P r i m e m e d i a G r o u P 2 0 1 4 A n n u A l R e p o R t 2 0 1 4 A n n u A l R e p oR t CONTENTS 1 ChairmaN ’S rE pOrT 2 ChiEf EXECUTiVE OffiCEr’S rEpOrT 4 DirECTOrS’ rEpOrT 19 COrpOraTE GOVErNaNCE ST aTEmENT 24 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 John Kenneth Hartigan Paul Joseph Ramsay AO Chairman Chairman Michael Stanley Siddle Deputy Chairman 15 May 2014 17 April 1985 17 April 1985 27 March 1991 2 October 2003 6 June 2008 6 June 2008 – 17 April 2014 – – – – – – – Chief Executive Officer 24 June 2010 27 February 2012 Peter John Evans FCA Alexander Andrew Hamill Ian Patrick Grier AM Ian Richard Neal Ian Craig Audsley Company Secretary Emma McDonald RegisteReD office 363 Antill Street Watson ACT 2602 (02) 6242 3700 shARe RegisteR Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Ph: 1300 554 474 Prime Media Group Limited shares are listed on the Australian Securities Exchange (Listing Code PRT). BAnk Australia and New Zealand Banking Group Limited (ANZ) 8/20 Martin Place Sydney NSW 2000 AuDitoRs Ernst & Young 680 George Street Sydney NSW 2000 CHAIRMAN’S REPORT On behalf of the directors of Prime Media Group I am pleased to present the Annual Report for the 2014 financial year. With the sale of Prime Radio in August 2013, Prime is now a pure play regional television broadcasting business and the focus on television has delivered steady audience and revenue growth, resulting in a positive financial performance, despite a difficult trading environment. The Board and management will, however, continue to work to ensure that regional, rural and remote communities across Australia have a voice at government level when regulatory and industry reforms are being discussed and debated. Group revenue from continuing operations grew 1.2% during the period, while television advertising revenue grew 2.3% in a near flat market; clearly demonstrating the preferred partnership status Prime has with regional television advertisers. Through its membership of Free TV, Prime contributed to numerous industry submissions and it was pleasing to see that the ACMA’s regional television local content investigation found that regional Australians are largely satisfied with the current levels of local content available. Management maintained its focus on costs, evidenced by flat expense growth in the television business, despite a step up in programming costs. A full year fully franked dividend per share of 6.8 cents delivered a yield of 6.6%, while statutory earnings of 9.2 cents per share in FY14 is a 3.7 cent increase on FY13. Since joining the Board I have been invigorated constantly by the commitment of Prime’s talented team of media professionals. I offer my thanks to the loyal and dedicated management team, the tremendous contribution of all the staff across the country, and to our many advertisers and partners. Prime reaffirmed its long standing partnership with the Seven Network when it announced the successful extension of our programming affiliation agreement to June 2019. Management also renegotiated an extension to the Company’s banking facility out to March 2018, permanently reducing the facility limit to $175 million. In the past 12 months Prime has watched with interest as the Minister for Communications, Malcolm Turnbull, sought to engage the industry and understand the challenges we face. Significant regulatory reform was proposed, but this has more recently stalled due to the lack of industry consensus on key issues. We anticipate that the government will revisit this issue in calendar 2015. Consequently, the reforms passed to date are minor and primarily quarantined to ‘red tape’ deregulation. I would like to offer my thanks to two of our long serving directors who are retiring after remarkable contributions and service to the company. Peter Evans and Pat Grier have together served a combined term of almost 30 years on the Prime Board. We wish them well for the future. Finally I cannot conclude my remarks without touching on the passing of our long-time Chairman and previous major shareholder, Paul Ramsay AO; an amazing Australian who is deeply missed by all his former colleagues at Prime. John Hartigan CHAIRMAN Prime media GrouP AnnuAl RePORt 2014 1 CHIEF EXECUTIVE OFFICER’S REPORT TV Revenue and Audience Growth 40.8% 40.2% 40.0% 39.5% 39.1% 37.4% 36.7% 36.8% 2011 2012 2013 2014 Revenue Share 3 Audience Share 4 STRONG PERFORMANCE IN A CHALLENGING YEAR I am very pleased to report to you that your Company delivered the best performance in regional network television during the reporting period, achieving its fourth consecutive year of revenue and audience growth and cementing its lead in its regional television markets. Against a backdrop of advertiser concern over the new Federal Government’s budget measures, and the launch on a rival network of the Big Bash League followed by the 2014 Sochi Winter Olympics, Prime’s television audiences continued to grow while advertising revenue grew at a rate well in excess of market growth. None of this would be possible however without the strength and depth of the Seven Network’s outstanding slate of programs and the concerted efforts of Prime’s sales organisation. The performance and strength of the business is demonstrated by our 40.0% share 2 of audience when compared with our share of total advertising revenue of 40.8 % 1; and an industry leading 45.6 share 1 of national agency revenue achieved by our national sales team. Prime’s regional Western Australian television business GWN7 captured a knock-out 63.3% 1 share of total television advertising revenue off the back of Australian television’s biggest audience share of 51.2% 2. Management continued to implement its tight cost control measures, contributing to the overall results. This is a tremendous outcome given the renegotiation of the Seven Network programming affiliation agreement that included a step up in fees. As a result Television EBITDA improved almost 3% or $2.1 million on the prior period. The business is in very good health. 1 KPMG industry data 1 July 2013 to 30 June 2014. 2 Regional TAM All People 0600–2359 1 July 2013 to 30 June 2014. 3 KPMG industry data 1 July 2011 to 30 June 2014. 4 Regional TAM All People 0600–2359 1 July 2011 to 30 June 2014. 2 AUSTRALIA’S BEST PROGRAMMING SECURED OUT TO JUNE 2019 On 11 October 2013 Prime was pleased to announce that, with the support of its long term partner the Seven Network, it extended its association with Australia’s leading television broadcaster until 30 June 2019, enabling Prime to continue to deliver the very best of Australian television to regional audiences. The previous agreement between Prime and Seven was due to expire on 30 June 2017. The Seven Network has recently announced its unprecedented new deal with the International Olympic Committee, which included securing the media rights to the Games of the XXXI Olympiad in Rio de Janeiro in 2016, the XXIII Olympic Winter Games in Pyeongchang in 2018 and the Games of the XXXII Olympiad in Tokyo in 2020. Seven also secured an option, which if exercised, will extend the deal to include the XXIV Olympic Winter Games in 2022 and the XXXIII Olympic Games in 2024. The addition of these marquee events to the program schedule will provide performance continuity for our television business over the medium to long term. A STRONG & STABLE TEAM The performance of the Company is a great credit to a talented and committed management team and staff located across the breadth of the country, who strive to extract optimal opportunity from the market, the robustness of Seven’s programming schedule and our own strengths in producing local news programming. I extend my thanks and appreciation to each and every one of them for a job very well done. Ian Audsley CHIEF EXECUTIVE OFFICER HIGHLIGHTS $260.3m RE V ENUE* $64.8m EBITDA* $33.4m CORE NE T PROFIT AF TER TA X^ 6.8¢ per share FULL Y E AR DI V IDEND * H ig hlig ht s were c alc ulated ba sed on C ontinuing O per ation s. ^ E xc lud e s non - core s pec ific item s. Prime media GrouP ANNUAL REPORT 2014 3 DIRECTORS’ rePort Your directors submit their report for the year ended 30 June 2014. 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 JOHN K. HARTIGAN Non-Executive Chairman (appointed 15 May 2014) Mr Hartigan headed News Corporation’s Australian operations as Chairman and Chief Executive Officer of News Limited (now known as News Corp Australia). Mr Hartigan was a Director of News Limited, Queensland Press, Advertiser Newspapers and The Herald and Weekly Times Limited. He was also a Director of FOXTEL and Chairman of Australian News Channel, which owns and operates Sky News. He has worked in advisory positions for the American Australian Association and the NSW Export and Investment Advisory Board. Mr Hartigan is a Director of The Bradman Foundation, is a Trustee of the Sydney Cricket and Sports Ground Trust and is Chairman of Destination NSW. PAUL J. RAMSAY AO Non-Executive Chairman (appointed 17 April 1985, retired 17 April 2014) Mr Ramsay AO was Chairman of Ramsay Health Care Limited and Paul Ramsay Holdings Pty Limited, and a major shareholder of the Company, until the sale of his controlling interest on 5 March 2014. The Board expresses its deep sense of loss at the passing of Mr Ramsay AO on 1 May 2014. Mr Ramsay AO served as the Company’s long term Chairman and architect of its leadership position in regional free to air broadcasting throughout Australia. His guidance, warmth and wisdom has left an indelible mark across the entire workforce and industry. MICHAEL S. SIDDLE Non-Executive Director (appointed 17 April 1985) Mr Siddle is the Chairman of Ramsay Health Care Limited, having first been appointed a Director in 1975. He is also the Chairman of Paul Ramsay Holdings Pty Limited. Mr Siddle was formerly the Deputy Chairman of the Company, however he ceased to hold that position when it became redundant on 30 June 2014. PETER J. 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. Mr Evans is Deputy Chairman of Ramsay Health Care, having been a Director since 1990 and is a Director of Paul Ramsay Holdings Pty Limited. Mr Evans is the Chairman of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee. ALExANDER A. 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, Athens and Beijing. Mr Hamill is a member of the Remuneration and Nomination Committee. IAN P. GRIER AM Non-Executive Director (appointed 6 June 2008) Mr Grier AM was an executive in the private health care industry for more than 20 years and Chief Executive Officer of Ramsay Health Care Limited for 14 years until June 2008, when he continued as a Non-Executive Director of that company. Mr Grier AM was Chairman of Domain Principal Group and in July 2014 was appointed Chairman of the Estia Health Group. He is Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee. IAN R. NEAL Non-Executive Director (appointed 6 June 2008) Mr Neal is a Chair for the Executive Connection and consults on business strategy and implementation from a perspective of maximising shareholder value. Prior to establishing Management Abroad Pty Limited, 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 to various banking positions until establishing Nanyang Ventures. Mr Neal is a life member of the Financial Services Institute of Australia. He is a member of the Audit and Risk Committee. IAN CRAIG AUDSLEY Chief Executive Officer (appointed 16 June 2010) Executive Director (appointed 24 June 2010) Mr Audsley has had over 30 years’ experience in the television industry. He has held various senior roles at the Seven Network, Nine Network, TV3 New Zealand and Southern Cross Television. 4 Directors’ report Directors’ report DIRECTORS’ INTERESTS The relevant interest of each director in the shares and performance rights issued by the Company at the date of this report is as follows: J.K. Hartigan M.S. Siddle P.J. Evans FCA A.A. Hamill I.P. Grier AM I.R. Neal I.C. Audsley ORDINaRy ShaRES RIghTS OvER ORDINaRy ShaRES – 984,082 24,286 – – – – – – – – – – 1,815,000 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 M.S. Siddle P.J. Evans FCA I.P. Grier AM I.R. Neal Ramsay Health Care Limited (Chairman) Ramsay Health Care Limited (Deputy Chairman) Ramsay Health Care Limited IntraPower Limited 1 Dyesol Limited Pearl Healthcare Limited 1 IntraPower Limited was delisted from the Australian Securities Exchange on 12 September 2011. pERIOD Of DIRECTORShIp fROm TO May 1975 June 1990 June 1997 May 2007 September 2006 Present Present Present August 2011 Present September 2008 February 2012 COmpaNy SECRETaRy Ms Emma McDonald was appointed as Company Secretary on 27 February 2012. She has been a solicitor for the past 22 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 2013 shown as recommended in the 2013 financial report – on ordinary shares CENTS 9.2 8.5 9.2 8.5 CENTS $’000 2.8 10,257 4.0 3.3 14,653 12,089 26,742 Prime media GrouP AnnuAl RepoRt 2014 5 Directors’ report pRINCIpaL aCTIvITIES The principal activities of Prime Media Group Limited during the year were the provision of free to air commercial television broadcasting services in the following regional areas (excluding capital cities): • Northern New South Wales and the Gold Coast; • Southern New South Wales; • Victoria and Mildura; and • Western Australia. The majority of the Group’s television programming is supplied through an affiliation agreement with the Seven Network and broadcast in regional areas under the PRIME7 brand on the east coast and the GWN7 brand in regional Western Australia. The Group also operated a network of 10 radio stations in Queensland, which was sold on 30 August 2013 for $24,525,000. OpERaTINg aND fINaNCIaL REvIEw CONSOLIDaTED RESuLTS INCLuSIvE Of CONTINuINg aND DISCONTINuED OpERaTIONS The Group’s consolidated net profit after tax from both continuing and discontinued operations attributable to the members of Prime Media Group Limited for the year ended 30 June 2014 of $33,852,000 (2013: $20,211,000) represents an increase of $13,641,000 or 67.5% on the prior comparative period. STaTuTORy RESuLTS fROm CONTINuINg OpERaTIONS The Company’s statutory consolidated net profit after tax from continuing operations attributable to the members of Prime Media Group Limited for the year ended 30 June 2014 was $31,188,000 (2013: $33,608,000) and represents a decrease of $2,420,000 or 7.2% on the prior comparative period. The variance to the prior year was primarily due to derecognition of deferred tax assets from New Zealand operations, which have been discontinued. This increased the effective tax rate to 33.1% (2013: 26.7%), and reduced statutory net profit by $1,296,000. The Group’s primary source of revenue from continuing operations during the year was derived from television advertising, which improved by 1.2% on the prior reporting period. The Group’s revenue share growth in television’s combined aggregated market of Northern New South Wales, Southern New South Wales and Victoria of 2.3% is ahead of the market growth rate released by KPMG of 0.8%. The Group’s gross profit margin from continuing operations was 47.0% compared to 47.9% in the previous corresponding period. The decline in gross profit margin was largely due to increases in program affiliation costs and other sales related costs. The Group’s total operating expenses of $57,295,000 were $2,982,000 or 4.9% down on the previous corresponding period. Savings were achieved across all categories including a decrease in share of associate losses of $715,000. As a result, Group EBITDA from continuing operations improved by 3.4% to $64,774,000 (2013: $62,672,000). Overall Group EBITDA from Total Operations increased by 2.6% to $67,718,000 (2013: $65,976,000) as a result of revenue growth and cost reduction. Finance costs of $6,499,000 were 18.4% less than the previous corresponding reporting period, largely due to lower average debt levels. During the period, the Company negotiated an Amendment and Restatement Deed, extending the term of the facility to March 2018 and permanently reducing the facility limit to $175 million. The Company’s interest costs were reduced as a result of the extension. DISCONTINuED OpERaTIONS The gain on sale from radio operations was $2,302,000. Revenue from discontinued radio operations for the two month period to the date of sale on 30 August 2013 was $3,499,000, resulting in a net profit after tax of $362,000. CORE NET pROfIT afTER Tax (INCLuDINg CONTINuINg aND DISCONTINuED OpERaTIONS) Core net profit after tax from both continuing and discontinued operations, and before specific items, was $33,395,000 (2013: $35,423,000), representing a decrease of $2,028,000 or 5.7% on the prior corresponding period. The prior year result included the Group’s Radio operations for the 12 month reporting period, compared to 2 months in the current period. The Group’s final dividend has been declared based on the core net profit after tax as follows: Reported profit after tax from continuing operations (refer Statement of comprehensive income) Reported profit after tax from discontinued operations (refer Statement of comprehensive income) Fair value change in derivatives Fair value change in receivable – deferred contingent consideration Impairment of radio broadcasting licences Radio gain on sale Depreciation of decommissioning costs Redundancies Derecognise deferred tax asset carried for New Zealand tax losses Income tax expense/(benefit) related to specific items Core net profit after tax from both continuing and discontinued operations, and before specific items 2014 $’000 31,188 2,664 33,852 – (493) – (2,302) 604 626 1,296 (188) 33,395 2013 $’000 33,608 (13,397) 20,211 2 (270) 15,000 – 481 – – (1) 35,423 6 Directors’ report BaLaNCE ShEET aND CaShfLOw The Company’s syndicated debt facility decreased to $120,000,000 (2013: $142,000,000) and Current Liabilities – Trade and Other Payables were $33,270,000 at the reporting date (2013: $37,474,000). Cash inflows from investing activities of $8,807,000 (2013: (used in) $10,944,000) was due to receipt of the proceeds from the sale of Prime’s Radio business of $24,525,000 less payment of $10,000,000 for program rights. The Group’s cash outflow from financing activities of $48,972,000 was applied to maintain dividend payments to shareholders and to discharge finance leases during the period. The Group continues to comfortably operate within the terms of its syndicated bank facility which matures March 2018. ShaREhOLDER RETuRNS The Company is pleased to report an improvement in shareholder returns as a result of its current dividend payout ratio and an improvement in most other financial measures in the current year, including the closing share price, which was $1.05 at 30 June 2014 (2013: $1.01). Core Earnings Per Share (cents per share) 1 Statutory Earnings Per Share (cents per share) Core Return on Assets (ROA) % 1 Statutory Return on Assets (ROA) % Weighted Average Cost of Capital (%) Core Return on Equity (ROE) (%) 1,2 Statutory Return on Equity (ROE) (%) Net Debt/Net Debt + Equity Ratio (%) Share Price ($) Dividends Per Share (cents) Total Shareholder Return (%) 2014 9.1 9.2 10.5 10.7 10.6 20.6 20.9 39.7 1.05 6.8 10.7 2013 9.7 5.5 10.2 5.8 10.3 22.9 13.1 46.1 1.01 7.3 64.1 1 These returns have been calculated using net profit after tax from continuing and discontinued operations and before the impact of items disclosed as specific non-core items. (Refer to Note 9 for details of specific non-core items). 2 Equity has been normalised for the impact of items disclosed as specific items. CapITaL STRuCTuRE Interest-bearing loan and borrowings Cash and short term deposits Net debt Total equity Total capital employed Gearing The profile of the Group’s debt finance is as follows: Current Obligations under finance leases Non-current Obligations under finance leases Secured bank loan 2014 $’000 119,645 (12,722) 106,923 162,240 269,163 39.7% 2014 $’000 246 246 672 118,727 119,399 119,645 2013 $’000 142,275 (10,326) 131,949 154,380 286,329 46.1% 2013 $’000 252 252 918 141,105 142,023 142,275 The Group’s debt level has fallen during the year, in part due to the proceeds from sale of the Group’s Radio business and the timing of payments to suppliers. Capital expenditure of $4,795,000 in the current year (2013: $9,203,000) was less than the prior year largely due to commissioning in the prior year of a new television sales and traffic software system and completion of the analogue to digital transmission project. Current year expenditure includes investments in broadcast and computer equipment. Prime media GrouP AnnuAl RepoRt 2014 7 Directors’ report 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. 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 strategic plans, which encompass 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 monitoring of financial and non-financial Key Performance Indicators (‘KPIs’). 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 On 9 July 2014 the Group completed the sale of its premises at 194 Lake Albert Road Wagga Wagga and realised a gain on sale of $1,122,000. LIKELy DEvELOpmENTS aND ExpECTED RESuLTS The Board and Executive consider that the future performance of the Group will be influenced by changes in legislation specific to the media industry and changes in media technologies. Notwithstanding these influences, the Board and Executive will continue to focus on maximising its yield from the advertising market and to prudently manage debt and risk generally to optimise returns to shareholders. pERfORmaNCE RIghTS (EQuITy) uNISSuED ShaRES At the date of this report there were 3,976,000 (2013: 2,546,000) unissued ordinary shares under The Prime Media Group Limited Performance Rights Plan that are yet to vest. Refer to Note 27 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 pERfORmaNCE RIghTS 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 $107,500 (2013: $107,850) 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. The Company has also executed a deed of access, indemnity and insurance with Directors and Officers in their capacity as Directors and Officers of the Company, its subsidiaries and related parties. INDEmNIfICaTION Of auDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. 8 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 8 5 1 2 2 8 7 8 8 8 8 2 – – – 2 – 2 1 – 3 – – – 2 2 1 3 3 – Number of meetings held Number of meetings attended P.J. Ramsay AO 1 J.K. Hartigan 2 M.S. Siddle P.J. Evans FCA A.A. Hamill I.R. Neal 3 I.P. Grier AM I.C. Audsley 1 Retired as a director on 17 April 2014 and was eligible to attend 6 Directors’ Meetings. 2 Indicates maximum number of meetings the director was eligible to attend during the period. 3 Appointed to the Remuneration and Nomination Committee for the meeting held on 26 June 2014. 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 I.P. Grier AM remuneration and Nomination I.P. Grier AM (Chairman) P.J. Evans FCA A.A. Hamill I.R. Neal (appointed for 26 June 2014 meeting only) Prime media GrouP AnnuAl RepoRt 2014 9 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 NEDs to, amongst various responsibilities, review and make recommendations to the Board regarding the Group’s: • executive management remuneration and incentives; • executive management performance against agreed performance targets; and the remuneration framework for directors. • The Remuneration and Nomination Committee meets 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, CFO 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 undue influence from members of the KMP. Godfrey Remuneration Group (GRG) was engaged during the reporting period to review the market competitiveness of remuneration packages for non-executive directors and senior executive roles. The Committee is satisfied that the advice received from GRG is free from undue influence from the KMP to whom the remuneration recommendations apply as GRG was engaged directly by, and reported directly to, the Chairman of the Committee. GRG’s fees in FY2014 totalled $30,000. CRA Plan Managers Pty Limited also provided remuneration services to the Group during the reporting period and received fees totalling $5,732 (FY2013: $23,802). Directors’ report REmuNERaTION REpORT (auDITED) The Board is pleased to present the Remuneration Report for the year ended 30 June 2014 which 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 2014 (including link to performance) 5. Executive contracts 6. Non-executive directors’ remuneration arrangements 7. Additional statutory disclosures 8. Corporate governance INTRODuCTION 1. The Remuneration Report details the remuneration arrangements for key management personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the 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, and secretaries of the Company and the Group. Details of KMP of the Company and Group are set out below: KEy maNagEmENT pERSONNEL (i) Directors J.K. Hartigan P.J. Ramsay AO Chairman (non-executive appointed 15 May 2014) Chairman (non-executive retired 17 April 2014) 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) I.C. Audsley Director (CEO) (ii) executives D. Walker Group General Manager Sales and Marketing J. Palisi S. Wood Chief Financial Officer (CFO) Group General Manager Operations E. McDonald General Counsel and Company Secretary There were no other changes to KMP after the reporting date and before the date the financial report was authorised for issue. 10 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, superannuation contributions and other discretionary and non-discretionary benefits. STI component • Paid in cash. LTI component • Awards are made in the form of performance rights. • To provide competitive fixed • Company and individual remuneration set with reference to role, market and experience. performance are considered during the annual review process. • 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. • Core NPAT; • Divisional financial performance; • Operational performance; • Power ratio; and • Risk management. • 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. KMP remuneration is benchmarked against industry peers and remuneration levels reviewed having regard for market data, insights into remuneration trends, the performance of the Company and individual, and the broader economic environment. DETaIL Of INCENTIvE pLaNS short term incentives (sti) The Group operates an annual STI program that is available to key management personnel and awards a cash bonus subject to attainment of clearly defined Group, business unit and individual measures. 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 KPIs covering financial and non-financial, corporate and individual measures of performance. A summary of the measures and weightings is set out below: NON-fINaNCIaL mEaSuRES: • Strategic • LeaderShip/team CONTRIBuTION • riSk management incLuding COmmITmENT TO wORK hEaLTh SafETy • BuSineSS deveLopment and pERfORmaNCE mEaSuRES CORE NpaT pOwER RaTIO gROwTh INITIaTIvES CEO Other functional executives 50% 0–50% 25% 0–25% 25% 0–50% 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. Long term incentives (Lti) LTI awards to executives are made annually under the Prime Media Group Limited Performance Rights Plan. The cumulative allocations represent less than 1.5% of the undiluted capital of the Group with a maximum income cost of $2,718,142. 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. Prime media GrouP AnnuAl RepoRt 2014 11 Directors’ report REmuNERaTION REpORT (auDITED) (CONTINuED) 4. ExECuTIvE REmuNERaTION OuTCOmES fOR 2014 (INCLuDINg LINK TO pERfORmaNCE) COmpaNy pERfORmaNCE aND ITS LINK TO ShORT TERm INCENTIvES The financial performance measures driving STI payment outcomes are: • 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 greater than 1 indicates that the Company is performing ahead of its audience share. COmpaNy pERfORmaNCE aND ITS LINK TO LONg TERm INCENTIvES The Company has adopted the following performance measures for the vesting of LTI performance rights: • 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 2009 to 30 June 2014. Core EPS is defined as statutory EPS before non-core items. earnings per share (Cents per share) The following chart shows the Company’s core NPAT over the 5 year period ended 30 June 2014. Core NPAT is defined as statutory net profit after tax and before non-core items. 7.4 7.3 7.6 4.8 9.1 9.7 9.2 9.1 5.5 $33.2 $35.4 $33.4 2010 2011 2012 2013 2014 $26.8 $17.1 -15.0 Fully Diluted EPS Fully Diluted EPS (before non-core items) Lti awards for 2014 financial year During the year ended 30 June 2014 nil shares (2013: nil shares) were issued due to the exercise of performance rights. The LTI remuneration for each KMP is set out in within Table 1 and 2 of this section. 2010 2011 2012 2013 2014 Core NPAT ($ million) including discontinued operations sti awards for 2013 and 2014 financial years For the 2013 financial year, 100% of the STI cash bonus pool of $1,071,496 as previously accrued in that period vested to key management personnel and was paid in the 2014 financial year. The Remuneration and Nomination Committee will consider the STI payments for the 2014 financial year in the first quarter of the 2015 financial year. The maximum STI cash bonus available for the 2014 financial year is $1,086,246. STI payments have been accrued at 100% of the maximum cash bonus available for the 2014 financial year based on individual executive’s actual performance against KPIs. Any adjustments between the actual amounts to be paid as determined by the Remuneration and Nomination Committee and the amounts accrued will be adjusted in the 2015 financial year. The minimum amount of the STI cash bonus, assuming that no executives meet their respective KPIs for the 2014 financial year, is nil. 12 E C N a m R O f R E p D E T a L E R L a T O T % % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 $ 5 6 0 , 3 1 1 6 4 8 , 3 2 6 3 2 , 3 0 1 8 2 4 , 7 7 6 5 4 , 9 8 8 2 4 , 7 7 8 2 4 , 7 7 7 8 8 , 1 6 5 I y T u Q E D E L T T E S D E S a B E R a h S S T N E m y a p $ – – – – – – – – ) I D E U N T N O C ( m R E T g N O L S T I f E N E B R E h T O m R E T g N O L 3 S T I f E N E B $ – – – – – – 8 2 0 , 2 1 8 2 0 , 2 1 5 4 4 , 3 3 3 7 5 , 9 9 1 0 , 2 1 4 7 , 8 6 5 5 , 6 – 6 5 5 , 6 – – – – – – – – – – – – – – – – – 7 2 8 , 1 2 5 9 4 , 4 9 2 7 8 , 0 7 8 2 4 , 7 7 2 7 8 , 0 7 8 2 4 , 7 7 4 1 4 , 6 1 5 ) E C N a m R O f R E p O T K N I L g N D u L C N I I ( 4 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 E v T u C E x E I I . 4 T S O p T N E m y O L p m E S T I f E N E B m R E T - T R O h S - R E p u S I N O T a u N N a $ h S a C - N O N 1 S T I f E N E B $ h S a C S u N O B $ S E E f & y R a L a S T N E R a p R O f 2 y T I T N E $ 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 T a R E N u m E R I 4 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 : 1 l e b a t t r o p e r ’ s r o t c e r D i 2 9 4 , 3 0 1 ) 4 1 0 2 l i r p A 7 1 d e n g i s e R ( ) n a m r i a h C ( O A y a s m a R . J . P s r o t c e r i d e v i t u c e x e - n o N % 3 . 9 4 2 9 5 , 1 1 7 , 1 5 0 0 , 4 4 3 2 7 3 , 7 5 7 7 , 7 1 0 8 7 , 8 0 0 0 , 0 0 5 0 6 6 , 3 3 8 % 9 . 8 4 % 0 . 7 3 % 4 . 9 2 % 4 . 6 3 1 1 8 , 0 7 7 4 3 7 , 1 1 6 1 0 9 , 1 6 5 1 6 4 , 8 9 5 9 9 4 , 4 5 2 , 4 6 8 3 , 6 1 8 , 4 0 4 4 , 2 3 1 6 3 4 , 6 1 1 3 3 3 , 5 6 9 1 1 , 6 8 3 3 3 , 4 4 7 3 3 3 , 4 4 7 1 2 0 , 2 9 0 8 , 3 0 4 2 , 1 6 3 3 , 2 8 7 7 , 6 1 6 0 8 , 8 2 5 7 7 , 7 1 5 7 7 , 7 1 5 7 7 , 7 1 5 7 7 , 7 1 5 7 8 , 8 8 0 2 3 , 2 2 1 – – – 6 7 8 , 6 6 5 6 , 5 1 6 5 6 , 5 1 6 4 2 , 4 4 2 0 0 0 , 0 1 1 0 0 0 , 0 0 1 0 0 0 , 2 3 1 6 4 2 , 6 8 0 , 1 6 4 2 , 6 8 0 , 1 3 5 4 , 7 6 3 4 1 7 , 3 6 3 3 5 5 , 7 7 3 1 3 2 , 0 6 3 1 1 6 , 2 0 3 , 2 5 2 0 , 9 1 8 , 2 . 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 . 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 r o f n e k a t e v a e l e c i v r e s g n o l d n a d e u r c c a e v a e l l a u n n a e d u l c n 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 0 2 y a M 5 1 n a m r i a h C d n a r o t c e r i D d e t n o p p A i ( ) n a m r i a h C ( n a g i t r a H . K . J l e n n o s r e p t n e m e g a n a m y e k r e h t O s r o t c e r i d e v i t u c e x E y e l s d u A . I s r o t c e r i d e v i t u c e x e - n o n l a t o T A C F s n a v E . J . P M A r e i r G P . . I l l i m a H . . A A l a e N . R . I p m K e v i t u c e x e l a t o T s l a t o T l d a n o D c M . E i s i l a P . J l r e k a W . D d o o W . S ) n a m r i a h C y t u p e D ( l e d d S i . . S M Prime media GrouP AnnuAl RepoRt 2014 13 E C N a m R O f R E p D E T a L E R L a T O T I y T u Q E E R a h S D E L T T E S D E S a B S T N E m y a p S T I f E N E B m R E T g N O L T S O p T N E m y O L p m E S T I f E N E B m R E T - T R O h S 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 T a R E N u m E R I 3 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 ( ) E C N a m R O f R E p O T K N I L g N D u L C N I I ( 4 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 E v T u C E x E I I . 4 ) D E u N T N O C I ( ) I D E T D u a ( T R O p E R N O T a R E N u m E R I t r o p e r ’ s r o t c e r D i 14 % % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 $ 0 5 7 , 8 2 1 0 0 0 , 3 0 1 0 5 2 , 7 7 0 0 1 , 9 8 0 5 2 , 7 7 0 5 2 , 7 7 0 0 6 , 2 5 5 – – – – – – – % 9 . 2 4 1 2 8 , 2 3 5 , 1 4 5 0 , 8 9 1 % 3 . 4 3 % 0 . 3 3 % 0 . 7 1 % 7 . 4 1 % 8 . 1 3 8 4 3 , 0 1 8 7 6 3 , 0 0 6 5 1 7 , 3 2 5 0 5 9 , 5 3 4 1 6 6 , 4 6 4 2 6 8 , 7 6 3 , 4 2 6 4 , 0 2 9 , 4 – 3 9 4 , 5 6 2 2 2 , 8 5 3 5 9 , 3 1 5 0 9 , 7 2 7 2 6 , 3 6 3 7 2 6 , 3 6 3 – – – – – – – – – – 8 6 7 , 4 7 – – 8 6 7 , 4 7 8 6 7 , 4 7 – – – 0 5 8 , 1 1 – – 0 5 8 , 1 1 – 5 0 5 , 8 8 7 3 , 6 – 8 7 3 , 6 – 1 6 2 , 1 2 – – – – – – – – – – – – – – 4 1 2 , 3 0 7 4 , 6 1 5 9 3 , 7 5 0 0 0 , 0 6 4 8 8 6 7 9 7 , 7 9 3 , 1 0 0 0 , 3 – 3 9 5 4 7 1 , 1 8 7 3 , 9 8 2 2 , 1 2 0 7 4 , 6 1 0 7 4 , 6 1 0 7 4 , 6 1 0 7 4 , 6 1 0 7 4 , 6 1 0 2 8 , 8 9 1 8 0 , 0 2 1 – – 8 2 7 , 3 3 1 4 7 5 , 9 1 2 7 5 , 8 2 9 6 2 , 9 3 2 9 6 2 , 9 3 2 8 8 3 , 2 1 2 0 0 0 , 0 4 1 8 0 1 , 9 8 0 0 0 , 0 5 0 0 0 , 0 2 1 6 9 4 , 1 7 0 , 1 6 9 4 , 1 7 0 , 1 2 7 8 , 0 8 3 , 1 0 1 3 6 3 7 9 7 4 1 3 , , 4 3 9 4 5 3 , 2 1 1 9 9 2 4 0 5 , 0 1 5 , 2 3 9 9 9 2 0 , , 3 S E E f & y R a L a S T N E R a p R O f 2 y T I T N E $ 0 5 7 , 8 2 1 5 9 4 , 4 9 2 7 8 , 0 7 0 5 2 7 7 , 2 7 8 , 0 7 0 5 2 7 7 , 9 8 4 9 1 5 , $ S S E N E v g R O f I 3 S T I f E N E B m R E T I N O T a u N N a N a O L g N O L R E h T O - R E p u S $ $ $ h S a C - N O N 1 S T I f E N E B $ h S a C S u N O B $ l e n n o s r e p t n e m e g a n a m y e k r e h t O s r o t c e r i d e v i t u c e x E y e l s d u A . I s r o t c e r i d e v i t u c e x e - n o n l a t o T A C F s n a v E . J . P M A r e i r G P . . I l l i m a H . . A A l a e N . R . I p m K e v i t u c e x e l a t o T s l a t o T l r e k a W . D d o o W . S h t i m S . G l d a n o D c M . E i s i l a P . J ) n a m r i a h C y t u p e D ( l e d d S i . . S M s r o t c e r i d e v i t u c e x e - n o N ) n a m r i a h C ( O A y a s m a R . J . P . 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 . 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 r o f n e k a t e v a e l e c i v r e s g n o l d n a d e u r c c a e v a e l l a u n n a e d u l c n 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 Directors’ report table 3: the prime Media Group Limited performance rights plan gRaNTED TERmS aND CONDITIONS fOR EaCh gRaNT vESTED 2014 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 % Director I. Audsley Executive S. Wood D. Walker J. Palisi E. McDonald Total 500,000 19/11/2013 $0.8410 $0.00 19/12/2016 19/11/2016 200,000 230,000 200,000 200,000 1,330,000 19/11/2013 19/11/2013 19/11/2013 19/11/2013 $0.8410 $0.8410 $0.8410 $0.8410 $0.00 $0.00 $0.00 $0.00 19/12/2016 19/12/2016 19/12/2016 19/12/2016 19/11/2016 19/11/2016 19/11/2016 19/11/2016 – – – – – – – – – – – – – – – – – 2013 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 % I. Audsley Executive S. Wood D. Walker J. Palisi E. McDonald Total 700,000 28/11/2012 $0.6290 $0.00 28/12/2015 28/11/2015 200,000 230,000 200,000 100,000 1,430,000 29/10/2012 29/10/2012 29/10/2012 29/10/2012 $0.6236 $0.6236 $0.6236 $0.6236 $0.00 $0.00 $0.00 $0.00 28/11/2015 29/10/2015 28/11/2015 29/10/2015 28/11/2015 29/10/2015 28/11/2015 29/10/2015 – – – – – – – – – – – – – – – – – 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 % I. Audsley D. Walker S. Wood J. Palisi E. McDonald Total 420,500 193,430 168,200 168,200 168,200 $1,118,530 – – – – – – – – – – – – – – – – – – – – – – – – For details on the valuation of the performance rights, including models and assumptions used, please refer to Note 27. 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 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 2014 15 Directors’ report REmuNERaTION REpORT (auDITED) (CONTINuED) 5. ExECuTIvE CONTRaCTS Remuneration arrangements for KMP are formalised in employment agreements. Details of these contracts are provided below: ChIEf ExECuTIvE OffICER (‘CEO’) The CEO, Mr Audsley, is employed under a rolling contract. Under the terms of the present contract: • The CEO receives fixed remuneration of $750,000 per annum; • The CEO’s maximum STI opportunity is 65% of annual TEC; • The CEO is eligible to participate in the Company’s LTI performance rights plan on terms determined by the Board, subject to prior shareholder approval, as required; • The CEO is entitled to 6 weeks annual leave; • 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 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; and • The Company or the CEO may terminate the contract within 12 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. In these circumstances, the Company must provide 12 months’ notice or 12 months’ payment in lieu of notice, or a combination thereof. OThER KEy maNagEmENT pERSONNEL During the reporting period, Mr D. Walker, Group General Manager Sales and Marketing, was employed on a fixed term contract that was due to expire 30 September 2014. Mr Walker has since settled a new 3 year fixed term contract that commenced on 1 July 2014. The Group General Manager Sales and Marketing’s employment may be terminated by the Company at any time without notice if serious misconduct has occurred. Where termination with cause occurs Mr Walker is only entitled to that portion of his remuneration contract that is fixed, and only to the date of termination. All other KMPs are employed under rolling contracts with no fixed term employment. Each KMP’s employment may be terminated by either party providing 6 months written notice or payment in lieu of the notice period (based on the fixed component of the executive’s remuneration and at the discretion of the Company). The Company may terminate the contract by giving 3 months written notice where the Company has advised the executive of their failure to perform. In this case the Company has the discretion to make a payment in lieu of notice or the unexpired portion of the notice period. The Company may terminate immediately for serious misconduct. Where termination with cause occurs the KMP is only entitled to that portion of remuneration that is fixed and accrued up to the date of termination. 6. NON-ExECuTIvE DIRECTORS’ REmuNERaTION aRRaNgEmENTS 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 fees for NEDs approved at the 2013 Annual General Meeting (AGM) was $561,887. NED fees will increase in the 2015 financial year to $725,000, which is less than the determination made at the AGM held in November 2007 when shareholders approved an aggregate fee pool of $750,000 per annum (excluding superannuation and retirement benefits arising from the Directors’ Retirement plan). STRuCTuRE The remuneration of NEDs consists of directors’ fees, consisting of 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 above. 16 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 the Company’s external auditors, Ernst & Young. We have obtained the independence declaration from our auditors, Ernst & Young included on page 18. 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 & Goods and Services Tax Compliance Services Advisory Services Total $ 47,443 24,282 71,725 8. 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 Sydney, 27 August 2014 Prime media GrouP AnnuAl RepoRt 2014 17 AuDitor’s iNDepeNDeNce DecLArAtioN 18 corporAte GoVerNANce stAteMeNt The Board of Directors of the Company 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 the Company and Group 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. The Company’s corporate governance practices were in place throughout the year ended 30 June 2014 and were compliant with the ASX CGC’s principles and recommendations except as noted in this statement. For further information on corporate governance policies adopted by Prime Media Group Limited, refer to the Company’s website www.primemedia.com.au pRINCIpLE 1 – Lay SOLID fOuNDaTIONS fOR maNagEmENT aND OvERSIghT 1.1 Companies should establish the functions reserved to the board and those delegated to senior executives and disclose Comply those functions. 1.2 Companies should disclose the process for evaluating the performance of senior executives. 1.3 Companies should provide the information indicated in the guide to reporting on Principle 1. Comply Comply The Board is committed to effectively representing and promoting the Company and adding long-term value to all shareholders. The Board’s Charter outlines the roles and responsibilities of the Board and its Committees. 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: • approval of strategic plans designed to meet stakeholders’ needs and manage business risk; • ongoing development of strategic plans and approving initiatives 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. Whilst at all times the Board retains full responsibility for guiding and monitoring the Group, it makes use of two sub-committees, being an Audit and Risk Committee and a Remuneration and Nomination Committee which have formal charters. All new directors participate in a formal induction process, which includes the provision of Board and Committee charter documents that were updated during the reporting period. Prime media GrouP AnnuAl RepoRt 2014 19 CORPORATE GOVERNANCE STATEMENT PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE 2.1 A majority of the board should be independent directors. 2.2 The chair should be an independent director. 2.3 The roles of chair and chief executive officer should not be exercised by the same individual. 2.4 The board should establish a nomination committee. Comply Comply from 6 March 2014 Comply Comply 2.5 Companies should disclose the process for evaluating the performance of the board, its committees and individual Comply directors. 2.6 Companies should provide the information indicated in the guide to reporting on Principle 2. Comply STRUCTURE Of THE BOARD NAME POSITION J.K. Hartigan M.S. Siddle Non-Executive Chairman (appointed 16 May 2014) Non Executive Deputy Chairman (appointed 1985) P.J. Evans FCA Non Executive Director (appointed 1991) A.A. Hamill I.R. Neal I.P. Grier AM I.C. Audsley Non Executive Director (appointed 2003) Non Executive Director (appointed 2008) Non Executive Director (appointed 2008) Chief Executive Officer (appointed 16 June 2010) Executive Director (appointed 24 June 2010) The Board composition 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 primarily of non-executive directors and will include independent 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 are required to perform their duties in the best interests of the Company. Directors must 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 is required to declare the potential or perceived conflict of interest and is then excluded from all board discussions relating to the issue around which the conflict of interest has arisen. ASX Recommendation 2.1 of the CGC’s recommends that a majority of the Board should be independent directors. As at the date of this report, the Board consists of six independent non-executive directors and one executive director (I.C. Audsley). Three non-executive directors, (P.J. Ramsay prior to retirement, M.S. Siddle and P.J. Evans FCA) were considered to be independent from the date that Paul Ramsay Holdings Pty Limited disposed of its controlling interest in the Company on 5 March 2014. CHAIRMAN INDEPENDENCE The Board Charter requires the roles of Chairman and Chief Executive Officer to be separate positions and not exercised by the same individual. Mr P.J. Ramsay AO was Chairman of the Board until his retirement on 17 April 2014. During Mr Ramsay’s tenure as Chairman, the Company did not satisfy CGC Recommendation 2.2 until Paul Ramsay Holdings Pty Limited disposed of its controlling interest in the Company on 5 March 2014. Mr J.K. Hartigan was subsequently appointed Chairman of the Board on 15 May 2014 and is considered an independent director. BOARD COMPOSITION The Company aims to maintain a Board that comprises directors with a broad range of skills, expertise and experience. Details of the background, particular qualifications, expertise and period of service of each director is set out in the Directors’ Report section of this Annual Report. 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 During the 2014 financial year, the Board undertook a formal, structured evaluation that involved each director completing a confidential questionnaire covering the role, composition and dynamics of the Board. The results of the questionnaires were compiled and an analysis reported to the Board by the Company Secretary. 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 their 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. 20 corporAte GoVerNANce stAteMeNt pRINCIpLE 3 – pROmOTE EThICaL aND RESpONSIBLE DECISION maKINg 3.1 Companies should establish a code of conduct and disclose the code or a summary of the code as to: Comply • The practices necessary to maintain confidence in the Company’s integrity. • The practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders. • The responsibility and accountability of individuals for reporting and investigating reports of unethical practices. 3.2 Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy Comply should include requirements for the board to establish measurable objectives for achieving gender diversity for the board to assess annually both the objectives and progress in achieving them. 3.3 Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the Comply board in accordance with the diversity policy and progress towards achieving them. 3.4 Companies should disclose in each annual report the proportion of women employees in the whole organisation, women Comply in senior executive positions and women on the board. 3.5 Companies should provide the information indicated in the guide to reporting on Principle 3. Comply The Company strives to act with honesty and integrity and to be a respected and valued broadcaster 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, guidelines and procedures. EThICaL CONDuCT The Company promotes ethical and responsible behaviours for its directors and employees through a Code of Conduct, which was developed in accordance ASX CGC Recommendation 3.1, and a range of supporting internal policies and guidelines that apply to all companies within the Group. 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, these policies and guidelines are published on the Company intranet. DIvERSITy The Group recognises the benefits arising from workplace diversity and 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. During the current year the proportion of women in key executive management positions was 20% (2013: 18%). As at 30 June 2014, women represented 53.0% of the Group’s workforce (2013: 53.0%). In 2014 the Group was assessed as compliant with the Equal Opportunity for Women in the Workplace Act 2010. SECuRITIES TRaDINg pOLICy In accordance with the ASX Listing Rule 12.9, the Company has a Securities Trading Policy, available at www.primemedia.com.au, that outlines the key terms including “Closed Periods” during which Restricted Persons and their associates are not permitted to trade in Prime securities. 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 4.1 The board should establish an audit committee. 4.2 The audit committee should be structured so that it: Consists only of non-executive directors. • • • • Consists of a majority of independent directors. Is chaired by an independent chair, who is not chair of the Board. Has at least three members. 4.3 The audit committee should have a formal charter. 4.4 Companies should provide the information indicated in the guide to reporting on Principle 4. Comply Comply from 6 March 2014 Comply Comply auDIT aND RISK COmmITTEE The Audit and Risk Committee is responsible for assisting the Board in discharging its responsibilities to safeguard the integrity of the Company and the Group’s financial reporting and system of internal control. The Audit and Risk Committee provides advice and recommendations to the Board to assist the Board to fulfil its corporate governance. The Committee also provides the Board with additional assurance regarding the reliability of financial information for inclusion in the financial reports. 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. The Audit and Risk Committee comprised of 3 non-executive directors of which a majority are independent. Details of the qualifications of the members of the Audit and Risk Committee and the number of meetings of the Audit and Risk Committee held during the current year 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. Prime media GrouP AnnuAl RepoRt 2014 21 corporAte GoVerNANce stAteMeNt pRINCIpLE 5 – maKE TImELy aND BaLaNCED DISCLOSuRE 5.1 Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure Comply requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. 5.2 Companies should provide the information indicated in the guide to reporting on Principle 5. Comply The Company is committed to complying with its continuous disclosure obligations under the ASX Listing Rules and Corporations Act 2001 and to ensuring that shareholders are kept informed of all major developments affecting the Company’s state of affairs. The Board has established policies and procedures to ensure that the disclosure obligations under of the ASX Listing Rule 3.1 and the Corporations Act 2001 are adhered to. These policies are outlined in the Continuous Disclosure policy published on the Company website. The Company has an established process for considering and releasing potentially price sensitive information to the market. Processes have been established to manage all disclosures relating to the release to the market of potentially price sensitive information. pRINCIpLE 6 – RESpECT ThE RIghTS Of ShaREhOLDERS 6.1 Companies should design a communications policy for promoting effective communication with shareholders and Comply encouraging their participation at general meetings and disclose their policy or a summary of that policy. 6.2 Companies should provide the information indicated in the guide to reporting on Principle 6. Comply 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: • • the annual report and half year report is available to all shareholders on the Company’s website; the Company discloses all price sensitive information to the ASX in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the ASX Listing Rules and publishes releases on the corporate website in a timely manner after the release to the ASX has been confirmed; • notices of all general meetings are sent to all shareholders and a copy is published on the Company’s website; • an investor email inquiry facility has been established to ensure timely responses by the Company Secretary or CFO to all investor questions; and • the Board encourages full participation by shareholders at the Annual General Meeting. pRINCIpLE 7 – RECOgNISE aND maNagE RISK 7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary Comply of those policies. 7.2 The board should require management to design and implement the risk management and internal control system to manage the Company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the Company’s management of its material business risks. Comply 7.3 The board should disclose whether it has received assurance from the CEO (or equivalent) and the CFO (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act 2001 is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Comply 7.4 Companies should provide the information indicated in the guide to reporting on Principle 7. Comply Risk management focuses on strategic, financial, operational and legal/compliance risks through control systems. During the period, the Company sought to comply with AS/NZS ISO31000:2009 Risk Management to identify and manage risk. The Company does not have an internal audit function. The Board believes that the size and nature of the Company’s operations currently do not warrant a separate internal audit function. In addition to the Operating and Review section of this Directors’ Report, the Company has identified a number of risks, including but not limited to: • fluctuations in consumer demand that impact advertising revenues; • change to the operating, market or regulatory environment as a result of changes in government media policy; and • impact of new media technologies. CEO aND CfO CERTIfICaTION In accordance with section 295A of the Corporations Act 2001, the Chief Executive Officer and the 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. 22 corporAte GoVerNANce stAteMeNt pRINCIpLE 8 – REmuNERaTE faIRLy aND RESpONSIBLy 8.1 The board should establish a remuneration committee. 8.2 The remuneration committee should be structured so that it: • Consists of a majority of independent directors. • • Has at least three members. Is chaired by an independent chair. Comply Comply 8.3 Companies should clearly distinguish the structure of non-executive director’s remuneration from that of executive directors Comply and senior executives. 8.4 Companies should provide the information indicated in the guide to reporting on Principle 8. Comply The Board has established a Remuneration and Nomination Committee which, in accordance with the Remuneration and Nomination Committee Charter available on the Company website, is responsible for reviewing and making recommendations to the Board in respect of: • executive remuneration and incentive policy; • performance rights plans; • • remuneration of the Company’s key management personnel and any other senior executive reporting to the CEO; recruitment, retention, performance measurement and termination policies and procedures for non-executive directors, the CEO and key management personnel; and the disclosure of remuneration in the Company’s public materials including ASX filings and the annual report. • The Remuneration and Nomination Committee’s current membership, the independence of the members and details of Remuneration and Nomination Committee meetings and attendance by each Committee member are set out earlier in this Corporate Governance Statement. 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. Prime media GrouP AnnuAl RepoRt 2014 23 coNsoLiDAteD stAteMeNt of coMpreheNsiVe iNcoMe for the YeAr eNDeD 30 JuNe 2014 NOTES 5(A) 5(A) 5(A) 5(B) 14(B) 6(B) 8(B) 9 9 9 9 CONSOLIDaTED 2014 $’000 2013 $’000 256,342 290 3,645 260,277 (137,918) 122,359 (41,651) (14,811) (11,979) (6,499) (833) 46,586 (15,398) 31,188 2,664 33,852 – – 33,852 33,852 33,852 33,852 33,852 9.2 8.5 9.2 8.5 253,241 332 3,688 257,261 (133,979) 123,282 (42,455) (16,274) (9,165) (7,965) (1,548) 45,875 (12,267) 33,608 (13,397) 20,211 499 499 20,710 20,710 20,710 20,710 20,710 5.5 9.2 5.5 9.2 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 DISCONTINuED OpERaTIONS profit/(Loss) after tax for the year from discontinued operations profit for the year Other comprehensive income Net gain on available for sale financial asset 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 − profit from continuing operations 24 coNsoLiDAteD stAteMeNt of fiNANciAL positioN As At 30 JuNe 2014 NOTES CONSOLIDaTED 2014 $’000 2013 $’000 aSSETS CuRRENT aSSETS Cash and short term deposits Trade and other receivables Intangible assets Other assets Assets classified as held for sale Total Current assets NON-CuRRENT aSSETS Receivables Investment in associates 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 11 12 18 13 12 14 16 17 6 18 13 19 20 6 21 Liabilities directly associated with assets classified as held for sale 8(D) 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 20 21 22 23 23 12,722 55,518 2,067 1,370 71,677 1,222 72,899 – 140 2,508 37,685 1,442 201,741 1,258 244,774 317,673 33,270 246 1,737 445 35,698 – 35,698 119,399 336 119,735 155,433 162,240 10,326 57,937 400 1,303 69,966 25,228 95,194 178 – 2,507 43,595 6,111 196,894 1,183 250,468 345,662 37,474 252 7,210 1,432 46,368 2,497 48,865 142,023 394 142,417 191,282 154,380 310,262 3,957 (151,979) 162,240 162,240 310,262 919 (156,801) 154,380 154,380 Prime media GrouP AnnuAl RepoRt 2014 25 coNsoLiDAteD stAteMeNt of chANGes iN equitY As At 30 JuNe 2014 ISSuED CapITaL $’000 aCCumuLaTED LOSSES $’000 EmpLOyEE BENEfITS RESERvE $’000 gENERaL RESERvE $’000 TOTaL paRENT ENTITy INTEREST $’000 NON- CONTROLLINg INTEREST $’000 at 1 July 2013 Profit for the period Other comprehensive income Total comprehensive income and expense for the period Transactions with equity holders in their capacity as equity holders: Share based payments Reclassification Dividends on ordinary shares 310,262 – – – – – – at 30 June 2014 310,262 As At 30 JuNe 2013 (156,801) 33,852 – 33,852 – (2,288) (26,742) (151,979) 3,207 (2,288) – – – 750 – – 3,957 – – – – 2,288 – – 154,380 33,852 – 33,852 750 – (26,742) 162,240 – – – – – – – – ISSuED CapITaL $’000 aCCumuLaTED LOSSES $’000 EmpLOyEE BENEfITS RESERvE $’000 gENERaL RESERvE $’000 TOTaL paRENT ENTITy INTEREST $’000 NON- CONTROLLINg INTEREST $’000 at 1 July 2012 Profit for the period Other comprehensive income Total comprehensive income and expense for the period Transactions with equity holders in their capacity as equity holders: Share based payments Dividends on ordinary shares 310,262 – – – – – at 30 June 2013 310,262 (150,270) 20,211 – 20,211 – (26,742) (156,801) 2,822 (2,787) – – – – 499 499 160,027 20,211 499 20,710 385 – 3,207 – – (2,288) 385 (26,742) 154,380 – – – – – – – TOTaL $’000 154,380 33,852 – 33,852 750 – (26,742) 162,240 TOTaL $’000 160,027 20,211 499 20,710 385 (26,742) 154,380 26 coNsoLiDAteD stAteMeNt of cAsh fLows for the YeAr eNDeD 30 JuNe 2014 NOTES CONSOLIDaTED 2014 $’000 2013 $’000 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 11 INvESTINg aCTIvITIES Proceeds from sale of property, plant & equipment Purchase of property, plant & equipment and intangible assets Proceeds from sale of financial assets Proceeds from sale of business operations – deferred contingent consideration Purchase of program rights Loan funds to related entities net caSh FLoWS From/(uSed in) inveSting activitieS fINaNCINg aCTIvITIES Proceeds from borrowings Repayments of borrowings Finance lease liability payments Dividends paid NET CaSh fLOwS uSED IN fINaNCINg aCTIvITIES NET INCREaSE IN CaSh aND CaSh EQuIvaLENTS Cash and cash equivalents at beginning of period CaSh aND CaSh EQuIvaLENTS aT END Of pERIOD 11 291,743 (226,407) 305 (6,839) – (16,241) 42,561 – (4,795) 24,395 330 (10,000) (1,123) 8,807 93,525 (115,525) (230) (26,742) (48,972) 2,396 10,326 12,722 302,741 (257,356) 341 (8,314) 255 (14,942) 22,725 44 (9,203) 215 352 – (2,352) (10,944) 167,500 (149,500) (1,629) (26,742) (10,371) 1,410 8,916 10,326 Prime media GrouP AnnuAl RepoRt 2014 27 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 1 CORpORaTE INfORmaTION The consolidated financial report of Prime Media Group Limited (the “Company”) for the year ended 30 June 2014 was authorised for issue in accordance with a resolution of the directors on 27 August 2014. 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 TaBLE Of CONTENTS (A) Basis of preparation (B) Compliance with IFRS (C) Changes in accounting policies, disclosures, standards and interpretations (D) Basis of consolidation (E) Business combinations and goodwill (F) Investments in associates (G) Current versus non-current classification (H) Foreign currency translation (I) Revenue recognition (J) Government grants (K) Taxes (L) Non-current assets held for sale and discontinued operations (M) Property, plant and equipment (N) Leases (O) Borrowing costs (P) Intangible assets (Q) Financial Instruments – initial recognition and subsequent measurement (R) Derivative financial instruments and hedge accounting (S) Impairment of non-financial assets (T ) Cash and short term deposits (U) Provisions (V ) Share-based payments (W ) Trade and other receivables (X) Trade and other payables (Y ) Contributed equity (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 available-for-sale investments 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. The consolidated financial statements provide comparative information in respect of the previous period. (B) 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. (C) ChaNgES IN aCCOuNTINg pOLICIES, DISCLOSuRES, STaNDaRDS aND INTERpRETaTIONS 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 2012: • AASB 112 Income Taxes (Amendment) – Deferred Taxes: Recovery of Underlying Assets; Improvements to AASBs (May 2010); and • • AASB 2013-3: Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets. 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 112 Income Taxes (Amendment) – Deferred Taxes: Recovery of Underlying Assets The Amendment clarified the determination of deferred tax on investment property measured at fair value and introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in AASB 140 should be determined on the basis that its carrying amount will be recovered through sale. It includes the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in AASB 116 should always be measured on a sale basis. The amendment is effective for annual periods beginning on or after 1 January 2012 and has no effect on the Group’s financial position, performance or disclosures. AAsB 2013-3: Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets AASB 2013-3 amends the disclosure requirements in AASB 136 Impairment of Assets. The amendments include the requirement to disclose additional information about the fair value measurement when the recoverable amount of impaired assets is based on fair value less costs of disposal. The amendment is effective for annual periods beginning on or after 1 January 2014 and has no effect on the Group’s financial position, performance or disclosures. 28 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 The following Australian Accounting Standards and Interpretations that have recently been issued or amended, but are not yet effective. The changes have had no material effect on the financial statements of the Group. REfERENCE TITLE AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities AASB 9/IFRS 9 Financial Instruments appLICaTION DaTE Of STaNDaRD appLICaTION DaTE fOR gROup 1 January 2014 1 July 2014 1 January 2018 1 July 2018 AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets 1 January 2014 1 July 2014 AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting [AASB 139] Amendments to Australian Accounting Standards – Part A Annual Improvements to IFRSs 2010–2012 Cycle 1 January 2014 1 July 2014 1 July 2014 1 July 2014 Amendments to Australian Accounting Standards – Part A Annual Improvements to IFRSs 2011–2013 Cycle 1 July 2014 1 July 2014 AASB 2014-1 Part A – Annual Improvements 2010–2012 Cycle AASB 2014-1 Part A – Annual Improvements 2011-2013 Cycle AASB 1031 Materiality AASB 2013-9 Amendments to IAS 16 and IAS 38***** Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) 1 January 2014 1 July 2014 1 January 2014 1 July 2014 1 January 2016 1 July 2016 (D) BaSIS Of CONSOLIDaTION The consolidated financial statements comprise the financial statements of Prime Media Group Limited and its subsidiaries (as outlined in Note 30) as at and for the year ended 30 June 2014. Interests in associates are equity accounted and are not part of the consolidated Group (see Note 14). 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. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. 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. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income expenses and cashflows relating to transactions between members of the Group are eliminated in full on consolidation. 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; and 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 aND gOODwILL 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 and 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. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of AASB 139 is measured at fair value with changes in fair value recognised in profit or loss or as a change in other comprehensive income. If the contingent consideration is not within the scope of AASB 139, it is measured in accordance with the appropriate Standard. Contingent consideration that is reclassified as equity is not re-measured and subsequent settlement is accounted for within equity. Prime media GrouP AnnuAl RepoRt 2014 29 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 2 SummaRy Of SIgNIfICaNT aCCOuNTINg pOLICIES (CONTINUED) (E) BuSINESS COmBINaTIONS aND gOODwILL (CONTINuED) Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for any non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain 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) INvESTmENTS IN aSSOCIaTES The Group’s investments in its associates are accounted for using the equity method. An associate is an entity over which the Group has significant influence. Under the equity method, the investment in an associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate since the acquisition date. Goodwill relating to an associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The statement of profit or loss reflects the Group’s share 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, 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. The Group’s share of profit or loss of an associate is shown on the face of the statement of profit or loss outside operating profit or loss 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. At each reporting date, the Group determines 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 statement of profit or loss. Upon loss of significant influence over the associate, the Group measures and recognises any retained 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. (g) CuRRENT vERSuS NON-CuRRENT CLaSSIfICaTION The Group presents assets and liabilities in the statement of financial position based on current and non-current classification. An asset is current when it is: 30 • expected to be realised or intended to be sold or consumed in normal operating cycle; • held primarily for the purpose of trading; • expected to be realised within 12 months after the reporting date; or • cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date. All other assets are classified as non-current. A liability is current when: • • • • it is expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting date; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities. (h) fOREIgN CuRRENCy TRaNSLaTION The Group’s consolidated financial statements are presented in 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 Group uses the direct method of consolidation and has elected to recycle the gain or loss that arises from using this method. (i) TRaNSaCTIONS aND BaLaNCES 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. Differences arising on settlement or translation of monetary items are recognised in profit or loss. 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 are also recognised in other comprehensive income or profit or loss, respectively). Any goodwill arising on the acquisition of a foreign operations and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date. (ii) gROup COmpaNIES On consolidation the assets and liabilities of foreign operations are translated into dollars at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at the exchange rates prevailing at the date of the transactions. 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 profit or loss. (I) 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: Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 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. Interest income is included in finance income in the statement of profit or loss. DIvIDENDS Dividend revenue is recognised when the Group’s right to receive the payment is established, which is generally when shareholders approve the dividend. 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 terms and is included in revenue in the statement of profit or loss due to its operating nature. (J) gOvERNmENT gRaNTS Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions have been complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset. When the Group receives non-monetary grants, the assets and the grant are recorded at nominal amounts and released to profit or loss over the expected useful life in a pattern of consumption of the benefit of the underlying asset by equal annual instalments. (K) TaxES (i) CuRRENT INCOmE Tax 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. 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 statement of profit or loss. 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. (ii) DEfERRED INCOmE Tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. 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. 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 tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised 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. 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 value of deferred 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 of the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Information regarding the Group’s consolidated tax group is disclosed at Note 6. gOODS aND SERvICES Tax (gST) Revenues, expenses and assets are recognised net of the amount of GST. 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 the 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 favourable to, the taxation authority. (L) NON-CuRRENT aSSETS hELD fOR SaLE aND DISCONTINuED OpERaTIONS The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Property, plant and equipment and intangible assets once classified as held for sale are not depreciated or amortised. Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the income statement. Prime media GrouP AnnuAl RepoRt 2014 31 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 2 SummaRy Of SIgNIfICaNT aCCOuNTINg pOLICIES (CONTINUED) (m) pROpERTy, pLaNT aND EQuIpmENT Plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. 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 profit or loss 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 3) and provisions (Note 21) 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: – Land: – Freehold buildings: – Leasehold improvements: – Plant and equipment: – Plant and equipment under lease: – Motor vehicles: Not depreciated 40 years The lease term 3 to 15 years 5 to 15 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 statement of profit or loss when the asset is derecognised. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. (N) 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. (i) gROup aS a LESSEE Finance leases that transfer substantially all of the risks and benefits incidental to ownership of the leased item to the Group, 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 statement of profit or loss. 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. (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 in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. (p) 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 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 are 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 are 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 statement of profit or loss 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. The assessment of indefinite life is reviewed annually to determine whether the indefinite life 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 statement of profit or loss 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 BROaDCaST LICENCES, aCQuIRED BOTh SEpaRaTELy aND aS paRT Of a BuSINESS COmBINaTION Television 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 licences are deemed to have indefinite useful lives. pROgRam RIghTS Consists of television program rights arising from the Company’s affiliation with the Seven Network. 32 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 A summary of the policies applied to the Group’s intangible assets is as follows: TELEvISION aND RaDIO BROaDCaST LICENCES BuSINESS SOfTwaRE, DEvELOpmENT, wEBSITES, pROgRam RIghTS aND INfRaSTRuCTuRE aCCESS LICENCE useful lives: Indefinite Finite amortisation method used: Not amortised or revalued Internally generated or acquired: Acquired Amortised on a straight-line basis over the period of the expected future benefit Internally generated/acquired (Q) fINaNCIaL INSTRumENTS – INITIaL RECOgNITION aND SuBSEQuENT mEaSuREmENT A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. (i) fINaNCIaL aSSETS initial recognition and measurement Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held to maturity investments, available for sale assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. 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 that require delivery of the assets within the period established by regulation or convention in the market place are recognised on the trade date being the date that the Group commits to purchase or sell the asset. subsequent Measurement The subsequent measurement of financial assets depends on their classification as described below: financial assets at fair value through profit or 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 presented as finance costs (negative net changes in fair value) or finance income (positive net changes in fair value) in the income statement. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial 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 statement of profit or loss. The losses arising from impairment are recognised in the statement of profit or loss in finance costs for loans. Available-for-sale financial investments Available-for-sale financial 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 measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income in reserves 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 reserves to the statement of profit or loss in finance costs. Interest earned whilst holding available-for-sale financial investments is reported as interest income using the effective interest rate method. 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 if management has the ability and intention to hold the 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 is reclassified to the statement of profit or loss. 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 the Group has transferred substantially all the risks and rewards of the asset, or 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. (ii) ImpaIRmENT Of fINaNCIaL aSSETS 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 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 or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of 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 observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Prime media GrouP AnnuAl RepoRt 2014 33 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 2 SummaRy Of SIgNIfICaNT aCCOuNTINg pOLICIES (CONTINUED) (Q) fINaNCIaL INSTRumENTS – INITIaL RECOgNITION aND SuBSEQuENT mEaSuREmENT (CONTINuED) 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 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. The amount of any impairment loss identified 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. 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 statement of profit or loss. Interest income (recorded as finance income in the statement of profit or loss) 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 statement of profit or loss. 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 statement of profit or loss. 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 which is measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss, is removed from other comprehensive income and recognised in the statement of profit or loss. Impairment losses on equity investments are not reversed through the statement of profit or loss; increases in their fair value after impairment are recognised directly in other comprehensive income. (iii) fINaNCIaL LIaBILITIES initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of 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 as at fair value through profit or loss. 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 statement of profit or loss. Financial liabilities designated upon initial recognition at fair value through profit and loss are designated at the initial date of recognition, and only if the criteria in AASB 139 are satisfied. The Group has not designated any financial liability as at fair value through profit or loss. 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 statement of profit or loss 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, 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 statement of profit or loss. (iv) OffSETTINg Of fINaNCIaL INSTRumENTS Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and 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. 34 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 (R) DERIvaTIvE fINaNCIaL INSTRumENTS aND hEDgE aCCOuNTINg The Group uses derivative financial instruments, as necessary, 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. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the statement of profit or loss. The fair values of interest rate swap contracts are determined by reference to market values for similar instruments. (S) ImpaIRmENT Of NON-fINaNCIaL aSSETS 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 units (CGU) fair value less costs to sell and its value in use. Recoverable amount 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 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. In determining fair value less costs to sell, recent market transactions are taken into account. 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 companies 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 statement of profit or loss 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 to determine whether there is an indication that previously recognised impairment losses 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. 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. 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. (T) 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. (u) 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 statement of profit or loss net of any reimbursement. pROvISION fOR aSSET DECOmmISSIONINg 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 statement of profit or loss 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. wagES, SaLaRIES aND aNNuaL LEavE Liabilities for wages and salaries, including non-monetary benefits and annual 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. LONg SERvICE LEavE The liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. Prime media GrouP AnnuAl RepoRt 2014 35 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 2 SummaRy Of SIgNIfICaNT aCCOuNTINg pOLICIES (CONTINUED) (w) TRaDE aND OThER RECEIvaBLES 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. (x) 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. (y) CONTRIBuTED EQuITy Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or performance rights are shown in equity as a deduction, net of tax, from the proceeds. (v) ShaRE-BaSED paymENTS Employees (including senior executives) of the Group receive remuneration in the form of performance rights which are 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 statement of profit or loss 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 performance rights is reflected as additional share dilution in the computation of diluted earnings per share (see Note 9). 36 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 3 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 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 LESSEE The Group has entered into operating leases that 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. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it does not retain all the significant risks and rewards of ownership of these sites and equipment and accounts for the contracts as operating leases. 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. 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. ImpaIRmENT Of NON-fINaNCIaL aSSETS An impairment exists when the carrying value of an asset or cash generating unit exceeds the recoverable value amount which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding arm’s length transactions of similar assets or observable market prices less incremental costs for disposing of the assets. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the assets performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the future cash inflows and the growth rate for extrapolation purposes. The key assumptions used to determine the recoverable amount for different CGUs, including a sensitivity analysis, are further explained at Note 18. 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 The Group’s television and radio broadcasting licences consist 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. 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 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 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 18. 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. 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 2014 was $215,000 (2013: $944,000). ShaRE-BaSED paymENT TRaNSaCTIONS The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using a binomial model, using the assumptions detailed in Note 27. faIR vaLuE Of fINaNCIaL DERIvaTIvES The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. TaxES 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. 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. Prime media GrouP AnnuAl RepoRt 2014 37 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 4 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, and 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 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 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 2014 and 2013. 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 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 20. 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 Net exposure CONSOLIDaTED 2014 $’000 12,722 12,722 (118,727) (118,727) (106,005) 2013 $’000 10,326 10,326 (141,105) (141,105) (130,779) 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. The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. At 30 June 2014, 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: Consolidated +0.5% (50 basis points) -0.5% (50 basis points) pOST Tax pROfIT higher/(LoWer) 2014 $’000 (371) 371 2013 $’000 (458) 458 EQuITy higher/(LoWer) 2014 $’000 2013 $’000 – – – – The assumed movement in basis points for the interest rate sensitivity analysis is based on the currently observable market environment, showing a higher volatility than in prior years. 38 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 fOREIgN CuRRENCy RISK Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense is denominated in different currency from the Group’s functional currency) and the Group’s net investment in foreign subsidiaries. The Group operates in Australia and New Zealand. The majority of transactions for the Group entities are made in the functional currency of the relevant entity. From time to time the Group enters into transactions that give rise to currency exposure risks. Such currency exposures arise from purchases in currencies other than the Group’s functional currency. The Group reviews the transactional currency risks arising from significant foreign currency transactions and, if appropriate, enters into forward currency contracts to reduce currency risks. The Group also has foreign currency translation risk where the operations of the foreign based subsidiaries are translated to the Group’s reporting currency. . At 30 June 2014, the Group had the following exposure to NZ$ foreign currency that is not designated as cash flow hedges: financial assets Receivables – Deferred contingent consideration Net exposure CONSOLIDaTED 2014 $’000 – – 2013 $’000 134 134 As at 30 June 2014, 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 statement of profit or loss. 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 It is the Group’s policy that all customers who 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. An impairment analysis is performed 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 12. The Group does not hold collateral as security. A small number of media buying agencies account for approximately 58.2% 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. LIQuIDITy RISK The Group manages its liquidity risk by monitoring the total cash inflows and outflows expected on a weekly basis. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, debentures, finance leases and hire purchase agreements. The Group currently has funding through: • $175 million debenture subscription facility (2013: $200 million), which is currently drawn to 68% of the facility limit (2013: 71%); and • long term finance lease contracts over specific items of plant and equipment. Currently the Group secures up to 84% of the drawn down balance of the Debenture Subscription Facility for 6 monthly periods. In addition to maintaining sufficient liquid assets to meet short-term payments, at balance date, the Group has available approximately $56 million of undrawn committed borrowing facilities, subject to continued compliance with the bank loan covenants. The facility is repayable in full on expiry in March 2018. Interest will be charged at a rate of BBSY plus a margin between 1.50% and 1.80%. At 30 June 2014, 0.3% of the Group’s debt will mature in less than one year. Prime media GrouP AnnuAl RepoRt 2014 39 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 4 fINaNCIaL RISK maNagEmENT OBJECTIvES aND pOLICIES (CONTINUED) LIQuIDITy RISK (CONTINuED) The remaining contractual maturities of the Group’s financial assets and liabilities are: yEaR ENDED 30 JuNE 2014 financial assets Cash and cash equivalents Trade and other receivables financial liabilities Trade and other payables Interest bearing loans and borrowings net inflow/(outflow) yEaR ENDED 30 JuNE 2013 financial assets Cash and cash equivalents Trade and other receivables Asset classified as held for sale financial liabilities Trade and other payables Liabilities associated with assets classified as held for sale Interest bearing loans and borrowings net inflow/(outflow) ≤ 6 mONThS $’000 6 – 12 mONThS $’000 1 – 5 yEaRS $’000 > 5 yEaRS $’000 TOTaL $’000 12,722 55,518 68,240 (33,270) (2,684) (35,954) 32,286 – – – – – – – – (2,698) (2,698) (2,698) (119,462) (119,462) (119,462) – – – – – – – ≤ 6 mONThS $’000 6 – 12 mONThS $’000 1 – 5 yEaRS $’000 > 5 yEaRS $’000 10,326 57,937 25,228 93,491 (37,474) (2,497) (3,388) (43,359) 50,132 – – – – – – – 178 – 178 – – (3,405) (3,405) (3,405) (142,152) (142,152) (141,974) – – – – – – – – – 12,722 55,518 68,240 (33,270) (124,844) (158,114) (89,874) TOTaL $’000 10,326 58,115 25,228 93,669 (37,474) (2,497) (148,945) (188,916) (95,247) 40 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 5 INCOmE aND ExpENSES INCOmE aND ExpENSES fROm CONTINuINg OpERaTIONS (a) INCOmE 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 (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 CONSOLIDaTED 2014 $’000 2013 $’000 256,342 290 3,645 260,277 253,241 332 3,688 257,261 290 290 1,805 1,840 3,645 6,499 6,499 34,722 2,720 750 589 38,781 119 13,700 332 332 2,097 1,591 3,688 7,965 7,965 34,715 2,639 385 1,112 38,851 238 15,523 Prime media GrouP AnnuAl RepoRt 2014 41 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 6 INCOmE Tax (a) INCOmE Tax ExpENSE 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 – Income tax expense on discontinued operations Deferred income tax – Relating to origination and reversal of temporary differences – Adjustments in respect of deferred income tax of previous years – Net deferred tax asset not previously recognised due to accumulated loss position of subsidiary – Income tax expense on discontinued operations INCOmE Tax ExpENSE aggregate income tax expense attributable to: – Continuing operations – Discontinued operations (B) NumERICaL RECONCILIaTION BETwEEN aggREgaTE Tax ExpENSE 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 Profit/(Loss) before tax from discontinued operations Total accounting profit before income tax Prima facie tax expense on accounting profit at the Group’s statutory rate of 30% (2013: 30%) – Expenses not deductible for tax – Impairment charge not deductible for tax – Income not assessable for tax – Deferred Tax Asset on income tax losses not previously recognised – Deferred Tax Asset derecognised – Foreign tax rate adjustment Aggregate income tax expense Aggregate income tax expense attributable to: – Continuing operations – Discontinued operations CONSOLIDaTED 2014 $’000 2013 $’000 11,510 (174) 282 4,649 217 (804) – 15,680 15,398 282 15,680 46,586 2,946 49,532 14,860 2,379 – (2,240) (755) 1,607 (171) 15,680 15,398 282 15,680 12,119 (616) 714 2,724 (377) (1,583) 46 13,027 12,267 760 13,027 45,875 (12,637) 33,238 9,971 1,267 4,500 (81) (2,511) – (119) 13,027 12,267 760 13,027 42 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 (C) RECOgNISED DEfERRED Tax aSSETS aND LIaBILITIES Opening balance Charged to income 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 CONSOLIDaTED 2014 $’000 CuRRENT INCOmE Tax 2014 $’000 DEfERRED INCOmE Tax 2013 $’000 CuRRENT INCOmE Tax 2013 $’000 DEfERRED INCOmE Tax (7,210) (11,617) 17,090 (1,737) (10,235) (12,218) 15,243 (7,210) 6,111 (3,780) (889) 1,442 15,680 1,442 – 1,442 7,676 (1,091) (474) 6,111 13,027 6,111 – 6,111 The movement in deferred tax assets is in part due to derecognition of deferred tax assets from New Zealand operations, which have been discontinued. Deferred income tax as at 30 June relates to the following: Deferred tax liabilities Accelerated depreciation for tax Leased assets Prepaid expenses deductible for tax Income not yet assessable for tax Fair value of television licences on acquisition Set-off of deferred tax assets Net deferred tax liabilities Deferred income tax as at 30 June relates to the following: Deferred tax assets Employee entitlements Provisions Expenses not yet deductible for tax Difference between accounting and tax building write off Accounting depreciation not yet deductible for tax Impairments of investments Tax losses Set-off of deferred tax liabilities Net deferred tax assets (D) INCOmE Tax LOSSES CONSOLIDaTED STaTEmENT Of fINaNCIaL pOSITION 2014 $’000 2013 $’000 (502) (32) (3,196) – (6,690) (10,420) 10,420 – 1,533 89 2,039 505 – 6,690 1,006 11,862 (10,420) 1,442 – (191) (526) (261) (6,690) (7,668) 7,668 – 1,584 108 2,316 519 44 6,690 2,518 13,779 (7,668) 6,111 (a) Deferred tax assets arising from tax losses of a controlled entity which at balance date are recognised as being highly probable of recovery. These losses relate to the Australian Tax Consolidated Group and 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 1,006 15,307 2,513 12,982 Prime media GrouP AnnuAl RepoRt 2014 43 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 6 INCOmE Tax (CONTINUED) 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 2014 $’000 2013 $’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 12,627 15,317 (E) 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 2014 (2013: $Nil). 7 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 GWN7. 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 and online advertising in Australia. corporate and other Administrative and financial support operations are reported separately to the Board. 44 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 DISCONTINuED OpERaTIONS radio Broadcasting On 30 August 2013 the Group completed the sale of its radio broadcasting business, which consisted of 10 radio stations in Queensland. 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. The below tables detail revenue and profit for the operating segments for the years ended 30 June 2014 and 30 June 2013. As At 30 JuNe 2014 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 Net profit after tax Net profit after tax attributable to members of prime media group Limited As At 30 JuNe 2014 assets and liabilities Segment assets 1 Investments in associates Total assets Segment liabilities 1 Net assets Other segment information Capital expenditure 2 Program Rights Depreciation and amortisation Share of associate losses TELEvISION BROaDCaSTINg $’000 TOTaL CONTINuINg SEgmENTS $’000 uNaLLOCaTED $’000 TOTaL CONTINuINg OpERaTIONS $’000 DISCONTINuED OpERaTIONS $’000 TOTaL OpERaTIONS $’000 256,342 2,962 259,304 – 256,342 2,962 259,304 – 259,304 259,304 – 683 683 290 973 256,342 3,645 259,987 290 3,364 2,434 5,798 2 259,706 6,079 265,785 292 260,277 5,800 266,077 74,985 63,209 74,985 63,209 (10,211) (10,414) 63,063 63,063 (16,477) 64,774 52,795 46,586 (15,398) 31,188 2,944 2,944 2,946 (282) 2,664 67,718 55,739 49,532 (15,680) 33,852 31,188 2,664 33,852 TELEvISION BROaDCaSTINg $’000 uNaLLOCaTED $’000 TOTaL CONTINuINg OpERaTIONS $’000 DISCONTINuED OpERaTIONS $’000 TOTaL OpERaTIONS $’000 313,034 140 313,174 4,187 10,000 14,187 (11,776) (833) 4,499 – 4,499 25 – 25 (203) – 317,533 140 317,673 (155,433) 162,240 4,212 10,000 14,212 (11,979) (833) – – – – – – – – – – 317,533 140 317,673 (155,433) 162,240 4,212 10,000 14,212 (11,979) (833) 1 Excludes inter-segment receivables and payables, and investments in subsidiaries. 2 To comply with the requirements of AASB 8, the Group has included the cost of segment assets acquired by way of business combinations. Prime media GrouP AnnuAl RepoRt 2014 45 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 7 OpERaTINg SEgmENTS (CONTINUED) As At 30 JuNe 2013 TELEvISION BROaDCaSTINg $’000 TOTaL CONTINuINg SEgmENTS $’000 uNaLLOCaTED $’000 TOTaL CONTINuINg OpERaTIONS $’000 DISCONTINuED OpERaTIONS $’000 TOTaL OpERaTIONS $’000 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 net profit/(Loss) after tax Net profit after tax attributable to members of prime media group Limited 253,241 3,341 256,582 – 253,241 3,341 256,582 – 256,582 256,582 – 347 347 332 679 253,241 3,688 256,929 332 18,999 740 19,739 16 272,240 4,428 276,668 348 257,261 19,755 277,016 72,841 63,884 72,841 63,884 (10,169) (10,376) 63,694 63,694 (17,819) 62,672 53,508 45,875 (12,267) 33,608 3,304 (12,653) (12,637)1 (760) (13,397) 65,976 40,855 33,238 (13,027) 20,211 33,608 (13,397) 20,211 1 Profit/(Loss) before income tax per the statement of comprehensive income includes an impairment charge to reduce the carrying value of Radio Broadcast Licences by $15.0 million. As At 30 JuNe 2013 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 uNaLLOCaTED $’000 TOTaL CONTINuINg OpERaTIONS $’000 DISCONTINuED OpERaTIONS $’000 TOTaL OpERaTIONS $’000 308,573 – 308,573 11,860 – 11,860 320,433 – 320,433 (188,784) 131,649 25,228 – 25,228 (2,497) 22,731 345,661 – 345,661 (191,281) 154,380 8,817 (8,957) – (1,548) 9 8,826 852 9,678 (208) – – (9,165) – (1,548) (957) (15,000) – (10,122) (15,000) (1,548) 1 Excludes inter-segment receivables and payables, and investments in subsidiaries. 2 To comply with the requirements of AASB 8, the Group has included the cost of segment assets acquired by way of business combinations. 46 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 RECONCILIaTION Of pROfIT Segment profit before tax (Continuing operations) Finance costs Administration expenses Profit/(Loss) from discontinued operations group profit before tax RECONCILIaTION Of aSSETS Segment operating assets (Continuing operations) Assets classified as held for sale group operating assets RECONCILIaTION Of LIaBILITIES Segment operating liabilities (Continuing operations) Liabilities classified as held for sale group operating liabilities 8 DISCONTINuED OpERaTIONS CONSOLIDaTED 2014 $’000 2013 $’000 63,063 (6,063) (10,414) 2,946 49,532 317,673 – 317,673 155,433 – 155,433 63,694 (7,443) (10,376) (12,637) 33,238 320,433 25,228 345,661 188,784 2,497 191,281 (a) DETaILS Of OpERaTIONS DISpOSED On 30 August 2013, the Group completed the sale of the Group’s radio business, for $24,525,000 in cash, which resulted in a pre-tax gain on sale of $2,302,000. The results of the Radio segment for the period 1 July to 30 August 2013 are presented in the table at Note 8(B). The radio business was classified as a disposal group held for sale at 30 June 2013. The Radio segment consisted of the following wholly owned subsidiaries: Prime Radio (Holdings) Pty Limited ACN: 122 696 753 Prime Radio (Townsville) Pty Limited ACN: 113 960 688 Prime Radio (Cairns) Pty Limited ACN: 113 960 722 Prime Radio (Barrier Reef) Pty Limited ACN: 113 960 651 Prime Radio (Mackay) Pty Limited ACN: 113 960 606 Prime Radio (Mackay-AM) Pty Limited ACN: 122 696 842 Prime Radio (Cairns-AM) Pty Limited ACN: 122 696 879 Prime Radio (Rockhampton) Pty Limited ACN: 113 960 624 Prime Radio (Gladstone) Pty Limited ACN: 113 960 642 AMI Radio Pty Limited ACN: 075 044 861 Hot 91 Pty Limited ACN: 101 804 371 Prime media GrouP AnnuAl RepoRt 2014 47 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 8 DISCONTINuED OpERaTIONS (CONTINUED) (B) fINaNCIaL pERfORmaNCE Of OpERaTIONS DISpOSED OR hELD fOR SaLE Revenue from external sales and customers Other revenue Total revenue from discontinued operations Expenses net profit/(Loss) attributable to discontinued operations Gain on disposal of discontinued operations net profit/(Loss) attributable to discontinued operations before income tax Income tax expense – Profit/(Loss) attributable to discontinued operations after tax – Profit/(Loss) from discontinued operations attributable to members of parent entity earnings/(Loss) per share (cents per share) – Basic from discontinued operations – Diluted from discontinued operations The results for the current period are based on trading for the period to 30 August 2013. The prior corresponding period results included an impairment charge reducing the carrying value of radio broadcast licences by $15,000,000. (C) CaSh fLOw INfORmaTION – DISCONTINuED OpERaTIONS Net cash inflow from operating activities Net cash (outflow) from investing activities Net cash (outflow) from financing activities Net cash outflow from discontinued operations (D) aSSETS aND LIaBILITIES hELD fOR SaLE Trade and other receivables Prepayments Total current assets Property, plant and equipment Intangibles – broadcast licences Deferred tax assets Total non-current assets assets classified as held for sale Trade and other payables Total current liabilities Provisions Total non-current liabilities Liabilities associated with assets classified as held for sale CONSOLIDaTED 2014 $’000 2013 $’000 3,364 135 3,499 (2,855) 644 2,302 2,946 (282) 2,664 2,664 0.7 0.7 1,134 (82) (1,777) (725) – – – 1,222 – – 1,222 1,222 – – – – – 18,999 756 19,755 (32,392) (12,637) – (12,637) (760) (13,397) (13,397) (3.7) (3.7) 1,964 (638) (1,082) 244 3,940 139 4,079 4,334 16,533 282 21,149 25,228 2,341 2,341 156 156 2,497 48 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 9 EaRNINgS pER ShaRE 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 – profit from continuing operations 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 profit/(loss) attributable to ordinary equity holders of the parent from discontinued 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 Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share CONSOLIDaTED 2014 $’000 2013 $’000 9.2 8.5 9.2 8.5 5.5 9.2 5.5 9.2 31,188 2,664 33,852 33,852 33,608 (13,397) 20,211 20,211 NumBER Of ShaRES NumBER Of ShaRES 366,330,303 366,330,303 366,330,303 366,330,303 All performance rights are anti-dilutive, as service and performance conditions are yet to be met. There have been no other transactions involving ordinary shares or potential ordinary shares 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 27 are considered to be potential ordinary shares and will be included in the determination of diluted earnings per share to the extent they are dilutive when the performance rights vest. Basic earnings per share (cents per share) – profit from core earnings Diluted earnings per share (cents per share) – profit from core earnings CONSOLIDaTED 2014 $’000 2013 $’000 9.1 9.1 9.7 9.7 Prime media GrouP AnnuAl RepoRt 2014 49 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 9 EaRNINgS pER ShaRE (CONTINUED) To calculate earnings per share amounts for the core continued and discontinued 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 OpERaTIONS ExCLuDINg SpECIfIC ITEmS Reported profit after tax from continuing operations (refer Statement of comprehensive income) Reported profit/(loss) after tax from discontinued operations (refer Statement of comprehensive income) – Fair value change in derivatives – Fair value change in receivable – deferred contingent consideration – Impairment of radio broadcasting licences – Radio gain on sale – Depreciation of decommissioning costs – Redundancies – Derecognise deferred tax asset carried for New Zealand tax losses – Income tax benefit related to specific items profit after tax from operations before specific items attributable to members of prime media group Limited CONSOLIDaTED 2014 $’000 2013 $’000 31,188 2,664 33,852 – (493) – (2,302) 604 626 1,296 (188) 33,608 (13,397) 20,211 2 (270) 15,000 – 481 – – (1) 33,395 35,423 Core net profit after tax from both continuing and discontinued operations, and before specific items, of $33,395,000 (2013: $35,423,000) includes the Group’s Radio operations for the 2 month reporting period, compared to 12 months in the previous corresponding period. The Group’s final dividend has been declared based on the core net profit after tax. 10 DIvIDENDS paID aND pROpOSED (a) RECOgNISED amOuNTS Declared and paid during the year (i) CuRRENT yEaR INTERIm Franked dividends 4.0 cents per share (2013: 4.0 cents) – ordinary shares (ii) pREvIOuS yEaR fINaL Franked dividends 3.3 cents per share (2013: 3.3 cents) – ordinary shares (B) uNRECOgNISED amOuNTS (i) CuRRENT yEaR fINaL Franked dividends 2.8 cents per share (2013: 3.3 cents) – ordinary shares (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% (2013: 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 CONSOLIDaTED 2014 $’000 2013 $’000 14,653 14,653 12,089 26,742 12,089 26,742 10,257 12,089 ThE gROup 2014 $’000 2013 $’000 31,050 1,762 – 32,812 (4,396) 28,416 26,531 7,150 – 33,681 (5,181) 28,500 (D) Tax RaTES The tax rate at which paid dividends have been franked is 30% (2013: 30%). Dividends proposed will be franked at the rate of 30% (2013: 30%). 50 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 11 CaSh aND ShORT-TERm DEpOSITS CONSOLIDaTED Cash balance comprises: Cash at bank and on hand Closing cash balance 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 2014 the Group had available $56 million (2013: $58 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 Profit after tax from continuing operations Profit/(Loss) after tax from discontinued operations Net profit 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 on sale of financial asset Gain on foreign currency translation Net gain MTM derivatives Impairment of intangibles and goodwill Share of losses of associates Share based payments expense Changes in assets and liabilities Decrease/(Increase) in trade and other receivables Decrease in deferred tax assets Decrease in prepayments Decrease in trade and other payables Decrease in tax provision Decrease in borrowing costs Decrease in provisions Net cash flow from operating activities 2014 $’000 12,722 12,722 31,188 2,664 33,852 9,912 2,067 (104) 157 (2,303) (181) – – 833 750 837 6,090 770 (3,526) (6,147) (378) (68) 42,561 2013 $’000 10,326 10,326 33,608 (13,397) 20,211 9,722 400 (115) 35 (11) (206) 2 15,000 1,548 385 (815) 1,329 549 (21,784) (3,025) (196) (304) 22,725 Prime media GrouP AnnuAl RepoRt 2014 51 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 12 TRaDE aND OThER RECEIvaBLES Current Trade receivables Allowance for impairment loss Deferred contingent consideration Other receivables Related party receivables Carrying amount of trade and other receivables CONSOLIDaTED 2014 $’000 2013 $’000 48,657 (404) 48,253 – 4,081 3,184 55,518 49,547 (650) 48,897 134 6,812 2,094 57,937 (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 Less provision for impairment loss in relation to assets held for sale At June 30 At 30 June, the ageing analysis of trade receivables is as follows: CONSOLIDaTED 2014 $’000 650 (65) (181) – 404 2013 $’000 701 495 (432) (114) 650 TOTaL 0-30 DayS 31-60 DayS 61-90 DayS pDNI 1 61-90 DayS CI 1 +91 DayS pDNI 1 +91 DayS CI 1 2014 2013 48,657 49,547 24,970 25,688 22,054 21,332 925 1,060 – – 304 817 404 650 1 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. It is expected that these other balances will be received. (B) RELaTED paRTy RECEIvaBLES For terms and conditions of related party receivables refer to Notes 30 and 31. 52 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 (C) fOREIgN ExChaNgE aND INTEREST RaTE RISK Detail regarding foreign exchange and interest rate risk exposure is disclosed in Note 4. Non-current Sundry receivables Related party receivables Carrying amount of non-current receivables (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 4. CONSOLIDaTED 2014 $’000 – – – 2013 $’000 133 45 178 (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. 13 OThER aSSETS Current Prepayments Non-current Prepayments CONSOLIDaTED 2014 $’000 1,370 1,258 2013 $’000 1,303 1,183 Prime media GrouP AnnuAl RepoRt 2014 53 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 14 INvESTmENTS IN aSSOCIaTES (a) INvESTmENT DETaILS unlisted Mildura Digital Television Pty Limited (refer to Note 21) West Digital Television Pty Limited West Digital Television No.2 Pty Limited West Digital Television No.3 Pty Limited West Digital Television No.4 Pty Limited WA SatCo Pty Limited Broadcast Transmission Services Pty Limited Total Investments in associates CONSOLIDaTED 2014 $’000 2013 $’000 90 50 – – – – – 140 – – – – – – – – (B) ThE CONSOLIDaTED ENTITy haS a maTERIaL INTEREST IN ThE fOLLOwINg ENTITIES: unlisted Mildura Digital Television Pty Limited West Digital Television Pty Limited West Digital Television No.2 Pty Limited West Digital Television No.3 Pty Limited West Digital Television No.4 Pty Limited WA SatCo Pty Limited Broadcast Transmission Services Pty Limited Total contribution to net profit OwNERShIp INTEREST CONTRIBuTION TO NET pROfIT 2014 % 50% 50% 50% 50% 50% 50% 33% 2013 % 50% 50% 50% 50% 50% 50% 33% 2014 $’000 (376) (457) – – – – – 2013 $’000 (1,012) (536) – – – – – (833) (1,548) (C) mOvEmENTS IN ThE CaRRyINg amOuNT Of ThE gROup’S INvESTmENT IN aSSOCIaTES At July 1 Contributions made 1 Share of losses after income tax Provision for loan funds still to be paid to associate (refer to Note 21) At June 30 CONSOLIDaTED 2014 $’000 – 1,243 (833) (270) 140 2013 $’000 – 2,971 (1,548) (1,423) – 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. 54 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 15 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. 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 Seven Affiliate Sales Pty Limited Prime Digital Media Pty Limited Prime Digitalworks Pty Limited Prime Media Broadcasting Services Pty Limited Prime Media Communications Pty Limited Prime Growth Media Pty Limited Prime Media Group Services Pty Limited Prime New Media Investments 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 COuNTRy Of INCORpORaTION 2014 % 2013 % EQuITy INTEREST 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 Prime media GrouP AnnuAl RepoRt 2014 55 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 15 INvESTmENTS IN SuBSIDIaRIES aND fINaNCIaL aSSETS (CONTINUED) 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 before income tax from continuing operations Income tax expense attributable to operating profit Operating profit after tax from continuing operations Profit/(Loss) after tax from discontinued operations Operating profit after tax Retained losses at beginning of the financial year Dividends provided for or paid Retained losses at end of the financial period (B) CONSOLIDaTED BaLaNCE ShEET assets Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Equity 16 INvESTmENTS – avaILaBLE-fOR-SaLE fINaNCIaL aSSETS Investments at fair value: 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) CLOSED gROup 2014 $’000 2013 $’000 37,994 (12,585) 25,409 2,664 28,073 (74,460) (26,742) (73,129) 72,662 388,589 461,251 35,686 185,803 221,489 239,762 39,421 (11,851) 27,570 (13,397) 14,173 (61,871) (26,762) (74,460) 93,510 394,643 488,153 48,777 201,693 250,470 237,683 CONSOLIDaTED 2014 $’000 2013 $’000 5 3 2,500 2,508 4 3 2,500 2,507 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. (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 3, 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: 56 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 Investments at fair value: Opening balance Increase in fair value Closing balance CONSOLIDaTED 2014 $’000 2,500 – 2,500 2013 $’000 2,001 499 2,500 (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 $595,000 using less favourable assumptions and an increase in fair value of approximately $595,000 using more favourable assumptions, i.e. change in Enterprise Value (EV)/EBITDA multiples of 0.5 in either direction. impairment of 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(Q) for objective evidence. 17 pROpERTy, pLaNT aND EQuIpmENT Cost or valuation at 1 July 2012 Additions Disposals Classification transfer Reclassification to asset held for sale at 30 June 2013 Additions Disposals Classification transfer Reclassification to asset held for sale at 30 June 2014 Depreciation and amortisation at 1 July 2012 Depreciation charges Amortisation charges Disposals Classification transfer Reclassification to asset held for sale at 30 June 2013 Depreciation charges Amortisation charges Disposals Classification transfer Reclassification to asset held for sale at 30 June 2014 Net Book value at 30 June 2014 At 30 June 2013 LaND aND BuILDINgS1 $’000 LEaSEhOLD ImpROvE- mENTS $’000 pLaNT aND EQuIpmENT $’000 LEaSED pLaNT aND EQuIpmENT $’000 mOTOR vEhICLES $’000 15,560 122 – – (248) 15,434 240 (14) 10 (2,429) 13,241 (5,114) (104) (269) – 10 – (5,477) (46) (258) 5 – 1,312 (4,464) 8,777 9,957 3,954 139,252 4,906 32 – – (1,934) 2,052 – – – – 6,280 (9,734) 1,925 (10,129) 127,594 3,569 (22,423) 482 (246) 2,052 108,976 (1,884) (315) (105,304) (7,558) – – – 949 (1,250) (165) – – – – – 5,690 3,564 7,044 (96,564) (7,221) – 22,215 (303) 141 – – (2,020) – 2,886 – – (644) – 2,242 (1,411) – (376) – 707 – (1,080) – (242) – 107 – (1,415) (81,732) (1,215) 637 802 27,244 31,030 1,027 1,806 71 – – – (71) – – – – – – (46) (9) – – – 55 – – – – – – – – – TOTaL $’000 163,743 6,434 (9,734) (95) (12,382) 147,966 3,809 (22,437) (152) (2,675) 126,511 (113,759) (7,986) (645) 5,690 4,281 8,048 (104,371) (7,432) (500) 22,220 (196) 1,453 (88,826) 37,685 43,595 1 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. (a) aSSETS pLEDgED aS SECuRITy All plant and equipment under lease is pledged as security for the associated lease liabilities. Prime media GrouP AnnuAl RepoRt 2014 57 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 18 gOODwILL aND INTaNgIBLE aSSETS reconciliation of carrying amounts at the beginning and end of period at 30 June 2013 18,355 gOODwILL $’000 BROaDCaST LICENCES $’000 pROgRam RIghTS $’000 18,355 250,101 4,000 – – – – – – – – (67,138) 182,963 – – – – – – 4,000 10,000 – – INfRa- STRuCTuRE aCCESS LICENCE $’000 BuSINESS SOfTwaRE aND DEvELOpmENT COSTS $’000 wEBSITE DEvELOpmENT COSTS $’000 TOTaL $’000 2,942 830 – – 3,772 113 – – 550 289,632 13,684 2,510 – – – – – 16,194 550 257 (197) 184 – – – 3,340 – (67,138) 225,834 10,370 (197) 184 18,355 182,963 14,000 3,885 16,438 550 236,191 (14,874) (35,431) – – – – (14,874) – – – (14,874) 3,481 – 3,481 3,481 – 3,481 – (175) (15,000) 50,606 – – – – – 182,963 – 182,963 182,963 – 182,963 (2,800) (400) – – – (3,200) (2,067) – – (314) (624) – – – (938) (687) – – (8,644) (548) – – – (9,192) (1,109) 7 196 (153) (183) – – – (336) (183) – – (62,216) (1,755) (175) (15,000) 50,606 (28,540) (4,046) 7 196 (5,267) (1,625) (10,098) (519) (32,383) 8,733 2067 6,666 800 400 400 2,260 – 2,260 2,834 – 2,834 6,340 – 6,340 7,002 – 7,002 31 – 31 214 – 214 203,808 2,067 201,741 197,294 400 196,894 Cost at 1 July 2012 Additions Disposals Reclassified as held for sale Additions Disposals Classification transfer at 30 June 2014 amortisation and impairment at 1 July 2012 Amortisation charges Disposals Impairment Reclassified as held for sale at 30 June 2013 Amortisation charges Disposals Classification transfer at 30 June 2014 Net Book value at 30 June 2014 Total Current Total Non-Current at 30 June 2013 Total Current Total Non-Current (a) DESCRIpTION Of ThE gROup’S INTaNgIBLE aSSETS aND gOODwILL (i) BROaDCaST LICENCES Television broadcast licences have been acquired through business combinations and consist of the right to broadcast television 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). (iv) INfRaSTRuCTuRE aCCESS LICENCE 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. 58 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 (vi) wEBSITE 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. (B) ImpaIRmENT TESTINg Of gOODwILL aND INTaNgIBLE aSSETS wITh INDEfINITE LIvES TELEvISION BROaDCaSTINg 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 2014 based on financial budgets approved by management covering a 5 year period. The long term forecasts are generated using a terminal growth rate of 3.0% (2013: 3.0%). The pre-tax discount rate applied to the cash flow projections is 10.96% (2013: 10.70%). The Discounted Cashflow (DCF) valuation of the intangibles assets gives a recoverable amount in excess of the current carrying value. On a biannual basis the Group engages an independent valuer to assess the recoverable amount of its television broadcast licences. The most recent valuation was undertaken in December 2012. This valuation supported the carrying values of television broadcast licences. Carrying amount of Intangibles allocated to each of the cash generating units Television Broadcasting Licences Broadcast Licences Television Broadcasting goodwill on acquisition CONSOLIDaTED 2014 $’000 2013 $’000 182,963 182,963 3,481 3,481 182,963 182,963 3,481 3,481 (C) KEy aSSumpTIONS uSED IN vaLuE IN uSE CaLCuLaTIONS The calculation of value in use for the television broadcasting licences are most sensitive to the following assumptions: • Discount rates; and • Growth rate used to extrapolate cash flows. 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. 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 are based on published industry research, which is obtained on a regular basis throughout the reporting period. (D) SENSITIvITy Of aSSumpTIONS Television broadcasting is largely a fixed cost business, 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. Television 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. There are no key assumptions that could reasonably vary and result in recoverable amounts below carrying value. Prime media GrouP AnnuAl RepoRt 2014 59 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 19 TRaDE aND OThER payaBLES Current Trade payables 1 Accrued expenses Accrued employee leave entitlements 1 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. (B) INTEREST RaTE, fOREIgN ExChaNgE aND LIQuIDITy RISK Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in Note 4. 20 INTEREST-BEaRINg LOaNS aND BORROwINgS CONSOLIDaTED 2014 $’000 1,102 25,895 6,273 33,270 2013 $’000 4,455 28,349 4,670 37,474 Current Obligations under finance lease contracts (Note 24(E)) Non-current Obligations under finance lease contracts (Note 24(E)) $175 million secured bank loan (2013: $200 million) TERmS aND CONDITIONS CONSOLIDaTED 2014 $’000 246 246 672 118,727 119,399 2013 $’000 252 252 918 141,105 142,023 2014 2015 – 2021 2018 BaNK LOaN faCILITy During the reporting period, the Company extended its bank loan facility to March 2018 and permanently reduced the facility limit to $175 million. The facility is secured by a charge over the assets of the borrower group comprising all wholly owned entities in Australia, but excluding Broadcast Production Services Pty Limited and its subsidiaries. Interest is charged at the BBSY rate plus a margin of between 1.50% and 1.80%. (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 4.2% to 4.7% (2013: 4.6% to 5.5%), 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 25. 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 4. (C) DEfauLTS aND BREaChES During the current and prior years, there were no defaults or breaches on any of the loans. 60 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 21 pROvISIONS Current Provision for asset decommissioning Directors’ retiring provision Provision for losses on associates Non-current Long service leave (a) mOvEmENTS IN pROvISIONS Movements in each class of provisions during the financial year are set out below: CONSOLIDaTED 2014 $’000 215 230 – 445 336 336 2013 $’000 944 218 270 1,432 394 394 At 1 July 2013 Arising during the year Utilised at 30 June 2014 Current 2014 Non–current 2014 Total Current 2013 Non–current 2013 Total DIRECTORS RETIRINg pROvISION $’000 pROvISION fOR LOSSES ON aSSOCIaTES $’000 pROvISION fOR aSSET DECOm- mISSIONINg $’000 LONg SERvICE LEavE $’000 218 12 – 230 230 – 230 218 – 218 270 – (270) – – – – 270 – 270 944 18 (747) 215 215 – 215 944 – 944 394 55 (113) 336 – 336 336 – 394 394 TOTaL $’000 1,826 85 (1,130) 781 445 336 781 1,432 394 1,826 (B) NaTuRE aND TImINg Of ThE pROvISIONS (i) 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 2014. (ii) pROvISION fOR aSSET DECOmmISSIONINg The Group has recognised a provision for decommissioning costs for the removal of analogue transmission equipment. (iii) DIRECTORS’ RETIRINg pROvISION Refer to Remuneration Report. The Directors’ Retiring provision was approved by shareholders in November 1997. (iv) LONg SERvICE LEavE Refer to Note 2(U) 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 2014 61 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 22 CONTRIBuTED EQuITy (a) ISSuED aND paID up CapITaL Ordinary shares fully paid 366,330,303 shares (2013: 366,330,303 shares) (B) mOvEmENTS IN ShaRES ON ISSuE ORDINaRy Beginning of the financial year End of the financial year (C) EQuITy SETTLED ShaRE BaSED paymENTS pERfORmaNCE RIghTS OvER ORDINaRy ShaRES CONSOLIDaTED 2014 $’000 2013 $’000 310,262 310,262 2014 2013 NumBER Of ShaRES 366,330,303 366,330,303 $’000 310,262 310,262 NumBER Of ShaRES 366,330,303 366,330,303 $’000 310,262 310,262 the prime Media Group Limited performance rights plan During the financial year 1,430,000 performance rights (2013: 1,580,000) were issued over ordinary shares. Nil performance rights were cancelled by the Company (2013: Nil). At the end of the year there were 3,976,000 (2013: 2,546,000) unissued 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 2014, the Company paid dividends of $26,742,000 (2013: $26,742,000). 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 $294,346,000 < 3.25 times > 3.0 times 1.8 10.4 1 Shareholder Funds have been adjusted to reflect the value of the Licences, as set out in the most recent independent valuation obtained December 2012. 62 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 23 RETaINED EaRNINgS aND RESERvES General reserve Employee benefits equity reserve Accumulated losses (a) 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 27 for further details of these plans. (ii) mOvEmENTS IN RESERvE Balance at beginning of year Share based payment Balance at end of year (B) 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 Reclassification Fair value increase in available for sale financial assets Balance at end of year (c) (accumuLated LoSSeS)/retained proFitS Balance at the beginning of year Net profit attributable to members of Prime Media Group Limited Reclassification Total accumulated losses Dividends provided for or paid Balance at end of year CONSOLIDaTED 2014 $’000 – 3,957 3,957 2013 $’000 (2,288) 3,207 919 (151,979) (156,801) 3,207 750 3,957 2,822 385 3,207 (2,288) (2,288) – – (156,801) 33,852 (2,288) (125,237) (26,742) (151,979) (2,787) – 499 (2,288) (150,270) 20,211 – (130,059) (26,742) (156,801) Prime media GrouP AnnuAl RepoRt 2014 63 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 24 COmmITmENTS (a) CapITaL ExpENDITuRE COmmITmENTS Estimated capital expenditure contracted for at reporting date, but not provided for, payable: – not later than one year 1,959 843 CONSOLIDaTED 2014 $’000 2013 $’000 (B) LEaSE ExpENDITuRE COmmITmENTS – gROup aS LESSEE 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 expenditure contracted for at reporting date Operating leases have an average lease term of 3 years for Motor Vehicles, 3 years (+ 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 Consumer Price Index adjustments if options are taken up. The majority of the transmission sites leases are rentals that are subject to annual Consumer Price Index adjustment. There are no restrictions placed upon the lessee by entering into these leases. (C) LEaSE ExpENDITuRE COmmITmENTS – gROup aS LESSOR 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 (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 television 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 64 6,700 19,132 13,291 39,123 6,767 16,540 12,244 35,551 1,580 3,707 1,118 6,405 1,642 4,303 1,665 7,610 5,250 17,771 10,850 33,871 312 735 – 1,047 (129) 918 246 672 918 7,326 9,459 – 16,785 337 1,047 – 1,384 (214) 1,170 252 918 1,170 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 (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 (g) OThER COmmITmENTS COvERINg TRaNSmISSION maINTENaNCE, SITE INSTaLLaTION aND maNagEmENT SERvICES The Company entered into a contract with Broadcast Transmission Services Pty Limited (refer to Note 30) on 1 April 2008, for the provision of site maintenance services over a 10 year period at an annual cost of $1,200,000 per annum. – not later than one year – later than one year and not later than five years – later than five years 25 CONTINgENT LIaBILITIES The Group has issued the following guarantee at 30 June 2014: CONSOLIDaTED 2014 $’000 299 619 – 918 1,200 3,300 – 4,500 2013 $’000 324 846 – 1,170 1,200 4,500 – 5,700 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 SatCo 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 2014 $’000 2,346 9,384 2,346 14,076 As noted above this entire amount in maximum potential contingent commitment is offset in entirety by government funding. 26 EmpLOyEE BENEfIT LIaBILITy 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 19 21 CONSOLIDaTED 2014 $’000 6,273 336 6,609 2013 $’000 2,346 9,384 4,692 16,422 2013 $’000 4,670 394 5,064 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. Prime media GrouP AnnuAl RepoRt 2014 65 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 27 ShaRE BaSED paymENTS (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 2014 $’000 750 2013 $’000 385 The share-based payment plan is described below. During the financial year, nil performance rights lapsed (2013: 292,000), nil performance rights were forfeited (2013: Nil) and nil performance rights were cancelled (2013: Nil). (B) ThE pRImE mEDIa gROup LImITED pERfORmaNCE RIghTS pLaN An Executive Performance Rights Plan was established by the Company on 17 November 2011, whereby the Company grants rights over the ordinary shares of Prime Media Group Limited to Executives of the consolidated entity. The rights are issued for nil consideration and are granted in accordance with the plan’s guidelines established by the Directors of Prime Media Group Limited. The rights vest over a 36 month 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 rights cannot be transferred and will lapse 30 days after vesting date. (C) SummaRy Of RIghTS gRaNTED uNDER ThE pRImE mEDIa gROup LImITED pERfORmaNCE RIghTS pLaN The following table outlines the number (No.) and weighted average exercise price (WAEP) of, and movements in, performance rights 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 2014 NO. 2,546,000 1,430,000 – – – – waEp $0.00 – – – – – 2013 NO. 1,258,000 1,580,000 – 292,000 – – 3,976,000 – $0.00 – 2,546,000 – waEp – $0.00 – – – – $0.00 – (D) pERfORmaNCE RIghTS pRICINg mODEL ThE pRImE mEDIa gROup LImITED pERfORmaNCE RIghTS pLaN Employees must remain in service for period of three years from date of grant. The fair value of performance rights granted in 2014 was estimated at the date of the grant using a Black-Scholes methodology, taking into account the terms and conditions upon which the performance rights were granted. The fair value of performance rights granted in 2013 and prior years was estimated at the date of the grant using a Monte-Carlo methodology, taking into account the terms and conditions upon which the performance rights were granted. The fair value of performance rights granted during the year were estimated on the date of grant using the following inputs to the model: 2014 2013 2012 NOvEmBER 2013 OCTOBER 2012 NOvEmBER 2012 SEpTEmBER 2011 NOvEmBER 2011 Dividend yield (%) Expected volatility (%) Expected life of performance rights (years) Performance rights exercise price ($) Share price at grant date ($) 6.89 29.00 3 $0.00 $1.06 8.23 33.65 3 $0.00 $0.80 8.23 35.02 3 $0.00 $0.81 6.33 26.57 3 $0.00 $0.66 6.33 27.24 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. 66 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 (E) wEIghTED avERagE REmaININg CONTRaCTuaL LIfE. The weighted average remaining contractual life of performance rights outstanding as at 30 June 2014 is 1.5 years (2013: 2.0 years). (f) RaNgE Of ExERCISE pRICE The range of exercise price for performance rights outstanding at the end of the year was $0.00 (2013: $0.00). (g) wEIghTED avERagE faIR vaLuE The weighted average fair value of performance rights granted during the year was $0.84 (2013: $0.63). 28 SuBSEQuENT EvENTS On 9 July 2014 the Group completed the sale of its premises at 194 Lake Albert Road Wagga Wagga and realised a gain on sale of $1,122,000. 29 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: 30 RELaTED paRTy DISCLOSuRES CONSOLIDaTED 2014 $’000 2013 $’000 248,200 75,200 323,400 18,725 342,125 307,766 131,340 439,106 33,059 472,165 (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 Prime Television Digital Media Pty Limited Prime Digital Media Pty Limited Prime Media Group Services Pty Limited Prime Media Communications Pty Limited Prime New Media Investments Pty Limited Prime Growth Media Pty Limited Prime Television (Victoria) Pty Limited Prime Properties (Albury) Pty Limited Prime Television (Southern) Pty Limited Prime Television (Northern) Pty Limited Prime Television Investments Pty Limited Golden West Network Pty Limited Mining Television Network Pty Limited Telepro Pty Limited 135 Nominees Pty Limited Golden West Satellite Communications Pty Limited Mid-Western Television Pty Limited Geraldton Telecasters Pty Limited Zamojill Pty Limited Seven Affiliate Sales Pty Limited Prime Media Broadcasting Services Pty Limited Broadcast Production Services Pty Limited Production Strategies Pty Limited as trustee for Production Strategies Discretionary Trust Wastar International Pty Limited Screenworld Pty Limited COuNTRy Of INCORpORaTION EQuITy INTEREST 2014 % 2013 % 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 Prime media GrouP AnnuAl RepoRt 2014 67 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 30 RELaTED paRTy DISCLOSuRES (CONTINUED) NamE OSB Holdings Pty Limited as trustee for the OSB Unit Trust On Site Broadcasting Pty Limited OSB Australia Pty Limited OSB Corporation Pty Limited On Corporation Pty Limited Prime Digital Works Pty Limited Broadcast Rentals Pty Limited Prime Television New Zealand Limited Prime Ventures New Zealand 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 AMI Radio Pty Limited Hot 91 Pty Limited Prime Radio (Mackay-AM) Pty Limited COuNTRy Of INCORpORaTION Australia Australia Australia Australia Australia Australia Australia New Zealand New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia EQuITy INTEREST 2014 % 100 100 100 100 100 100 100 100 100 – – – – – – – – – – – 2013 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (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 31. (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. 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. 68 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 31 KEy maNagEmENT pERSONNEL (a) DETaILS Of KEy maNagEmENT pERSONNEL (i) DIRECTORS J.K. Hartigan Chairman (non-executive) (Appointed 15 May 2014) P.J. Ramsay AO Chairman (non-executive) (Retired 17 April 2014) 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) I.C. Audsley Director (Chief Executive Officer) (ii) ExECuTIvES D. Walker Group General Manager Sales and Marketing J. Palisi Chief Financial Officer E. McDonald General Counsel and Company Secretary S. Wood Group General Manager Operations 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 Share based payments TOTaL CONSOLIDaTED 2014 $’000 3,921 122 29 744 4,816 2013 $’000 4,340 120 96 364 4,920 Details of remuneration amounts paid to individual KMP are disclosed in tables 1 and 2 of section 4 of the Remuneration Report. (C) EQuITy SETTLED ShaRE BaSED paymENTS Of KEy maNagEmENT pERSONNEL 2014 Directors I. Audsley Other Executives S. Wood D. Walker J. Palisi E. McDonald TOTaL 2013 Directors I. Audsley Other Executives S. Wood D. Walker J. Palisi E. McDonald L. Kennedy (departed 31 July 2012) TOTaL BaLaNCE aT BEgINNINg Of pERIOD 1 JuLy 2013 gRaNTED aS REmuNERaTION pERfORmaNCE RIghTS ExERCISED NET ChaNgE OThER BaLaNCE aT END Of pERIOD 30 JuNE 2014 NOT ExERCISaBLE ExERCISaBLE vESTED aT 30 JuNE 2014 1,315,000 500,000 367,000 414,000 200,000 100,000 200,000 230,000 200,000 200,000 2,396,000 1,330,000 – – – – – – – – – – – 1,815,000 567,000 644,000 400,000 300,000 3,726,000 – – – – – – – – – – – – BaLaNCE aT BEgINNINg Of pERIOD 1 JuLy 2012 gRaNTED aS REmuNERaTION pERfORmaNCE RIghTS ExERCISED NET ChaNgE OThER BaLaNCE aT END Of pERIOD 30 JuNE 2013 NOT ExERCISaBLE ExERCISaBLE vESTED aT 30 JuNE 2013 615,000 700,000 167,000 184,000 – – 200,000 230,000 200,000 100,000 292,000 – 1,258,000 1,430,000 – – – – – – – – – – – 1,315,000 367,000 414,000 200,000 100,000 (292,000) (292,000) – 2,396,000 – – – – – – – – – – – – – – Prime media GrouP AnnuAl RepoRt 2014 69 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 31 KEy maNagEmENT pERSONNEL (CONTINUED) (D) ShaREhOLDINgS Of KEy maNagEmENT pERSONNEL ShaRES hELD IN pRImE mEDIa gROup LImITED (NumBER) OpENINg BaLaNCE ORD. gRaNTED aS REmuNERaTION ORD. ON ExERCISE Of RIghTS ORD. NET ChaNgE OThER ORD. CLOSINg BaLaNCE ORD. 30 June 2014 Directors P.J. Ramsay AO (Retired 17 April 2014) M.S. Siddle P.J. Evans FCA TOTaL 30 June 2013 Directors P.J. Ramsay AO M.S. Siddle P.J. Evans FCA TOTaL 109,903,654 984,082 24,286 110,912,022 109,903,654 984,082 24,286 110,912,022 – – – – – – – – – – – – – – – – (109,903,444) – – 210 984,082 24,286 (109,903,444) 1,008,578 – – – – 109,903,654 984,082 24,286 110,912,022 All equity transactions with specified directors and specified executives other than those arising from the exercise of remuneration rights have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm’s length. (E) LOaNS TO KEy maNagEmENT pERSONNEL There were no loans to key management personnel in the reporting period. The following amounts were disclosed in the prior reporting period: 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 D. Edwards G. Smith TOTaL 100 40 140 – – – 100 40 140 – – – – – – – – – 100 40 140 (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 2014. 70 Notes to the fiNANciAL stAteMeNts for the YeAr eNDeD 30 JuNe 2014 32 paRENT ENTITy INfORmaTION Current assets Total assets Current liabilities Total liabilities Issued capital Retained earnings Employee benefits reserve Total shareholders’ equity Loss of the parent entity Total comprehensive loss of the parent entity pRImE mEDIa gROup LImITED 2014 $’000 235 382,914 2,240 146,816 310,262 (78,746) 4,583 236,099 (3,790) (3,790) 2013 $’000 92 896,018 8,317 631,598 310,262 (49,675) 3,833 264,420 (7,361) (7,361) 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 15) 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. Prime media GrouP AnnuAl RepoRt 2014 71 Directors’ DecLArAtioN for the YeAr eNDeD 30 JuNe 2014 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 2014 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 15 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 2014. On behalf of the Board P. J Evans FCA Director Sydney, 27 August 2014 72 iNDepeNDeNt AuDit report for the YeAr eNDeD 30 JuNe 2014 Prime media GrouP AnnuAl RepoRt 2014 73 iNDepeNDeNt AuDit report for the YeAr eNDeD 30 JuNe 2014 74 Asx ADDitioNAL iNforMAtioN for the YeAr eNDeD 30 JuNe 2014 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 19 August 2014. (a) DISTRIBuTION Of EQuITy SECuRITIES ORDINaRy ShaRES As at 19 August 2014, 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 19 August 2014 are: 1. JP Morgan Nominees Australia Limited 2. National Nominees Limited 3. RBC Dexia Investor Services Australia Nominees Pty Limited 4. Network Investment Holdings Pty Limited 5. HSBC Custody Nominees (Australia) Limited 6. Citicorp Nominees Pty Limited 7. BNP Paribas Noms Pty Limited 8. AMP Life Limited 9. Birketu Pty Limited 10. Mr George Walter Mooratoff 11. Invia Custodian Pty Limited 12. RBC Investor Services Australia Nominees Pty Limited 13. BNP Paribas Nominees Pty Ltd 14. Brispot Nominees Pty Ltd 15. Franed Pty Limited 16. Mr Michael Siddle & Mrs Lee Siddle ATF Siddle Family 17. Mr Gerard Edward Van Camp 18. Mr Gerard Van Camp and Mrs Joanna Van Camp 19. WIN Corporation Pty Limited 20. Mr Jan Sinclair and Mrs Anne SinclairNumBER Of hOLDERS 583 1,098 687 927 88 3,383 325 LISTED ORDINaRy ShaRES NumBER Of ShaRES pERCENTagE Of ORDINaRy ShaRES 55,740,068 55,739,150 52,218,613 41,701,955 28,913,174 21,080,143 19,769,981 9,143,516 7,824,811 5,000,000 3,103,849 2,420,570 1,776,931 1,763,471 1,361,192 983,572 943,149 939,879 900,000 750,000 15.22 15.22 14.25 11.38 7.89 5.75 5.40 2.50 2.14 1.36 0.85 0.66 0.49 0.48 0.37 0.27 0.26 0.26 0.25 0.20 312,074,024 85.20 Prime media GrouP AnnuAl RepoRt 2014 75 Asx ADDitioNAL iNforMAtioN for the YeAr eNDeD 30 JuNe 2014 (C) SuBSTaNTIaL ShaREhOLDERS The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: 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 AMP Limited Invesco Australia Limited AustralianSuper Pty Limited Challenger Limited and named entities NovaPort Capital Pty Limited 1 These substantial shareholdings relate to the same parcel of shares. (D) vOTINg RIghTS All ordinary shares (whether fully paid or not) carry one vote per share without restriction. NumBER Of ShaRES pERCENTagE Of ORDINaRy ShaRES 51,781,999 41,701,955 41,701,955 41,701,955 23,352,316 19,509,586 18,707,058 18,409,373 18,409,373 14.14% 11.38% 1 11.38% 1 11.38% 1 6.37% 5.33% 5.11% 5.03% 5.03% 76 Designed and produced by ArmstrongQ – www.armstrongQ.com.au P r i m e m e d i a G r o u P 2 0 1 4 A n n u A l R e p o R t www.primemedia.com.au