2012 AnnuAl RepoR t CONTENTS 2 ChairmaN ’S a ddrESS 4 ChiEf EXECUTiVE OffiCEr’S rEPOrT 7 dirECTOrS’ rEPOrT 23 COrPO raTE GOVErNaNCE ST aTEmENT 28 fiNaNC iaL STaTEmENTS COrPOraTE iNfOrmaTiON ABN 97 000 764 867 this annual report covers both prime Media Group limited (“the Company”) as an individual entity and the consolidated entity comprising prime Media Group limited and its subsidiaries (“the Group”). the Group’s functional and presentation currency is AuD ($). NAme PositioN DAte APPoiNteD DAte ResigNeD directors paul Joseph Ramsay Ao Chairman Michael Stanley Siddle Deputy Chairman peter John evans FCA Alexander Andrew Hamill Ian patrick Grier AM Ian Richard neal Siobhan louise McKenna 17 April 1985 17 April 1985 27 March 1991 2 october 2003 6 June 2008 6 June 2008 – – – – – – 20 August 2009 29 March 2012 Ian Craig Audsley Chief executive officer 24 June 2010 – Company Secretaries Andrew Cooper emma McDonald lesley Kennedy RegisteReD office 363 Antill Street Watson ACt 2602 (02) 6242 3700 16 June 2005 27 February 2012 16 December 2010 30 September 2011 – 5 June 2012 BANk Australia and new Zealand Banking Group limited (AnZ) 8/20 Martin place Sydney nSW 2000 shARe RegisteR link Market Services limited level 12 680 George Street Sydney nSW 2000 ph: 1300 554 474 prime Media Group limited shares are listed on the Australian Securities exchange (listing Code pRt). AuDitoRs ernst & Young 680 George Street Sydney nSW 2000 highLights $273m RE V ENUE* $67.4m EBITDA $33.2m CORE NE T PROFIT AF TER TA X* 6.6¢ FULL Y E AR DI V IDEND/SHARE 22.1% CHANGE IN CORE NE T PROFIT AF TER TA X* 6.2% A DV ERTISING RE V ENUE . 7 6 4 2 2 . 1 3 2 9 . 2 1 2 4 . 1 1 2 2 . 2 1 2 3 . 0 2 . 0 0 2 5 . 8 1 4 . 8 1 2 . 9 1 08 09 10 11 12 08 09 10 11 12 A DV ERTISING RE V ENUE TELE V ISION (Millions) A DV ERTISING RE V ENUE R A DIO (Millions) * f rom C ontinuing o per ation s before s pec ific item s. Prime media GrouP ANNUAL REPORT 2012 1 2 ChairmaN’S addrESS On behalf of the Directors of PRIME Media Group I am pleased to present the Annual Report covering the 2012 financial year. pRIMe delivered solid Core net profit After tax growth of 22.1% off the back of a strong television audience and advertising revenue growth attributable to the Seven network programming schedule. the result positioned pRIMe as the growth leader in the traditional media sector (non‑online). In calendar year 2011 pRIMe7 won the television audience ratings in its three aggregated markets of northern new South Wales, southern new South Wales and Victoria (on a combined basis), taking it to number 1 ranking status for the first time since regional television markets were aggregated in 1991. It is a tremendous achievement, demonstrative of management’s focus on improving the performance of the business. It was also a year of innovation at pRIMe as it introduced Australia’s first datacasting service. Received in all of pRIMe’s television markets across Australia, the datacasting service broadcasts information programs 24/7. It is a unique offering, which also provides a new and growing revenue stream and management continues to look for similar opportunities to provide additional revenue channels. pRIMe’s radio division struggled to match the previous year’s performance due to difficult market conditions. It nonetheless continues to be a good contributor to group earnings. the Company booked a $5.3 million impairment charge for radio intangible assets due to continuing uncertainty in the regional Queensland advertising market. We remain confident of the radio business’ ability to improve its contribution with any strengthening of the advertising market and the Queensland economy generally. Management has maintained its focus on expenses in order to mitigate any cost pressures, which included a restructure of the executive team. I’d like to take this opportunity to acknowledge the tremendous contribution to pRIMe by Mr Doug edwards, Mr Ross Howarth, Ms Maureen Jack and Mr trevor Sutherland, all of whom left the Company as part of that restructure. I’d like also to thank pRIMe’s dedicated staff across the breadth of the country for their contribution to a tremendous result, and the loyal advertisers whose continuing support of our businesses made it possible. Core earnings per share has increased 21.2% to 9.1 cents. A final dividend per share of 3.3 cents is a 37.5% improvement on the prior year. the 2012 financial year demonstrated pRIMe’s ability to outperform and innovate. I’m very pleased with the results, which speak for themselves. Paul ramsay aO ChairmaN Prime media GrouP ANNUAL REPORT 2012 3 ChiEf EXECUTiVE OffiCEr’S rEPOrT Strong earnings growth in FY 2012 contrasts sharply against the declines of most other traditional media companies. I’m very pleased to report that your company outperformed the advertising market and most of its industry peers in the 2012 financial year. Revenue from continuing operations increased in the financial year to $273.5 million, representing a $16.5 million or 6.4% increase on the prior year, and derived from an advertising market that declined 1.8%. eBItDA of $67.4 million is $6.4 million or 10.3% above the prior year and reflects an improvement in eBItDA margin of 24.6%, up from 23% in the prior year. this resulted in a core net profit after tax of $33.2 million, an increase of 22.1%. non‑core items, including a $5.3 million write down of the Company’s radio intangible assets resulted in statutory net profit after tax of $27.7 million, up 1.9% on the prior period. the radio business impairment was a result of persisting weak consumer sentiment and softening advertiser confidence in regional Queensland. the advertising market in Queensland continued to be difficult as a result of the higher Australian dollar and its negative impact on tourism, cost of living increases in markets hosting the mining industry and the lingering effects of last year’s floods and tropical cyclone. More recently, the change in state government and a subsequent reduction in government advertising spend has further weakened confidence. However, pRIMe’s television division shrugged off the effects of a declining advertising market to post revenue growth of $15.4 million or 6.6% on the prior period result. eBItDA of $72.9 million is a $6 million or 9.1% improvement. the solid performance of television is attributable to the continuing strength of the Seven network’s programming schedule and the focus and attention of pRIMe’s management team to optimise its yield from the market. 4 television’s share of national advertising revenue increased 2.8 share points to 42.4%* while total network audience grew by 2 share points.^ A priority focus during the year was a review of television’s sales organisations. led by Group General Manager Sales & Marketing Dave Walker and General Manager network Sales tony Hogarth, television’s local sales management structure was overhauled to centralise the sales strategy and business development functions in order to overlay industry best practices across the entire sales operation and improve the performance of each respective local sales market. the review also created an opportunity to reduce the sales management overhead. Radio advertising revenue declined by $338,000 or 1.7% to $19.3 million, due to market conditions and eBItDA declined $632,000 or 13.2% against the prior year’s result. Radio management held a tight rein on expenses with year on year growth of just $223,000 or 1.4% over the prior period. Management continues to look for more efficient ways to mitigate the difficulties being experienced in the regional Queensland advertising market. in a year on year eBItDA improvement of $723,000 or 82%. Clearly the white‑labelling of the former ipRIMe site has delivered the desired outcome. In november 2011 the company successfully executed a new long term debt facility for $200 million at a margin of approximately 180 basis points, based on current gearing levels. the facility is repayable in full in 4 years. pRIMe’s net debt at 30 June 2012 of $117.1 million represents a reduction of $18.6 million or 13.7% on the net debt position at 30 June 2011. the reduction in debt was due to our continued growth in profitability and strong operating cash flows. the 2012 financial year was one of continued growth and improvement. It comes thanks to a tremendously committed and dedicated management team and staff, with a desire to win at every level and to lead the way in regional media. I commend their efforts to you. pRIMe7.CoM.Au delivered advertising revenue growth 30% to $2.2 million while expenses reduced by $250,000 or 10% on the previous corresponding period. this resulted ian audsley CEO * total Agency Revenue 3AGG market – KpMG ^ Source Regional tAM‑All people 06:00‑23:59HRS Prime media GrouP ANNUAL REPORT 2012 5 GrOUP EXECUTiVE DAve WALkeR GrOUP GENEraL maNaGEr SaLES & markETiNG Dave Walker joined prime Media Group in 2010 from television new Zealand (tVnZ), where he was Head of Sales. prior to tVnZ, Mr Walker was Group Business Director at oMD (Australia) and General Manager of Sales at tV3 new Zealand. He has also held senior positions in the advertising and media buying industries. 6 emmA mcDoNALD GENEraL COUNSEL/COmPaNy SECrETary Ms McDonald joined prime Media Group in September 2011. She has been a solicitor for 20 years, and has worked in senior legal and business affairs roles at Austereo, Granada Media/ItV Studios, Fairfax Media and XYZnetworks (a FoXtel/Austar joint venture), and for a major law firm. shANe WooD GrOUP GENEraL maNaGEr OPEraTiONS Shane Wood is an experienced media executive with extensive senior management exposure to a variety of media environments. Mr Wood has direct experience in free tV, subscription tV, radio, online, mobile and out‑of‑home businesses through senior operational and strategic roles at the Seven network, Apn and the ten network. JohN PALisi ChiEf fiNaNCiaL OffiCEr geRRy smith ChiEf TEChNiCaL OffiCEr John palisi joined prime Media Group in February 2012 as Group Financial Controller and was promoted to the position of Chief Financial officer & Assistant Company Secretary on 1 october 2012. Mr palisi is a chartered accountant with over 20 years’ experience and spent the last 5 years prior to joining prime as a Chief Financial officer in the listed environment. Mr Smith has been involved in the technical side of broadcasting all of his working life. prior to joining prime Media Group in late 1999, Mr Smith was Head of engineering for the tV3 and tV4 networks in new Zealand. In his time at prime Media, Mr Smith has been responsible for the implementation of prime Media Group’s centralised technical operation. Mr Smith is also responsible for the conversion to digital transmissions. dirECTOrS’ rEPOrT 1. 2. 4. 3. 6. 7. 5. 1. paul Ramsay Ao 2. Michael Siddle 3. peter evans FCA 4. Ian neal 5. Alexander Hamill 6. Ian Grier AM 7. Ian Audsley Your directors submit their report for the year ended 30 June 2012. DiRectoRs the names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Directors were in office 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 paul Ramsay Holdings pty limited, a major shareholder of the Company. He is also the Chairman of Ramsay Health Care limited, Australia’s largest private hospital owner. Mr Ramsay has more than 45 years’ experience in real estate, health care, media and communications. In 2002, Mr Ramsay was conferred an officer of the order of Australia for services to the community through the establishment of private health care facilities, expanding regional television services and as a benefactor to a range of educational, cultural, artistic and sporting organisations. michAeL stANLey siDDLe Non-executive Deputy chairman (appointed 17 April 1985) Mr Siddle has been Deputy Chairman of paul Ramsay Holdings pty limited since 1967. He is also Deputy Chairman of Ramsay Health Care limited and has been a Director of the Company since 1985. 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 with predecessor firms of KpMG. He has been a Director of paul Ramsay Holdings pty limited since 1987. He is the Chairman of the Audit and Risk Committee and a member of the Remuneration and nomination 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. Mr Hamill was the Media Director of the Australian olympic team in Sydney (2000), Athens (2004) and Beijing (2008). Mr Hamill is a member of the Remuneration and nomination Committee and, until 20 August 2009, was also a member of the Audit and Risk Committee. iAN PAtRick gRieR Am Non-executive Director (appointed 6 June 2008) Mr Grier was employed as an executive in the private health care industry for more than 20 years and held the position of Chief executive officer of Ramsay Health Care limited for 14 years until retiring in June 2008, when he continued as a non‑executive Director of that company. 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 is a member of the Board of Careers Australia pty ltd and Chairman of Dominion principle Group. He is the Chairman of the Remuneration and nomination Committee and was appointed to the Audit and Risk Committee on 19 June 2012. iAN RichARD NeAL Non-executive Director (appointed 6 June 2008) Mr neal is a Chairman for the executive Connection and consults on business strategy and implementation from a perspective of maximising shareholder value. prior to establishing Management Abroad, Mr neal was co‑founder and Managing Director of nanyang Ventures pty limited from 1993 to 2004. Mr neal’s professional background is in financial markets, commencing as an equities analyst and moving through various banking positions until establishing nanyang Ventures pty limited. Mr neal is a life member of the Financial Services Institute of Australia. He is a member of the Audit and Risk Committee and was appointed to the Remuneration and nomination Committee on 19 June 2012. sioBhAN Louise mckeNNA Non-executive Director (appointed 20 August 2009, resigned 29 march 2012) Ms McKenna is the Managing partner of Illyria pty limited, which was a major shareholder of the Company. Her other directorships include nBnCo and the Australian Ballet. She was previously a partner of McKinsey and Company. Ms McKenna was appointed as a member of the Audit and Risk Committee on 20 August 2009 and resigned the position on 29 March 2012. iAN cRAig AuDsLey chief executive officer (appointed 16 June 2010) executive Director (appointed 24 June 2010) Mr Audsley has had over 25 years’ experience in the television industry. He has held various senior executive roles at Southern Cross television, the Seven network and the nine network. Prime media GrouP ANNUAL REPORT 2012 7 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 AO M. S. Siddle P. J. Evans FCA A. A. Hamill I.P. Grier AM I.R. Neal I.C. Audsley ORDINaRy ShaRES OpTIONS OvER ORDINaRy ShaRES 109,903,654 984,082 24,286 – – – – – – – – – – – 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 FCA Ian Patrick Grier AM Ian Richard Neal Ramsay Healthcare Limited (Chairman) Ramsay Healthcare Limited (Deputy Chairman) Ramsay Healthcare Limited Broadcast Production Services Limited (Chairman)(1) Ramsay Healthcare Limited IntraPower Limited(2) Dyesol Limited Pearl Healthcare Limited (1) Broadcast Production Services Limited was delisted from the Australian Securities Exchange on 07 October 2009. (2) IntraPower Limited was delisted from the Australian Securities Exchange on 12 September 2011. pERIOD Of DIRECTORShIp fROm May 1975 May 1975 June 1990 July 2007 June 1997 May 2007 September 2006 September 2008 TO Present Present Present Present Present August 2011 Present February 2012 COmpaNy SECRETaRy mS Emma mCDONaLD Ms McDonald was appointed as Company Secretary on 27 February 2012. She has been a solicitor for the past 20 years, having worked in a number of large media companies and for a major law firm, and currently holds the role of General Counsel for Prime Media Group Limited. EaRNINGS pER ShaRE Basic earnings per share Basic earnings per share – continuing operations Diluted earnings per share Diluted earnings per share – continuing operations DIvIDENDS Final dividend recommended – on ordinary shares Dividends paid in the year: Interim for the year – on ordinary shares Final for 2011 shown as recommended in the 2011 financial report – on ordinary shares CENTS 7.6 7.6 7.6 7.6 CENTS $’000 3.3 3.3 2.4 12,089 12,089 8,792 20,881 8 Directors’ report pRINCIpaL aCTIvITIES The principal activities during the financial year of entities within the consolidated entity were: • • regional television broadcasting; and regional radio broadcasting. OpERaTING aND fINaNCIaL REvIEw GROup OvERvIEw During the year the Group’s operations were focused on core segments which consisted of: regional television broadcasting; regional radio broadcasting; and • • • online media. The Group benefited in the current year from deferred contingent consideration for the sale of its outside broadcasting businesses in New Zealand that was executed in the prior year. pERfORmaNCE INDICaTORS Management and the Board monitor the Group’s overall performance, from its implementation of the mission statement and strategic plan through to the performance of the Group against operating plans and financial budgets. The Board, together with management, have identified key performance indicators (KPIs) that are used to monitor performance monthly. Key management monitor KPIs on a regular basis. Directors receive the KPIs for review prior to each Board meeting, allowing all directors to actively monitor the Group’s performance. DyNamICS Of ThE BuSINESS The television advertising market remains the primary source of the Group’s revenue, representing 91.1% (2011: 88.0%) of the Group’s total revenue. During the current year the Group’s television advertising revenues grew by 6.6% which exceeded the overall market decline of 1.8% (source: KPMG Market Revenue reports). Revenue for the radio business fell 2% on the previous year. The radio business continued to experience difficult operating conditions during the current year due to the higher Australian dollar impacting tourism spending and a lack of consumer confidence persisting from the effects of prior year natural disasters. During the current period the Company successfully executed a new loan facility in the amount of $200,000,000 with a term of 4 years. Interest is charged at a rate of BBSY plus a margin of between 1.7% and 2.6%. The Group reviewed the carrying values of indefinite life intangibles at the reporting date, which resulted in an impairment charge to reduce the carrying value of the Radio Intangible Asset by $5,316,000. During the current year, the Group completed the sale of its investment in TransACT Communications Pty Limited for a net loss after selling costs of $345,000. In the prior year, the outside broadcasting businesses were sold in two separate transactions. The sale of the New Zealand operations to Sky Network Television Limited was completed on 9 July 2010 and the sale of the Australian operations to Gearhouse Broadcast Pty Limited was completed on 28 October 2010. The Board made the decision to dispose of these businesses following a strategic review of the capital employed within the Group. These businesses operated in markets outside of the Group’s core competencies. Additionally, the level of capital investment required by these businesses would have diverted valuable resources from the Group’s more profitable core activities. Under the terms of the sale agreement for the New Zealand business the Group entered into an “earn out” arrangement whereby the Group was entitled to share in the ongoing profits of the business over a 4 year period whilst also retaining 100% of the profits generated from the 2011 Rugby World Cup event held in New Zealand. As at 30 June 2012 the Group increased the fair value of the deferred contingent consideration by $234,000 (2011: $1,181,000) on completion of a detailed review of the forecast profits expected from the contracts transferred as part of the sale. The Group also completed the sale of the Moonlight Cinema business in the prior year, its Australian outdoor cinema operation, to Amalgamated Holdings for a disposal sale consideration of $1,627,877, net of selling costs. OpERaTING RESuLTS fOR ThE yEaR The consolidated net profit after tax of the Group attributable to the members of Prime Media Group Limited for the full year of $27,682,000 (2011: $27,166,000) represents an increase of $516,000 or 1.9% from the prior year. Excluding the impact of specific items, the core net profit after tax for the full year of $33,220,000 (2011: $27,207,000) was $6,013,000 or 22.1% up on the previous corresponding period. Refer to Note 7(d) of the accounts for a reconciliation of the profit reported in the Consolidated Statement of Comprehensive Income to profit before the impact of specific items. REvIEw Of OpERaTIONS Revenue from continuing operations of $273,498,000 represents a growth of $16,500,000, or 6.4% on the previous corresponding period, notwithstanding that the regional television advertising market as quoted by KPMG declined by 1.8% across the AMB, AMC and AMD markets. The Group’s revenue growth was largely attributable to increases in revenue from 7mate, 7Two and the TV4Me datacasting channel. Gross Profit Margin in the current period of 50.9% is above the prior period margin of 50.3%, partly due to a reduction in ACMA licence fees as a result of an increase in the rebate rate to 50% in the current period (2011: 41.5%). Earnings before Finance costs, Income Tax and Depreciation and Amortisation (EBITDA) of $67,388,000 represents a 10.3% increase on the previous corresponding period. Total operating costs increased by $2,487,000 or 3.7% on the previous corresponding period. The Group reviewed the carrying values of indefinite life intangibles at the reporting date, which resulted in an impairment charge to reduce the carrying value of the Radio Intangible Asset by $5,316,000. Finance costs decreased by $724,000 or 6.5% in part due to the new loan facility executed during the current reporting period. In relation to the cash flow statement, the net cash inflow from operating activities of $48,538,000 (2011: $34,419,000) represents an increase of 41.0% on the prior comparative period. The previous corresponding period included cash outflows from discontinued operations of ($7,608,000). Prime media GrouP AnnuAl RepoRt 2012 9 Directors’ report shareholder returns The Company is pleased to report an improvement in shareholder returns as a result of an increased dividend payout ratio and significant improvement in most other financial measures in the current year notwithstanding that the share price has remained relatively static at $0.66 (2011: $0.69). Core Earnings Per Share (cents per share)(i) Statutory Earnings Per Share (cents per share) Core Return on Assets (ROA) %(i) Statutory Return on Assets (ROA) % Weighted Average Cost of Capital (%) Core Return on Equity (ROE) (%)(i)(ii) Statutory Return on Equity (ROE) (%) Net Debt / Net Debt + Equity Ratio (%) Share price ($) Dividends per share (cents) Total Shareholder Return (%) 2012 9.1 7.6 9.2 7.7 10.4 20.8 17.3 42.3 0.66 6.6 5.2 2011 7.3 7.4 7.2 7.3 11.8 17.5 17.7 47.0 0.69 4.5 2.1 (i) These returns have been calculated using net profit after tax before the impact of items disclosed as specific non-core items. (Refer to Note 7 for details of specific non-core items). (ii) Equity has been normalised for the impact of items disclosed as specific items. REvIEw Of fINaNCIaL CONDITIONS Liquidity and capital resources The consolidated cash flow statement illustrates that there was an increase in cash flow from operating activities of $14,119,000 or 41% to $48,538,000 (2011: $34,419,000). Cash outflows from investing activities of $9,601,000 (2011: $10,160,000 cash inflow) compares unfavourably to the prior year due to the sale of the outside broadcasting businesses in the 2011 financial year. The increase in cash outflow from financing activities of $18,587,000 largely reflects repayment of debt and increased dividend payments to shareholders. 2012 $’000 125,525 573 (8,916) 117,182 160,027 277,209 2011 $’000 153,450 1,687 (19,374) 135,763 153,113 288,876 42% 47% 2012 $’000 1,629 573 2,202 1,170 122,726 123,896 126,098 2011 $’000 627 1,687 2,314 2,799 150,024 152,823 155,137 capital structure Interest-bearing loan and borrowings Derivative financial instruments Cash and short term deposits Net debt Total equity Total capital employed Gearing profile of debt The profile of the Group’s debt finance is as follows: Current Obligations under finance leases Derivative financial instruments Non-current Obligations under finance leases Secured bank loan 10 Directors’ report The Group’s debt level has decreased in the current year largely due to improved profitability, which resulted in an increase in cash flows from operating activities. On 28 October 2011 the Company executed a new facility for $200,000,000 in bank loan financing with a term of 4 years, repayable in full on expiry. Interest is charged at a rate of BBSY plus a margin of between 1.70% and 2.60%. LIKELy DEvELOpmENTS aND EXpECTED RESuLTS The broad areas of focus for the 2013 financial year will be: • continue to drive improved returns from the Group’s core operations of regional broadcasting; and • continued prudent management of debt and risk generally, with a view to optimising returns to shareholders. capital expenditure Capital expenditure of $13,195,000 in the current year (2011: $9,727,000) is higher than the prior year due to the implementation of a new television sales and traffic software system and de-commissioning costs associated with the transition from analogue to digital transmission. RISK maNaGEmENT The Group takes a proactive approach to risk management. The Board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identified by the Board. During the year the Group’s Audit and Risk Committee revised its charter and commenced a comprehensive review of its risk management objectives and processes. The Committee will continue to work with management in FY 2013 to develop and formalise its approach to risk management having regard for the objectives of Principle 7 of the ASX Corporate Governance Council principles and recommendations. The Board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified 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; and 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 financial and non-financial nature. Risk management is further addressed in the Corporate Governance Statement. SIGNIfICaNT ChaNGES IN ThE STaTE Of affaIRS There were no significant changes in the Group’s state of affairs. SIGNIfICaNT EvENTS afTER ThE BaLaNCE DaTE There were no significant events after the balance date. The Federal Government introduced the Clean Energy Act 2011 (the “Act” or the “Scheme”) which will have an impact on the Australian economy and also the Group. The Act, which is substantially enacted, commenced 1 July 2012. None of the entities in the Group are liable entities under the Scheme, as direct emissions (that are covered by the Scheme) from the Group’s facilities or transmission sites do not exceed 25,000 tonnes of C02-e. Management does not expect that it will exceed this threshold in the foreseeable future. ShaRE pERfORmaNCE RIGhTS uNISSuED ShaRES As at the date of this report there were 1,258,000 (2011: Nil) unissued ordinary shares under performance rights. Refer to Note 26 of the financial statements for further information. Performance rights holders do not have any right, by virtue of the performance right, to participate in any share issue of the Company or any related body corporate. ShaRES ISSuED aS a RESuLT Of ThE EXERCISE Of OpTIONS During the financial year, employees and executives have not exercised any performance rights 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 Officers’ Liability policy covering each of the directors and certain executive officers for liabilities incurred in the performance of their duties and as specifically allowed under the Corporations Act 2001. During the year, the Company paid premiums totalling $97,850 (2011: $96,750) in relation to the Directors’ and Officers’ Liability policy. The terms of the policy specifically prohibit the disclosure of any other details relating to the policy and therefore the Directors are not disclosing further particulars relating thereto. Prime media GrouP AnnuAl RepoRt 2012 11 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 auDIT aND RISK REmuNERaTION aND NOmINaTION NO Of mEETINGS hELD NO Of mEETINGS aTTENDED NO Of mEETINGS hELD NO Of mEETINGS aTTENDED NO Of mEETINGS hELD NO Of mEETINGS aTTENDED 7 7 7 7 7 7 5 7 6 7 7 6 7 6 5 7 – – 4 – 4 1 3 – – – 4 – 4 1 3 – – – 4 4 1 4 – – – – 4 3 1 3 – – P.J. Ramsay AO M.S. Siddle P.J. Evans FCA A.A. Hamill I.R. Neal^** I.P. Grier AM* S.L. McKenna** I.C. Audsley ^ appointed to Remuneration and Nomination Committee for meeting held on 19 June 2012 by circular resolution due to absence of A.A. Hamill. * appointed to Audit and Risk Committee following the resignation of S.L. McKenna on 29 March 2012. ** Indicates the maximum number of meetings the director was eligible to attend during the period. COmmITTEE mEmBERShIp Members acting on the committees of the Board during the year were: Audit and risk P.J. Evans FCA (Chairman) I.R. Neal S.L. McKenna (departed 29 March 2012) I.P. Grier AM (appointed 19 June 2012) remuneration I.P. Grier AM (Chairman) P.J. Evans FCA A.A. Hamill I.R. Neal (appointed 19 June 2012) ROuNDING The amounts contained in this report and in the financial 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. 12 Directors’ report REmuNERaTION REpORT (auDITED) Dear Shareholders The Board is pleased to present you with a Remuneration Report that demonstrates the Company’s ongoing commitment to ensure that remuneration for key management personnel is aligned to key business goals and objectives. pERfORmaNCE aND RESuLTING REmuNERaTION OuTCOmES fOR ThE yEaR The Company reported an excellent result in the 2012 financial year evidenced by revenue growth in a difficult market and cost savings that contributed to improved core earnings and ultimately a high dividend payout to shareholders. During the year, the Company restructured its Executive team and implemented new initiatives, based on advice from independent external consultants, to attract and retain key executives. These new initiatives linked incentive payments to both financial metrics such as core net profit after tax and an annual power ratio target, and also non-financial metrics to incentivise executives. The Remuneration and Nomination Committee is satisfied, based on the 2012 financial result, that the current approach to remuneration achieves a balanced outcome for executives and shareholders. REmuNERaTION ChaNGES The fixed remuneration pool increased by $236,435 or 7.7% on the prior year generally due to the appointment of a General Counsel and salary increases arising from an executive restructure. The short term incentive payment pool was amended, based on external consulting advice, to link cash bonuses to clearly defined Group, business unit and individual measures. The short term incentive pool was increased to $1,055,005 in the current year (2011: $703,671) and 100% of cash bonuses have been provided for in this reporting period as a result of the strong financial result. During the year the Company implemented a performance rights plan to provide long term incentive awards to certain executives under a new Employee Performance Rights Plan. The rights will vest over a period of 3 years, subject to meeting performance measures, including core earnings per share and achievement of an annual power ratio target (revenue share: audience share). EXECuTIvE ChaNGES During the year there were several changes to our Executive team. Ms Emma McDonald joined the Company as General Counsel on 19 September 2011 and was appointed Company Secretary on 27 February 2012. Ms Lesley Kennedy resigned as Company Secretary effective 5 June 2012 and departed July 2012. Mr Douglas Edwards also departed July 2012. Their remuneration details are set out in this report. NON-EXECuTIvE DIRECTOR REmuNERaTION The remuneration of the non-executive directors of the Company consists of directors’ fees. An increase in directors’ fees was paid in accordance with the Directors’ annual aggregate fee pool. On behalf of the Remuneration and Nomination Committee and the Board, I commend this Remuneration Report to you. Yours sincerely I. P. Grier AM Chairman Remuneration and Nomination Committee Prime media GrouP AnnuAl RepoRt 2012 13 2. REmuNERaTION GOvERNaNCE remuneration and Nomination committee The Board has appointed a Remuneration and Nomination Committee consisting of three non-executive directors (NEDs), including 2 independent non-executive directors, to make recommendations on the remuneration arrangements for NEDs and executives. In FY 2011 the Remuneration and Nomination Committee was tasked to review the appropriateness of the nature and amount of remuneration of NEDs and executives on a periodic basis by reference to relevant employment market conditions, with the overall objective of ensuring maximum shareholder benefit from the retention of a high performing director and executive team. The Remuneration and Nomination Committee has continued to review and oversee the process in FY 2012. During the year, the Board approved a new long term incentive plan based on recommendations from the Remuneration and Nomination Committee. The Board also set the aggregate short term incentive pool for executives and the aggregate remuneration for NEDs, which is then subject to shareholder approval. The Remuneration and Nomination Committee meets regularly throughout the year. The CEO and Company Secretary have attended certain Remuneration and Nomination Committee meetings by invitation, where management input is required. The CEO and Company Secretary are not present during any discussions relating to their own remuneration arrangements. Further information on the Remuneration and Nomination Committee’s role, responsibilities and membership is available at www.primemedia.com.au. remuneration consultants To ensure the Board is fully informed when making decisions, the Remuneration and Nomination Committee has formalised policies that govern arrangements to engage independent remuneration consultants to provide independent advice and, where required, to make remuneration recommendations, free from the undue influence by members of the KMP to whom the recommendations may relate. In FY 2011 CRA Plan Managers Pty Limited (CRA), were engaged to provide advice and make recommendations on an appropriate executive remuneration strategy including recommendations for effective KPI targets for short term incentives, and to recommend and implement an effective long term incentive plan. In FY 2012 the Company adopted the strategies recommended by CRA, linking KPIs for STI payments to clearly defined financial and non-financial measures and implementing a new Performance Rights and Option Plan. CRA was paid $32,164.50 in FY 2011 for the remuneration review. CRA’s fees in FY2012 totalled $24,722.58 to design and manage the Group’s Performance Rights and Option Plan. Directors’ report REmuNERaTION REpORT (auDITED) (CONTINUED) This Remuneration Report for the year ended 30 June 2012 outlines the remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. This information has been audited as required by section 308(3C) of the Act. The Remuneration Report is presented under the following sections: 1. Introduction 2. Remuneration governance 3. Executive remuneration arrangements 4. Executive remuneration outcomes for 2012 5. Executive contracts 6. Non-executive directors’ remuneration (including statutory remuneration disclosures) 7. Additional statutory disclosures INTRODuCTION 1. The Remuneration Report details the remuneration arrangements for key management personnel (KMP) of the Company and the Group. For the purposes of this report the KMP of the Group are defined 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). For the purposes of this report, the term ‘executive’ includes the Chief Executive Officer (CEO), executive directors, senior executives, general managers and secretaries of the Company and the Group. The term ‘director’ refers to non-executive directors (NED) only. Details of KMP of the Company and Group are set out below: Key management personnel (i) Directors P.J. Ramsay AO Chairman (non-executive) M.S. Siddle Deputy Chairman (non-executive) P.J. Evans FCA Director (non-executive) A.A. Hamill Director (non-executive) I.P. Grier AM Director (non-executive) I.R. Neal Director (non-executive) S.L. McKenna Director (non-executive) – resigned 29 March 2012 I.C. Audsley Director (Chief Executive Officer) (ii) executives D. Walker Group General Manager Sales and Marketing S. Wood Group General Manager Operations E. McDonald General Counsel (appointed 19 September 2011) and Company Secretary (appointed 27 February 2012) G. Smith Chief Technology Officer L. Kennedy Chief Financial Officer (departed 31 July 2012) D. Edwards Chief Executive Officer – Television (departed 31 July 2012) There were no other changes to KMP after the reporting date and before the date the financial report was authorised for issue. 14 Directors’ report 3. EXECuTIvE REmuNERaTION aRRaNGEmENTS remuneration principles and strategy The Company’s executive remuneration strategy aims to attract, motivate and retain high performing individuals and align the interests of executives and shareholders. To this end, key objectives of the Company’s reward framework are to ensure that remuneration practices: • Are aligned to the Group’s business strategy; • Offer competitive remuneration benchmarked against the external market; • Provide strong linkage between individual and Group performance and rewards; and • Align the interests of executives and shareholders. REmuNERaTION COmpONENT vEhICLE puRpOSE LINK TO pERfORmaNCE Fixed remuneration • • Represented by total employment cost (TEC); Comprises base salary; and superannuation contributions and other benefits. STI component • Paid in cash. LTI component • Awards are made in the form of performance rights. • • • To provide competitive fixed remuneration set with reference to role, market and experience. Rewards executives for their contribution to achievement of Group and business unit outcomes, as well as individual key performance indicators (KPIs). Rewards executives for their contribution to the creation of shareholder value over the longer term. • • • • • Company and individual performance are considered during the annual review process. Core NPAT; Power ratio; and Customer service, risk management and leadership. Performance rights are subject to achieving core EPS and power ratio targets. Approach to setting remuneration The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group and aligned with market practice. The Remuneration and Nomination Committee reviews TEC annually against the median of its direct industry peers and other Australian listed entities of a similar size and complexity. The Company intends to pay total fixed remuneration in the 55th to 62.5th percentile of its defined talent market to ensure a competitive offering and to ensure performance is rewarded through variable remuneration components only. Remuneration levels are considered annually through remuneration review that considers market data, insights into remuneration trends, the performance of the Company and individual, and the broader economic environment. Executive contracts of employment do not include any guaranteed base pay increases. Detail of incentive plans short term incentives (sti) In FY 2012 the Group implemented changes to its STI program based on advice from independent external consultants to ensure that the award of a cash bonus is subject to the attainment of clearly defined Group, business unit and individual measures. The total potential STI available is set at a level so as to provide sufficient incentive to executives to achieve the operational targets and such that the cost to the Group is reasonable in the circumstances. The actual STI payments awarded to each executive depend on the extent to which specific targets set at the beginning of the financial year are met. The targets consist of a number of key performance indicators (KPIs) covering financial and non-financial, corporate and individual measures of performance. A summary of the measures and weightings is set out below: pERfORmaNCE mEaSuRES CORE NpaT pOwER RaTIO NON-fINaNCIaL mEaSuRES: • Leadership/Team Contribution • Risk Management • Business Development and Growth Initiatives • Capital Management • Business Relationship Management CEO Other functional executives 50% 0-50% 25% 0-25% 25% 0-50% These measures were chosen as they represent the key drivers for the short-term success of the business and provide a framework for delivering long term value. The STI opportunity linked to financial measures covers a range from 50% to 75% and varies depending upon each individual executive’s ability to influence results at a group level and/or divisional level. The aggregate of the annual STI payments available for executives across the Group is subject to the approval of the Remuneration and Nomination Committee. On an annual basis, after consideration of performance against KPIs, the Remuneration and Nomination Committee, in line with their responsibilities, determine the amount, if any, of the STI paid to each executive. This process usually occurs within three months after the reporting date. Payments made are delivered as a cash bonus in the following reporting period. Prime media GrouP AnnuAl RepoRt 2012 15 company performance and its link to long term incentives The Company has adopted the following performance measures for the vesting of LTI options: • core EPS (defined as statutory EPS before specific non-core items); and • maintenance or growth of the power ratio greater than 1. The following chart shows the Company’s core EPS over the 5 year period from 1 July 2007 to 30 June 2012. Core EPS is defined as statutory EPS before non-core items. earnings per share (Cents per share) 24.9 10.9 9.9 7.4 7.3 7.6 9.1 4.8 2008 2009 2010 2011 2012 -15.0 -24.5 Fully Diluted EPS Fully Diluted EPS (before non-core items) Lti – Loan Forgiveness plan (inactive) During the 2007 financial year loans were granted to certain executives. The loans were interest free and the loan amount repayable by the executive was reduced on the basis of continued service with the Company. 20% of the original loan balance is forgiven on the 1 July of each year if the executive remains employed with the Company at that date. If the executive terminated his or her employment during the five year period, the balance of the loan at the date of termination was repayable by the executive on the date of termination. No loans have been made under this plan subsequent to the 2007 financial year and the plan was finalised on 1 July 2012. Lti awards for 2012 financial year During the year ended 30 June 2012 nil shares (2011: nil shares) were issued due to the exercise of options. Payments were made to key executives upon cancellation of the Prime Employee Share Option Plan. Details of the payments are disclosed in Table 1 below. The LTI remuneration of the KMP are set out in the tables within section 7. Directors’ report REmuNERaTION REpORT (auDITED) (CONTINUED) 3. EXECuTIvE REmuNERaTION aRRaNGEmENTS (CONTINUED) Long term incentives (Lti) LTI awards will be made annually to executives under the Performance Rights Plan. The proposed allocations in the current year represented less than 0.4% of the undiluted capital of the Group with a maximum income cost over a 3 year period of $735,805 (or $251,268 annualised). The performance rights are available over a 36 month vesting period subject to continuing service and achieving the following targets: • 60% of the rights will be subject to achievement of annual core earnings per share (EPS) targets; and • 40% of the rights will be subject to achievement of annual power ratio targets (revenue share: audience share). The exercise price of the performance rights is nil. The rights will lapse 30 days after vesting date. During the year the Company’s executive loan forgiveness plan was wound up, effective 30 June 2012. 4. EXECuTIvE REmuNERaTION OuTCOmES fOR 2012 company performance and its link to short term incentives The financial performance measures driving STI payment outcomes are: • Group core NPAT (defined as NPAT before specific non-core items); and • A power ratio greater than 1. The Power Ratio is a measure of the Company’s share of revenue to the Company’s share of audience. A power ratio above 1 indicates that the Company is performing ahead of its audience share. The following chart shows the Company’s core NPAT over the 5 year period from 1 July 2007 to 30 June 2012. Core NPAT is defined as statutory net profit after tax and before non-core items. $32.2 $33.2 $26.8 $17.9 $17.1 2008 2009 2010 2011 2012 Core NPAT ($ million) including discontinued operations sti awards for 2011 and 2012 financial years For the 2011 financial year, 91% of the STI cash bonus pool of $774,453 as previously accrued in that period vested to executives and was paid in the 2012 financial year. The Remuneration and Nomination Committee will consider the STI payments for the 2012 financial year in September 2012. The maximum STI cash bonus available for the 2012 financial year is $1,055,005. STI payments have been accrued at 100% of the maximum cash bonus available for the 2012 financial year based on individual executive’s actual performance against KPIs. Any adjustments between the actual amounts to be paid in September 2012 as determined by the Remuneration and Nomination Committee and the amounts accrued will be adjusted in the 2013 financial year. The minimum amount of the STI cash bonus, assuming that no executives meet their respective KPIs for the 2012 financial year, is nil. 16 – – – – – – – – 3 7 5 , 7 6 – – – – 6 6 1 , 5 2 1 4 8 , 2 2 0 8 5 , 5 1 1 0 8 5 , 5 1 1 - R O f R E p E C N a m D E T a L E R % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 0 0 , 5 2 1 0 0 0 , 5 7 0 0 6 , 4 8 0 0 0 , 5 7 0 0 0 , 5 7 0 0 0 , 0 0 1 0 0 4 , 5 6 0 0 0 , 0 0 6 – – – – – – – – – $ $ N a O L I - E v G R O f S S E N $ G N O L I E C v R E S ) 2 ( E v a E L $ - N a R E p u S I N O T a u N $ h S a C N O N - h S a C – – – – – – – – – $ ) * ( I S T f E N E B I ) 3 ( S T f E N E B – – – – – – – – 0 0 0 , 0 5 2 – – – – – – – – – – – – – – – 0 0 6 , 9 – – 7 5 2 , 8 3 9 1 , 6 3 9 1 , 6 – – 0 0 6 , 9 3 4 6 , 0 2 – – – – – – – – $ h S a C N O N - ) ( I * S T f E N E B – – – – – – – – h S a C S u N O B $ % 5 . 9 2 4 7 8 , 7 4 4 , 1 6 6 3 , 2 5 7 7 , 5 1 1 7 1 , 3 1 0 0 0 , 0 6 3 % 6 . 8 1 % 4 . 3 2 % 0 . 0 % 8 . 6 1 % 5 . 4 3 % 0 . 6 2 0 6 2 , 3 1 5 3 2 8 , 7 7 1 9 8 6 , 9 2 5 4 6 7 , 3 4 5 8 2 4 , 2 7 4 – – – – – 8 3 3 , 9 9 1 , 1 2 3 8 , 6 8 3 6 7 1 , 4 8 8 , 4 2 3 8 , 6 8 3 6 7 1 , 4 8 4 , 5 2 3 8 , 6 8 3 7 5 7 , 7 1 – 5 5 5 , 3 6 1 – – – – 3 0 1 , 7 0 6 8 , 4 2 0 6 8 , 4 2 – – – – 8 6 3 , 5 4 – – – – 2 2 4 , 5 6 6 8 4 4 7 9 , 6 1 4 1 8 6 0 , 4 7 6 6 4 1 4 5 7 7 , 5 1 5 7 7 , 5 1 9 7 5 , 1 1 5 7 7 , 5 1 5 7 7 , 5 1 5 7 7 , 5 1 8 6 3 , 5 9 2 7 7 9 , 8 2 2 8 6 3 , 5 9 2 7 7 9 , 8 2 2 6 1 1 , 5 1 6 1 7 , 4 2 9 2 2 , 6 0 1 2 7 8 , 6 2 1 – – 6 3 5 , 1 – 2 8 1 , 2 2 8 0 6 , 5 2 7 9 4 , 2 6 7 9 4 , 2 6 5 6 3 , 3 2 2 0 0 0 , 0 2 1 – 2 5 2 , 9 8 8 8 3 , 2 6 1 0 0 0 , 0 0 1 5 0 0 , 5 5 0 , 1 5 0 0 , 5 5 0 , 1 – – – – – – – – – – – – – – – $ & y R a L a S R O f S E E f R E h T O p u O R G I S E T T N E I & y R a L a S R O f S E E f T N E R a p I ) 1 ( y T T N E $ 0 0 0 , 5 2 1 ) n a m r i a h C ( O A y a s m a R . 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J P. s r o t c e r i d e v i t u c e x e - n o N 7 9 1 2 3 1 , ) 0 1 0 2 r e b m e c e D 8 d e t r a p e d ( i s g n b b u t S P 5 5 2 , 8 7 4 , 2 7 5 5 , 0 4 9 , 2 p m K e v i t u c e x e l a t o T s l a t o T e h t o t n o i t i d d a n i 0 0 0 , 6 9 2 $ f o e s n e p x e n o i t p o d e t a r e e c c a n a n l i d e t l u s e r s i h T . y e l s d u A r M d n a y n a p m o C e h t n e e w t e b t n e m e e r g a l a u t u m y b ) d e v i e c e r e u a v o n l ( d e l l e c n a c e r e w y e l s d u A r M o t e u s s i n o s n o i t p o e h t 1 1 0 2 e n u J 0 3 n O . e d a m s t n e m y a p t n e s e r p e r t o n o d d n a e c i v r e s r i e h t f o e u t r i v y b r a e y e h t g n i r u d P M K h c a e o t d e u r c c a t a h t s t n u o m a t n e s e r p e r y r o g e t a c s i h t l r e d n u d e s o c s i d s t n u o m a e h T . 0 1 0 2 t s u g u A 1 m o r f t c e f f e h t i w 0 0 4 , 5 6 $ o t 0 0 0 , 0 1 1 $ m o r f d e c u d e r e r e w s e e f s r o t c e r i d l a u n n a ’ s n a v E P r M . e d a m s t n e m y a p t n e s e r p e r t o n o d d n a e c i v r e s r i e h t f o e u t r i v y b r a e y e h t g n i r u d P M K h c a e o t d e u r c c a t a h t e v a e l l a u n n a e d u c n l i y r o g e t a c s i h t l r e d n u d e s o c s i d s t n u o m a e h T . l l e u a V e b a t r o p e R p U d e s s o r G ) * ( ) 1 ( ) 2 ( ) 3 ( ) 4 ( . 1 1 Y F n i l e n n o s r e P t n e m e g a n a M y e K s a d e d u c n l i e r o f e r e h t s i d n a 0 1 0 2 r e b o t c O 1 e v i t c e f f e n o i t a r g e t n I d n a t n e t n o C , r o t c e r i D f o n o i t i s o p e h t o t d e t o m o r p s a w d o o W r M ) 5 ( . l e v o b a d e s o c s i d 4 5 9 , 8 6 3 $ ) I D E U N T N O C ( 2 1 0 2 R O f S E m O C T u O N O T a R E N u m E R I I E v T u C E X E . 4 p u o r g e h t d n a y n a p m o c e h t f o l e n n o s r e p t n e m e g a n a m y e k f o n o i t a r e n u m e r 1 1 0 2 e n u J 0 3 d e d n e r a e y e h t r o f n o i t a r e n u m e r : 2 l e b a t ) I D E U N T N O C ( ) I D E T D u a ( I T R O p E R N O T a R E N u m E R t r o p e r ’ s r o t c e r D i 18 Directors’ report table 3: performance rights plan GRaNTED TERmS aND CONDITIONS fOR EaCh GRaNT vESTED NumBER GRaNT DaTE faIR vaLuE pER pERfORmaNCE RIGhT aT GRaNT DaTE ($) EXERCISE pRICE pER pERfORmaNCE RIGhT ($) EXpIRy DaTE fIRST EXERCISE DaTE LaST EXERCISE DaTE NumBER % 2012 Director Ian Audsley Executive 615,000 23/11/2011 0.5449 Lesley Kennedy Shane Wood Dave Walker 292,000 167,000 184,000 30/09/2011 30/09/2011 30/09/2011 0.5451 0.5451 0.5451 – – – – 23/12/2014 23/11/2014 30/10/2014 30/09/2014 30/10/2014 30/09/2014 30/10/2014 30/09/2014 2011 NIL Total – – – – – – – – GRaNTED TERmS aND CONDITIONS fOR EaCh GRaNT – – – – – – – – – – vESTED – – – – – table 4: Value of performance rights granted, exercised, lapsed or cancelled during the year vaLuE Of pERfORmaNCE RIGhTS GRaNTED DuRING ThE yEaR $ vaLuE Of pERfORmaNCE RIGhTS EXERCISED DuRING ThE yEaR $ vaLuE Of pERfORmaNCE RIGhTS LapSED DuRING ThE yEaR $ vaLuE Of pERfORmaNCE RIGhTS CaNCELLED DuRING ThE yEaR % REmuNERaTION CONSISTING Of pERfORmaNCE RIGhTS fOR ThE yEaR Ian Audsley Lesley Kennedy* Shane Wood Dave Walker 335,114 159,169 91,032 100,298 – – – – – – – – – – – – – – – – * Ms Kennedy departed as Chief Financial Officer on 31 July 2012 at which time her options lapsed. For details on the valuation of the performance rights, including models and assumptions used, please refer to Note 26. There were no alterations to the terms and conditions of performance rights granted as remuneration since their grant date. 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 nil. Prime media GrouP AnnuAl RepoRt 2012 19 Directors’ report REmuNERaTION REpORT (auDITED) (CONTINUED) EXECuTIvE CONTRaCTS 5. Remuneration arrangements for KMP are formalised in employment agreements. Details of these contracts are provided below: chief executive officer The CEO, Mr Audsley, is employed under a rolling contract. Under the terms of the present contract: • The CEO receives fixed remuneration of $700,000 per annum. • The CEO’s maximum STI opportunity is 51.4% of annual TEC. • The CEO is eligible to participate in the Company’s LTI performance right plan on terms determined by the Board, subject to receiving the required or appropriate shareholder approval. • The CEO may resign from his position and terminate his contract by giving 6 months written notice. • The CEO’s employment may be terminated by the Company by providing 6 months written notice. The Company may elect to provide 6 months payment in lieu of the notice period, or a combination of notice and payment in lieu of notice. Payment in lieu of notice will be based on fixed remuneration and any short term incentive amounts for the prior year. • The CEO’s employment contract may be terminated by the Company at any time without notice if serious misconduct has occurred. Where termination with cause occurs the CEO is only entitled to that portion of his remuneration contract that is fixed, and only to the date of termination. • The Company or the CEO may terminate the contract within 6 months of the Company ceasing to be listed on the official list of the Australian Securities Exchange (ASX) or a material diminution in the CEO’s functions, status or duties occurring. In these circumstances, the Company must provide 12 months’ notice or 12 months’ payment in lieu of notice, or a combination of the two. other executives All other KMP have rolling contracts with no fixed term. The Company may terminate an executive’s employment by providing between 3 and 6 months written notice or providing payment in lieu of the notice period (based on the fixed component of the executive’s remuneration). Executives may terminate their employment agreements by providing 3-6 months written notice depending on the terms of their agreement. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs the executive is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. payment to outgoing executives The following arrangements applied to outgoing executives in office during the 2012 financial year: • Mr. Douglas Edwards, CEO of Television, had a termination payment of $386,832 provided for in FY2012. The following arrangements applied to outgoing executives in office during the 2011 financial year: • Mr. Robert Gamble, CEO of Radio, was paid a termination payment of $266,158 in accordance with the terms of his contract. • Mr. Robert Reeve, General Counsel and Company Secretary, was paid a termination payment of $157,241 in accordance with the terms of his contract. • Mr. Paul Stubbings, Chief Financial Officer, was paid a termination payment of $100,484 in accordance with the terms of his contract and a further discretionary payment of $188,800 in recognition of his service and significant contribution on a number of transactions. The Board acknowledges the regulations applying as a result of the termination cap legislation and confirms that all KMP contracts comply with this legislation. 6. NON-EXECuTIvE DIRECTORS’ REmuNERaTION remuneration policy The Board seeks to aggregate remuneration at the level that provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The amount of the aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed annually against fees paid to NEDs of comparable companies. The Board also considers advice from external consultants when undertaking the annual review process. In accordance with the ASX listing rules, the aggregate fee paid for NEDs approved in the Remuneration Report at the 2011 Annual General Meeting was $600,000. NED fees will be increased by 3.0% in FY 2013 increasing the aggregate fee for NEDs to $618,000, which is less than the determination made at the annual general meeting (AGM) held in November 2007 when shareholders approved an aggregate fee pool of $750,000 per annum (excluding superannuation and retirement benefits arising under the Directors’ Retirement Plan). structure The remuneration of NEDs consists of directors’ fees. Each director receives a fixed annual fee. One NED is currently entitled to benefits under the Directors Retirement Plan, approved by shareholders in November 1997. The Board agreed to discontinue the Directors Retirement Plan in the 2008 financial year for all new directors appointed after that date. These fees are summarised in Table 1 and 2 under section 4. 20 Directors’ report 7. aDDITIONaL STaTuTORy DISCLOSuRES Auditor independence and Non-audit services The Directors have received and are satisfied with the ‘Audit Independence Declaration’ provided by 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 satisfied 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 & GST compliance services Advisory Services 38,142 66,989 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 FCA Director Prime media GrouP AnnuAl RepoRt 2012 21 AuDitor’s iNDepeNDeNce DecLArAtioN 22 corporAte GoVerNANce stAteMeNt The Board of Directors of Prime Media Group Limited is responsible for the corporate governance framework of the Group having regard to the ASX Corporate Governance Council (CGC) published guidelines as well as its corporate governance principles and recommendations. The Board guides and monitors the business and affairs 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 effective system of corporate governance. Prime Media Group Limited’s corporate governance practices were in place throughout the year ended 30 June 2012 and were compliant with the CGC’s principles and recommendations except as noted in this statement. pRINCIpLE 2 – STRuCTuRE ThE BOaRD TO aDD vaLuE STRuCTuRE Of ThE BOaRD NamE pOSITION P.J. Ramsay AO Non Executive Chairman (appointed 1985) M.S. Siddle Non Executive Deputy Chairman (appointed 1985) P.J. Evans FCA Non Executive Director (appointed 1991) A.A. Hamill Non Executive Director (appointed 2003) I.R. Neal Non Executive Director (appointed 2008) I.P. Grier AM Non Executive Director (appointed 2008) For further information on corporate governance policies adopted by Prime Media Group Limited, refer to our website www.primemedia.com.au S.L. McKenna Non Executive Director (resigned 29 March 2012) I.C. Audsley Chief Executive Officer (appointed 16 June 2010) Executive Director (appointed 24 June 2010) 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 number of Board members will be a minimum of 3 members and a maximum of 12 members; • The Board consists of primarily non-executive directors; • The Chairman of the Board should be a non-executive director; and • The directors should possess a broad range of skills, qualifications and experience. BOaRD INDEpENDENCE The directors of the Company have an overriding duty to perform their duties in the best interests of the Company. Directors are required to declare potential conflicts of interest, interests in contracts, other directorships or offices held, potential related party transactions and the acquisition or disposal of Company shares. Under the Board Charter, where a conflict of interest arises or a perceived conflict of interest exists, the director concerned declares the potential or perceived conflict of interest. The director is then excluded from all board discussions relating to the issue around which the conflict of interest has arisen. Recommendation 2.1 of the CGC’s Recommendations recommends that a majority of the Board should be independent directors. The Board considers an independent director to be a non-executive director who is not a member of management and is free of any business or other relationship that could materially interfere with, or reasonably be perceived to materially interfere with, the independent exercise of their judgement. The Board considers the independence of its non-executive directors on an annual basis. As at the date of this report, the Board consists of three independent non-executive directors (A.A. Hamill, I.R. Neal and I.P. Grier AM), three non-executive directors (P.J. Ramsay AO, M.S. Siddle, and P.J. Evans FCA) and one executive director (I.C. Audsley). Although the Company has not complied with Recommendation 2.1, the Board considers that the non-executive directors, who do not meet the definition of independent director, have the management, corporate, financial 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 have extensive experience in television and radio broadcasting having operated in these industries for up to 35 years. pRINCIpLE 1 – Lay SOLID fOuNDaTIONS fOR maNaGEmENT aND OvERSIGhT BOaRD RESpONSIBILITIES The relationship between the Board and senior executives is critical to the Group’s long term success. The directors are responsible to the shareholders for the performance of the Group in both the short and long term and seek to balance sometimes competing objectives in the best interests of the Group as a whole. The focus of the Board is to enhance the interest of shareholders and other key stakeholders and to ensure the Group is properly managed. 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. The Board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identified by the Board. The Board has a number of mechanisms in place to ensure this is achieved including: • Board approval of a strategic plan designed to meet stakeholders’ needs and manage business risk; • ongoing development of the strategic plan and approving initiatives and strategies designed to ensure the continued growth and success of the entity; and implementation of budgets by management and monitoring progress against budget through the establishment and reporting of both financial and non-financial key performance indicators. • Other functions reserved to the Board include: • approval of the annual and half-yearly financial reports; • approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestures; • ensuring that any significant risks that arise are identified, assessed, appropriately managed and monitored; and reporting to shareholders. • The Board meets regularly and intends to meet at least six times each year. A director may at any time request the Company Secretary to convene a meeting of the Board. On at least an annual basis the Board sets aside a day for detailed discussions on the Group’s business strategies at which presentations are received from executives. Whilst at all times the Board retains full responsibility for guiding and monitoring the Group, it makes use of sub-committees to discharges its stewardship. Each Committee has adopted a formal charter setting out matters relevant to the composition, responsibilities and administration of the Committee. The Board has established the following committees: • Audit and Risk Committee; and • Remuneration and Nomination Committee. All new directors are provided with a copy of the Board and Committee charter documents. The charter documents are available on the Company website www.primemedia.com.au. Prime media GrouP AnnuAl RepoRt 2011 23 corporAte GoVerNANce stAteMeNt pRINCIpLE 3 – pROmOTE EThICaL aND RESpONSIBLE DECISION maKING The Company strives to act with honesty and integrity and to be a respected and valued operator in the media sector and the communities in which it operates. The Board and the Company’s commitment to ethical and responsible decision making is reflected in the internal policies and procedures of the Company. EThICaL CONDuCT The Company promotes ethical and responsible behaviours for its directors and employees through the implementation of a Code of Conduct and a range of supporting 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 management or the Board, where there may be non-compliance with policies and procedures governing ethical and law abiding conduct. The Company has adopted the ASX Corporate Governance Council’s Recommendation 3.1 with the establishment of a formal Code of Conduct, which essentially provides documentation of a range of policies and procedures currently in place. The Code of Conduct is available to all staff and directors and is published on the Company’s website. The detailed policies and procedures relating to ethical and law abiding conduct are currently included in the employee handbook which is available to all employees and directors 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 confirm that they have reviewed and acknowledge their 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; • Conflict 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 has reviewed all policy and charter documents and subsequently published them on the Company website. pRINCIpLE 2 – STRuCTuRE ThE BOaRD TO aDD vaLuE (CONTINUED) ChaIRmaN INDEpENDENCE The Board charter sets out that the roles of Chairman and Chief Executive Officer are strictly separate positions and must not be exercised by the same individual. The Chairman of the Board is P.J. Ramsay AO. 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, he does not meet the definition 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 brings to the Board quality and independent judgement to all relevant issues falling within the scope of the role of Chairman and that the Group as a whole benefits from his knowledge, experience and leadership. Mr P.J. Ramsay AO has over 35 years’ experience in the television and media industry, as well as extensive experience as a director and Chairman of two Australian publicly listed entities, which he founded. This experience is considered to be invaluable to the Company in terms of industry expertise as well as the management and review of growth opportunities for the Company. BOaRD COmpOSITION In August 2011 the Board reinstated the Remuneration and Nomination Committee as the “Remuneration and Nomination Committee” and published on its website the revised Committee charter document. The Company’s size does not warrant a separate nomination committee. The Board and Committee make consistent and regular use of industry experts in the fields 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. Directors are appointed and removed in accordance with the Company’s Constitution. Directors appointed to fill casual vacancies must offer themselves for re-election, and be elected, at the next following Annual General Meeting of the Company in order to continue in office. Also, at each Annual General Meeting, one third of the directors must resign and, in order to continue in office, must offer 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. pERfORmaNCE EvaLuaTION The Company has not complied with the CGC’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: (1) 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 benefits by the Remuneration and Nomination Committee as appropriate. During the year there have been no appointments to the Board other than the Company Secretary position. As part of the recruitment process the Board nominated four board members to oversee the process; and (2) 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 briefing on the Group’s activities and operations by the Chief Executive Officer and Chief Financial Officer. 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 permitted to seek advice, on approval of the Chairman and all costs reasonably incurred are reimbursable by the Company. When the advice is received, it is made available to the full Board. 24 corporAte GoVerNANce stAteMeNt DIvERSITy The Group is committed to promoting a workplace that recognises and embraces the skills, perspectives and experiences that people bring to the Group through, among other things, their gender, age, origin, ethnicity, religion, culture, disability, education, life experience, work experience, personality, area of residence, marital status, carer responsibilities and sexual orientation. The Group recognises the many benefits arising from workplace diversity. Drawing our workforce from a diverse pool allows us to recruit the best talent to deliver our strategy. The promotion of gender diversity encourages greater innovation, improves the Group’s corporate image and reputation, enhances employee engagement and retention, and creates value for our customers and shareholders. During the current year the Group appointed Ms Emma McDonald as General Counsel and Company Secretary increasing the proportion of women in key executive management positions to 28% (2011: 11%). As at 30 June 2012, women represented 50.2% of the Group’s workforce (2011: 51.8%). SECuRITIES TRaDING pOLICy Under the Company’s Securities Trading policy, a director, executive or staff member must not trade in any securities of the Company at any time when they are in possession of unpublished, price sensitive information (‘inside information’) in relation to those securities. Before undertaking any trading of securities in the Company, including the exercise of executive share options, an executive must first obtain approval of the Company Secretary and a director must first obtain approval of the Chairman. The Group’s Securities Trading policy outlines the following “Closed Periods” during which Restricted Persons and their associates are not permitted to trade in Prime Securities: • • • The period from 31 December to the day on which the half year results are announced to the Australian Securities Exchange; The period from 30 June to the day on which the full year results are announced to the Australian Securities Exchange; and 28 days immediately leading up to and including the day of the Annual General Meeting. As required by the ASX Listing Rules, the Company notifies the ASX of any transaction conducted by directors in the securities of the Company. pRINCIpLE 4 – SafEGuaRD INTEGRITy IN fINaNCIaL REpORTING auDIT aND RISK COmmITTEE The Board has established an Audit and Risk Committee whose conduct is governed by a formal charter of responsibilities. This charter is published on the Company’s website. It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators. The Board has delegated responsibility for establishing and maintaining a framework of internal control and ethical standards to the Audit and Risk Committee. The Committee also provides the Board with additional assurance regarding the reliability of financial information for inclusion in the financial reports. All members of the Audit and Risk Committee are non-executive directors. For details regarding the Audit and Risk Committee’s responsibilities to recognise and manage risk refer to Principle 7. The Audit and Risk Committee must meet at least two times each year but is recommended that the committee meets between 4 and 5 times each year. Members of the Audit and Risk Committee as at the date of this report are as follows: • Mr P.J. Evans FCA (Chairman) • Mr I. P Grier AM • Mr I.R. Neal Members of the Audit and Risk Committee must be a minimum of 3 non-executive directors and at least two members of the committee must be independent. Details of the qualifications of the members of the Audit and Risk Committee, the number of meetings of the Audit and Risk Committee held during the current year and the attendees at those meetings are set out in the Directors’ Report. The Group’s Auditor attended the Audit and Risk 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 specific matters concerning the Company’s financial and reporting obligations. The Company has not complied with the CGC’s Recommendation 4.2 in that the Chairman of the Audit and Risk Committee, Mr Peter Evans, is not an independent director. The Board, having considered the functions and responsibilities of the Chairman of the Audit and Risk Committee and the qualifications and experience of Mr Evans, believe that Mr Evans is the most appropriate of the directors to be the Chairman of the Audit and Risk Committee. Mr Evans is a Fellow of the Institute of Chartered Accountants, with 20 years’ experience in the accounting field, and 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 qualifications of Audit and Risk Committee members are set out in the Directors’ Report. pRINCIpLE 5 – maKE TImELy aND BaLaNCED DISCLOSuRE The Board has established policies and procedures to ensure that the disclosure requirements of the ASX Listing Rules are adhered to. These policies are outlined in the Continuous Disclosure policy 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 Officer are the only parties approved to make public comment in relation to the financial 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. 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. Prime media GrouP AnnuAl RepoRt 2011 25 corporAte GoVerNANce stAteMeNt pRINCIpLE 6 – RESpECT ThE RIGhTS Of ShaREhOLDERS The Company acknowledges the importance of effective 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 affecting the Group’s state of affairs. Communication of information to shareholders includes the following: (1) The annual report is available 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 affairs of the Group and details of future developments, in addition to the other disclosures required by the Corporations Act 2001; (2) The half-yearly report contains summarised financial information and a review of the operations of the Group during the period. Half-year financial 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 financial statements are sent to any shareholder who requests them; (3) 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; (4) Notices of all general meetings are sent to all shareholders; and (5) The Company is constantly looking at ways of making its communications more effective and has been undergoing an active review of the information it publishes on its website. 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 confirmed. aNNuaL GENERaL mEETINGS The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the Group’s strategy and goals. The shareholders are requested to vote on the appointment of directors, the Remuneration Report, 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. pRINCIpLE 7 – RECOGNISE aND maNaGE RISK The Board oversees the establishment, implementation and review of the Group’s risk management practices. The Group has continued its approach to proactive risk management. The identification and effective management of risk, including calculated risk-taking is viewed as an essential part of the Company’s approach to creating long-term shareholder value. To facilitate the execution of the Board’s responsibilities to manage risk, a separate Audit and Risk subcommittee of the Board has been established. The Audit and Risk Committee is charged with the responsibility of overseeing the effectiveness of risk management and internal compliance and control. During the year, the Committee revised its charter and commenced a comprehensive review of risk management objectives and processes. This review is expected to continue in FY 2013. The tasks of undertaking and assessing risk management and internal control effectiveness continue to be delegated to management through the Chief Executive Officer, including responsibility for the day to day implementation of the Company’s risk management and internal control systems. In FY2013, management will continue to develop a framework for reporting to the Audit and Risk Committee and 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 will be a standard agenda item at all regular board meetings. Risk management focuses on strategic, financial, operational and legal/ compliance risks through the following compliance and control systems: • • • • • • • • requiring management to supply comprehensive financial and operational reports, which specifically 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 significant capital expenditure and expenditure on revenue account. Procedures adopted in this regard include annual budgets, detailed appraisal and review prior to major expenditure or commitments, 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 identified and monitoring its implementation; implementing workplace 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 identification and management within the Group as a significant obligation of every employee; and including in the responsibilities of the roles of Chief Executive Officer and Company Secretary, identification of risks affecting each business segment and the development of strategies to minimise those risks. 26 corporAte GoVerNANce stAteMeNt The Company does not have an internal audit function. The Board believe that the size and nature of the Company’s operations currently do not warrant a separate internal audit function. pRINCIpLE 8 – REmuNERaTE faIRLy aND RESpONSIBLy For the purposes of assisting investors to understand better the nature of the risks faced by the Company, the Board has prepared a list of operational risks as part of the Principle 7 disclosures. The Board notes however that this does not necessarily represent an exhaustive list and that it may be subject to change based on underlying market events: • Fluctuations in consumer demand that impact advertising market revenues; • Impact of new media technologies; • The occurrence of force majeure events that may affect our significant suppliers; • Increasing costs of operations, including labour costs; • Changed operating, market or regulatory environment as a result of changes in government media policy. Underpinning these efforts is a comprehensive set of policies and procedures directed towards achieving the following objectives in relation to the requirements of Principle 7: • Effectiveness and efficiency in the use of the Company’s resources; • Compliance with applicable laws and regulations; • Preparation of reliable published financial information. CEO aND CfO CERTIfICaTION In accordance with section 295A of the Corporations Act, the Chief Executive Officer and the Acting Chief Financial Officer have provided a written statement to the Board that: • Their view provided on the Company’s financial report is founded on a sound system of risk management and internal compliance and control which implements the financial policies adopted by the Board; and • The Company’s risk management and internal compliance and control system is operating effectively in all material respects. The Board agrees with the views of the ASX on this matter and notes that due to its nature, internal control assurance from the CEO and CFO can only be reasonable rather than absolute. This is due to such factors as the need for judgement, the use of testing on a sample basis, the inherent limitations in internal control and because much of the evidence available is persuasive rather than conclusive and therefore is not and cannot be designed to detect all weaknesses in control procedures. REmuNERaTION aND NOmINaTION COmmITTEE The Company has established a Remuneration and Nomination Committee. The Committee is governed by an established charter that is published on the Company website. Members of the Remuneration and Nomination Committee as at the date of this report are as follows: • Mr I.P. Grier AM (Chairman) • Mr P.J. Evans FCA • Mr A.A. Hamill Details of the number of meetings of the Remuneration and Nomination Committee held during the year and the attendees at those meetings are set out in the Directors’ Report. The Remuneration and Nomination Committee reviews the remuneration arrangements and employment conditions applicable to executives and any executive directors. In making these determinations, regard is had to comparable industry or professional salary levels, and to the specific performance of the individuals concerned. The Company clearly distinguishes the structure of non-executive directors’ remuneration (paid in the form of a fixed fee) and that of any executive director and executives. The remuneration of managers and staff other than executives and executive directors is within the authority of the Chief Executive Officer. The Chief Executive Officer 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. The Remuneration and Nomination Committee regularly reviews the effectiveness of the long term incentive schemes to ensure that the structure remains effective. Recommendations in respect of the granting of incentives under any long term incentive schemes are made by the Remuneration and Nomination Committee to 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. A full discussion of the Company’s remuneration philosophy and framework and the remuneration received by directors and executives during the year is set out in the Remuneration Report, which comprises part of the Directors’ Report. Prime media GrouP AnnuAl RepoRt 2011 27 coNsoLiDAteD stAteMeNt oF coMpreheNsiVe iNcoMe For the YeAr eNDeD 30 JuNe 2012 CONTINuING OpERaTIONS Revenue and other income Revenue from services Interest income Other income Total revenue and other income Cost of sales Gross profit Broadcasting and transmission expenses Sales, marketing and administration expenses Depreciation, amortisation and impairment expenses Finance costs Share of associate losses profit from continuing operations before income tax Income tax expense profit for the year from continuing operations DISCONTINuING OpERaTIONS Loss after tax for the year from discontinued operations profit for the year Other comprehensive income − Transfer of foreign currency translation reserve to profit and loss − Foreign currency translation differences for the period recognised directly in equity Other comprehensive income for the year, net of tax Total comprehensive income for the year, net of tax profit attributable to: Owners of the Parent Total comprehensive income attributable to: Owners of the Parent Basic Earnings per share (cents per share) − profit for the year − profit from continuing operations Diluted Earnings per share (cents per share) − profit for the year NOTES 4(A) 4(A) 4(A) 4(B) 12(D) 5(C) 6(B) CONSOLIDaTED 2012 $’000 2011 $’000 268,846 253,184 725 3,927 273,498 (134,388) 139,110 (47,560) (22,239) (16,705) (10,486) (1,198) 40,922 (13,240) 27,682 420 3,394 256,998 (127,613) 129,385 (47,170) (20,142) (11,022) (11,210) (586) 39,255 (11,067) 28,188 – 27,682 (1,022) 27,166 – – – 995 (201) 794 27,682 27,960 27,682 27,682 27,682 27,682 7.6 7.6 7.6 7 7 7 27,166 27,166 27,960 27,960 7.4 7.7 7.4 28 coNsoLiDAteD stAteMeNt oF FiNANciAL positioN As At 30 JuNe 2012 aSSETS CuRRENT aSSETS Cash and short-term deposits Trade and other receivables Intangible assets Other assets Total Current assets NON-CuRRENT aSSETS Receivables Investment in available-for-sale financial assets 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 financial instruments Total Current Liabilities NON-CuRRENT LIaBILITIES Interest-bearing loans and borrowings Provisions Total Non-Current Liabilities Total Liabilities Net assets EquITy Equity attributable to equity holders of the parent interest Contributed equity Reserves Accumulated losses parent Interests Total Equity NOTES CONSOLIDaTED 2012 $’000 2011 $’000 9 10 16 11 10 14 15 5 16 11 17 18 5 19 22 18 19 20 21 21 8,916 61,299 400 2,057 72,672 171 2,007 49,986 7,676 227,015 1,265 288,120 360,792 61,384 1,629 10,235 2,567 573 76,388 123,896 481 124,377 200,765 160,027 19,374 54,387 616 2,001 76,378 672 5,138 51,258 8,052 229,003 1,099 295,222 371,600 57,584 627 3,077 2,255 1,687 65,230 152,823 434 153,257 218,487 153,113 310,262 310,262 35 (150,270) 160,027 160,027 (78) (157,071) 153,113 153,113 Prime media GrouP AnnuAl RepoRt 2012 29 L a T O T 0 0 0 ’ $ 2 8 6 , 7 2 3 1 1 , 3 5 1 – 2 8 6 , 7 2 3 1 1 ) 1 8 8 , 0 2 ( 7 2 0 , 0 6 1 L a T O T 0 0 0 ’ $ 6 6 1 , 7 2 0 1 3 , 7 3 1 4 9 7 0 6 9 , 7 2 5 6 6 ) 2 2 8 , 2 1 ( 3 1 1 , 3 5 1 – – – – – – – - N O N G N I L L O R T N O C T S E R E T N I 0 0 0 ’ $ – – – – – – – - N O N G N I L L O R T N O C T S E R E T N I 0 0 0 ’ $ L a T O T T N E R a p I y T T N E T S E R E T N I 0 0 0 ’ $ 2 8 6 , 7 2 3 1 1 , 3 5 1 – 2 8 6 , 7 2 3 1 1 ) 1 8 8 , 0 2 ( 7 2 0 , 0 6 1 L a T O T T N E R a p I y T T N E T S E R E T N I 0 0 0 ’ $ 6 6 1 , 7 2 0 1 3 , 7 3 1 4 9 7 0 6 9 , 7 2 5 6 6 ) 2 2 8 , 2 1 ( 3 1 1 , 3 5 1 L a R E N E G E v R E S E R 0 0 0 ’ $ ) 7 8 7 , 2 ( – – – – – ) 7 8 7 , 2 ( L a R E N E G E v R E S E R 0 0 0 ’ $ ) 7 8 7 , 2 ( – – – – – ) 7 8 7 , 2 ( I N G E R O f y C N E R R u C I N O T a L S N a R T E v R E S E R 0 0 0 ’ $ E E y O L p m E I S T f E N E B E v R E S E R 0 0 0 $ ’ D E T a L u m u C C a S E S S O L 0 0 0 $ ’ – – – – – – – – – – 9 0 7 , 2 – 3 1 1 2 2 8 , 2 2 8 6 , 7 2 ) 1 7 0 , 7 5 1 ( – 2 8 6 , 7 2 – ) 1 8 8 , 0 2 ( ) 0 7 2 , 0 5 1 ( I N G E R O f y C N E R R u C I N O T a L S N a R T E v R E S E R 0 0 0 ’ $ E E y O L p m E I S T f E N E B E v R E S E R 0 0 0 $ ’ D E T a L u m u C C a S E S S O L 0 0 0 $ ’ ) 4 9 7 ( – 4 9 7 4 9 7 – – – – – – 4 4 0 , 2 – 5 6 6 9 0 7 , 2 6 6 1 , 7 2 ) 5 1 4 , 1 7 1 ( – 6 6 1 , 7 2 – ) 2 2 8 , 2 1 ( ) 1 7 0 , 7 5 1 ( – – – – – D E u S S I I L a T p a C 0 0 0 $ ’ 2 6 2 , 0 1 3 2 6 2 , 0 1 3 – – – – – D E u S S I I L a T p a C 0 0 0 $ ’ 2 6 2 , 0 1 3 2 6 2 , 0 1 3 d o i r e p e h t r o f e s n e p x e d n a e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i e v i s n e h e r p m o c r e h t O d o i r e p e h t r o f t fi o r P 1 1 0 2 y l u J 1 t a 2 1 0 2 e N u J 0 3 D e D N e r A e Y l : s r e d o h y t i u q e s a y t i c a p a c r i e h t n i l s r e d o h y t i u q e h t i w s n o i t c a s n a r T d o i r e p e h t r o f e s n e p x e d n a e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i e v i s n e h e r p m o c r e h t O d o i r e p e h t r o f t fi o r P 0 1 0 2 y l u J 1 t a s e r a h s i y r a n d r o n o s d n e d i v i D s t n e m y a p d e s a b e r a h S 2 1 0 2 e n u J 0 3 t a 1 1 0 2 e N u J 0 3 D e D N e r A e Y l : s r e d o h y t i u q e s a y t i c a p a c r i e h t n i l s r e d o h y t i u q e h t i w s n o i t c a s n a r T s e r a h s i y r a n d r o n o s d n e d i v i D s t n e m y a p d e s a b e r a h S 1 1 0 2 e n u J 0 3 t a i Y t u q e N i s e G N A h c F o t N e M e t A t s D e t A D i L o s N o c 30 coNsoLiDAteD stAteMeNt oF cAsh FLows For the YeAr eNDeD 30 JuNe 2012 CONSOLIDaTED 2012 $’000 2011 $’000 NOTES 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 refunds received Income tax paid Net cash flows from operating activities 9(A) Cash flows from investing activities Proceeds from sale of property, plant and equipment Purchase of property, plant & equipment and intangible assets Proceeds from sale of available-for-sale financial assets Proceeds from sale of business operations Proceeds from/payment of deferred settlement for acquisition of subsidiaries and related business assets Loan funds to other parties Loan funds to related entities Net cash flows from/(used in) investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Debt facility establishment fees Finance lease liability payments Dividends paid Net cash flows used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Net foreign exchange differences Cash and cash equivalents at end of period 9 295,709 (230,506) 725 (10,960) 735 (7,165) 48,538 50 (13,195) 2,785 – 1,049 – (290) (9,601) 217,000 (243,000) (1,989) (582) (20,881) (49,452) (10,515) 19,374 57 8,916 290,607 (239,315) 504 (13,659) 1,170 (4,888) 34,419 1,049 (9,727) 34 20,508 (1,250) (154) (300) 10,160 76,000 (92,933) – (1,110) (12,822) (30,865) 13,714 5,664 (4) 19,374 Prime media GrouP AnnuAl RepoRt 2012 31 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 1 CORpORaTE INfORmaTION The consolidated financial report of Prime Media Group Limited (the “Company”) for the year ended 30 June 2012 was authorised for issue in accordance with a resolution of the directors on 26 September 2012. 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 Significant accounting judgements, estimates and assumptions Foreign currency translation Statement of Compliance with IFRS TaBLE Of CONTENTS (A) Basis of preparation (B) (C) New Accounting Standards and Interpretations (D) Basis of consolidation (E) Business combinations (F) (G) (H) Cash and short-term deposits Trade and other receivables (I) (J) Property, plant and equipment (K) Goodwill and intangible assets (L) Financial instruments – Initial recognition and subsequent measurement Investments in associates Trade and other payables (M) (N) (O) Borrowing costs Provisions (P) Employee leave benefits (Q) Share-based payment transactions (R) Leases (S) (T) Revenue recognition (U) Government grants (V) (W) Derivative financial instruments and hedging (X) (Y) Contributed equity Earnings per share (Z) Non-current assets and disposal groups held for sale and (AA) discontinued operations Impairment of non-financial assets Income tax and other taxes (a) BaSIS Of pREpaRaTION The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements from the Australian Accounting Standards Board. The financial report has been prepared on a historical cost basis, except for derivative financial instruments, land and buildings, available-for-sale investments, and investments in associates that have been measured at fair value. The financial 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 financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. 32 (C) NEw aCCOuNTING STaNDaRDS aND INTERpRETaTIONS ChaNGES IN aCCOuNTING pOLICy aND DISCLOSuRES. The accounting policies adopted are consistent with those of the previous financial year except as follows. The Group has adopted the following new and amended Australian Accounting Standards and AASB interpretations as of 1 July 2011: • AASB 124 Related Party Disclosures (amendment) effective 1 January 2011; • AASB 132 Financial Instruments: Presentation (amendment) effective 1 February 2010; • AASB Int 14 Prepayments of a Minimum Funding Requirement (amendment) effective 1 January 2011; and Improvements to AASBs (May 2010). • When the adoption of the Standard or Interpretation is deemed to have an impact on the financial statements or performance of the Group, its impact is described below: AAsB 124 Related Party Transactions (amendment) The AASB issued an amendment to AASB 124 that clarifies the definitions of a related party. The new definitions emphasise a symmetrical view of related party relationships and clarifies the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of the amendment did not have any impact on the financial position or performance of the Group. AAsB 132 Financial Instruments: Presentation (amendment) The AASB issued an amendment that alters the definition of a financial liability in AASB 132 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. The amendment has had no effect on the financial position or performance of the Group because the Group does not have these types of instruments. AAsB int 14 Prepayments of a Minimum Funding Requirement (amendment) The amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognised as a pension asset. The Group is not subject to minimum funding requirements in Australia, therefore the amendment of the interpretation has no effect on the financial position nor performance of the Group. aNNuaL ImpROvEmENTS pROJECT In May 2010, the AASB issued its third omnibus of amendments to its Standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies, but no impact on the financial position or performance of the Group. • AASB 3 Business Combinations: The measurement options available for non-controlling interest (NCI) were amended. Only components of NCI that constitute a present ownership interest that entitles their holder to a proportionate share of the entity’s net assets in the event of liquidation should be measured at either fair value or at the present ownership instruments’ proportionate share of the acquiree’s identifiable net assets. All other components are to be measured at their acquisition date fair value. • The amendments to AASB 3 are effective for annual periods beginning on or after 1 July 2011. The Group, however, adopted these as of 1 July 2011. The amendment was issued to eliminate unintended consequences that may arise from the adoption of AASB 3. Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 • AASB 7 Financial Instruments – Disclosures: The amendment was intended to simplify the disclosures provided by reducing the volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context. The Group reflects the revised disclosure requirements in Note 18 and Note 22. • AASB 101 Presentation of Financial Statements: The amendment clarifies that an entity may present an analysis of each component of other comprehensive income maybe either in the statement of changes in equity or in the notes to the financial statements. The Group provides this analysis in the statement of changes in equity. Other amendments resulting from Improvements to AASBs to the following standards did not have any impact on the accounting policies, financial position or performance of the Group: • AASB 3 Business Combinations (Contingent consideration arising from business combination prior to adoption of AASB 3 (as revised in 2008)); • AASB 3 Business Combinations (Un-replaced and voluntarily replaced share-based payment awards); • AASB 127 Consolidated and Separate Financial Statements; and • AASB 134 Interim Financial Statements. Australian Accounting Standards and Interpretations that have recently been issued or amended, but are not yet effective, have not been adopted by the Group for the annual reporting period ended 30 June 2012. These are outlined in the table below. appLICaTION DaTE Of STaNDaRD 1 July 2012 appLICaTION DaTE fOR GROup 1 July 2012 ImpaCT ON GROup fINaNCIaL REpORT The Group has not yet determined the full extent of the impact of the amendments, but does not believe it will have a material impact. 1 January 2013 The Group has 1 July 2013 determined that the amendment will not have a material impact. 1 January 2013 The Group has 1 July 2013 determined that the amendment will not have a material impact. REfERENCE TITLE SummaRy AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Other Comprehensive Income This Standard requires entities to group items presented in other comprehensive income on the basis of whether they might be reclassified subsequently to profit or loss and those that will not. [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049] AASB 10 Consolidated Financial Statements AASB 11 Joint Arrangements AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation – Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to other standards via AASB 2011-7. AASB 11 replaces AASB 131 Interests in Joint Ventures and UIG-113 Jointly- controlled Entities – Non-monetary Contributions by Ventures. AASB 11 uses the principle of control in AASB 10 to define joint control, and therefore the determination of whether joint control exists may change. In addition it removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the venturers a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. Joint ventures that give the venturers a right to the net assets is accounted for using the equity method. Consequential amendments were also made to other standards via AASB 2011-7 and amendments to AASB 128. Prime media GrouP AnnuAl RepoRt 2012 33 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 2 SummaRy Of SIGNIfICaNT aCCOuNTING pOLICIES (CONTINUED) appLICaTION DaTE Of STaNDaRD ImpaCT ON GROup fINaNCIaL REpORT appLICaTION DaTE fOR GROup 1 January 2013 The Group has not yet 1 July 2013 determined the full extent of the impact of the amendments, but does not believe it will have a material impact. 1 January 2013 The Group has 1 July 2013 determined that the amendment will not have a material impact. 1 January 2013 The Group has 1 July 2013 determined that the amendment will not have a material impact. REfERENCE TITLE SummaRy AASB 12 Disclosure of Interests in Other Entities AASB 13 Fair Value Measurement AASB 119 Employee Benefits AASB 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structures entities. New disclosures have been introduced about the judgments made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests. AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB 2011-8. The main change introduced by this standard is to revise the accounting for defined benefit plans. The amendment removes the options for accounting for the liability, and requires that the liabilities arising from such plans is recognized in full with actuarial gains and losses being recognized in other comprehensive income. It also revised the method of calculating the return on plan assets. The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the reporting date. Consequential amendments were also made to other standards via AASB 2011-10. 34 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 REfERENCE TITLE SummaRy Annual Improvements 2009–2011 Cycle Annual Improvements to IFRSs 2009–2011 Cycle AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009–2011 Cycle AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities This standard sets out amendments to International Financial Reporting Standards (IFRSs) and the related bases for conclusions and guidance made during the International Accounting Standards Board’s Annual Improvements process. These amendments have not yet been adopted by the AASB. The following items are addressed by this standard: IFRS 1 First-time Adoption of International Financial Reporting Standards • Repeated application of IFRS 1 • Borrowing costs IAS 1 Presentation of Financial Statements • Clarification of the requirements for comparative information IAS 16 Property, Plant and Equipment • Classification of servicing equipment IAS 32 Financial Instruments: Presentation • Tax effect of distribution to holders of equity instruments IAS 34 Interim Financial Reporting Interim financial reporting and segment information for total assets and liabilities. AASB 2012-2 principally amends AASB 7 Financial Instruments: Disclosures to require disclosure of information that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial position. AASB 2012-5 makes amendments resulting from the 2009-2011 Annual Improvements Cycle. The Standard addresses a range of improvements, including the following: • repeat application of AASB 1 is permitted (AASB 1); and • clarification of the comparative information requirements when an entity provides a third balance sheet (AASB 101 Presentation of Financial Statements). AASB 2012-3 adds application guidance to AASB 132 Financial Instruments: Presentation to address inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of “currently has a legally enforceable right of set-off” and that some gross settlement systems may be considered equivalent to net settlement. appLICaTION DaTE Of STaNDaRD ImpaCT ON GROup fINaNCIaL REpORT appLICaTION DaTE fOR GROup 1 January 2013 The Group has 1 July 2013 determined that the amendment will not have a material impact. 1 January 2013 The Group has not yet 1 July 2013 determined the full extent of the impact of the amendments, but does not believe it will have a material impact. 1 January 2013 The Group has not yet 1 July 2013 determined the full extent of the impact of the amendments, but does not believe it will have a material impact. 1 January 2014 The Group has not yet 1 July 2015 determined the full extent of the impact of the amendments, but does not believe it will have a material impact. Prime media GrouP AnnuAl RepoRt 2012 35 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 2 SummaRy Of SIGNIfICaNT aCCOuNTING pOLICIES (CONTINUED) appLICaTION DaTE Of STaNDaRD ImpaCT ON GROup fINaNCIaL REpORT appLICaTION DaTE fOR GROup 1 January 2015 The Group has not yet 1 July 2015 determined the full extent of the impact of the amendments, but does not believe it will have a material impact. REfERENCE TITLE SummaRy AASB 9 Financial Instruments AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. (a) Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. (b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. (c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. (d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: • The change attributable to changes in credit risk are presented in other comprehensive income (OCI) • The remaining change is presented in profit or loss If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10. 36 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 (D) BaSIS Of CONSOLIDaTION The consolidated financial statements comprise the financial statements of Prime Media Group Limited and its subsidiaries (as outlined in Note 29) as at and for the year ended 30 June 2012. Interests in associates are equity accounted and are not part of the consolidated Group (see Note (M) below). Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit 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 financial statements of the parent entity less any impairment charges. Dividends received from subsidiaries are recorded as a component of the reserves in the statement of comprehensive income of the parent entity, and do not impact the recorded cost of the investment. Upon receipt of dividends payments from subsidiaries, the parent will assess whether any indicators of impairment of the carrying value of the investment in the subsidiary exist. Where such indicators exist to the extent that the carrying value of the investment exceeds its recoverable amount, an impairment loss is recognised. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. The acquisition method of accounting involves recognising at acquisition date, separately from goodwill, the identifiable intangible assets acquired, the liabilities assumed and non-controlling interest in the acquiree. The identifiable assets acquired and the liabilities assumed are measured at their acquisition date fair values (see Note (E)). The difference between the above items and fair value of the consideration (including the fair value of any pre-existing investment in the acquiree) is goodwill or a discount on acquisition. After 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 that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Non-controlling interests are allocated their share of net profit after tax in the statement of comprehensive income and are presented within equity in the consolidated statement of financial position, separately from the equity of the owners of the parent. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if that results in a deficit balance. A change in the ownership interest of a subsidiary that does not result in a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: • Derecognises the assets (including goodwill) and liabilities of the subsidiary. • Derecognises the carrying amount of any non-controlling interest. • Derecognises the cumulative translation differences, recorded in equity. • Recognises the fair value of the consideration received. • Recognises the fair value of any investment retained. • Recognises any surplus or deficit in profit or loss. • Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss, or retained earnings, as appropriate. (E) BuSINESS COmBINaTIONS Business combinations are accounted for using the acquisition method. The cost of acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability will be recognised in accordance with AASB 139 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within the scope of AASB 139, it is measured in accordance with the appropriate AASB. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non- controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. After 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 that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the 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 circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. (f) SIGNIfICaNT aCCOuNTING JuDGEmENTS, ESTImaTES aND aSSumpTIONS The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. JuDGEmENTS (i) In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements: operating lease commitments – Group as lessor The Group has entered into site sharing agreements in relation to transmission sites and equipment it owns. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these sites and equipment and accounts for the contracts as operating leases. recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences and unused tax losses to the extent management considers it is probable that future taxable profits will be available to utilise those temporary differences. Prime media GrouP AnnuAl RepoRt 2012 37 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 2 SummaRy Of SIGNIfICaNT aCCOuNTING pOLICIES (CONTINUED) Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. impairment of non-financial assets other than goodwill The Group assesses impairment of all assets at each reporting date by evaluating conditions specific 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. classification of assets and liabilities as held for sale The Group classifies assets and liabilities as held for sale when the carrying amount will be recovered through a sale transaction. The assets and liabilities must be available for immediate sale and the Group must be committed to selling the asset either through the entering into a contractual sale agreement or the activation and commitment to a program to locate a buyer and dispose of the assets and liabilities. impairment of investments in financial assets (including associates) The Group assesses impairment of investments in financial assets including associates at each reporting date in accordance with the measurement rules established in the accounting standards. For financial assets determined to be associates, the Group assesses at each balance date the circumstances and conditions specific 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(K) The Group’s television and radio broadcasting licences consists of the right to broadcast television and radio services to specific market areas. These licences are issued by the relevant broadcasting authority for periods of 5 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 judgement as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgement 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 differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Deferred tax liabilities arising from temporary differences 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 profits and repatriation of retained earnings depend on management’s estimates of future cash flows. These depend on estimates of future production and sales volumes, operating costs, restoration costs, capital expenditure, dividends and other capital management transactions. Judgements 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 statement of financial position and the amount of other tax losses and temporary differences 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 statement of comprehensive income. (ii) SIGNIfICaNT aCCOuNTING ESTImaTES aND aSSumpTIONS The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur: 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. The fair values of unlisted securities not traded in an active market are determined using valuation assumptions that are not observable market prices or rates. Future likely cash flows are determined to most likely arise from the disposal of the securities. Disposal cash flows are determined using Earnings before interest, tax, depreciation and amortisation (‘EBITDA’) multiples and compared to similar companies with observable market sales data. impairment of goodwill and intangibles with indefinite useful lives The Group determines whether goodwill and intangibles with indefinite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill and intangibles with indefinite useful lives are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill and intangibles with indefinite 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 26. Fair value of Financial Derivatives The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. provision for decommissioning costs The Group has recognised a provision for decommissioning obligations associated with the switch off of analogue transmission. These costs are recognised as part of the cost of the asset and are depreciated over the remaining useful life of the asset. Assumptions and estimates are made in relation to the expected cost to dismantle and remove the analogue transmission equipment from each site and the timing of those costs. The carrying amount of the provision as at 30 June 2012 was $492,000 (2011: Nil). (G) fOREIGN CuRRENCy TRaNSLaTION The functional and presentation currency of Prime Media Group Limited and its Australian subsidiaries is Australian dollars (A$). Each overseas entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The financial statements of each foreign entity within the Group are translated to the Group’s presentation currency of $AUD (refer point (i) & (ii)). TRaNSaCTIONS aND BaLaNCES (i) Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange at the reporting date. All differences arising on settlement or translation of monetary items are taken to the income statement. 38 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 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 measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value is determined. The gain or loss arising on retranslation of non-monetary items is treated in line with the recognition of gain or loss on change in fair value of the item (i.e. translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively). (ii) GROup COmpaNIES On consolidation the assets and liabilities of foreign operations are translated into the presentation currency of Prime Media Group Limited at the rate of exchange prevailing at the reporting date and their income statements are translated at the weighted average exchange rates for the period. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the income statement. (h) CaSh aND ShORT-TERm DEpOSITS Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less. For the purpose of the consolidated statement of cash flows, cash and short-term deposits consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts. TRaDE aND OThER RECEIvaBLES (I) Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less an allowance for impairment. Credit terms, generally 30 – 45 days, may be extended based upon an assessment of the credit standing of each customer. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Objective evidence may be in the form of, but not limited to, legal rulings and determinations, defaults on agreed payment plans and age of debtors. (J) 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 part of the property, plant and equipment if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. All other repairs and maintenance are recognised in the income statement as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Refer to significant accounting judgements, estimates and assumptions (Note 2(f)) and provisions (Note 19) for further information about the recorded decommissioning provision. Land and buildings are measured at cost less accumulated depreciation on buildings. Depreciation is calculated 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: 2012 2011 – Land Not depreciated Not depreciated – Freehold buildings: 40 years 40 years – Leasehold improvements: The lease term The lease term – Plant and equipment: – Plant and equipment under lease: – Motor vehicles 3 to 15 years 3 to 15 years 5 to 15 years 5 to 15 years 6 years 6 years An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised. The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively if appropriate. 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 flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, 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. (K) GOODwILL aND INTaNGIBLE aSSETS GOODwILL Goodwill is initially measured, being the excess of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. After 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 that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of cash-generating unit and part of the 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 circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Prime media GrouP AnnuAl RepoRt 2012 39 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 2 SummaRy Of SIGNIfICaNT aCCOuNTING pOLICIES (CONTINUED) INTaNGIBLE aSSETS Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible assets. Intangible assets with indefinite useful lives are not amortised, but 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 indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life from indefinite to finite is accounted for on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised. BuSINESS SOfTwaRE, DEvELOpmENT aND wEBSITES Business software, development and website costs are capitalised based on management’s judgement that key milestones for the developments have been achieved. In determining the amounts to be capitalised, management makes assumptions regarding the future cash to be generated from the asset, discount rates to be applied and the expected period of benefits. TELEvISION aND RaDIO BROaDCaST LICENCES, aCquIRED BOTh SEpaRaTELy aND aS paRT Of a BuSINESS COmBINaTION Television and Radio broadcast licences consist of the right to broadcast television and radio services to specific market areas. The licences are subject to renewal by the Australian Communications and Media Authority (ACMA). The directors have no reason to believe the licences will not be renewed at the end of their legal terms and have not identified any factor that would affect their useful life. Therefore, the television and radio licences are deemed to have indefinite useful lives. A summary of the policies applied to the Group’s intangible assets is as follows: TELEvISION aND RaDIO BROaDCaST LICENCES BuSINESS SOfTwaRE, DEvELOpmENT aND wEBSITES – useful lives: Indefinite Finite – method used: Not amortised or revalued – Internally generated / acquired: Acquired Amortised on a straight-line basis over the period of the expected future benefit Internally generated / Acquired (L) fINaNCIaL INSTRumENTS – INITIaL RECOGNITION aND SuBSEquENT mEaSuREmENT (i) fINaNCIaL aSSETS initial recognition and measurement Investments and financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets as appropriate. The Group determines the classification of its financial assets at initial recognition. All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss. Purchases or sales of financial 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 financial 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 flows from the financial assets has expired or been transferred. subsequent Measurement The subsequent measurement of financial assets depends on their classification as described below: Financial assets at fair value through profit and loss Financial assets at fair value through profit or loss includes financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments as defined by AASB139. Financial assets at fair value through profit and loss are carried in the statement of financial position at fair value with net changes in fair value recognised in finance costs in the income statement. Loans and receivables Loans and receivables including loan notes and loans to key management personnel are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance income in the income statement. The losses arising from impairment are recognised in the income statement in finance costs for loans and in cost of sales or other operating expenses for receivables. Available-for-sale investments Available-for-sale investments include equity investments and debt securities. Equity investments classified as available-for-sale are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or response to changes in the market conditions. After initial recognition, available-for-sale investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income in the available-for-sale reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in other operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the available- for-sale reserve to the income statement in finance costs. Interest earned whilst holding available-for-sale financial investments is reported as interest income using the effective interest rate method. 40 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 The Group evaluates whether the ability and intention to sell its available- for-sale financial assets in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or until maturity. For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity reclassified to the income statement. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the reporting 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 flow analysis and option pricing models making as much use of available and supportable market data as possible and keeping judgemental inputs to a minimum. investments in controlled entities Investments in controlled entities are recorded at cost. Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: • • the rights to receive cash flows from the asset have expired; the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group 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 flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it 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. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. 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. ImpaIRmENT Of fINaNCIaL aSSETS (ii) The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset of the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and when observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for financial assets that are not individually significant. If is the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them 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 there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in the income statement. Available-for-sale financial investments For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement – is removed from other comprehensive income and recognised in the income statement. Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairment are recognised directly in other comprehensive income. (iii) fINaNCIaL LIaBILITIES initial recognition and measurement Investments and financial liabilities within the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as financial liabilities at fair value through profit or loss, loans and receivables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value plus, in the case of loans and borrowings, directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings and derivative financial instruments. subsequent measurement The measurement of financial liabilities depends on their classification, described as follows: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss. Prime media GrouP AnnuAl RepoRt 2012 41 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 The Group’s share of profit or loss of an associate is shown on the face of the income statement. This is the profit attributable to equity holders of the associate and, therefore, is profit after tax and non-controlling interests in the subsidiaries of the associate. The financial statements of the associates are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in its associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the “share of associate losses” in the income statement. Upon loss of significant influence over the associate, the Group measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. 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. (N) 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 financial 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. (O) BORROwING COSTS Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the periods they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. (p) pROvISIONS 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 outflow of resources embodying economic benefits 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. DECOmmISSIONING LIaBILITy The Group records a provision for decommissioning costs of analogue transmitters and related assets. Decommissioning costs are provided at the present value of expected costs to settle the obligation using estimated cash flows and are recognised as part of the cost of the particular asset. The cash flows are discounted at a current pre-tax rate that reflects the risks specific to the decommissioning liability. The unwinding of the discount is expensed as incurred and recognised in the income statement as a finance cost. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated future costs or in the discount rate applied are added to or deducted from the cost of the asset. 2 SummaRy Of SIGNIfICaNT aCCOuNTING pOLICIES (CONTINUED) Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by AASB 139. Gains or losses on liabilities held for trading are recognised in the income statement. Financial liabilities designated upon initial recognition at fair value through profit or loss so designated at the initial date of recognition, and only if criteria of AASB 139 are satisfied. Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the income statement. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement. (iv) OffSETTING Of fINaNCIaL INSTRumENTS Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if: • There is a currently enforceable legal right to offset the recognised amounts • There is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously (v) faIR vaLuE Of fINaNCIaL INSTRumENTS The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques include: • Using recent arm’s length market transactions; • Reference to the current fair value of another instrument that is substantially the same; and • A discounted cash flow analysis or other valuation models. (m) INvESTmENTS IN aSSOCIaTES The Group’s investments in its associates are accounted for using the equity method. The associates are entities in which the Group has significant influence. Under the equity method, the investment in the associate is carried in the consolidated statement of financial position 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 neither amortised nor individually tested for impairment. The income statement reflects the Group’s share of profit of the results of operations of the associate. When there has been a change recognised directly in the equity of the associate, The Group recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. 42 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 (q) EmpLOyEE LEavE BENEfITS EmpLOyEE LEavE BENEfITS (i) wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, 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. Long service leave (ii) 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 outflows. (R) ShaRE-BaSED paymENT TRaNSaCTIONS Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). EquITy-SETTLED TRaNSaCTIONS The cost of equity–settled transactions is recognised, together with a corresponding increase in employee benefits reserves in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in employee benefits expense. No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional upon a market or non-vesting condition. These are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. When the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee, as measured at the date of modification. When 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. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. 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 modification of the original award, as described in the previous paragraph. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (see Note 7). (S) LEaSES The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date, whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. (i) GROup aS a LESSEE Finance leases that transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are capitalised at commencement 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 apportioned between finance 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 recognised in finance costs in the income statement. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognised as an operating expense in the income statement on a straight-line basis over the lease term. (ii) GROup aS a LESSOR Leases in which the Group does not transfer substantially all the risks and benefits of ownership of the leased asset are classified 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. Contingent rents are recognised as revenue in the period in which they are earned. (T) REvENuE RECOGNITION Revenue is recognised to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The specific recognition criteria described below 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 aDvERTISEmENT pRODuCTION REvENuE Revenue is recognised at the time of invoicing the customers, which is on completion of the production. RENDERING Of SERvICES Revenue from the provision of production facilities is brought to account after services have been rendered and the fee is receivable. SaLES REpRESENTaTION REvENuE Sales Representation revenue is brought to account as the service is provided. INTEREST INCOmE For all financial instruments measured at amortised cost and interest bearing financial assets classified as available for sale, interest income or expense is recorded using the effective interest rate, which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. DIvIDENDS Dividend 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 income 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. Prime media GrouP AnnuAl RepoRt 2012 43 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 2 SummaRy Of SIGNIfICaNT aCCOuNTING pOLICIES (CONTINUED) (u) GOvERNmENT GRaNTS Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. When the grant relates to an asset, it is recognised as deferred income and released to income in equal amounts over the expected useful life of the related asset. INCOmE TaX aND OThER TaXES (v) Current tax assets and liabilities for the current period 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 at the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: • when the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. • Deferred income tax assets are recognised for all taxable temporary differences, carried forward unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. • The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will 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 reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognised subsequently if new information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or in profit or loss. TaX CONSOLIDaTION Effective 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 reporting date, the possibility of default is remote. Prime Media Group Limited formally notified the Australian Tax Office 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. Revenues, expenses and assets are recognised net of the amount of GST except: • when 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 statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, is classified as part of operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. 44 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 (w) DERIvaTIvE fINaNCIaL INSTRumENTS aND hEDGING The Group uses derivative financial instruments such as interest rate swaps to manage its risks associated with interest rate fluctuations. Such derivative financial 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. GOODwILL Goodwill is tested for impairment annually (as at 30 June) and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the income statement. The fair values of interest rate swap contracts are determined by reference to market values for similar instruments. INTaNGIBLE aSSETS Intangible assets with indefinite useful lives are tested for impairment annually as at 30 June either individually or at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired. ImpaIRmENT Of NON-fINaNCIaL aSSETS (X) The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted tot their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses of continuing operations are recognised in the income statement in expense categories consistent with the function of the impaired asset, except for a property previously revalued and the revaluation was taken to other comprehensive income. In this case the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the assets or CGUs recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. (y) CONTRIBuTED EquITy Ordinary shares are classified 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. (Z) EaRNINGS pER ShaRE Basic earnings per share is calculated as net profit 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. Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for: • costs of servicing equity (other than dividends) and preference share • dividends; the after-tax effect 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. (aa) NON-CuRRENT aSSETS aND DISpOSaL GROupS hELD fOR SaLE aND DISCONTINuED OpERaTIONS Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Property, plant and equipment and intangible assets once classified as held for sale are not depreciated or amortised. In the statement of comprehensive income, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations, down to the level of profit after taxes, even when the Group retains a non-controlling interest in the subsidiary after the sale. The resulting profit or loss (after taxes) is reported separately in the statement of comprehensive income. Prime media GrouP AnnuAl RepoRt 2012 45 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 3 fINaNCIaL RISK maNaGEmENT OBJECTIvES aND pOLICIES The Group’s principal financial liabilities, other than derivatives, comprise loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Group’s operations. The Group has loan and other receivables, trade and other receivables, cash and short-term deposits that arrive directly from its operations. The Group also holds available-for-sale investments and enters into derivative transactions. The Group is exposed to market risk, credit risk and liquidity risk. The Group’s senior management oversees the management of these risks. The Group manages its exposure to key financial risks including interest rate and currency risk in accordance with the Group’s financial risk management policy. The objective of the policy is to support the delivery of the Group’s financial targets while protecting future financial security. The Group also enters into derivative transactions, including principally interest rate swaps. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of finance. It is the Group’s policy that no trading in derivatives for speculative purposes shall be undertaken. The main risks arising from the Group’s financial instruments are cash flow risk, interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board of directors reviews and agrees policies for managing each of these risks which are summarised below. maRKET RISK Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise the following types of risk: interest rate risk and currency risk. Financial instruments affected by market risk include loans and borrowings, deposits, available-for-sale investments and derivative financial instruments. The sensitivity analyses in the following sections relate to the position as at 30 June 2012 and 2011. The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant. INTEREST RaTE RISK Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to market interest rates relates primarily to the Group’s long-term debt obligations with floating interest rates 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 financial assets and liabilities exposed to Australian variable interest rate risk that are not designated as cash flow hedges: financial assets Cash and short-term deposits financial Liabilities Secured Bank Loans Derivatives Net exposure CONSOLIDaTED 2012 $’000 2011 $’000 8,916 8,916 (122,726) (573) (123,299) (114,383) 19,374 19,374 (150,024) (1,687) (151,711) (132,337) Interest rate swap contracts outlined in Note 22, with a fair value liability of $573,000 (2011: Liability $1,687,000), are exposed to fair value movements if interest rates change. All derivative financial instruments are stated at fair value with any gains or losses arising from changes in fair value being taken directly to the income statement. The Group’s policy is to manage its finance costs using a mix of fixed and variable rate debt. The Group’s policy is to keep at least 50% of its borrowings at fixed rates of interest. To manage this mix in a cost-efficient manner, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. At 30 June 2012, after taking into account the effect of interest rate swaps, approximately 77% of the Group’s borrowings are at a fixed rate of interest (2011: 63%). The Group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative financing, alternative hedging positions and the mix of fixed and variable interest rates. 46 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date: At 30 June 2012, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows: JuDGEmENTS Of REaSONaBLy pOSSIBLE mOvEmENTS: pOST TaX pROfIT hIGhER/(LOwER) EquITy hIGhER/(LOwER) Consolidated +1% (100 basis points) -1% (100 basis points) 2012 $’000 (631) 631 2011 $’000 2012 $’000 2011 $’000 (105) 105 – – – – Significant assumptions used in the interest rate sensitivity analysis include: • Reasonable movements in interest rates were determined based on the Group’s current credit rating and mix of debt in Australia and foreign countries, relationships with financial institutions, the level of debt that is expected to be renewed and economic forecaster’s expectations. • The net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next twelve months from balance date. fOREIGN CuRRENCy RISK Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense is denominated in different currency from the Group’s functional currency) and the Group’s net investment in foreign subsidiaries. The Group operates in two countries – Australia and New Zealand. The majority of transactions for the Group entities are made in the functional currency of the relevant entity. From time to time the Group enters into transactions that give rise to currency exposure risks. Such currency exposures arise from purchases in currencies other than the Group’s functional currency. The Group reviews the transactional currency risks arising from significant foreign currency transactions and enters into appropriate forward currency contracts to reduce currency risks. The Group also has foreign currency translation risk where the operations of the foreign based subsidiaries are translated to the Group’s reporting currency. At 30 June 2012, the Group had the following exposure to NZ$ foreign currency that is not designated as cash flow hedges: financial assets Receivables – Deferred contingent consideration Net exposure CONSOLIDaTED 2012 $’000 166 166 2011 $’000 1,773 1,773 As at balance date, the Group does not have any forward currency contracts (2011: Nil) designated as cash flow hedges that are subject to fair value movements through equity and profit and loss respectively as foreign exchange rates move. As at 30 June 2012, apart from the foreign currency translation risks within the Group, there were no other exposures to currency fluctuations. The foreign currency exposures within the Group relate to the translation to the Group presentation currency of AUD. These translation differences are taken to the income statement. Management believes the balance date risk exposures are representative of the risk exposure inherent in the financial instruments. CREDIT RISK Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. TRaDE RECEIvaBLES Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit rating, financial 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 significant. The requirement for an impairment is analysed at each reporting date on an individual basis for major clients. Additionally, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on actually incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed at Note 10. The Group does not hold collateral as security. A small number of media buying agencies account for approximately 75% of Prime’s revenue and no individual agency accounts for more than 15% of the Group’s revenue. Agency clients operate with strict credit terms of 45 days and are required to provide detailed financial information as part of their credit approval process. Late payments are closely monitored and followed up if the 45 day terms are not met. 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. Prime media GrouP AnnuAl RepoRt 2012 47 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 3 fINaNCIaL RISK maNaGEmENT OBJECTIvES aND pOLICIES (CONTINUED) LIquIDITy RISK The Group manages its liquidity risk by monitoring the total cash inflows and outflows expected on a weekly basis. The Group has established comprehensive risk reporting covering its business units that reflects expectations of management of the expected settlement of financial assets and liabilities. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and finance leases. The Group currently has funding through: • $200 million Debenture Subscription Facility (2011: $260 million), which is currently drawn to 62% of the facility limit (2011: 58%); and • Long Term finance lease contracts over specific items of plant and equipment. It is the Group’s policy that renegotiation of existing funding facilities are commenced at least twelve months prior to the maturity date of the existing facilities. On 28 October 2011 the Company executed a $200 million bank loan facility with a term of 4 years, repayable in full on expiry. Interest will be charged at a rate of BBSY plus a margin between 1.70% and 2.60%. At 30 June 2012, 1.3% of the Group’s debt will mature in less than one year (2011: 0.4%). NON-DERIvaTIvE fINaNCIaL LIaBILITIES (a) The following liquidity risk disclosures reflect all contractually fixed pay-offs, repayments and interest resulting from recognised financial liabilities as at 30 June 2012. For the other obligations the respective undiscounted cash flows for the respective upcoming fiscal years are presented. The timing of cash flows for liabilities is based on the contractual terms of the underlying contract. However, where the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Group can now be required to pay. When the Group is committed to make amounts available in instalments, each instalment is allocated to the earliest period in which the Group is required to pay. The risk implied from the values shown in the table below, reflects a balanced view of cash inflows and outflows of non-derivative financial instruments. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in the Group’s ongoing operations such as property, plant, equipment and investments in working capital (e.g. inventories and trade receivables). Liquid non-derivative assets comprising cash and receivables are considered in the Group’s overall liquidity risk. The Group ensures that sufficient liquid assets are available to meet all the required short-term cash payments. The remaining contractual maturities of the Group’s financial assets and liabilities are: yEaR ENDED 30 JuNE 2012 financial assets Cash and cash equivalents Trade and other receivables financial liabilities Trade and other payables Interest bearing loans and borrowings Net inflow/(outflow) ≤ 6 mONThS $’000 6 – 12 mONThS $’000 1 – 5 yEaRS $’000 > 5 yEaRS $’000 TOTaL $’000 8,916 61,299 70,215 (61,384) (4,233) (65,617) 4,598 – – – – – 171 171 – (4,251) (4,251) (4,251) (124,110) (124,110) (123,939) – – – – – – – 8,916 61,470 70,386 (61,384) (132,594) (193,978) (123,592) In addition to maintaining sufficient liquid assets to meet short-term payments, at balance date, the Group has available approximately $76 million of unused bank loan facilities available for its immediate use, subject to continued compliance with the bank loan covenants. yEaR ENDED 30 JuNE 2011 financial assets Cash and cash equivalents Trade and other receivables financial liabilities Trade and other payables Interest bearing loans and borrowings Net inflow/(outflow) ≤ 6 mONThS $’000 6 – 12 mONThS $’000 1 – 5 yEaRS $’000 > 5 yEaRS $’000 TOTaL $’000 19,374 54,387 73,761 (57,584) (4,748) (62,332) 11,429 – – – – – 672 672 – (4,690) (4,690) (4,690) (153,646) (153,646) (152,974) – – – – (420) (420) (420) 19,374 55,059 74,433 (57,584) (163,504) (221,088) (146,655) faIR vaLuE The methods for estimating fair value are outlined in the relevant notes to the financial statements. 48 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 DERIvaTIvE fINaNCIaL LIaBILITIES (B) Due to the unique characteristics and risks inherent to derivative instruments, the Group separately monitors the liquidity risk arising from transacting in derivative instruments. The table below details the liquidity risk arising from the derivative liabilities held by the Group at balance date. Net settled derivative liabilities comprise forward interest rate contracts that are used as economic hedges of interest rate risks. yEaR ENDED 30 JuNE 2012 Derivative liabilities – net settled Net inflow/(outflow) yEaR ENDED 30 JuNE 2011 Derivative liabilities – net settled Net inflow/(outflow) ≤ 6 mONThS $’000 6 – 12 mONThS $’000 1 – 5 yEaRS $’000 > 5 yEaRS $’000 (573) (573) (670) (670) – – (1,017) (1,017) – – – – – – – – TOTaL $’000 (573) (573) (1,687) (1,687) faIR vaLuE The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1 – quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2 – other techniques for which all inputs that have a significant effect on the recorded fair value that are not based on observable market data; and Level 3 – techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. As at 30 June 2012, the Group held the following financial instruments carried at fair value in the statement of financial position: LEvEL 1 $’000 LEvEL 2 $’000 LEvEL 3 $’000 TOTaL $’000 yEaR ENDED 30 JuNE 2012 financial assets Listed investments Unlisted investments financial liabilities Derivative instruments: Interest rate swaps yEaR ENDED 30 JuNE 2011 financial assets Listed investments Unlisted investments financial liabilities Derivative instruments: Interest rate swaps 3 – 3 – – 4 – 4 – – – – – (573) (573) – – – (1,687) (1,687) – 2,001 2,001 – – – 2,001 2,001 – – 3 2,001 2,004 (573) (573) 4 2,001 2,005 (1,687) (1,687) A sensitivity analysis of the valuation inputs for Level 3 balances has been provided in Note 14(iv). Quoted market price represents the fair value determined based on quoted prices on active markets as at the reporting date without any deduction for transaction costs. The fair value of the listed equity investments are based on quoted market prices. For financial instruments not quoted in active markets, the Group uses valuation techniques such as present value techniques, comparison to similar instruments for which market observable prices exist and other relevant models used by market participants. These valuation techniques use both observable and unobservable market inputs. Financial instruments that use valuation techniques with only observable market inputs or unobservable inputs that are not significant to the overall valuation include interest rate swaps, forward commodity contracts and foreign exchange contracts not traded on a recognised exchange. Reconciliation of Level 3 fair value movements: Opening balance Additions – as consideration received on business disposal Closing balance CONSOLIDaTED 2012 $’000 2,001 – 2,001 2011 $’000 – 2,001 2,001 Prime media GrouP AnnuAl RepoRt 2012 49 CONSOLIDaTED 2012 $’000 2011 $’000 268,846 253,184 725 3,927 420 3,394 273,498 256,998 725 725 1,329 2,598 3,927 10,496 (10) 10,486 43,842 3,345 113 1,351 48,651 367 16,871 420 420 1,310 2,084 3,394 11,566 (18) 11,548 41,065 3,210 665 734 45,674 311 16,942 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 4 INCOmE aND EXpENSES INCOmE aND EXpENSES fROm CONTINuING OpERaTIONS INCOmE (a) Advertising revenue Finance income Other revenue Breakdown of finance income: Interest received – other persons Breakdown of other income: Government grants Other revenues (B) fINaNCE EXpENSES Interest expense – other persons Effective interest rate adjustments (C) EmpLOyEE BENEfIT EXpENSE Wages and salaries Superannuation expense Share based payments expense Other employee benefits expense (D) OThER EXpENSES Bad and doubtful debts – trade debtors Minimum lease payments – operating leases 50 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 5 INCOmE TaX INCOmE TaX EXpENSE (a) The major components of income tax expense are: Statement of comprehensive income 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 differences – Adjustments in respect of deferred income tax of previous years – Net DTA not previously recognised due to accumulated loss position of subsidiary – Income tax expense/(benefit) on discontinuing operations CONSOLIDaTED 2012 $’000 2011 $’000 14,324 (964) – 83 408 (611) – 7,760 (933) 13 4,656 215 (581) (63) Income tax expense reported in the statement of comprehensive income 13,240 11,067 (B) amOuNTS ChaRGED OR CREDITED DIRECTLy TO EquITy Deferred income tax related to items charged or credited directly to equity – Foreign currency translation (C) NumERICaL RECONCILIaTION BETwEEN aGGREGaTE TaX EXpENSE RECOGNISED IN ThE STaTEmENT Of COmpREhENSIvE INCOmE aND TaX EXpENSE CaLCuLaTED pER ThE STaTuTORy INCOmE TaX RaTE A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s appropriate income tax rate is as follows: – Profit before tax from continuing operations – (Loss) before tax from discontinuing operations Total accounting profit/(loss) before income tax – – (237) (237) 40,922 – 40,922 39,255 (959) 38,296 Prima facie tax expense/(benefit) on accounting profit at the Group’s statutory rate of 30% (2011: 30%) 12,277 11,489 Non temporary differences – Expenses not deductible for tax – Impairment expense not deductible for tax – Adjustments in respect of current income tax of previous years – Income not assessable for tax – De-recognition of DTA on capital losses – DTA on income tax losses not previously recognised – Foreign tax rate adjustment aggregate income tax expense aggregate income tax expense attributable to: – Continuing operations – Discontinuing operations 556 1,595 (553) (66) 98 (607) (60) 1,213 – (719) (354) 69 (568) – 13,240 11,130 13,240 – 13,240 11,067 63 11,130 Prime media GrouP AnnuAl RepoRt 2012 51 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 5 INCOmE TaX (CONTINUED) CONSOLIDaTED 2012 $’000 CuRRENT INCOmE TaX 2012 $’000 DEfERRED INCOmE TaX 2011 $’000 CuRRENT INCOmE TaX 2011 $’000 DEfERRED INCOmE TaX (D) RECOGNISED DEfERRED TaX aSSETS aND LIaBILITIES Opening balance Charged to income Charged to equity Other payments and utilisation of tax losses Closing balance Tax expense in statement of comprehensive income Amounts recognised in the statement of financial position: Deferred tax asset Deferred tax liability (3,077) (13,360) – 6,202 (10,235) 8,052 120 – (496) 7,676 13,240 7,676 – 7,676 Deferred income tax as at 30 June relates to the following: Deferred tax liabilities Leased assets Prepaid expenses deductible for tax Fair value of television licences on acquisition Set-off of deferred tax assets Net deferred tax liabilities Deferred tax assets Employee Entitlements Provisions Expenses not yet deductible for tax Lease Liabilities Difference between accounting and tax building write off Accounting depreciation not yet deductible for tax Fair value of derivatives Impairments of investments Tax losses Set-off of deferred tax liabilities Net deferred tax assets 57 (6,841) (11) 3,718 (3,077) 12,093 (4,289) 248 – 8,052 11,130 8,052 – 8,052 CONSOLIDaTED 2012 $’000 2011 $’000 (209) (622) (6,690) (7,521) 7,521 – 1,922 330 2,474 – 1,429 269 172 7,200 1,401 15,197 (7,521) 7,676 (75) (887) (6,690) (7,652) 7,652 – 1,712 195 3,070 56 1,486 191 506 7,200 1,288 15,704 (7,652) 8,052 (E) (a) INCOmE TaX LOSSES 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 profits. (b) Deferred tax assets arising from tax losses of controlled entities not recognised at reporting date as realisation of the benefit is not regarded as highly probable 1,396 1,288 18,738 19,305 52 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 TaX CONSOLIDaTION (i) Members of the tax consolidated group and the tax sharing arrangements Effective 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 tax consolidated group have entered into a tax sharing agreement that 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 financial statements in respect of this agreement on the basis that the possibility of default is remote. (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. In addition to its own current and deferred tax amounts, the head entity also recognises current tax liabilities (or assets) and deferred tax assets arising from unused tax losses and unused tax credits from controlled extras in the tax consolidated group. 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 2012 $’000 2011 $’000 Prime Media Group Limited has recognised the following amounts as tax-consolidation contribution adjustments: Total increase to inter-company assets of Prime Media Group Limited 18,150 12,483 (f) TaXaTION Of fINaNCIaL aRRaNGEmENTS (TOfa) Legislation is in place which changes the tax treatment of financial arrangements, including the tax treatment of hedging transactions. The Group has assessed the potential impact of these changes on the Group tax position. No impact has been recognised and no adjustments have been made to the deferred tax and income tax balances at 30 June 2012 (2011: $Nil). Prime media GrouP AnnuAl RepoRt 2012 53 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 6 DISCONTINuED OpERaTIONS (a) DETaILS Of OpERaTIONS DISpOSED aND CLOSED DOwN There were no discontinued operations in the current reporting period. The following operations were discontinued in the previous corresponding period. mOONLIGhT CINEma On 1 October 2010, the Group completed the sale of Moonlight Cinema, its Australian outdoor cinema operation, to Amalgamated Holdings Limited for a disposal sale consideration of $1,627,877, net of selling costs. ON SITE BROaDCaSTING (1) On 9 July 2010, the Group completed the sale of its On Site Broadcasting business in New Zealand to Sky Network Television Limited for total consideration of A$11,130,375, net of selling costs. The deferred consideration is receivable over a period of 4 years to 30 June 2014 and the amount earned is contingent upon the amount of profit earned under various contracts transferred as part of the sale. The consideration comprised of the following: Cash consideration Deferred Contingent Consideration, at fair value Total consideration 10,565,375 565,000 $11,130,375 As at 30 June 2011 the Company revised the fair value of the deferred contingent consideration up by $1,181,000, on completion of a detailed review of the forecast profits expected from the contracts transferred as part of the sale. (2) On 28 October 2010, the Group completed the sale of its On Site Broadcasting business in Australia to Gearhouse Broadcast Pty Ltd for a total consideration of $10,314,993, net of selling costs. The consideration comprised of the following: Cash consideration Shares issued in Gearhouse Broadcast Pty Limited (unlisted) at fair value Deferred Contingent Consideration, at fair value Total consideration 8,314,993 2,000,000 – $10,314,993 A component of the sale consideration is a $3,000,000 subordinated loan advanced by the Company to the purchaser and repayable between 31 December 2012 and 31 December 2014. The loan repayment amount is contingent upon the financial performance of the business from the date of the sale to 31 December 2014. As at 30 June 2011 the loan repayment amount had been formally reduced to $1,187,005. The company is carrying this deferred contingent consideration receivable at a fair value of nil. pRImE DIGITaL mEDIa Effective 30 June 2011, the Company exited the Prime Digital Media business and has disclosed the results of the Prime Digital Media business as discontinued operations. (B) fINaNCIaL pERfORmaNCE Of OpERaTIONS DISpOSED, CLOSED DOwN OR hELD fOR SaLE Revenue Expenses Loss attributable to discontinued operations before tax Income tax (expense)/benefit Loss attributable to discontinued operations after tax Minority interest in discontinued operations Loss from discontinuing operations attributable to members of parent entity Loss per share (cents per share) Basic from discontinued operations Diluted from discontinued operations Discontinuing operations includes Broadcast Production Services, On Site Broadcasting, Moonlight Cinema, Prime Media Singapore and Prime Digital Media. (C) CaSh fLOw INfORmaTION – DISCONTINuED OpERaTIONS Net cash (outflow) from operating activities Net cash inflow/(outflow) from investing activities Net cash (outflow)/inflow from financing activities Net cash generated by discontinued operations 54 CONSOLIDaTED 2012 $’000 2011 $’000 – – – – – – – – – – – – – 7,098 (8,057) (959) (63) (1,022) – (1,022) (0.3) (0.3) (7,608) 18,256 (7,309) 3,339 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 (D) LOSS ON DISpOSaL Cash Shares received at fair value Fair value of deferred consideration Total disposal consideration Less net assets disposed of Loss on disposal before income tax Income tax expense Loss on disposal after income tax (E) NET CaSh INfLOw fROm DISpOSaL Cash and cash equivalents consideration Less cash and cash equivalents balance disposed of Reflected in the consolidated statement of cash flows 7 EaRNINGS pER ShaRE 2012 $’000 2011 $’000 – – – – – – – – – – – 20,508 2,000 565 23,073 (23,656) (583) 240 (343) 20,508 – 20,508 Basic earnings per share amounts are calculated by dividing net profit 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 profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus 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 reflects the income and share data used in the basic and diluted earnings per share computations: (a) EaRNINGS uSED IN CaLCuLaTING EaRNINGS pER ShaRE Net Profit attributable to ordinary equity holders of the parent from continuing operations Net loss attributable to ordinary equity holders of the parent from discontinuing operations Net Profit attributable to ordinary equity holders of the parent Earnings used in calculating basic and diluted earnings per share (B) wEIGhTED avERaGE NumBER Of ShaRES Weighted average number of ordinary shares used in calculating basic earnings per share: Effect of dilution: Share options CONSOLIDaTED 2012 $’000 2011 $’000 27,682 – 27,682 27,682 28,188 (1,022) 27,166 27,166 2012 NumBER Of ShaRES 2011 NumBER Of ShaRES 366,330,303 366,330,303 – – adjusted weighted average number of ordinary shares used in calculating diluted earnings per share 366,330,303 366,330,303 There are nil share options (2011: Nil) excluded from the calculations of diluted earnings per share that could potentially dilute basic earnings per share in the future because they are anti-dilutive. There have been no other transactions involving ordinary shares or potential ordinary between the reporting date and the completion of the financial statements. (C) INfORmaTION ON ThE CLaSSIfICaTION Of SECuRITIES EquITy SETTLED ShaRE BaSED paymENTS Equity settled share based payments granted to employees (including KMP) as described in Note 30 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. Prime media GrouP AnnuAl RepoRt 2012 55 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 7 EaRNINGS pER ShaRE (CONTINUED) To calculate earnings per share amounts for the core continuing operations, the weighted average number of ordinary shares for both basic and diluted amounts is as per the table above. The following table provides the profit figure used as the numerator: (D) pROfIT fROm CONTINuING OpERaTIONS EXCLuDING SpECIfIC ITEmS Reported profit after tax from continuing operations (refer Statement of comprehensive income) – Fair value change in derivatives – Fair value change in receivable – deferred contingent consideration – Transfer of foreign currency translation reserve to profit and loss – Impairment of radio broadcasting licences – Loss on sale of investments – Provision for decommissioning costs – Redundancies – Income tax expense/(benefit) related to specific items CONSOLIDaTED 2012 $’000 2011 $’000 27,682 (1,115) (234) – 5,316 345 492 571 163 28,188 (1,333) (1,181) 995 – – – 198 340 profit after tax from continuing operations before specific items attributable to members of prime media Group Limited 33,220 27,207 8 DIvIDENDS paID aND pROpOSED CONSOLIDaTED 2012 $’000 2011 $’000 12,089 7,693 8,792 20,881 5,129 12,822 12,089 8,792 ThE GROup 2012 $’000 2011 $’000 23,344 9,387 – 32,731 26,685 2,608 – 29,293 (5,181) 27,550 (3,768) 25,525 current year interim (a) RECOGNISED amOuNTS Declared and paid during the year (i) Franked dividends 3.3 cents per share (2011: 2.1 cents) – ordinary shares (ii) Franked dividends 2.4 cents per share (2011: 1.4 cents) – ordinary shares previous year final (B) uNRECOGNISED amOuNTS (i) Franked dividends 3.3 cents per share (2011: 2.4 cents) – ordinary shares current year final (C) fRaNKING CREDIT BaLaNCE The amount of franking credits available for the subsequent financial year are: Franking account balance as at the end of the financial year at 30% (2011: 30%) Franking credits that will arise from the payment of income tax payable as at the end of the financial year Franking debits that will arise from the payment of dividends as at the end of the financial year The amount of franking credits available for future reporting periods Impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the period (D) TaX RaTES The tax rate at which paid dividends have been franked is 30% (2011: 30%). Dividends proposed will be franked at the rate of 30% (2011: 30%). 56 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 9 CaSh aND ShORT-TERm DEpOSITS Cash balance comprises: Cash at bank and on hand Closing cash balance CONSOLIDaTED 2012 $’000 2011 $’000 8,916 8,916 19,374 19,374 Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amounts of cash and cash equivalents represent fair value. At 30 June 2012 the Group had available $76 million (2011: $110 million) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. RECONCILIaTION Of ThE NET pROfIT afTER TaX TO ThE NET CaSh fLOwS fROm OpERaTIONS Net profit/(loss) after income tax Non-cash adjustment for: Depreciation and amortisation Amortisation of program rights Provision for doubtful debts Net loss on disposal of property, plant and equipment (Gain)/loss on sale of financial asset Transfer of foreign currency translation reserve to profit and loss Net gain MTM derivatives Impairment of intangibles and goodwill Impairment of investments Share of losses of associates Share based payments expense Changes in assets and liabilities (Increase) in trade and other receivables Decrease/(increase) in deferred tax assets (Increase) in prepayments Increase/(decrease) in trade and other payables Increase in tax provision Increase/(decrease) in interest bearing liabilities (Decrease)/increase in provisions Net cash flow from operating activities CONSOLIDaTED 2012 $’000 2011 $’000 27,682 27,166 10,771 10,190 616 367 78 345 367 (1,115) 5,316 2 1,198 113 (8,135) 415 (223) 3,656 7,333 647 (895) 48,538 832 314 656 (34) 995 (1,333) – – 586 665 (2,034) 3,849 (310) (2,259) 3,564 (2,070) (6,358) 34,419 Prime media GrouP AnnuAl RepoRt 2012 57 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 10 TRaDE aND OThER RECEIvaBLES CuRRENT Trade receivables Allowance for impairment loss Deferred contingent consideration Other receivables Related party receivables – Loans to executives – Other related parties Carrying amount of trade and other receivables CONSOLIDaTED 2012 $’000 2011 $’000 53,811 (701) 53,110 165 6,883 – 1,141 61,299 47,944 (652) 47,292 1,285 4,446 130 1,234 54,387 (a) aLLOwaNCE fOR ImpaIRmENT LOSS 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. 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 identified. No individual amount within the impairment allowance is material. 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 July 1 Charge for the year Amounts written off At June 30 CONSOLIDaTED 2012 $’000 652 310 (261) 701 2011 $’000 875 20 (243) 652 At 30 June, the ageing analysis of trade receivables is as follows: 2012 2011 TOTaL DayS 53,811 47,944 0-30 DayS 26,211 24,281 31-60 DayS 31-60 DayS pDNI* 61-90 DayS CI* 61-90 DayS pDNI* +91 DayS CI* 23,740 21,422 1,030 999 – 13 2,129 733 701 496 * Considered impaired (‘CI’), Past due not impaired (‘PDNI’) 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 satisfied 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) RELaTED paRTy RECEIvaBLES For terms and conditions of related party receivables refer to Notes 29 and 30. 58 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 (C) fOREIGN EXChaNGE aND INTEREST RaTE RISK Detail regarding foreign exchange and interest rate risk exposure is disclosed in Note 3. NON-CuRRENT Deferred contingent consideration Sundry receivables Related party receivables – Loans to executives – Other related parties Carrying amount of non-current receivables CONSOLIDaTED 2012 $’000 2011 $’000 – 126 – 45 171 487 – 140 45 672 Related parties receivables are interest bearing and have no fixed 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 and are not considered past due or impaired. For the terms and conditions relating to KMP refer to Note 30. (D) faIR vaLuE aND CREDIT RISK The fair values of non-current receivables approximate their carrying value. (E) fOREIGN EXChaNGE aND INTEREST RaTE RISK Detail regarding foreign exchange and interest rate risk exposure is disclosed in Note 3. (f) CREDIT RISK 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. 11 OThER aSSETS Current Prepayments Non-current Prepayments CONSOLIDaTED 2012 $’000 2011 $’000 2,057 1,265 2,001 1,099 Prime media GrouP AnnuAl RepoRt 2012 59 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 12 INvESTmENTS IN aSSOCIaTES INvESTmENT DETaILS (a) unlisted Mildura Digital Television Pty Limited (refer to Note 19) Prime Digitalworks Pty Limited West Digital Television Pty Limited West Digital Television No2 Pty Limited West Digital Television No3 Pty Limited West Digital Television No4 Pty Limited WA SatCo Pty Limited Broadcast Transmission Services Pty Limited- Total Investments in associates CONSOLIDaTED 2012 $’000 2011 $’000 – – – – – – – – – – – – – – – – – – (B) ThE CONSOLIDaTED ENTITy haS a maTERIaL INTEREST IN ThE fOLLOwING ENTITIES: unlisted Mildura Digital Television Pty Limited destra Corporation Limited (1) West Digital Television Pty Limited West Digital Television No2 Pty Limited West Digital Television No3 Pty Limited West Digital Television No4 Pty Limited WA SatCo Pty Limited Broadcast Transmission Services Pty Limited OwNERShIp INTEREST CONTRIBuTION TO NET pROfIT 2012 % 2011 % 2012 $’000 2011 $’000 50% 44% 50% 50% 50% 50% 50% 33% 50% 44% 50% 50% 50% 50% 50% 33% (604) – (594) – – – – – (586) – – – – – – – (1,198) (586) (1) The Group’s investment in destra Corporation Limited was impaired to Nil during 2009. As such no further share of losses are taken up in the Group accounts. (C) mOvEmENTS IN ThE CaRRyING amOuNT Of ThE GROup’S INvESTmENT IN aSSOCIaTES At July 1 Loan funds advanced (1) Share of losses after income tax Provision for loan funds still to be paid to associate (refer to Note 19) At June 30 CONSOLIDaTED 2012 $’000 2011 $’000 – 325 (1,198) 873 – 80 299 (586) 207 – (1) Reflects loan funds advanced to associates under short term loan arrangement or in accordance with requirements of shareholder agreements. These payments are deemed to be part of the Investment in Associates for the purposes of equity accounting. 60 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 (D) SummaRISED fINaNCIaL INfORmaTION The following table illustrates summarised financial information relating to the Group’s associates Extracts from associates’ balance sheets: Current assets Non-current assets Current liabilities Non-current liabilities Net liabilities Share of the associates net liabilities accounted for using the equity method: Net liabilities Extracts from associates’ statements of comprehensive income: Revenue Net losses Share of the associates profits or losses accounted for using the equity method: Loss before income tax Income tax expense Loss after income tax CONSOLIDaTED 2012 $’000 2011 $’000 3,674 354 4,028 (7,240) (4,743) (11,983) (7,955) 460 483 943 (2,345) - (2,345) (1,402) (3,977) (701) 1,154 (2,395) (1,198) – (1,198) 936 (1,172) (586) – (586) Prime media GrouP AnnuAl RepoRt 2012 61 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 13 INvESTmENTS IN SuBSIDIaRIES aND fINaNCIaL aSSETS CLOSED GROup CLaSS ORDER DISCLOSuRES 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 and Prime Radio (Holdings) Pty Limited from the Corporations Act 2001 requirements for preparation, audit and lodgement of their financial reports. As a condition of the Class Order, Prime Media Group Limited and its 100% owned Australian resident subsidiaries entered into a Deed of Cross Guarantee on 17 October 2006 (the “Closed Group”). The effect of the deed is that Prime Media Group Limited has guaranteed to pay any deficiency in the event of winding up of any of the controlled entities within the Closed Group. The controlled entities within the Closed Group, listed below, have also given a similar guarantee in the event that Prime Media Group Limited is wound up. COuNTRy Of INCORpORaTION EquITy INTEREST 2012 % 2011 % 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 Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – 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 Prime Media Developments Pty Limited Prime Digitalworks Pty Limited Prime Media Broadcasting Pty Limited Prime Media Communications Pty Limited Prime Growth Media Pty Limited Prime Media Group Services Pty Limited POP Digital Media Pty Limited Prime New Media Investments Pty Limited Seven Affiliate Sales Pty Limited 62 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 The consolidated statement of comprehensive income and statement of financial position of the entities which are members of the “Closed Group” are as follows: (a) CONSOLIDaTED STaTEmENT Of COmpREhENSIvE INCOmE Operating profit/(loss) before income tax Income tax expense attributable to operating profit/(loss) Operating profit/(loss) after tax Retained profits at beginning of the financial year Dividends provided for or paid Retained profits at end of the financial period (B) CONSOLIDaTED BaLaNCE ShEET Current assets Cash and cash equivalents Trade and other receivables Intangible assets Prepayments Total current assets Non-current assets Receivables Investments in available-for-sale financial assets Other financial assets and subsidiaries Property, plant and equipment Intangible assets Deferred tax assets Other assets Total non-current assets Total assets Current liabilities Trade and other payables Interest bearing loans and borrowings Current tax liabilities Provisions Derivative financial instruments Total current liabilities Non-current liabilities Trade and other payables Interest bearing loans and borrowings Provisions Total non-current liabilities Total liabilities Net assets Equity Parent entity interest Contributed equity Reserves Accumulated losses Total equity CLOSED GROup 2012 $’000 36,948 (12,534) 24,414 (65,404) (20,881) (61,871) 2011 $’000 37,870 (11,666) 26,204 (78,786) (12,822) (65,404) CLOSED GROup 2012 $’000 2011 $’000 8,210 60,652 400 2,055 71,317 35,615 6 114,964 49,971 226,840 4,071 1,265 432,732 504,049 60,820 1,629 9,387 2,567 573 74,976 54,809 123,896 480 179,185 254,161 249,888 18,749 52,107 616 1,909 73,381 36,585 7 118,093 51,251 228,828 4,308 1,100 440,172 513,553 56,640 627 3,495 2,255 1,687 64,704 49,729 152,823 433 202,985 267,689 245,864 310,262 1,497 (61,871) 249,888 310,262 1,381 (65,779) 245,864 Prime media GrouP AnnuAl RepoRt 2012 63 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 14 INvESTmENTS – avaILaBLE-fOR-SaLE fINaNCIaL aSSETS Investments at fair value: Available for sale financial assets: Shares in uncontrolled entities (quoted) (i) Investments at cost: Shares in uncontrolled entities (unquoted) (ii) Investments at fair value: Shares in uncontrolled entities (unquoted) (iii) CONSOLIDaTED 2012 $’000 2011 $’000 3 3 2,001 2,007 4 3,133 2,001 5,138 Available-for-sale investments consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate. (i) quOTED EquITy 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) uNquOTED EquITy ShaRES aT COST Investments in shares of unlisted entities are carried at cost where fair value cannot be reliably measured. The financial instruments held are shares of an entity that has a small shareholder base and a relatively stable share register with few exchanges of shareholdings On 30 November 2011, the Group sold its interest in TransACT Communications Pty Limited. Proceeds received from this sale were $2,785,000, resulting in a loss on sale of $345,000. (iii) uNLISTED ShaRES aT faIR vaLuE The fair value of the unquoted available-for-sale investments has been estimated using valuation techniques based on assumptions, which are outlined in Note 2(F), that are not supported by observable market information. Management believes the estimated fair value resulting from the valuation techniques and recorded in the statement of financial position and the related changes in fair value recorded in other comprehensive income are reasonable and the most appropriate at the reporting date. A reconciliation of the movement during the year is as follows: Investments at fair value: Opening balance Additions – as consideration received on business disposal Closing balance CONSOLIDaTED 2012 $’000 2011 $’000 2,001 – 2,001 – 2,001 2,001 (iv) vaLuaTION SENSITIvITy Management has estimated the potential effect of using reasonably possible alternatives as inputs to the valuation and has quantified this as a reduction in fair value of approximately $438,000 using less favourable assumptions and an increase in fair value of approximately $837,000 using more favourable assumptions, i.e. change in Enterprise Value (EV) / EBITDA multiples of 0.5 in either direction. ImpaIRmENT ON avaILaBLE-fOR-SaLE fINaNCIaL INvESTmENTS For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. Refer to Note 2(L) for of objective evidence. 64 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 15 pROpERTy, pLaNT aND EquIpmENT CONSOLIDaTED 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 Land and 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 2012 $’000 916 197 1,113 2,049 (1,209) 840 10,286 (3,308) 6,978 2,112 (596) 1,516 10,447 3,954 (1,884) 2,070 139,252 (105,304) 33,948 4,907 (1,411) 3,496 71 (46) 25 2011 $’000 916 197 1,113 2,049 (1,159) 890 10,286 (3,051) 7,235 2,112 (542) 1,570 10,808 3,877 (1,584) 2,293 133,177 (98,878) 34,299 4,935 (1,102) 3,833 61 (36) 25 49,986 51,258 (i) 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 located in Sydney, which are held under a 99 year lease. Prime media GrouP AnnuAl RepoRt 2012 65 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 15 pROpERTy, pLaNT aND EquIpmENT (CONTINUED) (a) RECONCILIaTIONS Reconciliations of the carrying amounts of property, plant and equipment at the beginning and end of the current financial year. CONSOLIDaTED 2012 $’000 916 – 916 197 1,113 2,460 – (104) 2,356 7,235 – (257) 6,978 9,334 2,293 71 7 (1) (300) 2,070 34,299 7,885 (7) (94) (8,135) 33,948 3,833 – (10) (327) 3,496 37,444 25 10 – (10) 25 2011 $’000 1,147 (231) 916 197 1,113 3,282 (710) (112) 2,460 7,352 140 (257) 7,235 9,695 2,272 296 5 (11) (269) 2,293 34,699 7,101 (81) (1,054) (6,366) 34,299 3,590 645 (98) (304) 3,833 38,132 31 9 (9) (6) 25 freehold land Carrying amount at beginning Disposals Leasehold land Buildings on freehold land Carrying amount at beginning Disposals Depreciation expense Buildings on leasehold land Carrying amount at beginning Additions Depreciation expense Total Buildings Leasehold improvements Carrying amount at beginning Additions Classification transfer Disposals Depreciation expense plant and equipment Carrying amount at beginning Additions Classification transfer Disposals Depreciation expense plant and equipment under lease Carrying amount at beginning Additions Disposals Amortisation expense Total plant and equipment motor vehicles Carrying amount at beginning Additions Disposals Depreciation expense (B) aSSETS pLEDGED aS SECuRITy All plant and equipment under lease is pledged as security for the associated lease liabilities. 66 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 16 GOODwILL aND INTaNGIBLE aSSETS program Rights – at cost Less Accumulated amortisation Total program Rights Goodwill – at cost Less Accumulated impairment losses Total Goodwill Broadcast Licences and associated Rights – at cost Less Accumulated impairment losses Total Broadcast Licences and associated Rights Infrastructure access Licence – at cost Less Accumulated amortisation Total Infrastructure access Licence Business Software and Development Costs – at cost Less Accumulated amortisation Total Business Software and Development Costs Website Development Costs – at cost Less Accumulated amortisation Total website Development Costs Total written down amount RECONCILIaTIONS Goodwill on acquisition Carrying amount at beginning Impairment expense Broadcast licences Carrying amount at beginning Impairment expense program Rights Carrying amount at beginning Amortisation expense Infrastructure access Licence Carrying amount at beginning Additions Amortisation expense Business Software and Development Costs Carrying amount at beginning Additions Amortisation expense web Site Development Costs Carrying amount at beginning Additions Classification transfer Amortisation expense Disposals CONSOLIDaTED 2012 $’000 4,000 (2,800) 1,200 18,530 (15,048) 3,482 250,100 (35,431) 214,669 2,941 (314) 2,627 13,684 (8,643) 5,041 550 (154) 396 2011 $’000 10,500 (8,684) 1,816 18,530 (14,873) 3,657 250,100 (30,290) 219,810 1,232 – 1,232 10,550 (7,473) 3,077 171 (144) 27 227,415 229,619 3,657 (175) 3,482 219,810 (5,141) 214,669 1,816 (616) 1,200 1,232 1,709 (314) 2,627 3,077 3,133 (1,169) 5,041 27 550 – (157) (24) 396 3,657 – 3,657 219,810 – 219,810 2,649 (833) 1,816 – 1,232 – 1,232 3,768 2,180 (2,871) 3,077 – – 79 (32) (20) 27 227,415 229,619 Prime media GrouP AnnuAl RepoRt 2012 67 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 16 GOODwILL aND INTaNGIBLE aSSETS (CONTINUED) (a) DESCRIpTION Of ThE GROup’S INTaNGIBLE aSSETS aND GOODwILL (i) BROaDCaST LICENCES Television and Radio broadcast licences have been acquired through business combinations and consist of the right to broadcast television and radio services to specific market areas. The licences are carried at cost less accumulated impairment losses. The licences are subject to renewal by broadcasting authorities in Australia at no significant cost to the Company. The directors have no reason to believe the licences will not be renewed at the end of their current legal terms. (ii) pROGRam RIGhTS Program Rights represent the purchased rights to broadcast certain programs at some time in the future. These program rights are amortised to the profit 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 cost 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 (refer to section (B) of this Note). INfRaSTRuCTuRE aCCESS LICENCE (iv) Infrastructure access licenses represent licences acquired to use transmission facilities for periods up to 10 years. The licences are amortised to the profit and loss over the term of the licence. (v) BuSINESS SOfTwaRE aND DEvELOpmENT COSTS Business software and development costs represent the cost to implement a new television sales and traffic software system. Amortisation of the asset begins when the development is complete and the asset is available for use. It will be amortised over the period of the expected future benefit. The carrying value of the rights is cost less accumulated amortisation and impairment losses. (vi) wEB SITE DEvELOpmENT COSTS Website development costs represent the costs to integrate the PRIME7 and GWN7 broadcast footprint to deliver localised content online and are being amortised over a three year period ImpaIRmENT TESTING Of GOODwILL aND INTaNGIBLE aSSETS wITh INDEfINITE LIvES (B) Broadcast licences acquired through business combinations have been allocated to the following cash-generating units for impairment testing as follows: • Television 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: • Television broadcasting unit; and • Radio broadcasting unit. TELEvISION BROaDCaSTING uNIT (i) On an annual basis management undertakes an assessment of the carrying value of its television broadcasting unit’s 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 calculation using cashflow projections as at 30 June 2012 based on financial budgets approved by management covering a 5 year period. The long term forecasts are generated using a terminal growth rate of 4% (2011: 4.0%). The discount rate applied to the cash flow projections is 10.4% (2011: 11.8%). The discounted cash flows (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 broadcast licences. The most recent valuation was undertaken in September 2010. This valuation supported the carrying values of the television unit’s intangible assets. (ii) RaDIO BROaDCaSTING uNIT On an annual basis management undertakes an assessment of the carrying value of its radio broadcasting unit’s intangible assets, which consist of both radio broadcast licences and goodwill, to test for impairment. On an annual basis management undertakes a value in use calculation using cash flow projections as at 30 June based on financial budgets approved by management covering a 5 year period. The long term forecasts are generated using a terminal growth rate of 3.5% (2011: 4.0%). The discount rate applied to the cash flow projections is 11.1% (2011: 11.8%). 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 radio broadcast licences. The most recent valuation was undertaken in September 2010. This valuation supported the carrying values of the radio unit’s intangible assets. 68 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 Carrying amount of Intangibles allocated to each of the cash generating units Television Broadcasting Licences Radio Broadcasting Licences Broadcast Licences Radio broadcasting Television broadcasting Goodwill on acquisition CONSOLIDaTED 2012 $’000 2011 $’000 182,963 31,706 214,669 – 3,482 3,482 182,963 36,847 219,810 175 3,482 3,657 The impairment charge of $5,316,000 was allocated against Goodwill to reduce the carrying amount to nil, and the balance applied to the carrying value of the Radio Broadcasting Licences. (C) KEy aSSumpTIONS uSED IN vaLuE IN uSE CaLCuLaTIONS The calculation of value in use for both the television and radio broadcasting licences are most sensitive to the following assumptions: • Discount rates; and • Growth rate used to extrapolate cash flows. Discount rates – Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and each operating segment and is derived from the weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the interest bearing borrowings the Group is obliged to service. Segment-specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available market data. Growth rate estimates – Rates are based on published industry research, which is obtained on a regular basis throughout the reporting period. (D) SENSITIvITy Of aSSumpTIONS Television and radio broadcasting are largely fixed cost businesses, so variations in the financial performance are driven by changes in revenue. 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 is closely regulated in Australia and as such new competitors can only enter the market on issue of new licences by the national government after extensive reviews. The economic conditions are monitored closely for indicators that could influence the overall level of advertising spending to change significantly. The most significant area of risk for the economic entity and its cash generating units are those that affect the broadcasting industry as a whole. These risks are monitored closely by management. TELEvISION BROaDCaSTING (i) For the television broadcasting CGU, the current recoverable value exceeds its current carrying value by more than $250,000,000. There are no key assumptions that could reasonably vary and result in recoverable amounts below carrying value. (ii) RaDIO BROaDCaSTING For the radio broadcasting CGU, the current recoverable value approximates carrying value. The valuation of the radio broadcasting is sensitive to any negative movements of the assumptions used in this valuation. Any negative movements in the assumption are likely to give rise to impairment charges. A review of the carrying value of the radio broadcast assets resulted in an impairment charge of $5,316,000 in the current reporting period (2011: Nil). Management has estimated the potential effect of using reasonably possible alternatives as inputs to the valuation and has quantified this as a reduction in the carrying amount of approximately $2,263,000 using less favourable assumptions and an increase in the carrying amount of approximately $2,581,000 using more favourable assumptions i.e. change in the discount rate applied to cash flow projections of 0.5% in either direction. Prime media GrouP AnnuAl RepoRt 2012 69 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 17 TRaDE aND OThER payaBLES CuRRENT Trade payables(i) Accrued expenses Accrued employee leave entitlements (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. 18 INTEREST-BEaRING LOaNS aND BORROwINGS CONSOLIDaTED 2012 $’000 2011 $’000 23,313 32,862 5,209 61,384 19,995 32,512 5,077 57,584 CuRRENT Obligations under finance lease contracts (Note 23(E)) NON-CuRRENT Obligations under finance lease contracts (Note 23(E)) $200 million secured bank loan (2011: $260 million) TERmS aND CONDITIONS maTuRITy 2013 2014 – 2021 2015 CONSOLIDaTED 2012 $’000 2011 $’000 1,629 1,629 1,170 122,726 123,896 627 627 2,799 150,024 152,823 BaNK LOaN faCILITy On 28 October 2011 the Company executed a $200 million bank loan facility with a term of 4 years, repayable in full on expiry. The facility is secured by a charge over the assets of the borrower group comprising all wholly owned entities in Australia and New Zealand, but excluding Broadcast Production Services Pty Limited and its subsidiaries. Interest is charged at a rate of BBSY plus a margin of between 1.70% and 2.60%. (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 flows at prevailing market interest rates varying from 5.5% to 6.5% (2011: 5.5% to 8.0%), depending on the type of borrowing. The parent entity and certain controlled entities have potential financial liabilities which may arise from certain contingencies disclosed in Note 24. However the directors do not expect those potential financial liabilities to crystallise into obligations and therefore financial 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. (B) INTEREST RaTE, fOREIGN EXChaNGE aND LIquIDITy RISK 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. 70 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 19 pROvISIONS CuRRENT Redundancy provision Directors’ retiring provision Onerous contracts Provision for losses on associates Provision for asset decommissioning NON-CuRRENT Long service leave CONSOLIDaTED 2012 $’000 2011 $’000 417 206 372 1,080 492 2,567 481 481 603 196 1,249 207 – 2,255 434 434 (a) mOvEmENTS IN pROvISIONS Movements in each class of provisions during the financial year are set out below: At 1 July 2011 Arising during the year Utilised Discount Rate Adjustment at 30 June 2012 Current 2012 Non-current 2012 Current 2011 Non-current 2011 REDuNDaNCy pROvISION $’000 DIRECTORS RETIRING pROvISION $’000 ONEROuS CONTRaCTS $’000 pROvISION fOR LOSSES ON aSSOCIaTES $’000 pROvISION fOR aSSET DECOm- mISSIONING $’000 LONG SERvICE LEavE $’000 TOTaL $’000 603 417 (603) – 417 417 – 417 603 – 603 196 10 – – 206 206 – 206 196 – 196 1,249 – (877) – 372 372 – 372 1,249 – 1,249 207 873 – – 1080 1080 – 1080 207 – 207 – 637 (145) – 492 492 – 492 – – – 434 47 – – 481 – 481 481 – 434 434 2,689 1,984 (1,625) – 3,048 2,567 481 3,048 2,255 434 2,689 (B) NaTuRE aND TImING Of ThE pROvISIONS REDuNDaNCy pROvISION (i) The Group has recognised a provision for redundancy in relation to restructuring within the Television operations. The majority of this provision balance at 30 June 2012 was settled in July 2012. (ii) DIRECTOR’S RETIRING pROvISION Refer to Remuneration Report. The Directors’ Retiring provision was approved by shareholders in November 1997. (iii) ONEROuS CONTRaCTS pROvISION Upon acquisition of Prime Digital Media Pty Limited management identified numerous unavoidable contractual obligations where the value of the obligation exceeded the likely economic benefit that will arise from these obligations. As a result management raised a provision for the losses expected under these contracts. As at 30 June 2011 the Group had exited the Prime Digital Media business. The balance of the provision is expected to be settled within 12 months of the reporting date. (iv) pROvISION fOR LOaN TO aSSOCIaTE Under the shareholders agreement for Mildura Digital Television Pty Limited the shareholders are required to provide funding to meet the losses of the company in proportion to their shareholding. The balance of the provision represents funding owed by the Group to Mildura Digital Television Pty Limited as at 30 June 2012. pROvISION fOR aSSET DECOmmISSIONING (v) The Group has recognised a provision for decommissioning costs for the removal of analogue transmission equipment. (vi) LONG SERvICE LEavE Refer to Note 2(Q) for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of this provision. Prime media GrouP AnnuAl RepoRt 2012 71 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 20 CONTRIBuTED EquITy ISSuED aND paID up CapITaL (a) Ordinary shares fully paid 366,330,303 shares (2011: 366,330,303 shares) (B) mOvEmENTS IN ShaRES ON ISSuE Ordinary Beginning of the financial year Issued during the year CONSOLIDaTED 2012 $’000 2011 $’000 310,262 310,262 2012 2011 NumBER Of ShaRES $’000 NumBER Of ShaRES $’000 366,330,303 310,262 366,330,303 310,262 – shares issued as consideration for equity settled transaction – – – – End of the financial year 366,330,303 310,262 366,330,303 310,262 (C) EquITy SETTLED ShaRE BaSED paymENTS Options over ordinary shares: EmpLOyEE ShaRE SChEmE During the financial year 1,258,000 performance rights (2011: Nil options) were issued over ordinary shares. During the financial year nil performance rights (2011: 1,750,000 options) lapsed, nil performance rights (2011: Nil options) were forfeited and nil performance rights (2011: 3,500,000 options) were cancelled by the Company. At the end of the year there were 1,258,000 (2011: Nil) un-issued ordinary shares in respect of which performance rights were outstanding. (D) TERmS aND CONDITIONS Of CONTRIBuTED EquITy ORDINaRy ShaRES Holders of 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. (E) CapITaL maNaGEmENT Capital includes equity attributable to the equity holders of the parent. The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios to support its business and maximise shareholder value. The Group manages its capital structure and has regard for changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares or sell assets to reduce debt. During 2012, the Company paid dividends of $20,881,000 (2011: $12,822,000). The Board’s target for dividend payments is 75% of core earnings per share. The Board reviews the dividend target as necessary. 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 an ongoing basis are: Shareholder funds (Net Assets)(1) Net Debt to EBITDA Interest Cover to EBITDA TaRGET aT BaLaNCE DaTE > $135,000,000 $249,502,000 < 3.5 > 3.0 1.7 6.9 (1) Shareholder Funds have been adjusted to reflect the value of the Licences, as set out in the most recent independent valuation obtained September 2010. 72 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 21 RETaINED EaRNINGS aND RESERvES General reserve Employee benefits equity reserve Accumulated losses (a) fOREIGN CuRRENCy TRaNSLaTION (i) NaTuRE aND puRpOSE Of RESERvE The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign controlled operations. (ii) mOvEmENTS IN RESERvE Balance at beginning of year Transfer of foreign currency translation reserve relating to assets held for resale to the statement of comprehensive income 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 benefits equity reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Refer to Note 26 for further details of these plans. (ii) mOvEmENTS IN RESERvE Balance at beginning of year Share Based Payment Balance at end of year (C) GENERaL RESERvE (i) NaTuRE aND puRpOSE Of RESERvE This reserve account reflects the value of acquired non-controlling interests in controlled entities after the initial control transaction has occurred. (ii) mOvEmENTS IN RESERvE Balance at beginning of year Acquisition of non-controlling interest in controlled entities Balance at end of year (aCCumuLaTED LOSSES)/RETaINED pROfITS (D) Balance at the beginning of year Net profit/(loss) attributable to members of Prime Media Group Limited Total accumulated losses Dividends provided for or paid Balance at end of year CONSOLIDaTED 2012 $’000 (2,787) 2,822 35 2011 $’000 (2,787) 2,709 (78) (150,270) (157,071) – – – – (794) 995 (201) – 2,709 113 2,822 2,044 665 2,709 (2,787) – (2,787) (157,071) 27,682 (129,389) (20,881) (150,270) (2,787) – (2,787) (171,415) 27,166 (144,249) (12,822) (157,071) Prime media GrouP AnnuAl RepoRt 2012 73 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 22 DERIvaTIvES Current Liabilities Interest rate swap contracts CONSOLIDaTED 2012 $’000 2011 $’000 573 1,687 (a) INSTRumENTS uSED By ThE GROup INTEREST RaTE Swap aGREEmENTS At balance date, the Company had interest rate swap agreements with a notional amount of $95 million, (2011: $95 million) on which it pays a fixed rate of 6.38% or 6.39% and receives a floating rate of the Bank Bill Swap Rate. The interest rate swap instruments are used to protect part of the Borrowings from exposure to floating interest rates. The swaps in place cover 77% (2011: 63%) of the borrowings outstanding at balance date. Swap agreements expired in August 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 profit and loss. INTEREST RaTE RISK (B) Information regarding interest rate risk exposure is set out in Note 3. (C) CREDIT RISK Credit risk arises from the potential failure of counterparties to meet their obligations at maturity of contracts. This arises on derivative financial instruments with unrealised gains. Management has arranged to share counterparty risks of contracts across creditworthy third parties. 23 EXpENDITuRE COmmITmENTS (a) CapITaL EXpENDITuRE COmmITmENTS Estimated capital expenditure contracted for at reporting date, but not provided for, payable: – not later than one year 3,619 8,242 Included in the above disclosed capital commitments at 30 June 2012 is approximately $1 million (2011: Approximately $6 million) in expenditure relating to the roll out of digital transmission in Western Australia. The Company is entitled to claim government grant income to fund 50% of this expenditure up to a pre-determined cap. The amounts disclosed above are the gross amounts before taking into consideration this government funding. CONSOLIDaTED 2012 $’000 2011 $’000 (B) LEaSE EXpENDITuRE COmmITmENTS Operating leases (Continuing Operations Group as lessee): minimum lease payments – not later than one year – later than one year and not later than five years – later than five years Aggregate lease income contracted for at reporting date Operating leases have an average lease term of 3 years for Motor Vehicles, 3 year (+ 3 year options) for building leases, and 5-15 years for transmission site access agreements. Motor Vehicle leases are fixed monthly rentals for the term of the lease. Building leases are generally fixed 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. (C) LEaSE EXpENDITuRE COmmITmENTS Certain assets owned or under operating leases with excess capacity have been sub-let to third parties. These non-cancellable leases have remaining terms of between 1 to 15 years. All leases include clauses to enable upward revision of the rental charges on an annual basis according to increases in the Consumer Price Index. Operating leases (non-cancellable Group as lessor): Minimum lease payments receivable – not later than one year – later than one year and not later than five years – later than five years Aggregate lease income contracted for at reporting date 74 8,118 20,377 13,429 41,924 8,524 21,157 13,724 43,405 1,611 3,468 793 5,872 1,340 2,773 767 4,880 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 (D) OThER COmmITmENTS COvERING ThE RENTaL Of TEChNICaL EquIpmENT uNDER a LONG TERm aGREEmENT The technical communications equipment that is fundamental to the distribution of the Group TV programming and data communications are leased through long term operating leases between 7 and 15 years. – not later than one year – later than one year and not later than five years – later than five years (E) fINaNCE LEaSE COmmITmENTS: – not later than one year – later than one year and not later than five years – later than five years Total minimum lease payments – future finance charges Lease Liability – current liability – non-current liability (f) fINaNCE LEaSE COmmITmENTS aT pRESENT vaLuE: – not later than one year – later than one year and not later than five years – later than five years Present value of minimum lease payments CONSOLIDaTED 2012 $’000 2011 $’000 7,113 16,716 – 23,829 1,820 1,384 – 3,204 (405) 2,799 1,629 1,170 2,799 1,720 1,079 – 2,799 6,048 24,194 1,529 31,771 897 2,785 420 4,102 (676) 3,426 627 2,799 3,426 857 2,302 267 3,426 Prime media GrouP AnnuAl RepoRt 2012 75 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 24 CONTINGENT LIaBILITIES aND CONTINGENT aSSETS 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. LITIGaTION In 2005 a group member, Wastar International Pty limited (“WI”), entered into an agreement with Marigold Production (Canada) Inc (“MPCI”) under which WI was granted the North American distribution rights to a film under an arrangement which provided for a minimum guaranteed distribution fee of US$2 million payable by WI to MPCI, subject to certain contractual conditions being met. WI did not believe those contractual conditions were met and therefore did not make payment on receipt of a demand for payment. The directors do not believe the liability exists. There has been no further action concerning this unresolved matter over the last 4 years. Liabilities not recognised in the balance sheet GuaRaNTEES The Group has issued the following guarantee at 30 June 2012: CONSOLIDaTED 2012 $’000 2,038 2,038 2011 $’000 1,862 1,862 a) It has guaranteed to an unrelated third party the payment of a contractual commitment of WA SatCo Pty Limited, an associate company in which the Group holds 50% of the share capital. WA SatCo Pty Limited has entered into a non-cancellable contract for the purchase of satellite services in WA for a period of 8 years until 30 June 2020 at the rate of $2,346,192 per annum. In the event that WA SatCo Pty Limited defaults on any payments under this contract, the Group may be liable for full payment under the guarantee it has provided. WA Sat Co Pty Limited has simultaneously entered into an agreement with the Commonwealth Government which provides for 100% funding of this satellite service for a period of 9 years until 30 June 2020. This agreement can be terminated without notice by the Commonwealth Government. Maximum potential contingent commitment arising from the above mentioned guarantee: – Not later than one year – Later than one year and not later than five years – Later than five years Maximum contingent commitments CONSOLIDaTED 2012 $’000 2011 $’000 2,346 9,384 7,038 18,768 2,346 9,384 9,384 21,114 As noted above this entire amount in maximum potential contingent commitment is offset in entirety by government funding. 25 EmpLOyEE BENEfITS aND SupERaNNuaTION COmmITmENTS EmpLOyEE BENEfITS The aggregate employee benefit liability is comprised of: Accrued annual leave and long service leave (current) Accrued long service leave (non-current) NOTES 17 19 CONSOLIDaTED 2012 $’000 2011 $’000 5,209 481 5,690 5,077 434 5,511 SupERaNNuaTION BENEfITS A superannuation plan has been established by the economic entity for the provision of benefits to Australian employees of the economic entity on retirement, death or disability. Benefits 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 benefits 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. 76 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 26 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 2012 $’000 113 2011 $’000 665 The share-based payment plan is described below. During the financial year, nil performance rights (2011: 1,750,000 options) lapsed, nil performance rights (2011: Nil) were forfeited and nil performance rights (2011: 3,500,000 options) were cancelled. (B) TypES Of ShaRE-BaSED paymENT pLaNS pRImE mEDIa pERfORmaNCE RIGhTS As at 30 June 2011, all 3,500,000 options outstanding under the Employee Share Option Scheme (ESOS) were cancelled. The Remuneration and Nomination Committee reviewed the long-term incentive plan and, on recommendation from an external remuneration consultant CRA, introduced a new Performance Rights Plan in the 2012 financial year. The performance rights are available over a 36 month vesting period subject to continuing service and achieving the following targets: • 60% of the rights will be subject to achievement of annual core earnings per share (EPS) targets; and • 40% of the rights will be subject to achievement of annual power ratio targets (revenue share: audience share). The exercise price of the performance rights is nil. The rights will lapse 30 days after vesting date. (C) SummaRIES Of RIGhTS GRaNTED uNDER pRImE mEDIa pERfORmaNCE RIGhTS aND OpTION pLaN The following table outlines the number (no.) and weighted average exercise price (WAEP) of, and movements in, share options on issue during the year. Balance at beginning of year – granted – exercised – lapsed – cancelled – forfeited Balance at end of year Exercisable at end of year 2012 2011 waEp NO. waEp – 5,250,000 $0.90 NO. – 1,258,000 $0.00 – – – – – – – – 1,258,000 – $0.00 – – – (1,750,000) (3,500,000) – – – – – $0.90 $0.90 – – – (D) pERfORmaNCE RIGhTS pRICING mODEL pRImE mEDIa pERfORmaNCE RIGhTS Employees must remain in service for period of three years from date of grant. The fair value of share options granted is estimated at the date of the grant using a Monte-Carlo simulation model, taking into account the terms and conditions upon which the share options were granted. The fair value of performance rights granted during the year were estimated on the date of grant using the following inputs to the model: Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of options (years) Option exercise price ($) Weighted average share price at measurement date ($) 2012 SEpTEmBER 2011 NOvEmBER 2011 6.33 26.57 3.62 3 $0.00 $0.66 6.33 27.24 3.05 3 $0.00 $0.66 The dividend yield reflects the assumption that the current dividend payout will continue. The expected life of the performance rights is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. Prime media GrouP AnnuAl RepoRt 2012 77 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 26 ShaRE BaSED paymENT pLaNS (CONTINUED) (E) wEIGhTED avERaGE REmaINING CONTRaCTuaL LIfE The weighted average contractual life of performance rights outstanding as at 30 June 2012 is 3 years (2011: Nil years). (f) RaNGE Of EXERCISE pRICE The range of exercise price for performance rights outstanding at the end of the year was $0.00 (2011: Nil). (G) wEIGhTED avERaGE fOR vaLuE The weighted average fair value of performance rights granted during the year was $0.55 (2011: Nil). 27 EvENTS afTER ThE BaLaNCE ShEET DaTE There have been no significant events subsequent to balance date. 28 auDITOR’S REmuNERaTION Amounts received or due and receivable by Ernst & Young Australia for: – an audit or review of the financial 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 related practices of Ernst & Young (Australia) for: – Taxation services provided by Ernst & Young New Zealand – other services provided by Ernst & Young New Zealand CONSOLIDaTED 2012 $’000 2011 $’000 268,500 100,298 368,798 8,142 34,291 42,433 411,231 280,000 101,760 381,760 1,683 10,125 11,808 393,568 78 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 29 RELaTED paRTy DISCLOSuRES (a) SuBSIDIaRIES The consolidated financial statements include the financial statements of Prime Media Group Limited and the subsidiaries listed in the following table: 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 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 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 Affiliate 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 Pty Limited Production Strategies Pty Limited as trustee for Production Strategies Discretionary Trust Wastar International Pty Ltd Screenworld Pty Ltd OSB Holdings Pty Ltd as trustee for the OSB Unit Trust On Site Broadcasting Pty Limited OSB Australia Pty Ltd 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 COuNTRy Of INCORpORaTION EquITy INTEREST 2012 % 2011 % 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 Australia Australia Australia Australia Australia Australia Australia Australia Singapore Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Australia Australia Australia Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Prime media GrouP AnnuAl RepoRt 2012 79 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 29 RELaTED paRTy DISCLOSuRES (CONTINUED) (B) uLTImaTE paRENT Prime Media Group Limited is the ultimate Australian entity and the ultimate parent entity of the Group. (C) KEy maNaGEmENT pERSONNEL (Kmp) Details relating to KMP, including remuneration paid, are included in the Remuneration Report and Note 30. (D) TRaNSaCTIONS wITh RELaTED paRTIES whOLLy OwNED GROup TRaNSaCTIONS Sales and purchases are made within the wholly owned group in arm’s length transactions both at normal market prices and on normal commercial terms. Outstanding balances at year end are unsecured, interest free and settled through intercompany accounts. REGIONaL BROaDCaSTING auSTRaLIa LImITED This company is owned by regional television operators to represent the interest of its shareholders to government, industry groups and major advertisers. The company operates on a not-for-profit basis and Prime Media Group contributes funding to the company on a cost recovery basis in line with its relative shareholding. RBa hOLDINGS pTy LImITED This company is owned by regional television operators. This company operates as a provider of transmission facilities under the Digital Black Spots Infill licence. The Company has entered into agreements under normal commercial terms and conditions with this company to use these transmission facilities for periods up to 10 years. REGIONaL Tam pTy LImITED This company is owned by regional television operators to facilitate and manage the audience metering services for the regional television markets. The Company is party to a commercial agreement in which it purchases ratings services from Regional TAM Pty Limited. This agreement is under normal commercial terms and conditions. wa SaTCO pTy LImITED WA SatCo Pty Limited is owned by the Company and WIN Television Pty Limited and has been engaged by the Commonwealth Government to provide the WA Vast Service for a period of 20 years. The shareholders of the company provide services to WA SatCo to enable its operations. These services are recovered from WA SatCo on a cost recovery basis. BROaDCaST TRaNSmISSION SERvICES pTy LImITED (BTS) The Company has a 33% shareholding in BTS. BTS provides transmission maintenance, site installation and management services to regional broadcasters and other third party customers. The Company entered into a contract with BTS for the provision of site maintenance services over a 10 year period at an annual cost of $1,200,000 per annum under normal commercial terms and conditions. ChaNNEL SEvEN quEENSLaND pTy LImITED The Company provides sales representation services to Seven Queensland Pty Limited, an entity associated with one of the Company’s major shareholders. The fees payable by Seven Queensland Pty Limited are based on normal commercial terms and conditions applicable to this type of service. 80 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 30 KEy maNaGEmENT pERSONNEL (a) DETaILS Of KEy maNaGEmENT pERSONNEL (i) DIRECTORS P.J. Ramsay AO M.S. Siddle P.J. Evans FCA A.A. Hamill I.P. Grier AM I.R. Neal S.L. McKenna I.C. Audsley (ii) EXECuTIvES D. Walker S. Wood E. McDonald G. Smith L. Kennedy D. Edwards Chairman (non-executive) Deputy Chairman (non-executive) Director (non-executive) Director (non-executive) Director (non-executive) Director (non-executive) Director (non-executive) – (resigned 29 March 2012) Director (Chief Executive Officer) Group General Manager Sales and Marketing Group General Manager Operations General Counsel (appointed 19 September 2011) and Company Secretary (appointed 27 February 2012) Chief Technology Officer Chief Financial Officer (departed 31 July 2012) Chief Executive Officer – Television (departed 31 July 2012) There were no other changes to KMP after the reporting date and before the date the financial report was authorised for issue (B) COmpENSaTION Of KEy maNaGEmENT pERSONNEL Short term employee benefits Post-employment benefits Long Term Benefits Termination benefits Share based payments CONSOLIDaTED 2012 $’000 4,281 127 573 387 116 2011 $’000 3,704 113 351 713 369 5,484 5,250 Details of remuneration amounts paid to individual KMP are disclosed in tables 1 and 2 of section 4 of the Remuneration Report. Prime media GrouP AnnuAl RepoRt 2012 81 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 30 KEy maNaGEmENT pERSONNEL (CONTINUED) (C) EquITy SETTLED ShaRE BaSED paymENTS Of KEy maNaGEmENT pERSONNEL 2012 Directors Ian Audsley Other Executives Lesley Kennedy Shane Wood Dave Walker 2011 Directors Ian Audsley BaLaNCE aT BEGINNING Of pERIOD 1 JuLy 2011 GRaNTED aS REmuNERaTION pERfORmaNCE RIGhTS EXERCISED NET ChaNGE OThER BaLaNCE aT END Of pERIOD 30 JuNE 2012 TOTaL NOT EXERCISaBLE EXERCISaBLE vESTED aT 30 JuNE 2012 – – – – – 615,000 292,000 167,000 184,000 1,258,000 – – – – – – – – – – 615,000 615,000 292,000 167,000 184,000 292,000 167,000 184,000 1,258,000 1,258,000 – – – – – – – – – – vESTED aT 30 JuNE 2011 BaLaNCE aT BEGINNING Of pERIOD 1 JuLy 2010 GRaNTED aS REmuNERaTION OpTIONS EXERCISED NET ChaNGE OThER BaLaNCE aT END Of pERIOD 30 JuNE 2011 TOTaL NOT EXERCISaBLE EXERCISaBLE 5,250,000 5,250,000 – – – – (5,250,000) (5,250,000) – – – – – – – (D) ShaREhOLDINGS Of KEy maNaGEmENT pERSONNEL Shares held in Prime Media Group Limited (number) 30 JuNE 2012 Directors P.J.Ramsay AO M.S.Siddle P.J.Evans FCA Executives D.Edwards Total 30 JuNE 2011 Directors P.J.Ramsay AO M.S.Siddle P.J.Evans FCA Executives D.Edwards R.Gamble(1) P.Stubbings(2) Total OpENING BaLaNCE ORD. GRaNTED aS REmuNERaTION ORD. ON EXERCISE Of OpTIONS ORD. NET ChaNGE OThER ORD. CLOSING BaLaNCE ORD. 109,903,654 984,082 24,286 56,572 110,968,594 107,993,654 984,082 24,286 48,572 199,588 43,073 109,293,255 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 109,903,654 984,082 24,286 56,572 110,968,594 1,910,000 109,903,654 – – 8,000 (199,588) (43,073) 984,082 24,286 56,572 – – 1,675,339 110,968,594 (1) Mr Gamble resigned from the Group on 5 November 2010. The net change noted in the above table is solely to reflect Mr Gamble’s departure. (2) Mr Stubbings resigned from the Group on 8 December 2010. The net change noted in the above table is solely to reflect Mr Stubbings’ departure. All equity transactions with specified directors and specified 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. 82 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 (E) LOaNS TO KEy maNaGEmENT pERSONNEL (i) DETaILS Of aGGREGaTES Of LOaNS TO SpECIfIED DIRECTORS aND SpECIfIED EXECuTIvES aRE aS fOLLOwS: BaLaNCE aT BEGINNING Of pERIOD $’000 INTEREST ChaRGED $’000 LOaN BaLaNCE waIvED $’000 LOaN REpaymENTS $’000 BaLaNCE aT END Of pERIOD $’000 INTEREST NOT ChaRGED $’000 NumBER IN GROup aT BaLaNCE DaTE 2012 2011 280 420 – – 140 140 – – 140 280 14 28 – 2 (ii) DETaILS Of KEy maNaGEmENT pERSONNEL wITh LOaNS IN ThE REpORTING pERIOD aRE aS fOLLOwS: BaLaNCE aT BEGINNING Of pERIOD $’000 INTEREST ChaRGED $’000 LOaN BaLaNCE waIvED $’000 LOaN REpaymENTS $’000 BaLaNCE aT END Of pERIOD $’000 INTEREST NOT ChaRGED $’000 hIGhEST LOaN BaLaNCE DuRING yEaR $’000 30 JuNE 2012 Executives D. Edwards G. Smith 30 JuNE 2011 Executives D. Edwards G. Smith 200 80 300 120 – – – – 100 40 100 40 – – – – 100 40 200 80 10 4 20 8 (a) 200 80 (a) 300 120 (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 5 year period the balance of the loan at the date of termination is repayable by the executive on the date of termination. 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 fringe benefits tax at the cost of the company. The executive loan scheme was wound up effective 1 July 2012 and a provision for the loan balance as at 30 June 2012 was raised. (f) OThER TRaNSaCTIONS aND BaLaNCES wITh KEy maNaGEmENT pERSONNEL aND RELaTED paRTIES There were no other transactions and balances with key management personnel other than those disclosed in this note during the year ended 30 June 2012. Prime media GrouP AnnuAl RepoRt 2012 83 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 31 paRENT ENTITy INfORmaTION INfORmaTION RELaTING TO pRImE mEDIa GROup LImITED Current assets Total assets Current liabilities Total liabilities Issued capital Retained earnings Employee benefits equity reserve Total shareholders’ equity Profit or loss of the parent entity Total comprehensive income of the parent entity pRImE mEDIa GROup LImITED 2012 $’000 2011 $’000 84 929,072 10,068 620,336 310,262 14,959 3,450 328,671 (9,883) (9,883) 106 910,339 5,763 580,938 310,262 15,805 3,334 329,401 (8,104) (8,104) GuaRaNTEES ENTERED INTO By pRImE mEDIa GROup LImITED IN RELaTION TO ThE DEBTS Of ITS SuBSIDIaRIES As a condition of the Class Order, Prime Media Group Limited and its 100% owned Australian resident subsidiaries (the “Closed” Group) entered into a Deed of Cross Guarantee on 17 October 2006. The effect of the deed is that Prime Media Group Limited has guaranteed to pay any deficiency in the event that a controlled entity within the Closed Group is wound up. The controlled entities within the Closed Group have also given a similar guarantee in the event that Prime Media Group Limited is wound up. (Refer Note 13). CONTINGENT LIaBILITIES Of pRImE mEDIa GROup LImITED By virtue of being a member of the Deed of Cross Guarantee mentioned above, the Company has guaranteed to pay any deficiency in the event of winding up Golden West Networks Pty Limited (GWN), a wholly owned subsidiary and party to the Deed of Cross Guarantee. GWN has guaranteed to an unrelated third party the payment of a contractual commitment on behalf of WA SatCo Pty Limited, an associate company in which GWN holds 50% of the share capital. WA SatCo Pty Limited has entered into a non-cancellable contract for the purchase of satellite services in WA for a period of 8 years until 30 June 2020 at the rate of $2,346,192 per annum. In the event that WA SatCo Pty Limited defaults on any payments under this contract, GWN may be liable for full payment under the guarantee it has provided. WA Sat Co Pty Limited has simultaneously entered into an agreement with the Commonwealth Government which provides for 100% funding of this satellite service for a period of 8 years until 30 June 2020. This agreement can be terminated without notice by the Commonwealth Government. CONTRaCTuaL COmmITmENTS fOR ThE aCquISITION By pRImE mEDIa GROup LImITED Of pROpERTy, pLaNT aND EquIpmENT The Company has no contractual commitments for the acquisition of property, plant and equipment (2011: nil). 84 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 32 OpERaTING SEGmENTS IDENTIfICaTION Of REpORTaBLE SEGmENTS The Group has identified its operating segments based on internal reports that are reviewed and used by the Board (the chief operating decision makers) in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on the manner in which the product is delivered, and the nature of services provided. Discrete financial information about each of these operating businesses is reported to the Board on at least a monthly basis. DESCRIpTION Of SEGmENTS CONTINuING OpERaTIONS television Broadcasting Television broadcasting comprises “free to air” television broadcasting through PRIME7 and the Golden West Network (GWN). The PRIME7 television broadcast signal services the regional locations of Northern and Southern New South Wales, Canberra, Victoria, and the Gold Coast area while regional Western Australia is serviced by the GWN7 television broadcast signal. The majority of revenue is sourced from television advertising in Australia. radio Broadcasting Radio broadcasting consists of 10 radio stations that operate within coastal Queensland stretching from the Sunshine Coast to Cairns. The major source of revenue is radio advertising. online Local websites, integrating with the PRIME7 and GWN7 broadcast footprint, to deliver localised content across the categories of news, weather, sport, TV shows, local jobs and community events. From 2013, this segment will be absorbed into the Television Broadcasting segment. corporate and other Includes administrative and financial support operations of the Group as a whole. These services are provided across the Group, mainly in its capacity as a public company, and are therefore not attributable to any of the operating units. These activities are reported separately to the Board. DISCONTINuING OpERaTIONS Broadcast production services Broadcast Production Services comprised outside broadcast facilities and services in Australia and New Zealand, as well as Moonlight outdoor cinemas. Each of these businesses was sold during the year ended 30 June 2011. prime Digital Media Prime Digital Media produced and delivered digital content via out-of-home digital display in major retail outlets. This business was exited 30 June 2011. The majority of revenue was sourced via the sale of visual advertising content and production of content. aCCOuNTING pOLICIES aND INTER-SEGmENT TRaNSaCTIONS The accounting policies used by the Group in reporting segments internally are the same as those contained in Note 2 to the accounts. Prime media GrouP AnnuAl RepoRt 2012 85 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 32 OpERaTING SEGmENTS (CONTINUED) yEaR ENDED 30 JuNE 2012 Segment Revenues External sales and customers Other income (excluding interest income) Total segment revenue Finance income Total revenue per the statement of comprehensive income Result EBITDA EBIT profit/(Loss) before income tax per the statement of comprehensive income Income tax (expense)/benefit Net profit / (Loss) after tax Non-controlling interests Net profit after tax attributable to members of prime media Group Limited yEaR ENDED 30 JuNE 2012 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 Share of associate losses TELEvISION BROaDCaSTING $’000 RaDIO BROaDCaSTING $’000 ONLINE $’000 TOTaL SEGmENTS $’000 uNaLLOCaTED $’000 TOTaL OpERaTIONS $’000 246,727 2,484 249,211 – 19,955 777 20,732 32 2,164 – 2,164 – 268,846 3,261 272,107 32 – 666 666 693 268,846 3,927 272,773 725 249,211 20,764 2,164 272,139 1,359 273,498 72,898 62,266 4,171 (1,515) (158) (341) 76,911 60,410 (9,523) (9,728) 61,996 (1,482) (341) 60,173 (19,251) 67,388 50,682 40,922 (13,240) 27,682 – 27,682 TELEvISION BROaDCaSTING $’000 RaDIO BROaDCaSTING $’000 ONLINE $’000 uNaLLOCaTED $’000 TOTaL OpERaTIONS $’000 308,150 – 308,150 40,343 – 40,343 11,998 752 (10,632) – (1,198) (370) (5,316) – 447 – 447 (200,765) 160,027 558 (183) – – 11,852 – 11,852 360,792 – 360,792 50 13,358 (205) – – (11,390) (5,316) (1,198) (1) Excludes inter-segment receivables and payables, and investments in subsidiaries. (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. 86 Notes to the FiNANciAL stAteMeNts For the YeAr eNDeD 30 JuNe 2012 CONTINuING OpERaTIONS DISCON- TINuING OpERaTIONS TELEvISION BROaD- CaSTING $’000 RaDIO BROaD- CaSTING $’000 ONLINE $’000 TOTaL CON- TINuING SEGmENTS $’000 uN- aLLOCaTED $’000 TOTaL CON- TINuING $’000 TOTaL DISCON- TINuING(1) $’000 TOTaL OpERaTIONS $’000 231,374 2,419 233,793 – 20,293 848 21,141 23 1,661 36 253,328 3,303 1,697 256,631 – 23 (144) 91 (53) 397 253,184 3,394 256,578 420 6,878 137 7,015 83 260,062 3,531 263,593 503 233,793 21,164 1,697 256,654 344 256,998 7,098 264,096 66,829 57,367 4,803 3,638 (881) (1,074) 70,751 59,931 (9,684) (9,886) 61,067 50,045 (959) (959) 60,108 49,086 57,054 3,645 (1,074) 59,625 (20,370) 39,255 (11,067) 28,188 (959) (63) (1,022) 38,296 (11,130) 27,166 – 27,166 yEaR ENDED 30 JuNE 2011 Segment Revenues External sales and customers Other income (excluding interest income) Total segment revenue Finance income Total revenue per the statement of comprehensive income Result EBITDA EBIT profit/(Loss) before income tax per the statement of comprehensive income Income tax (expense)/benefit Net profit / (Loss) after tax Non-controlling interests Net profit after tax attributable to members of prime media Group Limited (1) Discontinuing operations include Broadcast Production Services, On-Site Broadcasting, Moonlight Cinema, Prime Media Singapore and Prime Digital Media. yEaR ENDED 30 JuNE 2011 assets and liabilities Segment assets(2) Investments in associates Total assets Segment liabilities(2) Net assets Other segment information Capital expenditure(3) CONTINuING OpERaTIONS TELEvISION BROaD- CaSTING $’000 RaDIO BROaD- CaSTING $’000 ONLINE $’000 uN- aLLOCaTED $’000 TOTaL CON- TINuING $’000 DISCON- TINuING OpERaTIONS TOTaL DISCON- TINuING(1) $’000 TOTaL OpERaTIONS $’000 306,261 46,996 – – 306,261 46,996 425 – 425 17,917 371,599 – 17,917 – 371,599 (218,486) 153,113 10,305 170 3 1,099 11,577 – – – – – – – – 371,599 – 371,599 (218,486) 153,113 11,577 (11,023) (586) Depreciation and amortisation Share of associate losses (9,462) (586) (1,165) – (193) – (202) – (11,022) (586) (1) Discontinuing operations include Broadcast Production Services, On-Site Broadcasting, Moonlight Cinema, Prime Media Singapore and Prime Digital Media. (2) Excludes inter-segment receivables and payables, and investments in subsidiaries. (3) To comply with the requirements of AASB 114.57, the Group has included the cost of segment assets acquired by way of business combinations. RECONCILIaTION Of pROfIT Segment profit before tax (Continuing operations) Finance costs Administration expenses Loss from discontinued operations Group profit before tax CONSOLIDaTED 2012 $’000 2011 $’000 60,173 (9,523) (9,728) – 40,922 59,625 (10,484) (9,886) (959) 38,296 Prime media GrouP AnnuAl RepoRt 2012 87 Directors’ DecLArAtioN For the YeAr eNDeD 30 JuNe 2012 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 financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the year ended on that date; and (ii) complying with Accounting Standards and the Corporations Regulations 2001; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2b; (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and (d) as at the date of this declaration, there are reasonable grounds to believe the members of the Closed Group identified in Note 13 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee. (2) This declaration has been made after receiving the declarations required to be made to the Directors from the Chief Executive Officer and Chief Financial Officer in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2012. On behalf of the Board P. J. Evans Director Sydney, 26 September 2012 88 iNDepeNDeNt AuDit report For the YeAr eNDeD 30 JuNe 2012 Prime media GrouP AnnuAl RepoRt 2012 89 iNDepeNDeNt AuDit report For the YeAr eNDeD 30 JuNe 2012 90 AsX ADDitioNAL iNForMAtioN For the YeAr eNDeD 30 JuNe 2012 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 2012. (a) DISTRIBuTION Of EquITy SECuRITIES ORDINaRy ShaRES As at 21 September 2012, total number of fully paid up shares on issue is 366,330,303. 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 (B) TwENTy LaRGEST REGISTERED ShaREhOLDERS The names of the twenty largest registered holders of quoted shares at 21 September 2012 are: 1 Paul Ramsay Holdings Pty Limited 2 RBC Dexia Investor Services Australia Nominees Pty Limited 3 National Nominees Limited 4 Network Investment Holdings Pty Limited 5 HSBC Custody Nominees (Australia) Limited 6 Cogent Nominees Pty Limited 7 JP Morgan Nominees Australia Limited 8 Birketu Pty Limited 9 Citicorp Nominees Pty Limited 10 UBS Nominees Pty Limited 11 Mr George Walter Mooratoff 12 AMP Life Limited 13 Effie Holdings Pty Limited 14 HSBC Custody Nominees (Australia) Limited 15 Sandhurst Trustees Ltd 16 Paul Ramsay Foundation Pty Limited 17 RW & SJ Holdings Pty Limited ATF Barrabooka No 1 Trust 18 Mr Michael Siddle & Mrs Lee Siddle ATF Siddle Family 19 WIN Corporation Pty Limited 20 Equitas Nominees Pty Limited NumBER Of hOLDERS 477 460 167 239 56 1,399 351 LISTED ORDINaRy ShaRES NumBER Of ShaRES 108,318,159 76,966,057 41,831,050 41,701,955 16,655,304 12,791,155 10,802,745 7,878,500 6,660,847 5,048,510 5,000,000 2,938,216 2,750,000 1,906,459 1,885,857 1,585,285 1,133,942 983,572 900,000 756,514 pERCENTaGE Of ORDINaRy ShaRES 29.57 21.01 11.42 11.38 4.55 3.49 2.95 2.15 1.82 1.38 1.36 0.80 0.75 0.52 0.51 0.43 0.31 0.27 0.25 0.21 348,494,127 95.13 Prime media GrouP AnnuAl RepoRt 2012 91 AsX ADDitioNAL iNForMAtioN For the YeAr eNDeD 30 JuNe 2012 (C) SuBSTaNTIaL ShaREhOLDERS The names of substantial shareholders who have notified 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 Group Holdings Limited Ashblue Holdings Pty Limited and Mr Kerry Stokes North Aston Pty Limited, Wroxby Pty Limited, Australian Capital Equity Pty Limited, ACE Group entities and Mr Kerry Stokes Investors Mutual Limited Invesco Australia 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 109,903,444 51,684,046 41,701,955 41,701,955 pERCENTaGE Of ORDINaRy ShaRES 30.00% 14.11% 11.38%# 11.38%# 41,701,955 11.38%# 35,335,503 19,509,586 9.65% 5.33% 92 Designed and produced by ArmstrongQ – www.armstrongQ.com.au www.primemedia.com.au