2021 Annual Report THE NUMBER 1 REGIONAL TELEVISION NETWORK IN AUSTRALIA – 10 CONSECUTIVE YEARS CONTENTS 1 2 4 19 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 Ian McGill 9 December 2020 – Present Cass O’Connor 21 April 2015 – Present Joshua Lowcock 9 December 2021 – Present Brent Cubis 15 April 2021 – Present Peter J. Macourt 1 September 2014 – 25 February 2021 Ian R. Neal 6 June 2008 – 28 May 2021 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 Dear Shareholders On behalf of the directors of Prime Media Group, I am pleased to present the 2021 annual report. The last 12 months have been encouraging in what has been a difficult time for regional television, our audiences and advertising clients. I am pleased to have joined the Board as a non-executive director and Chairman during this last year. The 2021 financial year has been a significant year for many reasons, but importantly for the recovery in regional advertising markets from the early impact of the COVID-19 pandemic in March 2020. Prime’s advertising revenues across regional New South Wales and Victoria improved 4.1% on the prior year, whilst advertising revenues in regional Western Australia were 11.3% favourable to the prior year. CHAIRMAN’S REPORT Prime achieved two important milestones during the 2021 financial year, the first being the accumulation of $41.2M in cash following the repayment of the company’s debt facility and the second being the reintroduction of the company’s dividend program. In 2018 Prime suspended its dividend program and prioritised the repayment of interest bearing debt. This difficult decision was made in response to year-on-year declines in regional audiences and regional advertising revenues that were attributable to increased competition from streamed entertainment services in regional Australia. While the Board believes that the outlook for regional television audiences and advertising markets will remain challenged, the Company currently has the financial flexibility to re-introduce a dividend program, while continuing to pursue revenue diversification opportunities. As reported, a final dividend of 2.0 cents per share fully franked will be paid in respect of the 2021 financial year. The Company has also reinstated a dividend policy for future financial years of up to 50% of statutory net profit after tax, subject to Prime’s financial performance not being materially impacted by the COVID-19 pandemic and the current term of Prime’s program supply agreement with the Seven Network which is due for renewal in June 2023. While there has been a recovery in regional advertising markets over the past 12 months, the last year has also seen the continued and strengthening disruptive presence of AVOD, SVOD and BVOD services in our regional markets. These online digital services continue to fragment television audience viewing habits and regional advertising revenues. This continued trend is structural, and it is permanent. Your board has long recognised the need to seek to address that structural threat to regional broadcast media by the matters within its control, including strengthening our balance sheet and looking to diversify revenue streams beyond regional television. We also recognise that one potential solution to this structural threat lies in the hands of the Federal Government. To address this, under the excellent leadership of our CEO, Ian Audsley, Prime has continued to advocate with the Federal Government to reform and modernise the media regulatory environment. Over the course of this calendar year, Prime made multiple representations to Government for reform of the relevant media ownership laws, with emphasis on the viability of the regional broadcasters and the continuation of local news services. We look forward to a continued constructive engagement with Government to assist in enacting these important reforms. Since joining Prime’s Board, I have been impressed with the commitment to and passion for regional broadcast media by Prime’s talented team of media professionals. I welcome Joshua Lowcock and Brent Cubis to Prime’s Board. I also wish to acknowledge the continued service on the board of Cass O’Connor and Cass remains on the Audit & Risk Committee and chairs the Remuneration and Nomination Committee. Finally, I would like to thank Mr. Peter Macourt for his splendid innings as Prime’s Chairman, and for his work in creating the capital management plan which has enabled the reinstatement of the company’s dividend program. I would also like to acknowledge Prime’s long serving non-executive director, Mr Ian Neal, who also retired this year. Ian’s commitment to Prime spanned over a decade and his contribution has been immense. I would like to conclude by extending my thanks and appreciation to all of Prime’s staff and to commend them for their exceptional efforts during this difficult period. I also acknowledge and thank Prime’s advertising clients and partners for their continued support. Ian McGill CHAIR AND NON-EXECUTIVE DIRECTOR 1 PRIME MEDIA GROUP | ANNUAL REPORT 2021 I am pleased to advise shareholders that despite the disruption to regional advertising markets caused by the COVID-19 pandemic, particularly between March and September 2020, Prime has recorded a vastly improved operating result compared to the 2020 financial year. But before I turn to the financial results, I would like to take the opportunity to formally thank and congratulate Prime’s committed staff and executives across the country who have endured sustained uncertainty, but who collectively have made such a substantial contribution to the company, its advertisers and audiences over the course of the COVID-19 pandemic. Our success on air and in the advertising markets is a testament to their commitment to the company and to you, our shareholders. I cannot thank them enough and I commend their collective performance. For the 11th year running Prime is the number one regional commercial television broadcaster in its regional licence areas 1. GWN also maintains its market supremacy having never lost an audience survey since its acquisition by Prime in 1996. In the 2021 calendar year Prime and GWN have commanding audience leads over their competitors. At the time of writing, on the east coast calendar year-to-date, Prime has increased its audience share by 5.6 share points to a 44.4 share, while in Western Australia GWN has delivered a 5.0 share point audience increase to a 54.8 share. A contributor to these market-leading audience shares is Prime & GWN’s strong commitment to local news programming. The COVID-19 pandemic has once again highlighted the importance regional Australians place on local news programs, which cater specifically to their particular needs. Prime7 and GWN7 local news programs regularly sit atop the nightly Top 20 programs list and deliver unparalleled audience shares. Prime’s sales force has also continued its reign as the leading advertising revenue generator in the markets we serve, and has maintained its leading performance year in and year out since 2011. Over the reporting period Prime delivered a total advertising revenue share of 40.4% with advertising revenue improving by 4.1% on the prior year in regional NSW and Victoria. Prime’s total revenue of $178.7 million grew 9.2% on the prior year, however revenue remains below that of two years ago - demonstrating the change in market dynamics brought about by the introduction of the online digital video entertainment platforms. Last, but certainly not least, the company has accumulated a cash surplus of $41.2 million as at 30 June 2021. Prime made the difficult decision to suspend dividends in 2018 and to repay interest bearing debt due to the sustained decline in regional television audiences and advertising revenues with the arrival of digital video entertainment platforms. This capital management strategy enabled Prime to navigate the COVID-19 pandemic, but importantly, it now leaves Prime well-placed to consider revenue diversification strategies. Shareholders have also benefited by the reintroduction of Prime’s dividend program and the declaration of a 2.0 cent per share fully franked dividend for the 2021 financial year. CHIEF EXECUTIVE OFFICER’S REPORT 1 Source: Regional TAM Data | Combined N/NSW, S/NSW, VIC & WA | 2011-2020 survey year, 2021 survey year to date, excluding Easter | Network Commercial Station Share % | Both Sun-Sat 0600-2359 and Sun-Sat 1800-2359 | Total People | Consolidated 7 data up to 02/09/2021, overnight data 03 04/09/2021. 2 During the reporting period Prime engaged with the Australian Government ‘Media Reform Green Paper: Modernising television regulation in Australia’. Regional free-to-air television is an essential service for the millions of Australians living outside capital cities. Regional broadcasters inform, enrich and unite regional communities and promote informed public debate. Prime also benefited from the Federal Government Public Interest News Gathering grant program, which partially funded the cost of Prime’s regional TV news service at pre-COVID-19 pandemic levels. However living off the public purse is not a panacea to the structural issues impacting regional television. The decline in regional audiences and advertising revenues is expected to continue as evidenced by Prime’s advertising revenue in the aggregated market of NSW and Victoria being back 13.1% when compared to the 2019 financial year. During this period, multiple regional TV news services have disappeared as regional media providers look for cost savings to offset the ongoing decline in regional advertising revenues. Along with the regional newspaper industry, regional television operators have long warned the Government of the impending closure of newsrooms. I am concerned at the Government’s lack of urgency regarding the need for regulatory reform of regional media markets. A solution is in their hands and only the Federal Government can respond. Community service support In addition to Prime’s significant investment in local news programming, Prime continued to provide valuable community service announcements (CSAs) to support and assist community endeavours. During the financial year, CSA support was provided to the following charitable or not-for-profit organisations active in regional communities: • Channel 7 Telethon (WA); • RSPCA; • Breast Cancer National Awareness; • Divorce Support Collective; • Dads 4 Kids; and • Raise Foundation: Youth Mentoring Prime’s partnership with the Seven Network has been strengthened and become more productive with the appointment of James Warburton as Chief Executive of Seven West Media. We are confident in Mr. Warburton’s efforts to maintain Seven’s programming leadership. Ian Audsley CHIEF EXECUTIVE OFFICER HIGHLIGHTS $36.8M EBITDA $19.5M Statutory net profit after tax $178.7M Revenue $41.2M Net cash 3 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Cass A. O’Connor Independent Non-Executive Director (appointed 21 April 2015) To each role Ms O’Connor aims to bring considered counsel, usually based on financial assessment of the entity coupled with key stakeholder appraisal. Organisational behaviours, market trends and regulatory issues provide context for her evaluations. 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 Non-Executive Director of Australia’s leading cultural think tank A New Approach and cosmeceutical company Ultraceuticals. 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 Remuneration and Nomination Committee and a member of the Audit and Risk Committee. Ian McGill Independent Non-Executive Chair and Director (appointed 9 December 2020) Mr McGill is a lawyer and company director. From 1990 to 30 June 2020, he was a corporate partner of the law firm Allens. At Allens Mr McGill specialised in media and telecommunications industry transactions, policy and regulation, including media law reform. His career included advising News Corporation on the establishment of FOXTEL and acting for the commercial television plaintiffs in the High Court case that established the implied constitutional principle of freedom of political communication. Mr McGill is a director of a number of not-for-profit companies, including The Australian Children’s Television Foundation (representative director for the Commonwealth), Documentary Australia Foundation, the Sydney Institute of Marine Science, SIMS Foundation Limited and Uphold & Recognise Limited. He is also an advisory board member for the Centre for Media Transition at the University of Technology Sydney. Mr McGill is a member of the Audit & Risk Committee and the Remuneration & Nomination Committee. Joshua Lowcock Independent Non-Executive Director (appointed 9 December 2020) Mr Lowcock is the New York- based Chief Digital Officer of Universal McCann, a global media and advertising agency. Mr Lowcock brings to Prime Media Group extensive digital, media, and data expertise having worked in senior roles for Australian media companies, as well as for Fortune 500 brands in the USA and China. Mr Lowcock also serves as a non-Executive Director of ASX-listed Accent Group Limited and Cashrewards Limited. Mr Lowcock is a member of the Remuneration & Nomination Committee. DIRECTORS’ REPORT 4 Peter J. Macourt Independent Non-Executive Chair and Director (appointed 1 September 2014, retired 25 February 2021) 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. Mr Macourt was also a member of the Audit and Risk Committee and Remuneration and Nomination Committee during his tenure as a non-executive director. Brent A. Cubis Independent Non-Executive Director (appointed 15 April 2021) Mr Cubis is a Chartered Accountant and company director/advisor. He has over 30 years’ experience working in senior finance roles across a broad range of global companies and industries. His most recent role was Chief Financial Officer for Cochlear Limited and prior to that worked for private equity firms in the Health Sector, PBL Media (CFO at Nine Network and ACP Magazines) and Westfield, BT and Sheraton Hotels. He qualified as a Chartered Accountant at Deloitte, which included a transfer to the USA. Mr Cubis is a Director of Carbon Cybernetics and was previously a Director for the Can Too Foundation and member of UNSW Business School Advisory Board. Mr Cubis is Chair of the Audit and Risk Committee. Ian R. Neal Independent Non-Executive Director (appointed 6 June 2008, retired 28 May 2021) 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 was Chair of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee until the date of his retirement. 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. Your directors submit their report for the year ended 30 June 2021. 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 above. Directors were in office for this entire period unless otherwise stated. 5 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Directors’ interests The relevant interest of each director in shares issued by the Company at the date of this report is as follows: NAME ORDINARY SHARES I.G. McGill – C.A. O’Connor 75,000 J. Lowcock – B.A. Cubis – I.C. Audsley 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: PERIOD OF DIRECTORSHIP DIRECTOR COMPANY FROM TO J. Lowcock Accent Group Limited (Non-Executive Director) November 2019 Present Cash Rewards Limited (Non-Executive Director) December 2020 Present P.J. Macourt Sky Network Television Limited (Chair and Non-Executive Director) August 2002 October 2019 Virtus Health Limited (Non-Executive Chair) June 2013 November 2019 I.R. Neal Greatcell Solar Limited (formerly Dyesol Limited) (Non-Executive Chair) September 2006 December 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 CENTS Basic earnings per share – Profit from Statutory earnings 5.3 Diluted earnings per share– Profit from Statutory earnings 5.3 Basic earnings per share – Profit from Core earnings 3.3 Diluted earnings per share – Profit from Core earnings 3.3 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. Directors’ report 6 Operating and financial review Statutory results The Company’s consolidated profit after tax attributable to the members for the year ended 30 June 2021 was $19,545,000, which represents an increase of $12,934,000 or 195.6% on the prior year. This result included Public Interest News Gathering (PING) grant revenue of $4,123,000 and JobKeeper Payment subsidies of $3,413,000 which have been disclosed as Other Income. Total revenue of $178,658,000 increased $14,978,000 or 9.2% on the prior year. Revenue from contracts with customers of $168,581,000 increased $8,731,000 or 5.5% on the prior period. The Group’s advertising revenue in the aggregated market of regional New South Wales and Victoria significantly improved in the second half of the 2021 financial year with advertising revenue increasing 17.4% in the six month period compared to the prior comparative period. Overall, Group advertising revenue in the aggregated market of regional New South Wales and Victoria increased 4.1% for the financial year, compared to the market growth of 5.4%. The Group’s market leading audience share in the aggregated market of regional New South Wales and Victoria was 42.7% compared to 41.3% in the prior year. Other Income of $10,038,000 included PING and JobKeeper revenues totalling $7,536,000 and the one-off sale of property in Bunbury, Western Australia for $1,320,000. The property in Bunbury had previously been fully impaired. Cost of sales, including affiliation payments to the Seven Network under the program supply agreement, increased by $1,630,000 or 1.7% on the prior year due to the recovery in regional advertising revenues compared to the prior year. Affiliation payments made to the Seven Network are based on a percentage of gross advertising revenue. Total operating expenses excluding depreciation and amortisation of $46,211,000 decreased by $3,722,000 or 7.5% on the prior period. Included in the cost reductions were the temporary waiver of commercial broadcast taxes of $973,000 and other savings from transmission related expenses. The prior period included one-off non-recurring costs associated with the proposed scheme of arrangement with the Seven Network of $1,583,000. The Group’s share of losses from joint ventures that broadcast Nine Entertainment programming in regional Western Australia and Mildura was $371,000. During the reporting period both joint ventures ended their respective program supply agreements with Nine Entertainment on 30 June 2021 and have since commenced broadcasting TEN Network programming in their television licence areas of regional Western Australia and Mildura, Victoria. As a result, the Group’s interests in these joint ventures has been fully impaired. Earnings before interest, tax, depreciation and amortisation of $36,813,000 increased by $16,541,000 or 81.6% on the prior year. Dividend The Company is pleased to report that it will pay a final dividend of 2.0 cents per share fully franked for the 2021 financial year. The Company currently expects to pay future dividends based on a dividend policy of up to 50% of statutory net profit after tax and subject to Prime’s regional advertising markets, business operations and financial performance not being materially impacted by the COVID-19 pandemic. This remains subject to performance and will be the subject of ongoing review. In particular, Prime Media notes that the policy may require review in the 2023 financial year on the basis that Prime’s program supply agreement with the Seven Network completes in June 2023 and is subject to renewal. CENTS $’000 Final dividend recommended: – on ordinary shares 2.0 7,327 Dividends paid in the year: Interim for the year – on ordinary shares – – Final for 2020 shown as recommended in the 2020 financial report – on ordinary shares – – Core net profit after tax Core net profit after tax (non-IFRS measure) and before specific items of $12,254,000 (2020: $5,809,000), increased by $6,445,000 or 110.9% on the previous corresponding period. 2021 $’000 2020 $’000 Reported profit after tax 19,545 6,611 Impairment (non-cash) – 532 Gain on sale of property (1,320) – Gain on sale of investments (117) – JobKeeper subsidy (3,413) (2,976) PING grant revenue (4,123) – Non-recurring legal and consulting expenses – 1,583 Redundancies – 43 Employee cost savings including JobKeeper stand down directions (379) (303) Expected credit loss adjustment (448) (24) Income tax benefit related to specific items 2,509 343 Core net profit after tax and before specific items 12,254 5,809 SHAREHOLDER RETURNS Core Earnings Per Share (cents per share) 1 3.3 1.6 Statutory Earnings Per Share (cents per share) 5.3 1.8 Core Return on Assets (ROA) % 1 11.6 7.0 Statutory Return on Assets (ROA) % 18.5 7.9 Core Return on Equity (ROE) (%) 1,2 15.1 9.5 Statutory Return on Equity (ROE) (%) 24.2 10.8 Share price ($) 0.215 0.09 Dividends per share (cents) 2.0 – Total Shareholder Return (%) 136.3 (56.7) 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 $80,897,000 included cash at bank of $41,231,000. Net cash flow from operating activities of $27,597,000 declined $1,564,000 or 5.4% compared to the prior year. During the reporting period the Group received one-off non-recurring payments for JobKeeper Payment subsidies totalling $4,400,000 and PING grant revenue of $4,702,000. The Group’s net cash flow from operating activities excluding government subsidies declined $8,677,000 or 31.9% on the prior period. Payments to suppliers and employees declined by $2,652,000 or 1.7% primarily due to the timing of payments. The prior year included one-off non-recurring costs associated with the proposed scheme of arrangement with the Seven Network of $1,531,000. Net cash flows used in investing activities of $1,671,000 (2020: $503,000) includes proceeds from the sale of property in Bunbury, Western Australia net of selling costs of $1,320,000. Capital expenditure of $2,858,000 included the purchase of transmission and computer equipment. During the reporting period, the Group paid loan funds to associates of $250,000 to fund the Group’s joint venture with WIN Corporation, which broadcasts TEN Network programming in the Mildura region. Included in the prior comparative period were net loan funds repaid by the Group’s investment in joint ventures of $450,000. During the reporting period both joint ventures ended their respective program supply agreements with Nine Entertainment on 30 June 2021 and have since commenced broadcasting TEN Network programming in their television licence areas of regional Western Australia and Mildura, Victoria. 7 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Directors’ Report continued Capital structure The Group’s secured bank loan facility was undrawn as at 30 June 2021 (30 June 2020: nil). During the reporting period, the debt facility limit was reduced to $10 million (2020: $20 million). 2021 $’000 2020 $’000 Interest-bearing loan – – Cash and short term deposits (41,231) (17,148) Net (cash)/debt (41,231) (17,148) Total equity 80,897 61,352 Total capital employed 39,666 44,204 Gearing –% –% 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 risk of a cyber attack on television broadcast and other key infrastructure, which may result in a prolonged interruption to services and impact group profitability; • the increasing cost of content and continued access to quality programming; and • the ability to attract and retain employees with relevant media experience. Significant changes in the state of affairs There were no significant changes in the Group’s state of affairs. Significant events after the balance date There were no significant events after the balance date. 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. As highlighted in this report, advertising revenues in these markets recovered from the impact of the COVID pandemic in the 2020 financial year. However, the outlook for regional television audiences and advertising markets remains challenged. As highlighted at the 2020 Annual General Meeting, the Board considers that the Company needs to diversify its revenue beyond regional advertising revenues. The Board also considers that the Company is undersized and without the financial capacity to compete with disruptive digital services such as Google, Facebook, Netflix, Disney and other streamed services available in its regional television licence areas. The Company does not own digital rights to stream Seven Network programming in its regional television licence areas. Regional audiences are able to stream Seven Network programming directly from the Seven Network. For these reasons, the Company continues to actively review revenue diversification opportunities including options for inorganic growth and will focus on maintaining adequate cash reserves with a view to funding such opportunities. 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 $836,666 (2020: $909,194) 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: 13 2 2 Number of meetings attended: I.G. McGill (appointed 9 December 2020) 6 1 – – C.A. O’Connor 12 2 2 J. Lowcock (appointed 9 December 2020) 6 1 – – B.A. Cubis (appointed 15 April 2021) 4 1 I.C. Audsley 13 – – P.J. Macourt (retired 25 February 2021) 9 1 2 2 I.R. Neal (retired 28 May 2021) 12 1 2 2 1 Indicates the maximum number of meetings the director was eligible to attend during the period. 8 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 2021 in accordance with section 300A of the Corporations Act. This Report outlines the nature and amount of remuneration for non-executive directors and key management personnel. The 2021 financial year was – as with 2020 – rather difficult and challenging for the Company, its senior management, advertisers and audiences. The communities we serve were often in the early stages of recovery from the early 2020 bushfires when FY21 began, and many still are. Of course the COVID-19 pandemic continues today, with more virulent strains and challenges. During the FY21 year, our mission was to broadcast the impacts of both, wherever we had flexibility in our programming. Unsurprisingly, local and national advertising was affected across all communities we serve. The 20% reduction in senior management and board of directors base salaries continued until September 2020. We reinstated senior management short and long term incentives in October 2020, after a 15 month COVID-induced “incentive holiday”. As you will see in this Report, they are prorated for the period. 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 to a $50,788,000 turnaround from June 30 2019. Then, we had net debt of $9,557,000. We begin the FY22 year with $41,231,000 of cash. While our advertising markets are volatile and operating expenses largely fixed, we have been very focused on costs. Finally, the Company has maintained a market leading revenue share of 40.4% 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 Ms Cass O’Connor Non-Executive Director and Chair of Remuneration and Nomination Committee 9 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Directors’ Report continued REMUNERATION REPORT (AUDITED) This Remuneration Report for the year ended 30 June 2021 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 and senior executives of the Company and the Group. KMP for the year ended 30 June 2021 were: KMP POSITION TERM AS KMP Non-Executive Directors I. McGill Chair; Director From 9 December 2020 C. O’Connor Director Full Year J. Lowcock Director From 9 December 2020 B. Cubis Director From 15 April 2021 P. Macourt Chair; Director From 1 July 2020 to 25 February 2021 I. Neal Director From 1 July 2020 to 28 May 2021 Executive KMP I. Audsley CEO and Executive Director Full Year D. Walker Group General Manager Sales and Marketing Full Year J. Palisi Chief Financial Officer Full Year 2. REMUNERATION GOVERNANCE A. Remuneration and Nomination Committee The Board has appointed a Remuneration and Nomination Committee consisting of three independent non-executive directors (NEDs) to, amongst various responsibilities, review and make recommendations to the Board regarding: • Executive management remuneration and incentives; • Executive management performance against agreed performance targets; and • The remuneration framework for directors. During the financial year, the Remuneration and Nomination Committee held 2 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 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 FIXED REMUNERATION % AT RISK STI % AT RISK LTI % TOTAL % TOTAL AT RISK % CEO and Executive Director I. Audsley 52% 26% 22% 100% 48% Other KMP D. Walker 53% 27% 20% 100% 47% J. Palisi 61% 22% 17% 100% 39% 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; Development of plan to renew local sales performance; Development of a strategic plan to improve Prime’s gross profit margin; and Risk management including commitment to Work Health Safety. LTI component Prime Media Group Limited Cash Settled Performance 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. 3. EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED) 11 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Directors’ Report continued 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 GROUP FINANCIAL PERFORMANCE MEASURES: CORE NPAT DIVISIONAL FINANCIAL PERFORMANCE MEASURES: REVENUE GENERATION REVENUE YIELD EXPENSE MANAGEMENT NON-FINANCIAL MEASURES: GROUP STRATEGY OPERATIONAL PERFORMANCE COMMITMENT TO RISK MANAGEMENT AND WORK HEALTH SAFETY Chief Executive Officer 50% –% 50% Group GM Sales and Marketing 60% 30% 10% Chief Financial Officer 40% –% 60% KEY PERFORMANCE OBJECTIVES COMMENTARY OUTCOMES Group Financial Performance Measures Expense Management Statutory net profit after tax of $19,545,000 Core net profit after tax of $12,254,000 Operational costs and capital expenditure within budget Achieved Achieved Achieved Divisional Financial Performance Measures Revenue Generation Revenue Yield Advertising revenue exceeded advertising revenue budgets Partially achieved Achieved Achieved Non-Financial Measures Operational Performance Strategy Strategy to renew local sales team performance Development of strategic plan to improve Prime gross margin Not achieved Not achieved Commitment to risk management and Work Health Safety The Executive Risk Management Committee continued to promote a company‑wide culture of risk management and work health safety Achieved After consideration of performance against KPIs, the Remuneration and Nomination Committee considers and recommends to the Board, on an annual basis, the amount, if any, of STI to be paid to each executive. This process usually occurs within three months after the reporting date at which time a cash bonus is paid equivalent to achievement. The Board has agreed with the Remuneration and Nomination Committee that 513,768 will be paid to the KMP for STI for this financial year. 12 B. Long Term Incentives The Prime Media Group Limited Cash Settled Performance Plan has been designed to reward KMP performance over a three year period by offering a potential entitlement to cash payments linked to the Group’s share price performance and STI achievement over the same period. The maximum long term incentives under the plan for the following KMP are as follows: ENTITLEMENT GRANT DATE SHARE PRICE AT GRANT MAXIMUM VALUE AT GRANT DATE ($) VESTING DATE TRANCHE 1 VESTING DATE TRANCHE 2 VESTING DATE TRANCHE 3 Director I. Audsley 2021 987,805 22/12/2020 $0.2050 337,500 Aug 2022 Aug 2023 Aug 2024 2020 – – – 450,000 – – – 2019 1,204,282 12/12/2018 $0.2242 450,000 Aug 2020 Aug 2021 Aug 2022 2018 1,000,000 23/1/2018 $0.4200 420,000 Aug 2019 Aug 2020 Aug 2021 Executive D. Walker 2021 647,090 22/12/2020 $0.2050 178,058 Aug 2022 Aug 2023 Aug 2024 2020 – – – 237,411 – – – 2019 281,771 12/12/2018 $0.2242 189,000 Aug 2020 Aug 2021 Aug 2022 2018 443,926 23/1/2018 $0.4200 189,000 Aug 2019 Aug 2020 Aug 2021 J. Palisi 2021 345,732 22/12/2020 $0.2050 118,125 Aug 2022 Aug 2023 Aug 2024 2020 – – – 157,500 – – – 2019 561,998 12/12/2018 $0.2242 157,500 Aug 2020 Aug 2021 Aug 2022 2018 375,000 23/1/2018 $0.4200 157,500 Aug 2019 Aug 2020 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 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, $364,000 (2020: $223,000) 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 2020 all KMP met the vesting conditions for tranche 2 of the 2018 entitlement and tranche 1 of the 2019 entitlement. However no amounts were paid to KMP as all agreed to forgo their 2020 entitlement due to the impact of the COVID-19 pandemic on the financial performance of the Group. Accordingly 1,288,992 notional share units from prior year entitlements were forgone and were not paid to KMP. C. Executive Remuneration Outcomes (including link to performance) Company performance and its link to Short Term Incentives EXECUTIVE FY21 STI ACCRUED FY21 STI AWARD POOL % FY20 STI PAID IN CASH FY20 STI AWARD POOL PAID % I. Audsley $247,500 $412,500 60.0% – 550,000 –% D. Walker $176,268 $236,601 74.5% – 315,036 –% J. Palisi $90,000 $150,000 60.0% – 160,000 –% Total $513,768 $799,101 64.3% – 1,025,036 –% KMP 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. 4. DETAIL OF INCENTIVE PLANS (CONTINUED) 13 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Directors’ Report continued Table 1: Remuneration for the year ended 30 June 2021 SHORT-TERM BENEFITS POST EMPLOYMENT LONG-TERM BENEFITS CASH SETTLED PERFORMANCE PLAN EXPENSE 4 TOTAL PERFORMANCE RELATED SALARY & FEES 1 $ ANNUAL LEAVE 2 $ CASH BONUS $ NON-CASH BENEFIT $ SUPER ANNUATION $ LONG SERVICE LEAVE PROVISION 3 $ $ $ % Non-executive directors I. McGill (Chair) – appointed 9 December 2020 50,281 – – – 4,777 – – 55,058 0.0% P.J. Macourt (Chair) – retired 25 February 2021 56,340 – – – 5,352 – – 61,692 0.0% C.A. O’Connor 82,888 – – – 7,874 – – 90,762 0.0% J. Lowcock - appointed 9 December 2020 53,784 – – – 53,784 0.0% B. Cubis – appointed 15 April 2021 18,353 – – – 1,743 20,096 I.R. Neal – retired 28 May 2021 82,322 – – – – – – 82,322 0.0% Total non-executive directors 343,968 – – – 19,746 – – 363,714 0.0% Executive directors I. Audsley 817,439 (19,865) 247,500 – 21,694 (53,693) 96,494 1,109,569 31.0% Key management personnel D. Walker 461,503 7,538 176,268 – 21,694 25,791 34,317 727,111 29.0% J. Palisi 428,042 8,543 90,000 – 21,694 (3,415) 43,354 588,218 22.7% Total executive KMP 1,706,984 (3,784) 513,768 – 65,082 (31,317) 174,165 2,424,898 28.4% TOTAL 2,050,952 (3,784) 513,768 – 84,828 (31,317) 174,165 2,788,612 24.7% 1 The amounts disclosed include the 20% reduction in salary and fees from 1 July 2020 to 27 September 2020 due to COVID-19 trading conditions. 2 The amounts disclosed under this category represent amounts that accrued to each KMP during the year, by virtue of their service, less amounts for annual leave taken. 3 The amounts disclosed under this category represents amounts that accrued to each KMP during the year by virtue of their service and do not represent payments made to KMP. The decline in long service leave entitlements was due to a decline in average earnings including bonuses. 4 Cash settled performance plan expense represents amounts expensed under the performance plan and do not represent actual amounts paid to KMP. Amounts expensed in the financial year may be negative due to the fair value remeasurement of the liability based on best estimates of the number of awards expected to vest and the prevailing share price at the reporting date. 4. DETAIL OF INCENTIVE PLANS (CONTINUED) 14 Directors’ Report continued 4. DETAIL OF INCENTIVE PLANS (CONTINUED) Table 2: Remuneration for the year ended 30 June 2020 SHORT-TERM BENEFITS POST EMPLOYMENT LONG-TERM BENEFITS CASH SETTLED PERFORMANCE PLAN EXPENSE 4 TOTAL PERFORMANCE RELATED SALARY & FEES 1 $ ANNUAL LEAVE 2 $ CASH BONUS $ NON-CASH BENEFIT $ SUPER ANNUATION $ LONG SERVICE LEAVE PROVISION 3 $ $ $ % Non-executive directors P.J. Macourt (Chair) – appointed 19 December 2019 87,267 – – – 8,290 – – 95,557 0.0% J.K. Hartigan (Chair) – retired 19 December 2019 43,555 – – – 4,138 – – 47,693 0.0% I.R. Neal 93,027 – – – – – – 93,027 0.0% C.A. O’Connor 84,956 – – – 8,071 – – 93,027 0.0% R.L. Sefton – resigned 13 February 2020 54,724 5,199 – – 59,923 0.0% Total non-executive directors 363,529 – – – 25,698 – – 389,227 0.0% Executive directors I. Audsley 837,843 74,374 – 5,166 21,003 75,137 (52,641) 960,882 (5.5%) Key management personnel D. Walker 465,590 6,842 – 6,626 21,003 21,679 (31,270) 490,470 (6.4%) J. Palisi 405,656 38,351 – 14,442 21,003 21,862 (4,930) 496,384 (1.0%) Total executive KMP 1,709,089 119,567 – 26,234 63,009 118,678 (88,841) 1,947,736 (4.6%) TOTAL 2,072,618 119,567 – 26,234 88,707 118,678 (88,841) 2,336,963 (3.8%) 1 The amounts disclosed include the 20% reduction in salary and fees effective 10 May 2020 due to COVID-19 trading conditions. 2 The amounts disclosed under this category represent amounts that accrued to each KMP during the year, by virtue of their service, less amounts for annual leave taken. 3 The amounts disclosed under this category represents amounts that accrued to each KMP during the year by virtue of their service and do not represent payments made to KMP. 4 Cash settled performance plan expense represents amounts expensed under the performance plan and do not represent actual amounts paid to KMP. Amounts expensed in the financial year are negative due to the fair value remeasurement of the liability based on best estimates of the number of awards expected to vest and the prevailing share price at the reporting date. 15 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Directors’ Report continued Table 3: Equity holdings and transactions BALANCE AT THE START OF THE YEAR PURCHASES AND OTHER CHANGES DURING THE YEAR OTHER MOVEMENTS 1 BALANCE AT THE END OF THE YEAR Non-Executive Director I.G. McGill – – – – C.A. O’Connor 75,000 – – 75,000 J. Lowcock – – – – B.A. Cubis – – – – P.J. Macourt (retired 25 February 2021) – – – – I.R. Neal (retired 28 May 2021) 40,000 – (40,000) – Executive Director I. Audsley 974,300 – – 974,300 Key Management Personnel D. Walker – – – – J. Palisi 168,992 – – 168,992 1 Other movements relate to the retirement of I.R. Neal as non-executive director of the Company on 28 May 2021. 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 12 months 12 months (fixed remuneration) Other KMP D. Walker End of contract Maximum of 6 months J. Palisi 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 2021 financial year were $343,968 (excluding superannuation) and included 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. NED fees for the 2021 financial year are estimated to be $385,000, 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). 4. DETAIL OF INCENTIVE PLANS (CONTINUED) 16 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 2021 financial year are as follows: BOARD POSITION ANNUALISED FEE Chair $100,000 NED Base Fee $95,000 Committee Chair Nil Committee Member 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 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. The Committee completed a significant review of KMP remuneration during the 2018 financial year and has not engaged remuneration consultants since this time. 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 18. 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 26,220 Assurance services not required by regulation 8,544 Total 34,764 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 set out in the 4th edition of the ASX Corporate Governance Principles and Recommendations. 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. I. G. McGill Director Sydney, 26 August 2021 6. NON-EXECUTIVE DIRECTOR REMUNERATION (CONTINUED) 17 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Auditor’s Independence Declaration A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 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 2021, 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 26 August 2021 18 FINANCIAL STATEMENTS Consolidated Statement of Profit or Loss and Other Comprehensive Income 20 Consolidated Statement of Financial Position 21 Consolidated Statement of Changes in Equity 22 Consolidated Statement of Cash Flows 23 NOTES TO THE FINANCIAL STATEMENTS 1. Summary of significant accounting policies 24 GROUP PERFORMANCE 2. Revenue 25 3. Expenses 26 4. Operating segments 26 5. Income tax 27 6. Earnings per share 30 OPERATING ASSETS AND LIABILITIES 7. Cash and short-term deposits 31 8. Intangible assets 31 9. Trade and other receivables 33 10. Other assets 33 11. Leases 34 12. Trade and other payables 35 13. Deferred income 35 14. Provisions 35 15. Property, plant and equipment 36 CAPITAL STRUCTURE AND FINANCIAL COSTS 16. Interest bearing loans and borrowings 37 17. Financial risk management objectives and policies 38 18. Contributed equity 40 19. Capital management 40 20. Retained earnings and reserves 41 21. Dividends paid and proposed 42 GROUP STRUCTURE 22. Investments in associates 42 23. Investments in subsidiaries 44 UNRECOGNISED ITEMS 24. Commitments 45 25. Contingent liabilities 46 OTHER 26. Related party disclosures 46 27. Parent entity information 48 28. Subsequent events 48 29. Auditor’s remuneration 48 30. Other accounting policies 49 31. Significant judgments and estimates 50 FINANCIALS Directors’ Declaration 51 Independent Auditor’s Report 52 ASX INFORMATION Shareholder information 56 Financial Statements Contents 19 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2021 NOTES CONSOLIDATED 2021 2020 $’000 $’000 Revenue and other income Revenue from contracts with customers 2 168,581 159,850 Interest income 2 39 75 Other income 2 10,038 3,755 Total revenue and other income 178,658 163,680 Cost of sales (95,224) (93,594) Gross profit 83,434 70,086 Broadcasting and transmission expenses (37,993) (40,297) Administration and marketing expenses (8,218) (9,636) Depreciation and amortisation 3 (9,059) (10,076) Impairment expense 15 – (532) Operating Profit 28,164 9,545 Finance costs 3 (274) (527) (Loss)/gain on equity accounted investments 22 (371) 194 Profit before income tax 27,519 9,212 Income tax expense 5 (7,974) (2,601) Profit for the year attributable to owners of the parent 19,545 6,611 Total comprehensive income attributable to owners of the parent 19,545 6,611 Basic Earnings per share (cents per share) 6 5.3 1.8 Diluted Earnings per share (cents per share) 6 5.3 1.8 The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with accompanying notes. 20 Consolidated Statement of Financial Position As at 30 June 2021 2021 2020 NOTES $’000 $’000 ASSETS Current Assets Cash and short term deposits 7 41,231 17,148 Trade and other receivables 9 33,141 27,256 Intangible assets 8 3,000 3,000 Other assets 10 2,448 4,905 Total Current Assets 79,820 52,309 Non-Current Assets Investment in associates 22 – 121 Property, plant and equipment 15 17,224 18,696 Right-of-use assets 11 3,201 4,689 Intangible assets 8 3,066 6,160 Deferred tax assets 5 2,004 871 Other assets 10 348 488 Total Non-Current Assets 25,843 31,025 Total Assets 105,663 83,334 LIABILITIES Current Liabilities Trade and other payables 12 8,723 7,766 Deferred income 13 3,519 2,098 Lease liabilities 11 1,560 1,606 Provisions 14 5,466 5,931 Current tax liabilities 5 2,711 31 Total Current Liabilities 21,979 17,432 Non-Current Liabilities Deferred income 13 654 792 Lease liabilities 11 1,793 3,295 Provisions 14 340 463 Total Non-Current Liabilities 2,787 4,550 Total Liabilities 24,766 21,982 Net Assets 80,897 61,352 EQUITY Equity attributable to equity holders of the parent interest Contributed equity 18 310,262 310,262 Reserves 20 42,895 27,180 Accumulated losses 20 (272,260) (276,090) Parent Interests 80,897 61,352 Total Equity 80,897 61,352 The above Consolidated Statement of Financial Position should be read in conjunction with accompanying notes. 21 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Consolidated Statement of Changes in Equity As at 30 June 2021 ISSUED CAPITAL ACCUMULATED LOSSES EMPLOYEE BENEFITS RESERVE PROFITS RESERVE TOTAL PARENT ENTITY INTEREST $’000 $’000 $’000 $’000 $’000 At 1 July 2020 310,262 (276,090) 3,722 23,458 61,352 Reclassification – 3,722 (3,722) – – Profit for the period – 19,545 – – 19,545 Profits reserved – (19,437) – 19,437 – Total comprehensive income/(expense) for the period – 3,830 (3,722) 19,437 19,545 At 30 June 2021 310,262 (272,260) – 42,895 80,897 ISSUED CAPITAL ACCUMULATED LOSSES EMPLOYEE BENEFITS RESERVE PROFITS RESERVE TOTAL PARENT ENTITY INTEREST $’000 $’000 $’000 $’000 $’000 At 1 July 2019 310,262 (276,306) 3,722 17,063 54,741 Profit for the period – 6,611 – – 6,611 Profits reserved – (6,395) – 6,395 – Total comprehensive income for the period – 216 – 6,395 6,611 At 30 June 2020 310,262 (276,090) 3,722 23,458 61,352 The above Consolidated Statement of Changes in Equity should be read in conjunction with accompanying notes. 22 Consolidated Statement of Cash Flows For the year ended 30 June 2021 CONSOLIDATED 2021 2020 NOTES $’000 $’000 Operating activities Receipts from customers (inclusive of GST) 182,861 189,763 Receipts from government grants (inclusive of GST) 9,102 1,989 Payments to suppliers and employees (inclusive of GST) (157,871) (160,523) Interest received 39 82 Interest paid (107) (245) Income tax paid (6,427) (1,905) Net cash flows from operating activities 7 27,597 29,161 Investing activities Purchase of property, plant & equipment and intangible assets (2,858) (953) Proceeds from sale of property, plant & equipment 1,320 – Proceeds from sale of financial assets 117 – Loan funds received from related entities – 750 Loan funds paid to related entities (250) (300) Net cash flows used in investing activities (1,671) (503) Financing activities Proceeds from borrowings – 18,000 Repayments of borrowings – (34,000) Payment of principal portion of lease liabilities (1,663) (1,564) Debt facility establishment and commitment fees (180) (389) Net cash flows used in financing activities (1,843) (17,953) Net increase in cash and cash equivalents 24,083 10,705 Cash and cash equivalents at beginning of period 17,148 6,443 Cash and cash equivalents at end of period 7 41,231 17,148 The above Consolidated Statement of Cash Flows should be read in conjunction with accompanying notes. 23 PRIME MEDIA GROUP | ANNUAL REPORT 2021 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial report of Prime Media Group Limited (the “Company”) for the year ended 30 June 2021 was authorised for issue in accordance with a resolution of the directors on 26 August 2021. 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. The information in prior periods may be restated to facilitate comparison with current year presentation and changes in accounting standards. Significant accounting policies are provided throughout the notes to the financial statements. B. Compliance with Australian Accounting Standards and International Financial Reporting Standards The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. C. Changes in accounting policies, disclosures, standards and interpretations Changes in accounting policy and disclosures The Group adopted all new and amended Australian Accounting Standards and Interpretations that became applicable during the current financial year. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Several other amendments and interpretations apply from 1 July 2020, but do not have a significant 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: TITLE APPLICATION DATE OF STANDARD APPLICATION DATE FOR GROUP Improvements to AASB 2018-2020 cycle – Reference to the Conceptual Framework – Amendments to AASB 3 1 January 2022 1 July 2022 Improvements to AASB 2018-2020 cycle – Property, Plant and Equipment: Proceeds before intended use – Amendments to AASB 116 1 January 2022 1 July 2022 Improvements to AASB 2018-2020 cycle – Onerous Contracts – Costs of Fulfilling a Contract – Amendments to AASB 137 1 January 2022 1 July 2021 Classification of Liabilities as Current or Non-current – Amendments to AASB 101 1 January 2023 1 July 2023 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. 24 Notes to the financial statements For the year ended 30 June 2021 2. REVENUE 2021 2020 $’000 $’000 Advertising and other revenue from contracts with customers 168,581 159,850 Finance income 39 75 JobKeeper Payment Subsidy 3,413 3,114 PING grant revenue 4,123 – Gain on sale of property 1,320 – Gain on sale of investment 117 – Other income 1,065 641 Total Revenue 178,658 163,680 On 17 June 2021, the Group completed the sale of property located in Bunbury, Western Australia recording a gain on sale of $1,320,000. The property was fully impaired in the prior year. ACCOUNTING POLICY Revenue from contracts with customers Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. As a television broadcaster, the Group contracts with media buyers and media agencies for the sale of advertising airtime to third party advertisers. Under AASB 15, the Group determines whether its performance obligation is to provide the good or service to media buyers and media agencies as the Group’s customers, or whether the Group’s customers are the third party advertisers. The Group’s customers are media buyers and media agencies and accordingly advertising revenue is recognised net of agency commission since this is treated as a payment made to a customer. The specific recognition criteria described below must also be met before revenue is recognised: REVENUE CLASS RECOGNITION CRITERIA Advertising revenue Revenue is recognised when the commercial advertisement has been broadcast. Where the 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 Income 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 installments. Rental income Rental income is recognised on a straight-line basis over the term of the lease. Interest income Interest revenue is recognised as it accrues, based on the effective yield of the financial asset. 25 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 3. EXPENSES 2021 2020 $’000 $’000 Finance Expenses Interest on debt and borrowings – 72 Lease liability finance charges 107 152 Commitment fees and debt establishment fees amortisation 167 303 Total Finance Expenses 274 527 Employee Benefit Expense Wages and salaries 29,427 28,486 Superannuation expense 2,385 2,360 Other employee benefits expense 819 1,236 Total Employee Benefits Expense 32,631 32,082 Other Expenses Bad debts and movement in expected credit losses – trade debtors (409) 11 Minimum lease payments – lease expenses 206 299 Depreciation and Amortisation Expense Property, plant and equipment depreciation 4,048 4,588 Right-of-use assets depreciation 1,647 1,639 Program rights amortisation 3,000 3,000 Intangible assets amortisation 364 849 Total Depreciation and Amortisation Expense 9,059 10,076 ACCOUNTING POLICY Borrowing Costs 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. Lease Expenses 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. 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. 26 5. INCOME TAX The major components of income tax expense are: 2021 2020 $’000 $’000 Consolidated Statement of Profit or Loss Current income tax Current income tax charge 9,081 3,703 Adjustments in respect of current income tax of previous years 26 (173) Deferred income tax Relating to origination and reversal of temporary differences (1,106) (958) Adjustments in respect of deferred income tax of previous years (27) 29 Income tax expense in the Consolidated Statement of Profit or Loss 7,974 2,601 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: 2021 2020 $’000 $’000 Accounting profit before income tax 27,519 9,212 Prima facie tax expense at 30% (2020: 30%) 8,255 2,764 Expenses not deductible for tax 150 123 Income not assessable for tax (430) (148) Adjustments in respect of tax of previous years (1) (144) Derecognition of deterred tax assets – 6 Income tax expense reported in the Statement of Profit or Loss 7,974 2,601 Effective tax rate 29.0% 28.2% Deferred tax assets and liabilities 2021 2021 2020 2020 $’000 $’000 $’000 $’000 CURRENT DEFERRED CURRENT DEFERRED INCOME TAX INCOME TAX INCOME TAX INCOME TAX Opening balance (31) 871 1,594 (58) Charged to income (9,107) 1,133 (3,530) 929 Other payments and receipts 6,427 – 1,905 – Closing balance 2,711 2,004 (31) 871 Tax expense in statement of profit or loss and other comprehensive income 7,974 2,601 Amounts recognised in the statement of financial position: Deferred tax asset 2,004 871 2,004 871 27 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 STATEMENT OF FINANCIAL POSITION 2021 2020 $’000 $’000 Deferred income tax as at 30 June relates to the following: Deferred tax liabilities Accelerated depreciation for tax (18) (18) Right-of-use assets (960) (1,407) Prepaid expenses deductible for tax (116) (137) Income not yet assessable for tax (1) (242) Intangible assets – Program Rights deductible for tax (1,800) (2,700) (2,895) (4,504) Set-off of deferred tax assets 2,895 4,504 Net deferred tax liabilities – – Deferred tax assets Expenses not yet deductible for tax 2,998 2,794 Deferred income 238 279 Lease liabilities 1,006 1,470 Business related costs 361 520 Other 296 312 4,899 5,375 Set-off of deferred tax liabilities (2,895) (4,504) Net deferred tax assets 2,004 871 Income tax losses 2021 2020 $’000 $’000 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. – – Deferred tax assets have not been recognised for the Group’s carried forward capital losses of $91,460,000 as there is no evidence of recoverability in the near future. These losses relate to discontinued operations of prior years. 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. 5. INCOME TAX (CONTINUED) 28 Prime Media Group Limited has recognised the following amounts as tax consolidation contribution adjustments: PRIME MEDIA GROUP LIMITED 2021 $’000 2020 $’000 Total increase to inter-company assets of Prime Media Group Limited 9,260 3,763 ACCOUNTING POLICY Current Income Taxes Current tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred Income Taxes Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred income tax liabilities are recognised for all taxable temporary differences except: • when the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. • in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying value of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Goods and Services Tax Revenues, expenses and assets are recognised net of the amount of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or favourable to, the taxation authority. Cash flows are included in the statement of cash flows on a gross basis and the GST component of the cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows. 5. INCOME TAX (CONTINUED) 29 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 6. EARNINGS PER SHARE 2021 2020 Basic earnings per share (cents per share) 5.3 1.8 Diluted earnings per share (cents per share) 5.3 1.8 ACCOUNTING POLICY Basic Earnings Per Share 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: 2021 2020 $’000 $’000 Earnings used in calculating basic and diluted earnings per share 19,545 6,611 2021 NUMBER OF SHARES 2020 NUMBER OF SHARES Weighted average number of ordinary shares used in calculating basic EPS: 366,330,303 366,330,303 Weighted average number of ordinary shares used in calculating diluted EPS: 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. 30 7. CASH AND SHORT-TERM DEPOSITS 2021 2020 $’000 $’000 Cash balance comprises: Cash at bank and on hand 41,231 17,148 Closing cash balance 41,231 17,148 ACCOUNTING POLICY Cash and short-term deposits 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. 2021 2020 RECONCILIATION OF THE NET PROFIT AFTER TAX TO THE NET CASH FLOWS FROM OPERATIONS $’000 $’000 Profit after tax 19,545 6,611 Non-cash adjustment for: Depreciation and amortisation 6,059 7,076 Amortisation of program rights 3,000 3,000 Net (gain)/loss on disposal of property, plant and equipment (1,350) 43 Net gain on disposal of financial assets (117) – Impairment – 532 Loss/(gain) on equity accounted investments 371 (194) Debt facility establishment and commitment fee amortisation 211 293 (Increase)/Decrease in trade and other receivables (5,885) 10,065 Decrease/(Increase) in prepayments 2,566 (86) (Decrease)/Increase in provisions (590) 1,194 Increase in trade and other payables 957 336 Increase/(Decrease) in deferred income 1,283 (402) Decrease in deferred tax liabilities (1,133) (888) Increase in tax provision 2,680 1,581 Net cash flow from operating activities 27,597 29,161 8. INTANGIBLE ASSETS 2021 2020 $’000 $’000 Program rights 6,000 9,000 Business software, development costs including websites 66 160 Television broadcast licences – – Infrastructure access licences – – 6,066 9,160 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 31 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 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. Reconciliation of carrying amounts at the beginning and end of the period. BROADCAST LICENCES PROGRAM RIGHTS INFRASTRUCTURE ACCESS LICENCE BUSINESS SOFTWARE AND DEVELOPMENT COSTS INCL WEBSITES TOTAL $’000 $’000 $’000 $’000 $’000 Cost At 1 July 2019 182,963 15,000 5,138 18,304 221,405 Additions – – 266 6 272 Disposals – – – (143) (143) At 30 June 2020 182,963 15,000 5,404 18,167 221,534 Additions – – 249 21 270 Disposals – – – (3) (3) At 30 June 2021 182,963 15,000 5,653 18,185 221,801 Amortisation and impairment At 1 July 2019 (182,963) (3,000) (5,138) (17,424) (208,525) Amortisation charges – (3,000) (266) (583) (3,849) At 30 June 2020 (182,963) (6,000) (5,404) (18,007) (212,374) Amortisation charges – (3,000) (249) (115) (3,364) Disposals – – – 3 3 At 30 June 2021 (182,963) (9,000) (5,653) (18,119) (215,735) Net Book Value At 30 June 2021 – 6,000 – 66 6,066 Total Current – 3,000 – – 3,000 Total Non-Current – 3,000 – 66 3,066 At 30 June 2020 – 9,000 – 160 9,160 Total Current – 3,000 – – 3,000 Total Non-Current – 6,000 – 160 6,160 8. INTANGIBLE ASSETS (CONTINUED) 32 9. TRADE AND OTHER RECEIVABLES 2021 2020 $’000 $’000 Current Trade receivables 30,427 24,374 Other receivables 2,849 3,150 Related party receivables 179 512 33,455 28,036 Allowance for expected credit losses (314) (780) Carrying amount of trade and other receivables 33,141 27,256 ACCOUNTING POLICY Trade Receivables 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 17 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: 2021 2020 $’000 $’000 At July 1 780 816 Movement for the year (428) (2) Amounts written off (38) (34) At June 30 314 780 The Group recognises an allowance for expected credit losses based on historical credit loss experience, adjusted for forward-looking factors specific to the accounts receivable balance and the economic environment. 10. OTHER ASSETS 2021 2020 $’000 $’000 Current Prepayments 2,448 4,905 Non-current Prepayments 348 488 Total 2,796 5,393 ACCOUNTING POLICY Prepayments 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. 33 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 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: OFFICE BUILDINGS TRANSMISSION SITES TOTAL $’000 $’000 $’000 Cost As at 30 June 2019 4,472 784 5,256 Additions 1,064 8 1,072 Depreciation (1,455) (184) (1,639) As at 30 June 2020 4,081 608 4,689 Additions 947 – 947 Modifications (788) – (788) Depreciation (1,466) (181) (1,647) As at 30 June 2021 2,774 427 3,201 Set out below are the carrying amounts of lease liabilities and the movements during the period: As at 30 June 2019 4,572 822 5,394 Additions 1,061 8 1,069 Accretion of interest 130 22 152 Payments (1,519) (195) (1,714) As at 30 June 2020 4,244 657 4,901 Additions 955 – 955 Modifications (832) (8) (840) Accretion of interest 98 17 115 Payments (1,582) (196) (1,778) At 30 June 2021 2,883 470 3,353 Total Current 1,380 180 1,560 Total Non-Current 1,503 290 1,793 The following are amounts recognised in profit or loss: 2021 2020 $’000 $’000 Depreciation expense of right-of-use assets 1,647 1,639 Interest expense on lease liabilities 115 152 Expense relating to short-term leases (included in broadcasting and transmission expenses) 206 299 Total amount recognised in profit or loss 1,968 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: WITHIN FIVE YEARS $’000 MORE THAN FIVE YEARS $’000 TOTAL $’000 2021 Extension options expected not to be exercised 2,517 417 2,934 Total 2,517 417 2,934 2020 Extension options expected not to be exercised 2,235 1,009 3,244 Total 2,235 1,009 3,244 34 12. TRADE AND OTHER PAYABLES 2021 2020 $’000 $’000 Current Trade payables 742 1,151 Accrued expenses 5,477 5,459 Accrued employee entitlements 2,504 1,156 Total 8,723 7,766 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 are measured at the amounts expected to be paid when the liabilities are settled. 13. DEFERRED INCOME 2021 2020 $’000 $’000 Current Deferred income 3,519 2,098 Total 3,519 2,098 Non-current Deferred income 654 792 Total 654 792 Deferred income includes the Group’s obligations for monies received but not earned from the Public Interest News Gathering grant totalling $568,000. The Group expects to complete its obligations under the grant in August 2021. 2021 2020 $’000 $’000 As at 1 July 2,890 3,294 Deferred during the year 10,818 5,161 Recognised as revenue during the year (9,535) (5,565) As at 30 June 4,173 2,890 14. PROVISIONS 2021 2020 $’000 $’000 Current Annual leave 2,429 2,413 Long service leave 2,944 2,785 Advertising make good provision 93 733 Total 5,466 5,931 Non-current Long service leave 340 463 Total 340 463 ACCOUNTING POLICY Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed 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. 35 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 15. PROPERTY, PLANT AND EQUIPMENT LAND AND BUILDINGS 1 LEASEHOLD IMPROVEMENTS PLANT AND EQUIPMENT TOTAL $’000 $’000 $’000 $’000 Cost or valuation At 1 July 2019 11,905 1,947 86,426 100,278 Additions – 12 834 846 Disposals – – (756) (756) Reclassification from available for sale assets 885 – 1,873 2,758 At 30 June 2020 12,790 1,959 88,377 103,126 Additions – 1 2,586 2,587 Disposals (902) – (2,424) (3,326) Classification transfer (11) – 11 – At 30 June 2021 11,877 1,960 88,550 102,387 Depreciation and amortisation At 1 July 2019 (5,344) (1,373) (71,203) (77,920) Depreciation charges (350) (143) (4,095) (4,588) Disposals – – 723 723 Reclassification from available for sale assets (329) – (1,784) (2,113) Impairment 2 (492) – (40) (532) At 30 June 2020 (6,515) (1,516) (76,399) (84,430) Depreciation charges (358) (100) (3,590) (4,048) Disposals 892 – 2,423 3,315 Classification transfer 1 – (1) – At 30 June 2021 (5,980) (1,616) (77,567) (85,163) Net Book Value At 30 June 2021 5,897 344 10,983 17,224 At 30 June 2020 6,275 443 11,978 18,696 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 Property located in Bunbury, Western Australia was fully impaired in the prior year. Land and Buildings includes properties in Canberra and Sydney with a carrying value of $5,290,000. Based on external valuations, the estimated realisable value is $12,000,000 less selling costs. 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: Not depreciated – Freehold buildings: 40 years – Leasehold improvements: The shorter of useful life and lease term – Plant and equipment: 5 years – Motor vehicles: 5 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. 36 16. INTEREST BEARING LOANS AND BORROWINGS 2021 2020 MATURITY $’000 $’000 Non-current $10 million secured bank loan facility (2020: $20 million) 2023 – – Total – – ACCOUNTING POLICY Borrowing Costs Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Subsequent Measurement Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the statement of profit or loss. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of profit or loss. Terms and conditions Secured Bank Loan Facility At the reporting date, the Company had access to an undrawn $10 million bank loan facility with the ANZ Bank. The facility limit reduced from $20 million to $10 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. 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 17. Defaults and breaches During the current and prior years, there were no defaults or breaches on any loan facilities or arrangements. 37 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 17. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial liabilities comprise trade and other payables and lease liabilities. 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 Statements which are displayed on the Company’s website www.primemedia.com.au/investors. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to market interest rates 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: 2021 2020 $’000 $’000 Financial Assets Cash and short-term deposits 41,231 17,148 41,231 17,148 Financial Liabilities Lease Liabilities (3,353) (4,901) Secured bank loan facility – – (3,353) (4,901) Net exposure 37,878 12,247 The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. At 30 June 2021, 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: POST TAX PROFIT HIGHER/ (LOWER) EQUITY HIGHER/ (LOWER) 2021 2020 2021 2020 JUDGEMENTS OF REASONABLY POSSIBLE MOVEMENTS: $’000 $’000 $’000 $’000 Consolidated +0.25% (25 basis points) 72 30 – – -0.25% (25 basis points) (72) (30) – – 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 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 53.7% of Group’s total revenue. One media buying agency contributes more than 10% of the Group’s revenue. Almost a third of the Group’s revenue is from three media buying agencies. Collectively they account for $56,256,000 or 31.5% 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. 38 Set out below is the information about the credit risk exposure on the Group’s receivables using a provision matrix: DAYS PAST DUE TRADE RECEIVABLES CURRENT < 30 DAYS 30-60 DAYS 61-90 DAYS > 91 DAYS TOTAL YEAR ENDED 30 JUNE 2021 $’000 $’000 $’000 $’000 $’000 $’000 Expected credit loss rate 0.2% 0.2% 4.4% 21.4% 52.4% Estimated total gross carrying amount at default 19,551 12,401 1,085 106 312 33,455 Expected credit loss 48 32 48 23 163 314 DAYS PAST DUE TRADE RECEIVABLES CURRENT < 30 DAYS 30-60 DAYS 61-90 DAYS > 91 DAYS TOTAL YEAR ENDED 30 JUNE 2020 $’000 $’000 $’000 $’000 $’000 $’000 Expected credit loss rate 1.5% 1.5% 6.5% 26.5% 49.1% Estimated total gross carrying amount at default 17,182 8,280 1,946 199 429 28,036 Expected credit loss 262 128 126 53 211 780 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 $10 million secured bank loan facility (2020: $20 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: ≤ 6 6 – 12 1 – 5 > 5 MONTHS MONTHS YEARS YEARS TOTAL YEAR ENDED 30 JUNE 2021 $’000 $’000 $’000 $’000 $’000 Financial assets Cash and cash equivalents 41,231 – – – 41,231 Trade and other receivables 33,141 – – – 33,141 74,372 – – – 74,372 Financial liabilities Trade and other payables (8,723) – – – (8,723) Lease liabilities (815) (815) (1,785) (77) (3,492) Interest bearing loans (refer Note 16) – – – – – Interest bearing loans – commitment fees (45) (45) (74) – (164) (9,583) (860) (1,859) (77) (12,379) Net inflow/(outflow) 64,789 (860) (1,859) (77) 61,993 ≤ 6 6 – 12 1 – 5 > 5 MONTHS MONTHS YEARS YEARS TOTAL YEAR ENDED 30 JUNE 2020 $’000 $’000 $’000 $’000 $’000 Financial assets Cash and cash equivalents 17,148 – – – 17,148 Trade and other receivables 27,256 – – – 27,256 44,404 – – – 44,404 Financial liabilities Trade and other payables (7,766) – – – (7,766) Lease liabilities (921) (921) (3,279) (165) (5,286) Interest bearing loans (refer Note 16) – – – – – Interest bearing loans – commitment fees (91) (67) (245) – (403) (8,778) (988) (3,524) (165) (13,455) Net inflow/(outflow) 35,626 (988) (3,524) (165) 30,949 Fair Values The carrying amount of the Group’s current financial assets approximates their fair value. 17. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) 39 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 18. CONTRIBUTED EQUITY Issued and paid up capital 2021 2020 $’000 $’000 Ordinary shares fully paid shares (2020: 366,330,303 shares) 310,262 310,262 ACCOUNTING POLICY Contributed Equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or performance rights are shown in equity as a deduction, net of tax, from the proceeds. Movements in shares on issue 2021 2020 ORDINARY NUMBER OF SHARES $’000 NUMBER OF SHARES $’000 Beginning of the financial year 366,330,303 310,262 366,330,303 310,262 End of the financial year 366,330,303 310,262 366,330,303 310,262 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. 19. 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 currently expects to pay future dividends based on a dividend policy of up to 50% of statutory net profit after tax and subject to Prime’s regional advertising markets, business operations and financial performance not being materially impacted by the COVID-19 pandemic. This remains subject to performance and will be the subject of ongoing review. In particular, Prime Media notes that the policy may require review in the 2023 financial year on the basis that Prime’s program supply agreement with the Seven Network completes in June 2023 and is subject to renewal. 40 20. RETAINED EARNINGS AND RESERVES 2021 2020 $’000 $’000 Employee benefits equity reserve – 3,722 Profits reserve 42,895 23,458 Accumulated losses (272,260) (276,090) Employee benefits equity reserve Movements in reserve Balance at beginning of year 3,722 3,722 Reclassification to Accumulated Losses (3,722) – Balance at end of year – 3,722 Profits reserve Movements in reserve Balance at beginning of year 23,458 17,063 Profits reserved 19,437 6,395 Balance at end of year 42,895 23,458 Accumulated losses Balance at the beginning of year (276,090) (276,306) Reclassification from Employee Benefits Reserve 3,722 – Net profit attributable to members of Prime Media Group Limited 19,545 6,611 Total accumulated losses (252,823) (269,695) Profits reserved (19,437) (6,395) Dividends provided for or paid – – Balance at end of year (272,260) (276,090) ACCOUNTING POLICY Employee Benefits Reserve 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 and the balance of the reserve has been reclassified to accumulated losses during the financial year. Profits Reserve Current year profits have been reserved for future distributions to shareholders, as and when approved by the board. 41 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 21. DIVIDENDS PAID AND PROPOSED Recognised amounts 2021 2020 DECLARED AND PAID DURING THE YEAR $’000 $’000 Current year interim franked dividends – Nil cents per share (2020: Nil) – – Previous year final franked dividends – Nil cents per share (2020: Nil) – – Total – – Proposed dividends on ordinary shares not recognised as a liability Final cash dividend fully franked for 2021: 2.0 cents per share (2020: Nil) 7,327 – The directors have declared the payment of a final dividend out of the Profits Reserve (refer Note 20). Franking credit balance THE GROUP 2021 2020 $’000 $’000 Franking account balance as at the end of the financial year at 30% (2020: 30%) 75,403 68,977 Franking credits that will arise from the payment of income tax (refundable)/payable as at the end of the financial year 2,711 31 78,114 69,008 Impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the period (3,140) – Total 74,974 69,008 Tax rates The tax rate at which paid dividends have been franked is 30% (2020: 30%). Dividends proposed will be franked at the rate of 30% (2020: 30%). 22. INVESTMENTS IN ASSOCIATES 2021 2020 UNLISTED $’000 $’000 Mildura Digital Television Pty Limited – – West Digital Television Pty Limited – 121 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 – 121 Mildura Digital Television Pty Limited is jointly owned by the Group and WIN Television Network Pty Limited and holds television licences to broadcast free-to-air television to Mildura in regional Victoria. The West Digital entities are also jointly owned by the Group and WIN Television Network Pty Limited and hold television licences to broadcast free-to air television in regional Western Australia. On 1 July 2021 these entities ended their respective program supply agreements to broadcast Nine Entertainment programming in their respective licence areas. These entities have since commenced broadcasting TEN Network programming in their licence areas. The Group’s interest in these joint ventures has been fully impaired. 42 ACCOUNTING POLICY Investments in Associates The Group’s investments in its associates are accounted for using the equity method. An associate is an entity over which the Group has significant influence. 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 separately 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. 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) 2021 2020 2021 2020 UNLISTED % % $’000 $’000 Mildura Digital Television Pty Limited 50% 50% (250) (300) West Digital Television Pty Limited 50% 50% (121) 494 West Digital Television No2 Pty Limited 50% 50% – – West Digital Television No3 Pty Limited 50% 50% – – West Digital Television No4 Pty Limited 50% 50% – – WA SatCo Pty Limited 50% 50% – – Broadcast Transmission Services Pty Limited 33% 33% – – Total (371) 194 Movements in the carrying amount of the Group’s investment in associates 2021 2020 $’000 $’000 At July 1 121 377 Loan contributions paid 250 300 Loan repayment received – (750) Share of profits/(losses) after income tax (excl. impairment and reversals) 39 (82) (Increase)/decrease in provision for impairment of investment (410) 276 At June 30 – 121 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. The cumulative share of Mildura Digital Television Pty Limited losses to date is $5,996,000 (2020: $5,759,000). The cumulative share of West Digital Television Pty Limited losses to date is $592,000 (2020: $868,000). 22. INVESTMENTS IN ASSOCIATES (CONTINUED) 43 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 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 of any of the controlled entities within the Closed Group. The controlled entities within the Closed Group, listed below, have also given a similar guarantee in the event that Prime Media Group Limited is wound up. EQUITY INTEREST 2021 2020 NAME COUNTRY OF INCORPORATION % % Prime Television (Holdings) Pty Limited Australia 100 100 Zamojill Pty Limited Australia 100 100 Prime Television (Southern) Pty Limited Australia 100 100 Prime Television (Northern) Pty Limited Australia 100 100 Prime Television (Victoria) Pty Limited Australia 100 100 Prime Properties (Albury) Pty Limited Australia 100 100 Prime Television Investments Pty Limited Australia 100 100 Golden West Network Pty Limited Australia 100 100 Mining Television Network Pty Limited Australia 100 100 Telepro Pty Limited Australia 100 100 Golden West Satellite Communications Pty Limited Australia 100 100 135 Nominees Pty Limited Australia 100 100 Mid-Western Television Pty Limited Australia 100 100 Seven Affiliate Sales Pty Limited Australia 100 100 Prime Digitalworks Pty Limited Australia 100 100 Prime Media Broadcasting Services Pty Limited Australia 100 100 Prime Media Group Services Pty Limited Australia 100 100 Prime New Media Investments Pty Limited Australia 100 100 Geraldton Telecasters Pty Limited Australia 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 2021 2020 $’000 $’000 Operating profit before income tax 27,516 9,210 Income tax expense attributable to operating profit (7,973) (1,739) Operating profit after tax 19,543 7,471 Accumulated losses at beginning of the financial year (275,648) (275,317) Reclassification from Reserves 3,722 – Transfer to reserves (19,437) (7,802) Dividends provided for or paid – – Accumulated losses at end of the financial period (271,820) (275,648) 44 Consolidated statement of financial position CLOSED GROUP 2021 2020 $’000 $’000 Assets Current assets 79,594 52,084 Non-current assets 25,980 31,161 Total assets 105,574 83,245 Liabilities Current liabilities 21,979 18,223 Non-current liabilities 2,789 3,759 Total liabilities 24,768 21,982 Equity 80,806 61,263 24. COMMITMENTS Capital expenditure commitments 2021 2020 $’000 $’000 Estimated capital expenditure contracted for at reporting date, but not provided for payable not later than one year 996 1,080 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 2021 2020 $’000 $’000 Minimum payments – not later than one year 11,399 12,584 – later than one year and not later than five years 31,166 12,047 – later than five years 2,570 1,709 Aggregate expenditure contracted for at reporting date 45,135 26,340 Service arrangements 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. Other commitments relate to technical communications equipment that is fundamental to the distribution of the television programming and data communications. The Company entered into a contract with Broadcast Transmission Services Pty Limited (refer to Note 26) for the provision of site maintenance services at an annual cost of $1,200,000 per annum. The Company also entered into contracts for the provision of playout services and software licences over a five year period. 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. 2021 2020 $’000 $’000 Minimum payments receivable – not later than one year 733 911 – later than one year and not later than five years 877 1,371 – later than five years 231 289 Aggregate income contracted for at reporting date 1,841 2,571 ACCOUNTING POLICY 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. 23. INVESTMENTS IN SUBSIDIARIES (CONTINUED) 45 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 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 entered into a non-cancellable contract for the purchase of satellite services in WA until 30 June 2021. Effective from 1 July 2021, WA Satco Pty Limited executed a deed of variation to extend the purchase of satellite services for an additional three year period. In the event that WA SatCo Pty Limited defaults on any payments under this contract, the Group may be liable for full payment under the guarantee it has provided. WA SatCo Pty Limited also entered into a three-year funding agreement with the Commonwealth Government which provides for 100% funding of this satellite service to 30 June 2024. This agreement can be terminated without notice by the Commonwealth Government. 2021 2020 $’000 $’000 Maximum potential contingent commitment arising from the above mentioned guarantee: – not later than one year 2,503 2,346 – later than one year and not later than five years 5,005 – Maximum contingent commitments 7,508 2,346 As noted above the entire maximum potential contingent commitment is expected to be offset by government funding. 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: EQUITY INTEREST COUNTRY OF 2021 2020 NAME INCORPORATION % % Prime Television (Holdings) Pty Limited Australia 100 100 Prime Media Group Services Pty Limited Australia 100 100 Prime New Media Investments Pty Limited Australia 100 100 Prime Television (Victoria) Pty Limited Australia 100 100 Prime Properties (Albury) Pty Limited Australia 100 100 Prime Television (Southern) Pty Limited Australia 100 100 Prime Television (Northern) Pty Limited Australia 100 100 Prime Television Investments Pty Limited Australia 100 100 Golden West Network Pty Limited Australia 100 100 Mining Television Network Pty Limited Australia 100 100 Telepro Pty Limited Australia 100 100 135 Nominees Pty Limited Australia 100 100 Golden West Satellite Communications Pty Limited Australia 100 100 Mid-Western Television Pty Limited Australia 100 100 Geraldton Telecasters Pty Limited Australia 100 100 Zamojill Pty Limited Australia 100 100 Seven Affiliate Sales Pty Limited Australia 100 100 Prime Media Broadcasting Services Pty Limited Australia 100 100 Prime Digitalworks Pty Limited Australia 100 100 Broadcast Production Services Pty Limited Australia 100 100 Screenworld Pty Limited Australia 100 100 46 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) CONSOLIDATED 2021 2020 $’000 $’000 Short-term employee benefits 2,561 2,218 Post-employment benefits 85 89 Long-term benefits (31) 119 Cash settled (benefit)/expense 174 (89) Total 2,789 2,337 The amounts disclosed in the table are the amounts recognised as an expense during the reporting period that related to KMP. Details of remuneration amounts paid to individual KMP are disclosed in tables 1 and 2 of section 4 of the Remuneration Report. D. Transactions with related parties Wholly owned group transactions Sales and purchases are made within the wholly owned group in arm’s length transactions both at normal market prices and on normal commercial terms. Outstanding balances at year end are unsecured, interest free and settled through intercompany accounts. RBA Holdings Pty Limited This company is owned by regional television operators, of which the Group owns 21%. 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 $354,000 (2020: $331,000). 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, of which the Group owns 21%, 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 $1,725,000 (2020: $1,735,000). 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 $539,000 (2020: $528,000) 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 television broadcast licences to broadcast free-to-air television in Mildura, Victoria. During the reporting period MDT had a program supply agreement to broadcast Nine Entertainment programming. This agreement ended on 30 June 2021. On 1 July 2021 MDT commenced broadcasting TEN Network programming. West Digital Television Pty Limited (WDT) The Company has a 50% shareholding in WDT. WDT holds television broadcast licences to broadcast free-to-air television in regional Western Australia. During the reporting period WDT had a program supply agreement to broadcast Nine Entertainment programming. This agreement ended on 30 June 2021. On 1 July 2021 WDT commenced broadcasting TEN Network programming. 26. RELATED PARTY DISCLOSURES (CONTINUED) 47 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 27. PARENT ENTITY INFORMATION PRIME MEDIA GROUP LIMITED 2021 2020 $’000 $’000 Current assets 17,105 105 Total assets 82,397 60,324 Current liabilities 2,734 98 Total liabilities 2,735 99 Issued capital 310,262 310,262 Employee benefits reserve – 3,722 Accumulated losses (273,495) (277,217) Retained profits reserve 42,895 23,458 Total shareholders’ equity 79,662 60,225 Profit of the parent entity 19,437 6,395 Total comprehensive profit of the parent entity 19,437 6,395 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 2024. In the event that WA SatCo Pty Limited defaults on any payments under this contract, GWN may be liable for $7,508,000 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 2024. This agreement can be terminated without notice by the Commonwealth Government. 28. SUBSEQUENT EVENTS There were no significant events subsequent to balance date. 29. AUDITOR’S REMUNERATION CONSOLIDATED 2021 2020 $ $ 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 350,897 379,280 – 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 8,544 222,860 – Fees for other services: Tax compliance 26,220 29,757 Total fees to Ernst & Young (Australia) 385,661 631,897 Total auditor’s remuneration 385,661 631,897 48 30. OTHER ACCOUNTING POLICIES A. Basis of consolidation The consolidated financial statements comprise the financial statements of Prime Media Group Limited and its subsidiaries (as outlined in Note 26) as at and for the year ended 30 June 2021. 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; • 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: • 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 • there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities. 49 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Notes to the financial statements continued For the year ended 30 June 2021 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 service arrangements 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 service arrangements. 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. 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. 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 5 years. The ownership and renewal processes of these licences is such that in the absence of major breaches of licensing and broadcasting regulations, licence renewal is virtually guaranteed for the existing licence holders. 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. 50 Directors’ Declaration For the year ended 30 June 2021 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 2021 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 2021 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. 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 2021. On behalf of the Board I. G. McGill Director Sydney, 26 August 2021 51 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Independent Auditor’s Report A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 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 2021, 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. Giving a true and fair view of the consolidated financial position of the Group as at 30 June 2021 and of its consolidated financial performance for the year ended on that date; and b. 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. 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. 52 Independent Auditor’s Report A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Revenue Recognition Why significant How our audit addressed the key audit matter 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 the potential risk of manual override of controls by management to manipulate revenue. Our audit procedures included the following: ► Confirmed our understanding of the processes and tested the controls over initiation of advertising revenue, including examination of campaign approvals and contracts and evidence of broadcast. ► Used data analysis techniques to analyse the relationship between revenue, accounts receivable and cash collections for advertising revenue. This included testing a sample of cash receipts to bank statement and customer remittance and a sample of revenue transactions to evidence of pricing and evidence of broadcast. ► 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 2021 annual report other than the financial report and our auditor’s report thereon. We obtained the directors’ report that is to be included in the annual report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the annual report after the date of this auditor’s report. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 53 PRIME MEDIA GROUP | ANNUAL REPORT 2021 Independent Auditor’s Report A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 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. ► 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. 54 Independent Auditor’s Report A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ► 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 10 to 17 of the directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Prime Media Group Limited for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Michael J Wright Partner Sydney 26 August 2021 55 PRIME MEDIA GROUP | ANNUAL REPORT 2021 ASX Additional Information For the year ended 30 June 2021 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 20 August 2021. A. Distribution of Equity Securities Ordinary shares As at 20 August 2021, 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: NUMBER OF HOLDERS NUMBER OF SHARES % OF ISSUED CAPITAL 1 to 1,000 496 186,824 0.05% 1,001 to 5,000 587 1,700,445 0.46% 5,001 to 10,000 334 2,743,095 0.75% 10,001 to 100,000 624 21,291,952 5.81% 100,0001 and over 164 340,407,987 92.93% Total 2,205 366,330,303 100.00% Shareholders holding less than a marketable parcel of shares: 748 603,217 0.16% B. Twenty Largest Registered Shareholders The names of the twenty largest registered holders of quoted shares at 20 August 2021 are: LISTED ORDINARY SHARES NUMBER OF SHARES PERCENTAGE OF ORDINARY SHARES 1 WA Chess Investments Pty Ltd 73,229,427 19.99 2 Seven Network (Operations) Limited 54,594,367 14.90 3 Birketu Pty Ltd 52,627,135 14.37 4 HSBC Custody Nominees (Australia) Limited 22,975,709 6.27 5 Brispot Nominees Pty Ltd 11,786,117 3.22 6 Jamplat Pty Ltd 7,700,000 2.10 7 Citicorp Nominees Pty Limited 7,624,987 2.08 8 CS Fourth Nominees Pty Limited 7,014,638 1.91 9 Keybridge Capital Limited 6,007,436 1.64 10 BNP Paribas Nominees Pty Ltd 5,666,444 1.55 11 Mr George Walter Mooratoff 5,000,000 1.36 12 Merrill Lynch (Australia) Nominees Pty Limited 4,388,617 1.20 13 HSBC Custody Nominees (Australia) Limited 4,189,438 1.14 14 UBS Nominees Pty Ltd 4,100,000 1.12 15 CS Third Nominees Pty Limited 4,026,127 1.10 16 Sojourn Services Pty Ltd 3,597,000 0.98 17 Mr John Alex Rumble & Mrs Sonja Rumble 2,900,000 0.79 18 neweconomy.com.au Nominees Pty Limited 2,812,858 0.77 19 Warbont Nominees Pty Ltd 2,581,648 0.70 20 Morgan Stanley Australia Securities (Nominee) Pty Limited 2,384,664 0.65 285,206,612 77.86 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 WA Chess Investments Pty Limited and associated entities 73,229,427 19.99% 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 54,594,367 14.90% Bruce Gordon, Birketu Pty Ltd, WIN Corporation Pty Limited and associates of WIN 52,627,135 14.37% D. Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. 56 Design Communication and Production by ARMSTRONG Armstrong.Studio primemedia.com.au