,669 (146,000) (17,771) (4,595) – (168,366) (161,697) 4,010 9,632 – 13,642 (232,750) (9,279) – – (242,029) (228,387) 47 – 714,315 714,362 (146,000) – (4,595) (24,759) (175,354) 539,008 31 9,632 642,036 651,699 (232,750) – – (26,663) (259,413) 392,286 Interest rate swap contracts outlined in note 23, with a fair value of Consolidated liability $4,595,000 (2008: Asset $9,632,000), Parent liability $4,595,000 (2008: Asset $9,632,000), are exposed to fair value movements if interest rates change. All derivative fi nancial instruments are stated at fair value with any gains or losses arising from changes in fair value being taken directly to the profi t and loss for the year. The Group’s policy is to manage its fi nance costs using a mix of fi xed and variable rate debt. The Group’s policy is to keep at least 50% of its borrowings at fi xed rates of interest. To manage this mix in a cost-effi cient manner, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specifi ed intervals, the diff erence between fi xed and variable interest amounts calculated by reference to an agreed- upon notional principal amount. At 30 June 2009, after taking into account the eff ect of interest rate swaps, approximately 58% of the Group’s borrowings are at a fi xed rate of interest (2008: 89%). The Group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative fi nancing, alternative hedging positions and the mix of fi xed and variable interest rates. >>55 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date: At 30 June 2009, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profi t and equity would have been aff ected as follows: JUDGEMENTS OF REASONABLY POSSIBLE MOVEMENTS: Consolidated + 1% (100 basis points) – 1% (100 basis points) Parent + 1% (100 basis points) – 1% (100 basis points) POST TAX PROFIT HIGHER/(LOWER) EQUITY HIGHER/(LOWER) 2009 $’000 926 (926) 5,672 (5,672) 2008 $’000 3,804 (3,804) 8,148 (8,148) 2009 $’000 2008 $’000 – – – – – – – – The movements in profi t are due to higher/lower interest costs from variable rate debt and cash balances. The sensitivity is lower in 2009 than 2008 because of a reduction in outstanding borrowings that has occurred due to repayment of debt as a result of a capital raising during the current period. Signifi cant assumptions used in the interest rate sensitivity analysis include: » Reasonable movements in interest rates were determined based on the Group’s current credit rating and mix of debt in Australia and foreign countries, relationships with fi nancial institutions, the level of debt that is expected to be renewed and economic forecaster’s expectations. The net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next 12 months from balance date. » Foreign currency risk The Group operates in three countries Australia, New Zealand and Singapore. The majority of transactions for the Group entities are made in the functional currency of the relevant entity. From time to time the Group enters into transactions that give rise to currency exposure risks. Such currency exposures arise from purchases in currencies other than the Group’s functional currency. The Group reviews the transactional currency risks arising from signifi cant foreign currency transactions and enters into appropriate forward currency agreements contracts to reduce currency risks. The Group also has foreign currency translation risk where the operations of the foreign based subsidiaries are translated to the Group’s reporting currency. At 30 June 2009, the Group had the following exposure to NZ$ foreign currency that is not designated in cash fl ow hedges: Financial Assets Trade and other receivables Financial Liabilities Trade and other payables Net exposure CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 – – – – – – – 1,318 (30,770) (30,770) (33,519) (32,201) As at balance date, the Group does not have any forward currency contracts (2008: Nil) designated as cash fl ow hedges that are subject to fair value movements through equity and profi t and loss respectively as foreign exchange rates move. >>56 The following sensitivity is based on the foreign currency risk exposures in existence at the balance sheet date: At 30 June 2009, had the Australian dollar moved, as illustrated in the table below, with all other variables held constant, post tax profi t and equity would have been aff ected as follows: JUDGEMENTS OF REASONABLY POSSIBLE MOVEMENTS: Consolidated AUD/NZD +10% AUD/NZD –10% Parent AUD/NZD +10% AUD/NZD –10% POST TAX PROFIT HIGHER/(LOWER) EQUITY HIGHER/(LOWER) 2009 $’000 – – 2008 $’000 – – 1,575 (1,926) 2,330 (1,259) 2009 $’000 2008 $’000 – – – – – – – – As at 30 June 2009, apart from the foreign currency risks with the Group, the only foreign currency exposure relates to a USD payable due in July 2009. The Group has taken out a foreign currency option against this liability at a minimum AUD:USD exchange rate of 0.80. The movement in the value of the option is taken to the profi t and loss. The foreign currency exposures within the Group relate to the translation to the Group presentation currency of AUD. These translation diff erences are taken directly to equity. Management believes the balance date risk exposures are representative of the risk exposure inherent in the fi nancial instruments. Credit risk Credit risk arises from the fi nancial assets of the Group, which comprise cash and cash equivalents, trade and other receivables, available-for-sale fi nancial assets and derivative instruments. The Group’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note. The Group does not hold any credit derivatives to off set its credit exposure. The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verifi cation procedures including an assessment of their independent credit rating, fi nancial position, past experience and industry reputation. Risk limits are set for each individual customer in accordance with parameters set by the Board. These risk limits are regularly monitored. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not signifi cant. The Group maintains cash on deposit only with major Australian banks or similar in countries of operation. Excess cash reserves of foreign subsidiaries are used to repay intercompany borrowings. Limited cash reserves are held outside Australia. There are no signifi cant concentrations of credit risk within the Group. >>57 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Liquidity risk Liquidity risk arises from the fi nancial liabilities of the Group and the Group’s subsequent ability to meet their obligations to repay their fi nancial liabilities as and when they fall due. The Group’s objective is to maintain a balance between continuity of funding and fl exibility through the use of bank loans and fi nance leases. The Group currently has funding through: » » » $350 million Debenture Subscription Facility (2008: $350 million), which is currently drawn to 42% capacity (2008: 67%) $17.7 million Multi Option facilities (2008: $10.4 million) held by Broadcast Production Services Limited with the ANZ Banking Group Limited; and Long Term fi nance lease contracts over specifi c items of plant and equipment. It is the Group’s policy that renegotiation of existing funding facilities are commenced at least six months prior to the maturity date of the existing facilities. The Group’s 97% owned subsidiary Broadcast Production Services Limited currently has two fi nancing facilities that are due to expire in the next six months being: » $6,195,282 (Balance drawn $6,195,282) is due to expire 30 November 2009. The repayment of this facility will be made from the receipt of funds owing to the Group. $4,500,000 (Balance drawn $4,500,000) expires 30 November 2009. Management anticipates that this facility will not be renewed. If this is the case, then the Group will require either a new equity issue or asset sales to enable this facility to be repaid. » Broadcast Production Services Limited intends to raise funds by way of fresh equity and/or assets sales until this happens the Prime Media Group has assured the Board of Broadcast Production Services Limited the continuation of funding support. This fund raising is intended to be completed prior to the expiry of the debt facilities due in November 2009. At 30 June 2009, 7.8% of the Group’s debt will mature in less than one year (2008: 3.8%). The table below refl ects all contractually fi xed pay-off s and receivables for settlement, repayments and interest resulting from recognised fi nancial assets and liabilities, including derivative fi nancial instruments as of 30 June 2009. For derivative fi nancial instruments the market value is presented, whereas for the other obligations the respective undiscounted cash fl ows for the respective upcoming fi scal years are presented. Cash fl ows for fi nancial assets and liabilities without fi xed amount or timing are based on the conditions existing at 30 June 2009. The remaining contractual maturities of the Group’s and parent entity’s fi nancial liabilities are: CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 23,094 14,226 184,168 10,009 2008 $’000 20,334 10,401 300,941 11,159 2009 $’000 5,090 4,090 160,592 – 2008 $’000 8,844 8,654 285,989 – 6 months or less 6–12 months 1–5 years Over 5 years >>58 Maturity analysis of fi nancial assets and liability based on management’s expectations The risk implied from the values shown in the table below, refl ects a balanced view of cash infl ows and outfl ows. Leasing obligations, trade payables and other fi nancial liabilities mainly originate from the fi nancing of assets used in our ongoing operations such as property, plant, equipment and investments in working capital (e.g. inventories and trade receivables). These assets are considered in the Group’s overall liquidity risk. To monitor existing fi nancial assets and liabilities as well as to enable an eff ective controlling of future risks, the Group has established comprehensive risk reporting covering its worldwide business units that refl ects expectations of the management of expected settlement of fi nancial assets and liabilities. YEAR ENDED 30 JUNE 2009 Consolidated Financial assets Cash and cash equivalents Trade and other receivables Derivatives – infl ows Consolidated Financial liabilities Trade and other payables Interest bearing loans and borrowings Derivatives – outfl ows Net maturity YEAR ENDED 30 JUNE 2009 Parent Financial assets Cash and cash equivalents Trade and other receivables Derivatives – infl ows Parent Financial liabilities Trade and other payables Interest bearing loans and borrowings Derivatives – outfl ows Net maturity ≤ 6 MONTHS $’000 6 – 12 MONTHS $’000 6,669 51,385 57 58,111 (61,252) (22,033) (1,061) (84,346) (26,235) ≤ 6 MONTHS $’000 47 255 57 359 (630) (4,030) (1,061) (5,721) (5,362) – – – – – (13,165) (1,061) (14,226) (14,226) 6 – 12 MONTHS $’000 – – – – – (3,029) (1,061) (4,090) (4,090) 1 – 5 YEARS $’000 – 815 – 815 (1,423) (181,695) (2,473) (185,591) (184,776) 1 – 5 YEARS $’000 – 692,326 – 692,326 (363,837) (158,118) (2,473) (524,428) 167,898 > 5 YEARS $’000 TOTAL $’000 – – – – 6,669 52,200 57 58,926 – (10,009) – (10,009) (10,009) (62,675) (226,902) (4,595) (294,172) (235,246) > 5 YEARS $’000 TOTAL $’000 – – – – – – – – – 47 692,581 57 692,685 (364,467) (165,177) (4,595) (534,239) 158,446 At balance date, the Group has available approximately $204 million of unused credit facilities available for its immediate use. Fair value The methods for estimating fair value are outlined in the relevant notes to the fi nancial statements. >>59 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 4 INCOMES AND EXPENSES Incomes and Expenses from Continuing Operations Incomes (a) Media sales revenue Broadcast and television production revenue Film exhibition and distribution revenue Dividend income Finance income Other revenue Breakdown of fi nance income: Interest received – other persons – charged to controlled entities Gain on fair value adjustment interest rate swaps Breakdown of other income: Government grants Unrealised Foreign Exchange Gains Production revenue Representation services Gain on disposal of property, plant and equipment Rental income Other revenues (b) Expenses Broadcasting and transmission expenses Sales, marketing and administration expenses Film exhibition and distribution expenses Broadcast and television production expenses Depreciation and amortisation expenses CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 232,489 28,511 4,980 206 801 12,676 279,663 801 – – 801 4,730 – 2,949 1,806 133 1,587 1,471 12,676 122,783 114,687 4,543 23,672 15,298 280,983 231,960 13,166 6,323 1 5,994 12,829 270,273 1,180 – 4,814 5,994 5,100 – 2,311 2,004 – 2,320 1,094 12,829 113,506 88,091 4,070 9,636 12,763 228,066 – – – 40,000 33,896 380 74,276 469 33,427 – 33,896 – – – – – – 380 380 – 2,917 – – 1 2,918 – – – – 64,725 3,821 68,546 782 59,129 4,814 64,725 – 3,683 – – – – 138 3,821 – 2,462 – – 1 2,463 >>60 (c) Finance expenses Interest expense – other persons Interest expense – controlled entities Effective interest rate adjustments Loss on fair value adjustment interest rate swaps (d) Specific expenses Bad and doubtful debts – trade debtors Minimum lease payments – operating leases Superannuation contributions Share based payments expense Realised foreign exchange Losses Unrealised foreign exchange gains/(losses) Fair value gain on foreign currency option Impairment of television format rights Impairment of investments in associated entities Impairment of property, plant and equipment Impairment of radio broadcast licences Impairment of goodwill Impairment of available-for-sale financial assets Impairment of loans to related parties Impairment of loans to associated entities Incomes Income and Expenses from Discontinuing Operations (e) Sales revenue Other income Breakdown of other income: Gain on disposal of fi lm exhibition and distribution businesses Expenses (f) Film exhibition and distribution expenses NOTES CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 27 16 12 15 16 16 14 12 19,032 – (690) 24,058 42,400 457 17,451 3,670 971 79 – (57) 1,350 9,001 2,129 17,761 7,385 1,414 2,000 – – – – – – – – 16,930 – 382 – 17,312 39 17,405 3,670 433 – – – 700 24,000 – – – – – 2,000 23,840 5,421 29,261 5,421 5,421 28,634 28,634 15,366 2,562 (690) 24,058 41,296 15,776 2,658 382 – 18,816 – – 30 971 – 483 – – – – – – – – – – – – – – – – – – 24 433 606 – – – – – – – – – – – – – – – – – >>61 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 5 INCOME TAX Income tax expense (a) The major components of income tax expense are: Income Statement Current income tax Current income tax charge Adjustments in respect of current income tax of previous years Losses not recognised Deferred income tax Relating to origination and reversal of temporary diff erences Foreign tax credits written off DTA/DTL not recognised due to accumulated loss position of subsidiary Income tax expense/(benefi t) reported in the income statement (b) Amounts charged or credited directly to equity Deferred income tax related to items charged or credited directly to equity Capital raising costs deductible for tax Impairment losses on available-for-sale investments transferred to income statement Unrealised gains/(losses) on available-for-sale investments CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 6,190 (103) 955 (10,151) 672 1,180 (1,257) 1,454 (162) – 1,292 14,624 518 – (7,739) – – 7,403 – – (573) (573) 958 (194) – (3,647) – – (2,883) 1,454 – – 1,454 11,765 (18) – 2,552 – – 14,299 – – – – >>62 CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 (c) Reconciliation between aggregate tax expense recognised in the income statement and tax expense calculated per the statutory income tax rate. (46,801) – (46,801) Profi t/(loss) before tax from continuing operations Profi t/(loss) before tax from discontinuing operations Total accounting profi t/(loss) before income tax Prima facie tax (benefi t)/expense on accounting profi t at the Group’s statutory rate of 30% (2008: 30%) Foreign tax credits written off Intra-group dividends Capital Gain on sale of Dendy Film business Non temporary diff erences Impairment expense not deductible for tax Current year tax losses not recognised Tax losses utilised not previously recognised Recognised previously unrecognised Deferred Tax Asset Adjustments in respect of current income tax of previous years Income not assessable for tax DTA/DTL on timing diff erences not previously recognised now brought to account DTA/DTL on timing diff erences not recognised Foreign tax rate adjustment Aggregate income tax (benefi t)/expense Income tax expense/(benefi t) attributable to continuing operations Income tax expense/(benefi t) attributable to discontinuing operations (14,040) 672 – – 1,351 10,566 620 – – (103) (50) (1,462) 1,180 9 (1,257) (1,257) – (1,257) 21,308 627 21,935 6,580 – – 74 993 – – (233) (730) 518 – – – 201 7,403 7,171 232 7,403 30,062 – 30,062 9,019 – (12,000) – 292 – – – – (194) – – – – (2,883) (2,883) – (2,883) 47,267 – 47,267 14,180 – – – 137 – – – – (18) – – – – 14,299 14,299 – 14,299 CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2009 $’000 2008 $’000 2008 $’000 2009 $’000 2009 $’000 2008 $’000 2008 $’000 CURRENT INCOME TAX DEFERRED INCOME TAX CURRENT INCOME TAX DEFERRED INCOME TAX CURRENT INCOME TAX DEFERRED INCOME TAX CURRENT INCOME TAX DEFERRED INCOME TAX Recognised deferred tax assets and liabilities Opening balance Charged to income Charged to equity Other payments Transfers to/from Tax Group Entities Acquisitions/Disposals Closing balance Tax expense/(benefi t) in income statement Amounts recognised in the balance sheet: Deferred tax asset Deferred tax liability (6,270) (16,294) – 17,204 – – (5,360) (5,360) (5,338) – 15,984 – – 5,286 (634) 6,595 1,292 – – 1,303 8,556 (1,257) 8,719 (163) 8,556 (9,525) 8,891 – – – – (3,582) 3,805 1,454 – – – (4,466) (922) – 14,195 (3,566) – (634) 5,241 1,677 7,403 (2,883) (4,476) (11,747) – 13,312 (1,555) – (4,466) (1,030) (2,552) – – – – (3,582) 14,299 1,849 (2,483) (634) 1,677 – 1,677 – (3,582) (3,582) >>63 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 5 INCOME TAX (CONTINUED) Recognised deferred tax assets and liabilities Deferred income tax as at 30 June relates to the following: Consolidated Deferred tax liabilities Accelerated depreciation for tax purposes Leased assets Prepaid expenses deductible for tax Income not yet assessable for tax Fair value of television licences on acquisition Fair value of derivatives Set-off of deferred tax assets Consolidated Deferred tax assets Employee entitlements Provisions Expenses not yet deductible for tax Lease liabilities Diff erence between accounting and tax building write off Fair value of derivatives Impairments of investments Fair value of available-for-sale investments DTA not recognised due to uncertainty of recovery Tax losses Set-off of deferred tax liabilities >>64 BALANCE SHEET 2009 $’000 2008 $’000 (448) (1,278) (1,807) (116) (6,690) – (10,339) 10,176 (163) 1,880 1,253 2,227 1,152 809 1,361 9,845 – (1,180) 1,548 18,895 (10,176) 8,719 (1,451) (2,813) (3,259) (558) (6,690) (2,890) (17,661) 15,178 (2,483) 1,647 350 1,370 2,864 504 – 8,356 162 – 1,774 17,027 (15,178) 1,849 Deferred income tax Deferred income tax as at 30 June relates to the following: Parent Deferred tax liabilities Accelerated depreciation for tax purposes Unrealised (gains)/losses not yet assessable for tax Fair value of derivatives Set-off of deferred tax assets Parent Deferred tax assets Provisions Accrued Expenses not yet deductible for tax Fair value of derivatives Set-off of deferred tax liabilities Income tax losses (a) Deferred tax assets arising from tax losses of a controlled entity which at balance date are recognised as being highly probable of recovery. These losses relate to an entity outside the Australian Tax Consolidated Group that is making profi ts. (b) Deferred tax assets arising from tax losses of a controlled entity not recognised at reporting date as realisation of the benefi t is not regarded as highly probable BALANCE SHEET 2009 $’000 2008 $’000 2 (896) – (894) 894 – 31 1,179 1,361 2,571 (894) 1,677 2 (1,039) (2,890) (3,927) 345 (3,582) 55 290 – 345 (345) – 1,548 1,774 23,687 21,553 Tax consolidation (i) Members of the tax consolidated group and the tax sharing arrangements Eff ective 1 July 2002, for the purposes of income taxation, Prime Media Group Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group. Prime Media Group Limited is the head entity of the tax consolidated group. Members of the group entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the fi nancial statements in respect of this agreement on the basis that the possibility of default is remote. >>65 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 5 INCOME TAX (CONTINUED) (ii) Tax effect accounting by members of the consolidated group MEASUREMENT METHOD ADOPTED UNDER UIG 1052 TAX CONSOLIDATION ACCOUNTING The head entity and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes. The nature of the tax funding agreement is discussed further below. NATURE OF THE TAX FUNDING AGREEMENT Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group in accordance with their taxable income for the period, while deferred taxes are allocated to members of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes. Allocations under the tax funding agreement are made at the end of each half year. The allocation of taxes under the tax funding agreement is recognised as an increase/decrease in the subsidiaries’ intercompany accounts with the tax consolidated group head company, Prime Media Group Limited. In accordance with UIG 1052: Tax Consolidation Accounting, the group has applied the “separate Taxpayer within group” approach in determining the appropriate amount of current taxes to allocate to members of the tax consolidated group. PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 (3,566) (1,990) Prime Media Group Limited has recognised the following amounts as tax-consolidation contribution adjustments: Total increase/(reduction) to inter-company assets of Prime Media Group Limited 6 DISCONTINUED OPERATIONS (a) Details of operations disposed and held for sale 2009 There have been no disposals of operating units during the current fi nancial year. 2008 DISPOSAL OF DENDY FILM AND CINEMA OPERATIONS On 22 February 2008, the Board of Directors of Broadcast Production Services Limited entered into a sale agreement to dispose of the Dendy Film Distribution and Exhibition businesses. The sale was completed on 30 April 2008, on which date control of the businesses passed to the acquirer. The Gain on sale of the disposal group was $5,421,000 and the trading loss for the period to 30 April 2008 for the disposal group was $4,795,000 before tax. ASSETS HELD FOR RESALE Following on from the sale of Dendy Cinema one asset remained unsold and is still classifi ed as being held for resale. The asset held for resale as at 30 June 2008 was: Investment in associate – Kino Cinema $NIL (2008: $414,000). >>66 (b) Financial performance of operations disposed and held for sale Revenue Expenses Net Profi t/(loss) attributable to discontinued operations before tax Income tax (expense)/benefi t Net profi t/(loss) attributable to discontinued operations after tax Gain on sale of discontinued operations Income tax (expense) Net profi t/(loss) on sale of discontinued operations after income tax Net profi t/(loss) attributable to discontinued operations after tax Minority interest in discontinued operations Net profi t/(loss) from discontinued operations attributable to members of parent entity Earnings per share (cents per share) Basic from discontinued operations Diluted from discontinued operations (c) Assets and liabilities – held for sale operations Current assets Cash Receivables Inventories Investments Other Total current assets Non-current assets Receivables Investments (equity accounted) Inventories Property, plant & equipment Intangibles Deferred tax assets Total non-current assets Total assets Current liabilities Payables Interest bearing liabilities Deferred tax liabilities Provisions Total current liabilities Non-current liabilities Payables Interest bearing liabilities Deferred tax liabilities Provisions Other Total non-current liabilities Total liabilities Net assets held for sale 2009 $’000 – – – – – – – – – – – – – 2009 $’000 – – – – – – – – – – – – – – – – – – – – – – – – – – – 2008 $’000 23,840 (28,634) (4,794) 1,774 (3,020) 5,421 (2,006) 3,415 395 192 203 0.01 0.01 2008 $’000 – – – – – – – 414 – – – – 414 414 – – – – – – – – – – – – 414 >>67 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 6 DISCONTINUED OPERATIONS (CONTINUED) (d) Cash flow information – held for sale operations Net cash infl ow/(outfl ow) from operating activities Net cash infl ow/(outfl ow) from investing activities Net cash infl ow/(outfl ow) from fi nancing activities Net cash increase/(decrease) in cash generated by the discontinued division (e) Assets and liabilities of disposed operations Assets Receivables Inventories Other Property, Plant and Equipment Total assets Current Liabilities Payables Provisions Total liabilities Net assets held for sale Consideration received or receivable Cash Less: Net assets disposed of Gain on disposal before income tax Income tax expense Gain on disposal after income tax >>68 CONSOLIDATED 2009 $’000 – 315 – 315 2009 $’000 – – – – – – – – – – – – – – 2008 $’000 (5,588) 21,005 – 15,417 2008 $’000 5,850 4,918 1,812 11,056 23,636 7,926 126 8,052 15,584 21,005 (15,584) 5,421 (2,006) 3,415 7 EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing net profi t for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profi t attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The following refl ects the income and share data used in the calculations of basic and diluted earnings per share: (a) Earnings used in calculating earnings per share Profi t attributable to ordinary equity holders of the parent from continuing operations Profi t attributable to ordinary equity holders of the parent from discontinuing operations Net profi t attributable to ordinary equity holders of the parent Earnings used in calculating basic and diluted earnings per share CONSOLIDATED 2009 $’000 (44,435) – (44,435) (44,435) 2008 $’000 13,838 203 14,041 14,041 NUMBER OF SHARES NUMBER OF SHARES (b) Weighted average number of shares Weighted average number of ordinary shares used in calculating basic earnings per share: Eff ect of dilution: Share options Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share 181,129,271 127,562,529 – 181,129,271 1,698,822 129,261,351 (c) Information on the classification of securities (i) Options Options granted to employees (including KMP) as described in note 32 are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent they are dilutive. These options have not been included in the determination of basic earnings per share. To calculate earnings per share amounts for the discontinuing operation, the weighted average number of ordinary shares for both basic and diluted amounts is as per the table above. The following table provides the profi t fi gure used as the numerator: Net profi t after tax from discontinuing operations (note 6): – for basic earnings per share – for diluted earnings per share 2009 $’000 - - 2008 $’000 203 203 >>69 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 7 EARNINGS PER SHARE (CONTINUED) (d) Profit from continuing operations before significant items Reported loss after tax from continuing operations (refer Income Statement) Fair value change in derivatives Impairment of acquired intangibles Impairment of radio broadcasting licences Impairment of property, plant and equipment Impairment of available-for-sale fi nancial assets Impairment of goodwill Loss on sale of investments Early termination penalties on fi nance leases Provision for staff redundancies Employee Options written off Radio Zinc launch expenses Development costs expensed Impairment on investment in associates Impairment of related party receivable destra administration costs Impairment on loan to associate Share of associates’ losses Income tax related to signifi cant items Tax penalties arising from under provision of prior year taxes by acquired entity Profi t after tax from continuing operations before signifi cant items Minority Interest Net profi t after tax before signifi cant items attributable to members of Prime Media Group Limited CONSOLIDATED 2009 $’000 (45,544) 24,001 1,350 17,761 2,129 1,415 7,385 – 803 1,556 363 250 – 9,001 2,000 3,619 – 1,358 (9,940) – 17,507 382 17,889 2008 $’000 14,137 (4,814) 700 – – – – 206 – – – – 353 24,000 – – 2,000 1,141 (6,734) 421 31,410 352 31,762 >>70 8 DIVIDENDS PAID AND PROPOSED (a) Recognised amounts Declared and paid during the year (i) Current year interim Franked dividends (2.0 cents per share) (2008: 8.5 cents) – ordinary shares (ii) Previous year fi nal Franked dividends (9.0 cents per share) (2008: 9.0 cents) – ordinary shares (b) Unrecognised amounts (ii) Current year fi nal Franked dividends (1.0 cents per share) (2008: 9.0 cents) – ordinary shares (c) Franking credit balance The amount of franking credits available for the subsequent fi nancial year are: – franking account balance as at the end of the fi nancial year at 30% (2008: 30%) – franking credits that will arise from the payment of income tax payable as at the end of the fi nancial year – franking debits that will arise from the payment of dividends as at the end of the fi nancial year The amount of franking credits available for future reporting periods : – impact on the franking account of dividends proposed or declared before the fi nancial report was authorised for issue but not recognised as a distribution to equity holders during the period CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 2,581 10,887 2,581 10,887 11,472 14,053 11,511 22,398 11,472 14,053 11,511 22,398 3,584 11,477 3,584 11,477 18,467 21,024 (5,241) 6,375 – 13,226 – 27,399 1,536 4,919 (d) Tax rates The tax rate at which paid dividends have been franked is 30% (2008: 30%). Dividends proposed will be franked at the rate of 30% (2008: 30%). >>71 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 9 CASH AND CASH EQUIVALENTS Cash balance comprises: Cash at bank and on hand Closing cash balance Cash at bank earns interest at fl oating rates based on daily bank deposit rates. The carrying amounts of cash and cash equivalents represent fair value. At 30 June 2009 the Group had available $204 million (2008: $109 million) of un-drawn committed borrowing facilities in respect of which all conditions precedent had been met. CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 6,669 6,669 4,010 4,010 47 47 31 31 14,532 (45,544) – 140 15,298 (690) – 457 (133) – (17) 24,001 26,496 2,129 2,000 9,001 3,081 971 1,414 – 232 (a) Reconciliation of the net profit after tax to the net cash flows from operations Net (loss)/profi t after income tax Non-Cash Items Non cash interest income Non cash interest expense Depreciation and amortisation Eff ective interest rate adjustments Unrealised foreign exchange (gain)/loss Provision for doubtful debts Net (profi t)/loss on disposal of property, plant and equipment (Gain) on sale of Film and Cinema business (Gain)/Loss on sale of fi nancial asset Net (gain)/loss MTM derivatives Impairment of intangibles and goodwill Impairment of property, plant & equipment Impairment of related party receivables Impairment of investments in associates Share of losses of associates Share based payments expense Impairment of available-for-sale fi nancial assets Non cash intra-group dividend Equity settled expenses Changes in assets and liabilities (Increase)/decrease in receivables (Increase)/decrease in inventory (Increase)/decrease in deferred tax assets (Increase)/decrease in prepayments (Decrease)/increase in creditors (Decrease)/increase in group tax sharing (Decrease)/increase in tax provision (Decrease)/increase in deferred tax liability (Decrease)/increase in employee entitlements (Decrease)/increase in other provisions Net cash fl ow from operating activities – – 13,015 559 – 123 123 (5,421) 206 (4,814) 700 457 – 26,000 3,587 433 – – – 3,270 1,700 (4,113) (115) 16,561 – (10,646) (2,320) 334 (802) 42,705 5,978 4,505 (8,147) (374) (24,402) – (937) (577) (1,511) – 24,035 32,945 32,968 (33,426) 2,562 1 (690) 483 – – – – 24,001 – – – – – 971 – (40,000) – (4) – 431 167 (1,297) (3,566) (9,707) (4,236) (167) – (31,532) (59,205) 2,657 1 559 (3,077) – – – – (4,814) – – – – – 433 – – – 55 – 40 194 (27) (1,363) (10) 2,484 21 – (29,084) >>72 10 TRADE AND OTHER RECEIVABLES Current Trade receivables (i) Allowance for impairment loss (ii) Other receivables Related Party receivables – Loans to executives CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 42,379 (629) 41,750 9,396 239 51,385 45,707 (449) 45,258 8,620 311 54,189 2009 $’000 – – – 16 239 255 2008 $’000 – – – – 311 311 (i) Trade receivables are carried at original invoice amount less an allowance for any uncollectible debts. Credit terms for advertisers, generally 30 – 45 days, are extended based upon an assessment of the credit standing of each customer. (ii) An allowance for impairment loss is made when there is objective evidence that the Group will not be able to collect the debt. Bad debts are written off when identifi ed. (a) Fair value and credit risk Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables to special purpose entities. Movement in the provision for impairment loss in relation to Trade Receivables was as follows: At 1 July Additions due to acquisitions Charge for the year Amounts written off At 30 June CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 449 80 457 (357) 629 2008 $’000 224 110 123 (8) 449 2009 $’000 – – – – – 2008 $’000 – – – – – >>73 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 10 TRADE AND OTHER RECEIVABLES (CONTINUED) At 30 June, the ageing analysis of trade receivables is as follows: Consolidated 2009 2008 Parent 2009 2008 TOTAL 0-30 DAYS 31-60 DAYS 61-90 DAYS PDNI* 61-90 DAYS CI* +91 DAYS PDNI* +91 DAYS CI* 42,379 45,707 21,299 23,650 18,021 18,631 1,685 1,028 – – – – – – – – 66 45 – – 745 1,949 – – 563 404 – – * Past due not impaired (‘PDNI’), Considered impaired (‘CI’) Receivables past due but not considered impaired incorporate those customers on payment plans or those with a good payment history for which we expect payment in the short term. For each client, credit has been stopped until full payment is made. Each operating unit has been in direct contact with the relevant debtor and is satisfi ed that payment will be received in full. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. (b) Foreign exchange and interest rate risk Detail regarding foreign exchange and interest rate risk exposure is disclosed in note 3. Non-current Related party receivables – controlled entities – related entities – loan to executives CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 – 48 767 815 – – 706 706 714,315 – 767 715,082 642,036 – 706 642,742 Related parties receivables are interest bearing and have no fi xed repayment terms. The directors of the parent entity review the interest rates applicable to these receivables on an annual basis, based on the prevailing cost of debt incurred by the parent entity. All amounts are receivable in Australian dollars. Fair value and credit risk (a) The fair values of non-current receivables approximate their carrying value. Foreign exchange and interest rate risk (b) Detail regarding foreign exchange and interest rate risk exposure is disclosed in note 3. Credit risk (c) The maximum exposure to credit risk at the reporting date is the higher of the carrying value and fair value of each class of receivables. No collateral is held as security. >>74 11 OTHER ASSETS Current Work in progress Prepayments Non-current Prepayments 12 INVESTMENTS IN ASSOCIATES Investment details (a) Unlisted Prime Digital Media Pty Limited (1) Mildura Digital Television Pty Limited Prime Digitalworks Pty Limited destra Corporation Limited (2) Total Investments in Associates CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 17 2,914 2,931 17 2,530 2,547 – 124 – 44 44 – 2008 $’000 – 10 10 – CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 – 204 4,095 – 4,299 2,265 204 1,717 9,001 13,187 – – – – – – – – – – (1) Prime Digital Media Pty Limited became a controlled entity on 24 November 2008. (2) destra Corporation Limited was placed in administration and then receivership on 13 November 2008. >>75 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 12 INVESTMENTS IN ASSOCIATES (CONTINUED) (b) The Consolidated Entity has a material interest in the following entities: OWNERSHIP INTEREST CONTRIBUTION TO NET PROFIT Unlisted Mildura Digital Television Limited Prime Digital Media Pty Limited (1) Prime Digitalworks Pty Limited destra Corporation Limited (2) Kino Cinemas Pty Limited (asset held for resale) 2009 % 50% 100% 33% 44% 0% 2008 % 50% 20% 33% 44% 50% 2009 $’000 (300) (1,358) (1,423) – (3,081) – (3,081) 2008 $’000 (379) (199) (1,854) (1,141) (3,573) (14) (3,587) (1) Share of associates losses for the period 1 July 2008 to 24 November 2008. (2) The Group’s investment in destra Corporation was impaired to Nil during the year. As such no further share of losses were taken up in the Group accounts. (c) Movements in the carrying amount of the Group’s investment in associates At July 1 Transfer from available for sale fi nancial assets (1) Acquisition of investments (2) Loan funds advanced/(repaid) (3) Share of losses after income tax Provision for impairment losses (4) Transfer to controlled entity (5) At June 30 CONSOLIDATED 2009 $’000 13,187 – – 4,100 (3,081) (9,001) (906) 4,299 2008 $’000 2,747 7,330 26,815 5,868 (3,573) (26,000) – 13,187 (1) destra Corporation Limited was classifi ed as an available-for-sale fi nancial asset as at 30 June 2007 and up until signifi cant infl uence was attained on 24 April 2008. (2) Refl ects cost of acquisition of shares in destra Corporation and Prime Digitalworks during current fi nancial year. (3) Refl ects loan funds advanced to associates under either short-term loan arrangement or as per shareholder agreements. These are deemed to be part of the Investment in Associates for the purposes of equity accounting. (4) destra Corporation was placed in administration and then receivership on 13 November 2008. (5) Net equity value of investment in PDM prior to obtaining control on 24 November 2008. >>76 Impairment (d) Provision for impairment loss has been recognised to the extent as disclosed above. (e) Summarised financial information The following table illustrates summarised fi nancial information relating to the Group’s associates: Extracts from associates’ balance sheets: Current assets Non-current assets Current liabilities Non-current liabilities Net assets Share of the associates net assets accounted for using the equity method: Net Assets Extracts from associates’ income statements: Revenue Net Profi t/(loss) Share of the associates profi ts or losses accounted for using the equity method: Profi t/(loss) before income tax Income tax expense Profi t/(loss) after income tax CONSOLIDATED 2009 $’000 225 733 958 (1,181) – (1,181) (223) 2008 $’000 66,485 30,370 96,855 (69,829) (1,048) (70,877) 25,978 (113) 9,615 2,012 (12,601) 106,281 (85,737) (3,081) – (3,081) (3,573) – (3,573) >>77 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 13 INVESTMENTS IN SUBSIDIARIES AND FINANCIAL ASSETS Non-current Investments at cost: Controlled entities (unlisted) CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 – – – – 121,554 121,554 118,054 118,054 Closed group class order disclosures The consolidated fi nancial statements include the fi nancial statements of Prime Media Group Limited and the subsidiaries listed in the following table: EQUITY INTEREST NAME Prime Television (Holdings) Pty Limited Zamojill Pty Limited Prime Television (Southern) Pty Limited Prime Television (Northern) Pty Limited Prime Television (Victoria) Pty Limited Prime Properties (Albury) Pty Limited Prime Television Digital Media Pty Limited Prime Television (Investments) Pty Limited Golden West Network Pty Limited Mining Television Network Pty Limited Telepro Pty Limited Golden West Satellite Communications Pty Limited 135 Nominees Pty Limited Mid-Western Television Pty Limited Geraldton Telecasters Pty Limited Prime Radio (Cairns) Pty Limited Prime Radio (Townsville) Pty Limited Prime Radio (Barrier Reef ) Pty Limited Prime Radio (Rockhampton) Pty Limited Prime Radio (Gladstone) Pty Limited Prime Radio (Mackay) Pty Limited Prime Radio (Holdings) Pty Limited Prime Radio (Cairns-AM) Pty Limited Prime Radio (Mackay-AM) Pty Limited AMI Radio Pty Limited Hot 91 Pty Limited Prime Digital Media Pty Limited Fireback Digital Pty Limited >>78 COUNTRY OF INCORPORATION Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 2009 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2008 % 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 20 20 Entities subject to class order relief Pursuant to Class Order 98/1418, relief has been granted to Prime Television (Holdings) Pty Limited, Prime Television (Southern) Pty Limited, Prime Television (Victoria) Pty Limited, Prime Television (Northern) Pty Limited, Golden West Network Pty Limited, Prime Television Investments Pty Limited, Prime Digital Media Pty Limited and Prime Radio (Holdings) Pty Limited from the Corporations Act 2001 requirements for preparation, audit and lodgement of their fi nancial reports. As a condition of the Class Order, Prime Media Group Limited (the “Closed Group”) and its 100% owned Australian resident subsidiaries entered into a Deed of Cross Guarantee on 17 October 2006. The eff ect of the deed is that Prime Media Group Limited has guaranteed to pay any defi ciency in the event of winding up of any of the controlled entities within the Closed Group. The controlled entities within the Closed Group have also given a similar guarantee in the event that Prime Media Group Limited is wound up. The consolidated statement of fi nancial performance and statement of fi nancial position of the entities which are members of the “Closed Group” are as follows: (1) Consolidated Statement of Financial Performance Operating (loss)/profi t before income tax Income tax benefi t/(expense) attributable to operating (loss)/profi t Operating profi t after tax Retained profi ts at beginning of the fi nancial year Dividends provided for or paid Retained profi ts at end of the fi nancial period CLOSED GROUP 2009 $’000 (36,340) 1,874 (34,466) 3,698 (14,053) (44,821) 2008 $’000 19,892 (6,765) 13,127 12,963 (22,398) 3,692 >>79 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 13 INVESTMENTS IN SUBSIDIARIES AND FINANCIAL ASSETS (CONTINUED) (2) Consolidated Statement of Financial Position Current assets Cash and cash equivalents Trade and other receivables Intangible assets Prepayments Current tax assets Derivative fi nancial instruments Total current assets Non-current assets Receivables Investments in associates Investments in available for sale fi nancial assets Other fi nancial assets and subsidiaries Property, plant and equipment Intangible assets Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Interest bearing loans and borrowings Current tax liabilities Provisions Derivative fi nancial instruments Total current liabilities Non-current liabilities Trade and other payables Interest bearing loans and borrowings Deferred income tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Parent entity interest Contributed equity Reserves (Accumulated losses)/Retained profi ts Total equity >>80 CLOSED GROUP 2009 $’000 5,129 43,492 1,700 2,173 5,241 57 57,792 13,614 4,299 6 115,656 61,310 251,327 6,223 452,435 510,227 55,923 350 42 3,349 4,595 64,259 29,752 150,772 – 2,583 183,107 247,366 262,861 305,643 2,039 (44,821) 262,861 2008 $’000 2,931 50,019 4,694 1,959 – 9,632 69,235 6,129 13,187 8 115,726 58,723 256,653 – 450,426 519,661 35,383 793 4,466 2,100 – 42,742 27,797 245,067 2,904 302 276,070 318,812 200,849 196,569 588 3,692 200,849 14 INVESTMENTS – AVAILABLE-FOR-SALE FINANCIAL ASSETS Investments at fair value: Available-for-sale financial assets: Shares in West Australian Newspapers Ltd (listed) (i) Shares in uncontrolled entities (listed) (i) Investments at cost: Shares in uncontrolled entities (unlisted) (ii) CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 1,078 3 3,133 4,214 1,952 5 3,133 5,090 – – 3 3 – – 3 3 Available-for-sale investments consist of investments in ordinary shares, and therefore have no fi xed maturity date or coupon rate. (i) Listed shares The fair value of the listed available-for-sale investments has been determined directly by reference to published price quotations in an active market. There are no individually material investments. (ii) Unlisted shares Investments in shares of unlisted entities are carried at cost as fair value cannot be reliably measured. The fi nancial instruments held are shares of an entity that has a small shareholder base and a relatively stable share register with few exchanges of shareholdings. Also the nature of the business is still in a fundamental start-up phase meaning establishing valuation parameters is diffi cult and could be subject to signifi cant fl uctuation and estimation error. Management has reviewed the current trading performance and future projections of the entity. Based on these projections and other external factors likely to aff ect the ongoing performance of the entity management are of the belief that the carrying value of the investment is fair value. Based on the current expectations management believe the downturn in performance would have to be greater than 50% of current performance levels before impairment of the investment would occur. >>81 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 15 PROPERTY, PLANT AND EQUIPMENT Freehold land – at cost Leasehold land – at cost (i) Total land Buildings on freehold land – at cost Less: Accumulated depreciation Buildings on leasehold land – at cost (i) Less: Accumulated amortisation Buildings on freehold land – at recoverable value Less: Accumulated depreciation Total buildings Leasehold Improvements – at cost Less: Accumulated amortisation Plant and equipment – at cost Less: Accumulated depreciation and impairment Plant and equipment under lease - at cost Less: Accumulated amortisation Motor vehicles – at cost Less: Accumulated depreciation Total written down amount CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 1,142 197 1,339 3,423 (1,704) 1,719 10,271 (2,588) 7,683 2,112 (434) 1,678 11,080 3,581 (1,052) 2,529 179,511 (123,774) 55,737 25,409 (2,660) 22,749 205 (55) 150 93,584 2008 $’000 1,142 197 1,339 3,383 (1,617) 1,766 10,257 (2,320) 7,937 2,112 (379) 1,733 11,436 2,726 (819) 1,907 158,603 (111,752) 46,851 22,486 (1,592) 20,894 126 (83) 43 82,470 2009 $’000 – – – – – – – – – – – – – – – – 2,507 (2,506) 1 – – – – – – 1 2008 $’000 – – – – – – – – – – – – – – – – 2,507 (2,505) 2 – – – – – – 2 Includes land located in the Australian Capital Territory, under the ACT legislation, the land has a 99-year lease period, and also includes Leasehold Strata Units (i) located in Sydney, which are held under a 99-year lease. >>82 (a) Reconciliations Reconciliations of the carrying amounts of property, plant and equipment at the beginning and end of the current fi nancial year. Freehold land Carrying amount at beginning Additions Disposals Leasehold land Buildings on freehold land Carrying amount at beginning Additions Disposals Depreciation expense Buildings on leasehold land Carrying amount at beginning Additions Disposals Depreciation expense Total Buildings CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 1,142 – – 1,142 197 1,339 3,499 43 (3) (142) 3,397 7,937 14 – (268) 7,683 11,080 1,137 5 – 1,142 197 1,339 3,502 136 – (139) 3,499 8,183 21 – (267) 7,937 11,436 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – >>83 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 15 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Leasehold Improvements Carrying amount at beginning Additions Disposals Depreciation expense Plant and equipment Carrying amount at beginning Additions Reclassifi cation of assets upon payout of fi nance lease Disposals Depreciation expense Impairment expense (1) Reclassifi cation of assets previously held for sale (2) Foreign currency movements Plant and equipment under lease Carrying amount at beginning Additions Disposals Reclassifi cation of assets upon payout of fi nance lease Amortisation expense Foreign currency movements Total Plant and equipment Motor Vehicles Carrying amount at beginning Additions Disposals Depreciation expense CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 1,907 892 (27) (243) 2,529 46,851 18,779 4,839 (190) (12,030) (2,129) – (383) 55,737 20,894 8,863 (20) (4,839) (2,576) 427 22,749 79,017 43 158 (12) (39) 150 2008 $’000 814 1,261 – (168) 1,907 49,665 8,746 – (201) (11,231) – 69 (197) 46,851 7,835 14,086 (94) – (933) – 20,894 67,745 40 43 (14) (26) 43 2009 $’000 2008 $’000 – – – – – 2 – – – (1) – – – 1 – – – – – – – 1 – – – – – – – – – – 3 – – – (1) – – – 2 – – – – – – – 2 – – – – – (1) During the current year management became aware of the increasing demand from customers for High Defi nition Broadcasts at the expense of Standard Defi nition Broadcasts. As a result of this change in demand, management reviewed the future income projections in relation to use of its standard defi nition broadcast equipment. This review gave rise to an impairment event in relation to the standard defi nition broadcast equipment held in both Australia and New Zealand. The recoverable value determined were set at fair value less cost to sell these assets. The fair value less costs to sell was based on an independent valuation and the all the assets relate to the Broadcast Production Services Limited segment. (2) These assets relate to the Moonlight Cinema business that was classifi ed as held for sale at 30 June 2007, but was reclassifi ed during the year ended 30 June 2008. (b) Assets pledged as security All plant and equipment under lease is pledged as security for the associated lease liabilities. >>84 16 GOODWILL AND INTANGIBLE ASSETS Current Program rights At cost Non-current Goodwill on acquisition Broadcast licences and associated rights At cost Programrights At cost Television format rights At fair value Refer Accounting Policy, Note 2 (l) Reconciliations Goodwill on Acquisition Carrying amount at beginning Additions(1) Assets previously classifi ed as held for sale Variation on translation of foreign entity accounts Impairment losses CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 1,700 1,700 4,694 4,694 42,073 28,126 232,339 251,002 3,950 5,650 440 278,802 1,790 286,568 28,126 21,289 – 43 (7,385) 42,073 21,978 3,257 3,000 (109) – 28,126 – – – – – – – – – – – – – – – – – – – – – – – – – – Of the total goodwill additions, $3,500,000 has arisen from the acquisition of the minority interest held in Seven Affi liate Sales Pty Limited, the balance was (1) acquired by way of Business Combinations, refer note 22. >>85 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 16 GOODWILL AND INTANGIBLE ASSETS (CONTINUED) Broadcast licences Carrying amount at beginning Additions Disposals Adjustment to purchase consideration (1) Impairment losses Program Rights Carrying amount at beginning Additions Disposals Amortisation expense Television Format Rights Carrying amount at beginning Additions Disposals Impairment charge CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 251,002 – – (902) (17,761) 232,339 5,650 – – (1,700) 3,950 1,790 – – (1,350) 440 278,802 217,798 33,204 – – – 251,002 7,850 – – (2,200) 5,650 – 2,490 – (700) 1,790 286,568 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (1) During the current period the Group received a refund of purchase consideration held in escrow from the Elmie Acquisition undertaken during period ended 30 June 2008. This refund arose as certain performance conditions were not achieved in the 12 months following acquisition. The escrow refund was $662,000. During the current year shares that were issued as part of equity settled transaction costs for the acquisition of AMI Radio in August 2007 were issued at a market price lower than estimated at the date of acquisition. This revaluation reduced the purchase price of the acquisition by $240,000. (a) Description of the Group’s intangible assets and goodwill (i) Broadcast Licences Television and Radio broadcast licences consist of the right to broadcast television and radio services to specifi c market areas. The licences are subject to renewal by broadcasting authorities in Australia. The directors have no reason to believe the licences will not be renewed at the end of their current legal terms. (ii) Program Rights Represents the purchase of rights to broadcast certain programs at some time in the future. These program rights are amortised to the profi t and loss over the term of the contract to which the rights relate. The carrying value of the rights is cost less accumulated amortisation and impairment losses. (iii) Goodwill After initial recognition, goodwill acquired in a business combination is measured at costs less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is indication of impairment. (iv) Television Format Rights Represents the rights to produce television programs using certain programming formats and titles in the future. The Group contracts with television networks to program these formats for which they pay a fee. The carrying value of the rights is cost less accumulated amortisation and impairment losses. >>86 (b) Details of acquired goodwill Goodwill arising from purchase of 25% minority interest in Seven Affiliate Sales Pty Limited On 26 June 2009, the Group acquired the fi nal 25% minority interest in the controlled entity, Seven Affi liate Sales Pty Limited, for the total consideration of $3,500,000. The acquisition of the minority stake has given rise to dissolving of the shareholders agreement which limited the representation activities of the company to the television operations of the two shareholders. Following the dissolving of the shareholders agreement the company is now free to exploit its considerable market knowledge and standing to represent not only other forms of media within the Prime Group (excluding radio) but also provide representation services to a broader media client base with whom the company has well established relationships. The goodwill acquired represents the synergies of being able to utilise existing resources to enhance the business representation revenues and improved cost effi ciencies with the business moving forward. Seven Affi liate Sales Pty Limited has always operated within the Visual Broadcasting CGU and will continue to do so as a large proportion of the increased earning opportunities are from continuing diversifi cation of the various visual broadcasting mediums that will drive the growth of revenue opportunities for the company. Impairment testing of goodwill and intangible assets with indefinite lives (c) Broadcast licences acquired through business combinations have been allocated to two cash-generating units for impairment testing as follows: » » Visual broadcasting unit; and Radio broadcasting unit. Goodwill acquired through business combinations has been allocated to the following cash–generating units for impairment testing as follows: » » » » Visual broadcasting unit; Radio broadcasting unit; Moonlight Cinemas; and On Site Broadcasting. Visual Broadcasting Unit On an annual basis management undertakes an assessment of the carrying value of its visual broadcasting units intangible assets, which consist of both television broadcast licences and goodwill, to test for impairment. On an annual basis management undertakes a value in use analysis. Senior management prepares fi nancial forecasts for fi ve year periods, these projections are reviewed annually for changes to operational and market conditions on which the most recent independent valuation was based. The long term forecasts are generated using growth rates of between 3 and 4%. The discount rate applied to the cash fl ow projections is 9.97% (12.33% pre tax). The DCF valuation of the intangibles assets gives a recoverable amount in excess of the current carrying value. On a bi-annual basis the Group engages an independent valuer to assess the recoverable amount of its television and radio broadcast licences. The most recent valuation was undertaken in November 2008. This valuation supported the carrying values of the visual broadcasting units intangible assets. Radio Broadcasting Unit The Radio Broadcasting Licences were purchased as part of business acquisitions on 1 September 2005, 1 February 2007 and 20 August 2007. The radio broadcast licences are deemed to be foundation assets without which the radio business could not operate. Therefore on this basis 100% of the value of intangible assets acquired are attributed to the broadcast licences. On an annual basis management undertakes a value in use analysis. Senior management prepares fi nancial forecast for the radio broadcasting unit for up to eight years. This longer period is used as the assets within this unit are at varying stages of maturity within their markets and growth potential diff ers across diff erent market areas. Management believe that the eight year period is a good representation of the time before all market areas could be considered mature and growth will be relatively consistent across all markets. The average growth rates for the business unit average approximately 5%. Long term growth rates for the markets in which this business unit operates is forecast at 4%. A discount rate of 10.97% (13.4% pre tax) was applied to the projected cash fl ows. The DCF valuation based on the above assumptions has given rise to an impairment of the radio licences during the current year. During the current fi nancial period the Group impaired its radio broadcast licence values by $17,761,000. >>87 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 16 GOODWILL AND INTANGIBLE ASSETS (CONTINUED) Moonlight Cinemas The business derives its revenues from two sources being attendance and sponsorship. Senior management prepares fi nancial forecast for this CGU for periods up to 5 years. The major variable factor in this business is the weather. The average revenue growth rates used for this business unit are approximately 3%. The cost base is reasonably constant with the major variable costs relating to fi lm hires which are based on attendance fi gures. Due to the relatively low barriers to entry for a business of this nature, management do not project a long term growth rate in perpetuity but use a multiple of EBITDA when calculating the terminal value in use of the business. These cash fl ow projections are then discounted using a discount rate of 9.97% (pre-tax 15.8%). The DCF valuation based on the above assumptions gives rise to a recoverable value that is less than the current carrying value of the business, therefore the Group has recognised an impairment of the goodwill by $905,000. On Site Broadcasting CGU The On Site Broadcasting CGU operates in Australia and New Zealand. The operations in both Australia and New Zealand are primarily based around long-term contracts with customers who are seen to be of low counterparty risk. Due to the nature of the contracts and equipment involved in this CGU senior management prepares fi nancial forecasts for periods up to eight years. Contracted revenues for the next four years are reasonably visible and the revenue growth rates after year four are set at approximately 3% pa. The cost base of these businesses is a factor of revenues generated which gives the opportunity for good EBITDA growth through improved utilisation of the broadcasting resources. Due to the contractual nature of the work and the technology changes in this industry, management do not use long term perpetual growth cash fl ows in assessing the value in use of the business unit. Management determines the terminal value based on EBITDA multiple of seven times which is refl ective of the life cycle of the current technologies to determine its terminal cash fl ows. A discount rate of 9.97% (pre-tax 14.6%) was applied to the projected cash fl ows. The DCF valuation based on the above assumptions produces a recoverable value less than the current carrying value and as such the Group is refl ecting an impairment charge of $5,363,000 in relation to the goodwill of this business unit. Television Format Rights Senior management regularly reviews the value-in-use of its inventory of television format rights as part of the general evaluation of the television production operations. Management prepares forecasts and plans of how the format rights are to be exploited for periods of up to 2 years into the future. As these format rights are sold on multi use contract rates set at the date of contract signing the future forecasts do not factor in any long term rate increases. Management has applied a pre-tax discount rate of 16% to the future cash fl ows due to the nature of this business. Management whilst not having had an opportunity to fully exploit the format rights has prepared a preliminary assessment which indicated that the recoverable value of these was lower than the current carrying value and have taken an impairment charge of $1,350,000 against these format rights. Sensitivity of Assumptions Television and radio broadcasting are largely fi xed costs businesses, and variations in performance from time to time largely stem from the impact of revenue changes. The entity has sophisticated revenue tracking systems that allow management to track current and future revenues on a daily basis which allows actions to be taken to combat downward trends in revenues early. Both television and radio broadcasting are closely regulated in Australia and as such new competitors can only enter the market space via the issue of new licences by the national government after extensive reviews. Audience habits tend to change relatively slowly, therefore so do viewing and listening shares, and as such advertising revenue shares can be budgeted with a reasonable degree of accuracy. The economic conditions are monitored closely for indicators that could infl uence the overall level of advertising spending to change signifi cantly. The most signifi cant area of risk for the economic entity and its cash generating units are those that aff ect the broadcasting industry as a whole. These risks are monitored closely by management. >>88 Visual Broadcasting For the visual broadcasting CGU, the current recoverable value exceeds its current carrying value by approximately $70 million. The implications of the key assumptions on the recoverable amount are discussed below: » Growth Rate Assumptions – The visual broadcasting unit is a long established business with growth rates having been in a constant range of around 4% over the long term. Based on the current assumptions if long term growth rates were to drop to 2% or lower over then this would potentially give rise to an impairment charge. Discount Rate Assumptions – the discount rate used for assessing this CGU is 9.97%. Based on the current assumptions if the discount rate was to increase by more than 3% then this would give rise to an impairment charge. » Radio Broadcasting The current valuation model for the radio CGU has given rise to an impairment charge of $17,761,000, therefore any negative movements of the assumptions used in this valuation model will give rise to further impairment charges. Moonlight Cinemas For the Moonlight CGU, the current recoverable value equates to the current carrying value. The assumptions used in generating the cash fl ow projections for this unit are sensitive to a number of factors such as weather, new competitors that may aff ect the growth rates that could be achieved. Any negative changes in these assumptions will give rise to further impairment of Moonlight’s goodwill. On Site Broadcasting CGU For the On Site Broadcasting business, the current recoverable value equates to the current carrying value. The assumptions used in generating the cash fl ow projections for this unit are sensitive to a number of factors aff ect the growth rates that are achieved. Any negative changes in the assumptions will give rise to further impairment of goodwill assets of the On Site Broadcasting unit. Television Format Rights Any adverse movement in the assumptions used to determine the fair value of the television format rights will give rise to further impairment. Carrying amount of Intangibles allocated to each of the cash generating units Television Broadcasting Licences Radio Broadcasting Licences Broadcast Licences Moonlight Cinema On Site Broadcasting Prime Media Singapore Radio broadcasting Visual broadcasting Goodwill on Acquisition CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 182,963 49,376 232,339 2,095 24,923 – 175 14,880 42,073 182,963 68,039 251,002 3,000 24,009 1,117 – – 28,126 – – – – – – – – – – – – – – – – – – >>89 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 17 TRADE AND OTHER PAYABLES Current Trade payables (i) Accrued expenses Vendor fi nance CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 16,508 44,744 – 61,252 3,712 36,017 708 40,437 2009 $’000 – 630 – 630 2008 $’000 – 132 – 132 (i) Trade payables are non-interest bearing and are normally settled on 30 day terms. (a) Fair values Due to the short-term nature of these payables, their carrying value is assumed to approximate their fair value. Interest rate, foreign exchange and liquidity risk (b) Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 3. Non-current Accrued expenses Vendor fi nance Amounts other than trade debts payable to: – Controlled entities CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 21 1,402 – 1,423 2008 $’000 888 – – 888 2009 $’000 – – 2008 $’000 – – 369,798 369,798 333,405 333,405 >>90 18 INTEREST-BEARING LOANS AND BORROWINGS MATURITY CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Current Obligations under fi nance lease contracts (note 24(e)) Obligations under hire purchase agreements Secured bank loans – Broadcast Production Services Limited 2010 2010 2010 Non-current Obligations under fi nance lease contracts (note 24(e)) Secured Debenture Subscription facility (i) Secured bank loans – Broadcast Production Services Limited 2011 – 2021 2012 2011 2,049 – 12,831 14,880 20,384 147,283 4,941 172,608 1,697 33 9,279 11,009 19,392 236,314 – 255,706 – – – – – 147,283 – 147,283 – – – – – 236,314 – 236,314 (i) Terms and conditions Prime Media Group Facility This loan has been drawn down under a fi ve year $350 million Debenture Subscription Facility. The facility is secured by a charge over all Prime Borrower Group Assets. The Prime Borrower Group includes all 100% owned controlled entities in Australia and New Zealand. The interest rates applying to these facilities are fl oating. The rates are reset on a periodic basis determined by a periodic funding period election made by the Company. The fl oating rates are based on BBSY + margins, between 0.5% and 1.0%, applied to diff erent portions of the funding debt. The facility consists of two tranches of funding, Tranche A $260 million matures in July 2012, and Tranche B $90 million which matures in July 2009. The Group has the annual option of extending the expiry date of the Tranche B facility for a 12 month period. The Group has chosen not to extend the Tranche B facility beyond its current expiry date of 24 July 2009. As at year end there was $1,000,000 drawn against this facility which will be repaid via a drawdown of funds against the remaining Tranche A facility. The Tranche A facility which matures in July 2012 does not have any principal repayment requirements until maturity, and has been classifi ed as long-term. Broadcast Production Services Facility The secured bank loan has been drawn under a Multi Option facility from the ANZ Banking Group (“ANZ”). The facility is secured by a charge over all the Broadcast Production Services Group assets. This group includes all 100% owned controlled entities in Australia and New Zealand of Broadcast Production Services Limited. The interest rates applying to these facilities are fl oating. These rates are reset on a monthly basis in accordance with the facility terms and conditions. The fl oating rates are based on BBSY + margins, between 1.0% and 1.5% depending on the size and of the funding portion. Some portions of the facility are subject to monthly principal amortisation, which will total $2,827,236 over the next fi nancial year. The facility also has two funding lines totalling $10.7 million that are due to expire in the next twelve months (refer note 3). The facility is subject to an annual review which is due in November 2009 and the Board are not currently aware of any circumstances that would lead to the facilities not being renewed. (a) Fair values The carrying amount of the Group’s current and non-current borrowings approximates their fair value. The fair values have been calculated by discounting the expected future cash fl ows at prevailing market interest rates varying from 5.5% to 7.0% (2008: 6.5% to 7.2%), depending on the type of borrowing. The parent entity and certain controlled entities have potential fi nancial liabilities which may arise from certain contingencies disclosed in note 25. However the directors do not expect those potential fi nancial liabilities to crystallise into obligations and therefore fi nancial liabilities disclosed in the above table are the directors’ estimate of amounts that will be payable by the Group. No material losses are expected and as such, the fair values disclosed are the directors’ estimate of amounts that will be payable by the Group. Interest rate, foreign exchange and liquidity risk (b) Details regarding interest rate, foreign exchange and liquidity risk are disclosed in note 3. (c) Defaults and breaches During the current and prior years, there were no defaults or breaches on any of the loans. >>91 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 19 PROVISIONS Current Restructuring Long service leave Directors’ retiring provision Onerous contracts Non-current Long service leave Onerous contracts CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 – 2,152 98 1,326 3,576 411 2,215 2,626 2008 $’000 186 2,137 266 – 2,589 357 – 357 2009 $’000 – – 98 – 98 – – – 2008 $’000 – – 266 – 266 – – – >>92 Consolidated At 1 July 2008 Arising during the year Utilised Discount rate adjustment At 30 June 2009 Current 2009 Non-current 2009 Current 2008 Non-current 2008 Parent At 1 July 2008 Arising during the year Utilised Discount rate adjustment At 30 June 2009 Current 2009 Non-current 2009 Current 2008 Non-current 2008 ONEROUS CONTRACTS REDUNDANCY PROVISION LONG SERVICE LEAVE DIRECTORS’ RETIRING PROVISION $’000 $’000 $’000 $’000 – 4,745 (1,204) – 3,541 1,326 2,215 3,541 – – – – – – – – – – – – – – 186 – (186) – – – – – 186 – 186 – – – – – – – – – – – 2,494 226 (134) (23) 2,563 2,152 411 2,563 2,137 357 2,494 – – – – – – – – – – – 266 12 (180) – 98 98 – 98 266 – 266 266 12 (180) – 98 98 – 98 266 – 266 TOTAL $’000 2,946 4,983 (1,704) (23) 6,202 3,576 2,626 6,202 2,589 357 2,946 266 12 (180) – 98 98 – 98 266 – 266 (a) Nature and timing of the provisions (i) Redundancy Provision The Board of controlled entity, Broadcast Production Services Limited, had recognised a provision for redundancy in relation to restructuring within the Broadcast Production Services Group operations. These redundancies were settled in October 2008. (ii) Long Service Leave Refer to note 2(q) for the relevant accounting policy and a discussion of the signifi cant estimations and assumptions applied in the measurement of this provision. (iii) Directors’ retiring provision Refer to Remuneration Report. The Directors’ Retiring provision was approved by shareholders in November 1997 and applies only to Mr Hamill. (iv) Onerous Contracts Provision During the year management of Prime Digital Media Pty Limited identifi ed numerous unavoidable contractual obligations where the value of the obligation exceeded the likely economic benefi t that will arise from these obligations. As a result management have raised a provision against these contracts. These contracts have lives of between two and fi ve years to run. >>93 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 20 CONTRIBUTED EQUITY Issued and paid up capital (a) Ordinary shares fully paid 358,422,021 shares (2008: 127,529,944 shares) CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 305,643 196,569 305,643 196,569 2009 2008 NUMBER OF SHARES $’000 NUMBER OF SHARES $’000 (b) Movements in shares on issue Ordinary Beginning of the fi nancial year Issued during the year – shares issued for the accelerated non-redeemable rights issue – shares issued as consideration for equity settled transaction Share buy-back End of the fi nancial year 127,529,944 196,569 124,997,225 187,499 229,359,311 1,984,963 (452,197) 358,422,021 106,697 3,440 (1,063) 305,643 – 3,082,584 (549,865) 127,529,944 – 10,636 (1,566) 196,569 On 1 May 2008, Prime Media Group Limited announced a share buy-back program commencing 19 May 2008, which enabled the company to make on-market purchases of ordinary shares. The share buy-back program remained open for 12 months until 19 May 2009. On 24 March 2009, the Group announced its intention to raise up to $110 million through the issue of shares to existing and new shareholders. The equity raising comprised: » » A 10 for 7 renounceable accelerated pro rata entitlement off er at an off er price of $0.48 per new share; and A placement of up to 45 million shares to Seven Network Limited at $0.48 per new share. The equity raising was fully subscribed resulting in the issue of 229,359,311 new Prime shares with net proceeds after costs of $106,697,000. (c) Share Options Options over ordinary shares: Employee share scheme During the fi nancial year, Nil (2008: 1,630,000) options were issued over ordinary shares. During the fi nancial year, 5,000 (2008: Nil) options lapsed, Nil (2008: 25,000) were forfeited and 2,845,000 (2008: Nil) options were surrendered by executives following the capital raising conducted by the Group. At the end of the year there were Nil (2008: 2,875,000) un-issued ordinary shares in respect of which options were outstanding. (d) Terms and conditions of contributed equity Ordinary shares Ordinary shares have the right to receive dividends as declared and, in the event of winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company. >>94 (e) Capital management When managing capital, the Board’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefi ts for other stakeholders. The Board also aims to maintain a capital structure that ensures the lowest costs of capital available to the entity. The Board and management are constantly reviewing the capital structure to take advantage of favourable costs of capital or high returns on assets. As the market is constantly changing, the Board may change the amount of dividends to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. During 2009, the Company paid dividends of $14,053,000 (2008: $22,398,000). The Board’s target for dividend payments is to pay at approximately 50-60% of the normalised earnings per share. The Board and management monitor capital requirements with regard to its banking covenant requirements as well as comparative guidance to companies of similar size and nature of operations. The key capital management measures that the Company reviews on a ongoing basis are: Debt/Debt + Equity Debt to Normalised EBITDA Interest Cover to Normalised EBITDA TARGET AS AT BALANCE DATE 55% – 65% 2.5 – 3.5 > 3.5 46% 3.1 3.4 The interest cover measures for the current year dropped below the Company’s target but is still within the Group’s banking covenant requirements. As the Group debt levels have reduced following the capital raising undertaken in April 2009, the Interest cover ratio is forecast to return within the Company’s target range. >>95 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 21 RETAINED EARNINGS AND RESERVES Net unrealised gains reserve Foreign currency translation Employee benefi ts equity reserve (Accumulated losses)/Retained profi ts (a) Foreign currency translation (i) Nature and purpose of reserve The foreign currency translation reserve is used to record exchange diff erences arising from the translation of the fi nancial statements of foreign controlled operations. (ii) Movements in reserve Balance at beginning of year Gain/(Loss) on translation of overseas controlled entities Balance at end of year (b) Employee benefits equity reserve (i) Nature and purpose of reserve The employee benefi ts equity reserve is used to record the value of equity benefi ts provided to employees and directors as part of their remuneration. Refer to note 27 for further details of these plans. (ii) Movements in reserve Balance at beginning of year Share Based Payment Balance at end of year (c) Net unrealised gains reserve (i) Nature and purpose of reserve This reserve is used to record movements in the fair value of available-for-sale fi nancial assets. (ii) Movements in reserve Balance at beginning of year Movements in fair value of available-for-sale fi nancial assets Impairment of available-for-sale fi nancial asset to income statement Balance at end of year (Accumulated losses)/Retained profits (d) Balance at the beginning of year Net profi t attributable to members of Prime Media Group Limited Total available for appropriation Dividends provided for or paid Balance at end of year >>96 CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 – (2,044) 2,028 (16) (108,941) 2008 $’000 (378) (1,912) 1,057 (1,233) (50,453) 2009 $’000 – – 2,028 2,028 13,886 2008 $’000 – – 1,057 1,057 (5,006) (1,912) (132) (2,044) 20 (1,932) (1,912) – – – – – – 1,057 971 2,028 624 433 1,057 1,057 971 2,028 624 433 1,057 (378) – 378 – (50,453) (44,435) (94,888) (14,053) (108,941) 1,337 (1,715) – (378) (42,096) 14,041 (28,055) (22,398) (50,453) – – – – – – – – (5,006) 32,945 27,939 (14,053) 13,886 (15,576) 32,968 17,392 (22,398) (5,006) 22 BUSINESS COMBINATIONS Summary of Acquisitions (a) Acquisition of Prime Digital Media Pty Limited and controlled entities On 24 November 2008, Prime Television Digital Media Pty Limited (“Prime”), a controlled entity of Prime Media Group Limited, completed the acquisition of 100% of the shares in Prime Digital Media Pty Limited (“PDM”). This business operates a digital Out-of-Home broadcasting business selling advertising, content and managing third party networks. This acquisition was completed in a number of steps. In September 2006, Prime acquired 19.9% of the shares in PDM. On 31 October 2008, Prime increased its ownership to 40% and then on 24 November 2008, Prime acquired the remaining 60% of the equity in PDM. This business contributed revenues of $1,625,000 from the acquisition date until the end of the current reporting period and a loss after tax of $4,700,000. If the business had been held for the full reporting period it would have contributed revenues of $2,800,000 and a loss after tax of $10,442,700. This business is being merged into television broadcasting to take advantage of synergies in network selling, content creation and distribution networks. The goodwill being acquired relates to the synergies of operating this business alongside the existing media broadcasting businesses taking advantages of the synergies that will arise as well as extending the existing relationships within the business. As at the date of this report the acquisition accounting for the acquisition remains provisional and the purchase price allocation has not been fi nalised. The provisional fair value and book value of the identifi able assets purchased are: Cash Receivables Intangible assets – goodwill Prepayments Property, plant & equipment Deferred tax assets Trade payables Provision for onerous contracts Borrowings owing to Acquirer Provision for employee benefi ts Net Assets Fair value of Net Assets Acquired (60%) Total purchase consideration Goodwill arising Goodwill recognised in previous exchange transactions Total Goodwill recognised CONSOLIDATED CARRYING AMOUNT $’000 (74) 829 120 105 4,600 1,303 (914) (4,344) (4,949) (89) (3,413) RECOGNISED FAIR VALUE ON ACQUISITION $’000 (74) 829 – 105 4,600 1,303 (914) (4,344) (4,949) (89) (3,533) (2,120) 6,940 9,060 2,320 11,380 >>97 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 22 BUSINESS COMBINATIONS (CONTINUED) (a) Acquisition of Prime Digital Media Pty Limited and controlled entities (continued) The consideration for the acquisition is as follows: Cash paid and direct costs relating to the acquisition (current period) Shares issued as consideration at settlement date Deferred settlement amounts – cash Deferred settlement amounts – shares to be issued Total Purchase Consideration 2009 $’000 2,629 2,270 983 1,058 6,940 Fair value of Shares issued as consideration The split of the consideration between cash and shares was determined in accordance with the Sale & Purchase Agreement which allowed the buyer to settle a set portion of the purchase consideration in Prime Media Group Limited shares. The number of shares issued to the vendors under this clause was determined based on the volume weighted average trading price of Prime Media Group shares prior to the completion date of the transaction which gave rise to the issue of 1,408,854 shares which were issued upon settlement and 575,180 shares at various future dates in accordance with the Sale and Purchase Agreement. The fair value of the shares issued as consideration in this transaction has been determined as follows: » » Shares issued at settlement were valued at the market price on the date of issue $1.61; and Shares included to be issued at a later date have been valued at the volume weighted average trading price for the 21 days prior to the deferred settlement date as per the Share Sale and Purchase Agreement. Upon fi nal settlement and issue of these shares the purchase price will be adjusted to refl ect the market value of the shares on the date of issue. The cash outflow on acquisition is as follows: Cash paid and direct costs relating to the acquisition Balances acquired Bank overdraft acquired Net consolidated cash outflow in current year $’000 (2,629) (74) (2,703) >>98 (b) Acquisition of zer01zer0 HD Pty Limited and related business assets On 21 August 2008, On Site Broadcasting Australia Pty Limited, a controlled entity of Broadcast Production Services Limited, completed the acquisition of all the shares in zer01zer0 HD Pty Limited and certain business assets of Dergat Pty Limited that together make up the outside broadcasting business “zer01zer0”. This business was merged with the operations of On Site Broadcasting Pty Limited upon acquisition. Therefore we are unable to determine the revenues or profi t arising from this acquisition in isolation from the continuing operations of On Site Broadcasting Pty Limited. The goodwill acquired in this acquisition relates to the synergies of merging the operations of this business with those of the existing outside broadcasting business to exploit existing relationships in both sales and operational areas. As at the date of this report the acquisition accounting for acquisition is fi nal and the purchase price allocation has been completed. The fi nal fair value and book value of the identifi able assets purchased are: Intangible assets Property, plant and equipment Net Assets Total Purchase Consideration The consideration for the acquisition is as follows: Total cost of acquisition Deferred settlement amounts at fair value (1) Net cash outfl ows in current period CONSOLIDATED CARRYING AMOUNT $’000 – 1,546 1,546 RECOGNISED FAIR VALUE ON ACQUISITION $’000 5,683 589 6,272 2009 $’000 6,272 (1,302) 4,970 (1) Deferred Settlement amounts are paid as fi xed sums at various dates between July 2009 and August 2010. These deferred settlement amounts are interest free and will be settled in cash. >>99 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 22 BUSINESS COMBINATIONS (CONTINUED) (c) Acquisition of Broadcast Rentals Pty Limited On 1 August 2008, On Site Broadcasting Australia Pty Limited, a controlled entity of Broadcast Production Services Limited, agreed to buy 100% of the shares in Broadcast Rentals Pty Limited. As at the date of acquisition the operations of Broadcast Rentals were merged with those of On Site Broadcasting Pty Limited. The goodwill acquired in this business relates to the relationships acquired and the synergies arising from integrating this business with the existing outside broadcasting operations. As at the date of this report the acquisition accounting for acquisition is fi nal and the purchase price allocation has been completed. The fi nal fair value and book value of the identifi able assets purchased are: CONSOLIDATED CARRYING AMOUNT $’000 RECOGNISED FAIR VALUE ON ACQUISITION $’000 31 155 132 (167) 40 (66) (201) (76) 31 155 209 (167) 40 (66) (201) 1 2009 $’000 (1) 31 30 Cash at bank and on hand Trade and sundry debtors Intangibles Borrowings Prepayments Trade creditors Employee entitlements Net Assets Total Purchase Consideration The consideration for the acquisition is as follows: Cash paid and direct costs relating to the acquisition Less: Cash balances acquired Net cash infl ows in current period >>100 (d) Acquisition of Prime National Radio Sales Pty Limited In December 2008, Prime Radio Holdings Pty Limited, a controlled entity, acquired an 80% share of the Brisbane offi ce of the Radio Sales Network from Countrywide Media. The goodwill acquired in this acquisition relates to operating synergies and relationships existing in this business with those within the radio division as a whole. As at the date of this report the acquisition accounting for acquisition remains provisional and the purchase price allocation has not been fi nalised. The provisional fair value and book value of the identifi able assets purchased are: Intangibles – goodwill Net Assets Total Purchase Consideration The consideration for the acquisition is as follows: Cash paid and direct costs relating to the acquisition Less: Cash balances acquired Net cash outfl ows in current period CONSOLIDATED CARRYING AMOUNT $’000 – – RECOGNISED FAIR VALUE ON ACQUISITION $’000 175 175 2009 $’000 (175) – (175) >>101 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 23 DERIVATIVES Current Assets Currency option contract Interest rate swap contracts Current Liabilities Interest rate swap contracts CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 57 – 57 2008 $’000 – 9,632 9,632 2009 $’000 57 – 57 (4,595) – (4,595) 2008 $’000 – 9,632 9,632 – Interest rate swap agreements (a) At balance date, the Company had interest rate swap agreements with a notional amount of $95 million, (2008: $215 million) on which it pays either 6.38% or 6.39% interest and receives the Bank Bill Swap Rate. The swaps are used to protect part of the Borrowings from exposure to increasing interest rates. The swaps in place cover 58% (2008: 89%) of the borrowings outstanding at balance date. Swap agreements expire in July 2012 and October 2012. The interest rate swaps require settlement of net interest receivable or payable each 90 days. The swaps are measured at fair value and all gains and losses are taken to the profi t and loss. The Group paid down swaps with a notional value of $120 million during the year. (b) Currency Option Contract At balance date, the Company had a foreign currency option to purchase USD$5,500,000 at an exchange rate of no worse than 0.80 on 15 July, 2009. This currency option was put in place in September 2008 to cover a series of four instalment payments to be made in relation to a purchase of capital equipment due for delivery in July 2009. (i) Interest rate risk Information regarding interest rate risk exposure is set out in note 3. (ii) Credit risk Credit risk arises from the potential failure of counterparties to meet their obligations at maturity of contracts. This arises on derivative fi nancial instruments with unrealised gains. Management has established to share counterparty risks of contracts across numerous blue chip parties. >>102 24 EXPENDITURE COMMITMENTS (a) Capital expenditure commitments Estimated capital expenditure contracted for at reporting date, but not provided for, payable: – not later than one year (b) Lease expenditure commitments Group as lessee Operating leases (Continuing Operations): Minimum lease payments – not later than one year – later than one year and not later than fi ve years – later than fi ve years Aggregate lease expenditure contracted for at reporting date CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 10,954 638 – 10,587 32,678 18,942 62,207 7,051 19,901 22,752 49,704 – – – – – – – – – >>103 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 24 EXPENDITURE COMMITMENTS (CONTINUED) Operating leases have an average lease term for Motor Vehicles 3 years, Building Rentals 3 years + 3 year options and Transmission Agreements 5-15 years. Motor Vehicle leases are fi xed monthly rentals for the term of the lease. Building Rentals are generally fi xed for the initial lease term, then subject to CPI adjustments if options are taken up. The majority of the transmission sites leases are rentals that are subject to annual CPI adjustment. There are no restrictions placed upon the lessee by entering into these leases. CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 (c) Lease expenditure commitments Group as lessor Certain assets owned and under operating leases with excess capacity have been sub-let to third parties Operating leases (non-cancellable): Minimum lease payments receivable – not later than one year – later than one year and not later than fi ve years – later than fi ve years Aggregate lease income contracted for at reporting date 655 2,205 1,400 4,260 897 1,882 1,550 4,329 – – – – (d) Other commitments covering the rental of technical equipment under a long-term agreement – not later than one year – later than one year and not later than fi ve years – later than fi ve years 6,781 25,774 7,914 40,469 5,758 23,034 12,957 41,749 – – – – (e) Finance Lease commitments – not later than one year – later than one year and not later than fi ve years – later than fi ve years Total Minimum lease payments – future fi nance charges Lease Liability – current liability – non-current liability Finance Lease commitments at present value (f) – not later than one year – later than one year and not later than fi ve years – later than fi ve years Present value of minimum lease payments 4,024 16,640 10,009 30,673 (8,240) 22,433 2,049 20,384 22,433 3,834 12,699 5,900 22,433 3,494 14,950 11,159 29,603 (8,481) 21,122 1,730 19,392 21,122 3,335 11,452 6,335 21,122 – – – – – – – – – – – – – >>104 – – – – – – – – – – – – – – – – – – – – – 25 CONTINGENT LIABILITIES AND CONTINGENT ASSETS CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 2008 $’000 The details and estimated maximum amounts of contingent liabilities are set out below. The directors are not aware of any circumstance or information which would lead them to believe that these liabilities will crystallise and consequently no provisions are provided in the accounts in respect of these matters. Indemnities A wholly owned subsidiary of the Company has assigned a lease of premises to a third party. The landlord is entitled to seek compensation from the subsidiary, and the Company as the guarantor of the subsidiary should the new lessee default during that period. The subsidiary and the Company are indemnifi ed by a third party for any loss incurred as a result of the new lessee breaching the lease. This guarantee and indemnity concurrently expired in September 2008. Lease liabilities not refl ected in the balance sheet are: Litigation In 2005, Wastar International Pty Ltd (formerly Becker Films International Pty Ltd) (“WI”) entered into an agreement with Marigold Production (Canada) Inc (“MPCI”) under which WI was granted distribution rights for the film “Marigold” in North America (the “North American Distribution Agreement”). The North American Distribution Agreement required WI to pay a minimum guarantee of US$2,000,000 by four instalments once the film had been delivered, but also included provisions which significantly limited the recourse that MPCI had against WI in the event that WI failed to pay some or all of the minimum guarantee. MPCI assigned its interest in the North American Distribution Agreement to the Royal Bank of Canada (“RBC”) as part of the financing arrangements for the film. Due to the very poor performance of “Marigold” and other films represented by it, WI is unable to pay the minimum guarantee and has advised MPCI and RBC accordingly. RBC formally demanded payment of the US$2,000,000 in December 2007 and had previously disputed whether the limited recourse provisions formed part of the North American Distribution Agreement. WI rejected the position taken by RBC as being totally unsupported by the facts and the documents executed by WI and MPCI. The matter remains unresolved. Liabilities not recognised in the balance sheet are: – 111 – – 2,357 2,357 2,357 2,468 – – – – >>105 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 26 EMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTS Employee benefits The aggregate employee benefi t liability is comprised of: Accrued wages, salaries and on-costs Provisions (current) Provisions (non-current) NOTES CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 19 19 2,250 411 2,661 2,589 357 2,946 98 – 98 2008 $’000 266 – 266 Superannuation benefits A superannuation plan has been established by the economic entity for the provision of benefi ts to Australian employees of the economic entity on retirement, death or disability. Benefi ts provided under this plan are based on contributions for each employee and at retirement are equivalent to accumulated contributions and earnings. All death and disability benefi ts are insured with various life assurance companies. Employees contribute various percentages of their gross income and the Company also contributes at varying rates. The Company’s contributions under the Superannuation Guarantee Levy are legally enforceable. >>106 27 SHARE BASED PAYMENT PLANS (a) Recognised share based payment expenses The expense recognised for employee services received during the year is shown in the table below: Expense arising from equity-settled share-based payment transactions CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 2008 $’000 2009 $’000 971 433 971 2008 $’000 433 The share-based payment plan is described below. During the fi nancial year, 5,000 (2008: Nil) options lapsed, Nil (2008: 25,000) were forfeited and 2,845,000 (2008: Nil) options were surrendered by executives of the Group. (b) Employee Share Incentive Scheme The economic entity has in place an Employee Share Option Scheme. At two Annual General Meetings (1992 and 1995), shareholders have given approval to the terms of the Prime Media Group Employee Share Option Scheme presented to the meetings. Participation in the Scheme is available to any Director of the parent entity and any person who is in the employment of the economic entity. Recommendations in respect of allocations of share options under the Scheme are made by the Remuneration Committee, for approval by the Board. The total number of Options on issue by the parent entity shall not at any time exceed fi ve per cent (5%) of the parent entity’s total number of ordinary shares on issue of which the total number of Options on issue by the parent entity to directors of the parent entity shall not exceed two point fi ve per cent (2.5%) of the total number of ordinary shares on issue. Information with respect to the number of options granted under the employee share incentive scheme is as follows: Balance at beginning of year – granted – exercised – lapsed – surrendered and cancelled – forfeited and cancelled Balance at end of year Exercisable at end of year 2009 2008 NUMBER OF OPTIONS 2,850,000 – – (5,000) (2,845,000) – – – WEIGHTED AVERAGE EXERCISE PRICE $ 3.50 – – 1.72 3.50 – – – NUMBER OF OPTIONS 1,245,000 1,630,000 – – – (25,000) 2,850,000 474,950 WEIGHTED AVERAGE EXERCISE PRICE $ 3.31 3.65 – – – 3.45 3.50 3.24 >>107 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 27 SHARE BASED PAYMENT PLANS (CONTINUED) Options held as at the end of the reporting period: There were no options held by employees as at 30 June 2009. Option Pricing Model: The Company uses the fair value measurement provisions of AASB 2 Share Based Payments. The fair value of such grants is amortised on a straight- line basis and included under employee benefi ts expense in the income statement is $971,000 (2008: $432,971). No adjustments have been or will be made to reverse amounts previously disclosed in relation to options that never vest (i.e. forfeitures). The current year expenditure includes additional amortisation arising from the cancellation of outstanding options surrendered by employees during the current year. The fair value of each option granted during the year is estimated on the date of grant using a Binomial option-pricing model with the following weighted average assumptions. Dividend yield (%) Expected volatility (%) Historical volatility (%) Risk-free interest rate (%) Expected life of options (years) 2009 – – – – – 2008 5.74 30.35 30.35 6.38 4 The dividend yield refl ects the assumption that the current dividend payout will continue with no anticipated increases. The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility refl ects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. 28 29 EVENTS AFTER THE BALANCE SHEET DATE There have been no signifi cant events subsequent to balance date. ECONOMIC DEPENDENCY A large proportion of television programs of the economic entity are delivered by Amalgamated Television Services Pty Limited on behalf of the Seven Network (“the Network”) in accordance with program purchasing arrangements (“the arrangements”) in force until 2016. Prior to the execution of the arrangements, the economic entity had earlier agreements with the Network that ran from 1989 to 2006. These arrangements allow (but do not compel) the economic entity to broadcast all programs screened by the Seven Network, for a fee that is calculated by reference to the revenues earned by the economic entity within a particular licence area. The arrangements are typical of those in place between all regional television broadcasters and the metropolitan networks, and include provisions dealing with the delivery of programs, the rights of the economic entity to broadcast the programs, the procedure for extension of the arrangements, the Network’s rights upon changes of control or insolvency of the economic entity, the formulae for calculation of payments and the procedures for resolution of disputes. >>108 30 AUDITORS’ REMUNERATION Amounts received or due and receivable by: Ernst & Young Australia for: – an audit or review of the fi nancial report of the entity and any other entity in the consolidated entity – other services in relation to the entity and any other entity in the consolidated entity Amounts received or due and receivable by auditors other than Ernst & Young Australia for: – an audit or review of the fi nancial report of a subsidiary entity – other services in relation to a subsidiary entity CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $ 2008 $ 2009 $ 2008 $ 535,000 515,906 392,000 423,500 108,538 643,538 286,193 802,099 – 392,000 286,193 709,693 – – – 643,538 – – – 802,099 – – – 392,000 – – – 709,693 >>109 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 31 RELATED PARTY DISCLOSURES The consolidated fi nancial statements include the fi nancial statements of Prime Media Group Limited and the subsidiaries listed in the following table. EQUITY INTEREST NAME COUNTRY OF INCORPORATION Prime Television (Holdings) Pty Limited Zamojill Pty Limited Prime Television (Southern) Pty Limited Prime Television (Northern) Pty Limited Prime Television (Victoria) Pty Limited Prime Properties (Albury) Pty Limited Prime Television New Zealand Limited Prime Ventures New Zealand Limited Prime Television Digital Media Pty Limited Prime Television (Investments) Pty Limited Golden West Network Pty Limited Mining Television Network Pty Limited Telepro Pty Limited Golden West Satellite Communications Pty Limited 135 Nominees Pty Limited Mid-Western Television Pty Limited Geraldton Telecasters Pty Limited Prime Radio (Cairns) Pty Limited Prime Radio (Townsville) Pty Limited Prime Radio (Barrier Reef ) Pty Limited Prime Radio (Rockhampton) Pty Limited Prime Radio (Gladstone) Pty Limited Prime Radio (Mackay) Pty Limited Australia Australia Australia Australia Australia Australia New Zealand New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 2009 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2008 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 >>110 NAME COUNTRY OF INCORPORATION Prime Radio Holdings Pty Limited Prime Radio (Cairns-AM) Pty Ltd Prime Radio (Mackay-AM) Pty Ltd Prime Media Communications Pty Limited Prime New Media Investments Pty Limited Prime Media Developments Pty Limited Seven Affi liate Sales Pty Limited Prime Media Broadcasting Services Pty Limited Prime Media Singapore Pte Ltd Prime Media Group Services Pty Limited AMI Radio Pty Limited Hot 91 Pty Limited Prime Digital Media Pty Limited Fireback Digital Pty Limited POP Digital Media Pty Limited Prime National Radio Sales Pty Limited Broadcast Production Services Limited (1) Controlled entities of Broadcast Production Services Limited Production Strategies Pty Limited Production Strategies Discretionary Trust P.R.O. Television Unit Trust Wastar Television (NZ) Limited (2) Producer Representatives Organization Inc. Producer Representatives Organization International Inc. Wastar International Pty Ltd Screenworld Pty Limited Australia Australia Australia Australia Australia Australia Australia Australia Singapore Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand USA USA Australia Australia EQUITY INTEREST 2009 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 77 77 77 77 – 77 77 77 77 2008 % 100 100 100 100 100 100 75 100 100 100 100 100 20 20 20 – 76 76 76 76 76 76 76 76 76 (1) The equity interest refl ected for the controlled entities of Broadcast Production Services Limited is that of the members of the parent entity (2) Dormant company that was dissolved during the current period. >>111 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 31 RELATED PARTY DISCLOSURES (CONTINUED) NAME COUNTRY OF INCORPORATION Family Bloom Productions Inc OSB Holdings Pty Ltd OSB Unit Trust On Site Broadcasting Pty Limited OSB Australia Pty Ltd OSB (NZ) Equipment Limited On Site Broadcasting (NZ) Limited OSB Corporation Pty Limited Becker Entertainment (Singapore) Pte Ltd On Corporation Pty Limited Moonlight Premium Cinema Pty Limited MMJT Productions Pty Limited Moonlight Cinema Management Pty Limited Moonlight Projects Pty Limited Broadcast Rentals Pty Limited zer01zer0 HD Pty Limited Moonlight TV Pty Ltd formerly Claymore Film Investments Pty Ltd USA Australia Australia Australia Australia New Zealand New Zealand Australia Singapore Australia Australia Australia Australia Australia Australia Australia Australia EQUITY INTEREST 2009 % 77 77 77 77 77 77 77 77 77 77 77 77 77 77 77 77 – 2008 % 76 76 76 76 76 76 76 76 76 76 76 76 76 76 – – 76 Wholly owned group transactions Sales made, revenue collected and payments disbursed, are under normal commercial terms and conditions. Interest and borrowing costs recoveries are assessed on outstanding balances between entities within the wholly owned group. Key management personnel Details relating to KMP, including remuneration paid, are included in the Remuneration Report and note 32. Transactions with other related parties Seven Affiliate Sales Pty Limited On 26 June 2009, Prime Media Group Limited acquired the minority 25% interest held by Seven Queensland. Seven Affi liate Sales sells national airtime on behalf of Prime Media Group Limited and Seven Queensland. Costs are reimbursed on the basis of percentage share of revenue. During the fi nancial year Prime Media Group Limited paid approximately 78% of the operating expenses of Seven Affi liate Sales amounting to $5,167,092 (2008: $4,549,082). As Seven Affi liate Sales is a controlled entity, all of the results of its operation have been consolidated into the Prime Media Group Limited fi nancial statements. Broadcast Production Services Limited and controlled entities Prime Media Group Limited receives accommodation, legal and administrative support services from Broadcast Production Services Limited and its related entities. During the current period Broadcast Productions Services Limited received $435,600 (2008: $Nil) from Prime for these services. Prime Media Group has provided the services of the CEO and accounting services to Broadcast Production Services Limited. During the current period the Group has paid $200,000 (2008: $Nil) for accounting services and $168,000 (2008: $280,000) for the CEO’s services. Prime Media Group Limited has provided the services of Mr Peter Evans and Mr Warwick Syphers as directors of the Broadcast Production Services Limited Group. For the provision of these services the Group paid Prime $100,000 (2008: $137,500). During the previous period the services of Mr Paul Ramsay were also provided as a director of Broadcast Production Services Limited for part of the period. >>112 32 DIRECTOR AND EXECUTIVE DISCLOSURES (a) Details of Key Management Personnel (i) Directors P. J. Ramsay M. S. Siddle P. J. Evans T. Jackman A. Hamill P. Grier I. Neal W. Syphers (ii) Executives D. Edwards R. Gamble R. Reeve G. Smith P. Stubbings Chairman (non-executive) Deputy Chairman (non-executive) Director (non-executive) Director (non-executive) – resigned 27 November 2008 Director (non-executive) Director (non-executive) Director (non-executive) Director (Chief Executive Offi cer) Chief Executive Offi cer – Television Chief Executive Offi cer – Radio and Digital Media Group General Counsel and Company Secretary (1) Chief Technology Offi cer and General Manager, Broadcast Production Services Chief Financial Offi cer (appointed 15 December 2008) (1) Mr Reeve has been employed by Broadcast Production Services Limited since 1996. During the current period Mr Reeve’s services were utilised by the wider Prime Media Group Limited and as such is deemed to have become a Key Management person from 1 July 2008. (2) Eff ective from 1 July 2008 the following executives no longer met the defi nition of Key Management Personnel - A. Butorac, A. Cooper and R. Howarth. (b) Compensation of key management personnel Short-term employee benefi ts Post-employment benefi ts Long-term benefi ts Termination benefi ts Share-based payments CONSOLIDATED PRIME MEDIA GROUP LIMITED 2009 $’000 3,541 115 23 330 906 4,915 2008 $’000 3,455 131 20 150 402 4,158 2009 $’000 616 29 – 180 – 825 2008 $’000 520 24 – – – 544 >>113 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 32 DIRECTOR AND EXECUTIVE DISCLOSURES (CONTINUED) Prime Media Group Limited has applied the option under Corporations Amendments Regulations 2006 to transfer key management personnel remuneration disclosures required by AASB124 Related Party Disclosures paragraphs Aus 25.4 to Aus 25.7.2 to the Remuneration Report section of the Directors’ Report. These transferred disclosures have been audited. (c) Option holdings of key management personnel 2009 Directors W. Syphers Executives G. Smith D. Edwards Total 2008 Directors W. Syphers Executives G. Smith D. Edwards A. Butorac A. Cooper Total BALANCE AT BEGINNING OF PERIOD 1 JULY 2008 1,505,000 425,000 750,000 2,680,000 BALANCE AT BEGINNING OF PERIOD 1 JULY 2007 GRANTED AS REMUNERATION OPTIONS EXERCISED NET CHANGE OTHER BALANCE AT END OF PERIOD 30 JUNE 2009 – – – – – (1,505,000) (425,000) – – (750,000) – (2,680,000) – – – – GRANTED AS REMUNERATION OPTIONS EXERCISED NET CHANGE OTHER BALANCE AT END OF PERIOD 30 JUNE 2008 VESTED AT 30 JUNE 2009 TOTAL NOT EXERCISABLE EXERCISABLE – – – – – – – – – – – VESTED AT 30 JUNE 2009 TOTAL NOT EXERCISABLE EXERCISABLE 605,000 900,000 225,000 300,000 20,000 20,000 1,170,000 200,000 450,000 – 80,000 1,630,000 – – – – – – – – – – – – 1,505,000 207,500 425,000 750,000 20,000 100,000 2,800,000 99,750 133,000 6,600 6,600 453,450 – – – – – – 207,500 99,750 133,000 6,600 6,600 453,450 >>114 (d) Shareholdings of key management personnel SHARES HELD IN PRIME MEDIA GROUP LIMITED (NUMBER) OPENING BALANCE ORD. GRANTED AS REMUNERATION ORD. ON EXERCISE OF OPTIONS ORD. NET CHANGE OTHER ORD. CLOSING BALANCE ORD. 2009 Directors P. J. Ramsay M. S. Siddle P. J. Evans W. Syphers Executives D. Edwards R. Gamble P. Stubbings Total SHARES HELD IN PRIME MEDIA GROUP LIMITED (NUMBER) 2008 Directors P. J. Ramsay M. S. Siddle P. J. Evans W. Syphers Executives D. Edwards Total , 53,804,169 415,210 5,000 500 20,000 – – 54,244,879 – – – – – 54,189,485 107,993,654 984,082 – 24,286 – 201,000 – 568,872 19,286 200,500 – 98,551 – 98,551 28,572 – 43,073 48,572 98,551 – – 43,073 – 55,049,788 109,393,218 OPENING BALANCE ORD. GRANTED AS REMUNERATION ORD. ON EXERCISE OF OPTIONS ORD. NET CHANGE OTHER ORD. CLOSING BALANCE ORD. 51,262,780 415,210 5,000 500 20,000 51,703,490 – – – – – – – – – – 2,541,389 – – – 53,804,169 415,210 5,000 500 – – – 2,541,389 20,000 54,244,879 >>115 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 32 DIRECTOR AND EXECUTIVE DISCLOSURES (CONTINUED) All equity transactions with specifi ed directors and specifi ed executives other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm’s length. (e) Loans to key management personnel (i) Details of aggregates of loans to specified directors and specified executives are as follows: 2009 2008 BALANCE AT BEGINNING OF PERIOD $’000 1,300 1,450 INTEREST CHARGED $’000 – – LOAN BALANCE WAIVED $’000 161 150 600 (ii) Details of key management personnel with loans in the reporting period are as follows: 30 June 2009 Directors W. Syphers Executives D. Edwards G. Smith 30 June 2008 Directors W. Syphers Executives D. Edwards G. Smith 500 200 100 40 500 200 750 150 – – – – – – 21 – – LOAN REPAYMENTS $’000 BALANCE AT END OF PERIOD $’000 INTEREST NOT CHARGED $’000 NUMBER IN GROUP 30 JUNE 2007 33 – 1,106 1,300 71 107 33 – – – – – 546 400 160 600 500 200 37 25 10 55 37 15 3 3 (a) 600 500 200 (a) 750 500 200 (a) Loan highest balance during the period. (iii) Terms and Conditions of loans The loans to executives are interest free and will be forgiven on the basis of continued services with the company. 20% of the original loan balance will be forgiven on 1 July of each year if the executive remains employed with the company at that date. If the executive terminates his employment during the fi ve year period the balance of the loan at the date of termination is repayable by the executive on the date of termination. These loans are secured against property owned by the executives. The executives have the option of making repayments during the course of the loan or having further amounts waived from these loan balances by taking reductions in salary or forgoing the payment of entitlements such as bonuses. Any loan amounts waived by the company are subject to FBT at the cost of the company. (f) Other transactions and balances with Directors and Executives There were no other transactions and balances with directors or specifi ed executives other than those disclosed in this note during the year ended 30 June 2009. >>116 33 SEGMENT INFORMATION – PRIMARY SEGMENT Segment accounting policies Segment accounting policies are the same as the consolidated entity’s policies described in note 2. During the fi nancial year, there were no changes in segment accounting policies that had a material eff ect on the segment information. Business Segment The consolidated entity is organised on a worldwide basis and comprises the following main business segments, based on the consolidated entity’s management reporting system: Visual Broadcasting: Includes television broadcasting through Prime and Golden West Network (GWN), and out-of-home digital media sales and creative production (through Prime Digital Media). Radio Broadcasting: Includes radio stations operating in Queensland; Broadcast Production Services: Includes businesses of Outside Broadcasting Services (primarily relating to coverage of sporting events in Australia and New Zealand), Television Production (domestic and international television program productions) and Moonlight Cinema (outdoor cinemas in Australia). Corporate and other: Includes operations that relate to the group as a whole. The fi nancial performance of the segments is detailed below: CONTINUING OPERATIONS DISCONTINUED OPERATIONS VISUAL BROADCASTING $’000 RADIO BROADCASTING $’000 BROADCAST PRODUCTION SERVICES $’000 CORPORATE AND OTHER $’000 TOTAL CONTINUING $’000 FILM EXHIBITION AND DISTRIBUTION $’000 TOTAL OPERATIONS $’000 YEAR ENDED 30 JUNE 2009 Segment Revenues External sales and customers Other income (excluding interest income) Total segment revenue Segment result (pre-significant items) Significant Items Net Profit/(Loss) before income tax Income tax (expense )/benefit Net Profit/(Loss) after tax Minority interests Net Profit after tax attributable to members of Prime Media Group Limited Assets and liabilities Segment assets (1) Investments in associates Total assets Segment liabilities (1) Net assets Other segment information Capital expenditure (2) Depreciation and amortisation Impairment losses Other non-cash expenses 211,432 8,868 220,300 49,398 (2,008) 47,390 (9,894) 37,496 18,444 1,096 19,540 1,044 (18,053) (17,009) 230 (16,779) 33,454 427 33,881 (1,538) (3,148) (4,686) (116) (4,802) 892 264,222 14,640 4,249 5,141 278,862 26,190 (72,991) (46,801) 1,257 (45,544) (22,714) (49,782) (72,496) 11,037 (61,459) 283,733 204 283,937 (54,169) 229,768 60,046 – 60,046 (3,647) 56,399 4,095 74,671 35,778 454,228 – 4,299 39,873 458,527 74,671 (73,384) (129,989) (261,189) (90,116) 197,338 1,287 9,156 8,572 – 231 1,859 1,112 17,761 24 8,622 4,876 2,979 202 748 738 11,533 25,112 20,385 15,298 32,273 25,569 (1) Excludes inter-segment receivables and payables (2) To comply with the requirements of AASB 114.57, the Group has included the cost of segment assets acquired by way of business combinations. – 264,222 14,640 – – 278,862 26,190 – (72,991) – (46,801) – 1,257 – (45,544) – (1,109) (44,435) – 454,228 – 4,299 – 458,527 – (261,189) – 197,338 – – – – 20,385 15,298 32,273 25,569 >>117 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 33 SEGMENT INFORMATION – PRIMARY SEGMENT (CONTINUED) YEAR ENDED 30 JUNE 2008 Segment Revenues External sales and customers Other income (excluding interest income) Total segment revenue Segment result (pre-signifi cant items) Signifi cant Items Net Profi t/(Loss) before income tax Income tax (expense )/benefit Net Profi t/(Loss) after tax Minority interests Net Profi t after tax attributable to members of Prime Media Group Limited Assets and liabilities Segment assets (1) Investments in associates Total assets Segment liabilities (1) Net assets Other segment information Capital expenditure (2) Depreciation and amortisation Impairment losses Other non-cash expenses CONTINUING OPERATIONS DISCONTINUED OPERATIONS VISUAL BROADCASTING $’000 RADIO BROADCASTING $’000 BROADCAST PRODUCTION SERVICES $’000 CORPORATE AND OTHER $’000 TOTAL CONTINUING $’000 FILM EXHIBITION AND DISTRIBUTION $’000 TOTAL OPERATIONS $’000 212,942 9,426 222,368 63,481 – 63,481 (15,028) 48,453 287,352 204 287,556 (54,432) 233,124 6,529 8,011 – 123 18,530 441 18,971 1,923 – 1,923 (586) 1,337 78,369 – 78,369 (3,871) 74,498 3,870 892 – 23 19,489 361 19,850 2,905 (700) 2,205 (1,101) 1,104 489 2,601 3,090 (23,415) (22,886) (42,301) 9,544 (36,757) 251,450 12,829 264,279 44,894 (23,586) 21,308 (7,171) 14,137 29,261 – 29,261 627 – 627 (232) 395 56,339 414 56,753 (53,237) 3,516 29,819 12,983 42,802 (207,289) (164,487) 563 2,979 700 865 – 881 26,000 433 451,879 13,601 465,480 318,829 146,651 10,962 12,763 26,700 1,444 – – – – – – 251 – – 280,711 12,829 293,540 45,520 (23,586) 21,935 (7,403) 14,532 491 14,041 451,879 13,601 465,480 318,829 146,651 10,962 13,014 26,700 1,444 (1) Excludes inter-segment receivables and payables (2) To comply with the requirements of AASB 114.57, the Group has included the cost of segment assets acquired by way of business combinations. >>118 DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2009 In accordance with a resolution of the directors of Prime Media Group Limited, I state that: (1) In the opinion of the directors: (a) the fi nancial statements, notes and additional disclosures included in the Directors’ Report designated as audited, of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company’s and consolidated entity’s fi nancial position as at 30 June 2009 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with s295A of the Corporations Act 2001 for the fi nancial year ending 30 June 2009. On behalf of the Board P. J. Evans Director Sydney, 29 September 2009 >>119 INDEPENDENT AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2009 Ernst & Young Centre 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 www.ey.com/au Independent Audit Report to the members of Prime Media Group Limited We have audited the accompanying fi nancial report of Prime Media Group Limited, which comprises the balance sheet as at 30 June 2009, and the income statement, statement of changes in equity and cash fl ow statement for the year ended on that date, a summary of signifi cant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the fi nancial year. The Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the fi nancial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the fi nancial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also state that the fi nancial report, comprising the fi nancial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors are also responsible for the remuneration disclosures contained in the remuneration report. Auditor’s Responsibility Our responsibility is to express an opinion on the fi nancial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards and International Standards on Auditing. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the fi nancial report is free from material misstatement and that the remuneration disclosures comply with Accounting Standard AASB 124 Related Party Disclosures. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the fi nancial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the fi nancial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eff ectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the fi nancial report. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration which is included in the directors’ report. In addition to our audit of the fi nancial report, we were engaged to undertake the non-audit services disclosed in the notes to the fi nancial statements. The provision of these services has not impaired our independence. >>120 Liability limited by a scheme approved under Professional Standards Legislation INDEPENDENT AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2009 Auditor’s Opinion In our opinion: 1. The fi nancial report of Prime Media Group Limited is in accordance with the Corporations Act 2001, including: (i) ii) giving a true and fair view of the fi nancial position of Prime Media Group Limited and the consolidated entity at 30 June 2009 and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. 2. The fi nancial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. Report on the Remuneration Report We have audited the Remuneration Report included in pages 19 to 25 of the directors’ report for the year ended 30 June 2009. 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. Auditor’s Opinion In our opinion the Remuneration Report of Prime Media Group Limited for the year ended 30 June 2009, complies with section 300A of the Corporations Act 2001. Ernst & Young David Simmonds Partner Sydney 29 September 2009 >>121 ASX ADDITIONAL INFORMATION FOR THE YEAR ENDED 30 JUNE 2009 Additional information required by the Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 21 September 2009. (a) Distribution of equity securities Ordinary shares As at 21 September 2009, total number of fully paid up shares on issue is 363,326,217. The number of shareholders, by size of holding, in each class of share are: 1 – 1,000 1,001– 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over The number of shareholders holding less than a marketable parcel of shares are: (b) Twenty largest shareholders The names of the twenty largest holders of quoted shares at 21 September 2009 are: 1 2 3 4 5 6 7 8 9 9 11 12 13 14 15 16 17 18 19 20 Paul Ramsay Holdings Pty Limited RBC Dexia Investor Services Australia Nominees Limited Network Investment Holdings Pty Limited Bell Potter Nominees Limited Citicorp Nominees Pty Limited National Nominees Limited JP Morgan Nominees Australia Limited UBS Nominees Pty Limited Birketu Pty Limited George Walter Mooratoff HSBC Custody Nominees (Australia) Pty Limited Australian Reward Investment Alliance Cogent Nominees Pty Limited Effi e Holdings Pty Limited Reading Entertainment Australia Pty Limited Bow Lane Nominees Pty Limited Sandhurst Trustees Limited Paul Ramsay Foundation Pty Limited ANZ Nominees Limited Mr Michael Siddle + Mrs Lee SiddleNUMBER OF HOLDERS 484 582 227 255 58 1,606 378 LISTED ORDINARY SHARES NUMBER OF SHARES PERCENTAGE OF ORDINARY SHARES 106,408,159 61,933,378 41,701,955 32,480,782 21,235,771 20,899,032 18,480,987 7,670,193 5,000,000 5,000,000 4,348,158 3,337,400 3,154,590 2,750,000 2,541,209 1,928,629 1,755,857 1,585,285 1,502,554 983,572 344,697,511 29.29 17.05 11.48 8.94 5.84 5.75 5.09 2.11 1.38 1.38 1.20 0.92 0.87 0.76 0.70 0.53 0.48 0.44 0.41 0.27 94.90 >>122 (c) Substantial shareholders The names of substantial shareholders who have notifi ed the Company in accordance with section 671B of the Corporations Act 2001 are: Mr Paul Ramsay and Paul Ramsay Holdings Pty Limited Perpetual Limited Network Investment Holdings Pty Ltd and Seven Network Limited Ashblue Holdings Pty Limited and Mr Kerry Stokes Commonwealth Bank of Australia Investors Mutual Limited Illyria Nominees Pty Limited and Mr Lachlan Murdoch 452 Capital Pty Limited # These substantial shareholdings relate to the same parcel of shares. (d) Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. NUMBER OF SHARES PERCENTAGE OF ORDINARY SHARES 107,993,654 48,835,897 41,701,955 41,701,955 39,215,812 35,335,503 32,480,782 31,029,023 29.72% 13.44% 11.48%# 11.48%# 10.79% 9.73% 8.94% 8.54% >>123 COMPANY INFORMATION Prime Media Group Limited ABN 97 000 764 867 This annual report covers both Prime Media Group Limited as an individual entity and the consolidated entity comprising Prime Media Group Limited and its subsidiaries. The Group’s functional and presentation currency is AUD ($). Directors Paul Joseph Ramsay AO Chairman (Appointed 17 April 1985) Michael Stanley Siddle Deputy Chairman (Appointed 17 April 1985) Peter John Evans (Appointed 27 March 1991) Alexander Andrew Hamill (Appointed 2 October 2003) Ian Patrick Grier (Appointed 6 June 2008) Ian Richard Neal (Appointed 6 June 2008) Siobhan Louise McKenna (Appointed 20 August 2009) Warwick David Syphers Chief Executive Offi cer (Appointed 5 December 2006) Patrick Terry Jackman (Appointed 22 February 1996. Resigned 27 November 2008) Company Secretaries Robert Reeve (Appointed 20 February 2009) Andrew Cooper (Appointed 16 June 2005) Susan Howie (Appointed 25 September 2006. Resigned 20 February 2009) Registered Office 363 Antill Street Watson ACT 2602 (02) 6242 3700 Share Register Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 1300 554 474 Prime Media Group Limited shares are listed on the Australian Securities Exchange (Listing Code PRT). Bank ANZ Banking Group Limited 8/20 Martin Place Sydney NSW 2000 Auditors Ernst & Young 680 George Street Sydney NSW 2000 >>124 Designed and produced by Armstrong Miller+McLaren – www.amm.com.au www.primemedia.com.au