Southern Cross Media Group Ltd Annual Report 2016

Plain-text annual report

MEDIA ENTERTAINMENT RADIO TV SOCIAL EVENTS DIGITAL A N N U A L R E P O R T 2 0 1 6 2 Southern Cross Austereo Annual Report in Australia78 Radio stations #1 Radio Group 50 years TV experience 36 years radio experience 107 free to air TV signals #1 Radio Group Online #1 Radio on Social #1 total audience on digital radio $650M revenue 2500 staff Southern Cross Austereo . Annual Report 3 4 Southern Cross Austereo . Annual Report CONTENTS Statistics Snapshot SCA Entertains Australia The Most Loved Entertainment Brands 2-3 6-7 8-9 Digital Media Innovation 10-11 Millions Watch SCA’s TV Leading Commercial Solutions Investing In Our People Giving Back To The Community Chairman’s Statement CEO’s Report Board of Directors Financial Report 18-19 20-21 22-23 24 Southern Cross Austereo . Annual Report 5 12-13 14-15 16 17 SCA ENTERTAINS AUSTRALIA Southern Cross Austereo (SCA) is Australia’s most SCA is home to some of Australia’s most loved diverse media and entertainment company, reaching all entertainment icons, with an impressive range of corners of Australia. engaging content that entertains millions of people across free to air television, 78 metropolitan and Uniquely in Australia’s media landscape, we create regional FM and AM radio stations, digital audio and and deliver radio and television to Australians living in radio, social media networks, online, mobile and unique our capital cities, our regional centres and our remote one-off events. areas. Using our household brands and building on these strengths, we are growing our assets as a broader Our broad suite of brands with high proﬁ le national and media and entertainment company leading in social local celebrities and content experts creates more live media, online and mobile entertainment, digital audio and engaging entertainment than any other Australian businesses and music events. media organisation, making it one of Australia’s most exciting and progressive entertainment media companies. 6 Southern Cross Austereo . Annual Report 78 OWNED STATIONS Reaching over 6.4m Australians per week 107 TV SIGNALS Reaching over 5.2m Australians per week 7 DIGITAL RADIO STATIONS 94 WEBSITES & 41 APPS Southern Cross Austereo . Annual Report 7 THE MOST LOVED ENTERTAINMENT BRANDS Our portfolio includes a broad range of entertainment Lady Gaga, Katy Perry and Ed Sheeran. brands targeted to speciﬁ c audiences. These international superstars have entertained Hit Network fans live We deliver entertainment based on in-depth consumer and provided world class content insights and research. We understand clearly how to across our online and social media connect to our listeners and viewers whether we are platforms. on-air on one of our 78 radio stations, at a live event in regional Australia, running an interactive Facebook The Hit Network is primed campaign or using our multiplatform mediums. for continued growth as SCA is truly Australia’s most exciting and expansive we extend the Hit brand beyond the capital cities to include 45 of our regional stations into the Hit network family in late 2016. entertainment company. THE HIT NETWORK Focusing on hit music and pop culture, the Hit Network connects with 3.5 million radio listeners, 8 million Facebook fans, 1.1 million Instagram followers and enjoys in excess of 1.6 million video views. The Hit brand continues to prove that it leads in engaging with audiences under 40 years of age. The Network boasts personalities who are hugely popular household names, including high proﬁ le performers such as Rove McManus, Fiﬁ Box, Hamish Blake, Andy Lee, Osher Günsberg, Sam Frost and Emma Freedman. The Hit Network prides itself on delivering some of the most exciting and unique events for Hit and SCA audiences. Its live music arm, The World Famous Rooftop, has played host to artists such as Justin Bieber, Rudamental, Macklemoore and Ryan Lewis, 8 Southern Cross Austereo . Annual Report TRIPLE M Triple M is one of Australia’s most iconic entertainment brands which continues to represent the best rock, sport and comedy in the country, predominantly aimed at male listeners. Thirty years young, Triple M proudly continues to grow its audiences with great depth of talent centered around some of the most revered comedians, media gurus and sporting heroes, all presenting awesome show genres and line ups. But Triple M is more than radio. Its 1.5 million Facebook followers, 400,000 Twitter followers and 337,000 monthly video views prove Triple M is as strong as ever in the ever evolving and growing online space. Triple M is set to expand next year as 30 of our regional stations currently under the LocalWorks radio network will be brought into the Triple M family. This will deliver cohesive impact and greater overall brand value as it takes a group of highly successful and meaningful stations to a whole new level under the Triple M banner. TheLocalWorks stations will continue to offer a wide variety of music, great shows with ﬁ rmly established and adored homegrown performers remaining focused on ‘everything local’. Southern Cross Austereo . Annual Report 9 DIGITAL MEDIA INNOVATION DIGITAL RADIO ON THE RISE In addition to streaming online and digital broadcast of 2.3 million Twitter fans, 1.2 many of our FM stations, we boast seven stand- alone million mobile app downloads digital stations. Together they cover a variety of music and 146,000 YouTube genres, reaching the biggest cumulative audience of any subscribers and growing. Next digital radio portfolio in the country. year we expect to continue to deliver digital leadership With consumption of digital radio continually growing, with forecast growth across we are leading the industry with our commitment to all online platforms. investing in digital radio brands. Our current suite of stations is second to none with the chill-out station Buddha, kids radio station Kinderling, music genre stations Easy, Classic Rock, Modern Rock, Old Skool and country music favourite, The Range. 94 WEBSITES, 41 APPS AND MILLIONS ACROSS SOCIAL MEDIA Our commitment to being the entertainment leader means we are not only focused on broadcast media but also using our well established brands to connect audiences across vast online, mobile and social media destinations. Our brands collectively deliver an expansive audience across multiple channels which give us an engaged and loyal fan base. This year saw us cement our success by achieving, #1 radio group online, #1 radio group on social media including 10.2 million Facebook fans delivering more engaged fans on Facebook than any other radio group, over 1 million Instagram followers, 10 Southern Cross Austereo . Annual Report Southern Cross Austereo . Annual Report 11 MILLIONS WATCH SCA’S TV 107 FREE TO AIR SIGNALS REACHING OVER 5.2M VIEWERS EACH WEEK With free to air television channels from the Nine Cricket and its stable of high rating news and current Network, Ten Network and Seven Network, we entertain affairs programs. Progressively, we will enhance and and inform regional Australians in all Australian States upgrade our local news services in these markets. and Territories except Western Australia. In an historic change in afﬁ liation arrangements, for more than thirty years, we continue to broadcast starting on 1 July 2016 we are broadcasting Nine, Gem Channels Ten, One and Eleven in Northern NSW which Go! and 9Life to our viewers in the regional Queensland, includes the major centres of the Gold Coast Continuing on an arrangement that has been in place Southern NSW and regional Victoria television markets. and Newcastle. Now branded as Nine in these markets, we bring viewers Nine’s suite of channels including special events, We broadcast channels Seven, 7Mate and 7Two to drama, entertainment, sports such as the NRL and Tasmania, Darwin and the Remote Central and Eastern 12 Southern Cross Austereo . Annual Report Australia licence area and broadcast Nine, Ten and In partnership with the Federal Government, we are a Seven channels in the Broken Hill and Spencer key player in the operation of the Viewer Access Satellite Gulf area. Television (VAST) satellite television service. VAST is a valuable service that ensures Australians who live and In addition and in joint venture with other broadcasting travel in remote Australia and black-spot areas with companies, we broadcast Nine channels in Tasmania poor TV reception are able to get a full range of digital and Ten channels in Darwin and Remote Central and channels and more than 20 channels of regional news Eastern Australia. coverage. During the second half of 2016, we began broadcasting a new home shopping channel called YESSHOP to all our non-satellite markets. Southern Cross Austereo . Annual Report 13 LEADING COMMERCIAL SOLUTIONS SOUTHERN CROSS AUSTEREO CONNECTS OUR CLIENTS WITH CONSUMERS Advertisers choose SCA because of our unprecedented This year we created ‘The Studio at SCA’, a ability to deliver them the engagement of our audiences market facing creative team who invite clients through our scale and depth of content and talent across into our business to collaborate directly with metropolitan and regional Australia. our best creative talent. Using insight to drive ideation means we can develop more engaging With 34,000 advertisers across the country, many of ideas and solutions that connect with them small to medium enterprises we work to understand consumers. their needs and deploy resources to help them grow their businesses and in turn grow ours. We will continue to build our ability to deliver audiences to our clients, and next We have aligned our metropolitan and regional sales year will see a new partnership with Vevo, strategies and become increasingly focused on taking giving us the exclusive rights to sell a multi-platform approach selling across our digital, Vevo’s content and digital inventory in radio and television assets so we can maximise the Australia. As a leading music platform, ability for our clients’ brands being able to connect with every month Vevo delivers some 176 consumers. million video streams and reaches 9 million unique Australian users With 650 sales professionals across more than 60 across a range of devices. ofﬁ ces in metropolitan and regional Australia, and with signiﬁ cant investment in research of economic trends, category history and audience insights, we can better understand our clients’ needs and match resources to meet them wherever they are. 14 Southern Cross Austereo . Annual Report Southern Cross Austereo . Annual Report 15 INVESTING IN OUR PEOPLE We employ over 2,000 full time employees and an additional 600 casual and contracted staff. As a truly national media company, staff are spread across more DEVELOPING NEW SKILLS AND TALENT In partnership with Charles Sturt University we have than 60 locations in every State and Territory working developed the SCA Academy, which each year invites up in content, news, sales, trafﬁ c, promotions, technology, to 40 employees from across our business to undertake ﬁ nance, legal and management. an eleven week study program. The speciﬁ cally tailored OUR VALUES SCA people share common values which guide our day- to-day decisions and shape our individual and collective behaviour. course is designed to give participants a broader knowledge of commercial radio and digital media, giving them the opportunity to learn new skills and further their careers. Each year we also offer several internal traineeships in engineering, technology and content production. ENGAGING OUR PEOPLE DIVERSITY AND INCLUSION We are committed to building positive and constructive relationships with all our people and we ﬁ rmly believe engaged employees lead to improved business outcomes. Our annual employee engagement survey and culture audits help us understand how our people feel about their work environment and how we can implement genuine and noticeable change and improvement. As a creative organisation, we are committed to diversity across both our on and off-air workforce. Over half of our employees are female and are well represented within management making up 50% of middle management roles and 23% of senior management roles. Females represent 30% of our on-air talent. 16 Southern Cross Austereo . Annual Report GIVING BACK TO THE COMMUNITY Our audiences and clients are at the heart of what we do and we connect with them by supporting various GIVE ME 5 FOR KIDS community initiatives. WORKING WITH CHARITIES We support various charities both in Australia and overseas and regularly broadcast on-air Community Service Announcements on radio and television free of charge. I BELIEVE IN CHRISTMAS Our annual Christmas toy drive, in support of the Salvation Army Christmas Appeal, enables locals to donate toys to be placed under a Christmas tree in each stations reception. Starting as a simple coin drive at one station, to date Give Me 5 for Kids has raised over $17m for Paediatric wards in regional Australia to purchase vital equipment to help sick children. OZHARVEST, THE BLACK DOG INSTITUTE AND CANTEEN From September 2016, for the next two years, we will work with OzHarvest, The Black Dog Institute and CanTeen through our newly established charity partnership program designed to concentrate our resources to make a tangible difference to the community. These three organisations will be provided with support via Community Service Announcements and content opportunities across our radio and television assets. Southern Cross Austereo . Annual Report 17 CHAIRMAN’S STATEMENT On behalf of the Board of Directors, I am pleased to At the time of the federal election present the Southern Cross Austereo Annual Report for being called in July 2016, legislation to the 2016 ﬁ nancial year. remove the reach rule (that prevents a person controlling commercial television licences which The year was a busy and successful one for Southern together broadcast to more than 75% of Australia’s Cross Austereo, highlighted by the landmark signing population) and the two out of three cross media rule of a new regional television afﬁ liation agreement with (that prevents a person controlling a commercial radio the Nine Network. The transition to broadcast of Nine’s licence, a commercial television licence and a newspaper programs into regional Queensland, Southern NSW and in the same area) was under consideration. Having regional Victoria started on 1 July 2016 and the Group regard to the ongoing convergence and diversity of media is looking forward to a productive relationship with Nine platforms, these reforms, which include protection of for the ﬁ ve year term of the new agreement and beyond. local content for regional communities, are overdue. We are also delighted to be continuing our long term Southern Cross Austereo supports these reforms and relationships with the Ten and Seven Networks, encourages the re-elected federal government to pursue particularly in the Northern NSW and Tasmania markets them and to consider further reforms to bring Australia’s respectively. media regulation up to date with modern technology. In his ﬁ rst year as CEO, Grant Blackley has streamlined Ongoing technological change and the prospect of and reinvigorated his leadership team and has delivered signiﬁ cant regulatory change is creating opportunities the improved results you will read about in this report. It and challenges for our business. You should be assured is notable that revenue increased across all the Group’s that your Board and management are being proactive media assets, driven particularly by outperformance to protect and optimise the Group’s position in the new in metropolitan radio and regional television markets. media landscape. The Group also completed repair of its balance sheet during the year, reducing net debt to $340 million and The Group is also a proactive contributor to the the Group’s leverage ratio to 1.9 times at 30 June and community. This is primarily through our annual providing ﬁ nancial ﬂ exibility for the future. Give Me 5 for Kids campaign, which raises funds for children’s hospitals and children’s wards in regional I’m pleased to say that the Group’s robust ﬁ nancial Australia. For the third year in a row, this campaign position has enabled the Board to declare fully franked raised over $2 million. Supported by the volunteer spirit dividends of 6.75 cents per share for the year, up from of our workforce, over 95% of these funds were donated 6.0 cents per share in 2015. These dividends will be to charities. paid fully in cash without recourse to the dividend reinvestment plan. The Group has also recently announced new partnerships for two years with OzHarvest, Black Dog Institute and Programming and management of on-air talent in the CanTeen which have causes aligned with the values Group’s market-leading radio business are ongoing and demographic proﬁ le of our brands, audience and priorities, with strategies in place to secure key talent employees. We look forward to contributing our signiﬁ cant and to identify and develop the next generation of talent media assets and workforce to help these organisations to for ﬂ agship shows. grow and develop their charitable activities. 18 Southern Cross Austereo . Annual Report I would like to thank Chris de Boer and Kathy Gramp for their counsel and contribution as directors. Chris retired in May after 11 years on the Board and as chair of the Audit & Risk Committee, while Kathy retired in June after nearly two years as a director. Continuing our planned approach to Board renewal and succession, we welcomed Melanie Willis as a director in May. Melanie has taken over as chair of the Audit & Risk Committee and we look forward to her contribution in years to come. The Group’s results for the year are due to the efforts of all our 2500 employees and contractors, led by Grant Blackley and his senior leadership team. Through their efforts, Southern Cross Austereo continues to entertain and play an important role in the lives of 10 million people around Australia every week. Your Board is conﬁ dent in the outlook for Southern Cross Austereo and we thank you for your continued support. Southern Cross Austereo . Annual Report 19 20 Southern Cross Austereo . Annual Report CEO’S REPORT Dear Shareholders, Southern Cross Austereo has reported growth across all The improved ﬁ nancial performance coupled with key ﬁ nancial measures with aggregate 5.1% revenue growth across metropolitan and regional media assets, the substantial reduction in net debt has reduced our leverage to 1.9x and provided considerable improved outperforming the market. ﬁ nancial stability. The company has reported an increase in NPAT of 19% up to $77.2m and a reduction in Net Debt by $166.7m or 32% to $340m. Balance sheet repair undertaken Restructuring the executive team has been completed with clear reporting lines and business drivers which has and will continue to improve accountability and business over the past two years is now complete. performance. The company’s sales performance has been a highlight for 2016 achieved by growing share in both metropolitan radio and regional television and from the positive market conditions experienced more broadly in the radio sector. Metropolitan radio Looking forward, SCA is committed to being a leading entertainment provider. We will continue to invest in content across our core radio brands and to increase the scale and appeal of our brands we will focus on creating more premium audio and video content across our businesses beneﬁ tted from a growing market and platforms. We will also seek new content partnerships, increasing share with revenues increasing by over 8% to $242 million. Revenue gains have offset the substantial investment in content and marketing across both the Triple M and Hit networks, in particular with the return of Hamish and Andy and the Rove and Sam breakfast show. In a ﬁ fth consecutive year of growth, our regional radio assets continued to grow with revenue growth of 6.1% this year supported by 21 regional such as our recently completed transaction with Vevo to add weight and diversiﬁ cation to our existing asset base and we will look further at ways to diversify our media streams, particularly taking advantage of new platforms and increasing digital radio consumption. In regional television, the afﬁ liation switch to Nine marks the most signiﬁ cant change in regional television in the last 30 years and the changeover that occurred on 1 July was seamless. This deal has increased the company’s exposure to higher audiences and importantly greater exposure to key live sports including the cricket surveys conducted in the year. and rugby league. The balance sheet has been signiﬁ cantly improved following the $166 million reduction in We have successfully negotiated a ﬁ ve year extension to the afﬁ liation agreement with Ten in Northern New South Wales that maintains our broad regional television net debt in the year largely through divesting non-core assets, principally land in excess of our needs and from execution of a long term agreement with the Australian Trafﬁ c Network resulting in payment of $100 million upfront. license coverage. This completes my ﬁ rst year as CEO of Southern Cross Austereo. The company has an excellent set of high quality media assets and I’m very pleased by the progress that has been made this year and in our prospects for the future. Southern Cross Austereo . Annual Report 21 ROBERT MURRAY DIRECTOR LEON PASTERNAK DEPUTY CHAIRMAN MELANIE WILLIS DIRECTOR PETER BUSH CHAIRMAN ROBERT MURRAY DIRECTOR MELANIE WILLIS DIRECTOR Appointed: 1 September 2014 Appointed: 26 May 2016 Most recently elected by shareholders: 21 October 2014 Board Committees: Chair, Audit & Risk Committee Board Committees: People & Culture Committee, Nomination Committee Melanie has ﬁ nancial and professional services experience in Executive and Non-Executive roles in a range of Robert Murray has had a distinguished career in sales, industries, including accounting and ﬁ nancial planning, marketing and general management, most recently as infrastructure, property investment management, and the CEO of Lion (fomerly Lion Nathan). Before joining retail services. She has held non-executive directorship Lion Nathan, Rob worked for Proctor & Gamble for 12 roles at Aevum Limited, Hydro Tasmania, Rhodium Asset years, and for eight years with Nestlé, as MD of the UK Solutions, Crowe Horwath and Club Assist Limited, as well Food business, and then as CEO of Nestlé Oceania. Rob as senior executive roles with Deutsche Bank, Bankers is a board member of the Bestest Foundation and is Trust Australia and NRMA Investments. Melanie is Chairman of Metcash Ltd. currently a non-executive director of Mantra Group, Ardent Leisure Group and Pepper Financial Services Group. LEON PASTERNAK DEPUTY CHAIRMAN Appointed: 26 September 2005 PETER BUSH CHAIRMAN Most recently elected by shareholders: 21 October 2014 Appointed: 25 February 2015 Board Committees: Chairman, People & Culture Most recently elected by shareholders: 29 October 2015 Committee Board Committees: Chairman, Nomination Committee Until July 2010, Leon Pasternak was a senior corporate Peter Bush had a distinguished career in executive roles partner at Freehills (now Herbert Smith Freehills) spanning the media, FMCG, advertising and consumer specialising in mergers and acquisitions, public products sectors. He also brings considerable and highly ﬁ nance and corporate reorganisations. Until February respected public company directorship experience to 2014, Leon held the positions of Vice Chairman and Southern Cross Media Group. Peter is currently Chairman Managing Director with Merrill Lynch Markets (Australia) of Mantra Group Ltd. He has previously served on the Pty Limited (a subsidiary of Bank of America) with boards of Paciﬁ c Brands Ltd, Nine Entertainment responsibility for the ﬁ nancial institutions group and Holdings, Insurance Australia Group, Miranda Wines, mergers and acquisitions. McDonald’s Australia Limited and Lion Nathan. 22 Southern Cross Austereo . Annual Report GRANT BLACKLEY CEO & MANAGING DIRECTOR HELEN NASH DIRECTOR PETER HARVIE DIRECTOR GLEN BOREHAM DIRECTOR GRANT BLACKLEY CEO AND MANAGING DIRECTOR PETER HARVIE DIRECTOR Appointed: 29 June 2015 Appointed: 1 August 2011 Most recently elected by shareholders: 29 October 2015 Most recently elected by shareholders: 29 October 2015 Grant Blackley is the Chief Executive Ofﬁ cer and Board Committees: Nomination Committee Managing Director. Grant’s media industry career spans Peter Harvie has more than 45 years’ experience in the over 30 years with senior leadership roles at the TEN advertising, marketing and media industries. Peter was Network, including as CEO from 2005 to 2010. Grant the Executive Chairman of Austereo Group Limited from also served in key roles in network sales, digital media 2001 until May 2011, Executive Chairman of Austereo and multi-channel program development as well as being Pty Ltd, Managing Director of the Triple M Network responsible for group strategy, acquisitions and executive and founder and Managing Director of the Clemenger development programs. Before joining Southern Cross Harvie advertising agency from 1974 to 1993. He is also Media Group, Grant was a partner in RGM Artists and Chairman of CHE Proximity (Clemenger BBDO Group). Founder of Four Seasons Media. HELEN NASH DIRECTOR GLEN BOREHAM AM DIRECTOR Appointed: 1 September 2014 Appointed: 23 April 2015 Most recently elected by shareholders: 21 October 2014 Most recently elected by shareholders: 29 October 2015 Board Committees: Audit & Risk Committee Board Committees: Audit & Risk Committee Glen Boreham AM had a distinguished career at IBM Helen Nash has more than 20 years’ experience in culminating as Chief Executive Ofﬁ cer and Managing brands and marketing, including in FMCG at Procter & Director, IBM Australia and New Zealand from 2006 Gamble, and in publishing at IPC Media. Over nearly 10 to 2010. Glen was the inaugural Chair of Screen years, she has held a variety of senior executive roles at Australia, and also chaired the Australian Government’s McDonald’s Australia Ltd, including as Chief Operating Convergence Review of the media industry. He is Chair Ofﬁ cer, overseeing restaurant operations, marketing, of the Industry Advisory Board at the University of menu, insights and research and information technology. Technology Sydney, and Chair of Advance. He is a non- Helen is a non-executive director of Blackmores Ltd and executive director of Cochlear Limited and Link Group Metcash Ltd. Limited. Southern Cross Austereo . Annual Report 23 FINANCIAL REPORT 2016 24 Southern Cross Austereo . Annual Report CONTENTS Corporate Governance Statement Directors’ Report Review and Results of Operations Distributions and Dividends Signiﬁ cant Changes in State of Affairs Events Occurring After Balance Date Likely Developments and Expected Results of Operations Indemniﬁ cation and Insurance of Ofﬁ cers and Auditors Non-Audit Services Environmental Regulation Information on Directors Information on Company Secretary Meetings of Directors Remuneration Report Auditor’s Independence Declaration Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Key Numbers Capital Management Group Structure Other Directors’ Declaration Independent Auditor’s Report Additional Stock Exchange Information Corporate Directory 26 26 26 29 29 29 29 29 29 29 30 31 31 32 46 47 48 49 50 51 52 63 71 73 80 81 83 IBC The ﬁ nancial statements were authorised for issue by the Directors on 25 August 2016. The Directors have the power to amend and re-issue the ﬁ nancial statements. Southern Cross Austereo . Annual Report 25 DIRECTORS’ REPORT FOR YEAR ENDED 30 JUNE 2016 Corporate Governance Statement The statement outlining Southern Cross Media Group Limited’s corporate governance framework and practices in the form of a report against the Australian Stock Exchange Corporate Governance Principles and Recommendations, 3rd Edition, will be available on the Southern Cross Austereo website, www.southerncrossaustereo.com.au, under the investor relations tab in accordance with listing rule 4.10.3 when the 2016 Annual Report is lodged. The 2016 Corporate Governance Statement is available in the 2016 Annual Report on the website. Directors’ Report The Directors of Southern Cross Media Group Limited (“the Company”) submit the following report for Southern Cross Austereo, being Southern Cross Media Group Limited and its subsidiaries (“the Group”) for the year ended 30 June 2016. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows: Directors The following persons were Directors of the Company during the whole of the year, unless otherwise stated, and up to the date of this report: – Peter Bush (Chairman) – Leon Pasternak (Deputy Chairman) – Grant Blackley – Glen Boreham – Peter Harvie – Rob Murray – Helen Nash – Melanie Willis (appointed 26 May 2016) – Chris de Boer (resigned 26 May 2016) – Kathy Gramp (resigned 21 June 2016) Principal Activities The principal activities of the Group during the course of the ﬁ nancial year were the creation and broadcasting of content on free-to- air commercial radio (AM, FM and digital), TV and online media platforms across Australia. These media assets are monetised via revenue generated from the development and sale of advertising solutions for clients. There were no changes in the nature of the Group during the year. Review and Results of Operations Operational Review Group Results The Group reported revenues of $642.3 million, up 5.1% on the prior year revenues of $611.1 million, and Earnings before Interest, Taxes, Depreciation and Amortisation (“EBITDA”) of $167.7 million, up 2.7% on prior year EBITDA of $163.3 million. Net Proﬁ t after Tax (“NPAT”) of $77.2 million is up 127.1% on a prior year NPAT loss of $285.0 million. Prior year results included impairment charges against intangible assets of $361.4 million; excluding this signiﬁ cant item, NPAT is up 19.2% on the prior year adjusted NPAT of $64.8 million. Net ﬁ nancing costs of $24.7 million were down 35.9% on prior year net ﬁ nancing costs of $38.5 million, which has made a signiﬁ cant contribution to the year on year growth in NPAT. 26 Southern Cross Austereo . Annual Report Signiﬁ cant Items In 2016, there are no signiﬁ cant items. During 2015, the Group recognised impairment charges against intangible assets of $361.4 million, $276.5 million of which related to the Metropolitan Free to Air Broadcasting (“Metro”) Cash Generating Unit (“CGU”) and $84.9 million related to the Regional Free to Air Broadcasting (“Regional”) Cash Generating Unit. Segment Proﬁ t and Loss Regional Metro Corporate Total Revenue EBITDA Regional Metro Corporate Total EBITDA Group NPAT Group NPAT (excluding signiﬁ cant items) 2016 $’m 382.3 242.3 17.8 642.3 131.1 51.4 (14.8) 167.7 77.2 77.2 2015 $’m 361.6 224.1 25.4 611.1 114.7 57.8 (9.2) 163.3 Variance 5.7% 8.1% (30.1%) 5.1% 14.3% (11.1%) (60.9%) 2.7% (284.9) 127.1% 64.8 19.2% Regional The Regional business consists of a number of regional radio and regional television licences. Each regional television licence has a metropolitan television network afﬁ liate that supplies the majority of programming for the licence. The Regional business has ﬁ nished the 2016 year with revenue of $382.3 million, up 5.7% on the prior year, and EBITDA of $131.1 million, up 14.3% on the prior year. Advertising revenues, which account for 92.1% of total Regional revenues, are $352.3 million for the year and are up 4.5% on 2015. Television markets have remained challenging throughout the year and are back 6.1% on 2015. Despite this we have seen our Television revenues grow by 3.1%. This is due to the combination of a growing Channel Ten audience, up 1.3 points to 22.4% of total commercial audience and improved monetisation of this audience, revenue share up 2.1 points to 21.6% of total commercial TV markets. Regional radio continues to be a strong performer with advertising revenues of $162.1 million, up 6.1% on 2015. Locally, our large and diverse client base continues to grow with Local revenues up 5.3% to $112.3 million. From a national perspective, the completion of regional audience surveys in a number of regional radio markets has provided a basis for increased investment from National agency clients with revenues up 7.9% on 2015 to $49.8 million. As part of our Group-wide capital management strategy we have been divesting non-core assets and included in the 2016 Regional revenues is $5.6 million proﬁ t arising from the sale of both transmission sites and ofﬁ ce premises. Where necessary these ofﬁ ce premises have been leased back. Including the one-off proﬁ t on the sale of non-core assets, the Regional EBITDA result is up 14.3% to $131.1 million; excluding the non-recurring proﬁ t on sale of assets the Regional EBITDA result is up 9.4% to $125.5 million. Cost control remains a key focus of the Regional business and we are pleased to see EBITDA margins (excluding the non-recurring proﬁ t on the sale of assets) improve from 31.7% in 2015 to 32.8% in 2016. The $100 million payment has been recorded on the balance sheet under “Deferred Income” and will be released to the Income Statement over a 30-year period, unless the contract ends after 20 years at which point the remaining balance will be recognised as revenue in year 20. This treatment will match the receipt of future broadcasting services, airtime and trafﬁ c management services that the Group is required to provide over the life of the contract. Metro The Metro business consists of two complementary radio brands operating in the Australian capital cities along with the digital assets associated with these two brands. The brands target different audience demographics with the Triple M network skewed towards males in the 25 to 54 age bracket and the Hit Network targeted towards females in the 18 to 39 age bracket. The continued success of our Triple M brand combined with the increased investment in the Hit Network is showing positive results, with reported revenues of $242.3 million, up 8.1% on the prior year revenues of $224.1 million and this improvement was entirely due to growing advertising revenues which make up 92% of total Metro revenue. Overall, the metropolitan free-to-air radio advertising market remains strong with growth of 5.9% throughout the 2016 ﬁ nancial year with the Group’s market share increasing from 27.8% in 2015 to 28.7% in 2016. Improving the market share of the Hit Network remains a key priority of the Group and we have continued to invest heavily in content to achieve this objective. The launch of Rove & Sam in Sydney Breakfast and the strengthening of other key Breakfast shows around the Hit Network, together with the return of Hamish & Andy to the national Drive show, has led to our female 18 to 39 audience share increasing to 18.5%, up 3.91 points on the same time last year. Metro EBITDA of $51.4 million is down 11.0% on 2015 and has been impacted by the increasing investment in content that, due to the ratings to revenue lag, is yet to be fully monetised. In addition to the investment in radio content, we continue to invest in the creation of new digital content which will provide future revenue opportunities to the Group. Corporate The Corporate business comprises the Group-wide centralised functions of the Group, as well as the results of the Canberra FM radio business in which the Group has a 50% shareholding. The 2016 results have been impacted by a non-cash, $5.0 million net loss on the sale of owned Telecommunication assets which were divested in the second half of the ﬁ nancial year. Financial position The ﬁ nancial position of the Group has strengthened considerably with net debt reducing by $166.7 million to $340.2 million and the leverage ratio improving to 1.9 times, well below the covenant of 3.5 times. The improved ﬁ nancial position is the result of the execution of the Group’s capital management strategy which involved the divestment of non-core assets, stabilisation of operating results and increased cash ﬂ ow through improved debt management. During the year, the Group entered into a long-term contract with Australian Trafﬁ c Network (“ATN”) for it to provide trafﬁ c reports for broadcast on Southern Cross Austereo (“SCA”) radio stations. SCA received payment of $100 million from ATN in return for its stations broadcasting advertising tags provided by ATN attached to news and trafﬁ c reports. The contract has a term of 20 years, with an option for ATN to extend it by a further 10 years. Additionally, there will be an annual recurring payment to SCA of $2.75 million beginning from 1 February 2017. This will be indexed annually by the lower of CPI and 2.5%. Strategic Update The 2016 ﬁ nancial year has seen the Group execute on a number of key strategic objectives: 1. Reduction in net debt has strengthened the ﬁ nancial stability of the Group; 2. New TV afﬁ liation agreements with Channel Nine have improved the outlook for the Group’s TV assets; 3. Increased investment in Metro radio content is improving audience share, with more work still to be done in some key markets; 4. Yield focussed sales strategy is delivering revenue growth across all assets, including share growth across both Metro Radio and Television; and 5. A number of key appointments have been made to strengthen the Executive Management team. The work that has been completed throughout 2016 leaves the Group well positioned to continue to execute on its operational improvement strategy and the Group remains committed to: 1. Improving the monetisation of its assets through improved yield and inventory management; 2. Selectively acquiring assets that can extend or leverage from the existing scale and reach of the Group; 3. Continuing to grow audience share across the Hit and Triple M networks; 4. Increasing the exposure of the Group to growing Digital markets; 5. Pursuing growth opportunities that are based on further leveraging the Content and Sales strengths of the Group; and 6. Improving the operational efﬁ ciency of the Group by streamlining processes and improving the back of house efﬁ ciency of the Group. 2017 Outlook Both Regional and Metro radio have started the year positively with results so far showing year on year growth. Television markets remain challenged; however our transition to Nine has been successful and trading is in line with our expectations. We expect advertising revenues across all three assets to continue to grow throughout 2017 and full year EBITDA to be in the range of $177 to $183 million, up 6% to 9% on 2016. 1GFK Ratings Survey 4 2016. Southern Cross Austereo . Annual Report 27 DIRECTORS’ REPORT FOR YEAR ENDED 30 JUNE 2016 Review and Results of Operations (continued) Material Risks Business and operational risks that could affect the achievement of the Group’s ﬁ nancial prospects include the following risks: Risk Decrease in the size of the free-to-air (“FTA”) television market at a faster rate than forecast Finding and retaining good on-air talent Mitigation Strategies The Group has seen a decline in the television market of 6.1% year on year. Whilst there has been a continued shift towards digital advertising, there is a recognition that FTA television continues to deliver mass audiences and hence has a key place in media buying strategies. The Group maintains a focus on market share. During the year the Group signed a ﬁ ve year afﬁ liation agreement with Nine, commencing on 1 July 2016, in Southern New South Wales and Regional Victoria and Queensland. Nine programming has traditionally delivered a signiﬁ cantly higher audience than Ten across these territories, providing a revenue upside. The Group’s sales teams are developing a Regional Development Program to highlight areas of opportunity in regional markets where there is an underinvestment in media spend on a per capita basis. The Group is a diversiﬁ ed business covering television, radio and online, which provides a degree of protection against individual market weaknesses. As a television afﬁ liate the Group pays a percentage of revenue to the broadcast partners meaning television has a higher variable cost structure than our radio or online businesses, which reduces the proﬁ t impact of any potential decline in revenue. Finding and retaining good on-air talent is a key to retaining and growing audience share, and the Group is committed to developing talent across its national network of radio stations. The Group maintains a risk-based (opportunity) approach to unearthing and developing new talent. The nature of the Group’s regional and metro radio assets provides an opportunity for developing talent to be moved from smaller to larger markets over time. Decline in or loss of metro audience share leading to a loss of revenue Contracts are used to lock talent in for certain periods of time. The development of successful off-air teams that ensure high quality programming is also important in developing the loyalty of on-air talent to the Group. The green shoots of improvement seen last year for both the Hit Network and Triple M were realised by the Group in 2016, which has seen a gain in metro audience share over the year, with full year market share of 28.7% compared to 27.8% in 2015. Threat of digital media (including television, radio, social) – emergence and convergence This shows the success of the Group’s mitigation strategies, such as: – Investing in and retaining talent, as described above, including the return of the Hamish & Andy drive radio show and the start of the Rove & Sam breakfast show in Sydney; – Securing sporting rights; and – Ongoing investment in On-Air tactics. With new alternative digital platforms and technologies emerging, there is a risk that the Group loses market share to alternative digital platforms and technologies, or fails to fully exploit the opportunity digital media represents for the business to lock in and grow new audience loyalty, or suffers ﬁ nancial loss due to a transfer of advertising spend to digital media. The Group has employed a team of digital experts, which are now integrated into the Group’s day-to-day operations in order to leverage existing content and sales capabilities. The Group invests in targeting digital audiences through the rebroadcast of its radio stations online and the extension of its Hit and Triple M radio brands across many digital platforms. The Hit and Triple M digital platforms are the number one and two radio brands in the country with unique audiences of 589,000 and 570,000 respectively1. The Group’s social strategy is to create original content that will engage a local audience, driving loyalty to the brands and providing multi-media content that can be monetised through advertising. The Group has developed key partnerships with technology and content partners to ensure a competitive product offering. The Group continues to lead the radio industry in social media engagement, with a Facebook domestic engagement of over 2.3 million – more than double our nearest competitor2. 1 Nielsen Market Intelligence, Figures for June ’16. 2 Facebook API 28 Day People Talking About This (AU) – recorded 1 June 2016. 28 Southern Cross Austereo . Annual Report Community Involvement As a local media organisation, the Group acknowledges its role in the fabric of regional and rural communities and is committed to making a positive impact on local communities. The Group’s local radio and television services keep communities up to date on the issues that matter to them, as well as providing local skilled jobs, promoting events, supporting local businesses, providing advertising opportunities and supporting community initiatives. In consultation with emergency and essential services organisations, the Group maintains procedures to broadcast warnings and information where there is an existing or threatened emergency. Indemniﬁ cation and Insurance of Ofﬁ cers and Auditors During the year the Company paid a premium of $160,847 to insure its ofﬁ cers. So long as the ofﬁ cers of the Company act in accordance with the Constitution and the law, the ofﬁ cers remain indemniﬁ ed out of the assets of the Company and the Group against any losses incurred while acting on behalf of the Company and the Group. The auditors of the Group are in no way indemniﬁ ed out of the assets of the Group. The Group’s ﬂ agship charity program is Give Me 5 For Kids, a charity with over 20 years of history raising money to support local children’s hospitals and wards in regional Australia. The 2016 Give Me 5 For Kids campaign raised over $1.5 million for the third successive year. Over 95% of funds raised are donated to charities. Non-Audit Services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group are important. The Group also supports a range of local charities each year, including through the “I Believe in Christmas” appeal which collects toys for distribution by the Salvation Army to families and children in need. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers Australia) for audit and non-audit services provided during the year are set out in note 21. The Board has considered the position and, in accordance with advice received from the Audit and Risk Committee, is satisﬁ ed 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 Directors are satisﬁ ed that the provision of non-audit services by the auditor did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: – all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor; and – none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. Environmental Regulation The operations of the Group are not subject to any signiﬁ cant environmental regulations under Australian Commonwealth, State or Territory law. The Directors are not aware of any breaches of any environmental regulations. Distributions and Dividends Type Final 2015 Ordinary Interim 2016 Ordinary Cents per share Total Amount $’m Date of Payment 3.00 3.25 22.6 4 November 2015 25.0 6 May 2016 Since the end of the ﬁ nancial year the Directors have declared the payment of a ﬁ nal 2016 ordinary dividend of $26.9 million (3.5 cents per fully paid share) out of current year earnings. This dividend will be paid on 11 October 2016 by the Company. Signiﬁ cant Changes in State of Affairs In the opinion of the Directors, there were no signiﬁ cant changes in the state of affairs of the Group that occurred during the year under review. Events Occurring After Balance Date Events occurring after balance date are outlined in note 24 “Events Occurring after Balance Date” to the Financial Statements. Likely Developments and Expected Results of Operations Further information on likely developments relating to the operations of the Group in future years and the expected results of those operations have not been included in this report because the Directors of the Company believe it would be likely to result in unreasonable prejudice to the commercial interests of the Group. Southern Cross Austereo . Annual Report 29 DIRECTORS’ REPORT FOR YEAR ENDED 30 JUNE 2016 Information on Directors Chairman Peter Bush Appointed 25 February 2015 Most recently elected by shareholders: 29 October 2015 Board Committees: Chairman, Nomination Committee Peter Bush had a distinguished career in executive roles spanning the media, FMCG, advertising and consumer products sectors. He also brings considerable and highly respected public company directorship experience to Southern Cross Media Group. Peter is currently Chairman of Mantra Group Ltd. He has previously served on the boards of Paciﬁ c Brands Ltd, Nine Entertainment Holdings, Insurance Australia Group, Miranda Wines, McDonald’s Australia Limited and Lion Nathan. Appointed 26 September 2005 Most recently elected by shareholders: 21 October 2014 Board Committees: Chairman, People & Culture Committee Until July 2010, Leon Pasternak was a senior corporate partner at Freehills (now Herbert Smith Freehills) specialising in mergers and acquisitions, public ﬁ nance and corporate reorganisations. Until February 2014, Leon held the positions of Vice Chairman and Managing Director with Merrill Lynch Markets (Australia) Pty Limited (a subsidiary of Bank of America) with responsibility for the ﬁ nancial institutions group and mergers and acquisitions. Appointed 29 June 2015 Most recently elected by shareholders: 29 October 2015 Grant Blackley joined the Board in June 2015 as Chief Executive Ofﬁ cer and Managing Director. Grant’s media industry career spans over 30 years during which time he served in numerous senior leadership roles at the TEN Network, including as CEO from 2005 to 2010. Throughout this period he also held directorships at Free TV and Freeview Australia. Prior to becoming CEO, Grant served in key roles in network sales, digital media and multi-channel program development as well as being responsible for Group strategy, acquisitions and executive development programs. Before joining Southern Cross Media Group, Grant was CEO of the Keystone Group, Partner in RGM Artists and Founder of Four Seasons Media. Appointed 1 September 2014 Deputy Chairman Leon Pasternak CEO and Managing Director Grant Blackley Director Glen Boreham AM Most recently elected by shareholders: 21 October 2014 Board Committees: Audit & Risk Committee Glen Boreham AM had a distinguished career at IBM culminating in the role of Chief Executive Ofﬁ cer and Managing Director, IBM Australia and New Zealand from 2006 to 2010. Glen was the inaugural Chair of Screen Australia from 2008 to 2014, and also chaired the Australian Government’s Convergence Review of the media industry. Glen is Chair of the Industry Advisory Board at the University of Technology Sydney, and Chair of Advance, representing the one million Australians living overseas. He is a non-executive director of Cochlear Limited and Link Group Limited. Appointed 1 August 2011 Director Peter Harvie Most recently elected by shareholders: 29 October 2015 Board Committees: Nomination Committee Peter Harvie has more than 45 years’ experience in the advertising, marketing and media industries. Prior to joining the Board of Southern Cross Media Group, Peter was the Executive Chairman of Austereo Group Limited from 2001 until May 2011, Executive Chairman of Austereo Pty Ltd, Managing Director of the Triple M Network and founder and Managing Director of the Clemenger Harvie advertising agency from 1974 to 1993. He is Chairman of CHE Proximity (Clemenger BBDO Group). Peter was a non-executive director of Village Roadshow Ltd until February 2016. Appointed 1 September 2014 Director Robert Murray Most recently elected by shareholders: 21 October 2014 Board Committees: People & Culture Committee, Nomination Committee Robert Murray has had a distinguished career in sales, marketing and general management having served most recently as the CEO of Lion (formerly Lion Nathan), one of Australasia’s leading food and beverage companies, including during its acquisition by Kirin Holdings in 2009. Before joining Lion Nathan in 2004, Rob worked for Proctor & Gamble for 12 years, and then for eight years with Nestlé, ﬁ rstly as MD of the UK Food business, and from 2000 to 2004 as CEO of Nestlé Oceania. Rob is a board member of the Bestest Foundation and is Chairman of Metcash Ltd. Rob was Chairman of Dick Smith Holdings Limited until June 2016. 30 Southern Cross Austereo . Annual Report Director Helen Nash Appointed 23 April 2015 Most recently elected by shareholders: 29 October 2015 Board Committees: Audit & Risk Committee Helen Nash has more than 20 years’ experience in brands and marketing, including seven years in FMCG at Procter & Gamble, followed by three years in publishing at IPC Media. Helen held a variety of senior executive roles at McDonald’s Australia Ltd over a period of nearly 10 years, including the position of Chief Operating Ofﬁ cer, overseeing restaurant operations, marketing, menu, insights and research and information technology. Helen is also a non-executive director of Blackmores Ltd and Metcash Ltd. She was formerly a non-executive director of Paciﬁ c Brands Ltd. Appointed 26 May 2016 Director Melanie Willis Board Committees: Chair, Audit & Risk Committee Melanie has extensive ﬁ nancial and professional services experience in both executive and non-executive roles in a wide range of industries, including accounting and ﬁ nancial planning, infrastructure, property investment management, and retail services (including tourism and start-up ventures). During the last 10 years, Melanie has held non-executive directorship roles at Aevum Limited (including Audit Committee Chair), Hydro Tasmania (including Audit & Risk Committee Member), Rhodium Asset Solutions, Crowe Horwath and Club Assist Limited, as well as senior executive roles with Deutsche Bank (Director), Bankers Trust Australia (Vice President) and NRMA Investments (CEO). Melanie is currently a non-executive director of Mantra Group, Ardent Leisure Group and Pepper Financial Services Group. Information on Company Secretary General Counsel and Company Secretary Appointed 7 September 2015 Tony Hudson has over 20 years’ experience in senior legal and governance roles. Tony was General Counsel and Company Secretary at ConnectEast from 2005 until 2015. Before that, Tony was a partner of Blake Dawson Waldron (now Ashurst Australia), working in the ﬁ rm’s Melbourne ofﬁ ce and from 1993 until 2000 in its Jakarta associated ofﬁ ce. Tony is also a director of The Wheeler Centre. Meetings of Directors The number of meetings of the Board of Directors and its committees that were held during the year and the number of meetings attended by each Director are summarised in the table below. Director Peter Bush Leon Pasternak Grant Blackley Chris de Boer Glen Boreham2 Kathy Gramp2 Peter Harvie Rob Murray2 Helen Nash Melanie Willis2 Board Audit & Risk People & Culture1 Meetings of Committees Attended 11 10 12 12 12 12 12 12 11 1 Held 12 12 12 12 12 12 12 12 12 1 Attended * * * 5 4 6 * 1 6 1 Held * * * 5 4 6 * 2 6 1 Attended * 6 * 5 2 6 * 4 2 * Held * 6 * 5 2 6 * 4 2 * Held refers to the number of meetings held during the time the Director held ofﬁ ce or was a member of the committee during the year. * Not a member of the relevant committee during the year 1 The People & Culture Committee was known as the Remuneration Committee until 24 September 2015. 2 Glen Boreham ceased to be a member of the People & Culture Committee and became a member of the Audit & Risk Committee on 24 September 2015. Rob Murray ceased to be a member of the Audit & Risk Committee and became a member of the People & Culture Committee on 24 September 2015. Chris de Boer ceased to be a member of the Audit & Risk Committee and the People & Culture Committee on his resignation on 26 May 2016. Melanie Willis became a member of the Audit & Risk Committee on 26 May 2016. Kathy Gramp ceased to be a member of the Audit & Risk Committee and the People & Culture Committee on her resignation on 21 June 2016. Southern Cross Austereo . Annual Report 31 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2016 Letter from People & Culture Committee On behalf of the Board, I am pleased to present the Company’s 2016 Remuneration Report. The People & Culture Committee (“PCC”) assists the Board in its oversight of management activities in developing and implementing strategies to improve the Company’s culture and diversity, consistent with our values. During the year, the committee’s name was changed from the Remuneration Committee, reﬂ ecting the stronger focus of the Board and senior leadership team on the culture of the Company. However, an important part of the committee’s role remains to ensure that the Company’s remuneration policies are aligned with the creation of value for shareholders, having regard to applicable governance, legal and regulatory requirements and industry standards. The Company delivered strong ﬁ nancial performance during the year. This has translated into improved returns for shareholders. Compared to the prior corresponding period, the Company’s revenue increased by 5.1% to $642.3 million and net proﬁ t after tax increased by 19.2% to $77.2 million. The Company has reduced its net debt during the year by 32.9% to $340.2 million, providing an ongoing beneﬁ t of reduced ﬁ nancing costs. Dividends of 6.75 cents per share are 12.5% higher than for the previous ﬁ nancial year. These results are due to a signiﬁ cant change program led by the Company’s new CEO and Managing Director, Grant Blackley, and supported by the Board. Long-term agreements signed during the year with the Nine Network (for three aggregated regional television markets), the Ten Network (for the northern New South Wales market) and Australian Trafﬁ c Network have provided ﬁ nancial and operational stability, as well as impetus and opportunity for the Company to continue to grow revenues and returns across all of its media platforms. Some of the key organisational and operational changes implemented during the year, along with changes to be made to the Company’s executive remuneration framework in the year ahead, are described below. – Streamlined senior leadership team: The number of executives reporting to the CEO has been reduced from more than ten to ﬁ ve, each with clear areas of accountability. This senior leadership team comprises the Company’s executive Key Management Personnel (“KMP”) for the purposes of the Remuneration Report. – New appointments: Brian Gallagher joined as Chief Sales Ofﬁ cer in July 2015 and John Kelly was appointed to the newly created role of Chief Operating Ofﬁ cer in February 2016. Reporting lines below each of them and other members of the senior leadership team have been restructured to enhance collaborative effort in sales across the Group’s radio, television and digital platforms and in content creation and operational functions. – Benchmarking executive remuneration: The PCC engaged KPMG during the year to prepare an independent benchmarking report which found that the base remuneration of the senior leadership team in 2016 was broadly aligned with the median remuneration levels of executives with corresponding roles in companies in the comparator group but that variable remuneration was signiﬁ cantly underweight. The Board used the KPMG benchmarking report as a key input in determining the adjustments to be made to the Company’s executive remuneration framework. The benchmarked comparator group comprised 25 S&P/ASX200 companies above and 25 S&P/ASX200 companies below the Company’s 12-month average market capitalisation as at 30 June 2015, excluding trusts, metals and mining, healthcare, ﬁ nancials, energy, construction and engineering, building products, airlines, aerospace and defence, and paper and forest products and including selected listed media peers (Fairfax Media, Nine Entertainment Corporation, Seven West Media, Ten Network Holdings, APN News and Media, APN Outdoor Group, oOh! Media and Prime Media Group). – Short-Term Incentive plan: The STI plan for the senior leadership team and other executive participants was restructured in 2016 to include three components: proﬁ tability and ﬁ nancial performance/creative and content performance (40%), high level operational improvements (40%) and cultural and behavioural inﬂ uences (20%). The Board awarded the CEO 100% of his target STI for the year, and the other executive KMP received an average of 90% of their target STI, reﬂ ecting the Company’s strong ﬁ nancial performance and the positive operational and behavioural changes implemented during the year. The PCC recommended and the Board has approved changes to the STI plan for future years to further align executive reward with creation of value for shareholders. These changes will include increasing the gateways that must be achieved for payment of the ﬁ nancial component of the STI plan and increasing the maximum award for outperformance against ﬁ nancial targets. An executive’s maximum STI opportunity will increase from 106% of target in 2016 to 140% of target in 2017. This maximum STI award will only vest upon achievement of 105% of target net proﬁ t after tax (“NPAT”). – Long-Term Incentive plan: During the year, there was no vesting of entitlements under the LTI plan and only members of the senior leadership team received grants under the LTI plan (for potential vesting in 2018). After considering the PCC’s recommendations, the Board has approved extension of the LTI plan beyond the senior leadership team in future years. Inclusion of about 20 executives in the next tiers of management will ensure that the Company’s future leaders are focused on measures that deliver long-term returns to shareholders. It is proposed that the LTI plan will continue to have a three-year performance period and two equally weighted performance hurdles: relative total shareholder return (“TSR”) and growth in earnings per share (“EPS”). 32 Southern Cross Austereo . Annual Report The remuneration of the Company’s non-executive directors was also reviewed during the year, aided by an independent benchmarking report in relation to the same comparator group prepared by KPMG. This review will result in an increase of 6% in base and committee fees for non-executive directors for the coming ﬁ nancial year, the ﬁ rst time since 2011 that these fees have been adjusted. Fees will be increased in subsequent years by 3%, with a benchmarking report to be obtained again in three years’ time. The number of non-executive directors reduced from eight to seven during the year and the aggregate remuneration of non-executive directors in 2017 is expected to be less than in 2016. The Board also introduced a policy in 2016 requiring non-executive directors to acquire and maintain a minimum shareholding equal to the base fee for a non-executive director by 2019 or within three years after their appointment, whichever is later. Ensuring that the Company’s remuneration framework aligns with the Company’s objective of delivering sustainable value for shareholders is a key priority for the Board. We look forward to your feedback and welcoming you to our 2016 Annual General Meeting. Yours faithfully, Leon Pasternak Chairman of the People & Culture Committee – Senior executive share ownership policy: The Board introduced a policy in 2016 requiring members of the senior leadership team to retain 25% of any shares allocated to them upon vesting of awards under the LTI plan, representing about half of the post-tax value of any LTI award. – Composition of CEO’s remuneration: The Board has been impressed with Grant Blackley’s positive impact in his ﬁ rst year as CEO, and supports the organisational and operational changes that he has led. The Board wishes to ensure that the CEO is appropriately compensated relative to peers and is incentivised to further develop and implement the Company’s strategic direction and create sustainable value for shareholders. The Board has therefore approved an increase of 3% in the CEO’s base remuneration and a higher weighting towards at-risk incentive remuneration for 2017. The composition of the CEO’s remuneration will move to base (40%) / STI (30%) / LTI (30%). This means that the CEO’s target STI will represent 75% of base remuneration. This will rise to a maximum of 105% of base remuneration for full outperformance against stretch ﬁ nancial targets. The STI component will be paid partly in cash and partly in equity. The CEO’s LTI opportunity will rise to a face value of $810,000 in 2017, strongly aligning his incentives with the creation of value for shareholders. These changes will result in a 46% increase in the CEO’s target remuneration in 2017, with 96% of the increase allocated to at-risk components and 84% of the increase payable in equity. The CEO’s target and maximum remuneration will be positioned above the 75th percentile of CEOs in the benchmarking comparator group and around the median for CEOs of the Company’s listed media peers. – Composition of other executive KMP remuneration: The other members of the senior leadership team will receive an increase of up to 2.5% in their base remuneration in 2017. In conjunction with this, the composition of their remuneration will be made consistent and will include a greater emphasis on at-risk components, moving over two years to base (50%) / STI (25%) / LTI (25%). In earlier years there has been considerable disparity in the composition of the remuneration of the senior leadership team. In 2016, for example, base remuneration ranged from 57% to 77% of an executive’s total remuneration package, STI opportunities ranged from 12% to 27% and LTI opportunities ranged from 12% to 18%. – Other executives: The remuneration of other executives who participate in the Company’s incentive plans will also move to a consistent composition over future years. Southern Cross Austereo . Annual Report 33 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2016 1. Remuneration principles 1.1 Overview of executive remuneration The Company aims to ensure remuneration is competitive and appropriate for the results delivered. Executive reward is aligned with the achievement of strategic objectives and the creation of value for shareholders, and is informed by market practice for delivery of reward. Executive remuneration packages include a mix of ﬁ xed and variable remuneration. Variable remuneration includes short and long-term incentives. More senior roles in the organisation have a greater weighting towards variable remuneration. The table below shows the target remuneration mix for executive KMP in 2016. The STI portion is shown at target levels and the LTI portion is based on the value granted in 2016. Grant Blackley Chief Executive Ofﬁ cer and Managing Director Nick McKechnie Chief Financial Ofﬁ cer Guy Dobson Chief Content Ofﬁ cer Rick Lenarcic Head of Regional Media Brian Gallagher Chief Sales Ofﬁ cer Vijay Solanki Chief Digital Enablement Ofﬁ cer John Kelly1 Chief Operating Ofﬁ cer Fixed remuneration 58% 64% 81% 70% 68% 67% 80% STI 26% 18% 7% 15% 19% 15% 20% LTI 16% 18% 12% 15% 13% 18% 0% 1 John Kelly commenced employment on 1 February 2016 and was not eligible to participate in the FY16 grant under the LTI plan. 1.2 Fixed remuneration for executive KMP Fixed remuneration for executives is structured as a total employment package. Executives receive a combination of base pay, superannuation and prescribed non-ﬁ nancial beneﬁ ts at the executive’s discretion. The Company contributes superannuation on behalf of executives in accordance with the superannuation guarantee legislation. Fixed remuneration is reviewed annually to ensure the executive’s pay is competitive and appropriate for the results delivered. There are no guaranteed ﬁ xed remuneration increases included in any executive KMP contracts. 1.3 Variable remuneration for executive KMP The table below outlines details of the Company’s short-term and long-term incentive plans. What is the incentive? Short-term incentives The STI is an annual “at risk” bonus designed to reward executives for meeting or exceeding ﬁ nancial and non-ﬁ nancial objectives. How is each executive’s entitlement determined? Each executive is allocated a dollar value (which may be a ﬁ xed percentage of the executive’s total remuneration) representing the executive’s STI opportunity for the year. Long-term incentives The LTI plan provides executive KMP with grants of performance rights over ordinary shares, for nil consideration. Performance rights granted under the LTI plan are subject to a three-year performance period. From 2017, the LTI plan will also be made available to about 20 executives in the next tiers of management. Each executive is allocated a dollar value (which may be a ﬁ xed percentage of the executive’s total remuneration) representing the executive’s maximum LTI opportunity for the year. This dollar value is converted into a number of performance rights in the LTI plan, based on the fair value of performance rights at the applicable grant date. 34 Southern Cross Austereo . Annual Report How is the incentive delivered? What are the performance measures and hurdles? Short-term incentives STI awards for all executives other than the CEO are paid in cash according to the extent of achievement of the applicable performance measures. No portion of an STI award is subject to deferral. The CEO’s STI award is payable partly in cash and partly in equity. The equity component is 25% of the after-tax value of the total STI award. The Board sets the annual KPIs for the CEO near the beginning of each ﬁ nancial year. The KPIs are allocated to three categories having regard to the Company’s business strategy: proﬁ tability and ﬁ nancial performance (40%), high level operational improvements (40%) and cultural and behavioural inﬂ uences (20%). The CEO determines the KPIs for the other members of the senior leadership team in the same three categories and having regard to their areas of responsibility. KPIs for the Chief Creative Ofﬁ cer may allocate up to 40% to creative and content performance instead of proﬁ tability and ﬁ nancial performance. The metrics that applied under the STI plan in 2016 are summarised below. Proﬁ tability and ﬁ nancial performance/Creative and content performance (40%) – Group NPAT compared with budget: Focuses on ﬁ nancial results and collaboration for the overall beneﬁ t of the Group. This ﬁ nancial metric applies for the CEO, CFO and COO. – Segment EBITDA compared with budget: Focuses on the performance of segments for which they have direct responsibility. This metric applies for the Head of Regional Media. – Sales-related targets: Focuses on achieving sustainable ﬁ nancial performance from growing top-line revenue. This metric applies for the Chief Sales Ofﬁ cer. – Ratings targets: Revenue and ﬁ nancial performance is heavily dependent on ratings of both radio and television. This metric applies for the Chief Creative Ofﬁ cer (for radio). The Board has discretion to adjust budget targets to take into account acquisitions or divestments or other signiﬁ cant items where appropriate for linking remuneration reward to corporate performance. Achievements against ﬁ nancial metrics are based on the Company’s audited annual ﬁ nancial statements. The Board has discretion to make adjustments to take into account any signiﬁ cant non-cash items (for example impairment losses), acquisitions and divestments and one-off events/abnormal/ non-recurring items, where appropriate for linking remuneration reward to corporate performance. Long-term incentives To the extent that the applicable vesting conditions are satisﬁ ed at the end of the three-year performance period, LTI awards are delivered by allocation to participants of one fully paid ordinary share for each performance right that vests. The Board has discretion to settle vested awards in cash. From 2016, each grant under the LTI plan has two equally weighted performance hurdles over a three-year performance period. Relative TSR Performance hurdle (50%) TSR provides a comparison of relative shareholder returns that is relevant to most of the Company’s investors. The Relative TSR Performance hurdle takes into account share price appreciation plus reinvested dividends, expressed as a percentage of investment and adjusted for changes in the Company’s capital structure. Performance rights will vest if the Company’s TSR over the performance period is at or above the 51st percentile against the constituents of the ASX Consumer Discretionary Index at each grant date, excluding News Corporation. The comparator group represents a range of alternative companies that shareholders could invest in while maintaining portfolio sector balance. News Corporation has been excluded from each comparative group given the extent of its international business operations. TSR Performance Below 51st percentile 51st percentile 51st to 75th percentile At or above 75th percentile % of allocation that vests Nil 50% Straight-line vesting between 50% and 100% 100% There is no re-testing of performance hurdles under the LTI plan. Absolute EPS Performance hurdle (50%) Performance rights will vest if the Company’s adjusted EPS performance over the performance period is at or above a 3% Compound Annual Growth Rate (CAGR). Adjusted EPS excludes the impact of signiﬁ cant or non- recurring items (both income and costs) and so provides a fair measure of underlying long-term performance. Adjusted EPS is calculated by dividing the adjusted proﬁ t after tax attributable to shareholders for the relevant reporting period (reported proﬁ t after tax, adjusted for the after-tax effect of signiﬁ cant or non-recurring items) by the weighted average number of ordinary shares on issue in the Company over the relevant reporting period. Southern Cross Austereo . Annual Report 35 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2016 What are the performance measures and hurdles? (continued) Is there a gateway? What is the maximum amount payable? Short-term incentives High level operational performance (40%) – Strategy: Focuses on strategic initiatives (such as network strategy, material contracts and diversiﬁ cation of revenue streams) that deliver growth, improved business performance and shareholder value. – Operational improvements: Focuses on effective management of business support functions and infrastructure to sustain and improve long-term earnings performance. Cultural and behavioural inﬂ uences (20%) – People: Focuses on effective leadership and development and retention of talent to sustain and improve long-term earnings performance. – External relationships: Focuses on development and maintenance of constructive relationships with key stakeholders to sustain and improve long-term earnings performance. At least 90% of ﬁ nancial metrics relating to NPAT or EBITDA must be achieved before any ﬁ nancial STI is payable. (This gateway will increase to 95% in 2017.) At least 94% of ﬁ nancial metrics for sales or costs must be achieved before any ﬁ nancial STI is payable. (This gateway will increase to 97.5% in 2017.) Where the budget for a ﬁ nancial year is less than the previous year’s actual result, the applicable ﬁ nancial metric will be the previous year’s actual result. There is no gateway for non-ﬁ nancial measures. Individual performance must be at a “meets expectations” level before any STI is payable. The maximum award for non-ﬁ nancial measures under the STI plan is 100% of an executive’s STI opportunity for those measures. The maximum award for ﬁ nancial measures under the STI plan is 100% of an executive’s STI opportunity for that measure. In addition, an executive can earn up to 115% of the ﬁ nancial component (40%) of the executive’s STI if the Group achieves up to 120% of the relevant ﬁ nancial target. An executive’s maximum STI opportunity is therefore 106% of target. Long-term incentives Absolute EPS Performance % of allocation that vests Below 3% CAGR 3% CAGR Nil 50% Straight-line vesting between 50% and 100% 100% 3% – 8% CAGR At or above 8% CAGR Grants made under the LTI plans in operation before 2015 included both executive KMP and other senior executives, had performance periods of three or four years, and will vest based on satisfaction of TSR performance criteria only. Performance rights granted under these plans will reach their vesting dates over the next two years. The Relative TSR Performance hurdle will be achieved only if the Company’s relative TSR over the performance period is at or above the 51st percentile of the comparator group. The Absolute EPS Performance hurdle will be achieved only if the Company’s EPS performance over the performance period is at or above 3% CAGR. The maximum award under the LTI plan is 100% of an executive’s grant if all vesting conditions are fully satisﬁ ed over the performance period. % of budgeted NPAT/EBITDA <90% 90% to 100% 100% to 120% % of budgeted Sales <94% 94% to 100% 100% to 120% % of ﬁ nancial STI payable 0% Straight-line between 50% and 100% Straight-line between 100% and 115% % of ﬁ nancial STI payable 0% Straight-line between 50% and 100% Straight-line between 100% and 115% 36 Southern Cross Austereo . Annual Report Short-term incentives Long-term incentives What is the maximum amount payable? (continued) How is performance assessed? The maximum award for ﬁ nancial measures under the STI plan will be increased to 200% in 2017 if the Group achieves up to 105% of its NPAT target. An executive’s maximum STI opportunity will therefore be 140% of target. Having regard to assumptions underlying the budget, the Board considers that achieving 105% of the Group’s NPAT target would represent signiﬁ cant outperformance. Any STI award for such outperformance must be self-funding. This means that the outperformance must be achieved after providing for the incremental cost of any STI award. NPAT/EBITDA <95% Sales <97.5% 95% to 100% 97.5% to 100% 100% to 105% NPAT >105% n/a n/a % of ﬁ nancial STI payable 0% Straight-line between 50% and 100% Progressive scale between 100% and 200% 200% CEO: At the end of each ﬁ nancial year, with the assistance of the Committee, the Board assesses the actual performance of the Company and the CEO against the applicable KPIs and determines the STI amount payable to the CEO. Other executive KMP: At the end of the ﬁ nancial year the CEO assesses the actual performance of the Group and the executive KMPs against the applicable KPIs and determines the STI amount payable to each executive. The CEO provides these assessments to the Committee for review. The Group engages Deloitte Touche Tohmatsu (“Deloitte”) to report on the Company’s TSR ranking within the comparator group as deﬁ ned in each of the LTI plans at each vesting date. The Company may engage an independent consultant to report on the Company’s Absolute EPS performance over the vesting period for each LTI grant, which will ﬁ rst be required as at 30 June 2018. Cessation of employment “Bad Leavers” (who resign or are terminated for cause) will forfeit their STI entitlement, unless otherwise determined by the Board or the CEO as appropriate. The STI payments of executives who cease employment for other reasons are pro-rated for time and performance, unless otherwise determined by the Board. Change of control In the event of a change of control before the STI payment date, the STI payment is pro-rated for time and performance, subject to Board discretion. Clawback The Board may reconsider the level of satisfaction of a performance measure and take steps to reduce the beneﬁ t of an STI award to the extent its vesting was affected by fraud, dishonesty, breach of obligation or other action likely to result in long-term detriment to the Company. “Bad Leavers” (who resign or are terminated for cause) will forfeit any unvested performance rights, unless otherwise determined by the Board. For executives who cease employment for other reasons, the Board has discretion to vest any unvested performance rights on a pro-rata basis taking into account time and the current level of performance against the performance hurdle, or to hold the LTI award to be tested against performance hurdles at the end of the original vesting period. In the event of a change of control before vesting of an LTI award, the Board has discretion as to how to treat the unvested award, including to determine that the award will vest or lapse in whole or in part, or that it will continue subject to the same or different conditions. The Board may reconsider the level of satisfaction of a performance hurdle and take steps to reduce the beneﬁ t of an LTI award to the extent its vesting was affected by fraud, dishonesty, breach of obligation or other action likely to result in long-term detriment to the Company. Southern Cross Austereo . Annual Report 37 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2016 Other features Short-term incentives Long-term incentives Discretionary elements: The Board (for KMP) and the CEO (for other executives) have discretion to grant additional bonuses for special projects or achievements that are not contemplated in the normal course of business or that have a particular strategic impact for the Company, such as acquisitions and divestments, reﬁ nancing, or major capex projects. Minimum employment period: Participants must be employed for at least three months in the performance period to be entitled to receive any STI payment. Treatment of dividends: There are no dividends payable to participants on unvested performance rights. Once performance rights have vested to fully paid ordinary shares, the participant will be entitled to dividends on these shares. Sourcing of shares: The Board has discretion to purchase shares on-market or to issue new shares in respect of vested performance rights. 1.4 Retention bonuses for certain senior executives The Board determined in May 2015 that Nick McKechnie (CFO) and Guy Dobson (Chief Creative Ofﬁ cer) would be provided with a retention bonus opportunity to remain with the Company during the transitional period of leadership by the Executive Chairman in May 2015. The retention bonus for Nick McKechnie was $120,000 and was subject to his continuing employment to 30 June 2016. The bonus was constituted by the grant of 117,878 performance rights in accordance with the LTI plan, each with a fair value taken to be equal to the VWAP of the Company’s shares ($1.0180) for the ﬁ ve days commencing on 11 May 2015. Nick McKechnie remains in employment with the Company and accordingly these performance rights will vest and be converted to 117,878 fully paid ordinary shares on or around 26 August 2016 following release of the Company’s annual results. The retention bonus for Guy Dobson was $100,000 and was subject to his continuing employment to 30 June 2016 and certain other performance targets relating to radio ratings. Guy Dobson remains in employment with the Company; however, the applicable performance targets were not achieved and, accordingly, this retention bonus will not be payable. 1.5 Consequences of performance on shareholder value In considering the Group’s performance and the beneﬁ ts for shareholder value, the Board has regard to the following indicators in the current ﬁ nancial year and the preceding four ﬁ nancial years. 30 June 2016 30 June 2015 30 June 2014 30 June 2013 30 June 2012 $’000 $’000 $’000 $’000 $’000 Revenue EBITDA EBITDA % Net proﬁ t before tax Net proﬁ t after tax (“NPAT”) NPAT % Net proﬁ t after tax excluding signiﬁ cant items NPAT % excluding signiﬁ cant items Opening share price Closing share price Dividend/Distribution 642,289 167,722 26.1% 114,177 77,243 12.0% 77,243 12.0% 687,313 225,780 32.8% 126,282 95,022 13.8% 95,022 13.8% 30 June 2016 30 June 2015 30 June 2014 30 June 2013 30 June 2012 640,834 179,705 28.0% (279,577) (296,008) (46.2%) 79,629 12.4% 611,120 163,262 26.7% (265,216) (284,950) (46.6%) 64,783 10.6% 653,114 210,991 32.3% 133,269 96,111 14.7% 96,111 14.7% $0.97 $1.25 6.25c $1.07 $0.97 6.0c $1.43 $1.07 7.5c $1.20 $1.43 9.0c $1.55 $1.20 10.0c 1.6 Executive service contracts The Company has entered into service contracts setting out the terms of employment of each executive KMP. All service contracts are for an indeﬁ nite term, subject to termination by either party on six months’ notice (12 weeks’ notice in the case of Rick Lenarcic). In recognition that Vijay Solanki had relocated from overseas to join the Company, his service contract included provision for termination on 12 months’ notice. Each executive service contract provides for the payment of base salary and participation in the Company’s STI and LTI plans, along with other prescribed non-monetary beneﬁ ts. 38 Southern Cross Austereo . Annual Report 1.7 Services from remuneration consultants The Committee engaged KPMG to provide an independent report benchmarking the remuneration of the Company’s executive KMP and its non-executive directors. KPMG met with management to obtain relevant information, but KPMG provided its report directly to the Committee. KPMG was paid $28,000 for these services. Neither KPMG nor any other external adviser provided any remuneration recommendation to the Company during the year. Deloitte was engaged during the year to assess the performance of the Company’s LTI plans as at each vesting date and, for this purpose, to determine the Group’s TSR ranking within the comparator group and EPS growth over the applicable performance periods. Deloitte was also engaged to determine the fair value of performance rights granted under the LTI plan during the year. Deloitte was paid $21,000 for these services. 1.8 Remuneration of non-executive directors The Company enters into a letter of appointment with each non-executive director. The letter sets out the Board’s expectations for non- executive directors and the remuneration payable to non-executive directors. The maximum annual aggregate fee pool for non-executive directors is $1,500,000. This was approved by shareholders at the 2011 Annual General Meeting. The Chairman and the Deputy Chairman receive a ﬁ xed aggregate fee. Other non-executive directors receive a base fee for acting as a director and additional fees for participation as chair or as a member of the Board’s committees. Non-executive directors do not receive performance- based fees and are not entitled to retirement beneﬁ ts as part of their fees. Following consideration of the benchmarking report prepared by KPMG, the Board’s base and committee fees will be increased by 6% in 2017, the ﬁ rst time since 2011 that these fees have been adjusted. Fees will be increased in subsequent years by 3%, with a benchmarking report to be obtained again in three years’ time. The number of non-executive directors reduced from eight to seven during the year and the aggregate remuneration of non-executive directors in 2017 will be less than in 2016. The table below sets out the fees for non-executive directors that applied in 2015 and 2016 and those that will apply in 2017. Base fees – Annual Chairman1 Deputy Chairman1 Other Non-Executive Directors Committee fees – Annual Audit & Risk Committee – Chairman Audit & Risk Committee – member People & Culture Committee2 – Chairman1 People & Culture Committee2 – member Nomination Committee – Chairman1 Nomination Committee – member 2015 $ 2016 $ 2017 $ 250,000 161,500 125,000 250,000 161,500 125,000 265,000 171,000 132,000 21,000 14,000 15,000 10,000 15,000 10,000 21,000 14,000 15,000 10,000 15,000 10,000 22,500 15,000 16,000 10,500 16,000 10,500 1 The Chairman and Deputy Chairman do not receive any additional fees for committee work. Accordingly, the fees set out above for Chair of the Nomination Committee and the People & Culture Committee respectively were not paid during 2015 or 2016. 2 During the year the Remuneration Committee was renamed as the People & Culture Committee. Southern Cross Austereo . Annual Report 39 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2016 2. Remuneration of executive KMP and directors during the year 2.1 Executive KMP The table below sets out the nature and amount of each major element of the remuneration of each executive KMP in 2016 and 2015. Other long- term2 Termination beneﬁ ts Share-based payments Total Perfor- mance- related propor- tion Short-term employee beneﬁ ts Salary and fees $ STI cash bonus3 $ Non- monetary $ Total $ Post- employ- ment Super con- tribution $ Executive1 Year $ $ Grant Blackley 2016 1,098,501 500,000 3,866 1,602,367 19,308 5,011 Chief Executive Ofﬁ cer and Managing Director 2015 8,750 – – 8,750 831 – Nick McKechnie 2016 500,000 150,000 2,807 652,807 19,308 (12,743) Chief Financial Ofﬁ cer John Kelly Chief Operating Ofﬁ cer Brian Gallagher 2015 2016 2015 2016 407,197 214,872 17,500 58,330 2,461 427,158 844 274,046 17,146 9,654 2,345 14,127 – – – – – – 481,884 150,000 3,669 635,553 19,308 15,060 Chief Sales Ofﬁ cer 2015 – – – – – – Guy Dobson 2016 633,530 59,580 5,146 698,256 19,308 38,282 14,000 96,700 68,003 24,000 5,872 653,402 25,178 481,423 12,829 290,832 5,146 380,646 18,873 19,308 14,088 23,876 11,632 48,952 25,538 (3,752) 294,531 Perform- ance rights4 $ $ % 100,000 1,726,686 34.7 – 9,581 – 220,0006 879,372 42.1 50,000 – – 496,649 297,827 13.6 19.6 – – 33,333 703,254 26.1 – – – 98,608 854,454 18.5 98,605 86,109 76,801 33,333 782,512 635,792 14.4 28.8 407,259 35.6 728,634 3.5 – – – – – – – – – – – – 633,530 359,545 210,000 351,500 50,214 – 51,136 – Chief Content Ofﬁ cer Rick Lenarcic Head of Regional Media Vijay Solanki5 Chief Digital Enablement Ofﬁ cer Peter Bush Former Executive Chairman Rhys Holleran Former Chief Executive Ofﬁ cer Andrea Ingham Former National Sales Director Craig Bruce Former Head of Content Clive Dickens Former Director of Digital and Innovation Peter Lewis Former Chief Financial Ofﬁ cer Total executive KMP 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 – – – – – – – – 50,214 4,696 3,752 – 51,136 – – – – – – – – – – – – – – – 58,662 – 51,136 – 975,000 70,000 33,536 1,078,536 25,000 (1,088,498) 1,990,034 116,667 2,121,739 – – – – – – 401,500 10,000 5,872 417,372 18,873 3,420 – 130,882 – 202,192 – 94,573 – – – – – – – – – – – – 130,882 4,696 (11,728) – – – 3,652 205,844 16,761 7,113 – – – – 94,573 4,641 – – – – – – – – – – – – – – – – – – – 123,850 – 229,718 – 99,214 3,639,832 1,038,610 46,656 4,725,098 130,070 104,937 294,531 571,383 5,826,019 3,164,974 179,503 64,222 3,408,699 125,605 (1,046,426) 1,990,034 430,957 4,908,869 88,884 528,549 18.7 – – – – 8.8 – – – – – – – 27.6 12.4 1 A number of executive KMP did not hold their roles for the full ﬁ nancial year. Remuneration is only disclosed for the time they were KMP in each year. Grant Blackley commenced on 29 June 2015. John Kelly commenced on 1 February 2016. Brian Gallagher commenced on 15 July 2015. Vijay Solanki commenced on 11 May 2015 and resigned with effect from 30 June 2016. 2 Amounts represent movements in employee leave entitlements, with a negative balance representing an overall reduction in the employee leave provision balance compared with prior year. 40 Southern Cross Austereo . Annual Report 3 The STI bonus is for performance during the year using the criteria set out on page 35. The amount was ﬁ nally determined by the Board on 24 August 2016 after considering recommendations of the People & Culture Committee. 4 The fair value of the performance rights granted during the year was determined by the Company’s independent consultant, Deloitte. In accordance with the applicable accounting standards, AASB 2 “Share-based Payment” and AASB 124 “Related Party Disclosures”, Deloitte used a Monte Carlo simulation model for the Relative TSR performance rights and a Black-Scholes-Merton model for the Absolute EPS performance rights. The value disclosed is the portion of the fair value of the rights recognised as an expense in each reporting period. 5 Vijay Solanki resigned with effect from 30 June 2016. His former position of Chief Digital Enablement Ofﬁ cer has not been replaced. 6 The retention bonus for Nick McKechnie was $120,000 and was subject to his continuing employment to 30 June 2016. The bonus was constituted by the grant of 117,878 performance rights in accordance with the LTI plan. 2.2 Non-executive directors The table below sets out the nature and amount of each major element of the remuneration of each non-executive director in 2016 and 2015. Non-executive director1 Peter Bush Chairman Leon Pasternak Deputy Chairman Glen Boreham Non-executive director Chris de Boer Non-executive director Kathy Gramp Non-executive director Peter Harvie Non-executive director Rob Murray Non-executive director Helen Nash Non-executive director Melanie Willis Non-executive director Max Moore-Wilton Former non-executive director Michael Carapiet Former non-executive director TOTAL Short-term employee beneﬁ ts Salary and fees $ Non- monetary $ 230,692 76,830 147,488 147,488 126,027 102,740 130,592 142,464 136,072 108,066 123,288 126,484 133,333 108,066 126,940 31,735 13,187 – – 153,660 – 31,250 1,167,619 1,028,783 – – – – – – – – – – – – – – – – – – – – – – – Year 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Total $ 230,692 76,830 147,488 147,488 126,027 102,740 130,592 142,464 136,072 108,066 123,288 126,484 133,333 108,066 126,940 31,735 13,187 – – 153,660 – 31,250 1,167,619 1,028,783 Post- employment Super contribution $ 19,308 6,503 14,012 14,012 11,973 9,760 12,408 13,536 12,928 10,267 11,712 12,016 12,667 10,267 12,060 3,015 1,253 – – 13,007 – – 108,321 92,383 Total $ 250,000 83,333 161,500 161,500 138,000 112,500 143,000 156,000 149,000 118,333 135,000 138,500 146,000 118,333 139,000 34,750 14,440 – – 166,667 – 31,250 1,275,940 1,121,166 1 A number of non-executive directors did not hold their roles for the full ﬁ nancial year in 2015 or 2016. Remuneration is only disclosed for the time they were non- executive directors in each year. Peter Bush was appointed on 25 February 2015. Glen Boreham was appointed on 1 September 2014. Chris de Boer resigned on 26 May 2016. Kathy Gramp was appointed on 1 September 2014 and resigned on 21 June 2016. Rob Murray was appointed on 1 September 2014. Helen Nash was appointed on 23 April 2015. Melanie Willis was appointed on 26 May 2016. Southern Cross Austereo . Annual Report 41 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2016 3. Analysis of short-term incentives included in remuneration The table below sets out details of the vesting of short term incentive bonus payments awarded as remuneration to executive KMP for the year. KMP Grant Blackley Nick McKechnie John Kelly3 Brian Gallagher Guy Dobson Rick Lenarcic Vijay Solanki Short-term incentive bonus % vested in year Included in remuneration1 $ Proﬁ tability and ﬁ nancial performance5 High level operational improvements Cultural and behavioural inﬂ uences % forfeited in year2 500,000 150,000 58,330 150,000 59,580 96,700 24,000 40% 40% 40% 40% –4 40% 10% 40% 40% 40% 40% 40% 40% 13% 20% 20% 20% 20% 20% 16.7% 8% – – – – 40% 3.3% 69% 1 Amounts included in remuneration for the year represent the amounts related to the year based on achievement of corporate and personal goals for each executive. These amounts were approved by the Board on 24 August 2016. 2 The amounts forfeited are due to corporate and personal goals not being achieved in the year. 3 John Kelly’s bonus was pro-rated for his employment of ﬁ ve months during the year. 4 The ﬁ rst performance measure was based on Creative and Content performance for Guy Dobson. 5 Although budget targets were achieved, the Board did not award any of the stretch opportunity of up to 115% available for the proﬁ tability and ﬁ nancial performance component of the STI plan. 4. Share-based incentive payments All references to rights in this section are to performance rights over fully paid ordinary shares in the Company issued under the Company’s LTI plan. Rights are convertible into fully paid ordinary shares in the Company on a one-for-one basis upon vesting in accordance with the Company’s LTI plan. There are no options on issue under the Company’s LTI plan. 4.1 Rights granted as remuneration during the year The tables below set out details of the rights over shares granted as remuneration to each KMP under the Company’s LTI plan during the year. KMP Grant Blackley Nick McKechnie John Kelly1 Brian Gallagher Guy Dobson Rick Lenarcic Vijay Solanki Number of rights granted 491,803 245,902 – 163,934 163,934 163,934 163,934 1 John Kelly commenced as Chief Operating Ofﬁ cer on 1 February 2016 and was not eligible for a grant of rights in the 2016 plan. Details for all rights granted in ﬁ nancial year Grant Date Fair value at grant date Vesting date Relative TSR 2 September 2015 $0.45 30 June 2018 Absolute EPS 2 September 2015 $0.77 30 June 2018 All rights expire on the earlier of their vesting date or termination of the executive’s employment on a pro-rata basis. The rights vest at the end of the third ﬁ nancial year after their grant. This is 30 June 2018 for all rights granted in the year. In addition to a continuing employment condition, vesting is conditional on the Group achieving speciﬁ ed performance hurdles. Details of the performance hurdles are included in the discussion of the LTI plan on page 35. The fair value of rights issued during the year was determined by the Company’s independent consultant, Deloitte, using a Monte Carlo simulation model for the Relative TSR performance rights and a Black-Scholes-Merton model for the Absolute EPS performance rights. 42 Southern Cross Austereo . Annual Report 4.2 Details of equity incentives affecting current and future remuneration The table below sets out the vesting proﬁ les of rights held by each KMP as at 30 June 2016 and details of rights that vested during the year. At the end of the year, there were no rights that had vested and which had not been exercised by conversion to fully paid ordinary shares. Name Grant Blackley Grant Date Vesting Date FY16 Plan 01/07/2018 Total Nick McKechnie1 9 May 15 26/08/2016 FY16 Plan 01/07/2018 FY15 Plan 01/07/2017 Total Brian Gallagher FY16 Plan 01/07/2018 Total FY16 Plan 01/07/2018 FY15 Plan 01/07/2017 FY14 Plan 01/07/2015 01/07/2016 01/07/2017 FY13 Plan 01/07/2015 01/07/2016 Guy Dobson Rick Lenarcic Vijay Solanki2 Total FY16 Plan 01/07/2018 FY15 Plan 01/07/2017 FY14 Plan 01/07/2015 01/07/2016 01/07/2017 FY13 Plan 01/07/2015 01/07/2016 Total FY16 Plan 01/07/2018 Total No. of Perf Rights Granted Value of Perf Rights at Grant Date3 $ No. of Perf Rights Vested and Exercised During the Year Vested and Exercised % No. of Perf Rights Forfeited During the Year4 No. of Perf Rights Remaining at Year End Value of Perf Rights yet to Vest $ Forfeited %4 491,803 491,803 117,878 245,902 192,704 556,484 163,934 163,934 163,934 128,469 32,676 32,359 32,359 94,330 92,583 576,710 163,934 128,469 22,874 22,651 22,651 44,021 43,206 447,806 163,934 163,934 300,000 300,000 120,000 150,000 150,000 420,000 100,000 100,000 100,000 100,000 33,330 33,330 33,330 49,995 49,995 399,980 100,000 100,000 23,333 23,333 23,333 23,333 23,333 316,665 100,000 100,000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 0.0% – – 0.0% – – – – – – – – – – – 32,676 – – 94,330 – 0.0% 127,006 – – 22,874 – – 44,021 – 66,895 109,290 109,290 – – 0.0% – – 0.0% – 0.0% – – – – – – – – – – – – 100.0% – – 100.0% – 491,803 491,803 117,878 245,902 192,704 556,484 163,934 163,934 163,934 128,469 – 32,359 32,359 – 92,583 100.0% 449,704 163,934 128,469 – 22,651 22,651 – 43,206 100.0% 380,911 54,644 54,644 – – 100.0% – – 100.0% – 66.7% 66.7% 300,000 300,000 120,000 150,000 150,000 420,000 100,000 100,000 100,000 100,000 – 33,330 33,330 – 49,995 316,655 100,000 100,000 – 23,333 23,333 – 23,333 269,999 33,333 33,333 1 Nick McKechnie was granted 117,878 rights as a retention bonus, subject to his continuing employment to 30 June 2016. As described on page 38, these rights will vest on 26 August 2016. 2 Vijay Solanki resigned with effect from 30 June 2016. Two-thirds of the rights granted to him in 2016 were forfeited. The balance of his rights remain eligible for vesting at the end of the 2016 plan. 3 The value of rights granted is the fair value of rights calculated at the grant date. The total value of rights granted in the table is allocated to remuneration over the vesting period. 4 The number and percentage of rights forfeited during the year is the reduction from the maximum number of rights available to vest due to the performance criteria not being satisﬁ ed, together with the rights forfeited by Vijay Solanki on his resignation with effect from 30 June 2016. Southern Cross Austereo . Annual Report 43 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2016 The only vesting condition for each grant of rights with a vesting date of 1 July 2015 was the Company’s relative TSR performance against companies in the comparator group over the vesting period. As indicated in the table above, the vesting condition for each of these grants was not achieved. A summary of the Company’s relative TSR performance over the vesting period for each of these grants, as provided by the Company’s independent consultant, Deloitte, is provided below. Grant FY2012 – Tranche 4 FY2013 – Tranche 3 FY2014 – Tranche 2 Percentile ranking % vested 38.0 30.0 17.0 0% 0% 0% The only vesting condition for each grant of rights with a vesting date of 1 July 2016 was the Company’s relative TSR performance against companies in the comparator group over the vesting period. The Company has also received a report from Deloitte relating to the vesting condition for each of these grants. A summary of the Company’s relative TSR performance over the vesting period for each of these grants is provided below. The grants that have vested will be included in the remuneration of participating executives in 2017. Grant FY2013 – Tranche 4 FY2014 – Tranche 3 Percentile ranking 17.0 27.0 % vested 0% 0% 5. Payments to executives before taking ofﬁ ce There were no payments made during the year to any person as part of the consideration for the person taking ofﬁ ce. 6. Transactions with KMP 6.1 Loans to KMP There were no loans made to KMP or their related parties during the year. 6.2 Other transactions and balances with KMP There were no other transactions with KMP or their related parties during the year. 7. KMP shareholdings The table below sets out the movements in shares held directly or indirectly by KMP during the year. Received during the year on exercise of performance rights Other changes during the year Balance at end of year – – – – – – – – – – – – – – – – – – – 50,000 52,573 – 102,573 – 1,185,215 95,000 20,000 50,000 52,573 – 1,402,788 – – – – – – – – – 26,760 – – – – – 26,760 Balance at start of year – 1,185,215 95,000 20,000 – – – 1,300,215 – 26,760 – – – – – 26,760 Non-executive directors Peter Bush Leon Pasternak Glen Boreham Peter Harvie Rob Murray Helen Nash Melanie Willis Executives Grant Blackley Nick McKechnie John Kelly Brian Gallagher Guy Dobson Rick Lenarcic Vijay Solanki 44 Southern Cross Austereo . Annual Report A copy of the Auditor’s Independence Declaration, as required under s307C of the Corporations Act 2001, is set out on page 46. This report is signed in accordance with resolutions of the Directors of Southern Cross Media Group Limited. Peter Bush Chairman Southern Cross Media Group Limited Sydney, Australia 25 August 2016 Leon Pasternak Deputy Chairman Southern Cross Media Group Limited Sydney, Australia 25 August 2016 Southern Cross Austereo . Annual Report 45 AUDITOR’S INDEPENDENCE DECLARATION Auditor’s Independence Declaration Auditor’s Independence Declaration As lead auditor for the audit of Southern Cross Media Group Limited for the year ended 30 June 2016, I declare that to the best of my knowledge and belief, there have been: As lead auditor for the audit of Southern Cross Media Group Limited for the year ended 30 June 2015, I declare that to the best of my knowledge and belief, there have been: 1. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in 2. no contraventions of any applicable code of professional conduct in relation to the audit . relation to the audit; and This declaration is in respect of Southern Cross Media Group Limited and the entities it controlled during the period . b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Southern Cross Media Group Limited and the entities it controlled during the period. Sam Lobley Partner PricewaterhouseCoopers Sam Lobley Partner PricewaterhouseCoopers Melbourne 25 August 2016 Melbourne 26 August 2015 PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 46 Southern Cross Austereo . Annual Report STATEMENT OF COMPREHENSIVE INCOME FOR YEAR ENDED 30 JUNE 2016 Revenue from continuing operations Broadcast and production costs Employee expenses Selling costs Occupancy costs Promotions and marketing Administration costs Share of net proﬁ t/(losses) of investments accounted for using the equity method Proﬁ t before depreciation, amortisation, interest, impairment, fair value movements on ﬁ nancial derivatives and income tax expenses for the year from continuing operations Depreciation and amortisation expense Impairment of intangibles and investments Interest expense and other borrowing costs Interest revenue Proﬁ t/(Loss) before income tax expense for the year from continuing operations Income tax expense from continuing operations Proﬁ t/(Loss) from continuing operations after income tax expense for the year Other comprehensive income that may be reclassiﬁ ed to proﬁ t or loss: Changes to fair value of cash ﬂ ow hedges, net of tax Total comprehensive proﬁ t/(loss) for the year attributable to shareholders Note 3 17 7,8 15 5 Consolidated 2016 $’000 642,289 (111,627) (184,336) (79,908) (30,966) (19,004) (49,012) 286 167,722 (28,850) – (26,029) 1,334 114,177 (36,934) 77,243 2015 $’000 611,120 (107,756) (169,313) (69,313) (30,684) (19,009) (51,962) 179 163,262 (28,534) (361,414) (40,216) 1,686 (265,216) (19,734) (284,950) (1,080) 76,163 4,284 (280,666) Earnings per share attributable to the ordinary equity holders of the Company: Basic earnings per share (cents) Diluted earnings per share (cents) 13 13 10.12 10.10 (39.27) (39.27) The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. Southern Cross Austereo . Annual Report 47 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 Current assets Cash and cash equivalents Receivables Total current assets Non-current assets Receivables Investments accounted for using the equity method Property, plant and equipment Intangible assets Deferred tax assets Total non-current assets Total assets Current liabilities Payables Deferred Income Provisions Borrowings Current tax liabilities Total current liabilities Non-current liabilities Deferred Income Provisions Borrowings Derivative ﬁ nancial instruments Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Other equity transaction Accumulated losses Equity attributable to equity holders Non-controlling interest Total equity Consolidated 2016 $’000 2015 $’000 Note 10 10 17 6 7 5 10 10 10 15 10 10 15 16 14 14 94,776 142,003 236,779 143,051 122,038 265,089 2,677 3,657 145,249 1,289,509 9,922 1,451,014 1,687,793 4,550 3,059 163,841 1,289,440 12,336 1,473,226 1,738,315 86,388 12,590 19,347 35,957 9,109 163,391 95,278 11,839 433,864 3,273 544,254 707,645 980,148 80,924 7,768 20,976 21,261 7,128 138,057 – 13,790 647,964 1,732 663,486 801,543 936,772 1,379,386 2,462 (77,406) (324,592) 979,850 298 980,148 1,365,110 3,014 (77,406) (354,244) 936,474 298 936,772 The above Statement of Financial Position should be read in conjunction with the accompanying notes. 48 Southern Cross Austereo . Annual Report STATEMENT OF CHANGES IN EQUITY FOR YEAR ENDED 30 JUNE 2016 Contributed equity $’000 Share-based payment reserve $’000 Hedge reserve $’000 Other equity transactions $’000 (Accumulated losses) /retained proﬁ ts $’000 Non- controlling interest $’000 Total $’000 Total equity $’000 1,365,110 – 4,226 – (1,212) – (77,406) – (354,244) 77,243 936,474 77,243 298 – 936,772 77,243 – – – 14,276 – 14,276 – – (1,080) (1,080) 528 – – 528 – – – – – – – – – – – (1,080) 77,243 76,163 – 528 – (47,591) (47,591) 14,276 (47,591) (32,787) – – – – – – (1,080) 76,163 528 14,276 (47,591) (32,787) 1,379,386 4,754 (2,292) (77,406) (324,592) 979,850 298 980,148 Contributed equity $’000 Share-based payment reserve $’000 Hedge reserve $’000 Other equity transactions $’000 (Accumulated losses) /retained proﬁ ts $’000 Non- controlling interest $’000 Total $’000 Total equity $’000 1,686,878 – 3,503 – (5,496) – (77,406) – (394,167) (284,950) 1,213,312 (284,950) 298 – 1,213,610 (284,950) – – – 46,232 (368,000) – (321,768) – – 4,284 4,284 723 – – – 723 – – – – – – – – – – – – – 4,284 (284,950) (280,666) – – 723 46,232 368,000 (43,127) 324,873 – (43,127) 3,828 – – – – – – – 4,284 (280,666) 723 46,232 – (43,127) 3,828 1,365,110 4,226 (1,212) (77,406) (354,244) 936,474 298 936,772 2016 Total equity at 1 July 2015 Proﬁ t for the year Other comprehensive income Total comprehensive income Transactions with equity holders in their capacity as equity holders: Employee share entitlements Shares issued, net of transaction costs Dividends paid Total equity at 30 June 2016 2015 Total equity at 1 July 2014 Proﬁ t for the year Other comprehensive income Total comprehensive income Transactions with equity holders in their capacity as equity holders: Employee share entitlements Shares issued, net of transaction costs Capital reduction per Corporations Act Section 258F Dividends paid Total equity at 30 June 2015 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. Southern Cross Austereo . Annual Report 49 STATEMENT OF CASH FLOWS FOR YEAR ENDED 30 JUNE 2016 Cash ﬂ ows from operating activities Receipts from customers Payments to suppliers and employees Interest received from external parties Tax paid Net cash inﬂ ows from operating activities Cash ﬂ ows from investing activities Payments for purchase of property, plant and equipment Payments for purchase of intangibles Proceeds from sale of property, plant and equipment Net cash ﬂ ows used in investing activities Cash ﬂ ows from ﬁ nancing activities Dividends paid to security holders Proceeds from DRP underwrite Net proceeds from receivables ﬁ nancing Repayment of borrowings from external parties Interest paid to external parties Payments for ﬁ nance leases Net cash ﬂ ows used in ﬁ nancing activities Net (decrease)/increase in cash and cash equivalents Cash assets at the beginning of the year Cash assets at the end of the year The above Statement of Cash Flows should be read in conjunction with the accompanying notes. Note 9 Consolidated 2016 $’000 2015 $’000 793,755 (538,508) 1,334 (32,843) 223,738 (23,262) (69) 16,141 (7,190) (33,680) – 14,640 (215,000) (30,485) (298) (264,823) (48,275) 143,051 94,776 668,659 (507,267) 1,686 (44,338) 118,740 (28,232) (242) 9,640 (18,834) (15,774) 15,774 22,161 – (40,567) (539) (18,945) 80,961 62,090 143,051 50 Southern Cross Austereo . Annual Report NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 Key Numbers Capital Management Group Structure Other 1. Summary of Signiﬁ cant Accounting Policies 11. Capital Management 17. Non-Current Assets 20. Share-Based Payments Objectives – Investments Accounted for Using the Equity Method 2. Segment Information 12. Dividends Paid and 18. Subsidiaries 21. Remuneration of Auditors Proposed 3. Revenue 13. Earnings per Share 19. Parent Entity Financial 22. Related Party Disclosures Information 4. Signiﬁ cant Items 14. Contributed Equity and Reserves 23. Leases and Other Commitments 5. Income Tax Expense 15. Borrowings 6. Non-Current Assets – Property, Plant and Equipment 16. Financial Risk Management 24. Events Occurring after Balance Sheet Date 25. Other Accounting Policies 7. Non-Current Assets – Intangible Assets 8. Impairment 9. Reconciliation of Proﬁ t/ (Loss) after Income Tax to Net Cash Inﬂ ow from Operating Activities 10. Receivables, Payables, Deferred Income and Provisions Southern Cross Austereo . Annual Report 51 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 Key Numbers 1. Summary of Signiﬁ cant Accounting Policies The principal accounting policies adopted in the preparation of these consolidated ﬁ nancial statements are set out below. In addition, signiﬁ cant and other accounting policies that summarise the measurement basis used and that are relevant to an understanding of the ﬁ nancial statements are provided throughout the notes to the ﬁ nancial statements. These policies have been consistently applied to all the years presented, unless otherwise stated. The ﬁ nancial statements are for the consolidated entity consisting of Southern Cross Media Group Limited (“the Company”) and its subsidiaries (“the Group”). Basis of preparation This general purpose ﬁ nancial report has been prepared in accordance with Australian Accounting Standards and the Corporations Act 2001 (where applicable). The Group is a for-proﬁ t entity for the purpose of preparing the ﬁ nancial statements. Information in respect of the parent entity in this ﬁ nancial report relates to Southern Cross Media Group Limited. i) Compliance with IFRS Compliance with Australian Accounting Standards ensures that the ﬁ nancial statements and notes of the Group comply with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Consequently this ﬁ nancial report has also been prepared in accordance with and complies with IFRS as issued by the IASB. ii) Historical cost convention These ﬁ nancial statements have been prepared under the historical cost convention, as modiﬁ ed by the revaluation of certain ﬁ nancial assets and liabilities (including derivative instruments) at fair value through proﬁ t or loss. All amounts are presented in Australian dollars, unless otherwise noted. iii) Comparative ﬁ gures Where necessary, comparative ﬁ gures have been adjusted to conform to changes in presentation in the current year. a) Principles of consolidation The consolidated ﬁ nancial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 June 2016 and the results of all subsidiaries for the year then ended. Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. The effects of all transactions between entities in the Group are eliminated in full. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group except as follows: – At the time of Initial Public Offering (“IPO”) Southern Cross Media Australia Holdings Pty Limited (“SCMAHL”) was deemed to be the accounting acquirer of both Southern Cross Media Group Limited (“SCMGL”) and Southern Cross Media Trust (“SCMT”), which was neither the legal parent nor legal acquirer; and – This reﬂ ects the requirements of AASB 3 that in situations where an existing entity (SCMAHL) arranges to be acquired by a smaller entity (SCMGL) for the purposes of a stock exchange listing, the existing entity (SCMAHL) should be deemed to be the acquirer, subject to consideration of other factors such as management of the entities involved in the transaction and relative fair values of the entities involved in the transaction. This is commonly referred to as a reverse acquisition. At the time of IPO, in November 2005, the reverse acquisition guidance of AASB 3 was applied to the Group and the cost of the Business Combination was deemed to be paid by SCMAHL to acquire SCMGL and SCMT. The cost was determined by reference to the fair value of the net assets of SCMGL and SCMT immediately prior to the Business Combination. The investment made by the legal parent SCMGL in SCMAHL to legally acquire the existing radio assets is eliminated on consolidation. In applying the guidance of AASB 3, this elimination results in a debit of $77.4 million to other equity transactions. This does not affect the Group’s distributable proﬁ ts. Rounding of amounts The Group and the Company are of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission. The Group and the Company have relied on the relief provided by the instrument in the Directors’ Report and in the notes to the ﬁ nancial statements. Amounts in the ﬁ nancial report have been rounded off in accordance with that Instrument to the nearest thousand dollars, unless otherwise indicated. Critical accounting estimates and judgement The preparation of the ﬁ nancial report in accordance with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the accounting policies. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a ﬁ nancial impact on the entity and that are believed to be reasonable under the circumstances. Management believes the estimates used in the preparation of the ﬁ nancial report are reasonable. Actual results in the future may differ from those reported. Judgements and estimates which are material to the ﬁ nancial report are found in the following notes: Note 7 Non-Current Assets – Intangible Assets Note 8 Impairment Page 57 Page 58 Notes to the ﬁ nancial statements The notes to the ﬁ nancial statements have been restructured to make the ﬁ nancial report more relevant and readable, with a focus on information that is material to the operations, ﬁ nancial position and performance of the Group. Additional information has also been included where it is important for understanding the Group’s performance. Notes relating to individual line items in the ﬁ nancial statements now include accounting policy information where it is considered relevant to an understanding of these items, as well as information about critical accounting estimates and judgements. Details of the impact of new accounting policies and all other accounting policy information are disclosed at the end of the ﬁ nancial report in note 25. 52 Southern Cross Austereo . Annual Report 2. Segment Information AASB 8 requires operating segments to be identiﬁ ed on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. Management has determined operating segments based on the information reported to the Group CEO and the Company Board of Directors. Management has determined that the Group has two operating segments being the Regional free-to-air commercial radio and television broadcasting segment and the Metro free-to-air radio broadcasting segment. Metro Regional Corporate Consolidated 2016 $’000 242,253 2015 $’000 224,147 2016 $’000 382,267 2015 $’000 361,553 2016 $’000 17,769 2015 $’000 25,420 2016 $’000 642,289 2015 $’000 611,120 51,437 57,788 131,150 114,723 (14,865) (9,249) 167,722 163,262 21.2% 25.8% 34.3% 31.7% (83.7%) (36.4%) 26.1% 26.7% – (276,468) – (84,946) – – – (361,414) (5,502) (4,995) (13,981) (14,384) (9,367) (9,155) (28,850) (28,534) 45,935 (223,675) 117,169 15,393 (24,232) (18,404) 138,872 (226,686) – – – – – – – – – – – – – – – – – – (36,934) (24,695) (19,734) (38,530) 77,243 (284,950) Segment Revenue EBITDA/Segment Result EBITDA % of Revenue Impairment of intangibles and investments Depreciation and Amortisation Statutory EBIT/ Segment Result Income tax expense Financing costs Proﬁ t/(Loss) for the year attributable to shareholders 3. Revenue The proﬁ t before income tax from continuing operations included the following speciﬁ c items of revenue: Revenue from continuing operations Sales revenue Rental revenue Net income from sale of property, plant and equipment Total revenue from continuing operations Consolidated 2016 $’000 2015 $’000 632,993 6,562 2,734 642,289 602,419 6,261 2,440 611,120 Recognition and Measurement Revenues are recognised at fair value of the consideration received or receivable net of the amount of GST payable to the relevant taxation authority. Sales revenue Revenue represents revenue earned primarily from the sale of television, radio and digital advertising airtime and related activities, including sponsorship and promotions. Revenue is recorded when the service is provided, being primarily when the advertisement is aired. Commissions payable to media agencies are recognised as selling costs. Other regular sources of operating revenue are derived from commercial production for advertisers, including facility sharing revenue and program sharing revenue. Revenue from commercial production is recognised on invoice, at the time of completion of the commercial. Southern Cross Austereo . Annual Report 53 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 4. Signiﬁ cant Items The net proﬁ t/(loss) after tax includes the following items whose disclosure is relevant in explaining the ﬁ nancial performance of the Group. Signiﬁ cant items are those items of such a nature or size that separate disclosure will assist users to understand the ﬁ nancial statements. Impairment of intangibles and investments (refer notes 7 and 8) Derecognition of Deferred Tax Liability on impairment (note 5) Total Signiﬁ cant Items included in net loss after tax Consolidated 2016 $’000 – – – 2015 $’000 (361,414) 11,681 (349,733) Income Tax Expense 5. The income tax expense for the ﬁ nancial year differs from the amount calculated on the net result from continuing operations. The differences are reconciled as follows: Income tax expense/(beneﬁ t) Current tax Current tax on proﬁ ts for the year Adjustments for current tax of prior periods Total current tax expense Deferred income tax Decrease/(increase) in net deferred tax assets Adjustments for deferred tax of prior periods Total deferred tax expense/(beneﬁ t) Reconciliation of income tax expense to prima facie tax payable Proﬁ t/(Loss) before income tax expense Tax at the Australian tax rate of 30% Tax effect of amounts which are not deductible/(taxable) in calculating taxable income Deferred tax asset not recognised on impairment of non-current assets Share of net proﬁ ts of associates Non-deductible entertainment expenses Other (deductible expenses)/(non-assessable income)/non-deductible expenses Adjustments recognised in the current year in relation to prior years Income tax expense Consolidated 2016 $’000 2015 $’000 33,188 870 34,058 31,929 (3,419) 28,510 3,372 (496) 2,876 (12,498) 3,722 (8,776) 114,177 34,253 (265,216) (79,565) – (86) 1,693 700 374 36,934 96,744 (53) 1,499 806 303 19,734 54 Southern Cross Austereo . Annual Report Deferred Tax Assets The balance comprises temporary differences attributable to: Licences and brands Employee beneﬁ ts Provisions Interest rate swaps Other Net balance disclosed as deferred tax assets Consolidated 2016 $’000 (3,253) 5,797 3,413 982 2,983 9,922 2015 $’000 (3,253) 6,197 4,085 519 4,788 12,336 For the year ended 30 June 2016, the Company had $0.5 million of income tax beneﬁ t (2015: $1.8 million expense) recognised directly in equity in relation to cash ﬂ ow hedges, with a corresponding deferred tax asset (2015: liability) being recognised. There are no unused tax losses for which no deferred tax asset has been recognised. On the acquisition of Austereo Group Ltd, a Deferred Tax Liability (“DTL”) was recognised in respect of the difference between the higher accounting book value and lower tax cost base of the licences and brands. As a result of the impairment in 2015, the DTL was reduced by $11.7 million. Recognition and Measurement Income Tax Income tax amounts recognised in the Group’s ﬁ nancial statements relate to tax paying entities within the Group and have been recognised in accordance with Group policy. The income tax expense (or revenue) for the year is the tax payable on the current year’s taxable income based on the applicable tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the ﬁ nancial statements, and adjusted by changes to unused tax losses. Deferred Taxes Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. In determining the extent of temporary differences of assets, the carrying amount of assets is generally assumed to be recovered through use except for non-amortising identiﬁ able intangible assets, such as free-to-air commercial television and radio broadcasting licences, brands and tradenames where the carrying amounts are assumed to be recovered through sale, unless there is evidence of recovery through use. Tax Consolidated Group The Company is the head entity of the tax consolidated group. For further information, refer note 19. Southern Cross Austereo . Annual Report 55 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 6. Non-Current Assets – Property, Plant and Equipment Consolidated 2016 Cost Accumulated depreciation expense Net carrying amount Movement Net carrying amount at beginning of year Additions Disposals Depreciation expense Transfers Net carrying amount at end of year Consolidated 2015 Cost Accumulated depreciation expense Net carrying amount Movement Net carrying amount at beginning of year Additions Disposals Depreciation expense Transfers Net carrying amount at end of year Land and Buildings Leasehold Improvements Plant and Equipment Assets under construction $’000 38,050 (10,528) 27,522 34,122 1,390 (6,930) (1,060) – 27,522 $’000 34,590 (20,922) 13,668 15,484 329 – (2,000) (145) 13,668 $’000 355,883 (260,472) 95,411 106,004 13,049 (6,477) (24,840) 7,675 95,411 $’000 8,648 – 8,648 8,231 7,947 – – (7,530) 8,648 Land and Buildings Leasehold Improvements Plant and Equipment Assets under construction $’000 46,184 (12,062) 34,122 39,074 3,762 (7,312) (1,402) – 34,122 $’000 35,038 (19,554) 15,484 17,537 – – (2,077) 24 15,484 $’000 393,809 (287,805) 106,004 104,526 16,187 (264) (24,104) 9,659 106,004 $’000 8,231 – 8,231 10,206 7,708 – – (9,683) 8,231 Total $’000 437,171 (291,922) 145,249 163,841 22,715 (13,407) (27,900) – 145,249 Total $’000 483,262 (319,421) 163,841 171,343 27,657 (7,576) (27,583) – 163,841 Recognition and Measurement Property, Plant and Equipment at Cost Property, plant and equipment is recorded at cost less accumulated depreciation and cumulative impairment charges. Cost includes those costs directly attributable to bringing the assets into the location and working condition necessary for the asset to be capable of operating in the manner intended by management. The estimated cost of dismantling and removing infrastructure items and restoring the site on which the assets are located is only included in the cost of the asset to the extent that the Group has an obligation to restore the site and the cost of restoration is not recoverable from third parties. Additions, renewals and improvements are capitalised, while maintenance and repairs are expensed. The carrying values of property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Depreciation Land is not depreciated. Depreciation on other assets is calculated on a straight-line basis to write off the cost of the asset over its estimated useful life. Estimates of remaining useful life are made on a regular basis for all assets, with annual reassessments for major items. The expected useful life of property, plant and equipment is as follows: Buildings Leasehold improvements Network equipment Communication equipment Other plant and equipment Leased plant and equipment 56 Southern Cross Austereo . Annual Report 25 – 50 years 3 – 16 years 2 – 10 years 3 – 5 years 2 – 20 years 2 – 20 years 7. Non-Current Assets – Intangible Assets Consolidated 2016 Cost Accumulated impairment expense Net carrying amount Movement Net carrying amount at beginning of year Additions Impairment expense Net carrying amount at end of year Consolidated 2015 Cost Accumulated impairment expense Net carrying amount Movement Net carrying amount at beginning of year Additions Impairment expense Net carrying amount at end of year Goodwill Broadcasting Licences Brands and Tradenames $’000 $’000 352,129 (352,129) – 1,589,574 (364,801) 1,224,773 $’000 89,584 (24,848) 64,736 Total $’000 2,031,287 (741,778) 1,289,509 – – – – 1,224,773 – – 1,224,773 64,667 69 – 64,736 1,289,440 69 – 1,289,509 Broadcasting Licences Brands and Tradenames Goodwill $’000 352,129 (352,129) – $’000 1,589,574 (364,801) 1,224,773 35,733 – (35,733) – 1,525,606 – (300,833) 1,224,773 $’000 89,515 (24,848) 64,667 89,273 242 (24,848) 64,667 Total $’000 2,031,218 (741,778) 1,289,440 1,650,612 242 (361,414) 1,289,440 Goodwill and intangible assets with indeﬁ nite useful lives The Group tests at least annually whether goodwill and intangible assets with indeﬁ nite useful lives have suffered any impairment, and when there is an indication of impairment. The tests incorporate assumptions regarding future events which may or may not occur, resulting in the need for future revisions of estimates. There are also judgements involved in determination of cash generating units. Key Judgement Useful Life A summary of the useful lives of intangible assets is as follows: Commercial Television/Radio Broadcasting Licences Brands and Tradenames Indeﬁ nite Indeﬁ nite Licences Television and radio licences are initially recognised at cost. Analogue licences are renewable for a minimal cost every ﬁ ve years under provisions within the Broadcasting Services Act. Digital licences attach to the analogue licences and renew automatically. The Directors understand that the revocation of a commercial television or radio licence has never occurred in Australia and they have no reason to believe the licences have a ﬁ nite life. As a result, the free-to-air commercial television and radio broadcasting licences have been assessed to have indeﬁ nite useful lives. Brands Brands are initially recognised at cost. The brands have been assessed to have indeﬁ nite useful lives. The Group’s brands operate in established markets with limited restrictions and are expected to continue to complement the Group’s media initiatives. On this basis, the Directors have determined that brands have indeﬁ nite lives as there is no foreseeable limit to the period over which the assets are expected to generate net cash inﬂ ows. Southern Cross Austereo . Annual Report 57 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 Impairment Impairment tests for licences, tradenames, brands and goodwill 8. a) The value of licences, tradenames, brands and goodwill is allocated to the Group’s cash generating units (“CGUs”), identiﬁ ed as Regional, being Regional free-to-air commercial radio and television broadcasting, and Metro, being Metro free-to-air commercial radio broadcasting. The recoverable amount of Regional and Metro at 30 June 2016 and 30 June 2015 was determined based on a value in use discounted cash ﬂ ow (“DCF”) model. Allocation of goodwill and other intangible assets Consolidated 2016 Goodwill allocated to CGU Indeﬁ nite lived intangible assets allocated to CGU Total goodwill and indeﬁ nite lived intangible assets Key Judgement Value in use assumptions (see part (b)) Revenue growth – Forecast Period Cost growth – Forecast Period Long-term growth rate – terminal value Discount rate (pre-tax) Consolidated 2015 Goodwill allocated to CGU Indeﬁ nite lived intangible assets allocated to CGU Total goodwill and indeﬁ nite lived intangible assets Key Judgement Value in use assumptions (see part (b)) Revenue growth – Forecast Period Cost growth – Forecast Period Long-term growth rate – terminal value Discount rate (pre-tax) Regional CGU Metro CGU $’000 – 673,239 673,239 $’000 – 616,270 616,270 Total $’000 – 1,289,509 1,289,509 % 0.3 0.8 1.0 12.8 % 3.6 2.8 2.3 12.2 Regional CGU Metro CGU $’000 – 673,239 673,239 $’000 – 616,201 616,201 Total $’000 – 1,289,440 1,289,440 % 2.4 2.3 1.4 12.8 % 4.1 4.3 2.5 12.3 b) Key assumptions used for value in use calculations The value in use calculations use cash ﬂ ow projections based on the 2016 ﬁ nancial budgets extended over the subsequent four-year period (“Forecast Period”) and applies a terminal value calculation using estimated growth rates approved by the Board for the business relevant to each CGU. In determining appropriate growth rates to apply to the Forecast Period and to the terminal calculation, the Group considered forecast reports from independent media experts as well as internal company data and assumptions. In respect to each CGU the market growth rates did not exceed the independent forecast reports. The discount rate used reﬂ ects speciﬁ c risks relating to the relevant segments and the economies in which they operate. 58 Southern Cross Austereo . Annual Report Impact of a reasonably possible change in key assumptions c) Sensitivity Any variation in the key assumptions used to determine the value in use would result in a change of the recoverable amount of the Regional and Metro CGUs. Negative variances may cause impairment in future periods. The following reasonable shifts in key assumptions would result in a recoverable amount equal to the carrying value: Sensitivity 2016 Revenue growth – Forecast Period Cost growth – Forecast Period Long-term growth rate – terminal value Discount rate (pre-tax) Change in variable Regional CGU % Metro CGU % –0.9% +1.2% –0.9% +0.9% –1.2% +1.6% –1.6% +1.6% At 30 June 2015 recoverable amount was equal to the carrying value for the Regional and Metro CGUs following the recording of impairment losses in that year of $84.9 million in the Regional CGU and $276.5 million in the Metro CGU. 9. Reconciliation of Proﬁ t/(Loss) after Income Tax to Net Cash Inﬂ ow from Operating Activities Proﬁ t/(Loss) after income tax Impairment of investments and non-current assets Depreciation and amortisation Proﬁ t on disposal of assets Share of associate (proﬁ t)/loss Interest expense and other borrowing costs included in ﬁ nancing activities Share-based payments Change in operating assets and liabilities: Increase in receivables Decrease/(increase) in deferred taxes (net of tax movement in hedge reserve) Increase in payables (excluding interest expense classiﬁ ed as ﬁ nancing activities) Increase/(decrease) in deferred income Increase/(decrease) in provision for income tax Decrease in provisions Net cash inﬂ ows from operating activities Consolidated 2016 $’000 77,243 – 28,850 (2,734) (286) 26,029 3,261 (20,772) 2,876 10,886 100,100 1,578 (3,293) 223,738 2015 $’000 (284,950) 361,414 28,534 (2,440) (179) 40,216 3,828 (5,247) (8,776) 4,054 (672) (15,828) (1,214) 118,740 Southern Cross Austereo . Annual Report 59 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 10. Receivables, Payables, Deferred Income and Provisions a) Receivables Current Trade receivables Provision for doubtful debts Prepayments Other Non-current Refundable deposits Related parties Other Consolidated 2016 $’000 2015 $’000 127,412 (650) 12,520 2,721 142,003 110,766 (663) 10,040 1,895 122,038 Consolidated 2016 $’000 81 786 1,810 2,677 2015 $’000 605 1,255 2,690 4,550 The carrying amounts of the non-current receivables approximate their fair value. Ageing analysis of assets The tables below summarise the ageing analysis of assets past due but not impaired and impaired assets as at 30 June. Consolidated As at 30 June 2016 Trade receivables Provision for doubtful debts Consolidated As at 30 June 2015 Trade receivables Provision for doubtful debts Current – not past due $’000 Past due – up to 60 days $’000 Past due – 60–90 days $’000 Past due – >90 days $’000 115,263 – 8,136 – 1,952 – 2,061 (650) Current – not past due $’000 Past due – up to 60 days $’000 Past due – 60–90 days $’000 Past due – >90 days $’000 97,117 – 9,368 – 1,432 – 2,849 (663) Total $’000 127,412 (650) Total $’000 110,766 (663) The Group has recognised expenses in respect of bad and doubtful trade receivables during the year ended 30 June 2016 of $665,927 (2015: expense of $719,842). This provision is based on known bad debts and past experience for receipt of trade receivables. A provision for doubtful debts is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. The amount of the provision is recognised in proﬁ t or loss. Where a debt is known to be uncollectible, it is considered a bad debt and written off. Recognition and Measurement Trade Receivables Trade receivables are recognised at fair value, being the original invoice amount and subsequently measured at amortised cost less provision for doubtful debts. Generally credit terms are for 30 days from date of invoice or 45 days for an accredited agency. Transferred Trade Receivables The carrying amounts of the trade receivables include receivables which are subject to a non-recourse securitisation arrangement. Under this arrangement, the Group has transferred the relevant receivables to the securitisation vehicle in exchange for cash, and is prevented from selling or pledging the receivables. Whilst legal ownership has been transferred to the securitisation vehicle, the Group retains a portion of late payment and credit risk for the amounts yet to be received from the securitisation vehicle in respect of the securitised receivables. The Group therefore continues to recognise the transferred assets in their entirety in the balance sheet. The amount received under the securitisation arrangement is presented as current secured borrowings in the balance sheet. 60 Southern Cross Austereo . Annual Report Current Carrying amount of transferred receivables (included in trade receivables) Carrying amount of associated secured borrowings (included in secured borrowings) b) Payables Current Trade creditors GST payable Accruals and other payables Consolidated 2016 $’000 2015 $’000 55,427 (36,801) 47,309 (22,161) Consolidated 2016 $’000 15,596 3,812 66,980 86,388 2015 $’000 8,761 3,809 68,354 80,924 Recognition and Measurement Trade Creditors, Accruals and Other Payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the ﬁ nancial year and which are unpaid. The amounts are unsecured and are usually paid within 60 days of recognition. c) Deferred Income Current Deferred income Non-current Deferred income Consolidated 2016 $’000 12,590 12,590 Consolidated 2016 $’000 95,278 95,278 2015 $’000 7,768 7,768 2015 $’000 – – Recognition and Measurement Deferred Income During the year the Group entered into a long-term contract with Australian Trafﬁ c Network (“ATN”) for it to provide trafﬁ c reports for broadcast on Southern Cross Austereo (“SCA”) radio stations. SCA received payment of $100 million from ATN in return for its stations broadcasting advertising tags provided by ATN attached to news and trafﬁ c reports. The contract has a term of 20 years, with an option for ATN to extend it by a further 10 years. The $100 million payment has been recorded on the balance sheet under “Deferred Income” and will be released to the Income Statement over a 30 year period, unless the contract ends after 20 years at which point the remaining balance will be recognised as revenue in year 20. This treatment will match the receipt of future broadcasting services, airtime and trafﬁ c management services that the Group is required to provide over the life of the contract. In addition to the payment received from ATN, deferred income represents government grants received. Grants from the government relating to costs are deferred and recognised in proﬁ t or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are deferred and recognised in proﬁ t or loss on a straight-line basis over the expected useful lives of the related assets. Southern Cross Austereo . Annual Report 61 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 10. Receivables, Payables, Deferred Income and Provisions (continued) d) Provisions Current Employee beneﬁ ts Onerous contracts Lease provisions Non-current Employee beneﬁ ts Onerous contracts Lease provisions Movements in current and non-current provisions, other than provisions for employee beneﬁ ts, are set out below: Balance at the beginning of the ﬁ nancial year Movements in the year Balance at the end of the ﬁ nancial year Consolidated 2016 $’000 17,178 1,574 595 19,347 Consolidated 2016 $’000 2,144 3,241 6,454 2015 $’000 18,600 1,528 848 20,976 2015 $’000 2,057 4,815 6,918 11,839 13,790 Consolidated 2016 $’000 14,109 (2,245) 11,864 2015 $’000 16,452 (2,343) 14,109 Recognition and Measurement Provisions A provision is recognised when there is a legal, equitable or constructive obligation as a result of a past event and it is probable that a future sacriﬁ ce of economic beneﬁ ts will be required to settle the obligation, the timing or amount of which is uncertain. Where there are a number of similar obligations, the likelihood that an outﬂ ow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outﬂ ow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reﬂ ects current market estimates of the time value of money and the risks speciﬁ c to the liability. The increase in the provision due to the passage of time is recognised as interest expense. Wages and salaries, leave and other entitlements Liabilities for unpaid salaries, salary related costs and provisions for annual leave are recorded in the Statement of Financial Position at the salary rates which are expected to be paid when the liability is settled. Provisions for long service leave and other long-term beneﬁ ts are recognised at the present value of expected future payments to be made. In determining this amount, consideration is given to expected future salary levels and employee service histories. Expected future payments are discounted to their net present value using high quality corporate bond rates with terms that match as closely as possible to the expected future cash ﬂ ows. 62 Southern Cross Austereo . Annual Report Non-Recourse Receivables Financing Facility In June 2015 the Banking Group entered into a $65 million non- recourse Receivables Financing Agreement (“RFA”) that enables the Group to convert receivables to cash quicker, providing an additional source of funding for the Group’s working capital needs. As the Group retains an interest in each of the receivables, and as the advance rate for each debtor is less than its face value and the Group only receives further payment if the debtor pays the receivable, the full face value of the receivable is retained on the Group’s balance sheet and the amount advanced under the RFA is recorded as a liability. As the RFA is considered non-recourse, it is excluded from net debt for the purposes of the leverage ratio calculation. Further details on the Group’s debt facilities are outlined in note 15. Property, Plant and Equipment The capital expenditure for 2016 was $22.7 million (2015: $27.7 million). During the year the Group divested a number of non-core properties which resulted in approximately $16.1 million cash being received which was used to reduce net debt. Further details on the Group’s ﬁ xed assets are outlined in note 6. Capital Management 11. Capital Management Objectives The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide appropriate returns for shareholders and beneﬁ ts for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, maintain a fully underwritten dividend reinvestment plan, return capital to shareholders, issue new shares, buy back existing shares or sell assets to reduce debt. The Group has taken measures to reduce net debt and has achieved its stated objective of reaching a leverage ratio of below 2.5 times. The following outlines the capital management policies that are currently in place for the Group: Dividend Policy Dividend Payout Ratio The Group’s dividend policy has been to pay out between 60-70% of underlying ﬁ nancial year Net Proﬁ t After Tax, as advised in a Capital Management Initiatives media release on 24 November 2011. There has been no change to this stated policy since this media release. Dividend Reinvestment Plan (“DRP”) The Group operates a DRP whereby shareholders can elect to receive their dividends by way of receiving shares in the Company instead of cash. The Company can elect to either issue new shares, or to buy shares on-market. The DRP was in operation for the 2015 ﬁ nal dividend but was suspended for the 2016 interim dividend following the successful reduction in the Group’s leverage ratio. For the ﬁ nal 2015 dividend, the DRP operated with a 2.5% discount being offered to participants (2015: 2.5% discount for the ﬁ nal 2014 and interim 2015 dividends) and achieved a participation rate of 61.53% (2015: average of 63%). Further details on the Group’s dividends are outlined in note 12. Debt Facilities Syndicated Debt Facility The Group has a $495 million (2015: $650 million) revolving 5 year Syndicated Facility Agreement (“SFA”) expiring on 12 January 2019. This facility is used as core debt for the Group, and may be paid down and redrawn in accordance with the SFA. During the year, the Group cancelled $155 million of this facility to reduce its commitment from $650 million to $495 million. Covenants For the duration of the Syndicated Facility Agreement, the Banking Group, being Southern Cross Austereo Pty Ltd and its subsidiaries, has a maximum leverage ratio covenant of 3.5 times and a minimum interest cover ratio of 3.0 times. As at 30 June 2016, the leverage ratio was 1.89 times and the interest cover ratio was 7.6 times. Southern Cross Austereo . Annual Report 63 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 12. Dividends Paid and Proposed The dividends were paid as follows: The dividends were paid as follows: Interim dividend paid for the half year ended 31 December 2015/2014 – fully franked at the tax rate of 30% Final dividend paid for the year ended 30 June 2015/2014 – fully franked at the tax rate of 30% Dividends paid in cash or satisﬁ ed by the issue of shares under the dividend reinvestment plan were as follows: Paid in cash Satisﬁ ed by issue of shares Interim dividend paid for the half year ended 31 December Final dividend paid for the year ended 30 June Consolidated 2016 $’000 24,983 22,608 47,591 33,680 13,911 47,591 2015 $’000 21,970 21,157 43,127 15,774 27,353 43,127 Cents per share Cents per share 3.25 3.00 6.25 3.00 3.00 6.00 The Group has $122.5 million of franking credits at 30 June 2016 (2015: $111.9 million). Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Company, on or before the end of the ﬁ nancial year but not distributed at the end of the reporting period. Since the end of the ﬁ nancial year the Directors have declared the payment of a ﬁ nal 2016 ordinary dividend of $26.9 million (3.5 cents per fully paid share) out of current year earnings. This dividend will be paid on 11 October 2016 by the Company. 13. Earnings per Share Continuing Operations Proﬁ t/(Loss) attributable to shareholders from continuing operations ($’000) Proﬁ t attributable to shareholders from continuing operations excluding signiﬁ cant items ($’000) Weighted average number of shares used as the denominator in calculating basic earnings per share (shares, ’000) Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share (shares, ’000) Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Excluding Signiﬁ cant Items (refer note 4) Basic earnings per share excluding signiﬁ cant items (cents per share) Diluted earnings per share excluding signiﬁ cant items (cents per share) Dividends paid/proposed for the year as a % of NPAT (excluding signiﬁ cant items) Consolidated 2016 2015 77,243 77,243 (284,950) 64,783 763,422 725,688 765,025 10.12 10.10 725,688 (39.27) (39.27) 10.12 10.10 67.2% 8.93 8.93 68.8% Recognition and Measurement Basic earnings per share Basic earnings per share is calculated by dividing the proﬁ t or loss attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of shares outstanding during the ﬁ nancial year. Diluted earnings per share Diluted earnings per share adjusts the ﬁ gures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other ﬁ nancing costs associated with dilutive potential shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential shares. 64 Southern Cross Austereo . Annual Report 14. Contributed Equity and Reserves Ordinary shares Contributed equity Consolidated 2016 $’000 2015 $’000 1,379,386 1,379,386 1,365,110 1,365,110 On 22 December 2014, the share capital of the Company was reduced in accordance with Section 258F of the Corporations Act. The amount of the reduction was $368 million and represented the value of paid up share capital that was not represented by available assets. On issue at the beginning of the ﬁ nancial year Capital reduction Shares issued for equity component in talent contracts Shares issued in relation to the DRP and DRP underwrite On issue at the end of the ﬁ nancial year Consolidated Consolidated 2016 $’000 2015 $’000 2016 Number of securities ’000 1,365,110 1,686,878 753,586 – 365 13,911 1,379,386 (368,000) 3,105 43,127 1,365,110 – 304 14,837 768,727 2015 Number of securities ’000 705,247 – 3,174 45,165 753,586 Ordinary shares in Southern Cross Media Group Limited Ordinary shares entitle the holder to participate in distributions and the proceeds on winding-up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands, each shareholder present in person and each other person present as a proxy has one vote and upon a poll, each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. Employee share entitlements The Group operates an LTI plan for its senior executives. Information relating to the employee share entitlements, including details of shares issued under the scheme, is set out in the Remuneration Report. Nature and purpose of reserves a) Share-based payments reserve The share-based payments reserve is used to recognise the fair value of future potential shares to be issued to employees for no consideration in respect of performance rights offered under the Long-Term Incentive plan. During the year no performance rights have vested (2015: nil) and 1,393,443 (2015: 1,027,757) performance rights have been granted. In the current year, $527,762 (2015: $723,407) has been recognised as an expense in the Statement of Comprehensive Income as the fair value of potential shares to be issued. b) Hedge reserve The hedge reserve is used to record gains or losses on a hedging instrument in a cash ﬂ ow hedge that are recognised in Other Comprehensive Income. Amounts are reclassiﬁ ed to the Statement of Comprehensive Income when the associated hedged transaction affects proﬁ t or loss. c) Reverse Acquisition Reserve As described in note 1(a), there is a reverse acquisition reserve of $77.4 million (2015: $77.4 million) in connection with the IPO of the Group. Southern Cross Austereo . Annual Report 65 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 15. Borrowings a) Total interest bearing liabilities Current secured borrowings Borrowing costs Securitised receivables Lease liabilities Total secured current interest bearing liabilities Non-current secured borrowings Bank facilities Borrowing costs Lease liabilities Total secured non-current interest bearing liabilities Total current and non-current borrowings Consolidated 2016 $’000 2015 $’000 (973) 36,801 129 35,957 (984) 22,161 84 21,261 Consolidated 2016 $’000 2015 $’000 435,000 (1,268) 132 433,864 469,821 650,000 (2,249) 213 647,964 669,225 For all non-current borrowings, the carrying amount approximates fair value in the balance sheet. On 19 June 2015, the Company entered into a $65 million non-recourse receivables ﬁ nancing facility. As at 30 June 2016 the amount of funding received under the securitised facility was $36.8 million (2015: $22.2 million). b) Interest expense Interest expense and other borrowing costs External banks Amortisation of borrowing costs Total interest expense and other borrowing costs Consolidated 2016 $’000 25,053 976 26,029 2015 $’000 39,079 1,137 40,216 c) Bank facilities and assets pledged as security The $495 million debt facilities (2015: $650 million) of the Banking Group are secured by a ﬁ xed and ﬂ oating charge over the assets and undertakings of the Banking Group and its wholly-owned subsidiaries and also by a mortgage over shares in Southern Cross Austereo Pty Ltd. These facilities mature on 12 January 2019 and have an average variable interest rate of 4.28% (2015: 4.83%). These facilities are denominated in Australian dollars. There are certain ﬁ nancial and non-ﬁ nancial covenants which are required to be met by subsidiaries in the Group. One of these covenants is an undertaking that the subsidiary is in compliance with the requirements of the facility before any amount may be distributed to the beneﬁ t of the ultimate parent entity, Southern Cross Media Group Limited. Covenant testing dates fall at 30 June and 31 December each year until the facility maturity date. 66 Southern Cross Austereo . Annual Report The carrying amounts of assets pledged as security by Southern Cross Austereo Pty Ltd for current and non-current borrowings are: Current assets Floating charge Cash and cash equivalents Receivables Total current assets pledged as security Non-current assets Floating charge Receivables Investments accounted for using the equity method Property, plant and equipment Intangible assets Total non-current assets pledged as security Total assets pledged as security Consolidated 2016 $’000 2015 $’000 94,770 141,068 235,838 143,046 121,543 264,589 2,597 3,266 145,249 1,289,509 1,440,621 1,676,459 3,633 2,980 163,841 1,289,440 1,459,894 1,724,483 Recognition and Measurement Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Transaction costs that have been paid or accrued for prior to the drawdown of debt are classiﬁ ed as prepayments. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in proﬁ t or loss over the period of the borrowings using the effective interest method. Borrowings are classiﬁ ed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowing costs Borrowing costs are expensed over the life of the facility to which they relate. 16. Financial Risk Management The Group’s activities expose it to a variety of ﬁ nancial risks: market risk (the Group’s main exposure to market risk is interest rate risk), liquidity risk and cash ﬂ ow interest rate risk. There is a relatively low level of credit risk on receivables that is managed by careful business practices (refer note 10). The Group’s overall risk management program focuses on the unpredictability of ﬁ nancial markets and seeks to minimise potential adverse effects on the ﬁ nancial performance of the Group. The Group uses derivative ﬁ nancial instruments such as interest rate swaps to hedge certain risk exposures. The Risk Management Policy is carried out by management under policies approved by the Board. Senior management of the Group identify, quantify and qualify ﬁ nancial risks as part of developing and implementing the risk management process. The Risk Management Policy is a written document approved by the Board that outlines the ﬁ nancial risk management process to be adopted by management. Speciﬁ c ﬁ nancial risks that have been identiﬁ ed by the Group are interest rate risk and liquidity risk. a) Interest rate risk Nature of interest rate risk Interest rate risk is the Group’s exposure to the risk that interest rates move in a way that adversely affects the ability of the Group to pay its interest rate commitments. The Group’s interest rate risk arises from long-term borrowings which are taken out at variable interest rates and therefore expose the Group to a cash ﬂ ow risk. Interest rate risk management The Group does not have a formal policy to ﬁ x rates on its borrowings but manages its cash ﬂ ow interest rate risk by using variable to ﬁ xed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from variable rates to ﬁ xed rates. Generally, the Group raises long-term borrowings at variable rates and swaps them into ﬁ xed rates that are lower than those available if the Group borrowed at ﬁ xed rates directly. Under the interest rate swaps, the Group agrees with other parties to exchange, at speciﬁ ed intervals (quarterly), the difference between ﬁ xed contract rates and variable rate interest amounts calculated by reference to the agreed notional principal amounts. Southern Cross Austereo . Annual Report 67 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 Interest rate risk (continued) 16. Financial Risk Management (continued) a) Exposure and sensitivity to interest rate risk External borrowings of the Group currently bear an average variable interest rate of 4.28% (2015: 4.83%). In 2015 the Group entered into $320 million of interest rate swap contracts under which it is obliged to receive interest at variable rates and to pay interest at ﬁ xed rates at an average ﬁ xed rate of 2.5% (2015: 2.5%). These interest rate swap contracts will expire in January 2018. Details on how the Group accounts for the interest rate swap contracts as cashﬂ ow hedges is disclosed in note 25. Derivative ﬁ nancial instruments Interest rate swap contracts – current liability Interest rate swap contracts – non-current liability Total derivative ﬁ nancial instruments Consolidated 2016 $’000 – 3,273 3,273 2015 $’000 – 1,732 1,732 Interest rate swap contracts The contracts require settlement of net interest receivable or payable and are timed to coincide with the approximate dates on which interest is payable on the underlying debt. These interest rate swaps are cash ﬂ ow hedges as they satisfy the requirements for hedge accounting. Any change in fair value of the interest rate swaps is taken to the hedge reserve in equity. In assessing interest rate risk, management has assumed a +/– 25 basis points movement (2015: +/– 25 basis points) in the relevant interest rates at 30 June 2016 for ﬁ nancial assets and liabilities denominated in Australian Dollars (“AUD”). The following table illustrates the impact on proﬁ t or loss with no impact directly on equity for the Group. Consolidated AUD exposures 2016 Cash at bank Interest rate swaps Borrowings 2015 Cash at bank Interest rate swaps Borrowings Carrying Value Impact on post-tax proﬁ ts Increase/(decrease) Impact on reserves Increase/(decrease) +/– 25 basis points +/– 25 basis points $’000 94,776 (3,273) (435,000) 143,051 (1,732) (650,000) $’000 +25 166 – (761) +25 250 – (1,138) $’000 –25 (166) – 761 –25 (250) – 1,138 $’000 +25 – 1,396 – +25 – 2,156 – $’000 –25 – (1,400) – –25 – (2,168) – 68 Southern Cross Austereo . Annual Report b) Liquidity risk Nature of liquidity risk Liquidity risk is the risk of an entity encountering difﬁ culty in meeting obligations associated with ﬁ nancial liabilities. Liquidity risk management Prudent liquidity risk management implies maintaining sufﬁ cient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group and Company have a prudent liquidity management policy which manages liquidity risk by monitoring the stability of funding, surplus cash or near cash assets, anticipated cash in and outﬂ ows and exposure to connected parties. Exposure and sensitivity Financing arrangements Unrestricted access was available at balance date to the following lines of credit: Consolidated As at 30 June 2016 Line of credit value Used at balance date Unused at balance date Consolidated As at 30 June 2015 Line of credit value Used at balance date Unused at balance date Working capital facility $’000 5,000 (4,113) 887 Working capital facility $’000 5,000 (4,087) 913 Non-recourse receivables ﬁ nancing facility $’000 65,000 (36,801) 28,199 Non-recourse receivables ﬁ nancing facility $’000 65,000 (22,161) 42,839 Total facilities $’000 565,000 (475,914) 89,086 Total facilities $’000 720,000 (676,248) 43,752 Bank facilities $’000 495,000 (435,000) 60,000 Bank facilities $’000 650,000 (650,000) – Southern Cross Austereo . Annual Report 69 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 16. Financial Risk Management (continued) b) Liquidity risk (continued) The $495 million debt facility for the Group matures on 12 January 2019. The Group’s bank facilities are denominated in Australian dollars as at 30 June 2016 and 30 June 2015. The non-recourse receivables ﬁ nancing facility matures on 19 June 2017. Undiscounted future cash ﬂ ows The tables below summarise the maturity proﬁ le of the ﬁ nancial liabilities as at 30 June based on contractual undiscounted repayment obligations. Repayments which are subject to notice are treated as if notice were given immediately. Consolidated As at 30 June 2016 Lease liabilities Borrowings – Principal Interest cashﬂ ows1 Derivative ﬁ nancial instruments2 Securitised receivables Payables3 Total Consolidated As at 30 June 2015 Lease liabilities Borrowings – Principal Interest cashﬂ ows1 Derivative ﬁ nancial instruments2 Securitised receivables Payables3 Total Less than 1 year $’000 144 – 17,758 – 36,801 82,576 137,279 Less than 1 year $’000 103 – 28,560 – 22,161 77,115 127,939 1-2 years $’000 86 – 17,958 3,273 – – 21,317 2-3 years $’000 48 435,000 8,640 – – – 443,688 3-5 years $’000 Greater than 5 years $’000 3 – – – – – 3 4 – – – – – 4 1-2 years $’000 2-3 years $’000 102 – 28,207 – – – 28,309 73 – 27,477 1,732 – – 29,282 3-5 years $’000 15 650,000 13,672 – – – 663,687 Greater than 5 years $’000 4 – – – – – 4 1 Calculated using a weighted average variable interest rate. Interest cashﬂ ows includes interest on principal borrowings, swap interest and the commitment fee on the non-recourse receivables ﬁ nancing facility. 2 The fair value of ﬁ nancial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each reporting period. The fair value of interest rate swaps is calculated as the present value of the estimated future cash ﬂ ows and is included in level 2 under derivative ﬁ nancial instruments. The total fair value of derivatives used for hedging is $3.3 million (2015: $1.7 million). 3 The payables balance excludes GST Payable as this is not a ﬁ nancial liability. 70 Southern Cross Austereo . Annual Report Group Structure 17. Non-Current Assets – Investments Accounted for Using the Equity Method Carrying amount at the beginning of the ﬁ nancial year Share of proﬁ t/(losses) after income tax Contributions to associates and joint ventures Carrying amount at the end of the ﬁ nancial year Consolidated 2016 $’000 3,059 286 312 3,657 2015 $’000 2,880 179 – 3,059 18. Subsidiaries The consolidated ﬁ nancial statements incorporate the assets, liabilities and results of the following subsidiaries: Name of entity SCM No 1 Limited (SCM1) Southern Cross Media Australia Holdings Pty Limited (SCMAHL) Southern Cross Media Group Investments Pty Ltd (SCMGI) Southern Cross Austereo Pty Limited (SCAPL) and controlled entities Country of incorporation Class of shares/units Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Effective ownership interest 2016 Effective ownership interest 2015 100% 100% 100% 100% 100% 100% 100% 100% The proportion of ownership interest is equal to the proportion of voting power held unless otherwise indicated. Recognition and Measurement Subsidiaries Subsidiaries are those entities over which the Group has the power to govern the ﬁ nancial and operating policies, generally accompanying a shareholding of more than one-half of voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. Where control of an entity is obtained during a ﬁ nancial year, its results are included in the Statement of Comprehensive Income from the date on which control commences. Where control of an entity ceases during a ﬁ nancial year, its results are included for that part of the year during which control existed. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated Statements of Comprehensive Income and Statements of Financial Position respectively. Southern Cross Austereo . Annual Report 71 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 19. Parent Entity Financial Information a) Summary ﬁ nancial information The following aggregate amounts are disclosed in respect of the parent entity, Southern Cross Media Group Limited: Statement of Financial Position Current assets Non-current assets Total assets Current liabilities Total liabilities Net assets Issued capital Reserves Retained proﬁ ts – 2013 reserve Accumulated losses – 2014 reserve Retained proﬁ ts – 2015 H1 interim reserve Accumulated losses – 2015 H2 reserve Retained proﬁ ts – 2016 reserve Total equity Proﬁ t/(loss) for the year Total comprehensive income Southern Cross Media Group Limited 2016 $’000 876 964,654 965,530 4,260 4,260 961,270 1,281,798 4,754 67,648 (96,805) 22,761 (323,833) 4,947 961,270 52,538 52,538 2015 $’000 500 944,486 944,986 3,467 3,467 941,519 1,267,522 4,226 67,648 (96,805) 22,761 (323,833) – 941,519 (279,102) (279,102) As a result of the impairment in 2015 of the Metro and Regional CGUs, the carrying value of the parent entity’s investment in the relevant subsidiaries was reviewed for impairment. The carrying amount of the investment was compared with the recoverable amount of the subsidiaries and resulted in an impairment of $325.6 million in 2015. b) Guarantees entered into by the parent entity The parent entity has not provided any ﬁ nancial guarantees in respect of bank overdrafts and loans of subsidiaries as at 30 June 2016 (2015: nil). The parent entity has not given any unsecured guarantees at 30 June 2016 (2015: nil). c) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2016 (30 June 2015: $nil). d) Contractual commitments for the acquisition of property, plant or equipment As at 30 June 2016, the parent entity had no contractual commitments (30 June 2015: $nil). Recognition and Measurement Parent entity ﬁ nancial information The ﬁ nancial information for the parent entity has been prepared on the same basis as the consolidated ﬁ nancial statements, except as set out on the following page. i) Investments in subsidiaries, associates and joint venture entities Investments in subsidiaries are accounted for at cost in the ﬁ nancial statements of the Company, less any impairment charges. ii) Tax consolidation legislation The Company and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 23 November 2005. The Company is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing agreement in order to allocate income tax expense to the wholly-owned subsidiaries on a stand-alone basis. The tax sharing arrangement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. The possibility of such a default is considered remote at the date of this report. Members of the tax consolidated group have entered into a tax funding agreement. The Group has applied the group allocation approach in determining the appropriate amount of current taxes to allocate to members of the tax consolidated group. The tax funding agreement provides for each member of the tax consolidated group to pay a tax equivalent amount to or from the parent in accordance with their notional current tax liability or current tax asset. Such amounts are reﬂ ected in amounts receivable from or payable to the parent company in their accounts and are settled as soon as practicable after lodgement of the consolidated return and payment of the tax liability. 72 Southern Cross Austereo . Annual Report Other 20. Share-Based Payments The Company operates a long-term incentive plan for Executive KMP, and previously to certain senior executives. The share-based payment expense for the year ended 30 June 2016 was $527,762 (2015: $723,407). The following table reconciles the performance rights outstanding at the beginning and end of the year: Number of performance rights Balance at beginning of the year Granted during the year Exercised during the year Forfeited during the year Balance at end of the year Exercisable at end of the year 2016 2015 1,639,982 1,393,443 – (957,662) 2,075,763 – 4,647,945 1,027,758 – (4,035,721) 1,639,982 – Recognition and Measurement Share-based compensation beneﬁ ts are provided to employees via certain Employee Agreements. Information relating to these Agreements is set out in the Remuneration Report. The fair value of entitlements granted is recognised as an employee beneﬁ t expense with a corresponding increase in equity. The fair value is measured at grant date and recognised as an expense over the period during which the employees become unconditionally entitled to the shares. The fair value of the performance rights issued during 2016 was determined using a Monte Carlo simulation model for the TSR performance rights and a Black-Scholes-Merton model for the EPS performance rights, with the following inputs: Grant date Grant date share price Fair value at grant date Exercise price Dividend yield Risk free interest rate Expected volatility Relative TSR 2 September 2015 $0.93 $0.45 Nil 6.56% 1.79% 37.81% Absolute EPS 2 September 2015 $0.93 $0.77 Nil 6.56% 1.79% 37.81% The fair value at grant date of the securities granted is adjusted to reﬂ ect market vesting conditions, but excludes the impact of any non-market vesting conditions (for example, proﬁ tability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of shares that are expected to be issued. At each balance sheet date, the entity revises its estimate of the number of shares that are expected to be issued. The employee beneﬁ t expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in proﬁ t or loss with a corresponding adjustment to equity. Where the terms of the share-based payment entitlement are modiﬁ ed in the favour of the employee, the changes are reﬂ ected when determining the impact on proﬁ t or loss. Southern Cross Austereo . Annual Report 73 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 21. Remuneration of Auditors (a) Audit and other assurance services PricewaterhouseCoopers Australian ﬁ rm: Statutory audit and review of ﬁ nancial reports Other assurance services Regulatory returns Total remuneration for audit and other assurance services (b) Taxation services PricewaterhouseCoopers Australian ﬁ rm: Tax services Total remuneration for taxation services (c) Other services PricewaterhouseCoopers Australian ﬁ rm: Debt advisory and cash management Other consulting services Total remuneration for other services Total Consolidated 2016 $ 2015 $ 644,400 – 35,000 679,400 724,400 62,500 25,000 811,900 21,750 21,750 78,108 78,108 – – – 701,150 126,812 5,200 132,012 1,022,020 The Group may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company and/or the Group are important. The Board has considered the position and, in accordance with the advice received from the Audit and Risk Committee, is satisﬁ ed 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 Directors are satisﬁ ed that the provision of non-audit services by the auditor did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: – all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor; and – none of the services undermine the general principles relating to auditor independence as set out in APES 110: Code of Ethics for Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. 74 Southern Cross Austereo . Annual Report 22. Related Party Disclosures Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. a) KMP During the year, no KMP of the Company or the Group has received or become entitled to receive any beneﬁ t because of a contract made by the Group with a KMP or with a ﬁ rm of which a KMP is a member, or with an entity in which the KMP has a substantial interest except on terms set out in the governing documents of the Group or as disclosed in this ﬁ nancial report. The aggregate compensation of KMP of the Group is set out below: Short-term employee beneﬁ ts Post-employment beneﬁ ts Other long-term beneﬁ ts Termination payments Share-based payments Consolidated 2016 $ 5,892,717 238,391 104,937 294,531 571,383 7,101,959 2015 $ 4,437,482 217,988 (1,046,426) 1,990,034 430,957 6,030,035 Note: Changes to KMP during the year can be found in the Remuneration Report. The number of ordinary shares in the Company held during the ﬁ nancial year by KMP of the Company and Group, including their personally related parties, are set out in the Remuneration Report in the Directors’ Report. There were no loans made to or other transactions with KMP during the year (2015: nil). b) Subsidiaries and Associates Ownership interests in subsidiaries are set out in note 18. Details of interests in associates and distributions received from associates are disclosed in note 17. Details of loans due from associates are disclosed in note 10. c) Other related party transactions During the year, Macquarie Group Limited and its controlled entities (“Macquarie”) received or was entitled to receive $5,547,037 (2015: $10,954,532) as dividends on securities held. At 30 June 2016, the Group had nil (2015: $4,573) funds on deposit with Macquarie. The Group earns interest on deposits at commercial rates. Interest income from deposits with Macquarie included in the determination of the net result from ordinary activities for the year for the Group was $333 (2015: $22,383). Macquarie ceased to be a related party as at 18 March 2016 following the sale of its 15.7 per cent stake in Southern Cross Media Group. Southern Cross Austereo . Annual Report 75 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 23. Leases and Other Commitments Capital commitments Commitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as liabilities are payable as follows: Within one year Operating leases Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than ﬁ ve years Later than ﬁ ve years Finance lease payment commitments Finance lease commitments are payable as follows: Within one year Later than one year but not later than ﬁ ve years Later than ﬁ ve years Less: Future lease ﬁ nance charges Lease liabilities provided for in the ﬁ nancial statements: Current Non-current Total lease liability Consolidated 2016 $’000 2015 $’000 2,850 2,850 3,832 3,832 22,457 62,707 31,113 116,277 22,498 72,103 40,807 135,408 144 136 4 284 (23) 261 129 132 261 103 225 4 332 (35) 297 84 213 297 Leases Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classiﬁ ed as ﬁ nance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of ﬁ nance charges, are included in other long-term payables. Leases in which a signiﬁ cant portion of the risks and rewards of ownership are retained by the lessor are classiﬁ ed as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to proﬁ t or loss on a straight-line basis over the period of the lease. The Group sub-leases buildings under an operating lease and rent revenue is recorded as income in the proﬁ t or loss on a straight-line basis. Rental expense relating to operating leases included in occupancy costs is $25.5 million (2015: $25.3 million). 24. Events Occurring after Balance Sheet Date Other than matters outlined elsewhere in this report, no matters or circumstances have arisen since the end of the ﬁ nancial year that have signiﬁ cantly affected, or may signiﬁ cantly affect, the operations, results of operations or state of affairs of the Group in subsequent accounting periods. 76 Southern Cross Austereo . Annual Report 25. Other Accounting Policies Deﬁ ned contribution scheme The Group operates a deﬁ ned contribution scheme. The deﬁ ned contribution scheme comprises ﬁ xed contributions made by the Group with the Group’s legal or constructive obligation being limited to these contributions. Contributions to the deﬁ ned contribution scheme are recognised as an expense as they become payable. Prepaid contributions are recognised in the Statement of Financial Position as an asset to the extent that a cash refund or a reduction in the future payments is available. The deﬁ ned contribution plan expense for the year was $13.3 million (2015: $12.6 million) and is included in employee expenses. Derivative ﬁ nancial instruments The Group enters into interest rate swap agreements to manage its ﬁ nancial risks. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group may have derivative ﬁ nancial instruments which are economic hedges, but do not satisfy the requirements of hedge accounting. Gains or losses from changes in fair value of these economic hedges are taken through proﬁ t or loss. If the derivative ﬁ nancial instrument meets the hedge accounting requirements, the Group designates the derivatives as either (1) hedges of the fair value of recognised assets or liabilities or a ﬁ rm commitment (fair value hedge); or (2) hedges of highly probable forecast transactions (cash ﬂ ow hedge). The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessments, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash ﬂ ows of hedged items. The fair values of over-the-counter derivatives are determined using valuation techniques adopted by the Directors with assumptions that are based on market conditions existing at each balance sheet date. The fair values of interest rate swaps are calculated as the present values of the estimated future cash ﬂ ows. Hedge accounting The Group designated interest rates swaps held as at 1 July 2011 as cash ﬂ ow hedges and has applied hedge accounting from this date. The Group documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in cash ﬂ ows of hedged items. The fair values of derivative ﬁ nancial instruments used for hedging purposes are presented within the balance sheet. Movements in the hedging reserve are shown within the Statement of Changes in Equity. The full fair value of a hedging derivative is classiﬁ ed as a non- current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classiﬁ ed as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Cash ﬂ ow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash ﬂ ow hedges is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in the Statement of Comprehensive Income. Amounts accumulated in equity are reclassiﬁ ed to proﬁ t or loss in the periods when the hedged item affects proﬁ t or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in proﬁ t or loss within “interest expense and other borrowing costs”. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in proﬁ t or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassiﬁ ed to proﬁ t or loss. Fair value estimation The fair value of ﬁ nancial assets and ﬁ nancial liabilities must be estimated for recognition and measurement or for disclosure purposes. The Group has adopted AASB 7 Financial Instruments: Disclosures which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). The fair value of ﬁ nancial instruments that are not traded in an active market (for example, unlisted convertible notes) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Other techniques, such as estimated discounted cash ﬂ ows, are used to determine fair value for the remaining ﬁ nancial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash ﬂ ows. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of ﬁ nancial liabilities for disclosure purposes is estimated by discounting the future contractual cash ﬂ ows at the current market interest rate that is available to the Group for similar ﬁ nancial instruments. Impact of new accounting policies The year end ﬁ nancial statements have been prepared on a basis of accounting policies consistent with those applied in the 30 June 2015 Annual Report. The Group adopted certain accounting standards, amendments and interpretations during the ﬁ nancial year which did not result in changes in accounting policies nor an adjustment to the amounts recognised in the ﬁ nancial statements. They also do not signiﬁ cantly affect the disclosures in the Notes to the ﬁ nancial statements. Southern Cross Austereo . Annual Report 77 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2016 25. Other Accounting Policies (continued) Impact of standards issued but not yet applied Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2016 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below: Impact The new hedging rules align hedge accounting more closely with the Group’s risk management practices. As a general rule it will be easier to apply hedge accounting going forward. The new standard also introduces expanded disclosure requirements and changes in presentation. As it relates to the other changes contemplated by the new accounting standard, the Group continues to assess the impact on the ﬁ nancial statements and at 30 June 2016 the changes are not expected to materially impact the Group. Management is currently assessing the impact of the new rules. At this stage, the Group is not able to estimate the impact of the new rules on the Group’s ﬁ nancial statements. Mandatory application date/ Date of adoption by Group Mandatory for ﬁ nancial years commencing on or after 1 January 2018. The Group has not yet decided whether to adopt AASB 9 early. Mandatory for ﬁ nancial years commencing on or after 1 January 2018. Expected date of adoption by the Group: 1 July 2018. Title of standard AASB 9 Financial Instruments AASB 15 Revenue from contracts with customers Nature of change AASB 9 addresses the classiﬁ cation, measurement and derecognition of ﬁ nancial assets and ﬁ nancial liabilities and introduces new rules for hedge accounting. In December 2014, the AASB made further changes to the classiﬁ cation and measurement rules and also introduced a new impairment model. These latest amendments now complete the new ﬁ nancial instruments standard. The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer – so the notion of control replaces the existing notion of risks and rewards. The standard permits a modiﬁ ed retrospective approach for the adoption. Under this approach entities will recognise transitional adjustments in retained earnings on the date of initial application (e.g. 1 January 2018), without restating the comparative period. They will only need to apply the new rules to contracts that are not completed as of the date of initial application. 78 Southern Cross Austereo . Annual Report Title of standard AASB 16 Leases Nature of change The AASB has issued a new standard for lease accounting. AASB 16 will replace AASB 17. Mandatory application date/ Date of adoption by Group Mandatory for ﬁ nancial years commencing on or after 1 January 2019 but available for early adoption. Expected date of adoption by the Group: 1 July 2019. Impact Lessee accounting – Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. – A lessee measures right-of- use assets similarly to other non-ﬁ nancial assets and lease liabilities similarly to other ﬁ nancial liabilities. – Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non- cancellable lease payments (including inﬂ ation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. – AASB 16 includes disclosure requirements for lessees. Lessor accounting will not change signiﬁ cantly. Management is currently assessing the impact of the new rules. At this stage, the Group is not able to estimate the impact of the new rules on the Group’s ﬁ nancial statements. The Group will make more detailed assessments of the impact over the next 12 months. Southern Cross Austereo . Annual Report 79 DIRECTORS’ DECLARATION FOR YEAR ENDED 30 JUNE 2016 The Directors of the Company declare that: 1. in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; 2. in the Directors’ opinion, the ﬁ nancial statements and notes as set out on pages 47 to 79 are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the ﬁ nancial position and performance of the Company and the consolidated entity; and 3. the Directors have been given the declarations required by section 295A of the Corporations Act 2001. 4. Note 1(i) conﬁ rms that the ﬁ nancial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations Act. On behalf of the Directors Peter Bush Chairman Sydney, Australia 25 August 2016 Leon Pasternak Deputy Chairman Sydney, Australia 25 August 2016 80 Southern Cross Austereo . Annual Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTHERN CROSS MEDIA GROUP LIMITED Independent auditor’s report to the members of Southern Cross Media Group Limited Independent auditor’s report to the members of Southern Cross Media Group Limited Report on the ﬁ nancial report We have audited the accompanying ﬁ nancial report of Southern Cross Media Group Limited (the company), which comprises the statement of ﬁ nancial position as at 30 June 2016, the statement of comprehensive income, statement of changes in equity and statement of cash ﬂ ows for the year ended on that date, a summary of signiﬁ cant accounting policies, other explanatory notes and the directors’ declaration for Southern Cross Austereo (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at year’s end or from time to time during the ﬁ nancial year. Report on the financial report We have audited the accompanying financial report of Southern Cross Media Group Limited (the company), which comprises the statement of financial position as at 30 June 2015, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Southern Cross Austereo (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at year’s end or from time to time during the financial year. Directors’ responsibility for the ﬁ nancial report The directors of the company are responsible for the preparation of the ﬁ nancial 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 ﬁ nancial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the ﬁ nancial statements comply with International Financial Reporting Standards. Directors’ responsibility 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 is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the ﬁ nancial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the ﬁ nancial report is free from material misstatement. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁ nancial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the ﬁ nancial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the consolidated entity’s preparation and fair presentation of the ﬁ nancial report 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the ﬁ nancial report. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the consolidated entity’s preparation and fair presentation of the financial report 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Southern Cross Austereo . Annual Report 81 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SOUTHERN CROSS MEDIA GROUP LIMITED Auditor’s opinion o In our opinion: Auditor’s opinion In our opinion: (a) the ﬁ nancial report of Southern Cross Media Group Limited is in accordance with the Corporations (a) Act 2001, including: (i) giving a true and fair view of the consolidated entity’s ﬁ nancial position as at 30 June 2016 and the financial report of Southern Cross Media Group Limited is in accordance with the Corporations Act 2001, including: of its performance for the year ended on that date; and (i) giving a true and fair view of the consolidated entity's financial position as at (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. 30 June 2015 and of its performance for the year ended on that date; and (b) the ﬁ nancial report and notes also comply with International Financial Reporting Standards as complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. disclosed in Note 1 . (ii) (b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Repor t We have audited the remuneration report included in pages 32 to 44 of the directors’ report for the Report on the Remuneration Report year ended 30 June 2016. The directors of the company are responsible for the preparation and We have audited the remuneration report included in pages 21 to 37 of the directors’ report for the presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. year ended 30 June 2015. The directors of the company are responsible for the preparation and Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in presentation of the remuneration report in accordance with section 300A of the Corporations Act accordance with Australian Auditing Standards . 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinio n In our opinion, the remuneration report of Southern Cross Media Group Limited for the year ended 30 Auditor’s opinion June 2016 complies with section 300A of the Corporations Act 2001 . In our opinion, the remuneration report of Southern Cross Media Group Limited for the year ended 30 June 2015 complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers tt Matters relating to the electronic presentation of the audited financial report This auditor’s report relates to the financial report and remuneration report of Southern Cross Media Group Limited (the company) for the year ended 30 June 2015 included on Southern Cross Media Group Limited’s web site. The company’s directors are responsible for the integrity of Southern Cross Media Group Limited’s web site. We have not been engaged to report on the integrity of this web site. The auditor’s report refers only to the financial report and remuneration report named above. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report or the remuneration report. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information included in the audited financial report and remuneration report presented on this web site. Sam Lobley Partner PricewaterhouseCoopers Melbourne 25 August 2016 Sam Lobley Partner Melbourne 26 August 2015 82 Southern Cross Austereo . Annual Report ADDITIONAL STOCK EXCHANGE INFORMATION The additional stock exchange information set out below was applicable as at 31 August 2016. The Company has only one class of shares, fully paid ordinary shares. All holders listed below hold fully paid ordinary shares and each holder has the same voting rights. There are no unlisted securities and there is currently no on-market buy-back. The names of the 20 largest holders of the Company’s quoted equity securities are listed below. Name JP Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited National Nominees Limited Nine Entertainment Co Pty Ltd BNP Paribas Noms Pty Ltd (DRP) RBC Investor Services Australia Pty Limited (VFA A/C) BNP Paribas Nominees Pty Ltd (Agency Lending DRP A/C) HSBC Custody Nominees (Australia) Limited-GSCO ECA Citicorp Nominees Pty Limited (Colonial First State Inv A/C) Cladela Pty Limited (The Moore Family A/C) RBC Investor Services Australia Nominees Pty Limited (Bkcust A/C) AMP Life Limited HSBC Custody Nominees (Australia) Limited (Nt-Comnwlth Super Corp A/C) RBC Investor Services Australia Nominees Pty Limited (Pi Pooled A/C) Cladela Pty Limited Morgan Stanley Australia Securities (Nominee) Pty Limited (No 1 Account) Pan Australian Nominees Pty Limited CS Fourth Nominees Pty Limited (HSBC Cust Nom Au Ltd 11 A/C) National Nominees Limited (DB A/C) Analysis of numbers of equity security holders by size of holding: Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Holding less than a marketable parcel Fully Paid Ordinary Shares % of Issued Capital 172,186,475 140,716,482 133,981,501 78,248,132 76,795,788 39,601,460 11,977,869 7,559,332 6,842,560 5,982,935 5,382,148 4,513,486 3,983,298 2,180,632 2,144,439 2,140,826 2,039,753 1,944,057 1,651,622 1,376,960 701,249,755 Number of Shareholders 858 1,530 822 1,197 102 4,509 432 22.39 18.30 17.42 10.18 9.99 5.15 1.56 0.98 0.89 0.78 0.70 0.59 0.52 0.28 0.28 0.28 0.27 0.25 0.21 0.18 91.19 Fully Paid Ordinary Shares 342,493 4,480,401 6,395,445 30,862,110 726,933,156 769,013,605 17,335 Substantial holders in the Company (with holdings as notiﬁ ed to the Company most recently before 31 August 2016) are set out below: Name Allan Gray Australia Pty Ltd and its related bodies corporate Commonwealth Bank of Australia and its related bodies corporate Securities subject to voluntary escrow are set out below: Type Voluntary escrow Fully Paid Ordinary Shares 114,305,479 49,122,603 163,428,082 Date Escrow Period Finishes 31 December 2018 % of Issued Capital 14.87% 6.38% 21.25% Fully Paid Ordinary Shares 290,336 290,336 Southern Cross Austereo . Annual Report 83 This page has been left blank intentionally. 84 Southern Cross Austereo . Annual Report This page has been left blank intentionally. Southern Cross Austereo . Annual Report 85 This page has been left blank intentionally. 86 Southern Cross Austereo . Annual Report CORPORATE DIRECTORY SOUTHERN CROSS MEDIA GROUP LIMITED ABN 91 116 024 536 Company Secretary Mr Tony Hudson Registered Ofﬁ ce Level 2 257 Clarendon Street South Melbourne VIC 3205 +61 3 9252 1019 Share Registry Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford VIC 3067 The Southern Cross Austereo Annual Report 2016 is printed on ecoStar which is an environmentally responsible paper made Carbon Neutral. The greenhouse gas emissions of the manufacturing process including transportation of the ﬁ nished product to BJ Ball Papers Warehouses have been measured by the Edinburgh Centre for Carbon Management (ECCM) and offset by the Carbon Neutral Company and the ﬁ bre source has been independently certiﬁ ed by the Forest Stewardship Council (FSC). ecoStar is manufactured from 100% Post Consumer Recycled paper in a Process Chlorine Free environment under the ISO 14001 environmental management system. Sourcing included within this document: GFK Radio Ratings. Metro- Survey 5 2016. Newcastle and Gold Coast- Survey 1 2016. Canberra- Survey 2, 2016. Mon-Sun 5:30- 12mn Cume.] [XTRA Insights. Albury and Hobart- Survey 1 2014. Townsville- Survey 1 2015. Grifﬁ th, Dubbo, Mt Gambier, Port Macquarie, Coffs Harbour, Albany, Kalgoorlie, Mackay, Shepparton, Cairns, Toowoomba, Maryborough, Bundaberg West Gippsland, Orange and Wagga Wagga- Survey 1 2016. Darwin Central, SGT – TV Advisor. TTL PPL. 0600-2400. Facebook total page likes + Twitter Followers + Instagram Followers +YouTube Subscribers +Ooyala as at 1 Sept 2016. Nielsen Online Ratings – Market Intelligence (Domestic) based on monthly average for period Aug 2016 – SCA Network National. SCA Steaming Logs - 28 days from 01/08/2016. Podcast listening ﬁ gure removes inﬂ ated reporting from repeated download requests via streaming podcast players in an individual podcast listen and includes Hamish & Andy. Flurry, App Annie (all-time SCA downloads), Nielsen Market Intelligence. Figures for Apr ‘16. 4 AGGS & TAS: Regional TAM. 7.8.16- 3.9.16’. Weekly Cume Reach (1 min) averaged. Sun-Sat 0200-2600. Diary Markets: TV Advisor. Darwin, Central, SGT. Sun-Sat 0600-2400.

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