Prime Media Group Limited
Annual Report 2020

Plain-text annual report

2020 Annual Report S 1 T N 2 E T N O C 4 21 Chairman’s Report Chief Executive Officer’s Report Directors’ Report Financial Statements CORPORATE INFORMATION ABN 97 000 764 867 This annual report covers both Prime Media Group Limited (“the Company”) as an individual entity and the consolidated entity comprising Prime Media Group Limited and its subsidiaries (“the Group”). The Group’s functional and presentation currency is AUD ($). DIRECTORS Peter J. Macourt (Chair) 1 September 2014 – Present Ian R. Neal 6 June 2008 – Present Cass O’Connor 21 April 2015 – Present John K. Hartigan 15 May 2014 – 19 December 2019 Robbie L. Sefton 8 April 2019 – 13 February 2020 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 t r o p e R s ’ n a m r i a h C Dear Shareholders, The 2020 financial year has been a turbulent year in which Prime has navigated regional floods, bushfires and the COVID-19 pandemic, while continuing to face increased competition from global media and technology companies for regional audiences and regional advertisers. Against this backdrop, Prime reported a statutory profit of $6.6 million, which is a resilient result in what was and remains a challenging advertising environment. Prime’s revenues declined as advertisers responded to government restrictions to limit the pandemic with significant revenue declines experienced in the final quarter of the reporting period. Prime’s second largest market of Regional Victoria has been in lock down for several months, which has directly affected Prime’s staff and business operations in Melbourne and regional Victoria. Despite these challenges Prime’s operating cashflow remained robust, as evidenced by Prime paying down its debt facility and the resultant net cash at 30 June 2020 of $17.1 million. With an improved balance sheet, Prime is positioned to explore revenue diversification opportunities. This strategy is necessary given the significant and unrelenting competition from digital platforms for regional audiences and advertisers. As part of this strategy, Prime is also poised to renew its Board over the coming months. Prime has benefitted over the past 6 months from both the JobKeeper subsidy and the Public Interest News Gathering Program grant. While these Federal Government funded initiatives were a welcome response to the unprecedented trading conditions during the pandemic, regional media companies continue to be impacted by the dramatic structural change in audiences and advertising revenues, largely the result of the introduction of the Federal Government funded NBN. It is disappointing that while the Federal Government funded NBN facilitated the entry of new competitors into a highly regulated regional media market, it did not comprehensively change media laws to create a level playing field for regional media companies that now compete directly with the likes of Google, Facebook, and metropolitan television networks. Regional media companies will continue to decline while media laws remain unchanged. This will inevitably lead to a reduction in local news services and the loss of diversity in regional communities. An industry developed proposal for a self-funded revitalisation of the regional television sector is before the Minister for Communications, Cyber Safety and the Arts, The Hon. Paul Fletcher. I would like to thank our previous Chairman, John Hartigan who retired at the AGM after making a tremendous contribution to the company over the past 5 years. My thanks also to Robbie Sefton for her contribution over the past year. We wish them both well for the future. I would like to conclude by extending my most sincere thanks and appreciation to Prime’s staff who have endured over the course of the pandemic. Their support of the company and their commitment to our clients, partners and viewers has been significant and commendable. I’d also like to acknowledge and thank Prime’s advertising clients and partners for their continuing support and loyalty. Peter Macourt CHAIR AND NON-EXECUTIVE DIRECTOR 1 PRIME MEDIA GROUP | ANNUAL REPORT 2020 e v i t u c e x E f e h C i t r o p e R s ’ r e c fi f O 2 Not in its history has Prime experienced an event of the magnitude of the COVID-19 pandemic combined with bushfires and floods across its markets. As a result Prime’s advertising revenue opportunity was dramatically curbed with almost immediate effect, falling 7.2% for the half year to December 2019 and rapidly declining during the pandemic to fall 34.7% in the final quarter of this financial year. Federal government support in the form of $3.0 million of JobKeeper payments provided much needed capacity, as did Prime’s decision to repay in full its interest bearing debt over recent years. Prime’s 2020 financial year result certainly reflects the disruption to advertising revenues and so profits, but it does not recognise the tremendous effort and work carried out at every level of the Company to ensure that the optimal financial result was achieved. The entire Prime team is deserving of the credit. The decline in regional television audiences continued unabated due to the increasing number of digital platforms accessing regional Australia via the NBN. Notwithstanding the challenges, Prime reported a statutory profit after tax of $6.6 million and as mentioned previously, having fully paid down its bank facility, Prime reported net cash of $17.1 million at 30 June 2020. Encouragingly, Prime maintained a market leading revenue share of 41.0% in key markets despite an interrupted AFL season and other disruption to the broadcast schedule. Prime also maintained a disciplined approach to cost management during the year with operating expenses declining $2.1 million or 4.1% on the prior year before one-off transaction costs and the impact of the new leases standard. Included in this result was a reduction in employee benefit expense of $2.6 million or 7.4% on the prior year. The reduction in employee benefits expense was primarily due to measures taken as a result of the COVID-19 pandemic including key management agreeing a temporary reduction in base salary from May to September 2020 and forgoing short and long term incentives in respect of this financial year. Non-executive directors also agreed a temporary reduction in director fees. The Company enacted a hiring freeze during the pandemic and reduced work hours for employees whose duties were curtailed by the pandemic. Investment in local news and community programming Prime7 and GWN7 local news and current affairs bureau played an important role in keeping regional communities informed during the floods, fires and the pandemic. Prime7 & GWN7 Local News bulletins are the only truly local half-hour news bulletins in their respective markets and are the highest rating news programs. Integral to this success is over 90 full-time and part-time journalists, camera operators and studio personnel located in regional offices throughout NSW, the ACT and WA. In recognition of the integral role that regionally based journalists play in regional communities Prime was also awarded grant funding of $4.7 million under the Federal Government’s Public Interest News Gathering Program (PING). s t h g i l i h g H $163.7M Revenue $20.3M EBITDA The Company executed a PING funding agreement with the Commonwealth Government on 14 August 2020 and expects the grant funding to be available and grant obligations to apply over the 12 month period from the date of agreement. Community service support Prime made a significant investment in community service announcements during the 2019-20 Australia bushfire season for the following organisations: • NSW Rural Bushfire Service; • Vic Government Summer Bushfire Campaign; • Gippsland Emergency Campaign; • Taree Rotary Bushfire Appeal; and • Adopt a Koala Wildlife Rescue. Prime also provided community service support for the following charitable or not-for-profit organisations active in regional communities throughout the year: • Regional Achievement and Community Awards – NSW/Australian Capital Territory, VIC and WA; • Channel 7 Telethon (WA); • The Smith Family; • RSPCA; • Breast Cancer Network Australia; • Swags For Homeless; • Ronald McDonald House; and • The Salvation Army Red Shield Appeal 2020. $6.6M Statutory net profit after tax In closing I extend my thanks to the management and staff of Prime, many of whom have been working from home during these difficult times. Their collective contribution has ensured that Prime has maintained a leadership position in the regional communities that we operate in. $17.1M Net cash Ian Audsley CHIEF EXECUTIVE OFFICER 3 PRIME MEDIA GROUP | ANNUAL REPORT 2020t r o p e R ’ s r o t c e r i D Peter J. Macourt Non-Executive Chair and Director (appointed 1 September 2014) Mr Macourt is a former Chair and non-executive director of Virtus Health Limited and 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 was appointed Interim Chair of Prime Media Group Limited on 19 December 2019 and is a member of the Audit and Risk Committee and Remuneration and Nomination Committee. Ian R. Neal Non-Executive Director (appointed 6 June 2008) Mr Neal is a Chair for the Executive Connection and consults on business strategy and implementation from a perspective of maximising shareholder value. 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 Chair of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee. 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 Carriageworks Limited, a shareholder and director of multi-award winning independent television and film production entity Goalpost Pictures; Chair of TRIBE, a leading influencer marketing and branded content generation platform; and Chair of Karista, a curated disability services provision 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 Chair of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee. 4 Your directors submit their report for the year ended 30 June 2020. 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. John K. Hartigan Non-Executive Chair (appointed 15 May 2014, retired 19 December 2019) Mr Hartigan headed News Corporation’s Australian operations as Chair and Chief Executive Officer of News Limited (now known as News Corp Australia). He was also a director of FOXTEL and Chair of Australian News Channel, which owns and operates Sky News. 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 Chair of Destination NSW. Robbie L. Sefton Non-Executive Director (appointed 8 April 2019, resigned 13 February 2020) 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. 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 2020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 P.J. Macourt I.R. Neal C.A. O’Connor I.C. Audsley ORDINARY SHARES – 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 P.J. Macourt Sky Network Television Limited (Chair and Non-Executive Director) Virtus Health Limited (Chair and Non-Executive Director) I.R. Neal Greatcell Solar Limited (formerly Dyesol Limited) (Chair and Non-Executive Director) PERIOD OF DIRECTORSHIP FROM TO August 2002 June 2013 September 2006 October 2019 November 2019 December 2018 C.A. O’Connor 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 CENTS 1.8 1.8 1.6 1.6 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 2020 was $6,611,000, which represents a decrease of $737,000 or 10.0% on the prior year. Total revenue of $163,680,000 declined $28,182,000 or 14.7% on the prior year. Revenue from contracts with customers was materially impacted by the COVID-19 pandemic, declining $16,705,000 or 34.7% in the final quarter of this financial year compared to the previous corresponding period. Revenue declines were recorded across national agency and local direct advertisers, as consumer sentiment weakened and advertiser categories such as retail, household furnishings and the motor vehicle sector declined. Changes to AFL fixtures and the broadcast also impacted Prime’s advertising revenue opportunity. During the financial year, the Company maintained its lead revenue share of 41.0% in the aggregated regional market of New South Wales and Victoria. Advertising revenue in the aggregated regional market of New South Wales and Victoria declined by 16.4% on the prior year, compared to the market, which declined 15.4% in the same period. As a result of revenue declines in the final quarter of this financial year, the Company was eligible for the JobKeeper Payment subsidy totalling $2,976,000, which has been disclosed as Other Income in this financial year. Cost of sales, including affiliation payments to the Seven Network under the program supply agreement, declined by $7,871,000 or 7.8% on the prior year. Affiliation payments made to the Seven Network are based on a percentage of gross advertising revenue. Total operating expenses of $49,933,000 decreased by $2,011,000 or 3.9% on the prior period inclusive of one-off non-recurring costs associated with the proposed scheme of arrangement with the Seven Network of $1,583,000. Operating expenses were also impacted by the application of AASB 16 Leases during this reporting period. The change in accounting standard resulted in a decrease in operating expenses on the prior period of $1,568,000 and a corresponding increase in depreciation and interest expense. Included in total operating expenses was a reduction in employee benefit expense of $2,572,000 or 7.4% on the prior year. The reduction in employee benefits expense was primarily due to measures taken as a result of the COVID-19 pandemic including key management agreeing a temporary reduction in base salary from May to September 2020 and forgoing short and long term incentives in respect of this financial year. Non-executive directors also agreed a temporary reduction in director fees. The Company enacted a hiring freeze during the pandemic and reduced work hours for employees whose duties were curtailed by the pandemic. The Group’s share of associate profits of $194,000 relates to joint ventures that broadcast Nine Entertainment programming in regional Western Australia and Mildura. Earnings before interest, tax, depreciation, and amortisation of $20,272,000 decreased by $18,196,000 or 47.3% on the prior year. Dividend The Company continues to suspend dividend payments. This decision has been taken due to the significant uncertainty in regional advertising markets. Core Net Profit After Tax Core net profit after tax (non-IFRS measure) and before specific items of $6,038,000 (2019: $17,161,000), declined $11,123,000 or 64.8% on the previous corresponding period. Reported profit after tax Impairment (non-cash) Release of deferred tax liability arising from impairment JobKeeper subsidy Non-recurring legal and consulting expenses Redundancies Income tax benefit related to specific items Core net profit after tax and before specific items SHAREHOLDER RETURNS Core Earnings Per Share (cents per share) 1 Statutory Earnings Per Share (cents per share) Core Return on Assets (ROA) 1 Statutory Return on Assets (ROA) Weighted Average Cost of Capital (pre-tax) Weighted Average Cost of Capital (post-tax) Core Return on Equity (ROE) 1,2 Statutory Return on Equity (ROE) Net Debt/Net Debt + Equity Ratio Share price Dividends per share Total Shareholder Return % % % % % % % ($) cents (%) 2020 $’000 6,611 532 2019 $’000 7,348 14,018 – (4,205) (2,976) 1,583 43 245 – – – – 6,038 17,161 1.6 1.8 7.2 7.9 4.7 2.0 19.8 8.5 14.15 12.96 14.15 9.8 10.8 – 0.09 – (56.7) 12.64 31.3 13.4 14.9 0.21 – (27.6) 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 assets as at the reporting date of $61,352,000 included cash at bank of $17,148,000. Net cash flow from operating activities of $28,892,000 improved $6,426,000 or 28.6% compared to the prior year. While revenue declined $28,182,000 or 14.7% on the prior year, receipts from customers declined $20,320,000 or 9.6% for the same period. The material decline in advertising revenues experienced in the final quarter of this financial year due to the impact of the COVID-19 pandemic is expected, in part, to reduce receipts from customers in the first quarter of the 2021 financial year. Receipts from customers also includes JobKeeper subsidies of $1,989,000. Payments to suppliers and employees declined by $21,672,000 or 11.9% on the prior year inclusive of one-off non-recurring costs associated with the proposed scheme of arrangement with the Seven Network of $1,531,000. Affiliation fees paid to the Seven Network and payments to employees declined during the period. Included in the prior reporting period were one-off transitional spectrum licence fee payments of $6,215,000. Net cash flows used in investing activities of $953,000 (2019: $2,581,000) relate to capital expenditure for the purchase of broadcast and computer equipment. During the reporting period, the Group received a repayment of loan funds from associates of $750,000 and paid loan funds to associates of $300,000. 7 PRIME MEDIA GROUP | ANNUAL REPORT 2020Capital structure The Group’s secured bank loan facility was undrawn as at 30 June 2020 (30 June 2019: $16,000,000). During the reporting period, the debt facility limit was reduced to $20 million (2019: $30 million). Interest-bearing loan Cash and short term deposits Net (cash)/debt Total equity Total capital employed Gearing 2020 $’000 – (17,148) (17,148) 61,352 44,204 –% 2019 $’000 16,000 (6,443) 9,557 54,784 64,341 14.9% 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 material business risks that may affect the Group’s financial performance: • COVID-19 outbreaks may disrupt the broadcast of major sporting • events, resulting in further declines in regional advertising revenues; the impact of the COVID-19 pandemic on employees and operations and the potential for serious interruption to services; • a prolonged deterioration in general economic conditions as a result of the COVID-19 pandemic, resulting in a sustained downturn in regional advertising markets; the continued decline in television 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 On 30 June 2020 the Minister for Communications, Cyber Safety and the Arts announced that the Company was eligible under the Public Interest News Gathering Program (“PING”) for grant funding totalling $4,703,000. On 14 August 2020 the Company executed a PING funding agreement with the Commonwealth Government. The Company expects the grant funding to be available and grant obligations to apply over the 12 month period from the date of agreement. Likely developments and expected results The Board and Executive considers the future performance of the Group to be highly dependent on conditions in Prime’s advertising markets in regional New South Wales and Victoria. Advertising revenues declined 34.7% in the final quarter of the 2020 financial year compared to the prior corresponding period in part due to government restrictions to limit the spread of the COVID-19 virus. At the time of preparing this report, the State of Victoria was experiencing Stage 4 restrictions, while New South Wales was at Stage 2 restrictions, resulting in an uncertain trading environment. Future trading conditions and advertising revenues are also expected to remain subdued given the current economic downturn. 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 $904,194 (2019: $563,974) 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: P.J. Macourt I.R. Neal C.A. O’Connor I.C. Audsley J.K. Hartigan (retired 19 December 2019) 1 R.L. Sefton (resigned 13 February 2020) 1 30 27 26 27 30 26 23 2 2 2 2 – – – 2 2 2 2 – – – 1 All directors were eligible to attend all meetings held, except J.K. Hartigan and R.L. Sefton, who were eligible to attend 26 directors’ meetings during the year. 8 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 2020 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 2020 financial year has been an incredibly difficult and challenging year for the Company and its senior management. While the Scheme of Arrangement with the Seven Network was not supported by key shareholders, the senior management team worked tirelessly to complete the Scheme timetable over a 4 month period, culminating in the shareholders meeting on 19 December 2019. The second half of the financial year was underlined by the outbreak of the COVID-19 pandemic and bushfires in regional areas. As reported to you over past months, the COVID-19 pandemic materially impacted advertising revenues in the final quarter of this financial year. In response to the material and dramatic declines, senior management agreed to a temporary 20% reduction in base salary from May to September 2020 and to forgo short and long term incentives in respect of this financial year. Non-executive directors also agreed a temporary 20% reduction in director fees for the same period. The temporary reduction will be reviewed in September 2020. Despite the difficult trading environment and significant disruption caused by the COVID-19 pandemic, the Company has been able to navigate through this difficult time, having strengthened its balance sheet by repaying its debt facility. Encouragingly, the Company has maintained a market leading revenue share of 41.0% in key markets. 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 2020 REMUNERATION REPORT (AUDITED) 2. REMUNERATION GOVERNANCE This Remuneration Report for the year ended 30 June 2020 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 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 2020 were: KMP POSITION TERM AS KMP Non-Executive Directors P.J. Macourt Chair; Director I.R. Neal C.A. O’Connor Director Director J.K. Hartigan Chair; Director R.L. Sefton Director Executive KMP Full Year Full Year Full Year From 1 July 2019 to 19 December 2019 From 1 July 2019 to 13 February 2020 I. Audsley CEO and Executive Director Full Year D. Walker J. Palisi Group General Manager Sales and Marketing Chief Financial Officer Full Year Full Year 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 two 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. 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 % 46% 48% 56% 30% 32% 22% 24% 20% 22% TOTAL % 100% 100% 100% TOTAL AT RISK % 54% 52% 44% The ‘at risk’ component of the CEO package was subject to achievement of both short term and long term performance requirements linked to the Company’s strategy and 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 Cash Settled Performance Plan introduced to replace the performance rights plan. Rewards KMP for their contribution to the creation of shareholder value over the longer term. Performance is linked to achievement of STI targets over three financial years. 11 PRIME MEDIA GROUP | ANNUAL REPORT 2020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 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 40% 9% 20% -% 84% 60% 60% 7% 20% KEY PERFORMANCE OBJECTIVES OUTCOMES COMMENTARY Financial results Not achieved Statutory net profit after tax of $6,611,000. Not achieved Core net profit after tax of $6,038,000. Maximising advertising revenue share and yield Not achieved Prime reported a power ratio of 0.099, which demonstrates that Prime’s revenue share of 41.0% fell below its audience share of 41.3% in the aggregated regional market of New South Wales and Victoria. Strategic priorities Risk management culture including promotion of work health safety Partially Achieved Achieved Maintaining efforts for further media reform. 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. The Board has agreed with KMP that STI payments will not be awarded this financial year due to the impact of the COVID-19 pandemic on the financial performance of the Group. 12 Directors’ Report continued4. DETAIL OF INCENTIVE PLANS (CONTINUED) Long Term Incentives B. The Prime Media Group Limited Cash Settled Performance Plan 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 KMP are as follows: Director I. Audsley Executive D. Walker J. Palisi 2020 2019 2018 2020 2019 2018 2020 2019 2018 ENTITLEMENT GRANT DATE SHARE PRICE AT GRANT – 1,204,282 1,000,000 – 281,771 443,926 – 561,998 375,000 – 12/12/2018 23/1/2018 – 12/12/2018 23/1/2018 – 12/12/2018 23/1/2018 – $0.2242 $0.4200 – $0.2242 $0.4200 – $0.2242 $0.4200 MAXIMUM VALUE AT GRANT DATE ($) 450,000 450,000 420,000 189,000 189,000 189,000 157,500 157,500 157,500 VESTING DATE TRANCHE 1 VESTING DATE TRANCHE 2 VESTING DATE TRANCHE 3 – Aug 2020 Aug 2019 – Aug 2020 Aug 2019 – Aug 2020 Aug 2019 – Aug 2021 Aug 2020 – Aug 2021 Aug 2020 – Aug 2021 Aug 2020 – Aug 2022 Aug 2021 – Aug 2022 Aug 2021 – Aug 2022 Aug 2021 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 the Board at the beginning of each financial year. The entitlement vests in three equal tranches over three years. The value of notional share units at vesting will be equivalent to the Company’s share price at the date of vesting. As demonstrated in the table above, KMP have agreed to forgo their 2020 entitlement to a long term benefit under the cash settled plan due to the impact of the COVID-19 pandemic on the financial performance of the Group. At the reporting date, $223,000 (2019: $423,000) had been accrued under the cash-settled performance plan in relation to the notional share units available from prior year entitlements 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. In August 2019 all KMP met the vesting conditions for tranche 1 of the 2018 entitlement. Accordingly 606,308 notional share units from prior year entitlements vested and were paid to KMP in this reporting period (2019: nil) based on a share price of $0.1837. 13 PRIME MEDIA GROUP | ANNUAL REPORT 20204. DETAIL OF INCENTIVE PLANS (CONTINUED) C. Executive remuneration outcomes (including link to performance) Company performance and its link to Short Term Incentives As demonstrated in the table below, KMP have agreed to forgo STI payments for the 2020 financial year due to the impact of the COVID-19 pandemic on the financial performance of the Group. STI payments awarded for 2019 financial performance were paid in full to KMP in the 2020 financial year. EXECUTIVE I. Audsley D. Walker J. Palisi Total FY20 STI ACCRUED FY20 STI AWARD POOL – – – – 550,000 315,036 160,000 1,027,500 % –% –% –% –% FY19 STI PAID IN CASH FY19 STI AWARD POOL 330,000 106,124 128,000 564,124 550,000 317,500 160,000 1,027,500 PAID % 60.0% 33.4% 80.0% 54.9% LTI Awards Under the Former Performance Rights Plan The Prime Media Group Limited Performance Rights Plan ended in the 2019 financial year. A final tranche of performance rights vested in the 2019 financial year, and as a result the Trustee of the Prime Media Group Limited Performance Rights Plan acquired 826,284 ordinary shares on market in the 2019 financial year for performance rights that were issued in 2015 and vested in September and November 2018. No performance rights or awards have been made in this financial year as the Prime Media Group Limited Performance Rights Plan has ended. The Prime Media Group Limited Performance Rights Plan that ended in the 2019 financial year had 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. 14 Directors’ Report continuedD E T A L E R E C N A M R O F R E P L A T O T 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 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 0 2 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 ) 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 I 3 $ 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 - H S A C S$ U N O B 2 $ E V A E L L A U N N A 1 $ S E E F & Y R A L A S % $ % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 % 0 . 0 7 5 5 , 5 9 3 9 6 , 7 4 7 2 0 , 3 9 7 2 0 , 3 9 3 2 9 , 9 5 7 2 2 , 9 8 3 $ – – – – – – – – – – – – 0 9 2 , 8 8 3 1 , 4 – 1 7 0 , 8 9 9 1 , 5 8 9 6 , 5 2 – – – – – ) % 5 . 5 ( 2 8 8 , 0 6 9 ) 1 4 6 , 2 5 ( 7 3 1 , 5 7 3 0 0 , 1 2 6 6 1 , 5 ) % 4 . 6 ( ) % 0 . 1 ( ) % 6 . 4 ( ) % 8 . 3 ( 0 7 4 , 0 9 4 4 8 3 , 6 9 4 6 3 7 , 7 4 9 , 1 3 6 9 , 6 3 3 , 2 ) 0 7 2 , 1 3 ( ) 0 3 9 , 4 ( ) 1 4 8 , 8 8 ( ) 1 4 8 , 8 8 ( 9 7 6 , 1 2 2 6 8 , 1 2 8 7 6 , 8 1 1 8 7 6 , 8 1 1 3 0 0 , 1 2 3 0 0 , 1 2 9 0 0 , 3 6 7 0 7 , 8 8 6 2 6 , 6 2 4 4 , 4 1 4 3 2 , 6 2 4 3 2 , 6 2 – – – – – – – – – – – – – – – 7 6 2 , 7 8 5 5 5 , 3 4 7 2 0 , 3 9 6 5 9 , 4 8 4 2 7 , 4 5 9 2 5 , 3 6 3 4 7 3 , 4 7 3 4 8 , 7 3 8 2 4 8 , 6 1 5 3 , 8 3 7 6 5 , 9 1 1 7 6 5 , 9 1 1 0 9 5 , 5 6 4 6 5 6 , 5 0 4 9 8 0 , 9 0 7 , 1 8 1 6 , 2 7 0 , 2 9 1 0 2 r e b m e c e D 9 1 d e t n o p p a – ) r i i a h C ( t r u o c a M J . P 9 1 0 2 r e b m e c e D 9 1 d e r i t e r – ) r i a h C ( n a g i t r a H K . J s r o t c e r i d e v i t u c e x e - n o N l a e N R . I 0 2 0 2 y r a u r b e F 3 1 d e n g i s e r – 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 l a t o T 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 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 r o n n o C O A C ’ . e u a v l r i a f e h t o t e u d e v i t a g e n e r a r a e y l a i c n a n fi e h t n i d e s n e p x e s t n u o m A . i P M K o t d a p s t n u o m a l a u t c a t n e s e r p e r t o n o d d n a n a p e c n a m r o l f r e p e h t r e d n u d e s n e p x e 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 . e t a d g n i t r o p e r e h t t a e c i r p e r a h s g n i l i a v e r p e h t d n a t s e v o t d e t c e p x e s d r a w a f o r e b m u n e h t f o s e t a m i t s e t s e b n o d e s a b y t i l i b a i l e h t f o t n e m e r u s a e m e r . 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 i I . s n o i t i d n o c g n d a r t 9 1 - D V O C o t e u d 0 2 0 2 y a M 0 1 e v i t c e f f e s e e f d n a y r a l a s n i n o i t c u d e r % 0 2 e h t e d u l c n i l d e s o c s i d s t n u o m a e h T 1 2 3 4 15 Directors’ Report continuedPRIME MEDIA GROUP | ANNUAL REPORT 2020 I Y T U Q E D E L T T E S D E T A L E R E C N A M R O F R E P L A T O T 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 S T N E M Y A P 3 3 E S N E P X E 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 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 : 2 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 - 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 – – – – – – – 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 t r u o c a M J . P l a e N R . I r o n n o C O A C . ’ 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 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 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 d e t s e v t o n e v a h t a h t r a e y l a i c n a n fi 9 1 0 2 e h t n i l d e d n e t a h t n a P s t h g R e c n a m r o i f r e P d e t i i m L p u o r G a d e M e m i i r P e h t r e d n u d e u s s i 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 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 u a v l r i a f e h t n o d e s a b e r a r a e y l a i c n a n fi e h t n i d e s n e p x e s t n u o m A . i P M K o t d a p s t n u o m a l a u t c a t n e s e r p e r t o n o d d n a n a p e c n a m r o l f r e p e h t r e d n u d e s n e p x e 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 . e t a d g n i t r o p e r e h t t a e c i r p e r a h s g n i l i a v e r p e h t d n a t s e v o t d e t c e p x e s d r a w a f o r e b m u n e h t f o s e t a m i t s e t s e b n o d e s a b y t i l i b a i l e h t f o t n e m e r u s a e m e r . 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 1 2 3 4 ) 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 16 Directors’ Report continued 4. DETAIL OF INCENTIVE PLANS (CONTINUED) Table 3: Prime Media Group Limited Performance Rights Plan Ended in the 2019 Financial Year The Prime Media Group Limited Performance Rights Plan ended in the 2019 financial year with no performance rights granted during the 2020 or 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 ended in the prior reporting period 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 previous financial year VALUE OF PERFORMANCE RIGHTS GRANTED DURING THE PRIOR YEAR 1 $ VALUE OF PERFORMANCE RIGHTS EXERCISED DURING THE PRIOR YEAR 2 $ VALUE OF PERFORMANCE RIGHTS LAPSED DURING THE PRIOR YEAR 1 $ VALUE OF PERFORMANCE RIGHTS CANCELLED DURING THE PRIOR 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 20204. DETAIL OF INCENTIVE PLANS (CONTINUED) Table 6: Equity holdings and transactions Non-Executive Director P.J Macourt I.R Neal C.A O’Connor J.K Hartigan (retired 19 December 2019) 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 OTHER MOVEMENTS 1 BALANCE AT END OF THE YEAR – 40,000 75,000 42,750 974,300 – 168,992 – – – – – – – – – – – – – – – – – (42,750) – – – – 40,000 75,000 – 974,300 – 168,992 1 Other movements relate to the retirement of John Hartigan as Chair and non-executive director of the Company on 19 December 2019. 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 Prime Media 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 2020 financial year were $363,529 (excluding superannuation). In May 2020 NEDs agreed a temporary 20% reduction in directors’ fees for the period to September 2020 due to the adverse impact of the COVID-19 pandemic on the financial performance of the Group. The temporary reduction will be reviewed in September 2020. As a result NED fees for the 2021 financial year are estimated to be up to $282,939, 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). 18 Directors’ Report continued6. NON-EXECUTIVE DIRECTOR REMUNERATION (CONTINUED) 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 2020 financial year is as follows: BOARD POSITION Chair NED Base Fee Committee Chair Committee Member ANNUALISED FEE $100,000 $95,000 Nil Nil As set out in Table 1 actual director fees paid during the financial year were less than the annualised fee due to the COVID-19 pandemic. Non-executive directors have agreed a temporary 20% reduction in annualised fees for the period May to September 2020. 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 or the prior year. 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 not required by regulation Total $ 29,757 222,860 252,617 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. C. A. O’Connor Director Sydney, 27 August 2020 19 PRIME MEDIA GROUP | ANNUAL REPORT 2020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 2020, 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 J Wright Partner 27 August 2020 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. 6. Income tax Earnings per share OPERATING ASSETS AND LIABILITIES Intangible assets Trade and other receivables 7. Cash and short-term deposits 8. 9. 10. Other assets 11. Leases 12. Trade and other payables 13. Provisions 14. Property, plant and equipment CAPITAL STRUCTURE AND FINANCIAL COSTS Interest bearing loans and borrowings 15. 16. Financial risk management objectives and policies 17. Contributed equity 18. Capital management 19. Retained earnings and reserves 20. Dividends paid and proposed GROUP STRUCTURE 21. Assets held for sale 22. 23. Investments in associates Investments in subsidiaries UNRECOGNISED ITEMS 24. Commitments 25. Contingent liabilities OTHER 26. Related party disclosures 27. Parent entity information 28. Subsequent events 29. Auditor’s remuneration 30. Other accounting policies 31. Significant judgments and estimates FINANCIALS Directors’ Declaration Independent Auditor’s Report ASX INFORMATION Shareholder information 50 51 52 53 54 55 57 57 58 58 59 61 62 67 22 23 24 25 26 30 31 31 32 35 36 37 40 41 41 42 43 43 44 45 48 48 49 50 P R I M E M E D I A G R O U P | A N N U A L R E P O R T 2 0 2 0 21 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 Finance costs Share of associate profits Profit before income tax Income tax expense Profit for the year Profit for the year Total comprehensive income for the year Profit 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 2020 $’000 2019 $’000 159,850 75 3,755 163,680 (93,594) 70,086 (40,297) (9,636) (10,076) (532) 9,545 (527) 194 9,212 (2,601) 6,611 6,611 6,611 6,611 6,611 1.8 1.8 190,674 141 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 7,348 7,348 7,348 7,348 2.0 2.0 NOTES 2 2 2 3 8,14 3 22 5 6 6 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 2020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 Right-of-use assets Intangible assets Deferred tax assets Other assets Total Non-Current Assets Total Assets LIABILITIES Current Liabilities Trade and other payables Lease liabilities Provisions Current tax liabilities Total Current Liabilities Non-Current Liabilities Trade and other payables Interest-bearing loans and borrowings Lease liabilities 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 2020 $’000 2019 $’000 7 9 8 5 10 21 22 14 11 8 5 10 12 11 13 5 12 15 11 13 5 17 19 19 17,148 27,256 3,000 – 4,905 52,309 – 52,309 121 18,696 4,689 6,160 871 488 31,025 83,334 9,864 1,606 5,931 31 17,432 792 – 3,295 463 – 4,550 21,982 61,352 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 9,898 – 4,601 – 14,499 930 16,000 – 600 17 17,547 32,046 54,784 310,262 27,180 (276,090) 61,352 61,352 310,262 20,785 (276,263) 54,784 54,784 The above Consolidated Statement of Financial Position should be read in conjunction with accompanying notes. 23 Consolidated Statement of Financial PositionAs at 30 June 2020PRIME MEDIA GROUP | ANNUAL REPORT 2020At 1 July 2019 Effect of adoption of AASB 16 (refer Note 1) At 1 July 2019 (restated) Profit for the period Profits reserved Total comprehensive income and expense for the period ISSUED CAPITAL $’000 ACCUMULATED LOSSES $’000 310,262 (276,263) – (43) 310,262 (276,306) – – – 6,611 (6,395) 216 At 30 June 2020 310,262 (276,090) 3,722 EMPLOYEE BENEFITS RESERVE $’000 PROFITS RESERVE $’000 TOTAL PARENT ENTITY INTEREST $’000 3,722 – 3,722 – – – 17,063 – 17,063 – 6,395 6,395 23,458 54,784 (43) 54,741 6,611 – 6,611 61,352 At 1 July 2018 Profit for the period Profits reserved 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 At 30 June 2019 ISSUED CAPITAL $’000 ACCUMULATED LOSSES $’000 EMPLOYEE BENEFITS RESERVE $’000 PROFITS RESERVE $’000 TOTAL PARENT ENTITY INTEREST $’000 310,262 (280,813) 4,091 – – – – – 7,348 (2,798) 4,550 – – 310,262 (276,263) – – – (195) (174) 3,722 14,265 – 2,798 2,798 – – 47,805 7,348 – 7,348 (195) (174) 17,063 54,784 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 2020Operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest paid Income tax paid Net cash flows from operating activities Investing activities Purchase of property, plant & equipment and intangible assets Purchase of program rights Loan funds received from related entities Loan funds paid to related entities Net cash flows used in investing activities Financing activities Proceeds from borrowings Repayments of borrowings Payment of principal portion of lease liabilities Debt facility establishment fees Share-based payments – performance rights exercised Net cash flows used in financing activities Net increase/(decrease) 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 2020 $’000 2019 $’000 191,752 (160,523) 82 (514) (1,905) 28,892 (953) – 750 (300) (503) 18,000 (34,000) (1,564) (120) – (17,684) 10,705 6,443 17,148 212,072 (182,195) 141 (940) (6,612) 22,466 (2,581) (15,000) 1,000 (150) (16,731) 95,000 (105,000) – – (195) (10,195) (4,460) 10,903 6,443 7 8 7 25 Consolidated Statement of Cash FlowsFor the year ended 30 June 2020PRIME MEDIA GROUP | ANNUAL REPORT 2020Notes to the financial statements For the year ended 30 June 2020 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial report of Prime Media Group Limited (the “Company”) for the year ended 30 June 2020 was authorised for issue in accordance with a resolution of the directors on 27 August 2020. Prime Media Group Limited is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of both Prime Media Group Limited (“the Company”) as an individual entity and the consolidated entity comprising Prime Media Group Limited and its subsidiaries (“the Group”) are described in the Directors’ Report. A. Basis of preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements from the Australian Accounting Standards Board. The financial report has been prepared on a historical cost basis. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’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. Compliance with Australian Accounting Standards and International Financial Reporting Standards B. 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 16 Leases and AASB Interpretation 23 Uncertainty Over Income Tax Treatments. The nature and effect of this change is disclosed below. Several other amendments and interpretations apply from 1 July 2019, 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 TITLE Conceptual Framework AASB 2019-1 Conceptual Framework for Financial Reporting Amendments to Australian Accounting Standards – Reference to the Conceptual Framework APPLICATION DATE OF STANDARD APPLICATION DATE FOR GROUP 1 January 2020 1 July 2020 AASB 2018-7 AASB 2019-5 AASB 2020-4 AASB 2020-1 Amendments to Australian Accounting Standards – Definition of Material Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia 1 January 2020 1 July 2020 1 January 2020 1 July 2020 Amendments to Australian Accounting Standards – COVID-19-Related Rent Concessions 1 June 2020 1 July 2020 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-current 1 January 2022 1 July 2022 The Group has elected not to early adopt any of the new standards or amendments in these financial statements. The Group does not expect the new standards or amendments will have a significant impact when applied in future periods. 26 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) AASB 16 Leases AASB 16 Leases supersedes AASB 117 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the statement of financial position. Lessor accounting under AASB 16 Leases is substantially unchanged from AASB 117 Leases. Lessors will continue to classify leases as either operating or finance leases using similar principles as in AASB 117 Leases. Therefore, AASB 16 Leases does not have a material impact for leases where the Group is the lessor. The Group adopted AASB 16 Leases using the modified retrospective method of adoption, with the date of initial application of 1 July 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application. The Group elected to use the transition practical expedient to not reassess whether a contract is, or contains, a lease at 1 July 2019. Instead, the Group applied the standard only to contracts that were previously identified as leases applying AASB 117 Leases and AASB Interpretation 4 at the date of initial application. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (short-term leases), and lease contracts for which the underlying asset is of low value (low-value assets). The effect of adoption of AASB 16 Leases as at 1 July 2019 (increase/(decrease)) is as follows: ASSETS Right-of-use assets Prepayments Total Assets LIABILITIES Lease liabilities Deferred tax liabilities Trade and other payables Total Liabilities Total adjustment on equity: Accumulated losses Total Equity 1 JULY 2019 $’000 5,256 (3) 5,253 5,394 41 (139) 5,296 43 43 a) Nature of the effect of adoption of AASB 16 Leases The Group has lease contracts for various office buildings, transmission sites, motor vehicles and other equipment. Before the adoption of AASB 16 Leases, the Group classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. Leases previously accounted for as operating leases The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. The right-of-use assets for all leases were recognised based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. The Group also applied the available practical expedients wherein it: • Used a single discount rate to a portfolio of leases with reasonably similar characteristics. • Applied the short-term lease exemption to leases with lease term that ends within 12 months of the date of initial application. • Used hindsight in determining the lease term where the contract contained options to extend or terminate the lease. ‘Right-of-use assets’ of $5,256,000 were recognised and presented separately in the statement of financial position. Based on the above, as at 1 July 2019: • • Lease liabilities of $5,394,000 were recognised and presented separately in the statement of financial position. • • • ‘Prepayments’ of $3,000 and ‘Trade and other payables’ of $139,000 related to previous operating leases were derecognised. ‘Deferred tax liabilities’ increased by $41,000 as a result of the deferred tax impact of the changes in recognised lease related assets and liabilities. ‘Accumulated losses’ increased due to the net impact of these adjustments. 27 PRIME MEDIA GROUP | ANNUAL REPORT 20201. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Lease liabilities as at 1 July 2019 can be reconciled to the operating lease commitments as at 30 June 2019, as follows: Operating lease commitments as at 30 June 2019 Weighted average incremental borrowing rate as at 1 July 2019 Discounted operating lease commitments as at 1 July 2019 Less: Commitments relating to short-term leases Commitments relating to agreements that do not satisfy all the requirements of AASB 16 Leases 1 Add: Lease payments relating to renewal periods not included in operating lease commitments as at 30 June 2019 Lease liabilities as at 1 July 2019 $’000 22,745 2.96% 20,946 (524) (16,071) 1,043 5,394 1 Represents service arrangements in relation to transmission agreements which were included as commitments in the financial statements at 30 June 2019 that have been assessed under AASB 16 Leases as not being a lease. Summary of new accounting policies b) Set out below are the new accounting policies of the Group upon adoption of AASB 16 Leases: Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease (the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of plant and equipment (leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (below $5,000). Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term. 28 Notes to the financial statements continuedFor the year ended 30 June 20201. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Set out below are the AASB 117 Leases policies that apply to the comparative period: Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception of the lease. 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. Group as a Lessor Leases in which the Group does not transfer substantially all the risks and benefits of ownership of the leased asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. AASB Interpretation 23 Uncertainty over Income Tax Treatment The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of AASB 112 Income Taxes. It does not apply to taxes or levies outside the scope of AASB 112 Income Taxes, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: • Whether an entity considers uncertain tax treatments separately; • The assumptions an entity makes about the examination of tax treatments by taxation authorities; • How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and • How an entity considers changes in facts and circumstances. The Group determines whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty. The Group applies significant judgement in identifying uncertainties over income tax treatments. Upon adoption of the Interpretation, the Group considered whether it has any uncertain tax positions. The Group did not identify any uncertain tax positions. The Interpretation did not have an impact on the consolidated financial statements of the Group. 29 PRIME MEDIA GROUP | ANNUAL REPORT 20202. REVENUE Advertising and other external revenue Finance income Other income Total Revenue Breakdown of finance income: Interest received Total Finance Income Breakdown of other income: Government grants including JobKeeper Payment Other revenues Total Other Income 2020 $’000 159,850 75 3,755 163,680 75 75 3,114 641 3,755 2019 $’000 190,674 141 1,047 191,862 141 141 139 908 1,047 During the reporting period the Group recognised Other Income from the JobKeeper Payment subsidy totalling $2,976,000. At the reporting date the Group is eligible for assistance under the JobKeeper Payment subsidy for the period 31 March to 27 September 2020. ACCOUNTING POLICY Revenue from contracts with customers Revenue from contracts with customers is recognised when control of the goods or services is 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 Group 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. 30 Notes to the financial statements continuedFor the year ended 30 June 20203. EXPENSES Finance Expenses Interest on debt and borrowings Total Finance Expenses Employee Benefit Expense Wages and salaries Sales commissions and incentives Superannuation expense Share-based payments release Other employee benefits expense Total Employee Benefit Expense Other Expenses Bad debts and expected credit losses and credit notes – trade debtors Minimum lease payments – operating leases Depreciation and Amortisation Expense Property, plant and equipment depreciation Right-of-use assets depreciation Program rights amortisation Intangibles amortisation Total Depreciation and Amortisation Expense ACCOUNTING POLICY Borrowing Costs 2020 $’000 527 527 26,555 1,931 2,360 – 1,236 32,082 11 299 4,588 1,639 3,000 849 10,076 2019 $’000 1,310 1,310 27,211 3,496 2,511 (174) 1,610 34,654 114 8,100 4,975 – 4,667 2,237 11,879 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 Minimum lease payments in the current year are for low value assets and short-term leases that are expected to complete in less than 12 months and are recognised as an expense. In the prior year 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. 31 PRIME MEDIA GROUP | ANNUAL REPORT 20205. 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 in the Consolidated Statement of Profit or Loss 2020 $’000 2019 $’000 3,703 (173) (958) 29 2,601 5,813 (105) (1,762) 108 4,054 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 before income tax Prima facie tax expense at 30% (2019: 30%) Expenses not deductible for tax Income not assessable for tax Adjustments in respect of tax of previous years Derecognition of deferred tax asset Income tax expense reported in the Statement of Profit or Loss Effective tax rate Deferred tax assets and liabilities Opening balance Effect of adoption of new standards (Note 1) Charged to income Other payments and receipts Closing balance Tax expense in statement of profit or loss and other comprehensive income Amounts recognised in the statement of financial position: Deferred tax asset Deferred tax liability 2020 $’000 9,212 2,764 123 (148) (144) 6 2,601 28.2% 2019 $’000 11,402 3,421 404 (202) 3 428 4,054 35.6% 2020 $’000 CURRENT INCOME TAX 2020 $’000 DEFERRED INCOME TAX 2019 $’000 CURRENT INCOME TAX 2019 $’000 DEFERRED INCOME TAX 1,594 – (3,530) 1,905 (31) 690 – (5,708) 6,612 1,594 (17) (41) 929 – 871 2,601 871 – 871 (1,821) 149 1,655 – (17) 4,054 – (17) (17) 32 Notes to the financial statements continuedFor the year ended 30 June 20205. INCOME TAX (CONTINUED) Deferred income tax as at 30 June relates to the following: Deferred tax liabilities Accelerated depreciation for tax Right-of-use assets Prepaid expenses deductible for tax Income not yet assessable for tax Intangible assets – Program Rights deductible for tax 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 Deferred income Lease liabilities Difference between accounting and tax write off Set-off of deferred tax liabilities Net deferred tax assets Income tax losses Deferred tax assets arising from tax losses of a controlled entity which at balance date are recognised as being highly probable of recovery. These losses relate to the Australian Tax Consolidated Group. STATEMENT OF FINANCIAL POSITION 2020 $’000 2019 $’000 (18) (1,407) (137) (242) (2,700) (4,504) 4,504 – 2,794 279 1,470 832 5,375 (4,504) 871 (25) – (359) (3) (3,600) (3,987) 3,970 (17) 3,119 320 – 531 3,970 (3,970) – 2020 $’000 2019 $’000 – – Tax consolidation (i) Members of the tax consolidated group and the tax sharing arrangements Effective 1 July 2002, for the purposes of income taxation, Prime Media Group Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group. Prime Media Group Limited is the head entity of the tax consolidated group. Members of the tax consolidated group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote. (ii) Tax effect accounting by members of the consolidated group Measurement method adopted under UIG 1052 Tax Consolidation Accounting The head entity and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the Group Allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes. The nature of the tax funding agreement is discussed further below. In addition to its own current and deferred tax amounts, the head entity also recognises current tax liabilities (or assets) and deferred tax assets arising from unused tax losses and unused tax credits from controlled 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 loan 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. 33 PRIME MEDIA GROUP | ANNUAL REPORT 2020 5. INCOME TAX (CONTINUED) 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 ACCOUNTING POLICY Current Income Taxes PRIME MEDIA GROUP LIMITED 2020 $’000 3,763 2019 $’000 19,946 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 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 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 Goods and Services Tax (“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. 34 Notes to the financial statements continuedFor the year ended 30 June 20206. EARNINGS PER SHARE Basic earnings per share (cents per share) Diluted earnings per share (cents per share) ACCOUNTING POLICY Basic Earnings Per Share 2020 1.8 1.8 2019 2.0 2.0 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 EPS Weighted average number of ordinary shares used in calculating basic EPS Weighted average number of ordinary shares used in calculating diluted EPS 2020 $’000 6,611 2019 $’000 7,348 2020 NUMBER OF SHARES 2019 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. 35 PRIME MEDIA GROUP | ANNUAL REPORT 20207. CASH AND SHORT-TERM DEPOSITS Cash balance comprises: Cash at bank and on hand Closing cash balance ACCOUNTING POLICY Cash and Short-term Deposits 2020 $’000 17,148 17,148 2019 $’000 6,443 6,443 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 after tax Non-cash adjustment for: Depreciation and amortisation Amortisation of program rights Net loss on disposal of property, plant and equipment Impairment Share of associate profits Share based payments benefit Working capital adjustments Decrease in trade and other receivables Increase in prepayments Increase in provisions Decrease in trade and other payables Cash flows from operating activities Decrease in deferred tax liabilities Increase/(decrease) in tax provision Increase in borrowing costs Net cash flow from operating activities 2020 $’000 6,611 7,076 3,000 43 532 (194) – 10,065 (86) 1,194 (66) 28,175 (888) 1,581 24 28,892 2019 $’000 7,348 7,212 4,667 8 14,018 (156) (174) 359 (2,622) 574 (6,365) 24,869 (1,801) (906) 304 22,466 36 Notes to the financial statements continuedFor the year ended 30 June 20208. INTANGIBLE ASSETS Program rights Business software, development costs including websites Television broadcast licences Infrastructure access licences Total 2020 $’000 9,000 160 – – 2019 $’000 12,000 878 – – 9,160 12,878 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 Amortised on a straight-line basis over the period of the expected future benefit Internally generated or acquired: Acquired Internally generated/acquired 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. 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. The carrying value of the software and development costs is cost less accumulated amortisation and impairment losses. 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. 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. 37 PRIME MEDIA GROUP | ANNUAL REPORT 20208. INTANGIBLE ASSETS (CONTINUED) Reconciliation of carrying amounts at the beginning and end of the period. BROADCAST LICENCES $’000 PROGRAM RIGHTS $’000 INFRASTRUCTURE ACCESS LICENCE $’000 182,963 – – 182,963 – – 14,000 15,000 (14,000) 15,000 – – 182,963 15,000 (171,140) – (11,823) – (182,963) – – – (12,333) (4,667) – 14,000 (3,000) (3,000) – – 4,978 160 – 5,138 266 – 5,404 (4,587) (551) – – (5,138) (266) – – BUSINESS SOFTWARE AND DEVELOPMENT COSTS INCL WEBSITES $’000 17,923 381 – 18,304 6 (143) TOTAL $’000 219,864 15,541 (14,000) 221,405 272 (143) 18,167 221,534 (13,544) (201,604) (1,685) (2,195) – (6,903) (14,018) 14,000 (17,424) (208,525) (583) (3,849) – – – – (182,963) (6,000) (5,404) (18,007) 212,374 – – – – – – 9,000 3,000 6,000 12,000 3,000 9,000 – – – – – – 160 – 160 878 – 878 9,160 3,000 6,160 12,878 3,000 9,878 Cost At 1 July 2018 Additions Disposals At 30 June 2019 Additions Disposals At 30 June 2020 Amortisation and impairment At 1 July 2018 Amortisation charges Impairment charges Disposals At 30 June 2019 Amortisation charges Impairment charges Disposals At 30 June 2020 Net Book Value At 30 June 2020 Total Current Total Non-Current At 30 June 2019 Total Current Total Non-Current 38 Notes to the financial statements continuedFor the year ended 30 June 20208. 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 The Group is considered to be the sole CGU. In accordance with the Group’s accounting policies, the Group conducted an annual review at the reporting date and did not identify any impairment. In the prior year, the Group fully impaired its indefinite life intangible assets being television broadcast licences. In making this assessment, the Group relied on the following key assumptions: VALUE-IN-USE CASH FLOWS APPROACH Year 1 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. Years 2–5 cash flows 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 Group 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% 39 PRIME MEDIA GROUP | ANNUAL REPORT 20208. INTANGIBLE ASSETS (CONTINUED) 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: 9. 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 2020 $’000 2019 $’000 24,374 3,150 512 28,036 (780) 27,256 34,282 3,522 335 38,139 (816) 37,323 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 16 regarding information on the Group’s exposure to credit and market risk). Refer to Note 26 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) (Recovery)/charge for the year Amounts written off At June 30 2020 $’000 816 – (2) (34) 780 2019 $’000 323 497 293 (297) 816 In reviewing the provision for expected credit loss of trade receivables the Group had regard for the continued uncertain trading environment due to the COVID-19 pandemic; the potential for further disruption to the Group’s key regional advertising markets of New South Wales and Victoria; and the potential disruption to future broadcasts of key sporting events including the AFL and cricket. The forecast prolonged deterioration in general economic conditions as a result of the COVID-19 pandemic is also expected to impact regional advertising markets and may reduce the earnings capacity of national and regional advertisers. 40 Notes to the financial statements continuedFor the year ended 30 June 202010. OTHER ASSETS Current Prepayments Non-current Prepayments Total ACCOUNTING POLICY Prepayments 2020 $’000 2019 $’000 4,905 4,711 488 5,393 501 5,212 Prepayments are recognised when a payment is made for goods or services the Group expects to receive or consume in future periods. Prepayments are expensed to profit or loss as they are received or consumed. 11. LEASES Group as a lessee The Group has lease contracts for various office buildings, transmission sites, motor vehicles and other equipment used in its operations. Leases of property and sites generally have remaining lease terms of between three and seven years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. Generally, the Group is restricted from assigning and subleasing the leased assets. The Group applies the ‘short-term lease’ recognition exemptions for leases with lease terms of 12 months or less. Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period: Cost As at 30 June 2019 AASB 16 transition adjustment As at 1 July 2019 Additions Disposals Depreciation As at 30 June 2020 OFFICE BUILDINGS $’000 TRANSMISSION SITES $’000 – 4,472 4,472 1,064 – (1,455) 4,081 – 784 784 8 – (184) 608 TOTAL $’000 – 5,256 5,256 1,072 – (1,639) 4,689 Set out below are the carrying amounts of lease liabilities (included under interest-bearing loans and borrowings) and the movements during the period: At 30 June 2019 AASB 16 transition adjustment As at 1 July 2019 Additions Accretion of interest Payments At 30 June 2020 Total Current Total Non-Current – 4,572 4,572 1,061 130 (1,519) 4,244 1,426 2,818 – 822 822 8 22 (195) 657 180 477 – 5,394 5,394 1,069 152 (1,714) 4,901 1,606 3,295 41 PRIME MEDIA GROUP | ANNUAL REPORT 202011. LEASES (CONTINUED) The following are amounts recognised in profit or loss: Depreciation expense of right-of-use assets Interest expense on lease liabilities Expense relating to short-term leases (included in broadcasting and transmission expenses) Total amount recognised in profit or loss TOTAL $’000 1,639 152 299 2,090 The Group has several lease contracts that include extension and termination options. These options are negotiated by management to provide flexibility in managing the leased asset portfolio and align with the Group’s business needs. Management exercises significant judgement in determining whether these extension and termination options are reasonably certain to be exercised (refer to Note 31). Set out below are the undiscounted potential future rental payments relating to periods following the exercise date of extension options that are not included in the lease term: Extension options expected not to be exercised Termination options expected to be exercised Total 12. TRADE AND OTHER PAYABLES Current Trade payables Accrued expenses Accrued employee entitlements Deferred income Total Non-current Deferred income Total WITHIN FIVE YEARS $’000 MORE THAN FIVE YEARS $’000 2,235 – 2,235 1,009 – 1,009 2020 $’000 1,151 5,459 1,156 2,098 9,864 792 792 TOTAL $’000 3,244 – 3,244 2019 $’000 380 4,550 2,604 2,364 9,898 930 930 ACCOUNTING POLICY Trade Payables and Other Accrued Expenses 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 are measured at the amounts expected to be paid when the liabilities are settled. 42 Notes to the financial statements continuedFor the year ended 30 June 202013. PROVISIONS Current Annual leave Long service leave Advertising make good provision Total Non-current Long service leave Total ACCOUNTING POLICY Provisions 2020 $’000 2,413 2,785 733 5,931 463 463 2019 $’000 1,998 2,603 – 4,601 600 600 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. 14. PROPERTY, PLANT AND EQUIPMENT Cost or valuation At 1 July 2018 Additions Disposals Classification transfer At 30 June 2019 Additions Disposals Reclassification from available for sale assets At 30 June 2020 Depreciation and amortisation At 1 July 2018 Depreciation charges Disposals At 30 June 2019 Depreciation charges Disposals Reclassification from available for sale assets Impairment 2 At 30 June 2020 Net Book Value At 30 June 2020 At 30 June 2019 LAND AND BUILDINGS 1 $’000 LEASEHOLD IMPROVEMENTS $’000 PLANT AND EQUIPMENT $’000 TOTAL $’000 11,857 1,932 86,367 100,156 46 (1) 3 15 – – 1,974 (1,912) (3) 2,035 (1,913) – 11,905 1,947 86,426 100,278 – – 885 12,790 (5,058) (286) – (5,344) (350) – (329) (492) 12 – – 1,959 (1,213) (160) – (1,373) (143) – – – 834 (756) 1,873 88,377 846 (756) 2,758 103,126 (68,584) (74,855) (4,529) 1,910 (4,975) 1,910 (71,203) (77,920) (4,095) 723 (1,784) (40) (4,588) 723 (2,113) (532) (6,515) (1,516) (76,399) (84,430) 6,275 6,561 443 574 11,978 15,223 18,696 22,358 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. 2 Refer to Note 21. 43 PRIME MEDIA GROUP | ANNUAL REPORT 202014. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) 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 and accumulated impairment losses. 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: Not depreciated 40 years – Leasehold improvements: The shorter of useful life and lease term – Plant and equipment: – Motor vehicles: 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. 15. INTEREST BEARING LOANS AND BORROWINGS Non-current $20 million secured bank loan facility (2019: $30 million) Total ACCOUNTING POLICY Borrowing Costs MATURITY 2020 $’000 2019 $’000 2023 – – 16,000 16,000 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. 44 Notes to the financial statements continuedFor the year ended 30 June 202015. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED) Terms and conditions Secured Bank Loan Facility At the reporting date, the Company had access to an undrawn $20 million bank loan facility with the ANZ Bank. The facility limit reduced from $30 million to $20 million during the period in line with the terms of the Amendment and Restatement Deed executed in the prior year. 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. Fair values The carrying amount of the Group’s current and non-current borrowings approximates their fair value. The parent entity and certain controlled entities have potential financial liabilities which may arise from certain contingencies disclosed in Note 25. However the directors do not expect those potential financial liabilities to crystallise into obligations. 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 16. Defaults and breaches During the current and prior years, there were no defaults or breaches on any of the loans. 16. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial liabilities comprise trade and other payables and lease commitments. The Group also has access to a secured bank loan facility which was undrawn at the reporting date. 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, 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 oversee the management of these risks. 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 Statement which is 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 is negligible while the debt facility with the ANZ remains undrawn. 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 Lease Liabilities Secured bank loan facility Net exposure 2020 $’000 17,148 17,148 (4,901) – (4,901) 12,247 2019 $’000 6,443 6,443 – (16,000) (16,000) (9,557) The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. At 30 June 2020, 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) 2020 $’000 2019 $’000 2020 $’000 2019 $’000 30 (30) (17) 17 – – – – 45 PRIME MEDIA GROUP | ANNUAL REPORT 202016. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) 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 and receivable balances are monitored on an ongoing basis. While the Group’s exposure to bad debts is not significant at this time, the risk of non-payment from trade receivables is heightened as the impact of the COVID-19 pandemic and the forecast prolonged deterioration in general economic conditions may impair the earnings capacity of national and regional advertisers. 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 9. The Group does not hold collateral as security. A small number of media buying agencies account for approximately 53.1% of Group’s total revenue. Three media buying agencies individually contribute more than 10% of the Group’s revenue and collectively account for $52,529,000 or 32.1% of the Group’s total 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. The main offices for the Australian operations of these agencies are located in Sydney and Melbourne and these agencies represent national advertisers. These agencies have maintained operations throughout the COVID-19 pandemic and payment for advertising campaigns has remained within terms. Set out below is the information about the credit risk exposure on the Group’s receivables using a provision matrix: YEAR ENDED 30 JUNE 2020 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 1.6% 16,582 262 1.4% 8,880 128 6.5% 1,946 126 26.5% 199 53 49.1% 429 211 28,036 780 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 0.74% 21,955 162 0.95% 15,000 143 26.7% 439 117 46.8% 268 129 56.2% 477 265 TOTAL $’000 38,139 816 TRADE RECEIVABLES DAYS PAST DUE 46 Notes to the financial statements continuedFor the year ended 30 June 202016. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Liquidity risk The Group manages its liquidity risk by monitoring the total cash inflows and outflows expected on a daily or weekly basis. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loan facilities and other financial arrangements as required. The Group has access to a $20 million secured bank loan facility (2019: $30 million), which was undrawn at the reporting date. The facility matures in April 2023 and is subject to the Group complying with ongoing bank covenants. The contractual maturities of the Group’s financial assets and liabilities are: YEAR ENDED 30 JUNE 2020 Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Lease liabilities Interest bearing loans (refer Note 15) Interest bearing loans – finance charges Net inflow/(outflow) 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 15) Interest bearing loans – finance charges Net inflow/(outflow) ≤ 6 MONTHS $’000 6–12 MONTHS $’000 1–5 YEARS $’000 > 5 YEARS $’000 17,148 27,256 44,404 (11,560) (921) – (91) (12,572) 31,832 – – – – (921) – (67) (988) (988) ≤ 6 MONTHS $’000 6–12 MONTHS $’000 6,443 37,323 43,766 (10,828) – (110) (10,938) 32,828 – – – – – – – – – – – – (3,279) – (245) (3,524) (3,524) 1–5 YEARS $’000 – – – – (16,000) – (16,000) (16,000) – – – – (165) – – (165) (165) > 5 YEARS $’000 – – – – – – – TOTAL $’000 17,148 27,256 44,404 (11,560) (5,286) – (403) (17,249) 27,155 TOTAL $’000 6,443 37,323 43,766 (10,828) (16,000) (110) (26,938) 16,828 Fair values The carrying amount of the Group’s current and non-current financial assets approximates their fair value. 47 PRIME MEDIA GROUP | ANNUAL REPORT 202017. CONTRIBUTED EQUITY Issued and paid up capital Ordinary shares fully paid 366,330,303 shares (2019: 366,330,303 shares) ACCOUNTING POLICY Contributed Equity 2020 $’000 2019 $’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 2020 2019 NUMBER OF SHARES $’000 NUMBER OF SHARES 366,330,303 310,262 366,330,303 366,330,303 310,262 366,330,303 $’000 310,262 310,262 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. 18. 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 dividend payments to shareholders, return capital to shareholders or issue new shares or sell assets. The Company suspended its dividend payments in December 2017. 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 TARGET AT BALANCE DATE < 1.5 times > 3.0 times – 44.5 48 Notes to the financial statements continuedFor the year ended 30 June 202019. RETAINED EARNINGS AND RESERVES Employee benefits equity reserve Profits reserve Accumulated losses Employee benefits equity reserve Movements in reserve Balance at beginning of year Exercise of performance rights Share based payment release Balance at end of year Profits reserve Movements in reserve Balance at beginning of year Profits reserved Balance at end of year Accumulated losses Balance at beginning of year Effect of adoption of new accounting standards (refer Note 1) Balance at beginning of year (restated) Net profit attributable to members of Prime Media Group Limited Total accumulated losses Profits reserved Dividends provided for or paid Balance at end of year ACCOUNTING POLICY Employee Benefits Reserve 2020 $’000 3,722 23,458 2019 $’000 3,722 17,063 (276,090) (276,263) 3,722 – – 3,722 4,091 (195) (174) 3,722 17,063 6,395 23,458 14,265 2,798 17,063 (276,263) (280,813) (43) – (276,306) (280,813) 6,611 (269,695) (6,395) – 7,348 (273,465) (2,798) – (276,090) (276,263) The employee benefits reserve was 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. This plan ended in the 2019 financial year. Profits Reserve Current year profits have been reserved for future distributions to shareholders, as and when approved by the board. 49 PRIME MEDIA GROUP | ANNUAL REPORT 202020. DIVIDENDS PAID AND PROPOSED Recognised amounts DECLARED AND PAID DURING THE YEAR Current year interim franked dividends – Nil cents per share (2019: Nil) Previous year final franked dividends – Nil cents per share (2019: Nil) Total Franking credit balance Franking account balance as at the end of the financial year at 30% (2019: 30%) Franking credits that will arise from the payment of income tax payable/(refundable) as at the end of the financial year Total Tax rates The tax rate at which paid dividends have been franked is 30% (2019: 30%). 21. 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 2020 $’000 2019 $’000 – – – – – – THE GROUP 2020 $’000 68,977 31 69,008 2019 $’000 67,072 (1,594) 65,478 2020 $’000 – – – – 2019 $’000 – 645 645 645 Property, plant and equipment located in Bunbury, Western Australia, is considered surplus to requirements. The property was available for sale during the 2020 financial year, but was removed from sale due to the COVID-19 pandemic. The Board proposes to relist the property at a future point when the prospects for sale have improved. As a result the property has been reclassified to property, plant and equipment and catch up depreciation of $113,000 has been recognised. The balance has been impaired and a loss of $532,000 recognised (refer to Note 14). 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. 50 Notes to the financial statements continuedFor the year ended 30 June 2020 22. 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 2020 $’000 – 121 – – – – – 2019 $’000 – 377 – – – – – 121 377 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 Total 2020 % 50% 50% 50% 50% 50% 50% 33% 2019 % 50% 50% 50% 50% 50% 50% 33% Movements in the carrying amount of the Group’s investment in associates At July 1 Loan contributions paid Loan repayment received Share of (losses)/profits after income tax (excl. impairment and reversals) Decrease/(increase) in provision for impairment of investment At June 30 2020 $’000 (300) 494 – – – – – 2019 $’000 (150) 306 – – – – – 194 156 2020 $’000 377 300 (750) (82) 276 121 2019 $’000 1,071 150 (1,000) 594 (438) 377 Contributions paid 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. 51 PRIME MEDIA GROUP | ANNUAL REPORT 202023. INVESTMENTS IN SUBSIDIARIES Closed Group Class Order disclosures Entities subject to class order relief Pursuant to 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 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 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 EQUITY INTEREST COUNTRY OF INCORPORATION 2020 % 2019 % 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 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 2020 $’000 9,210 (1,739) 7,471 2019 $’000 14,565 (4,316) 10,249 (275,360) (282,811) 43 (7,802) – – (2,798) – (275,648) (275,360) Operating profit before income tax Income tax expense attributable to operating profit Operating profit after tax Accumulated losses at beginning of the financial year Effect of adoption of new standards (Note 1) Transfer to reserves Dividends provided for or paid Accumulated losses at end of the financial period 52 Notes to the financial statements continuedFor the year ended 30 June 202023. 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 24. COMMITMENTS Capital expenditure commitments Estimated capital expenditure contracted for at reporting date, but not provided for payable not later than one year CLOSED GROUP 2020 $’000 2019 $’000 52,084 31,161 83,245 18,223 3,759 21,982 61,263 51,900 41,440 93,340 13,835 25,668 39,503 53,837 2020 $’000 1,080 2019 $’000 250 The following commitments are commercially considered as leases, however did not meet the definition of a lease under AASB 16. Therefore, they have been disclosed based on their characteristics. Expenditure commitments – payments Minimum payments – not later than one year – later than one year and not later than five years – later than five years Aggregate expenditure contracted for at reporting date 2020 $’000 3,705 7,391 1,709 12,805 2019 $’000 6,133 13,402 3,210 22,745 Operating leases in the current year have an average lease term of 6-12 months for motor vehicles. Transmission site access agreements have average expenditure commitments up to 10 years. The comparative period includes building leases, which have an average lease term of three to five years. 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. Expenditure commitments – payments receivable Certain assets with excess capacity have been sub-let to third parties. These non-cancellable contracts have remaining terms up to 10 years. All contracts include clauses to enable upward revision of the contract charges on an annual basis according to increases in the CPI. Minimum payments receivable – not later than one year – later than one year and not later than five years – later than five years Aggregate income contracted for at reporting date 2020 $’000 911 1,371 289 2,571 2019 $’000 1,175 1,994 410 3,579 53 PRIME MEDIA GROUP | ANNUAL REPORT 202024. COMMITMENTS (CONTINUED) 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 Aggregate expenditure contracted for at reporting date 2020 $’000 4,200 1,050 – 5,250 2019 $’000 4,200 5,250 – 9,450 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 26) 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 Aggregate expenditure contracted for at reporting date ACCOUNTING POLICY Group as a Lessor 2020 $’000 4,678 3,606 – 8,284 2019 $’000 4,626 8,210 – 12,836 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. 25. CONTINGENT LIABILITIES The Group has provided a guarantee to an unrelated third party to pay the contractual commitment of WA SatCo Pty Limited, an associate company of the Group (refer Note 22). WA SatCo Pty Limited has entered into a non-cancellable contract for the purchase of satellite services in WA until 30 June 2021. 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 2021. 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. 2020 $’000 2,346 – 2,346 2019 $’000 2,346 – 2,.346 54 Notes to the financial statements continuedFor the year ended 30 June 2020100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2020 $’000 2,218 89 119 – (89) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2019 $’000 2,767 89 126 58 280 2,337 3,320 26. 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 2020 % 2019 % 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 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 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 – Discontinued Performance Rights Plan Cash settled (benefit)/expense – Current Performance Plan Total 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. 55 PRIME MEDIA GROUP | ANNUAL REPORT 202026. RELATED PARTY DISCLOSURES (CONTINUED) 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 $331,000 (2019: $621,000). These agreements do not constitute a lease under AASB 16 and no right-of-use assets have been recognised. 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 $1,735,000 (2019: $1,700,000). 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 2021. The shareholders of the company provide services to WA SatCo to enable its operations. In the current financial year services of $528,000 (2019: $673,000) 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. Mildura Digital Television Pty Limited (“MDT”) The Company has a 50% shareholding in MDT. MDT holds the television broadcast licence to broadcast Nine Entertainment programming in Mildura, Victoria. West Digital Television Pty Limited (“WDT”) The Company has a 50% shareholding in WDT. WDT holds the television broadcast licence to broadcast Nine Entertainment programming in regional Western Australia. 56 Notes to the financial statements continuedFor the year ended 30 June 202027. PARENT ENTITY INFORMATION Current assets Total assets Current liabilities Total liabilities Issued capital Employee benefits reserve Accumulated losses Retained profits reserve Total shareholders’ equity Profit of the parent entity Total comprehensive profit of the parent entity PRIME MEDIA GROUP LIMITED 2020 $’000 105 60,324 98 99 310,262 3,722 (277,217) 23,458 60,225 6,395 6,395 2019 $’000 1,705 157,233 80 103,404 310,262 3,722 (277,218) 17,063 53,829 2,798 2,798 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 23). 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 2021. 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 2021. This agreement can be terminated without notice by the Commonwealth Government. 28. SUBSEQUENT EVENTS On 30 June 2020 the Minister for Communications, Cyber Safety and the Arts announced that the Company was eligible under the Public Interest News Gathering Program (“PING”) for grant funding totalling $4,703,000. On 14 August 2020 the Company executed a PING funding agreement with the Commonwealth Government. The Company expects the grant funding to be available and grant obligations to apply over the 12 month period from the date of agreement. 57 PRIME MEDIA GROUP | ANNUAL REPORT 202029. AUDITOR’S REMUNERATION Fees to Ernst & Young (Australia) – Fees for auditing the statutory financial report of the parent covering the group and auditing the statutory financial reports of any controlled entities – Fees for assurance services that are required by legislation to be provided by the auditor – Fees for other assurance and agreed-upon-procedures services under other legislation or contractual 2020 $ 2019 $ 379,280 392,764 – – arrangements where there is discretion as to whether the service is provided by the auditor or another firm 222,860 9,880 – Fees for other services: Tax compliance Total fees to Ernst & Young (Australia) Fees to other overseas member firms of Ernst & Young (Australia) – Fees for auditing the financial report of any controlled entities – Fees for assurance services that are required by legislation to be provided by the auditor – Fees for other assurance and agreed-upon-procedures services under other legislation or contractual arrangements where there is discretion as to whether the service is provided by the auditor or another firm – Fees for other services: Tax compliance Total fees to overseas member firms of Ernst & Young (Australia) Total auditor’s remuneration 30. OTHER ACCOUNTING POLICIES 29,757 631,897 34,607 437,251 – – – – – – – – – – 631,897 437,251 A. Basis of consolidation The consolidated financial statements comprise the financial statements of Prime Media Group Limited and its subsidiaries (as outlined in Note 26) as at and for the year ended 30 June 2020. Interests in associates are equity accounted and are not part of the consolidated Group (see Note 22). 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. 58 Notes to the financial statements continuedFor the year ended 30 June 202031. 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: Determining the lease term of contracts with renewal and termination options – Group as lessee The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has several lease contracts that include extension and termination options. The Group applies judgement in evaluating whether it is reasonably certain or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g. construction of significant leasehold improvements or significant customisation to the leased asset). Expenditure commitments – Payments The Group has entered into operating leases that have an average lease term of 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 these agreements do not qualify as leases under AASB 16 and accounts for the contracts as service agreements. Expenditure commitments – Payments receivable 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 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. 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 disruption to advertising markets and economic downturn resulting from the COVID-19 pandemic has created significant uncertainty when forecasting credit losses. The magnitude of future credit losses will be significantly influenced by the duration and extent of the COVID-19 pandemic in regional advertising markets and the steps taken by State and Federal governments to contain the pandemic. 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. 59 PRIME MEDIA GROUP | ANNUAL REPORT 202031. 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. 60 Notes to the financial statements continuedFor the year ended 30 June 2020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 2020 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 2020 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 23 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 2020. On behalf of the Board C. A. O’Connor Director Sydney, 27 August 2020 61 Directors’ DeclarationFor the year ended 30 June 2020PRIME MEDIA GROUP | ANNUAL REPORT 2020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 2020, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, 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 2020 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 (including Independence Standards) (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 each 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 62 Independent Auditor’s Report 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 matters below, provide the basis for our audit opinion on the accompanying financial report. Revenue Recognition Why significant How our audit addressed the key audit matter The Group has the following revenue and other income streams: Our audit procedures included the following: ► Advertising revenue ► Site rental ► Sales representation income ► Confirmed our understanding of the processes and tested the controls over advertising revenue, including examination of campaign contracts and approvals. ► Government grants ► Compared revenue recognised to evidence of As outlined in Note 2 of the Financial Statements Advertising 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 revenue is a key audit matter due to the manual process for determining whether the advertisement has been broadcast and viewer metrics have been achieved and due to the potential risk of manual override of controls by management to manipulate revenue. broadcast. ► Used data analysis techniques to analyse the relationship between revenue, accounts receivable and cash collections for advertising revenue. This included testing revenue recognised post broadcast by agreeing a sample to transmission and subsequent cash receipt. ► Tested manual journal entries for revenue recorded at period end. ► Challenged the completeness of deferred revenue where viewer metrics have not been met. ► Assessed the adequacy of the financial report disclosures included in the financial statements 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 2020 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. 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 2020 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 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 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. 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 64 Independent Auditor’s Report • • • 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, actions taken to eliminate threats or safeguards applied. 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 11 to 23 of the directors' report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Prime Media Group Limited for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 65 Independent Auditor’s ReportPRIME MEDIA GROUP | ANNUAL REPORT 2020 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 J Wright Partner Sydney 27 August 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 66 Independent Auditor’s Report 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 25 August 2020. A. Distribution of Equity Securities Ordinary shares As at 25 August 2020, 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 25 August 2020 are: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Seven Network (Operations) Limited WA Chess Investments Pty Ltd J P Morgan Nominees Australia Pty Limited Buttonwood Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited Brispot Nominees Pty Ltd UBS Nominees Pty Ltd BNP Paribas Nominees Pty Ltd CS Fourth Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Morgan Stanley Australia Securities (Nominee) Pty Limited Jamplat Pty Ltd Keybridge Capital Limited Mr George Walter Mooratoff Citicorp Nominees Pty Limited Merrill Lynch (Australia) Nominees Pty Limited Sojourn Services Pty Ltd Neweconomy Com Au Nominees Pty Limited Mr John Alex Rumble & Mrs Sonja Rumble Warbont Nominees Pty Ltd NUMBER OF HOLDERS 501 634 391 741 162 2,429 1,145 LISTED ORDINARY SHARES NUMBER OF SHARES PERCENTAGE OF ORDINARY SHARES 54,594,367 54,362,273 44,420,483 29,050,000 21,389,901 9,264,829 7,500,000 6,981,599 6,721,824 6,511,527 6,462,317 5,700,000 5,421,585 5,000,000 4,908,894 4,545,552 3,597,000 2,990,537 2,900,000 2,591,648 14.90 14.84 12.13 7.93 5.84 2.53 2.05 1.91 1.83 1.78 1.76 1.56 1.48 1.36 1.34 1.24 0.98 0.82 0.79 0.71 284,914,336 77.78 67 ASX Additional InformationFor the year ended 30 June 2020PRIME MEDIA GROUP | ANNUAL REPORT 2020C. Substantial Shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: NUMBER OF SHARES PERCENTAGE OF ORDINARY SHARES Seven West Media Limited and its related interests including Seven Network (Operations) Limited Seven Group Holdings Limited and its related interest Australian Capital Equity Limited, Wroxby Pty Limited, North Aston Pty Limited, Ashblue Holdings Pty Limited, Tiberius Pty Limited, Tiberius (Seven investments) Pty Limited, Mr Kerry Matthew Stokes AC WA Chess Investments Pty Limited Bruce Gordon, Judith Gordon, Birketu Pty Ltd, WIN Corporation Pty Limited and associates of WIN Macquarie Group Limited 54,594,367 53,362,273 42,444,289 29,244,151 14.90% 14.57% 11.59% 7.98% On 28 November 2019 Birketu Pty Limited disclosed to the market that on 21 November 2019, Birketu Pty Limited entered into a cash settled equity swap transaction with Macquarie Bank Limited in relation to 29,050,000 PRT shares at a price of $0.200 per PRT share. As a result of the transaction, WIN Group voting power in PRT remained at 11.59% and the aggregate economic interest of the WIN Group in PRT was 19.52%. D. Voting Rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. 68 ASX Additional InformationFor the year ended 30 June 2020Designed and produced by ArmstrongQ – www.armstrongQ.com.au primemedia.com.au 

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