G O P R I M E M E D I A G R O U P 2 0 1 9 A N N U A L R E P O R T 20 19 Annual Report Contents Contents PA G E 1 C H A I R M A N ’ S R E P O R T C H I E F E X E C U T I V E O F F I C E R ’ S R E P O R T D I R E C T O R S ’ R E P O R T F I N A N C I A L S TAT E M E N T S 1 2 4 21 ‘‘On behalf of the directors of Prime Media Group, I am pleased to present the Annual Report for the 2019 financial year. Corporate Information 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 ($). DIRECTORS John K. Hartigan (Chair) 15 May 2014 – Present Ian R. Neal 6 June 2008 – Present Peter J. Macourt 1 September 2014 – Present Cass O’Connor 21 April 2015 – Present Robbie L. Sefton 8 April 2019 – Present Ian C. Audsley (Chief Executive Officer) 24 June 2010 – Present REGISTERED OFFICE 363 Antill Street Watson ACT 2602 Ph: 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) AUDITORS Ernst & Young Chairman’s Report I am pleased that the company has delivered a result in line with market guidance and in the face of now well‑established television audience and advertiser disruption. Your Board’s decision to suspend distributions and prioritise the reduction of interest bearing debt, was in response to our early recognition of these dramatic changes to market fundamentals. Net interest bearing debt at 30 June 2019 was $9.6 million, down $5.2 million compared to the same time last year. On current forecast, Prime will have extinguished interest‑ bearing debt before the end of this new financial year. Prime’s program costs increased in the reporting period through renewal of its program supply arrangements with the Seven Network. A second increase in program costs will occur in the 2020 financial year and then remain flat for the remainder of the term of the agreement. The increase in program costs has been dramatic, but includes important sports such as AFL franchises, The Big Bash League and the Tokyo 2020 Summer Olympics. Live sport is the most valuable sporting commodity on television and through the new deal with the Seven Network, Prime will now have eleven months of live sports on its annual schedule. During the reporting period, Prime approached its regional media contemporaries to create a new media‑marketing platform called Boomtown. Boomtown aims to educate media buyers and advertisers on the value of regional media advertising and the spending power of people living outside the capital cities. The advertising market’s reaction to Boomtown has been overwhelmingly positive and Prime is now seeing a number of dormant advertisers returning to TV, along with new advertisers looking to reach the nine million Australians that metropolitan television does not deliver. Boomtown has been created in response to declining regional media advertising spends. The Boomtown partners stretch across regional television, radio and press. Collectively we believe that over time, a material shift in advertising spend to regional media platforms will occur. Prime will be a recipient of that share shift. Doubling up on that effort is Prime’s engagement with government regarding the increasing power and influence of international and national media and entertainment companies, who use the internet to reach regional Australians but without many of the regulations, restrictions or obligations required of Prime. We welcome the ACCC Digital Inquiry and its findings, but more needs to be done, and quickly, to provide a level playing field for small regional companies such as Prime who are now directly exposed to competition from some of the largest and most powerful news and entertainment platforms on the globe. The regional television advertising market continues to decline in the face of this onslaught of competition, though Prime sees Boomtown as an opportunity to mitigate, if not stem the decline over the medium term. I thank the management and staff of Prime for their continuing efforts and commitment to Prime’s market leadership, my fellow board members for their prudence and also Prime’s advertising partners for their continued support. John Hartigan CHAIRMAN 1 PRIME MEDIA GROUP | ANNUAL REPORT 2019 Highlights Revenue $191.9 million EBITDA Core net profit after tax^ $38.5 $17.2 million ^ Excludes non‑core specific items. million 2 Although advertising revenue and audience volume was down on the prior year, Prime maintained its industry leadership in advertising revenue share and audience share for the seventh year straight. I am pleased that in a turbulent market where audience and advertisers are now exposed to an increasing array of entertainment options, that Prime has maintained its position as the number one option for audiences and advertisers in the markets we serve across regional Australia. In response to the changing profile of regional advertising spends, Prime brought regional media companies together to create a new marketing platform to extol the consumer attributes of the thirty six percent of Australians living and working in regional Australia. Now known as Boomtown, this industry initiative targets the re‑allocation of media spends across Australia. With our Boomtown partners, we are working hard to deliver a greater share of national advertising revenue to regional media companies. However, Prime continues to weather the effects of increasing competition from national and international entertainment, news and information platforms. Most of these platforms do not have the same regulatory obligations that Prime does, such as fees for broadcast spectrum, local content quotas, advertising time and category restrictions, drama and children’s programming quotas and captioning for the hearing impaired. These regulatory obligations are increasingly expensive to meet and maintain at a time when advertising revenue is falling – demonstrated by other regional broadcasters closing eight local TV newsrooms and bureaux in Queensland and southern New South Wales this year. Prime’s regional sales force now competes against Google and Facebook at street level, vying for every local ad dollar. Their presence in small local advertising markets is a demonstration of the substantial and sustained disruption brought to bear on the traditional regional media sector. A government review of regional television regulation is underway as part of the federal government’s agenda to harmonise traditional and digital media regulatory Chief Executive Officer’s Report frameworks. Prime has been at the forefront of informing the debate along with its regional television counterparts. The ability for companies like Prime to remain competitive and continue delivering unique services to regional Australia will be dependent upon a considered response by government to market realities and the striking imbalance in regulatory obligations. The arguments put forward for urgent reform are compelling. Prime is encouraged by the Federal Government’s level of engagement and we look forward to guidance on its proposed reforms later this calendar year. In response to the decline in advertising revenue, management reduced operating costs by 5.9 percent on the prior year or $3.2 million, with employee expenses down $1.4 million or 3.8 percent. The result was a fifty percent reduction in key management personnel and other cost savings across the business. The fall in advertising revenue resulted in a $14 million impairment charge which included the write‑down of Prime’s television broadcast licence and other intangible assets. Shareholders would be aware that the company has made the reduction of interest bearing debt a priority. The strategy has enabled Prime to meet the market expectation for content pricing without carrying an onerous debt load forward in an advertising market that is clearly in disruption and yet to reveal its landing point. Prime is on track to extinguish interest bearing debt prior to the end of the 2020 financial year. Prime continues to build on its strong community ties. Prime and GWN remain the number one local TV news option in their broadcast markets – enjoying audience shares that are mostly well above fifty‑percent of the available audience and provide strong audience continuity into the evenings programming. Cementing our ongoing success and reputation with audiences, advertisers and the communities we serve is the company’s significant investment in community airtime sponsorships to support and assist community endeavours. Prime, including GWN, is a significant employer of regional Australians with offices stretching from the Gold Coast, throughout many major cities and towns in regional NSW and Victoria, and across regional Western Australia. We invest in, and support the following community partnerships: • Regional Achievement and Community Awards – NSW/ACT, Victoria and Western Australia • Young Achiever Awards – NSW/ACT, Victoria and Western Australia • Camp Quality • Variety The Children’s Charity • Regional Australia Institute • Royal Far West • RCH Good Friday Appeal • Victorian Tourism Industry Council • Channel 7 Telethon (WA) • Dowerin GWN7 Machinery Field Days • WA Top Tourism Awards • Scitech • Angelhands Inc • Western Australian Regional Small Business Awards • Leukemia Foundation • Tourism Council of Western Australia • Relay For Life Maintaining our industry leadership position takes commitment and professionalism and I extend my thanks and appreciation to Prime and GWN staff for their continued contribution to that success. Ian Audsley CHIEF EXECUTIVE OFFICER 3 PRIME MEDIA GROUP | ANNUAL REPORT 2019 Your directors submit their report for the year ended 30 June 2019. Directors The names and details of the Company’s directors in office during the financial year and until the date of this report are set out below. Directors were in office for this entire period unless otherwise stated. t r u o c a M Peter J. Macourt Non-Executive Director (appointed 1 September 2014) Mr Macourt is currently Chairman of Virtus Health Limited and a director and former Chairman of Sky Network Television Limited. He is also a former director of FOXTEL and a former director and chief operating officer of News Limited and Independent Newspapers Limited. Mr Macourt is Chairman of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee. n a g i t r a H John K. Hartigan Non-Executive Chair (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). 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 trustee of the Sydney Cricket and Sports Ground Trust, a Lifetime Member of The Bradman Foundation, a director of the Australian Paralympic Committee and was previously Chairman of Destination NSW. l a e N 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. 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, a previous National President of The Securities Institute of Australia and was a member of the first Corporate Governance Council which established the Corporate Governance Guidelines. Mr Neal is Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee. 4 Director’s Report n o t f e S r o n n o C O ’ Cass A. O’Connor Non-Executive Director (appointed 21 April 2015) Ms O’Connor has over 30 years’ experience as a director of ASX listed companies, Federal and State government and unlisted entities. For the past 20 years she has managed her own corporate advisory company. Ms O’Connor is currently Chair of Audit and Risk Committee and non‑ executive director of Carriageworks Limited, a shareholder and director of multi‑award winning independent television and film production entity Goalpost Pictures and a non‑executive director of TRIBE, a leading influencer marketing and content platform. Ms O’Connor has previously worked for Bain & Co, Deutsche Bank, Turnbull & Partners, Goldman Sachs (Australia) and Carnegie, Wylie & Company. Ms O’Connor is a member of the Remuneration and Nomination Committee and the Audit and Risk Committee. Robbie L. Sefton Non-Executive Director (appointed 8 April 2019) Ms Sefton is a wool, meat and grain farmer, and managing director of Seftons, a national strategic marketing communications company based in Tamworth, NSW. Ms Sefton has been a member on the Reserve Bank of Australia’s Small Business Finance Panel. She is currently the Deputy Chair of the National Australia Day Council and a board member of the newly created Cooperative Research Centre for High Performing Soils. Recently, the federal government’s Minister for Water Resources, Drought, Rural Finance, Natural Disaster and Emergency Management appointed Ms Sefton as Chair of the Independent Panel for the Assessment of Social and Economic Conditions in the Murray‑Darling Basin. Prior to that Ms Sefton served as a committee member reviewing telecommunications services in regional, rural and remote parts of Australia, as appointed by the federal Minister for Regional Services. Ms Sefton’s achievements include being named a Westpac/Australian Financial Review Woman of Influence, AgriFutures Australia NSW Rural Woman of the Year and she is a graduate of the Australian Rural Leadership Program and was also a board member of the Foundation for six years. y e l s d u A Ian C. 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. 5 PRIME MEDIA GROUP | ANNUAL REPORT 2019 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: NAME J.K. Hartigan I.R. Neal P.J. Macourt C.A. O’Connor R.L. Sefton I.C. Audsley ORDINARY SHARES 42,750 40,000 – 75,000 – 974,300 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 PERIOD OF DIRECTORSHIP FROM TO I.R. Neal Greatcell Solar Limited (formerly Dyesol Limited) (Non-Executive Chair) September 2006 December 2018 P.J. Macourt Sky Network Television Limited (Non-Executive Director) C.A. O’Connor PS&C Limited (Non-Executive Director) Virtus Health Limited (Non-Executive Chair) August 2002 June 2013 October 2013 Present Present May 2017 McGrath Limited (Chair and Non-Executive Director) December 2015 February 2018 Company Secretary John Palisi was Company Secretary during the reporting period. He has been a Chartered Accountant for over 20 years and is a graduate of the Australian Institute of Company Directors. Earnings Per Share Basic earnings per share – Profit from Statutory earnings Diluted earnings per share– Profit from Statutory earnings Basic earnings per share – Profit from core earnings Diluted earnings per share – Profit from core earnings Dividends Final dividend recommended: – on ordinary shares Dividends paid in the year: Interim for the year – on ordinary shares Final for 2018 shown as recommended in the 2018 financial report – on ordinary shares CENTS 2.0 2.0 4.7 4.7 CENTS $’000 – – – – – – Principal Activities The principal activities of Prime Media Group Limited during the year were the broadcast of free-to-air commercial television services in regional New South Wales, the Australian Capital Territory, regional Victoria, the Gold Coast area of Southern Queensland and regional Western Australia. The majority of the Group’s television programming is supplied through a program supply agreement with the Seven Network and broadcast under the PRIME7 brand on the east coast and the GWN7 brand in regional Western Australia. 6 Operating and Financial Review Statutory Results The Company’s consolidated profit after tax attributable to the members for the year ended 30 June 2019 was $7,348,000, which represents an increase of $19,623,000 or 159.9% on the previous corresponding period. Included in the consolidated profit is a non-cash impairment of television broadcast licences and software of $14,018,000 (2018: $51,690,000). The impairment reflects the ongoing decline of regional free-to-air television advertising and the increasing cost of programming. Revenue for the period has been reported in accordance with the new accounting standard AASB 15 Revenue from Contracts with Customers. The Group has historically recognised revenue from advertising inclusive of agency commissions and brought to account the cost of commission as a cost of sale. Under the new standard, the Group is required to recognise revenue net of agency commission. As set out in Note 1 to the financial statements, this treatment has been applied to the prior year comparatives reducing revenue recognised and cost of sales by the amount of agency commissions. The Group’s net profit after tax remained unchanged. Revenue of $191,862,000 decreased $9,389,000 or 4.7% on the previous corresponding period. During the financial year, the Company maintained its lead revenue share of 41.5% in the aggregated regional market of New South Wales and Victoria. The Group’s television advertising revenue in the aggregated regional market of New South Wales and Victoria decreased by 5.0% on the prior year, compared to the market, which declined 4.1% in the same period. During the financial year, the Group entered a new program supply agreement with the Seven Network from 1 July 2018 for a period of 5 years. As previously reported, the Group’s program affiliation fees increased under the new agreement. The Group also adopted AASB 9 Financial Instruments: Recognition and Impairment during the financial year, which resulted in an increase in allowance for expected credit losses of $493,000. As a result of these changes, the Group’s gross profit margin declined from 49.8% to 47.1%. Total operating expenses of $51,788,000 decreased by $3,233,000 or 5.9% on the prior year. Employee benefit expense of $34,421,000 declined by $1,369,000 or 3.8% on the prior year. The reduction in employee costs was largely attributable to a reduction in key management personnel costs in the current reporting period. The prior period included non-recurring legal and consultancy expenses of $911,000. The Group’s share of associate profits of $156,000 relates to joint ventures that broadcast Nine Entertainment programming in regional Western Australia and Mildura. Earnings before interest, tax and depreciation and amortisation of $38,469,000 decreased by $6,688,000 or 14.8% on the prior year. Net interest bearing debt reduced by $5,237,000 during the period to $9,556,000 at 30 June 2019. The Company continues to operate within bank covenants. Finance costs of $1,310,000 were 17.3% favourable to the previous corresponding period due to lower average interest bearing debt levels. Dividend The Company continues to suspend dividend payments and will apply all surplus funds to reduce interest bearing debt. This decision has been taken due to the continued declines in regional audiences and regional television advertising revenues and increasing content costs. Core Net Profit After Tax Core net profit after tax (non-IFRS measure) and before specific items was $17,161,000 (2018: $25,259,000), declining $8,098,000 or 32.1% on the previous corresponding period. Reported profit/(loss) after tax 7,348 (12,275) 2019 $’000 2018 $’000 Impairment of television broadcast licences and software (non-cash) Release of deferred tax liability arising from impairment Non-recurring legal and consulting expenses Redundancies Income tax benefit related to specific items Core net profit after tax and before specific items SHAREHOLDER RETURNS 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 (pre-tax) Weighted Average Cost of Capital (post-tax) Core Return on Equity (ROE) 1,2 Statutory Return on Equity (ROE) Net Debt/Net Debt + Equity Ratio Share price Dividends per share Total Shareholder Return % % % % % % $ cents % 14,018 51,690 (4,205) (15,507) – – – 911 1,019 (579) 17,161 25,259 4.7 2.0 19.8 8.5 6.9 (3.4) 25.9 (12.6) 12.96 12.96 12.64 31.3 13.4 14.9 0.21 – (27.6) 12.64 52.5 (25.5) 23.5 0.29 1.7 (19.2) 1 These returns have been calculated using core net profit after tax as set out within the Directors Report. 2 Equity has been normalised for the impact of items disclosed as specific items. Statement of Financial Position and Cash Flow Net cash flow from operating activities of $22,466,000 declined $9,647,000 or 30.0% compared to the prior corresponding period. The decrease in operating cash flows is in part due to the continued decline in advertising revenues, the increase in affiliate fee rate under the new program supply agreement with the Seven Network and the initial payment of spectrum licence fees totalling $6,215,000 under the new licensing regime. Included in the spectrum licence fee payments in this reporting period were spectrum licence fees accrued in the 2018 financial year and paid in this reporting period of $4,518,000. No spectrum licence fees were paid in the prior period. Net cash flows used in investing activities of $16,731,000 (2018: $3,120,000) relate to the purchase of program rights from the Seven Network for $15,000,000 on execution of the program supply agreement and capital expenditure of $2,581,000 for the purchase of broadcast and computer equipment. During the reporting period, the Group received a repayment of loan funds from Associates of $850,000. 7 PRIME MEDIA GROUP | ANNUAL REPORT 2019 Capital Structure The Group’s secured bank loan facility decreased to $16,000,000 as at 30 June 2019 (30 June 2018: $25,696,000). The Group continues to operate within the terms of its debt facility, which matures April 2023. During the reporting period, the debt facility limit was reduced to $30 million. Likely developments and expected results The Board and Executive consider that the future performance of the Group will be influenced by the outlook for television advertising in regional Australia and the increasing cost of content to broadcast free-to-air television. Interest-bearing loan Cash and short term deposits Net debt Total equity Total capital employed Gearing The profile of the Group’s debt finance is as follows: Non-current Secured bank loan facility Total interest bearing liabilities 2019 $’000 2018 $’000 16,000 (6,443) 9,557 54,784 64,341 14.9% 25,696 (10,903) 14,793 48,153 62,946 23.5% 2019 $’000 2018 $’000 16,000 16,000 25,696 25,696 Risk management The Group’s approach to risk management is addressed in the Corporate Governance Statement, which is available on the Group’s website www.primemedia.com.au/investors. 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 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’). As part of its risk management framework, the Group has identified the following key risks that may affect the Group’s financial performance: • fluctuations in consumer demand that impact advertising revenues, which the Group manages by ensuring it continues to maintain a strong advertising sales team and strong relationships with advertisers and agencies; the impact on audiences as a result of new media platforms and technologies and the resultant impact on television advertising revenues; the increasing cost of content and continued access to quality programming; and the ability to attract and retain employees with relevant media experience. • • • Significant changes in the state of affairs There were no significant changes in the Group’s state of affairs. Significant events after the balance date There were no significant events after balance date. 8 Performance rights (equity) Unissued shares At the date of this report, there were no unvested performance rights (2018: 1,377,753) over unissued ordinary shares under the Prime Media Group Limited Performance Rights Plan. As reported at the Company’s 2018 Annual General Meeting, the Prime Media Group Limited Performance Rights Plan has ended, with no new issue of performance rights in this reporting period. A new cash settled long-term incentive plan has been introduced, details of which are provided in the Remuneration Report. Shares issued or acquired as a result of the exercise of performance rights During the financial year, 826,284 (2018: 1,211,926) ordinary shares were acquired on market by the Trustee of the Prime Media Group Limited Performance Rights Plan as a result of the vesting and exercise of rights granted in 2015. 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 $563,974 (2018: $276,425) 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 for 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. Directors’ meetings and committee membership The number of meetings of directors, including meetings of committees of directors, held during the year and the numbers of meetings attended by each Director were as follows: BOARD MEETINGS AUDIT AND RISK COMMITTEE MEETINGS REMUNERATION AND NOMINATION COMMITTEE MEETINGS Number of meetings held: Number of meetings attended: J.K. Hartigan I.R. Neal P.J. Macourt C.A. O’Connor R.L. Sefton (appointed 8 April 2019) 1 I.C. Audsley 15 15 15 15 14 3 15 2 – 2 2 2 – – 3 – 3 3 3 – – 1 Indicates the maximum number of meetings the director was eligible to attend during the period. Directors’ Report continued Message from the Chair of the Remuneration and Nomination Committee Dear Shareholder On behalf of the Board of Prime Media Group I am pleased to present the Company’s Remuneration Report for the financial year to 30 June 2019 in accordance with section 300A of the Corporations Act, outlining the nature and amount of remuneration for non-executive directors and key management personnel. The 2019 financial year was once again a difficult year in which audiences and revenues continued their declining trend for both regional markets and for Prime. Despite the difficult trading environment, the Company continued to maintain a market leading revenue share of 41.5% in key markets, while also reducing operating costs by 5.9% below the prior year. Significantly, in August 2018 the Company announced a new five year program supply agreement with the Seven Network. The new agreement secured Prime’s future with the Seven Network as the No.1 broadcaster in regional Australia. Remuneration Outcomes As reported last financial year, in keeping with the requirement to continue reducing costs, the Company reduced the size of the executive team and this resulted in an overall reduction in key executive management remuneration in excess of $1.3 million for this financial year. Remuneration outcomes for the smaller team were aligned to revenue targets and cost management, while also maintaining a focus on governance and culture. Accordingly, STI and LTI awards range between 33% and 80% of short term incentives depending on each executive’s individual incentive plan. Finally, commensurate with the focus on costs, non-executive director fees remained flat for a fourth consecutive year. As Chair of the Remuneration and Nomination Committee, I invite you to review the remuneration report and welcome your continued feedback and engagement. Yours sincerely Mr. Ian Neal Non-Executive Director and Chair of Remuneration and Nomination Committee 9 PRIME MEDIA GROUP | ANNUAL REPORT 2019 REMUNERATION REPORT (AUDITED) 2. REMUNERATION GOVERNANCE A. Remuneration and Nomination Committee The Board has appointed a Remuneration and Nomination Committee consisting of three independent non-executive directors (NEDs) to, amongst various responsibilities, review and make recommendations to the Board regarding: • Executive management remuneration and incentives; • Executive management performance against agreed performance targets; and • The remuneration framework for directors. During the financial year, the Remuneration and Nomination Committee held three meetings which were attended by all committee members. The CEO and Company Secretary also attended the Remuneration and Nomination Committee meetings by invitation, where management input was required. The CEO and Company Secretary were 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/investors. 3. EXECUTIVE REMUNERATION ARRANGEMENTS A. 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. The Remuneration and Nomination Committee reviews total remuneration packages annually. To this end, key objectives of the Company’s reward framework are to ensure that remuneration practices: • Are aligned to Prime Media Group’s business strategy; • Offer competitive remuneration; • Provide strong linkage between individual and Group performance and rewards; and • Align the interest of executives and shareholders. The Company 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. When referencing the external market, the Company has regard for media sector wages and remuneration offered amongst the pool of candidates for which it must compete for talent. This Remuneration Report for the year ended 30 June 2019 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. Remuneration Report Overview 2. Remuneration Governance a. Remuneration and Nomination Committee 3. Executive Remuneration Arrangements a. Remuneration Principles and Strategy b. Remuneration Mix 4. Detail of Incentive Plans a. Short Term Incentive Entitlements and Outcomes b. Long Term Incentives i. Prime Media Group Limited Performance Rights Plan approved November 2014 ii. Prime Media Group Limited Cash Settled Performance Plan introduced November 2017 c. Executive Remuneration Outcomes (including link to performance) 5. Executive Contracts 6. Non-Executive Director Remuneration 1. REMUNERATION REPORT OVERVIEW 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. KMP for the year ended 30 June 2019 were: KMP POSITION TERM AS KMP Full Year Full Year Full Year Full Year From 8 April 2019 Non-Executive Directors J.K. Hartigan Chair; Director Director Director Director Director I.R. Neal P.J. Macourt C.A. O’Connor R.L. Sefton Executive KMP I. Audsley D. Walker CEO and Executive Director Group General Manager Sales and Marketing Full Year Full Year J. Palisi Chief Financial Officer Full Year 10 Directors’ Report continued 3. EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED) B. Remuneration Mix The following table represents target remuneration at grant assuming that all performance conditions are met. The relative proportions of senior executive remuneration are as follows: NAME CEO and Executive Director I. Audsley Other KMP D. Walker J. Palisi FIXED REMUNERATION % AT RISK STI % AT RISK LTI % 53% 55% 65% 34% 36% 25% 13% 9% 10% TOTAL % 100% 100% 100% TOTAL AT RISK % 47% 45% 35% 47% of the CEO’s total remuneration package is ‘at risk’ and therefore subject to the achievement of both short term and long term performance requirements that are linked to the Company’s strategy and driving long term shareholder wealth creation. REMUNERATION COMPONENT VEHICLE PURPOSE LINK TO PERFORMANCE Fixed remuneration Represented by total employment cost: comprises base salary, superannuation contributions and other discretionary and non-discretionary benefits. To provide competitive fixed remuneration set with reference to the median of comparable external market roles. Company and individual performance are considered during the annual review process. STI component Paid in cash. Rewards KMP for their contribution to achievement of Group and business unit outcomes, as well as individual Key Performance Indicators (KPIs). Core Net Profit After Tax (NPAT); Operational performance; A positive power ratio, which is a measure of the Company’s share of revenue to the Company’s share of audience; and Risk management including commitment to Work Health Safety. LTI component Prime Media Group Limited Performance Rights Plan: The final tranche granted in 2015 and vested in this reporting period. Rewards KMP for their contribution to the creation of shareholder value over the longer term. Performance rights vest subject to achieving core EPS and power ratio targets. Prime Media Group Limited Cash Settled Performance Plan introduced to replace the performance rights plan. Performance is linked to achievement of STI targets over three financial years. 11 PRIME MEDIA GROUP | ANNUAL REPORT 2019 4. DETAIL OF INCENTIVE PLANS A. Short Term Incentive Entitlements and Outcomes 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 wide, business unit and individual measures. STI Performance Criteria 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: PERFORMANCE MEASURES Chief Executive Officer Group GM Sales and Marketing Chief Financial Officer GROUP FINANCIAL PERFORMANCE MEASURES: CORE NPAT 40% 9% 20% DIVISIONAL FINANCIAL PERFORMANCE MEASURES: POWER RATIO REVENUE YIELD EXPENSE MANAGEMENT REVENUE GENERATION NON-FINANCIAL MEASURES: GROUP STRATEGY OPERATIONAL PERFORMANCE INCLUDING: AUDIENCE SHARE COMMITMENT TO RISK MANAGEMENT AND WORK HEALTH SAFETY –% 84% 60% 60% 7% 20% KEY PERFORMANCE OBJECTIVES OUTCOMES COMMENTARY Financial results Not achieved Not achieved Statutory net profit after tax of $7,348,000. Core net profit after tax of $17,161,000. Maximising advertising revenue share and yield Partially achieved Prime reported a power ratio of 1.012, which demonstrates that Prime’s revenue share of 41.5% exceeded its audience share of 41.0% in the aggregated regional market of New South Wales and Victoria. Strategic priorities: Achieved Renewal of Program Supply Agreement with the Seven Network. Risk management culture including promotion of work health safety Achieved The Executive Risk Management Committee continued to promote a companywide culture of risk management and work health safety. After consideration of performance against KPIs, the Remuneration and Nomination Committee considers and recommends to the Board, on an annual basis, the amount, if any, of STI to be paid to each executive. This process usually occurs within three months after the reporting date at which time a cash bonus is paid equivalent to achievement. B. Long Term Incentives Prime Media Group Limited Performance Rights Plan approved November 2014 i) The Prime Media Group Limited Performance Rights Plan ended this financial year, with no new issue of performance rights since 2015. As set out at table 4, a final tranche of 826,284 granted in 2015 vested and 551,469 performance rights lapsed during the year. The vesting was subject to continuous service and achievement of 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 Trustee of the Prime Media Group Limited Performance Rights Plan acquired 826,284 (2018: 1,211,927) ordinary shares on market for performance rights that vested under the Plan in September and November 2018 formally ending the November 2014 Performance Rights Plan. 12 Directors’ Report continued 4. DETAIL OF INCENTIVE PLANS (CONTINUED) Prime Media Group Limited Cash Settled Performance Plan introduced November 2017 ii) The Company introduced the Prime Media Group Limited Cash Settled Performance Plan to replace The Prime Media Group Performance Rights Plan for KMP. The plan is a cash-based plan which has been designed to reward KMP performance over a three year period by offering a potential entitlement to cash payments linked to the Group’s share price performance and STI achievement over the same period. The maximum long term incentives under the plan for the following key management personnel are as follows: Director I. Audsley Executive D. Walker J. Palisi ENTITLEMENT NOTIONAL SHARE UNITS 2019 2018 2019 2018 2019 2018 2,007,135 1,000,000 843,015 450,000 702,503 375,000 GRANT DATE 12/12/2018 23/1/2018 12/12/2018 23/1/2018 12/12/2018 23/1/2018 SHARE PRICE AT GRANT MAXIMUM VALUE AT GRANT DATE $0.2242 $0.4200 $0.2242 $0.4200 $0.2242 $0.4200 450,000 420,000 189,000 189,000 157,500 157,500 Under the cash-settled performance plan, eligible KMP will be granted notional share units, the value of which will vary with the Company’s share price over a three year vesting period. The amount of notional share units that vest will be linked to the employee’s STI performance measures as set by your Board at the beginning of each financial year. The value of notional share units at vesting will be equivalent to the Company’s share price at the date of vesting. At the reporting date, $423,000 (2018: $144,000) had been accrued under the cash-settled performance plan in relation to the notional share units which are yet to vest. An employee will forfeit their entitlement to unvested notional share units if their employment ends prior to the vesting date. In the event of a change of control of the Company, an employee’s notional share units will vest on a pro-rata basis at the share price value on the date of change of control. No cash-settled benefits were paid to KMP in this reporting period (2018: nil). C. Executive Remuneration Outcomes (including link to performance) Company performance and its link to Short Term Incentives The financial performance measures driving STI payment outcomes are: • NPAT before specific non-core items; and • A power ratio greater than one. 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 one indicates that the Company is performing ahead of its audience share. The Company achieved a power ratio of 1.012. The Remuneration and Nomination Committee will consider the STI payments for the 2019 financial year in the first quarter of the 2020 financial year. 100% of the STI cash bonus pool accrued for 2018 financial performance was paid in the 2019 financial year to key management personnel. As demonstrated in the table below, STI payments have been accrued at between 33.4% and 80.0% of the maximum cash bonus available to ongoing executives for the 2019 financial year. 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 2020 financial year. EXECUTIVE I. Audsley D. Walker J. Palisi E. McDonald S. Wood T. Hogarth Total FY19 STI ACCRUED FY19 STI AWARD POOL 330,000 106,124 128,000 – – – 550,000 317,500 160,000 – – – % 60.0% 33.4% 80.0% –% –% –% FY18 STI PAID IN CASH FY18 STI AWARD POOL 262,500 101,003 66,150 – – – 525,000 299,990 110,250 107,835 110,250 115,550 PAID % 50.0% 33.7% 60.0% –% –% –% 564,124 1,027,500 54.9% 429,653 1,268,875 33.9% 13 PRIME MEDIA GROUP | ANNUAL REPORT 2019 4. DETAIL OF INCENTIVE PLANS (CONTINUED) C. Executive Remuneration Outcomes (including link to performance) (continued) Company performance and its link to Long Term Incentives The 2014 Prime Media Group Limited Performance Rights Plan 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 one. The following table shows the Company’s performance over the period 1 July 2015 to 30 June 2018. The performance rights that vested in this reporting period were issued in 2015. CORE EARNINGS PER SHARE (60%) Target Actual Percentage achieved POWER RATIO (40%) Total revenue share: 3AGG Market All People 06:00 to 23:59 Power Ratio Percentage achieved FY16 9.0 7.5 –% 41.70% 41.80% 0.998 99.8% FY17 5.6 9.7 100.0% 43.75% 40.60% 1.078 100.0% FY18 7.2 6.9 –% 41.94% 40.40% 1.038 100.0% LTI awards under the former performance rights plan The Trustee of the Prime Media Group Limited Performance Rights Plan acquired 826,284 (2018: 1,211,927) ordinary shares on market for performance rights that vested under the Plan in September and November 2018. The LTI remuneration for each KMP is set out within Table 1 and 2 of this section. 14 Directors’ Report continued D E L T T E S H S A C I Y T U Q E D E L T T E S E C N A M R O F R E P D E S A B E R A H S D E T A L E R E C N A M R O F R E P L A T O T N A L P 4 E S N E P X E S T N E M Y A P 3 E S N E P X E 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 9 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 % $ % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 0 0 0 , 5 9 0 0 0 , 5 9 0 0 0 , 5 9 1 5 7 , 3 2 0 0 0 , 0 0 1 1 5 7 , 8 0 4 $ – – – – – – $ – – – – – – I 2 $ N O S V O R P I E V A E L I E C V R E S G N O L - R E P U S I N$ O T A U N N A I T$ F E N E B H S A C N O N - S$ U N O B H S A C 1 $ E V A E L L A U N N A S$ E E F & Y R A L A S – – – – – – – 6 7 6 , 8 2 4 2 , 8 2 4 2 , 8 1 6 0 , 2 1 2 2 , 7 2 – – – – – – – – – – – – – – – – – – 4 2 3 1 9 , 0 0 0 , 5 9 8 5 7 , 6 8 8 5 7 , 6 8 0 9 6 1 2 , ) 9 1 0 2 l i r p A 8 d e t n o p p A i ( n o t f e S . L . R s r o t c e r i d e v i t u c e x e - n o N ) r i a h C ( n a g i t r a H . K . J r o n n o C O ’ . . A C t r u o c a M . J . P l a e N . R . I 0 3 5 , 1 8 3 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 % 8 . 4 3 1 4 1 , 3 2 5 , 1 0 5 7 , 2 6 1 7 7 5 , 7 3 1 4 8 , 8 7 1 3 5 , 0 2 8 2 4 , 0 1 0 0 0 , 0 3 3 1 0 4 , 7 2 3 1 6 , 5 5 8 % 3 . 5 2 % 3 . 8 2 % 0 . 1 3 % 2 . 7 2 2 4 8 , 8 1 7 4 4 9 , 8 6 6 7 2 9 , 0 1 9 , 2 8 7 6 , 9 1 3 , 3 8 8 7 , 3 6 5 6 1 , 3 5 3 0 7 , 9 7 2 3 0 7 , 9 7 2 4 6 9 , 7 3 3 0 , 2 1 4 7 5 , 7 5 4 7 5 , 7 5 0 4 0 , 9 1 9 1 7 , 7 2 0 0 6 , 5 2 1 0 0 6 , 5 2 1 1 3 5 , 0 2 1 3 5 , 0 2 3 9 5 , 1 6 4 1 8 , 8 8 8 2 4 , 7 5 3 6 , 9 1 9 4 , 7 2 1 9 4 , 7 2 4 2 1 , 6 0 1 0 0 0 , 8 2 1 4 2 1 , 4 6 5 4 2 1 , 4 6 5 3 4 8 , 6 0 7 6 , 7 4 1 9 , 1 4 4 1 9 , 1 4 5 5 0 , 3 8 4 0 6 2 , 4 1 4 8 2 9 , 2 5 7 , 1 8 5 4 , 4 3 1 , 2 l e n n o s r e p t n e m e g a n a m y e K P M K e v i t u c e x e l a t o T L A T O T l r e k a W . D i s i l a P . J 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 . P M K o t 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 s 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 . n e k a t e v a e l l a u n n a r o f s t n u o m a s s e l , 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 . P M K o t 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 d e t s e v t o n e v a h t a h t n a p e c n a m r o l f r e p e h t r e d n u r o f d e u r c c a s t n u o m a s t n e s e r p e r e s n e p x e n a p e c n a m r o l f r e p d e l t t e s h s a C . P M K o t 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 d e t s e v t o n e v a h t a h t s t h g i r e c n a m r o f r e p r o f d e u r c c a s t n u o m a s t n e s e r p e r e s n e p x e s t n e m y a p d e s a b - e r a h s d e l t t e s y t i u q E 1 2 3 4 15 ) D E U N T N O C I ( S N A L P E V T N E C N I I F O L I A T E D . 4 d e u n i t n o C t r o p e R ’ s r o t c e r i D PRIME MEDIA GROUP | ANNUAL REPORT 2019 D E T A L E R E C N A M R O F R E P L A T O T % $ % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 0 0 0 , 5 9 0 0 0 , 5 9 0 0 0 , 5 9 0 0 0 , 0 0 1 0 0 0 , 5 8 3 % 1 . 0 3 8 7 5 , 5 8 3 , 1 % 8 . 3 2 % 4 . 9 1 1 9 8 , 7 8 6 4 4 4 , 2 5 5 $ – – – – – – – – 6 S T N E M Y A P I N O T A N M R E T I $ – – – – – $ – – – – – – – – – – 5 7 2 , 8 – 2 4 2 , 8 2 4 2 , 8 9 5 7 , 4 2 0 5 7 , 8 7 4 7 5 , 5 7 9 1 3 , 8 2 9 4 0 , 0 2 8 3 4 , 5 3 1 3 5 , 9 2 9 3 2 , 7 2 5 3 2 , 1 1 9 8 1 , 0 1 2 4 8 , 3 1 9 4 0 , 0 2 9 4 0 , 0 2 ) % 7 . 4 1 ( 0 5 5 , 1 9 5 1 5 7 , 3 0 2 ) % 5 . 8 1 ( 1 0 5 , 2 7 4 9 0 7 , 2 6 2 ) % 4 . 6 ( % 1 . 1 1 % 2 . 0 1 1 3 3 , 5 8 5 5 9 2 , 5 7 2 , 4 5 9 2 , 0 6 6 , 4 1 1 4 , 1 2 4 1 7 8 , 7 8 8 1 7 8 , 7 8 8 – – – 9 1 7 , 3 4 1 9 1 7 , 3 4 1 ) 3 4 2 , 7 8 ( 1 4 2 , 5 4 9 4 0 , 0 2 ) 3 4 2 , 7 8 ( 3 6 1 , 3 4 8 9 4 , 4 1 ) 8 1 3 , 7 3 ( ) 6 5 7 , 7 9 ( ) 6 5 7 , 7 9 ( 3 8 4 , 2 2 7 3 2 , 3 6 1 7 3 2 , 3 6 1 4 2 0 , 0 1 8 1 7 , 4 0 1 7 7 4 , 9 2 1 – – – – – – – – – – – – – – – – – – – – – – – 5 2 7 1 9 , 0 0 0 , 5 9 8 5 7 , 6 8 8 5 7 , 6 8 s r o t c e r i d e v i t u c e x e - n o N ) r i a h C ( n a g i t r a H . K . J r o n n o C O ’ . . A C t r u o c a M . J . P l a e N . R . I 1 4 2 , 0 6 3 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 0 0 5 , 2 6 2 3 7 7 4 6 , 3 1 6 , 5 5 8 0 5 1 , 6 6 3 0 0 , 1 0 1 5 2 9 9 1 , ) 3 2 6 , 2 ( 8 4 0 , 4 7 4 0 6 2 , 4 1 4 l e n n o s r e p t n e m e g a n a m y e K 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 l d a n o D c M . E l r e k a W . D i s i l a P . J – – – ) 5 6 5 , 5 ( 7 1 3 , 5 1 4 5 ) 8 1 0 2 e n u J 9 2 d e t r a p e d ( ) 4 8 7 1 1 , ( , 8 5 1 1 5 2 5 ) 8 1 0 2 y r a u r b e F 6 1 d e t r a p e d ( d o o W . S ) 4 6 1 5 , ( 5 9 8 , 3 7 1 5 ) 7 1 0 2 r e b m e c e D 5 1 d e t r a p e d ( h t r a g o H . A 3 5 6 , 9 2 4 3 5 6 , 9 2 4 2 6 5 , 9 5 2 6 5 , 9 5 1 9 2 , 4 8 5 , 2 2 3 5 , 4 4 9 , 2 P M K e v i t u c e x e l a t o T L A T O T I Y T U Q E D E L T T E S D E L T T E S H S A C E C N A M R O F R E P 4 E S N E P X E N A L P 3 E S N E P X E S T N E M Y A P D E S A B E R A H S 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 8 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 ) D E U N T N O C I ( S N A L P E V T N E C N I I F O L I A T E D . 4 d e u n i t n o C t r o p e R ’ s r o t c e r i D 16 I 2 $ N O S V O R P I E V A E L I E C V R E S G N O L N$ O T I I T$ F E N E B - A U N N A R E P U S H S A C N O N - H S A C S$ U N O B 1 $ E V A E L L A U N N A S$ E E F & Y R A L A S 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 d e t s e v t o n e v a h t a h t n a p e c n a m r o l f r e p e h t r e d n u r o f d e u r c c a s t n u o m a s t n e s e r p e r e s n e p x e n a p e c n a m r o l f r e p d e l t t e s h s a C . 7 1 0 2 r e b m e v o N n i d e c u d o r t n i l n a p e c n a m r o f r e p d e l t t e s h s a C . P M K o t 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 s 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 . n e k a t e v a e l l a u n n a r o f s t n u o m a s s e l , 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 . P M K o t 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 d e t s e v t o n e v a h t a h t s t h g i r e c n a m r o f r e p r o f d e u r c c a s t n u o m a s t n e s e r p e r e s n e p x e s t n e m y a p d e s a b - e r a h s d e l t t e s y t i u q E . P M K o t e d a m . d e s r e v e r n e e b s a h s t h g i r e c n a m r o f r e p e h t f o t c e p s e r n i 2 B S A A r e d n u d e s i n g o c e r y l s u o i v e r p e s n e p x e t n e m y a p d e s a b e r a h s y n A . d e t i e f r o f e r e w s I T S d n a s t h g i r e c n a m r o i f r e p g n d n a t s t u o l l l a t n e m y o p m e g n i s a e c n O . t n e m y o p m e f l o t c a r t n o c l ’ s e e y o p m e h c a e h t i w e c n a d r o c c a n i e d a m e r e w s t n e m y a p n o i t a n m r e T i 1 2 3 4 5 6 4. DETAIL OF INCENTIVE PLANS (CONTINUED) Table 3: Prime Media Group Limited Performance Rights Plan Approved November 2014 No performance rights were granted during the 2019 financial year. The following performance rights vested and/or lapsed during the 2019 financial year: 2019 Director I. Audsley Executive D. Walker J. Palisi TOTAL GRANT DATE VESTING DATE VESTED NUMBER LAPSED NUMBER 10/11/2015 10/11/2018 449,800 300,200 21/9/2015 21/9/2015 21/09/2018 21/09/2018 226,551 149,933 826,284 151,202 100,067 551,469 Table 4: Performance rights holdings of KMP As demonstrated in the table below, the Prime Media Group Limited Performance Rights Plan has ended and there are no outstanding rights to shares at the balance date. 2019 Director I. Audsley Executive D. Walker J. Palisi TOTAL BALANCE 1 JULY 2018 GRANTED AS REMUNERATION PERFORMANCE RIGHTS EXERCISED PERFORMANCE RIGHTS LAPSED PERFORMANCE RIGHTS FORFEITED BALANCE 30 JUNE 2019 EXERCISABLE NOT EXERCISABLE 750,000 377,753 250,000 1,377,753 – – – – 449,800 300,200 226,551 149,933 826,284 151,202 100,067 551,469 – – – – – – – – – – – – – – – – Table 5: Value of performance rights granted, exercised, lapsed or cancelled during the year VALUE OF PERFORMANCE RIGHTS GRANTED DURING THE YEAR 1 $ VALUE OF PERFORMANCE RIGHTS EXERCISED DURING THE YEAR 2 $ VALUE OF PERFORMANCE RIGHTS LAPSED DURING THE YEAR 1 $ VALUE OF PERFORMANCE RIGHTS CANCELLED DURING THE YEAR $ – – – – 102,349 36,901 55,757 195,007 124,883 64,377 42,605 231,865 – – – – I. Audsley D. Walker J. Palisi TOTAL 1 Determined at the time of grant per AASB 2. 2 Determined at the time of exercise. There were no alterations to the terms and conditions of performance rights granted as remuneration since their grant date. The maximum grant 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. 17 PRIME MEDIA GROUP | ANNUAL REPORT 2019 4. DETAIL OF INCENTIVE PLANS (CONTINUED) Table 6: Equity holdings and transactions Non-Executive Director J.K. Hartigan I.R. Neal P.J. Macourt C.A. O’Connor R.L. Sefton Executive Director I. Audsley Key Management Personnel D. Walker J. Palisi BALANCE AT START OF THE YEAR SHARES GRANTED ON EXERCISE OF RIGHTS PURCHASES AND OTHER CHANGES DURING THE YEAR BALANCE AT THE END OF THE YEAR – 40,000 – 75,000 – – – – – – 42,750 – – – – 42,750 40,000 – 75,000 – 865,456 449,800 (340,956) 974,300 – 19,058 226,551 149,934 (226,551) – – 168,992 The Prime Media Group Security Trading Policy applies to all NEDs and executives. The policy prohibits officers and employees from dealing in Company securities in a way that breaches insider trading laws or would compromise confidence in Prime’s investor practices. This policy is publicly disclosed and available at www.primemedia.com.au/investors. 5. EXECUTIVE CONTRACTS Remuneration arrangements for KMP are formalised in employment agreements. Details of these contracts are provided below: NAME NOTICE PERIOD TERMINATION PAYMENT CEO And Executive Director I. Audsley Other KMP D. Walker J. Palisi 12 months 12 months (fixed remuneration) End of contract 6 months Maximum of 6 months 6 months (fixed remuneration) Under the November 2017 cash settled long term incentive plan where a participant leaves before all Notional Share Units vest and becomes a good leaver the Board determines in its sole and absolute discretion to allow some or all of those notional share units to vest. Under other leaver circumstances, such as termination for cause, all unvested Notional Share Units will lapse and be forfeited. 6. NON-EXECUTIVE DIRECTOR REMUNERATION Remuneration Policy The Board seeks to aggregate remuneration at the level that provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. All of the current NEDs carry an initial contract duration of three years that remains subject to their re-election by shareholders. The employment contracts for NEDs do not carry notice provisions or termination entitlements. Board fees are set with reference to comparable ASX-listed companies. The Company does not currently provide securities as part of NED remuneration and shareholder approval would be sought for this form of remuneration to be paid. The amount of the aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed from time to time against fees paid to NEDs of comparable companies. The Board also considers advice from external consultants when undertaking the review process. The aggregate fees paid to NEDs in the 2019 financial year were $381,530 (excluding superannuation). NED fees in the 2020 financial year are estimated to be $474,521, which is less than the determination made at the Annual General Meeting held in November 2007 when shareholders approved an aggregate fee pool of $750,000 per annum (excluding superannuation). Structure NED remuneration consists of fixed annual directors’ fees only and therefore NED’s are not entitled to receive performance-based remuneration or any other entitlements that may be perceived to compromise their independence. The rates and fees (inclusive of superannuation contributions) for the NEDs in 2019 financial year is as follows: BOARD POSITION Chair NED Base Fee Committee Chair Committee Member 18 ANNUAL FEE $100,000 $95,000 Nil Nil Directors’ Report continued 6. NON-EXECUTIVE DIRECTOR REMUNERATION (CONTINUED) Remuneration Consultants To ensure the Board is fully informed when making decisions, the Remuneration and Nomination Committee has formalised policies that govern arrangements to engage independent remuneration consultants to provide independent advice and, where required, to make remuneration recommendations, free from the undue influence by members of the KMP. Having undertaken a significant review of KMP remuneration during the 2018 financial year, the Committee did not engage remuneration consultants in this financial year. The Committee is satisfied that the advice received from Ernst & Young in the prior year for services totalling $12,360 was free from undue influence from members of the KMP. Additional statutory disclosures Rounding The amounts contained in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) where noted ($’000) under the option available to the Company under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which this legislative instrument applies. Auditor Independence and Non-Audit Services The Directors have received and are satisfied with the ‘Auditor’s Independence Declaration’ provided by the Company’s external auditors, Ernst & Young, which is included on page 20. Non-Audit Services The following non-audit services were provided by the Group’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: Tax compliance services Assurance services Total $ 34,607 9,880 44,487 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 available on the Company website www.primemedia.com.au/investors. Signed in accordance with a resolution of the directors. P. J Macourt Director Sydney, 22 August 2019 19 PRIME MEDIA GROUP | ANNUAL REPORT 2019 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor’s Independence Declaration to the Directors of Prime Media Group Limited As lead auditor for the audit of the financial report of Prime Media Group Limited for the financial year ended 30 June 2019, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Prime Media Group Limited and the entities it controlled during the financial year. Ernst & Young Michael Wright Partner 22 August 2019 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 20 Financial Statements Contents FINANCIAL STATEMENTS Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows NOTES TO THE FINANCIAL STATEMENTS 1. Summary of significant accounting policies GROUP PERFORMANCE Revenue Expenses 2. 3. 4. Operating segments 5. Earnings per share OPERATING ASSETS AND LIABILITIES Intangible assets Trade and other receivables 6. Cash and short-term deposits 7. 8. 9. Other assets 10. Trade and other payables 11. Provisions 12. Property, plant and equipment CAPITAL STRUCTURE AND FINANCIAL COSTS Interest bearing loans and borrowings 13. 14. Financial risk management objectives and policies 15. Contributed equity 16. Capital management 17. Retained earnings and reserves 18. Dividends paid and proposed GROUP STRUCTURE 19. Assets held for sale 20. 21. Investments in associates Investments in subsidiaries UNRECOGNISED ITEMS 22. Commitments 23. Contingent liabilities OTHER Income tax 24. 25. Related party disclosures 26. Parent entity information 27. Subsequent events 28. Auditor’s remuneration 29. Other accounting policies 30. Significant judgments and estimates FINANCIALS Directors’ Declaration Independent Auditor’s Report ASX INFORMATION Shareholder information 22 23 24 25 26 29 30 30 31 32 33 36 37 37 37 38 39 40 42 43 43 44 44 45 46 47 49 49 52 54 54 54 55 56 58 59 64 21 PRIME MEDIA GROUP | ANNUAL REPORT 2019 Revenue and other income Revenue from contracts with customers Interest income Other income Total revenue and other income Cost of sales Gross profit Broadcasting and transmission expenses Administration and marketing expenses Depreciation and amortisation Impairment expense Operating Profit/(Loss) Finance costs Share of associate profits/(losses) Profit/(Loss) before income tax Income tax (expense)/benefit Profit/(Loss) for the year Profit/(Loss) for the year Total comprehensive income for the year Profit/(Loss) attributable to owners of the parent Total comprehensive income attributable to owners of the parent Basic Earnings per share (cents per share) Diluted Earnings per share (cents per share) CONSOLIDATED 2019 $’000 2018 RESTATED $’000 190,674 200,073 141 1,047 191,862 (101,465) 90,397 (41,546) (10,398) (11,879) (14,018) 12,556 (1,310) 156 11,402 (4,054) 7,348 134 1,044 201,251 (100,939) 100,312 (42,238) (12,740) (9,618) (51,690) (15,974) (1,584) (43) (17,601) 5,326 (12,275) 7,348 (12,275) 7,348 (12,275) 7,348 (12,275) 7,348 (12,275) 2.0 2.0 (3.4) (3.4) NOTES 2 2 2 7 3 20 24 5 5 The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with accompanying notes. 22 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2019 ASSETS Current Assets Cash and short term deposits Trade and other receivables Intangible assets Current tax asset Other assets Assets classified as held for sale Total Current Assets Non-Current Assets Investment in associates Property, plant and equipment Intangible assets Other assets Total Non-Current Assets Total Assets LIABILITIES Current Liabilities Trade and other payables Total Current Liabilities Non-Current Liabilities Interest-bearing loans and borrowings Provisions Deferred income tax Liabilities Total Non-Current Liabilities Total Liabilities Net Assets EQUITY Equity attributable to equity holders of the parent interest Contributed equity Reserves Accumulated losses Parent Interests Total Equity NOTES CONSOLIDATED 2019 $’000 2018 $’000 6 8 7 24 9 19 20 12 7 9 10 13 11 24 15 17 17 6,443 37,323 3,000 1,594 4,711 53,071 645 53,716 377 22,358 9,878 501 33,114 86,830 15,429 15,429 16,000 600 17 16,617 32,046 54,784 10,903 38,030 1,667 690 1,943 53,233 645 53,878 1,071 25,301 16,593 646 43,611 97,489 21,340 21,340 25,696 479 1,821 27,996 49,336 48,153 310,262 3,722 310,262 4,091 (259,200) (266,200) 54,784 54,784 48,153 48,153 The above Consolidated Statement of Financial Position should be read in conjunction with accompanying notes. 23 Consolidated Statement of Financial PositionAs at 30 June 2019PRIME MEDIA GROUP | ANNUAL REPORT 2019 At 1 July 2018 Effect of adoption of new accounting standards (refer Note 1) At 1 July 2018 (restated) 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: Exercise of performance rights Share-based payments (credit)/expense Dividends on ordinary shares At 30 June 2019 At 1 July 2017 Loss for the period Other comprehensive income Total comprehensive income and expense for the period Transactions with equity holders in their capacity as equity holders: Exercise of performance rights Share-based payments (credit)/expense Dividends on ordinary shares At 30 June 2018 ISSUED CAPITAL $’000 ACCUMULATED LOSSES $’000 310,262 (266,200) – (348) 310,262 (266,548) – – – – – – 7,348 – 7,348 – – – 310,262 (259,200) EMPLOYEE BENEFITS RESERVE $’000 TOTAL PARENT ENTITY INTEREST $’000 4,091 – 4,091 – – – (195) (174) – 3,722 48,153 (348) 47,805 7,348 – 7,348 (195) (174) – 54,784 ISSUED CAPITAL $’000 ACCUMULATED LOSSES $’000 EMPLOYEE BENEFITS RESERVE $’000 TOTAL PARENT ENTITY INTEREST $’000 310,262 – – – – – – 310,262 (247,697) (12,275) – (12,275) – – (6,228) (266,200) 4,641 – – – (452) (98) – 4,091 67,206 (12,275) – (12,275) (452) (98) (6,228) 48,153 The above Consolidated Statement of Changes in Equity should be read in conjunction with accompanying notes. 24 Consolidated Statement of Changes in EquityAs at 30 June 2019 OPERATING ACTIVITIES Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Borrowing costs paid Income tax paid NET CASH FLOWS FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of property, plant & equipment and intangible assets Purchase of program rights Proceeds from sale of financial assets Loan funds received from/(paid to) related entities NET CASH FLOWS USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Proceeds from borrowings Repayments of borrowings Share-based payments – performance rights exercised 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 The above Consolidated Statement of Cash Flows should be read in conjunction with accompanying notes. NOTES CONSOLIDATED 2019 $’000 2018 $’000 212,072 (182,195) 141 (940) (6,612) 22,466 (2,581) (15,000) – 850 (16,731) 95,000 (105,000) (195) – (10,195) 4,460 10,903 6,443 223,721 (174,369) 134 (1,569) (15,804) 32,113 (3,080) – 3 (43) (3,120) 114,000 (132,000) (452) (6,228) (24,680) 4,313 6,590 10,903 6 7 18 6 25 Consolidated Statement of Cash FlowsFor the year ended 30 June 2019PRIME MEDIA GROUP | ANNUAL REPORT 2019 Notes to the financial statements For the year ended 30 June 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial report of Prime Media Group Limited (the “Company”) for the year ended 30 June 2019 was authorised for issue in accordance with a resolution of the directors on 22 August 2019. Prime Media Group Limited is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Group are described in the Directors’ Report. A. Basis of preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements from the Australian Accounting Standards Board. The financial report has been prepared on a historical cost basis. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under the Australian Securities and Investment Commission (ASIC) Legislative Instrument 2016/191. The Company is an entity to which this Legislative Instrument applies. The consolidated financial statements provide comparative information in respect of the previous period. Significant accounting policies are provided throughout the notes to the financial statements. B. Compliance with Australian accounting standards and international financial reporting standards 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 Changes in accounting policy and disclosures The Group adopted all new and amended Australian Accounting Standards and Interpretations that became applicable during the current financial year. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. The Group applies, for the first time, AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments. The nature and effect of these changes are disclosed below. Several other amendments and interpretations apply from 1 July 2018, but do not have an impact on the consolidated financial statements of the Group. All other accounting policies adopted are consistent with those of the previous financial year. The following significant Australian Accounting Standards and Interpretations have recently been issued or amended, but are not yet effective: REFERENCE AASB 16 AASB 2018-1 AASB Interpretation 23, and relevant amending standards Conceptual Framework AASB 2019-1 TITLE Leases Amendments to Australian Accounting Standards – Further Annual Improvements 2015-2017 cycle APPLICATION DATE OF STANDARD APPLICATION DATE FOR GROUP 1 January 2019 1 January 2019 1 July 2019 1 July 2019 Uncertainty over Income Tax Treatments 1 January 2019 1 July 2019 Conceptual Framework for Financial Reporting Amendments to Australian Accounting Standards – Reference to the Conceptual Framework 1 January 2020 1 July 2020 AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material 1 January 2020 1 July 2020 The Group has elected not to early adopt any of the new standards or amendments in these financial statements. The Group has yet to fully assess the impact AASB 16 Leases will have on the financial statements, when applied in future periods. 26 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) AASB 16 Leases AASB 16 was issued in January 2016 and it replaces AASB 117 Leases, AASB Interpretation 4 Determining whether an Arrangement contains a Lease, AASB Interpretation 115 Operating Leases – Incentives and AASB Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under AASB 117. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to re-measure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under AASB 16 is substantially unchanged from today’s accounting under AASB 117. Lessors will continue to classify all leases using the same classification principle as in AASB 117 and distinguish between two types of leases: operating and finance leases. AASB 16, which is effective for annual periods beginning on or after 1 January 2019, requires lessees and lessors to make more extensive disclosures than under AASB 117. Transition to AASB 16 The Group has categorised its leases into four main groups: Transmission Sites, Buildings, Equipment and Motor Vehicles. The Group currently plans to adopt the standard retrospectively with the cumulative effect recognised in retained earnings at the date of initial application (e.g. 1 July 2019), without restating the comparative period. The Group will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value. The Group has not finalised the financial impact of the new standard. The Group’s balance sheet is expected to be grossed up for future lease payments (both receivable and payable, at their discounted values) and for the unamortised portion of right to use assets. Net rental expense in the income statement will be replaced by a ‘front-loaded’ interest expense and a straight-line depreciation expense. AASB 15 Revenue from Contracts with Customers AASB 15 Revenue from Contracts with Customers supersedes AASB 118 Revenue and related Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Under AASB 15 Revenue from Contracts with Customers revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. The Group adopted AASB 15 Revenue from Contracts with Customers using the full retrospective method of adoption. The impact on adoption is as follows: Advertising revenue a) The Group derives its primary source of revenue from the sale of advertising on its television services, recognising revenue when advertisements are broadcast. Under AASB 118 Revenue, revenue was recognised when the commercial advertisement had been broadcast. Under AASB 15 Revenue from Contracts with Customers, an element of revenue is required to be deferred until all specific viewer metrics have been met where this is part of the performance obligation in a contract. For the current reporting period the impact of the change in revenue recognition policy is not material and no adjustment has been made. Principal versus agent considerations b) As a television broadcaster, the Group contracts with media buyers and media agencies for the sale of advertising airtime to third party advertisers. Prime has historically recognised revenue from advertising inclusive of agency commissions and brought to account the cost of commission as a cost of sale. Under AASB 15, the Group must determine whether its performance obligation is to provide the good or service to media buyers and media agencies as the Group’s customers, or whether the Group’s customers are the third party advertisers. Under the new standards five-step model, the Group’s relationship is with media buyers and media agencies and accordingly advertising revenue is to be recognised net of agency commission since this is to be treated as a payment made to a customer. This treatment decreases the amount of advertising revenue recognised and the associated cost of sales by the amount of agency commissions, but does not change the Group’s net profit after tax. There was no impact on retained earnings. The statement of profit or loss for the year ended 30 June 2018 was also restated resulting in a decrease in revenue from contracts with customers and a corresponding decrease in cost of sales of $17,907,000. 27 PRIME MEDIA GROUP | ANNUAL REPORT 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The impact on the statement of profit or loss for financial year ended 30 June 2018 is as follows: Decrease in Revenue from contracts with customers Decrease in Cost of sales Profit for the period Attributable to owners of the parent $’000 (17,907) (17,907) – – Certain comparative figures in the consolidated statement of financial position and consolidated statement of cash flows have been adjusted where necessary to conform to current year presentation. AASB 9 Financial Instruments AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting. The areas of impact on adoption for the Group are as follows: Classification and measurement a) Under AASB 9 Financial Instruments, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Under AASB 9 Financial Instruments, debt instruments are subsequently measured at fair value through profit or loss, amortised cost, or fair value through Other Comprehensive Income. The classification is based on two criteria: the Group’s business model for managing the financial assets and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding. The assessment of the Group’s business model for managing financial assets was made as of the date of initial application, 1 July 2018. The assessment of whether contractual cash flows on financial assets are solely comprised of principal and interest was made based on the facts and circumstances as at the initial recognition of the assets. The classification and measurement requirements of AASB 9 Financial Instruments did not have a significant impact to the Group. Financial Assets: Carrying value and Impairment b) The adoption of AASB 9 Financial Instruments has fundamentally changed the Group’s accounting for impairment losses for financial assets by replacing the incurred loss approach under AASB 139 Financial Instruments: Recognition and Measurement with a forward-looking expected credit loss (ECL) approach. For trade and other receivables, the Group has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected credit losses. The Group has established a provision matrix that is based on the Group’s historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The adoption of the ECL requirements of AASB 9 Financial Instruments resulted in increases in impairment allowances of the Group’s trade and other receivables. The increase in allowance resulted in an adjustment to retained earnings. As a consequence of the adjustments described above, deferred taxes were adjusted to retained earnings as necessary upon adoption of AASB 9 Financial Instruments as at 1 July 2018. The Group applied AASB 9 with an initial application date of 1 July 2018. The adjustment to impairment allowances is applied prospectively and comparative information has not been restated. Differences arising from the adoption of AASB 9 have been recognised directly in retained earnings. The effect of adopting AASB 9 as 1 July 2018 was as follows: Assets Decrease in Trade and other receivables Total assets Liabilities Decrease in Deferred tax liabilities Total liabilities Total adjustment to equity Decrease in Retained earnings Total Equity ADJUSTMENTS 1 JULY 2018 $’000 a) a) a) (497) (497) (149) (149) (348) (348) Other standards and interpretations that have been issued but are not yet effective are not expected to have any significant impact on the Group’s financial statements in the year of their initial application. 28 Notes to the financial statements continuedFor the year ended 30 June 2019 2. REVENUE Advertising and other external revenue Finance income Other income Total Breakdown of finance income: Interest received Total Breakdown of other income: Government grants Other revenues Total ACCOUNTING POLICY Revenue from contracts with Customers CONSOLIDATED 2019 $’000 2018 $’000 190,674 200,073 141 1,047 191,862 141 141 139 908 1,047 134 1,044 201,251 134 134 421 623 1,044 Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. As a television broadcaster, the Group contracts with media buyers and media agencies for the sale of advertising airtime to third party advertisers. Under AASB 15, the Group determines whether its performance obligation is to provide the good or service to media buyers and media agencies as the Group’s customers, or whether the Group’s customers are the third party advertisers. The Group’s customers are media buyers and media agencies and accordingly advertising revenue is recognised net of agency commission since this is treated as a payment made to a customer. The specific recognition criteria described below must also be met before revenue is recognised: REVENUE CLASS RECOGNITION CRITERIA Advertising revenue Revenue is recognised when the commercial advertisement has been broadcast. Where the Company has committed to delivering a specific viewer metric for an advertising campaign, then revenue for this performance obligation will be recognised when the viewer metric has been achieved. Advertising revenue is recognised net of agency commission. Advertising production revenue Revenue is recognised when the production is complete and the customer invoiced. Sales representation revenue The performance obligation is satisfied when the advertising airtime is broadcast. Other Revenue 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. i) Reimbursement of expense Recognised in profit or loss on a systematic basis over the periods the related costs, which it is intended to compensate, are expensed. ii) Reimbursement for cost of asset Recognised in profit or loss over the useful life of the related asset on a systematic basis. When the Group receives grants of non-monetary assets, 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. Rental income Interest income Rental income is recognised on a straight-line basis over the term of the lease. Interest revenue is recognised as it accrues, based on the effective yield of the financial asset. 29 PRIME MEDIA GROUP | ANNUAL REPORT 2019 3. EXPENSES Finance Expenses Interest on debt and borrowings Employee Benefit Expense Wages and salaries Sales commissions and bonuses Superannuation expense Share-based payments (release)/expense Other employee benefits expense Other Expenses Bad debts and expected credit losses and credit notes – trade debtors Minimum lease payments – operating leases ACCOUNTING POLICY Borrowing Costs CONSOLIDATED 2019 $’000 1,310 1,310 27,211 3,496 2,511 (174) 1,377 34,421 114 8,100 2018 $’000 1,584 1,584 28,688 3,208 2,469 (98) 1,523 35,790 139 8,555 Borrowing costs are expensed in the period incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Operating Leases Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term. 4. OPERATING SEGMENTS ACCOUNTING POLICY An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity’s chief operating decision maker to assess performance, make resource allocation decisions and for which discrete financial information is available. Identification of reportable segments The Group operates as a single regional free-to-air television broadcasting segment. The Group holds commercial television licences to broadcast in regional New South Wales, the Australian Capital Territory, regional Victoria, the Gold Coast area of Southern Queensland and regional Western Australia. The majority of the Group’s television programming is supplied through a program supply agreement with the Seven Network and broadcast in regional areas under the PRIME7 brand on the east coast of Australia and the GWN7 brand in regional Western Australia. The Board and Executive monitor the operating performance of the segment based on internal reports and discrete financial information that is reported to the Board on at least a monthly basis. 30 Notes to the financial statements continuedFor the year ended 30 June 2019 5. EARNINGS PER SHARE Basic earnings per share (cents per share) Diluted earnings per share (cents per share) ACCOUNTING POLICY Basic Earnings Per Share CONSOLIDATED 2019 2.0 2.0 2018 (3.4) (3.4) Basic earnings per share (EPS) is 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 Diluted earnings per share is 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: Earnings used in calculating basic and diluted earnings per share Weighted average number of ordinary shares used in calculating basic EPS: Weighted average number of ordinary shares used in calculating diluted EPS: CONSOLIDATED 2019 $’000 7,348 2018 $’000 (12,275) 2019 NUMBER OF SHARES 2018 NUMBER OF SHARES 366,330,303 366,330,303 366,330,303 366,330,303 There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the completion of the financial statements. 31 PRIME MEDIA GROUP | ANNUAL REPORT 2019 6. CASH AND SHORT-TERM DEPOSITS Cash balance comprises: Cash at bank and on hand Closing cash balance ACCOUNTING POLICY Cash and short-term deposits CONSOLIDATED 2019 $’000 6,443 6,443 2018 $’000 10,903 10,903 Cash and short-term deposits in the statement of financial position comprise cash at bank and on hand. For the purpose of the consolidated statement of cash flows, cash and short term deposits consist of cash and short-term deposits. RECONCILIATION OF THE NET PROFIT AFTER TAX TO THE NET CASH FLOWS FROM OPERATIONS Profit/(Loss) after tax Non-cash adjustment for: Depreciation and amortisation Amortisation of program rights Provision for expected credit loss Net loss on disposal of property, plant and equipment Gain on sale of financial asset Impairment of intangible assets Gain on foreign currency translation Share of associate (profits)/losses Share based payments (benefit)/expense Working capital adjustments Decrease in trade and other receivables (Increase) in prepayments Increase/(Decrease) in provisions (Decrease)/Increase in trade and other payables Cash flows from operating activities Decrease in deferred tax liabilities Decrease in tax provision Increase in borrowing costs Net cash flow from operating activities CONSOLIDATED 2019 $’000 7,348 7,212 4,667 (184) 8 – 2018 $’000 (12,275) 7,951 1,667 (55) 19 2 14,018 51,690 3 (156) (174) 541 (2,623) 120 (5,911) 24,869 (1,801) (906) 304 22,466 17 43 (98) 1,490 (90) (39) 2,764 53,086 (15,897) (5,233) 157 32,113 32 Notes to the financial statements continuedFor the year ended 30 June 2019 7. INTANGIBLE ASSETS Television broadcast licences Program rights Infrastructure access licence Business software, development costs including websites Total CONSOLIDATED 2019 $’000 – 12,000 – 878 12,878 2018 $’000 11,823 1,667 391 4,379 18,260 ACCOUNTING POLICY A summary of the policies applied to the Group’s intangible assets is as follows: TELEVISION BROADCAST LICENCES PROGRAM RIGHTS, INFRASTRUCTURE ACCESS LICENCES, BUSINESS SOFTWARE AND DEVELOPMENT COSTS 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 Television 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 the Australian Communications and Media Authority 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 and have not identified any factor that would affect their useful life. These assets are not amortised but are tested for impairment annually. Program Rights Consists of television program rights arising from the Group’s program supply agreement with the Seven Network. 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. Infrastructure Access Licences Infrastructure access licenses represent licences acquired to use transmission facilities for initial periods up to 10 years. The licences are amortised to the profit and loss over the term of the licence. Business Software and development costs including websites Business software and development costs represent the cost to implement a television sales and traffic software system and a newsroom management system. Amortisation of the asset begins when the development is complete and the asset is available for use. It is amortised over the period of the expected future benefit of between three and eight years. The carrying value of the software and development costs is cost less accumulated amortisation and impairment losses. 33 PRIME MEDIA GROUP | ANNUAL REPORT 2019 7. INTANGIBLE ASSETS (CONTINUED) Reconciliation of carrying amounts at the beginning and end of the period. BROADCAST LICENCES $’000 PROGRAM RIGHTS $’000 INFRASTRUCTURE ACCESS LICENCE $’000 BUSINESS SOFTWARE AND DEVELOPMENT COSTS INCL WEBSITES $’000 TOTAL $’000 182,963 14,000 4,634 17,418 219,015 – – – 182,963 – – – – – – 14,000 15,000 (14,000) – 237 (107) 214 4,978 160 – – 545 (40) – 17,923 381 – – 782 (147) 214 219,864 15,541 (14,000) – 182,963 15,000 5,138 18,304 221,405 (119,450) – (51,690) – – (171,140) – (11,823) – – (182,963) – – – 11,823 – 11,823 (10,667) (1,666) – – – (12,333) (4,667) – 14,000 – (3,000) 12,000 3,000 9,000 1,667 1,667 – (3,686) (687) – – (214) (4,587) (551) – – – (11,792) (1,792) – 40 – (145,595) (4,145) (51,690) 40 (214) (13,544) (201,604) (1,685) (2,195) – – (6,903) (14,018) 14,000 – (5,138) (17,424) (208,525) – – – 391 – 391 878 – 878 4,379 – 4,378 12,878 3,000 9,878 18,260 1,667 16,593 Cost At 1 July 2017 Additions Disposals Classification transfer At 30 June 2018 Additions Disposals Classification transfer At 30 June 2019 Amortisation and impairment At 1 July 2017 Amortisation charges Impairment charges Disposals Classification transfer At 30 June 2018 Amortisation charges Impairment charges Disposals Classification transfer At 30 June 2019 Net Book Value At 30 June 2019 Total Current Total Non-Current At 30 June 2018 Total Current Total Non-Current 34 Notes to the financial statements continuedFor the year ended 30 June 2019 7. INTANGIBLE ASSETS (CONTINUED) Impairment testing of intangible assets with indefinite lives ACCOUNTING POLICY Impairment of non-financial assets Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. The useful lives of intangible assets are assessed as 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 intangible assets with a finite useful life are reviewed at the end of each reporting period. Changes in the expected useful life of the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite useful lives is recognised in the statement of profit or loss in the expense category that is consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit (CGU) level. When an asset is tested for impairment, the Group estimates the assets recoverable amount. An assets recoverable amount is the higher of an assets or CGU’s fair value less costs of disposal and its value in use. 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 the markets assessment of the time value of money and the risks specific to the asset. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses should be reversed. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the assets recoverable amount since the last impairment 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 calculated in prior years. A reversal is recognised in the statement of profit or loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. Key assumptions used in value-in-use calculations and sensitivity to changes in assumptions In accordance with the Group’s accounting policies, the Group performed its annual impairment tests as at 30 June 2019 and 30 June 2018. At 30 June 2019 this resulted in an impairment charge of $11,823,000 against television broadcast licences and $2,195,000 against definite life intangible assets. In performing the review at 30 June 2019, management identified: • • • the forecast decline in the compound annual growth rate for regional free-to air advertising revenues over five financial years was 2.6% at 30 June 2019 (2018: 2.2%); the long term terminal growth rate is forecast to be negative 3.2% (2018: negative 3.2%); and the cost of content as agreed in the program supply agreement entered into with the Seven Network on 20 August 2018. The Group also considers the relationship between its market capitalisation and its book value, in addition to other factors, when reviewing for indicators of impairment. As at 30 June 2019, the market capitalisation of the Group, based on the volume weighted average share price for the 30 day period to the reporting date, was above the book value of its equity. The Group is considered to be the sole CGU and includes television broadcasting intangible assets. The Group has completed a value-in-use assessment of the carrying value of television broadcast intangible assets, to test for impairment. VALUE-IN-USE CASH FLOWS APPROACH Year 1 Years 2–5 cash flows Based on the annual budget as approved by the Board and as amended for current advertising trading conditions and reasonably foreseeable changes to operating conditions. Free-to-air television advertising revenue has been assumed to decline consistent with the forecast decline in regional television advertising audiences. Expenses have been forecast to increase in line with long term CPI and/or agreed contractual increases. Long-term growth rate – terminal The rate is consistent with industry forecasts specific to the CGU in which the industry operates. Discount rate Discount rates represent the current market assessment of the risks specific to the 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 value-in-use assessment is based on the following key assumptions: VALUE-IN-USE ASSUMPTIONS 5 year compound annual growth rate for free-to-air advertising revenue Long-term growth rate – terminal Discount rate (pre-tax) Discount rate (post-tax) 2019 (2.6%) (3.2%) 12.96% 12.64% 2018 (2.2%) (3.2%) 12.96% 12.64% 35 PRIME MEDIA GROUP | ANNUAL REPORT 2019 7. INTANGIBLE ASSETS (CONTINUED) The discounted cash flow valuation of the intangibles assets gives a recoverable amount which is less than the current carrying value resulting in an impairment charge of $14,018,000 during the period. Following the impairment the recoverable amount is equal to the current carrying value. The Group recognises that the speed of technological change and the impact of new viewing platforms can have a significant impact on growth rate assumptions. The value-in-use calculation is most sensitive to changes in the following assumptions, which would result in either a surplus or deficit between the recoverable amount and the carrying amount: VALUE-IN-USE ASSUMPTIONS – SENSITIVITY 5 year compound annual growth rate for free-to-air advertising revenue (‘CAGR’) An increase in the 5 year CAGR of 0.5% will reduce impairment by: A decrease in the 5 year CAGR of 0.5% will increase impairment by: Long-term growth rate – terminal (‘TGR’) A further decline in the TGR of 1.0% will increase impairment by: An improvement in the TGR of 1.0% will reduce impairment by: Discount rate (pre-tax) An increase in the discount rate (pre-tax) of 2.0% will increase impairment by: A decrease in the discount rate (pre-tax) of 2.0% will reduce impairment by: 8. TRADE AND OTHER RECEIVABLES Current Trade receivables Other receivables Related party receivables Allowance for expected credit losses Carrying amount of trade and other receivables ACCOUNTING POLICY Trade Receivables SURPLUS/(DEFICIT) SENSITIVITY $’000 5,017 (13,121) (1,282) 1,455 (4,796) 6,024 CONSOLIDATED 2019 $’000 2018 $’000 33,637 3,522 980 38,139 (816) 37,323 33,914 3,880 559 38,353 (323) 38,030 Trade receivables are carried at original invoice amount less an allowance charge for expected credit losses (ECL). Trade receivables are generally settled within 30 to 45 days and are not interest bearing. Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. The collectability of trade receivables is reviewed on an ongoing basis and bad debts are written off when identified. Having adopted AASB 9 Financial Instruments, the Group applies a forward-looking ECL approach to account for impairment losses for financial assets, including trade and other receivables. The ECL approach is based on the Group’s historical credit loss experience, adjusted for forward-looking factors specific to trade and other receivables and the economic environment. An impairment provision equivalent to the expected credit loss is recorded without regard for evidence of an actual loss event. The maximum exposure to credit risk is the fair value of receivables (refer to Note 14 regarding information on the Group’s exposure to credit and market risk). Refer to Note 25 for details on related parties. Provision for expected credit loss Set out below is the movement in the provision for expected credit losses of trade receivables: At July 1 Effect of adoption of new accounting standards (refer Note 1) Charge for the year Amounts written off At June 30 Information about the credit exposures are disclosed in Note 14. 36 CONSOLIDATED 2019 $’000 323 497 293 (297) 816 2018 $’000 449 – 67 (193) 323 Notes to the financial statements continuedFor the year ended 30 June 2019 9. OTHER ASSETS Current Prepayments Non-current Prepayments Total ACCOUNTING POLICY Prepayments CONSOLIDATED 2019 $’000 4,711 501 5,212 2018 $’000 1,943 646 2,589 Prepayments are recognised when a payment is made for goods or services the company expects to receive or consume in future periods. Prepayments are expensed to profit or loss as they are received or consumed. 10. TRADE AND OTHER PAYABLES Current Trade payables Accrued expenses Accrued employee entitlements Total ACCOUNTING POLICY Trade Payables and Other Accrued Expenses CONSOLIDATED 2019 $’000 961 7,265 7,203 15,429 2018 $’000 916 14,231 6,193 21,340 Liabilities for trade creditors and other amounts are carried at amortised cost, which is the fair value of the consideration to be paid in the future for goods and services received. Trade payables are non-interest bearing and are normally settled on 30 day terms. Due to the short-term nature of these payables, their carrying value is considered to approximate their fair value. Accrued employee entitlements Liabilities for wages and salaries, including non-monetary benefits and 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. 11. PROVISIONS Non-current Long service leave Total ACCOUNTING POLICY Provisions CONSOLIDATED 2019 $’000 600 600 2018 $’000 479 479 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 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. 37 PRIME MEDIA GROUP | ANNUAL REPORT 2019 12. PROPERTY, PLANT AND EQUIPMENT LAND AND BUILDINGS 1 $’000 LEASEHOLD IMPROVEMENTS $’000 PLANT AND EQUIPMENT $’000 Cost or valuation At 1 July 2017 Additions Disposals At 30 June 2018 Additions Disposals Classification transfer At 30 June 2019 Depreciation and amortisation At 1 July 2017 Depreciation charges Disposals At 30 June 2018 Depreciation charges Disposals At 30 June 2019 Net Book Value At 30 June 2019 At 30 June 2018 11,815 42 – 11,857 46 (1) 3 1,726 206 – 1,932 15 – – TOTAL $’000 98,267 2,387 (498) 84,726 2,139 (498) 86,367 100,156 1,974 (1,912) (3) 2,035 (1,913) – 11,905 1,947 86,426 100,278 (4,774) (284) – (5,058) (286) – (1,042) (64,061) (69,877) (171) – (1,213) (160) – (5,019) 496 (5,474) 496 (68,584) (74,855) (4,529) 1,910 (4,975) 1,910 (5,344) (1,373) (71,203) (77,920) 6,561 6,799 574 719 15,223 17,783 22,358 25,301 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. ACCOUNTING POLICY Property, plant and equipment Plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. 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. 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: – Motor vehicles: Not depreciated 40 years The lease term 3 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 de-recognition 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. 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. Costs to sell are the incremental costs directly attributable to the sale, excluding the finance costs and income tax expense. 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 within one year from the date of classification. Property, plant and equipment is not depreciated or amortised once classified as held for sale. Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position. 38 Notes to the financial statements continuedFor the year ended 30 June 2019 13. INTEREST BEARING LOANS AND BORROWINGS Non-current $30 million secured bank loan facility (2018: $60 million) ACCOUNTING POLICY Borrowing Costs MATURITY 2023 CONSOLIDATED 2019 $’000 16,000 16,000 2018 $’000 25,696 25,696 Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Subsequent Measurement Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate 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 statement of profit or loss. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of profit or loss. Terms and conditions Secured Bank Loan Facility During the reporting period the Company executed another Amendment and Restatement Deed reducing the facility limit to $30 million. The facility is secured by a charge over the assets of the borrower group comprising all wholly owned entities, but excluding Broadcast Production Services Pty Limited and its subsidiaries. Interest is charged at the BBSY rate plus a margin of 1.80%. 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 3.1% to 3.9% (2018: 3.2% to 3.9%) 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 23. 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. Details regarding interest rate risk are disclosed in Note 14. Defaults and breaches During the current and prior years, there were no defaults or breaches on any of the loans. 39 PRIME MEDIA GROUP | ANNUAL REPORT 2019 14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial liabilities 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’s principal financial assets include trade and other receivables, and cash and short-term deposits that are derived directly from its operations. 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 risks 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 Board of directors reviews risks in accordance with its approach to risk management as set out in the Directors’ Report and the Group’s Corporate Governance Statements which are displayed on the Company’s website www.primemedia.com.au/investors. 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. The level of interest bearing debt is disclosed in Note 13. At balance date, the Group had the following mix of financial assets and liabilities exposed to interest rate risk: Financial Assets Cash and short-term deposits Financial Liabilities Secured bank loan facility Net exposure CONSOLIDATED 2019 $’000 6,443 6,443 (16,000) (16,000) (9,557) 2018 $’000 10,903 10,903 (25,696) (25,696) (14,793) The Group analyses its interest rate exposure from time to time. 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 2019, 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 +0.25% (25 basis points) -0.25% (25 basis points) POST TAX PROFIT HIGHER/(LOWER) EQUITY HIGHER/(LOWER) 2019 $’000 2018 $’000 2019 $’000 2018 $’000 (17) 17 (26) 26 – – – – 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. 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 and 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 using a provision matrix to measure lifetime expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e. customer type). The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written-off if past due for more than one year. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 8. The Group does not hold collateral as security. A small number of media buying agencies account for approximately 56.1% of Prime’s revenue. Three media buying agencies individually contribute more than 10% of the Group’s revenue and collectively account for $64,153,000 or 33.4% of the Group’s revenue and are in compliance with agreed payment terms. 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. 40 Notes to the financial statements continuedFor the year ended 30 June 2019 14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Set out below is the information about the credit risk exposure on the Group’s receivables using a provision matrix: TRADE RECEIVABLES DAYS PAST DUE YEAR ENDED 30 JUNE 2019 Expected credit loss rate Estimated total gross carrying amount at default Expected credit loss CURRENT $’000 < 30 DAYS $’000 30–60 DAYS $’000 61–90 DAYS $’000 > 91 DAYS $’000 TOTAL $’000 0.74% 21,955 162 0.95% 15,000 143 26.7% 439 117 46.8% 56.2% 268 129 477 265 38,139 816 YEAR ENDED 30 JUNE 2018 Expected credit loss rate Estimated total gross carrying amount at default Expected credit loss CURRENT $’000 < 30 DAYS $’000 30–60 DAYS $’000 61–90 DAYS $’000 > 91 DAYS $’000 TOTAL $’000 0.71% 22,135 158 0.77% 14,634 113 15.9% 1,225 196 99.4% 166 164 97.9% 193 189 38,353 820 TRADE RECEIVABLES DAYS PAST DUE Liquidity risk The Group manages its liquidity risk by monitoring the total cash inflows and outflows expected on a daily or weekly basis. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and other financial arrangements as required. The Group currently has funding through a $30 million secured bank loan facility (2018: $60 million), which is currently drawn to 53% of the facility limit (2018: 43%). In addition to maintaining sufficient liquid assets to meet short-term payments, at balance date, the Group has available approximately $14 million of undrawn committed borrowing facilities, subject to continued compliance with the bank loan covenants. The facility is repayable on expiry in April 2023. The contractual maturities of the Group’s financial assets and liabilities are: YEAR ENDED 30 JUNE 2019 Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Interest bearing loans (refer note 13) Interest bearing loans – finance charges Net inflow/(outflow) YEAR ENDED 30 JUNE 2018 Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Interest bearing loans (refer note 13) Interest bearing loans – finance charges Net inflow/(outflow) ≤ 6 MONTHS $’000 6–12 MONTHS $’000 1–5 YEARS $’000 > 5 YEARS $’000 6,443 37,323 43,766 (15,429) – (110) (15,539) 28,227 ≤ 6 MONTHS $’000 10,903 38,030 48,933 (21,340) – (88) (21,428) 27,505 – – – – – – – – 6–12 MONTHS $’000 – – – – – – – – – – – – (16,000) – (16,000) (16,000) 1–5 YEARS $’000 – – – – (25,696) – (25,696) (25,696) – – – – – – – – > 5 YEARS $’000 – – – – – – – – Fair values The carrying amount of the Group’s current and non-current financial assets approximates their fair value. TOTAL $’000 6,443 37,323 43,766 (15,429) (16,000) (110) (31,539) 12,227 TOTAL $’000 10,903 38,030 48,933 (21,340) (25,696) (88) (47,124) 1,809 41 PRIME MEDIA GROUP | ANNUAL REPORT 2019 15. CONTRIBUTED EQUITY ISSUED AND PAID UP CAPITAL Ordinary shares fully paid 366,330,303 shares (2018: 366,330,303 shares) ACCOUNTING POLICY Contributed Equity CONSOLIDATED 2019 $’000 2018 $’000 310,262 310,262 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. Movements in shares on issue ORDINARY Beginning of the financial year End of the financial year Equity settled share-based payments 2019 2018 NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES 366,330,303 366,330,303 366,330,303 366,330,303 366,330,303 366,330,303 $’000 310,262 310,262 Prime Media Group Limited Performance Rights Plan The Prime Media Group Limited Performance Rights Plan ended this financial year, with no new issue of performance rights since 2015. As set out in the Remuneration Report, the Trustee of the Prime Media Group Limited Performance Rights Plan acquired shares on-market for performance rights exercised during the reporting period. At the end of the year there were no un-issued ordinary shares in respect of which performance rights were outstanding (2018: 1,377,753). 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. 42 Notes to the financial statements continuedFor the year ended 30 June 2019 16. 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 its credit rating and 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. The Company suspended its dividend payments in December 2017 until further notice and applies all surplus funds to reduce interest bearing debt. 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: Total Debt to EBITDA Interest Cover to EBITDA 17. RETAINED EARNINGS AND RESERVES Employee benefits equity reserve Accumulated losses Employee benefits equity reserve Movements in reserve Balance at beginning of year Exercise of performance rights Share based payment (release)/expense Balance at end of year Accumulated losses Balance at the beginning of year Effect of adoption of new accounting standards (refer Note 1) Balance at the beginning of year (restated) Net profit/(loss) attributable to members of Prime Media Group Limited Total accumulated losses Dividends provided for or paid Balance at end of year ACCOUNTING POLICY Employee Benefits Reserve TARGET < 1.5 times > 3.0 times AT BALANCE DATE 0.4 29.3 CONSOLIDATED 2019 $’000 3,722 2018 $’000 4,091 (259,200) (266,200) 4,091 (195) (174) 3,722 4,641 (452) (98) 4,091 (266,200) (247,697) (348) (266,548) 7,348 (259,200) – – (247,697) (12,275) (259,972) (6,228) (259,200) (266,200) The employee benefits reserve is used to record the value of benefits provided to executive directors and KMP as part of their remuneration under the Prime Media Group Limited Performance Rights Plan. 43 PRIME MEDIA GROUP | ANNUAL REPORT 2019 18. DIVIDENDS PAID AND PROPOSED Recognised amounts DECLARED AND PAID DURING THE YEAR Current year interim franked dividends – Nil cents per share (2018: Nil) Previous year final franked dividends Nil cents per share (2018: 1.7 cents) Franking credit balance Franking account balance as at the end of the financial year at 30% (2018: 30%) Franking credits that will arise from the payment of income tax (refundable)/payable as at the end of the financial year Tax rates The tax rate at which paid dividends have been franked is 30% (2018: 30%). 19. ASSETS HELD FOR SALE Total current assets held for sale Property, plant and equipment Total non-current assets held for sale Assets classified as held for sale CONSOLIDATED 2019 $’000 – – – 2018 $’000 – 6,228 6,228 THE GROUP 2019 $’000 67,072 (1,594) 65,478 2018 $’000 60,460 (690) 59,770 CONSOLIDATED 2019 $’000 – 645 645 645 2018 $’000 – 645 645 645 During the period the Board resolved to continue to market for sale the property located in Bunbury, Western Australia, as it was considered surplus to requirements and the funds received would be applied to pay down interest bearing debt. A third party agent has been engaged to sell the surplus property, with the intention to complete the sale within the next six to 12 months. The carrying value has been reclassified as held for sale. As at 30 June 2019 there have been no gains or losses recognised. ACCOUNTING POLICY Non-current assets held for sale 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. Costs to sell are the incremental costs directly attributable to the sale, excluding the finance costs and income tax expense. 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 within one year from the date of classification. Property, plant and equipment are not depreciated or amortised once classified as held for sale. Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position. 44 Notes to the financial statements continuedFor the year ended 30 June 2019 20. INVESTMENTS IN ASSOCIATES UNLISTED Mildura Digital Television Pty Limited West Digital Television Pty Limited West Digital Television No2 Pty Limited West Digital Television No3 Pty Limited West Digital Television No4 Pty Limited WA SatCo Pty Limited Broadcast Transmission Services Pty Limited Total Investment in Associates ACCOUNTING POLICY Investments in Associates CONSOLIDATED 2019 $’000 – 377 – – – – – 2018 $’000 – 1,071 – – – – – 377 1,071 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. Significant influence is the power to participate in the financial and operating policy decisions of the investee. 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 aggregate of 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. The consolidated entity has a material interest in the following entities OWNERSHIP INTEREST CONTRIBUTION TO NET PROFIT/(LOSS) UNLISTED Mildura Digital Television Pty Limited West Digital Television Pty Limited West Digital Television No2 Pty Limited West Digital Television No3 Pty Limited West Digital Television No4 Pty Limited WA SatCo Pty Limited Broadcast Transmission Services Pty Limited 2019 % 50% 50% 50% 50% 50% 50% 33% 2018 % 50% 50% 50% 50% 50% 50% 33% Movements in the carrying amount of the Group’s investment in associates At July 1 (Loan repayment received)/Contributions made Share of profits after income tax Provision for impairment of investment At June 30 2019 $’000 (150) 306 – – – – – 2018 $’000 (43) – – – – – – 156 (43) CONSOLIDATED 2019 $’000 1,071 (850) 594 (438) 377 2018 $’000 1,071 43 400 (443) 1,071 Contributions made reflect 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. 45 PRIME MEDIA GROUP | ANNUAL REPORT 2019 21. INVESTMENTS IN SUBSIDIARIES Closed Group Class Order disclosures Entities subject to Class Order relief Pursuant to by ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (previously 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, and Prime Television Investments 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”) as amended from time to time by assumption deed for the addition and removal of controlled entities. 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 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 Group Services Pty Limited Prime New Media Investments Pty Limited Geraldton Telecasters Pty Limited Prime Media Communications Pty Limited 1 Prime Growth Media Pty Limited 1 Prime Television Digital Media Pty Limited 1 COUNTRY OF INCORPORATION EQUITY INTEREST 2019 % 2018 % 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 1 Indicates that these companies were deregistered on 29 May 2019. The consolidated statement of comprehensive income and statement of financial position of the entities which are members of the ‘Closed Group’ are as follows: Consolidated statement of comprehensive income CLOSED GROUP 2019 $’000 14,565 (4,316) 10,249 (268,198) (348) – (258,297) 2018 $’000 (69,124) 5,328 (63,796) (198,174) – (6,228) (268,198) Operating profit/(loss) before income tax Income tax (expense)/benefit attributable to operating profit Operating profit/(loss) after tax Retained losses at beginning of the financial year Effect of adoption of new standards (Note 1) Dividends provided for or paid Retained losses at end of the financial period 46 Notes to the financial statements continuedFor the year ended 30 June 2019 21. INVESTMENTS IN SUBSIDIARIES (CONTINUED) Consolidated statement of financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity 22. COMMITMENTS Capital expenditure commitments Estimated capital expenditure contracted for at reporting date, but not provided for, payable: – not later than one year Lease expenditure commitments – Group as lessee Operating leases (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 ACCOUNTING POLICY Leases CLOSED GROUP 2019 $’000 2018 $’000 51,900 41,440 93,340 13,835 25,668 39,503 53,837 56,117 47,669 103,786 23,799 35,683 59,482 44,304 CONSOLIDATED 2019 $’000 2018 $’000 250 1,204 6,133 13,402 3,210 22,745 6,579 15,680 3,000 25,259 The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception. The arrangement is, or contains, a lease if 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. Group as a Lessee A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. An operating lease is a lease other than a finance lease. Finance leases are capitalised at the lease’s inception at the lower of fair value of the leased property or the estimated present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of lease liability 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 statement of profit or loss on a straight-line basis over the lease term. Operating leases have an average lease term of three years for motor vehicles, three to five years for building leases, and up to 10 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 (CPI) adjustments if options are taken up. The majority of the transmission site leases are rentals that are subject to annual CPI adjustment. There are no restrictions placed upon the lessee by entering into these leases. 47 PRIME MEDIA GROUP | ANNUAL REPORT 2019 22. COMMITMENTS (CONTINUED) 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 up to 10 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 CONSOLIDATED 2019 $’000 2018 $’000 1,175 1,994 410 3,579 1,290 2,685 591 4,566 Other commitments covering the use of technical equipment under a long term agreement Other commitments relate to technical communications equipment that is fundamental to the distribution of the television programming and data communications. – not later than one year – – later than one year and not later than five years later than five years 4,200 5,250 – 9,450 4,200 9,450 – 13,650 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 27) for the provision of site maintenance services over a five year period at an annual cost of $1,200,000 per annum. The Company also entered into a contract with MediaHub Australia Pty Limited for the provision of playout services over a five year period. – not later than one year – later than one year and not later than five years – later than five years ACCOUNTING POLICY Group as a Lessor CONSOLIDATED 2019 $’000 4,626 8,210 – 12,836 2018 $’000 4,566 12,690 – 17,256 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. 48 Notes to the financial statements continuedFor the year ended 30 June 2019 23. CONTINGENT LIABILITIES The Group has guaranteed 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 until 30 June 2020. In the event that WA SatCo Pty Limited defaults on any payments under this contract, the Group may be liable for $2,346,192 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 to 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 Maximum contingent commitments As noted above the entire maximum potential contingent commitment is offset by government funding. 24. INCOME TAX The major components of income tax expense are: Consolidated Statement of Profit or Loss Current income tax – Current income tax charge – Adjustments in respect of current income tax of previous years Deferred income tax – Relating to origination and reversal of temporary differences – Adjustments in respect of deferred income tax of previous years Income tax expense/(benefit) in the Consolidated Statement of Profit or Loss CONSOLIDATED 2019 $’000 2,346 – 2,346 2018 $’000 2,346 2,346 4,692 CONSOLIDATED 2019 $’000 2018 $’000 5,813 (105) (1,762) 108 4,054 10,738 (166) (16,074) 176 (5,326) A reconciliation between tax expense and the product of accounting profit before income tax multiplied by Australia’s domestic income tax rate is as follows: Accounting profit/(loss) before income tax Prima facie tax expense/(benefit) at 30% (2018: 30%) – Expenses not deductible for tax – Income not assessable for tax – Adjustments in respect of tax of previous years – Derecognition of DTA Income tax expense/(benefit) reported in the Statement of Profit or Loss Effective tax rate CONSOLIDATED 2019 $’000 11,402 3,421 404 (202) 3 428 4,054 35.6% 2018 $’000 (17,601) (5,280) 107 (163) 10 – (5,326) 30.3% 49 PRIME MEDIA GROUP | ANNUAL REPORT 2019 24. INCOME TAX (CONTINUED) Deferred tax assets and liabilities Opening balance Effect of adoption of new standards (Note 1) Charged to income Other payments and utilisation of tax losses Closing balance Tax expense/(benefit) in statement of comprehensive income Amounts recognised in the statement of financial position: Deferred tax asset Deferred tax liability Deferred income tax as at 30 June relates to the following: Deferred tax liabilities Accelerated depreciation for tax Prepaid expenses deductible for tax Income not yet assessable for tax Intangible assets – Program Rights deductible for tax Intangible assets – Television broadcast licences Set-off of deferred tax assets Net deferred tax liabilities Deferred income tax as at 30 June relates to the following: Deferred tax assets Expenses not yet deductible for tax Difference between accounting and tax write off Tax losses Set-off of deferred tax liabilities Net deferred tax assets Income tax losses CONSOLIDATED 2019 $’000 CURRENT INCOME TAX 2019 $’000 DEFERRED INCOME TAX 2018 $’000 CURRENT INCOME TAX 2018 $’000 DEFERRED INCOME TAX 690 – (5,708) 6,612 1,594 (4,543) – (10,571) 15,804 690 (1,821) 149 1,655 – (17) 4,054 – (17) (17) (17,718) – 15,897 – (1,821) (5,326) – (1,821) (1,821) CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2019 $’000 2018 $’000 (25) (359) (3) (3,600) – (3,987) 3,970 (17) 3,439 531 – 3,970 (3,970) – (963) (359) (4) (500) (3,547) (5,373) 3,552 (1,821) 3,022 449 81 3,552 (3,552) – 2019 $’000 2018 $’000 (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. – 81 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. 50 Notes to the financial statements continuedFor the year ended 30 June 2019 24. INCOME TAX (CONTINUED) (ii) Tax effect accounting by members of the consolidated group Measurement method adopted under UIG 1052 Tax Consolidation Accounting The head entity and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the Group Allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes. The nature of the tax funding agreement is discussed further below. 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 entities 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 2019 $’000 2018 $’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 19,946 11,460 ACCOUNTING POLICY Current Income Taxes 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. Deferred Income Taxes 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 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. Goods and Services Tax 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. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or favourable to, the taxation authority. 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. 51 PRIME MEDIA GROUP | ANNUAL REPORT 2019 25. RELATED PARTY DISCLOSURES A. Subsidiaries The consolidated financial statements include the financial statements of Prime Media Group Limited and the subsidiaries listed in the following table: COUNTRY OF INCORPORATION EQUITY INTEREST 2019 % 2018 % 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 NAME Prime Television (Holdings) Pty Limited Prime Media Group Services Pty Limited Prime New Media Investments 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 Prime Digitalworks Pty Limited Broadcast Production Services Pty Limited Screenworld Pty Limited Prime Growth Media Pty Limited 1 Prime Media Communications Pty Limited 1 Production Strategies Pty Limited as trustee for Production Strategies Discretionary Trust 1 Australia Wastar International Pty Limited 1 Prime Television Digital Media Pty Limited 1 Prime Digital Media Pty Limited 1 OSB Holdings Pty Limited as trustee for the OSB Unit Trust 1 On Site Broadcasting Pty Limited 1 OSB Australia Pty Limited 1 OSB Corporation Pty Limited 1 On Corporation Pty Limited 1 Broadcast Rentals Pty Limited 1 1 Indicates that these companies were deregistered on 29 May 2019. Australia Australia Australia Australia Australia Australia Australia Australia Australia 52 Notes to the financial statements continuedFor the year ended 30 June 2019 25. RELATED PARTY DISCLOSURES (CONTINUED) B. Ultimate parent Prime Media Group Limited is the ultimate Australian entity and the ultimate parent entity of the Group. C. Key management personnel (KMP) Short-term employee benefits Post-employment benefits Long-term benefits Share based expense – 2014 Performance Rights Plan Cash settled expense – 2017 Performance Plan Termination payments Total CONSOLIDATED 2019 $’000 2,767 89 126 58 280 – 2018 $’000 3,434 129 163 (98) 144 888 3,320 4,660 The amounts disclosed in the table are the amounts recognised as an expense during the reporting period that related to KMP. Details of remuneration amounts paid to individual KMP are disclosed in tables 1 and 2 of section 4 of the Remuneration Report. 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. The cost of these services in the current financial year was $621,000 (2018: $748,000). WIN Corporation Pty Limited and associated entities This company is a subsidiary of Birketu Pty Limited, a shareholder of the Group. The Company has entered into transmission facility sharing agreements under normal commercial terms and conditions with this company 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 at an annualised cost of $1,700,000 (2018: $1,557,000). 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 until 30 June 2020. The shareholders of the company provide services to WA SatCo to enable its operations. In the current financial year services of $673,000 (2018: $367,000) were recovered from WA SatCo Pty Limited 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 for the period to 2023 at an annualised cost of up to $1,200,000 per annum. 53 PRIME MEDIA GROUP | ANNUAL REPORT 2019 26. PARENT ENTITY INFORMATION Current assets Total assets Current liabilities Total liabilities Issued capital Employee benefits reserve Accumulated losses Retained profits – 2018 reserve Retained profits – 2019 reserve Total shareholders’ equity Profit of the parent entity Total comprehensive profit of the parent entity PRIME MEDIA GROUP LIMITED 2019 $’000 1,705 157,233 80 103,404 310,262 3,722 (277,218) 14,265 2,798 53,829 2,798 2,798 2018 $’000 803 86,805 14 35,405 310,262 4,091 (277,218) 14,265 – 51,400 14,265 14,265 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 as amended from time to time by assumption deed for the addition and removal of controlled entities. 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 21). 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 Network Pty Limited (GWN), a wholly owned subsidiary and party to the Deed of Cross Guarantee. GWN has guaranteed 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 until 30 June 2020. In the event that WA SatCo Pty Limited defaults on any payments under this contract, GWN may be liable for $2,346,192 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 to 30 June 2020. This agreement can be terminated without notice by the Commonwealth Government. 27. SUBSEQUENT EVENTS There were no significant events subsequent to balance date. 28. AUDITOR’S REMUNERATION Amounts received or due and receivable by Ernst & Young Australia for: – an audit or review of the financial report of the entity and any other entity in the consolidated entity – other services in relation to the entity and any other entity in the consolidated entity: – amounts received or due and receivable by related practices of Ernst & Young CONSOLIDATED 2019 $ 2018 $ 392,764 44,487 – 312,684 413,213 – 437,251 725,897 54 Notes to the financial statements continuedFor the year ended 30 June 2019 29. OTHER ACCOUNTING POLICIES A. Basis of consolidation The consolidated financial statements comprise the financial statements of Prime Media Group Limited and its subsidiaries (as outlined in Note 25) as at and for the year ended 30 June 2019. Interests in associates are equity accounted and are not part of the consolidated Group (see Note 20). 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 Group controls an investee if and only if the Group has: • power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); • exposure, or rights, to variable returns from its involvement with the trustee; • the ability to use its power over the investee to affect its returns. Generally, there is a presumption that a majority of voting rights results in control. To support this presumption, and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee including: • • • the contractual arrangement(s) with the other vote holders of the investee; rights arising from other contractual arrangements; and the Group’s voting rights and potential voting rights. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements 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 cash flows 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 related assets (including goodwill), liabilities, non-controlling interest and any other component of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value. B. 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: • Expected to be realised or intended to be sold or consumed in the 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: • • • • There is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. It is expected to be settled in the 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 The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities. 55 PRIME MEDIA GROUP | ANNUAL REPORT 2019 30. SIGNIFICANT JUDGEMENTS AND ESTIMATES 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. 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 three years for motor vehicles, three to five years for building leases, and up to 10 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. Revenue from contracts with customers The Group contracts with media buyers and media agencies for the sale of advertising airtime to third party advertisers. Under the five-step model, based on an evaluation of the terms and conditions of the contracts, the Group’s relationship has been determined to be with media buyers and media agencies and accordingly advertising revenue is to be recognised net of agency commission since this is to be treated as a payment made to a customer. 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 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 value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for next year, plus growth assumptions 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 7. Provision for expected credit losses of trade receivables and contract assets The Group uses a provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e. customer type). The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. 56 Notes to the financial statements continuedFor the year ended 30 June 2019 30. SIGNIFICANT JUDGEMENTS AND ESTIMATES (CONTINUED) 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 broadcasting licences consist of the right to broadcast television services to specific market areas. These licences are issued by the relevant broadcasting authority for periods of five 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. 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. 57 PRIME MEDIA GROUP | ANNUAL REPORT 2019 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 Prime Media Group Limited for the financial year ended 30 June 2019 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 2019 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 1(b); c. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and d. as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in Note 21 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 by 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 2019. On behalf of the Board P.J Macourt Director Sydney, 22 August 2019 58 Directors’ DeclarationFor the year ended 30 June 2019 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent Auditor's Report to the Members of Prime Media Group Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Prime Media Group Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) b) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019 and of its consolidated financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For the matter below, our description of how our audit addressed the matter is provided in that context. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 59 Independent Auditor’s ReportPRIME MEDIA GROUP | ANNUAL REPORT 2019 We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying financial report. Recoverability of Property, Plant and Equipment and Intangible Assets Why Significant to the Audit How our Audit Addressed the Matter At 30 June 2019, Property, Plant and Equipment and Intangible Assets have a net book value of $22.4 million, and $9.9 million respectively and represent 37% of total assets of the Group. Our procedures included the following: ► Assessed whether the methodology used by the Group to test for impairment met the requirements of Australian Accounting Standards. The Group recorded an impairment charge of $14 million during the year against the carrying value of its Television Broadcast Licenses and definite life intangibles, both a component of Intangible Assets. As disclosed in Note 7 to the financial report, the Group’s assessment of the recoverability of these assets involves critical accounting estimates and assumptions. These estimates and assumptions relate to future performance, market, regulatory and economic conditions. In particular, the decline in advertising revenues being experienced in the free to air television industry is forecast to continue. Given these factors, we considered this to be a Key Audit Matter. ► Tested whether the model used was mathematically accurate. ► Assessed whether the cash flows used in the impairment testing model accurately reflected the Board approved 2020 budget. ► Considered the historical reliability of the Group’s cash flow forecasting process and financial performance relative to budget. ► Evaluated the external inputs and assumptions within the cash flow forecasting model, in particular growth rates and discount rates by comparing them to assumptions and estimates and benchmarked them against market observable external data. In addition, we assessed the impact of the Group’s renewed programming arrangements and associated costs on the impairment model. ► Considered the impact of a range of assumption sensitivities to the model. ► Considered the adequacy of the financial report disclosures contained in Note 7, in particular those regarding the impairment charges taken during the year and the assumptions to which the outcome of the impairment test is most sensitive. ► As impairment testing relies upon business valuation principles we involved our valuation specialists to assist in the work outlined above where we considered such expertise was required. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 60 Independent Auditor’s Report Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2019 Annual Report other than the financial report and our auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the date of this auditor’s report. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 61 Independent Auditor’s ReportPRIME MEDIA GROUP | ANNUAL REPORT 2019 As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • • • • • • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 62 Independent Auditor’s Report From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 10 to 19 of the directors' report for the year ended 30 June 2019. In our opinion, the Remuneration Report of Prime Media Group Limited for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Michael Wright Partner Sydney 22 August 2019 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 63 Independent Auditor’s ReportPRIME MEDIA GROUP | ANNUAL REPORT 2019 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 16 August 2019. A. Distribution of Equity Securities Ordinary shares As at 16 August 2019, 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 is: 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 16 August 2019 are: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 J P Morgan Nominees Australia Pty Limited HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited BNP Paribas Nominees Pty Ltd UBS Nominees Pty Ltd Buttonwood Nominees Pty Ltd CVC Limited Birketu Pty Ltd Brispot Nominees Pty Ltd National Nominees Limited CS Fourth Nominees Pty Limited Mr George Walter Mooratoff Sojourn Services Pty Ltd Mr John Alex Rumble & Mrs Sonja Rumble BNP Paribas Noms Pty Ltd Ecapital Nominees Pty Limited Morgan Stanley Australia Securities (Nominee) Pty Limited Ms Lin Bai S M & R W Brown Pty Ltd Miss Kate Imogen Leaver NUMBER OF HOLDERS 509 712 438 904 179 2,742 830 LISTED ORDINARY SHARES NUMBER OF SHARES PERCENTAGE OF ORDINARY SHARES 58,370,769 50,210,695 49,303,936 15,992,662 14,787,626 13,700,000 12,339,916 11,906,553 11,032,756 7,594,427 6,010,220 5,000,000 5,097,000 4,903,000 3,170,864 3,000,000 2,579,680 1,352,658 1,300,000 1,300,000 278,952,762 15.93 13.71 13.46 4.37 4.04 3.74 3.37 3.25 3.01 2.07 1.64 1.36 1.39 1.34 0.87 0.82 0.70 0.37 0.35 0.35 76.15 C. SUBSTANTIAL SHAREHOLDERS The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Spheria Asset Management Pty Limited Bruce Gordon, Birketu Pty Ltd, WIN Corporation Pty Limited and associates of WIN NUMBER OF SHARES PERCENTAGE OF ORDINARY SHARES 52,842,534 11,906,553 14.42% 3.25% The Form 604 Notice of Change of Interests of Substantial Holder filed by Bruce Gordon, Birketu Pty Ltd, WIN Corporation Pty Limited and associates of WIN lodged 29 May 2019 included the following disclosures: 1. entry into a cash-settled equity swap transaction with Deutsche Bank in relation to a further 10,900,000 fully-paid ordinary shares in the company (representing approximately 2.98% of ordinary shares); and 1. entry into a cash-settled equity swap transaction with Bank of Vontobel in relation to a further 42,474,289 fully-paid ordinary shares in the company (representing approximately 11.59% of ordinary shares). D. Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. 64 ASX Additional InformationFor the year ended 30 June 2019 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 9 A N N U A L R E P O R T www.primemedia.com.au