Southern Cross Media Group Ltd
Annual Report 2020

Plain-text annual report

10m 99 4.8m 3.8m Reaching over 10 million 99 AM & FM & DAB+ 4.8 million Hit network listeners 3.8 million Triple M Australians every week radio stations, 7.4 million nationally each week – 50 FM & network listeners nationally across its Television, Radio national reach DAB+ radio stations each week – 48 AM & FM & and Digital networks DAB+ radio stations 4.2m 92 No. 1 Regional Television networks 92 free-to-air television signals Australia’s leading commercial 4.2 million viewers per week podcast network Year In Review SCA’s results in FY2020 highlight its significantly improved balance sheet and strong cash flow, along with continuing or growing demand for SCA’s core audio products. Despite the severe impact of the COVID-19 pandemic on SCA and broadcast media more broadly, there has been progressive improvement in revenues since May 2020. Revenue Expenses EBITDA NPAT Underlying NPAT Net Debt FY2020 $540.2M ($432.6M) $108.2M $25.1M - $131.6M Excluding AASB 16 (Leases) Comparison to FY20191 $661.0M ($513.6) $147.4M ($91.4M) $73.9M $292.6M (18.2%) (12.8%) (36.9%) N.m. (51.6%) (55.0%) FY2020 $540.2M ($447.8M) $93.0M $29.7M $35.8M $131.6M 1 Underlying amounts in FY2019 exclude the impact of one-off restructuring charges of $3.3 million and non-cash significant items, comprising the impairment of $158.9 million N.m. Not meaningful (net of tax) in relation to the Group’s regional television licences and the loss of $9.2 million on broadcast transmission assets held for sale on 30 June 2019. Despite the challenges presented by weak advertising markets and the COVID-19 pandemic, SCA traded profitably in all four quarters of the year. This was the result of disciplined cost control, as well as a prompt and effective response to maintain operations with the majority of our people working safely from home. The Company also appreciated support received during the year from shareholders, lenders, and Government and regulatory agencies. Consumption of SCA products, particularly digital audio, has grown during the pandemic. Audio is more accessible than ever through mobile phones, tablets, desktop computers and smart speakers and SCA’s suite of radio stations, radio and original podcasts and smart news updates are available on all these devices. Data from August 2020 showed that SCA’s audiences listened to 10 million hours of digital audio, 46% more than a year earlier. Live streaming of Hit and Triple M radio shows reached record highs in August, increasing by 88% year-on-year; and radio podcast listening grew by 75%. PodcastOne Australia has experienced a 167% growth across the March to August 2020 period with 26 million downloads. SCA’s focus, as the economy recovers, is to convert consumption of our products into strong commercial outcomes. This will include continuing to invest in key markets and timeslots in our radio networks and growing our digital audio ecosystem with premium content, platforms and products attractive to listeners and advertisers. Contents Year In Review Chairman’s Statement CEO’s Report Operational Review Television Boomtown IFC Governance 02 04 06 12 13 SCA Engage The Board and Leadership Team Financial Report ASX Report Corporate Directory 14 17 18 23 97 98 Southern Cross Austereo Annual Report 2020 3 Chairman’s Statement On behalf of the Board of Directors, I am pleased to present SCA’s The Company has continued during this period to focus on the During the year, the Board engaged Egon Zehnder to advise on Annual Report for the 2020 financial year – my first as Chair. long-term strategic imperative to expand the business beyond linear Board succession to help ensure that the Board will maintain the The first nine months of the year were challenging for the broadcast media industry generally, and for SCA. Lack of business and consumer confidence led to advertising markets being weak and volatile. While SCA maintained its commercial share in audio and television segments, first half revenues were 8.5% below the prior year. The challenges became greater in the second half of the year, first with the social and operational dislocation caused by the bushfires that affected communities and small businesses in many of the regional areas in which the Company operates; and then the COVID-19 pandemic. This health crisis and the measures implemented by Federal, State and Territory Governments in response have had a severe impact on SCA’s business and operations. Full year revenues of $540.2 million were 18.2% lower than the prior year and EBITDA of $93.0 million (excluding AASB 16) was 36.9% below the comparable amount in the prior year. These challenges required a number of short-term responses, including a tight focus on cost control and the roll-out of business continuity plans to ensure our 1,700 people (including on-air announcers) in 62 locations around Australia could work safely and effectively from home. broadcasting to digital and on-demand audio platforms and products. skills and experience required to guide the Company in the years Independent surveys indicate that consumption of audio in Australia, ahead. After a comprehensive search process, the Board has recently particularly on digital devices, has grown during the pandemic. With appointed Carole Campbell as a director and will ask shareholders Australia’s largest portfolio of home-grown audio assets, including at this year’s AGM to elect Ido Leffler and Heith Mackay-Cruise as 99 AM, FM and DAB+ radio stations available on broadcast and by directors. Together Carole, Ido and Heith will bring relevant expertise Internet livestream as well as Australia’s leading commercial podcast to complement the mix of skills and experience already on the Board. network in PodcastOne Australia, SCA is well positioned to lead Australia’s growing digital audio industry. In closing, I would like to thank SCA’s management and employees for their commitment, care and tenacity in a difficult year. Innovation, While the focus of future investment will be on SCA’s audio assets, creativity, courage and collaboration – four of our core values – shareholders should be assured we will continue to operate our have never been more evident as we have kept our audiences and television assets effectively. The television business has been communities informed and entertained and delivered value to our transformed over the past three years through outsourcing of clients, many of whom have also been severely affected by the transmission and television playout services to specialist providers. pandemic. Those values will stand us in good stead as we evolve our Under this streamlined operating structure, SCA’s core expertise business towards a more digital future and provide reliable returns for in local and national sales continues to drive positive commercial our shareholders. outcomes. This is reflected in our market-leading power ratio – measuring conversion of ratings to revenue – of 1.09 in the four east coast aggregated television markets. Our Board and executive team are well aware that many of our shareholders have suffered as a result of the difficult trading Rob Murray Chair Investments made over the past three years to increase the flexibility conditions faced by the Company this year and are focused on and security of our technology have been amply repaid during the restoring the value that has been lost. That is the explicit aim of the COVID-19 lockdowns. The Company appreciated the support of executive long-term incentive plan implemented by the Board for the shareholders who took up their entitlements in the $169.6 million next three years. By specifying total shareholder return as the sole equity raising conducted in April 2020 and the Company’s lenders performance measure, the plan will provide a direct and clear link who agreed to provide additional covenant headroom until June 2021 between shareholder returns and executive remuneration. under our syndicated debt facility. We have also been grateful for temporary regulatory relief and short-term financial support provided by the Federal Government in the form of the JobKeeper wage subsidy and grants under the Public Interest News Gathering program to help ensure regional media businesses can continue to provide news services to their communities. The combination of these actions has enabled SCA to trade profitably through the pandemic and position the business to rebound as the economy recovers. Despite the adverse economic conditions, SCA achieved a positive EBITDA contribution in all four quarters and has a significantly strengthened balance sheet, with healthy liquidity. On 30 June 2020, the Company’s net debt of $131.6 million and leverage of 1.24x EBITDA were at historic lows. Thank you to my fellow directors who have supported the management team and each other throughout the year. I wish in particular to acknowledge the contribution of Peter Bush who stood down as Chair on 19 August 2020 and will retire as a director at this year’s AGM. In his five years as Chair, Peter oversaw a comprehensive renewal of the Board and leadership team and a streamlining of the business to focus on our core competencies of creating compelling audio content and sales. Leon Pasternak will also retire as a director at the AGM. Leon is the Company’s longest-standing director and his wisdom and corporate knowledge have been invaluable in bedding down the significant renewal of the Board’s composition since 2014. 4 Southern Cross Austereo Annual Report 2020 5 CEO’s Report In difficult times, I’m proud that SCA’s people live our aspiration around the country. This will deliver high quality, fun and entertaining Games are consistently ranked among the top Australian original As a commercial audio business, we are buoyed by these positive every day to be Proudly National, Fiercely Local. This was amply Breakfast shows to our regional Hit network stations, complemented podcasts in the official Australian Podcast Ranker launched during trends in consumption of our products and focused on converting demonstrated during the summer as communities in many of by locally hosted morning or afternoon shows and local news and the year. Increasingly, our premium talent-led approach to original them to improving commercial outcomes as the recovery from our locations battled bushfires, floods and cyclones. Our radio weather services. podcasting is delivering valuable returns for our clients, whether as COVID-19 progresses. In the year ahead, this will include growing our and television stations worked closely with local authorities and emergency services organisations to keep communities informed about emergency warnings; as well as being directly involved in helping communities to recover from these events. SoundCloud Radio launched in August on DAB+ radio in the five metro markets and live streaming around Australia. SoundCloud Radio advertisers or as sponsors of branded podcasts to promote their digital audio ecosystem with premium content, platforms and products products or issues of importance to them. attractive to our listeners and advertisers. is the first and only SCA station dedicated to new music discovery, Audio remains a popular companion for people – whether commuting The growing popularity of digital audio brings with it the opportunity offering listeners the chance to hear undiscovered tracks from to and from work, or working from home. Consumption of audio, and imperative to expand and improve the data and insights about As the impact on our business of the COVID-19 pandemic deepened emerging artists launching their careers on SoundCloud. Extending including linear radio and on-demand podcasts, remains strong and our audiences that we create for our sales and content teams, and for in the final quarter of the year, we asked nearly all our employees to our successful exclusive advertising partnership with SoundCloud, the accept reduced pay and many to accept reduced hours of work. We new station gives brands another way to connect with SoundCloud’s asked them to work in new and agile ways, remotely from our highly young and highly engaged audience. Our radio stations are also available anywhere in Australia by live stream so listeners can enjoy them on any Internet-enabled device, has grown during the pandemic. This growth has continued, even as COVID-19 restrictions have eased in many locations. With official metro radio surveys paused since survey 2 in April 2020, GfK, the official survey provider, conducted an online radio pulse study from 17 May to 13 June 2020. The survey found nearly 12 million listeners our clients. Digital technology allows us to place targeted advertising in our radio livestreams – meaning that advertisements on our livestreams, which can be sold at premium rates, will not always be the same as on the radio broadcast. Our instream advertising revenue grew by 112% in FY2020. collaborative office and studio environments. We’ve made changes to our business to create a lean and efficient operating model focused on recovering the earnings lost in the year just ended. Through this disruption, our people’s passion and commitment to engage our audiences, contribute to our communities, and deliver value to our clients has never wavered. The impact of COVID-19 is moderating as economic activity in much of Australia is progressively recovering. We expect the recovery will be more gradual than the sharp declines experienced in April and May this year, and that outbreaks in one or more locations could interrupt the recovery. We’re confident that SCA will continue to trade wherever they are. Featured highlights of popular shows on our 88 tuned into commercial radio on any platform across the five metro We now have over 630,000 signed-in users for our radio station AM and FM radio stations are also available as on-demand podcasts markets, with audience growth in all markets compared to survey 2. apps, and our in-house SCA iQ team houses the Asia Pacific’s largest enabling our audiences to listen where and when it suits them. Despite many Australians not commuting to and from work, audiences entertainment insight community with more than 300,000 members Our strategy for aggregating our FM and DAB+ radio station audiences in metro markets continues to provide additional value for grew in the key Breakfast and Drive dayparts, with home listening in metro and regional areas. These communities provide first party more than making up for reduced in-car listening. data to inform our decisions and those of our clients and will support advertisers and a sustainable competitive advantage over commercial Audio is also more accessible than ever through Internet-enabled ongoing growth in our instream advertising revenue. radio peers. The most recent metro radio survey 2 in April 2020 devices such as mobile phones, tablets, desktop computers and smart I was delighted to welcome Nikki Clarkson and Dave Cameron showed that SCA’s DAB+ radio stations had 333,000 DAB+ radio only speakers. SCA’s suite of radio stations, radio and original podcasts to the leadership team during this year. As Chief Marketing and listeners, providing advertisers with a greater aggregate reach of 7.1% and smart news updates is available on all these devices. Communications Officer, Nikki oversees our trade and consumer profitably through this period and will rebound as the worst impacts of across the Triple M and Hit networks. the pandemic abate. SCA and our commercial radio peers have also been working Last year, I wrote about the need for SCA to take advantage of key collaboratively to make it easier for advertisers to invest in radio consumer trends towards mobile, personalised and on-demand audio through the RadioMATRIX industry-wide advertising buying content. Those trends remain at the core of our corporate strategy platform. Since launch in 2017, over 200 media agencies have used to create compelling content and to distribute and monetise it in the RadioMATRIX to process more than 1.5 billion items of radio inventory The growth in consumption across SCA’s digital audio products is illustrated by the following statistics from August 2020, during which: marketing as well as Group corporate communications. Dave’s appointment as Chief Content Officer followed an extensive local and global search. He is responsible for the content of our linear and on-demand audio assets. Both Nikki and Dave have already had long • SCA’s audiences listened to 10 million hours of digital audio, a year- careers at SCA and have brought valuable strategic and creative on-year increase of 46%; insights to our leadership team. most efficient and effective ways for our audiences and clients. on 370 Australian commercial radio stations. A new pilot module • live streaming of Hit and Triple M radio shows increased by 88% to In closing, I would like to thank all of our people and the Board for their We expanded our broadcast footprint during the year by acquiring 10 new radio stations in Western Australia from Redwave Media and Carnarvon Communications. The recent launch of SoundCloud radio provides agencies with a virtual and paperless workspace to send out 1.5 million listeners; commitment and support as we build an exciting and successful future briefs, receive proposals and undertake modelling of audience reach, frequency and cost against real-time availability. • listening to Hit and Triple M radio podcasts jumped by 75% to 4.2 for SCA. million downloads; on DAB+ radio increased our AM, FM and DAB+ radio portfolio to 99 The highest content priority in our radio network is to establish a stations. In fact, we temporarily have 100 stations … including Little new and successful Breakfast show on 2DayFM in Sydney. We have Fox, a pop-up children’s DAB+ radio station on-air during the strict performed poorly in this key timeslot for several years. In 2019, we • there were 395,000 downloads of SCA Smart News, up 25% month- on-month; and COVID-19 lockdowns in Melbourne. took a strategic decision to revert temporarily to a music format. This • downloads of PodcastOne Australia’s original podcasts rose by 167% In July, we unveiled a new look Hit network, bringing back the much has created clear air for launch of a new Breakfast show early in 2021. from March to August 2020. loved heritage brands SAFM in Adelaide and B105 in Brisbane, and PodcastOne Australia has consolidated its position as Australia’s Even in the temporary absence of official radio surveys, these statistics introducing a new ‘Get that feeling’ tagline and playlist to target a leading premium commercial podcast network. Now with 90 original show there is healthy and growing consumer demand for compelling female-skewed audience aged 30-54. In August, we introduced Australian titles, PodcastOne Australia grew revenue by 96% to $4.6 audio content, and for SCA’s audio products in particular. They also statewide Breakfast shows to our 40 Hit stations in regional markets million in FY2020. Titles such as Hamish & Andy and The Howie show the increasing importance of digital delivery of audio content. Grant Blackley Managing Director and Chief Executive Officer 6 Southern Cross Austereo Annual Report 2020 7 Operational Review Highlights: • Broadcast footprint expanded to 99 AM, FM and DAB+ radio stations • PodcastOne Australia grows listeners and sponsors • SoundCloud Radio launched on DAB+ radio in five metro cities and by livestream around Australia Mobile, desktop and smart speaker usage are all growing strongly given their usage and accessibility – and this in turn is providing an increased volume of addressable inventory for sale to advertisers seeking scaled targeted audiences. SCA’s audio revenue reflected the broad market contraction due to COVID-19. Revenue declined by 18.2% to $371.1 million and underlying EBITDA declined by 35.3% to $97.8 million. Audio expenses fell by 9.6% to $273.3 million, influenced by a reduction in employee expenses. • Digital audio listening on mobile devices and smart speakers grows exponentially, for both live streaming and on-demand radio and original podcast Regional radio revenues were less impacted than metro radio, with stronger relative demand from national advertisers in regional markets. • Boomtown helps drive national revenue and commercial share growth for regional radio and television. Regional markets are expected to benefit in the future, led by regional tourism and related economic investment and helped by the Boomtown Audio Overall radio listening increased across FY2020, most notably across the day with more people based at home or working remotely. Increased audio consumption is being supported by significant growth in listening via multiple digital devices. Nationally, SCA reaches 7.48 million people aged 10+. In the latest available GfK metro survey in April 2020, Triple M is the # 1 station of men aged 25-54 and people aged 18-39, while Hit is the # 1 commercial station for people aged 25-54. SCA’s national metro DAB+ radio stations attracted 333,000 unique listeners, providing advertisers education initiative. SCA’s radio footprint expanded in the year, following the acquisition of Redwave Media’s Western Australian regional stations, along with two stations from Carnarvon Communications. These stations were rebranded in March 2020 to the Hit and Triple M brand family. These acquisitions complete SCA’s radio coverage of Western Australia – extending to the Carnarvon, Karratha, Broome, Geraldton, Port Hedland and remote mine site areas. SCA now owns 99 stations across AM, FM and DAB+ radio and provides national sales representation for 23 other regional radio stations. The Hit and Triple M network analogue radio stations and 10 DAB+ radio stations continued to entertain and inform more than 5 million people each week. SCA temporarily has 100 stations, including Little Fox … a pop-up children’s DAB+ radio station on-air during the strict COVID-19 with greater audience reach. lockdowns in Melbourne. Radio listening has increased during COVID-19 – with notable increases across the day Industry Audience SCA is a firm believer in the future of DAB+ radio and is the largest commercial DAB+ radio group, owning and operating more DAB+ radio spectrum than any other Australian commercial radio network. Six new DAB+ radio stations launched this year: Hit Dance, Hit Urban, Triple M 90s, Triple M Soft Rock, Triple M Hard n Heavy and a unique radio first with SoundCloud Radio. 8.0m 7.8m 7.5m 6.2m 8.0m 6.8m 7.3m 6.9m Breakfast: Mon-Fri 05:30 - 09:00 Morning: Mon-Fri 09:00 - 12:00 Afternoon: Mon-Fri 12:00 - 16:00 Drive: Mon-Fri 16:00 - 19:00 Radio Pulse Jun 20 S2 2020 Increased Listening GfK Radio Pulse survey, June 2020. Cume audience 5.30am – 12.00midnight, all people 10+. Mobility trends source: Google 4.36M 344K LISTEN TO SCA’S FM NETWORK ONLY LISTEN TO SCA’S FM AND DAB+ RADIO STATIONS 333K LISTEN TO SCA’S DAB+ RADIO NETWORK ONLY SCA uses this aggregated FM and DAB+ radio reach to offer advertisers a simple and scaled value proposition. When advertisers choose to advertise on a Hit or Triple M station, their advertisements are broadcast in the same daypart on five DAB+ radio stations in the same location, significantly extending their commercial impact. Other Australian commercial radio networks cannot (or have so far chosen not to) do this for advertisers. 8 Southern Cross Austereo Annual Report 2020 9 Operational Review SoundCloud Radio Last year, SCA launched InStream, an addressable live radio offering enabling the dynamic insertion of personalised and targeted audio Building on a successful exclusive advertising partnership in Australia, ads into live radio commercial breaks across all connected devices in August SCA and SoundCloud launched SoundCloud Radio on DAB+ including SCA websites, apps and smart speakers. InStream revenues radio in Brisbane, Sydney, Melbourne, Adelaide and Perth and by rose by 112% in FY2020 as SCA increasingly serves digital audiences livestream around Australia. with more addressable advertising. SCA’s investment in developing new SoundCloud is the world’s largest community of audio and music creators, with a music streaming audience of 2.5 million monthly digital assets is helping accelerate listening consumption and is driving increasing revenue momentum. listeners in Australia … which is increasing month-on-month. Beyond the traditional broadcast signals, the Hit and Triple M networks are reaching and growing audiences on a range of digital and social SoundCloud Radio is the first and only station at SCA dedicated purely to new music discovery, offering listeners the chance to hear undiscovered tracks from some of the most exciting emerging artists launching their careers on SoundCloud today. This new offering enhances SCA’s ability to provide advertisers with extraordinary reach on DAB+ radio and in the digital audio space. The SoundCloud audience is young, highly engaged and influential, and SCA’s social communities have increased by 3% to 15.16 million, as it continues to be the industry leader in social engagement generating more than 35.42 million interactions on social platforms in FY2020. brands can reach this audience through SCA’s access to SoundCloud SCA launched a refreshed design for its suite of Hit and Triple M apps and now SoundCloud Radio. as in-app listening surged by 48% year-on-year, to 3.88 million mobile With an aggregated commercial reach of over 3.5 million monthly users, SCA is now a one-stop shop for digital audio advertising listening hours. The listening experience on the new apps has been redesigned to support how audience behaviour is evolving. solutions on SoundCloud and SCA’s own substantial live radio News on demand is a new feature of these updates with a dedicated streaming and radio and original podcasts. section providing users with even greater access to local headlines. Users can also set their preferences to receive regular notifications of breaking news. The Hit network app has recorded a 40% increase of unique users while Triple M has seen an 18% rise year-on-year from June 2019 to June 2020. This year’s bushfires, floods and COVID-19 pandemic saw in-app news consumption in the past six months surge – increasing by 203%. channels. From Facebook and Instagram to YouTube, SCA’s networks use Highlights: these platforms to market their quality audio entertainment, news and • Triple M’s annual ‘No Talk Day’ on 1 July, to raise awareness of men’s information to Australian listeners through visualisation and storytelling. mental health, was extended to include all Triple M stations nationally Triple M Network Hit Network Australia’s first commercial FM station, Triple M Melbourne, celebrates The Hit network launched a significant rebranding, including reintroducing 40 years on air this year. The Triple M network welcomed eight new heritage local brands, launching new Breakfast shows and unveiling a stations, with six new stations in regional Western Australia and new content strategy and branding. Hit also welcomed six new stations in rebranding of Hit in Dubbo and Gippsland, taking it to 43 AM and FM regional Western Australia following SCA’s acquisition of Redwave Media stations, along with another five DAB+ radio stations. and Carnarvon Communications. Two Hit stations in Dubbo and Gippsland The Triple M network reaches 3.88 million listeners across metro, were rebranded to Triple M, leaving Hit with 50 FM and DAB+ radio regional and DAB+ radio stations. Triple M is the # 1 radio network for stations nationally. males aged 25-54 with 1.88 million listeners. The local, heritage FM brands of SAFM in Adelaide and B105 Brisbane this year. No Talk Day saw live streams increase by 53% year-on-year and a 42% jump in listeners; • Triple M is the # 2 radio network overall with national reach of 3.88 million people aged 10+; • Breakfast on Triple M nationally reaches 2.246 million people; • Drive on Triple M nationally reaches 1.912 million people; • Triple M’s DAB+ radio stations reach 325,000 people; made a return on 27 July to join other metro heritage brands (2DayFM in Sydney and The Fox in Melbourne) that are already part of the Hit network. Extending SAFM even further, Hit96.1 Limestone Coast was rebranded to SAFM96.1 – delivering a strong, unified South Australian radio brand across the State’s two biggest cities. SAFM welcomed back famous Adelaide-born comedian, Anthony ‘Lehmo’ Lehmann who joined Rebecca Morse and Cosi in the ‘Bec, Cosi & Lehmo’ Breakfast show. On the Gold Coast, local radio and TV personality Bianca Dye returned to her hometown to join the Hit90.9 Breakfast team with Dan Anstey and Ben Hannant, creating the ‘Bianca, Dan & Ben’ Breakfast show. The rest of the Hit-branded network stations nationally remain as Hit and • Triple M’s live radio streaming grew 56% in the year to June 2020; take on the network’s new-look branding. Hit also delivered a new, mood- • Radio podcast downloads rose 121% in the year to June 2020, with focused, ‘feel great’ pop music format nationally to appeal to a broader Rush Hour Melbourne growing by 97%, Triple M Footy (AFL) up 84% audience aged 30-54; and a new, emotive positioning line ‘Get that feeling’. and Kennedy Molloy up 30%; and The network also introduced State-wide Breakfast shows for its regional • On Triple M’s Breakfast shows, Sydney’s Moonman in the Morning stations in New South Wales, Queensland, Victoria and South Australia, radio podcast downloads rose by 38%, Melbourne’s The Hot Breakfast reflecting the existing Western Australia model. increased 33% and Roo & Ditts for Breakfast in Adelaide was up 54%. The Hit network reaches 4.83 million listeners across metro, regional and DAB+ radio stations. Hit is the # 1 radio brand for people aged 25-54 and the # 1 brand for women aged 18-39. Highlights: • The Hit network Breakfast nationally reaches 2.77 million people; • Drive on Hit nationally reaches 2.604 million people; • Hit’s DAB+ radio stations reach 416,000 people; • Hit’s live radio streaming grew 47% in the year to June 2020; • Live streaming of Stav, Abby & Matt on B105 Brisbane Breakfast grew 56%; • On SAFM Adelaide, live streaming of Bec, Cosi & Lehmo Breakfast was up 43%; • In Perth on Hit92.9, Xavier, Juelz & Pete catch up rose by 36%; and • Radio podcast downloads rose 99% in the year to June 2020, with Fifi, Fev & Byron up 114%, Carrie & Tommy up 62% and Hughesy & Ed up 82%. 10 Southern Cross Austereo Annual Report 2020 11 Operational Review PodcastOne Australia Digital audio Podcasting in Australia continues to be a growth sector. Increasing Hamish & Andy and The Howie Games both recording their biggest ever Audiences still love SCA’s linear broadcast radio stations, but there is also a the country are available on podcasts, so their audiences can listen to consumer awareness and trial is building dedicated audiences that are month of downloads in May. growing demand for personalised on-demand audio content. SCA is at the them – or to original podcasts on PodcastOne Australia – wherever and becoming more attractive to advertisers. The Infinite Dial Australia 2020 study showed a quarter of those surveyed in Australia aged 12+ have listened to a podcast in the last month, up from 22% in 2019; and people listen to an average of six podcasts per week. Hamish & Andy celebrated their 100th episode in July 2020 and have forefront of these consumer developments. whenever it suits them. SCA created skills and bespoke content so that the grown audience downloads by 125% in the past 12 months. The Howie SCA’s radio stations can be streamed on the go on smart phones, tablets Games also celebrated its 100th episode, as it has become one of or at home online and on smart speakers. The flagship radio shows around Australia’s most successful sports interview based podcast series. The latest news updates are available on demand on smart speakers. PodcastOne Australia has consolidated its position as the leading, Briefing also celebrated its 100th episode in August, while Matt & Alex – premium, commercial podcast business in Australia. Now cash flow All Day Breakfast achieved one million downloads and Rusty’s Garage positive, PodcastOne Australia grew revenue by 96% to $4.6 million. had its 50th episode featuring Eric Bana. With the growth in digital audio accelerating during COVID-19 lockdowns, SCA is well placed to benefit from increasing advertiser awareness of consumers’ deep engagement with digital audio products. $4.6m $2.3m FY2019 Revenue FY2020 Revenue PodcastOne Australia is home to over 90 original podcast titles from a compelling group of Australians; as well as the best podcasts from our partner, PodcastOne USA. PodcastOne Australia’s co-created domestic podcasts include Hamish & Andy, Adam Shand at Large, The Howie Games with Mark Howard, Rusty’s Garage with Greg Rust, My Mum says My Memoir is a Lie and Just the Gist with Rosie Waterland, The Mentor with Mark Bouris, A Plate to Call Home with Gary Mehigan, The Beanies and ListenABLE with Dylan Alcott and Angus O’Loughlin. This year also saw the launch of Australia’s first on-demand breakfast show, Matt & Alex – All Day Breakfast, with the popular former hosts of Triple J Breakfast Matt Okine and Alex Dyson. News on demand is increasingly popular among audiences and SCA has met this demand by launching a daily news podcast called The Briefing in April 2020. Led by Tom Tilley and rolling co-hosts Annika Smethurst, Jan Fran and Jamila Rizvi, the podcast covers three to four of the biggest news stories over the past 24 hours, including in-depth interviews to ‘brief’ the audience on one of these stories. And it’s all done in under 20 minutes. PodcastOne Australia achieved 167% growth in downloads from March to August. Comedy and Sport were the two biggest growth categories with PodcastOne Australia also commissioned a not-for-profit podcast series, Rebuilding Australia, to provide helpful information to people on the key areas of rebuilding their life after Australia experienced one of the worst bushfire seasons in history and had to then deal with floods. The series focused on rebuilding our animal population and land, and rebuilding our homes, businesses and mindsets. The growing influence of podcasting has not gone unnoticed by businesses, and this is providing new commercial opportunities for PodcastOne Australia to use its specialist expertise to help companies create branded podcasts to engage key stakeholders, employees and customers. 136% INCREASE YOY 88% 95% 30% INCREASE YOY INCREASE YOY INCREASE YOY In original podcast listening from August 2019 to August 2020 Over 1.5M live radio streaming listeners during August 2.2M listening hours, accounting for 22% of total listening Recording more than 3.2M total listening hours PODCASTONE AUSTRALIA LIVE STREAMS SMART SPEAKER LISTENING MOBILE & TABLET LISTENING SCA’s audiences are also listening longer, more often and on more Smart speakers too are an increasingly popular choice for listeners, devices. Total listening hours reached 10 million in August, an increase of reporting 2.2 million listening hours in August, up 95% year-on-year; 46% year on year. and an average session duration of 2 hours and 16 minutes. As much of the population worked from home this year, audio became Listening on demand, including live radio streaming across mobile, tablet the companion of choice for many Australians, with digital audio and smart speakers, as well as radio podcasts, soared in August: listening increasing during this period and continuing to rise even as restrictions eased. More people are tuning into Hit and Triple M via digital devices than ever before, with live radio streaming reaching a new record of 1.5 million • 8.6 million active live radio streams, up 49% year-on-year • Total listening hours on mobiles and tablets is up 30% year-on-year • There were 395,000 downloads of SCA Smart News in July, up 25% listeners, up by 88% year on year and radio podcasts jumping 75% year on month-on-month. year to 4.2 million downloads. 12 Southern Cross Austereo Annual Report 2020 13 Television Boomtown Television remains an important part of the business, delivering EBITDA of $23.9 million in FY2020. The Boomtown industry initiative continues to encourage national advertisers to consider higher investment in regional areas. During the year, SCA completed outsourcing television playout services – comprising 105 broadcast signals – to NPC Media (a joint venture Representing the 8.8 million people living in regional Australia, Boomtown includes major business and population centres like the Gold Coast, between the Nine and Seven networks), and broadcast transmission services to BAI Communications. This has created a streamlined and efficient Newcastle, New South Wales’ Central Coast, Townsville, Hobart, Bunbury and Canberra. The residents of ‘Boomtown’ – who comprise 36% of structure for delivery of broadcast television to SCA’s licence areas and a more predictable cost base, while mitigating future capital expenditure Australia’s population – have disposable incomes and travel, shopping and spending patterns that are comparable to those of Australia’s capital and other risks associated with SCA’s previous ownership of broadcast assets. This streamlined operating structure also allows SCA to leverage city residents. And yet only 10% of national media budgets are spent regionally. Boomtown is closing that gap, reminding advertisers of the its core expertise in local and national sales. benefits of advertising in regional Australia. This year, Boomtown is launching two major initiatives: a new education masterclass series in conjunction with the Media Federation of Australia’s NGEN program to arm the industry with the knowledge and tools to understand and book regional media; plus the launch of an industry first online portal to offer agencies a one-stop briefing platform to locate regional media coverage areas of the Boomtown media owners along with industry updates and consumer insights. SCA and our Boomtown partners believe there are significant opportunities for advertisers to grow their businesses in a more effective and efficient manner by tapping into Boomtown. More information is available on the Boomtown website: https://boomtown.media/. SCA’s principal affiliation – in the regional markets of Queensland, Southern New South Wales and Victoria – continues to be with the Nine network. Since 2018, SCA has also provided Nine with exclusive sales representation services in Northern New South Wales, making it simpler for advertisers to invest in these aggregated markets. The best performing shows included Lego Masters, Married at First Sight, The Voice, Australian Ninja Warrior and Nine News. SCA continued to deliver a market leading power ratio of 1.09, despite the delayed start to the NRL season this year. Commercial Share & Power Ratio 1.05 1.07 1.11 1.09 37.7% 35.9% 35.9% 38.5% 38.3% 37.6% 34.4% 34.5% H1 FY19 H2 FY19 H1 FY20 H2 FY20 Audience Share Commercial Share Power Ratio In response to the severe impacts of COVID-19, Nine cut back its local news services to SCA’s licence areas in local New South Wales, Victoria and Queensland. SCA was pleased in early August that Nine was able to reinstate its 9News Local bulletins in a new format from 5.30pm to 6.00pm leading into its State-based metro news bulletins. SCA is affiliated with the Seven network in Tasmania. While this is a smaller market, SCA has built a strong position for Seven’s programming over many years. Seven’s AFL coverage is its premier product in Tasmania, with Nightly News, Home and Away, Farmer Wants a Wife, Big Brother and House Rules also strong ratings performers. Tasmania is the only market in which SCA produces its own local news bulletins, and that contributes to our leading position. SCA’s sales teams continued in FY2020 to achieve a commercial share in excess of audience share in Tasmania. 14 Southern Cross Austereo Annual Report 2020 15 Governance Values also provided to middle managers and other emerging talent within SCA. • Summer 2019/2020 bushfires – With so many communities devastated by bushfires, SCA radio stations played an essential role in keeping Programs for the new financial year will be designed to equip our people locals, and holidaymakers, well informed. Local radio stations quickly pivoted from scheduled programming, working around the clock to provide SCA prides itself on creating a culture where people feel valued and can with the skills and resilience to rebound from the challenges of this year. the most up-to-date news and emergency services information and, in collaboration with local authorities, to provide a sense of calm through perform at their very best. We don’t just focus on what we do; we care about how we do it. SCA’s five values guide day-to-day decisions and shape individual and collective behaviour. SCA manages workplace health and safety risks in an active way. Local managers monitor and manage risks at their workplaces, ensuring that risks are identified, assessed and managed proactively and not only in factual and timely information. Once the immediate threats of the fires subsided, radio stations turned to communicating ways for individuals and businesses to support the community. Hit and Triple M teams visited impacted towns – from Batlow, New South Wales to Kangaroo Island, South Australia – showing their support • We COLLABORATE: We work as a team. Together, we deliver our response to an incident. Key risks managed on a day-to-day basis include through donations of supplies and broadcasting Breakfast shows to encourage tourism to support these devastated towns. Hit91.9 Bendigo’s best. security arrangements for high profile performers and on-air announcers Keeshia & Tim rallied 63 local schools and businesses to participate in ‘Central Victoria’s Biggest Casual Clothes Day’, raising over $19,000 for • Take INITIATIVE: Each of us is responsible for exceeding expectations. We go the extra mile. • Maximise CREATIVITY: We lead with fresh thinking. We create winning ideas. • Have COURAGE: We always show strength and spirit. We stand up for our beliefs and each other. and conducting ‘stunts’ for on-air radio content. Measures have been bushfire affected areas in their region. implemented in all of our locations to educate our people about workplace risks associated with COVID-19 and to manage those risks. An important outcome of SCA’s outsourcing of television playout and broadcast transmission services has been to reduce the range of workplace risks for which SCA is directly responsible. Risks relating to engineers travelling and working in remote areas and at heights on high • Act with INTEGRITY: We do what’s right and act with transparency voltage equipment and managing asbestos in old buildings in regional and honesty. We deliver on our promises. areas, are now managed directly by specialist service providers. Diversity and Inclusion Proactive steps are taken to promote the mental health and wellbeing of SCA’s people, including a wellbeing portal on the Company intranet, SCA believes that business performance is enhanced by a diverse training on managing mental health in the workplace and an employee workforce where employees are treated with respect and fairness and assistance program and counselling service. have equal access to opportunities. SCA aims to provide a living, creative organisation that understands the diversity of its audiences Connecting and supporting communities and advertisers. SCA’s local news and information services on radio and television keep SCA achieved the gender diversity targets set by the Board for 30 June communities up to date on the issues that matter to them, as well as 2020. Women now occupy 40% of senior management positions and providing local skilled jobs, supporting local businesses, providing 60% of middle management positions at SCA; and 42% of non-executive local advertising opportunities and supporting local events, charities directors are female. The results achieved reflect programs introduced and community initiatives. SCA produces and broadcasts local news in recent years to encourage flexible work practices to help our people bulletins in Tasmania on the Seven network; and in conjunction with the – both men and women – to successfully manage their career and family Nine network, SCA broadcasts local television news bulletins in regional life through a practical work-life balance. Victoria, Southern New South Wales and regional Queensland. SCA has rolled out an enhanced workplace flexibility framework to ensure SCA prides itself on its ‘fiercely local’ engagement with communities and the Company continues to prioritise employee wellbeing while delivering the support has never been more important than over the last 12 months. exceptional outcomes for our audiences, clients and shareholders. Developing and looking after our people SCA is investing in leadership with a focus on the skills that SCA requires of its leaders now and in the future. This has included partnering with SCA made it a goal this year through its ‘My Community’ major research study to truly understand the values of local communities. The study revealed that 89% of regional SCA audiences agree that local radio stations are strong supporters of the community and 81% agree that radio keeps them informed about products and services that are relevant to them. the Australian School of Applied Management to provide leaders with In addition to the SCA Engage national charity program, SCA is an • The bushfires in Port Macquarie were more devastating than anyone anticipated and local stations Hit102.3 and Triple M 100.7 moved away from network programming to deliver local news, information and emergency broadcasts, with real-time calls and updates from the local community. As the community epicentre for emergency information, the two stations single-cast as conditions worsened and some people worked 28 days straight to keep the community informed. • SCA launched a national campaign to encourage communities to support local businesses impacted by COVID-19 by ‘shopping local’. Shop Local is the largest national and locally voiced campaign SCA has ever rolled out, with over $1 million of SCA’s owned media invested in the campaign. It featured ads voiced by over 70 Triple M and Hit network talent around Australia, from local Breakfast show hosts such Pricey on Triple M Townsville, to Carrie Bickmore and Tommy Little on Hit national Drive. In addition, each local station gave local small businesses the opportunity to receive a ‘shout out’ on-air and across social media. executive level training on leading in times of change, executing strategy, active contributor to communities. Here are just a few examples of SCA • The Fox Melbourne – Fifi, Fev & Byron saw first-hand the impact of COVID-19 on the elderly in their community. For five weeks at the height of inspiring trust and coaching for high performance. Structured learning and engaging with local communities, resulting in meaningful connections and the crisis, the team engaged the support of clients of the show to put together and deliver care packs for the elderly and vulnerable as well as development programs, and access to an internal mentoring program, are contributions, from the past year: frontline workers in the Melbourne area unable to access basic essential supermarket items. 16 Southern Cross Austereo Annual Report 2020 17 Governance SCA Engage • Hit103.1 Townsville – In its fifth year, ‘Hit SCA Engage is SCA’s national charity program. Over two-year cycles, SCA Despite this suspension, several long-term partners in Tasmania continued the Hill’ raised over $60,000 for the local works with selected charities to help their work, while engaging its own with fundraising activities. Woolworths generously donated $25,000 direct Headspace branch to shift the stigma people to build stronger communities. SCA provides support through to GM5fK due to the inability to fundraise within stores. The Aurora Australis, around suicide and mental health. radio and television advertising; digital, social and research support; event Australian icebreaker and research ship, donated $10,000 – presenting the and meeting spaces; brainstorming sessions; concert and sporting tickets; cheque in the front of the boat at Salamanca Wharf in Hobart. on-air interviews; and staff volunteering. The Tasmanian Government teamed up with Lyden Builders, Clennett’s SCA’s charity partners until 30 June 2021 are Beyond Blue and The Mitre 10 and more than 60 local tradespeople and suppliers to construct Smith Family. To date, SCA has provided more than $64 million in community service announcement (CSA) airtime to these charities. SCA team members from around the country have shared their skills and time to implement activations by creating CSAs, and participating in work • Triple M 104.5 Brisbane – In support of experience programs and fundraising activities. Rural Aid The Big Breakfast team headed out west to broadcast their show on the road for four days. Their aim was to raise money, create awareness and connect with the communities experiencing extreme FY2020 Highlights Beyond Blue • ‘No Talk Day’ on Triple M on 1 July 2020 ‘Madison House’. The house was a unique purpose-built project supporting one special needs Hobart family and dedicated to the memory of Madison Lyden – daughter of Andy Lyden – who tragically lost her life in a traffic accident in New York in 2018. Triple M followed construction with regular on-air updates and a dedicated website page. The house was completed and handed over by Tasmanian Housing Minister, Roger Jaensch, in July 2020 with $372,000 donated to Give Me 5 for Kids. Beyond Blue Chief Community Officer, Patrice O’Brien “Our partnership with SCA has exceeded all expectations over the past 18 months. Not only has it been critical in amplifying Beyond Blue’s key behavioural change campaign and support services; in this time SCA drought. Nick Cody and Mel Buttle hosted • Triple M ‘Rush Hour’ show – NRL Beyond Blue Cup has created its own mental health and wellbeing initiatives, such as the nightly comedy shows and helped to raise $90,000 for Rural Aid to assist rural Queenslanders doing it tough. • Assistance with developing SCA’s first mental health strategy Wellness Connection and Triple M’s ‘No Talk Day’, which demonstrate the • SCA radio stations supporting World Mental Health Day (10 October) • SCA and Beyond Blue working closely during the COVID-19 genuine passion and commitment SCA has to supporting its staff, listeners and the broader community.” pandemic to ensure mental health support messaging is a priority. The Smith Family CEO, Dr Lisa O’Brien • The Studio at SCA – Our creative team • Hit network support of Toy and Book Appeal (53 staff utilised their enhanced the experience for visitors to the volunteer leave day for the Toy and Book appeal experience in ‘Last Seen’ exhibition – a fundraising initiative Sydney, Melbourne, Hobart, Perth, Brisbane and Adelaide) The Smith Family “Since we joined forces with SCA in January 2019, they have generously provided us with more than $30 million worth of in-kind media support across their radio, TV and digital networks. This has enabled us to deepen the public’s knowledge and awareness of poverty in Australia and its direct impact on a child’s schooling. for Queensland Eye Institute Foundation. Last Seen paired blind or vision-impaired Australians with artists to create paintings of their last significant visual memory. The Studio team created unique soundscapes to bring the paintings to life for a more immersive experience. The Studio at SCA’s collaboration with Alkira and Publicis Worldwide won a Webby award from the International Academy of Digital Arts and Sciences. Corporate governance SCA’s Corporate Governance Statement demonstrates the extent to which SCA has complied with the ASX Corporate Governance Council’s Principles and Recommendations and corporate governance best practice. The Corporate Governance Statement and related corporate governance policies are available on SCA’s website (http://www.southerncrossaustereo.com.au/investors). • Triple M network national support of Christmas Appeal • Hit network national support of Back to School campaign “Together, we are helping thousands of Australian children improve their educational outcomes, so they can create a better future for themselves.” • SCA hosted Work Inspiration (work experience) events for high school Tasmanian Health Service Chief Executive Hospitals – students in Hobart, Adelaide, Perth, Cairns, Melbourne and Sydney. South, Susan Gannon SCA has run the annual Give Me 5 for Kids (GM5fK) campaign for more than 20 years. Beginning as a simple coin drive on the New South Wales Central Coast, the campaign has raised over $25 million nationally and benefited over 40 pediatric wards of local hospitals and children’s health related charities. Local health services use these funds to improve “On behalf of the staff and patients at the Royal Hobart Hospital (RHH) we wish to say a huge thank you to the 107.3 Triple M Give Me 5 for Kids team, local businesses such as Lyden Builders and the Tasmanian community for their fantastic support to the health and wellbeing of babies, children and teenagers in Tasmania. outcomes for young patients, from acquiring vital medical equipment “The team has continued to exceed expectations every year and this through to providing clown doctor services to cheer up sick children. amazing donation is a direct result of the energy and commitment to raise In March 2020, the decision was made to suspend GM5fK fundraising activities because of the impact of COVID-19. funds to allow us to continue in our work to provide world-class care to sick children and support to their families.” 18 Southern Cross Austereo Annual Report 2020 19 The Board and Leadership Team ROBERT MURRAY – CHAIRMAN & INDEPENDENT DIRECTOR PETER BUSH – INDEPENDENT DIRECTOR Appointed: 1 September 2014, most recently elected by shareholders: 24 October 2017 Board Committees: Nomination Committee (Chair), People & Culture Committee Rob Murray became Chair of the Company on 19 August 2020. Rob had a successful 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 Procter & Gamble for 12 years, and then for eight years with Nestlé, first as MD of the UK Food business, and then as CEO of Nestlé Oceania. Rob brings valuable strategic and commercial insight to the Board, along with his in-depth understanding of consumer behaviour and global experience in mergers and acquisitions and other corporate transactions. He is Chair of Metcash, a director of the Bestest Foundation, and Advisory Chair of the Hawkes Brewing Company. He was previously a director of Dick Smith Holdings, Super Retail Group and Linfox Logistics. Appointed: 25 February 2015, most recently elected by shareholders: 23 October 2018 Peter Bush stood down as Chair of the Company on 19 August 2020. Peter Bush had a distinguished executive career spanning the media, FMCG, advertising and consumer products sectors. He held senior marketing roles with SC Johnson, Reckitt & Coleman, Ampol / Caltex and Arnott’s and was CEO of AGB McNair, Schwarzkopf and McDonald’s Australia. He brings broad commercial and strategic leadership skills to the Board. Peter also brings a wealth of public company governance experience, including considerable experience in mergers and acquisitions and equity capital markets transactions. He is Chairman of Inghams Group. He has previously served on the boards of Mantra Group, Pacific Brands, Nine Entertainment Holdings, Insurance Australia Group, Miranda Wines, McDonald’s Australia and Lion Nathan Ltd. Peter is a member of the 30% Club, supporting at least 30% female representation on ASX 200 boards. Both directors appointed during Peter’s time as Chair are women. LEON PASTERNAK – DEPUTY CHAIRMAN & INDEPENDENT DIRECTOR HELEN NASH – INDEPENDENT DIRECTOR Appointed: 26 September 2005, most recently elected by shareholders: 23 October 2018 Appointed: 23 April 2015, most recently elected by shareholders: 24 October 2017 Until July 2010, Leon was a senior corporate partner at Freehills (now Herbert Smith Freehills) specialising in Board Committees: Audit & Risk Committee, People & Culture Committee (Chair), Nomination Committee mergers and acquisitions, public finance and corporate reorganisations. Until February 2014, Leon held the Helen Nash has more than 20 years’ executive experience in consumer packaged goods, media and quick positions of Vice Chairman and Managing Director with Merrill Lynch Markets (Australia) Pty Limited (a subsidiary service restaurants. As Chief Operating Officer at McDonald’s Australia, she oversaw restaurant operations, of Bank of America) with responsibility for the financial institutions group and mergers and acquisitions. As a marketing, menu, insights and research and information technology. This mix of strategic and operational principal of BCC Partners, Leon now offers strategic and financial advice to a portfolio of private, public and experience allows Helen to bring broad commercial skills and acumen, as well as a consumer focus, to the family businesses. Board. Helen also brings robust financial skills to her role having initially trained in the UK as a Certified Leon brings broad corporate and strategic expertise to the Board’s deliberations. As the Company’s longest- Management Accountant. serving director, his corporate knowledge has been invaluable in bedding down the significant renewal since Since transitioning to her non-executive career in 2013, Helen has served as a director of companies in a range 2014 of both the Board and the senior leadership team. of industries. She is a director of Metcash Ltd and Inghams Group Limited, and was formerly a director of Pacific Brands Ltd and Blackmores Ltd. Our Board benefits from Helen’s governance experience and skills, including her membership of audit and remuneration committees at these other companies. GLEN BOREHAM AM – INDEPENDENT DIRECTOR MELANIE WILLIS – INDEPENDENT DIRECTOR Appointed: 1 September 2014, most recently elected by shareholders: 20 October 2019 Board Committees: Audit & Risk Committee, People & Culture Committee, Nomination Committee Glen’s executive career culminated in the role of CEO and Managing Director of IBM Australia and New Zealand in a period of rapid change and innovation from 2006 to 2010. He was the inaugural Chair of Screen Australia from 2008 to 2014, and chaired the Australian Government’s Convergence Review of the media industry. The Board benefits from Glen’s extensive knowledge, insights and networks in the technology and data industries. Having lived in Asia, Europe and Australia, Glen brings a global perspective. Glen is also a director of Cochlear and Link Group and is Chair of the Advisory Board at IXUP. He was previously Chair of the Industry Advisory Board at the University of Technology Sydney, Chair of Advance, representing the one million Australians living overseas, as well as Deputy Chair of the Australian Information Industry Association and a Director of the Australian Chamber Orchestra. In 2010, he became a founding member of Australia’s Male Champions of Change group. Glen is a Member of the Order of Australia for services to business and the arts. Appointed: 26 May 2016, most recently elected by shareholders: 20 October 2019 Board Committees: Audit & Risk Committee (Chair), People & Culture Committee Melanie has extensive experience in corporate finance, strategy and innovation and investments both in executive and non-executive roles. She has worked in sectors including accounting and finance, infrastructure, property investment management, and retail services (including tourism and start-up ventures). She held executive roles as CEO of NRMA Investments (and head of strategy and innovation), CEO of a financial services start up and director of Deutsche Bank, having previously been in corporate finance at Bankers Trust and Westpac. In her role as Chair of the Audit & Risk Committee, Melanie applies her extensive skills and experience in financial reporting and risk management matters. In addition to her broad finance, strategic and commercial skills, Melanie brings valuable governance experience from her roles as a director of Challenger, Paypal Australia, QBE Insurance (AusPac), and Chief Executive Women and from her former positions as a director of Mantra, Pepper Group and Ardent Leisure. Melanie previously chaired the audit and risk Committee at Mantra and was a member of the audit committee at Pepper Group. She currently chairs the risk committee and is a member of the audit committee at Challenger, and chairs the audit committee and people and culture committee at Paypal Australia. 20 Southern Cross Austereo Annual Report 2020 21 The Board and Leadership Team CAROLE CAMPBELL – INDEPENDENT DIRECTOR Appointed 1 September 2020 Board Committees: Audit & Risk Committee Carole Campbell has over 30 years’ financial executive experience in a diverse range of industries including professional services, financial services, media, mining and industrial services. Carole started her career with KPMG and has held executive roles with Macquarie Group, Westpac Institutional Bank, Seven West Media, Bis Industries and Merivale. Carole transitioned to a non-executive career in 2018 and is a non-executive director of FlexiGroup Limited where she chairs the audit committee and of IVE Group Ltd where she chairs the audit, risk and compliance committee. She is also Deputy Chair of Council of the Australian Film Television and Radio School. NICK MCKECHNIE – CHIEF FINANCIAL OFFICER Appointed: 8 September 2014 Nick McKechnie is a Chartered Accountant with over 20 years’ experience. Nick was the CFO of ConnectEast from 2009 to 2014 and Group Financial Controller from 2007 to 2009. Prior to this role Nick held a variety of senior finance roles at Virgin Media in the UK and commenced his career with Arthur Andersen. As CFO of SCA, Nick is responsible for the financial stewardship of the company, including the allocation of capital and resources and the management of returns to shareholders. Financial objectives include optimising the cost of capital through use of an appropriate balance of equity and debt capital and through seeking to invest capital in projects that result in returns above the company’s existing Return on Invested Capital (ROIC). Nick is responsible for managing relationships and communication with providers of equity and debt capital and Carole is a Fellow of Chartered Accountants Australia and New Zealand and brings extensive experience in for ensuring a strong and effective governance framework exists. accounting, treasury, finance and risk management to her role on the Board and the Audit & Risk Committee. GRANT BLACKLEY – MANAGING DIRECTOR Appointed: 29 June 2015 Most recently elected by shareholders: 29 October 2015 JOHN KELLY – CHIEF OPERATING OFFICER Appointed: February 2016 John Kelly is an experienced executive who has previously held senior executive roles in large Australian sporting Grant Blackley has enjoyed a distinguished career with more than 30 years’ experience in the media and and media organisations. John was COO at Football Federation Australia from 2013 to 2015 where his role entertainment sectors. Grant joined the Board in June 2015 as Chief Executive Officer and Managing Director encompassed strategy and media rights. Prior to that role John spent over 16 years in various Executive and and is responsible for leading the strategic and operational performance of the company. Grant is the Chairman Director roles at Ten Network Holdings Limited including over eight years as Group CFO. John has a background of Commercial Radio Australia and a director of the Australian Association of National Advertisers. He has in the as a Chartered Accountant and commenced his career at KPMG where he progressed to the role of Manager. past served as a director of Free TV Australia. He has served in numerous senior leadership roles including at the TEN Network, as CEO from 2005 to 2010. Prior to becoming CEO, Grant held key roles in network sales, digital media and multi-channel program development as well as being responsible for group strategy, acquisitions and executive leadership and development As Chief Operating Officer, John is responsible for leading the Operations function of the business to ensure alignment and delivery of the corporate strategy. This includes overseeing SCA’s General Management Teams, People & Culture, Strategy and Podcasting as well as facilitating the company’s external key broadcasting agreements and key partnerships. BRIAN GALLAGHER – CHIEF SALES OFFICER Appointed: July 2015 Brian Gallagher is a media executive with strong commercial and broadcast experience across the metro and regional media markets gathered over 30 years. Brian has worked in radio, free to air TV, pay TV, content marketing and program production. Brian has worked with The Nine Network, Ten Network and was CEO of Ignite Media Brands prior to joining SCA as Chief Sales Officer. Brian is responsible for the development and implementation of an overall sales strategy for the company, including driving the entire sales operation across SCA’s full suite of media channels and brands. 22 Southern Cross Austereo Annual Report 2020 23 Financial Report The Board and Leadership Team STEPHEN HADDAD – CHIEF TECHNOLOGY OFFICER Appointed: June 2018 Stephen Haddad is an experienced CIO/CTO and Business Transformation Executive who has demonstrated his ability to drive strategic business growth over 20 years in Australia’s Media, Finance and Consulting organisations. Prior to this role, Stephen held CIO roles at Bauer Media, FujiFilm and senior roles within banking and telecommunications. Stephen is responsible for all technology domains across SCA, including Business Systems, Corporate Networks and Infrastructure, Digital Design and Development, Audio Engineering Technology & Operations and Television Broadcast Engineering & Operations. Stephen also has management responsibility for the Project Management Office and Procurement functions. NIKKI CLARKSON – CHIEF MARKETING AND COMMUNICATIONS OFFICER Appointed: January 2020 Nikki Clarkson is an experienced marketing and communications executive with over 20 years of proven, award winning experience across multiple industries. Prior to joining the Leadership Team, Nikki held the position of Head of Marketing and Communication at SCA for 10 years and has also held senior executive positions in creative advertising agencies including Clemenger Harvie Edge. As Chief Marketing Officer, Nikki is responsible for all marketing and communication strategy and execution for SCA’s radio and TV brands, all on-demand brands, trade and corporate marketing and group corporate communications and publicity. DAVE CAMERON – CHIEF CONTENT OFFICER Appointed: January 2020 Dave Cameron has been with SCA for over 25 years and brings to the role of Chief Content Officer a wealth of experience and expertise in content strategy, programming and premium talent management. Dave has spent several years in Content and Music Director roles and prior to his appointment to Chief Content Officer held the position of General Manager of the Melbourne office. As Chief Content Officer, Dave is responsible for overseeing and delivering strategic leadership and creative excellence across all of SCA’s content initiatives including its 99 AM, FM, DAB+ radio stations and all its digital and on-demand audio content. 24 Southern Cross Austereo Annual Report 2020 25 Contents Directors’ Report 25 Corporate Governance Statement Directors’ Report Review and Results of Operations Distributions and Dividends Significant Changes in State of Affairs Events Occurring after Balance Date Likely Developments and Expected Results of Operations Indemnification and Insurance of Officers and Auditors Non-Audit Services Environmental Regulation Information on Directors Information on Company Secretary Meetings of Directors Remuneration Report Auditor’s Independence Declaration Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Key Numbers Capital Management Group Structure Other Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Additional Stock Exchange Information Corporate Directory 25 25 25 28 28 28 28 28 28 28 29 30 31 32 50 52 53 54 55 57 72 80 83 90 91 97 98 Directors’ Report For the year ended 30 June 2020 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 2020 Annual Report is lodged. 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 2020. 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 until 19 August 2020) – Rob Murray (Chairman from 19 August 2020) – Leon Pasternak (Deputy Chairman) – Grant Blackley – Glen Boreham – Helen Nash – Melanie Willis At the Board meeting on 19 August 2020 Peter Bush stepped down as Chairman and Rob Murray was elected by the Board as Chairman. Principal Activities The principal activities of the Group during the course of the financial 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 $540.2 million, a decrease of 18.2% on the prior year revenues of $660.1 million, and Earnings before Interest, Taxes, Depreciation and Amortisation (‘EBITDA’) of $108.2 million, a decrease of 30.9% on prior year EBITDA, (before loss on assets held for sale), of $156.6 million, due to weak conditions in advertising markets in the earlier part of the year, and in the fourth quarter due to the COVID-19 health crisis. Net profit after tax was $25.1 million for the year ended 30 June 2020, from a net loss after tax of $91.4 million for the same period in the prior year. The current period results were impacted by a change in the accounting policy following the adoption of AASB 16 Leases, as disclosed in note 29. EBITDA is a measure that, in the opinion of the Directors, is a useful supplement to net profit in understanding the cash flow generated from operations and available for payment of income taxes, debt service and capital expenditure. EBITDA is useful to investors because analysts and other members of the investment community largely view EBITDA as a widely recognised measure of operating performance. EBITDA disclosed within the Directors’ Report is equivalent to ‘Profit before depreciation, amortisation, interest, fair value movements on financial derivatives and income tax expense for the half year’ included within the Statement of Comprehensive Income. Significant Items During 2020, the Group recognised restructuring charges of $2.9 million, which related to the outsourcing of transmission services and cost out programs. The Group also recognised the impairment against investments of $6.1 million, following assessments that their estimated recoverable amounts were less than their carrying values, as a result of the economic impacts of the COVID-19 pandemic. JobKeeper Payment As part of its response to COVID-19, in March 2020 the Australian Government announced various stimulus measures resulting from the economic fallout from the coronavirus lockdown. One such stimulus measure was the payment of subsidies to qualifying employers under the JobKeeper Payment scheme (‘JobKeeper’). The initial JobKeeper payments are a wage subsidy whereby employers who qualify for the stimulus receive $1,500 per fortnight for each eligible employee who was employed by the company during the period April 2020 to September 2020. The Group has determined that it is eligible to receive the initial JobKeeper payments, which totalled $16.1 million in the period to 30 June 2020. On 21 July 2020 the Australian Government announced an extension of the JobKeeper Payment scheme to 28 March 2021 at lower rates. Qualification for the extension scheme is dependent on future events, therefore the Group is unable to determine whether it will qualify for any or all of the payments beyond 27 September 2020. 26 27 Annual Report2020Southern Cross AustereoPublic Interest News Gathering program On 29 June 2020, the Group announced it had been found eligible for funding of approximately $10 million under the Commonwealth Government’s Public Interest News Gathering (PING) program. The grant to eligible regional media businesses will be deployed across the 12-month period from 1 July 2020. Segment Profit and Loss Audio Television Corporate Total Revenue EBITDA Audio Television Corporate Total EBITDA 2020 $’m 370.5 169.5 0.2 540.2 108.5 23.9 (24.2) 108.2 2019 $’m 452.4 207.3 0.4 660.1 148.7 25.2 (26.5) 147.4 Variance (18.1%) (18.2%) (60.9%) (18.2%) (27.0%) (5.2%) 8.7% (26.6%) Group NPAT 25.1 (91.4) N/A Audio The Audio business consists of two complementary radio brands operating in the Australian capital cities and regional Australia 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 49 age bracket. Following a rebranding of the Hit Network in July 2020, the network remains female skewed but the core demographic has been increased towards people aged 30 to 54. The Audio business saw revenue fall by 18.1%, which led to EBITDA decline of 27.0%, with declines in both the Australian capital cities and regional Australia. The metropolitan free-to-air radio advertising market decreased 20.2% year on year, which combined with a fall in market share led to a 25.3% decline in the Group’s metro radio advertising revenues. Revenues from digital audio streaming and podcasting doubled to $7.1 million and are expected to contribute to earnings growth in FY2021. Regional radio performed somewhat better, although advertising revenues were down by 13.1% on 2019. The decline in revenues was shared evenly, with both national agency and local revenues down 13.1% as a result of the reduction in the advertising market as a result of the economic impact of COVID-19. Audio expenses fell by 14.0%, or 9.8% excluding the impact of AASB 16 and significant items, as a result of JobKeeper payments and other reductions in payroll costs due to pay reductions and workforce planning in the last quarter of FY2020. Television The Television business consists of a number of regional television licences. Each regional television licence receives programming from a metropolitan television network affiliate, with the Group receiving the majority of its programming from the Nine Network, while the Tasmania and Central Australian licence areas receive Seven Network programming. The combination of two premium programming agreements gives SCA a strong audience share across its TV licence areas. However, the Group faced a market decline exacerbated by the impact of COVID-19, which led to an 18.2% decline in Television revenues. As a result, despite the JobKeeper payments and other reductions in payroll costs due to pay reductions and workforce planning in the last quarter of FY2020, Television EBITDA declined by 40.5%. Corporate The Corporate function comprises the Group-wide centralised functions of the Group, including the Group-wide technology function. Corporate expenses decreased due to JobKeeper payments and other reductions in payroll costs due to pay reductions and workforce planning in the last quarter of FY2020, partly offset by increasing insurance costs. Financial position The Group raised $168.6 million in an equity raising completed in May 2020 as part of a range of actions to help strengthen its financial position following the economic impact of the COVID-19 pandemic on its operations. As a result the Group’s net debt reduced by 55.0% on 2019 to finish the year at $131.6 million. The Group’s key leverage ratio improved to 1.24 times, down from 1.76 times in June 2019, while interest cover reduced to 8.38 times, down from 13.03 times in June 2019, still significantly above the covenant of 3.0 times, despite the reduction in performance due to COVID-19. Strategic update In FY2019 the Group refined its corporate strategy to have the following key objectives: 1. Create compelling content; 2. Deliver improved audio experiences; 3. Use our assets to help our clients succeed; and 4. Transform our business to build sustainable revenue streams. The COVID-19 health crisis has led the Board and management to review the corporate strategy to ascertain what changes should be made in light of the evolving landscape. The COVID-19 pandemic is altering the behaviours of consumers and is accelerating the digitalisation of many facets of people’s lives. SCA’s updated strategy is still in the process of being developed but SCA continues to focus on the development of its audio business and the development of its digital product set. This involves enabling the distribution of its existing broadcast assets across all platforms coupled with the ongoing development of new digital audio products. SCA’s podcasting network, PodcastOne Australia, continues to grow with revenues increasing by 96% in the financial year. As well as developing content for distribution across digital networks, SCA has also implemented technology to enable digital audio to be sold on an addressable basis using Instream technology. SCA’s partnership with the global music streaming platform, Soundcloud, has expanded the available pool of digital audio inventory that SCA is able to sell. In addition to SCA’s focus on being the leading audio company in Australia, the Group continues to work on growing the proportion of national advertising that gets invested in regional markets. This is being achieved through a collaborative industry initiative, ‘Boomtown’, which SCA is delivering in conjunction with its regional industry peers in television, radio, print and digital assets. 2021 Outlook The majority of the Group’s earnings come from its Audio division and SCA plans to further grow these earnings through its focus on further improving the content offering, on expanding the breadth of its offering through use of its digital radio spectrum and through the increased production and monetisation of digital audio. In Television, SCA will seek to achieve further improvements in power ratio through its sales performance whilst optimising earnings following the completion of the outsourcing of both playout and transmission services. Financial performance for the Group in FY2021 will be impacted by the ongoing COVID-19 crisis and the pace of recovery will be influenced by the duration and extent of the health related restrictions in each market in which the Group operates. Material Risks Business and operational risks that could affect the achievement of the Group’s financial prospects include the following risks: Risk Economic shape of recovery reduces shareholder returns during the economic recovery phase of the COVID-19 pandemic SCA radio networks are not positioned to maximise market share and SCA is unable to find and retain market leading talent New products emerge that are more compelling than Linear Radio Mitigation Strategies COVID-19 has severely impacted economic activity, with declines in certain sectors and with significant impacts on the Australian economy, increasing unemployment and economic contraction due to the pandemic. SCA has strengthened its capital structure, with the $169 million equity raise in April 2020, and implemented many measures to improve its cash flow. The Group has taken a series of measures to improve its operating structure and will be taking further steps that will reduce its cost base in FY2021 and which will create a leaner operating model for the future. Listener behaviours and tastes change over time, which requires networks to adapt and position themselves to ensure they continue to have strong appeal to broad audience segments. SCA has been reviewing its Hit and Triple M brands and is developing strategies for each network for implementation in FY2021. In July 2020 the Group announced a rebranding of the Hit Network to ensure that it continues to appeal to broad demographic segments and with a consistent approach across the network. Finding and retaining market leading 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 and has implemented ‘Hubble’, a formal tool that assists to Discover, Document, Develop and Deploy talent at each stage of their career. Contracts are used to lock talent in for certain periods of time. The development of successful off-air teams that help create high quality programming is also important in developing the loyalty of on-air talent to the Group. SCA has core expertise in the development of market leading content and constantly reviews the evolving distribution landscape to understand how it can continue to serve market leading content through new and innovative products. Examples of new product innovation include: – SCA’s website and apps, which provide personalisation for signed-in users; – PodcastOne Australia which was launched in 2017 and which SCA aims to make the pre-eminent podcasting network in Australia. PodcastOne Australia produces unique original content that is available on demand to listeners and this content is monetised through advertising. The platform now hosts over 85 creators and monetisation is growing as audiences and advertisers embrace the medium; and – SCA is also working on new digital audio products to continue to expand its offering to consumers and SCA also works with global technology platforms to broaden the distribution of its content. Global technology platforms alter the distribution landscape that leads to a loss of revenue 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 financial 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 engaging digital audiences through the simulcast of its FM radio stations online and the creation of additional stations on DAB that extends its Hit and Triple M radio brands across broadcast and online platforms. The Group’s digital strategy is to utilise its broadcast, social and website reach to continuously engage audiences around our digital audio offering, driving people to our branded apps on which they can listen either live or on-demand. SCA currently has an installed base of 2.6 million1 across its branded radio apps. Digital audio is increasing and SCA has implemented an Instream product that enables targeted advertising to be delivered across SCA’s own digital inventory as well as that of its partners such as SoundCloud. 1 AppAnnie. 28 29 Annual Report2020Southern Cross AustereoDirectors’ ReportFor the year ended 30 June 2020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. 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 25. The Board has considered the position and, in accordance with advice received from the Audit & Risk Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied 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 & 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 significant 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 2019 Ordinary Interim 2020 Ordinary Cents per share 4.00 – Total Amount $’m Date of Payment 8 October 2019 30.8 – – On 6 April 2020, the Group announced the cancellation of the 2020 interim dividend to maximise liquidity in response to the business impacts of the COVID-19 pandemic. Further the Group confirmed there will be no final dividend paid for the year ended 30 June 2020. Significant Changes in State of Affairs In the opinion of the Directors, there were no significant 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 28 ‘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 has 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. Indemnification and Insurance of Officers and Auditors During the year the Company paid a premium of $1,425,241 to insure its officers. So long as the officers of the Company act in accordance with the Constitution and the law, the officers remain indemnified 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 indemnified out of the assets of the Group. Information on Directors Chairman Robert Murray Appointed 1 September 2014 Most recently elected by shareholders: 24 October 2017 Board Committees: People & Culture Committee, Nomination Committee Rob became Chair of the Company on 19 August 2020. Rob had a successful 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 in 2004, Rob worked for Procter & Gamble for 12 years, and then for eight years with Nestlé, first as MD of the UK Food business, and then as CEO of Nestlé Oceania. Rob brings valuable strategic and commercial insight to the Board, along with his in-depth understanding of consumer behaviour and global experience in mergers and acquisitions and other corporate transactions. He is Chair of Metcash, a director of the Bestest Foundation, and Advisory Chair of the Hawkes Brewing Company. He was previously a director of Dick Smith Holdings, Super Retail Group and Linfox Logistics. Director Peter Bush Appointed 25 February 2015 Most recently elected by shareholders: 23 October 2018 Board Committees: Chairman, Nomination Committee Peter stood down as Chair of the Company on 19 August 2020. Peter Bush had a distinguished executive career spanning the media, FMCG, advertising and consumer products sectors. He held senior marketing roles with SC Johnson, Reckitt & Coleman, Ampol/Caltex and Arnott’s and was CEO of AGB McNair, Schwarzkopf and McDonald’s Australia. He brings broad commercial and strategic leadership skills to the Board. Peter also brings a wealth of public company governance experience, including considerable experience in mergers and acquisitions and equity capital market transactions. He is Chairman of Inghams Group. He has previously served on the boards of Mantra Group, Pacific Brands, Nine Entertainment Holdings, Insurance Australia Group, Miranda Wines, McDonald’s Australia and Lion Nathan Ltd. Peter is a member of the 30% Club, supporting at least 30% female representation on ASX 200 boards. Both directors appointed during Peter’s time as Chair are women. Deputy Chairman Appointed 26 September 2005 Leon Pasternak Most recently elected by shareholders: 23 October 2018 Board Committees: Deputy Chairman CEO and Managing Director Grant Blackley Until July 2010, Leon was a senior corporate partner at Freehills (now Herbert Smith Freehills) specialising in mergers and acquisitions, public finance 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 financial institutions group and mergers and acquisitions. As a principal of BCC Partners, Leon now offers strategic and financial advice to a portfolio of private, public and family businesses. Leon brings broad corporate and strategic expertise to the Board’s deliberations. As the Company’s longest-serving Director, his corporate knowledge has been invaluable in bedding down the significant renewal since 2014 of both the Board and the senior leadership team. Appointed 29 June 2015 Most recently elected by shareholders: 29 October 2015 Grant Blackley has enjoyed a distinguished career with more than 30 years’ experience in the media and entertainment sectors. Grant joined the Board in June 2015 as Chief Executive Officer and Managing Director and is responsible for leading the strategic and operational performance of the Company. Grant is the Chairman of Commercial Radio Australia and a director of the Australian Association of National Advertisers. He has in the past served as a director of Free TV Australia. He has served in numerous senior leadership roles including at the TEN Network, as CEO from 2005 to 2010. Prior to becoming CEO, Grant held key roles in network sales, digital media and multi-channel program development as well as being responsible for Group strategy, acquisitions and executive leadership and development. 30 31 Annual Report2020Southern Cross AustereoDirectors’ ReportFor the year ended 30 June 2020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. During the year, members of the Nomination Committee met informally to discuss Board succession and the Board engaged Egon Zehnder to help with succession matters. The Nomination Committee has worked with Egon Zehnder to develop a shortlist of candidates for future appointment as Non-executive Directors. Director Peter Bush2 Leon Pasternak Grant Blackley Glen Boreham Rob Murray Helen Nash Melanie Willis Board2 Audit & Risk People & Culture Meetings of Committees Attended 16 15 16 16 16 16 16 Held1 16 16 16 16 16 16 16 Attended 4 3 4 4 2 4 4 Held1 * * * 4 * 4 4 Attended 3 3 3 3 3 3 3 Held1 * * * 3 3 3 3 1 This refers to the number of meetings held during the year while the Director held office or was a member of the relevant committee. 2 Eight Board meetings were originally scheduled during the year. Additional meetings were held for the purposes of the equity raising conducted in April and May 2020 and to monitor the Company’s financial and operational performance under the impact of the COVID-19 health crisis and the associated government restrictions. * Not a member of the relevant committee during the year. Director Appointed 1 September 2014 Glen Boreham AM Most recently elected by shareholders: 20 October 2016 Board Committees: Audit & Risk Committee, People & Culture Committee Glen’s executive career culminated in the role of CEO and Managing Director of IBM Australia and New Zealand in a period of rapid change and innovation from 2006 to 2010. He was the inaugural Chair of Screen Australia from 2008 to 2014, and chaired the Australian Government’s Convergence Review of the media industry. The Board benefits from Glen’s extensive knowledge, insights and networks in the technology and data industries. Having lived in Asia, Europe and Australia, Glen brings a global perspective. Glen is also a director of Cochlear Limited and Link Group and is Chair of the Advisory Board at IXUP. He was previously Chair of the Industry Advisory Board at the University of Technology Sydney, Chair of Advance, representing the one million Australians living overseas, as well as Deputy Chair of the Australian Information Industry Association and a Director of the Australian Chamber Orchestra. In 2010, he became a founding member of Australia’s Male Champions of Change group. Glen is a Member of the Order of Australia for services to business and the arts. Director Helen Nash Appointed 23 April 2015 Most recently elected by shareholders: 24 October 2017 Board Committees: Audit & Risk Committee, People & Culture Committee (Chair), Nomination Committee Helen Nash has more than 20 years’ experience in consumer packaged goods, media and quick service restaurants. As Chief Operating Officer at McDonald’s Australia, she oversaw restaurant operations, marketing, menu, insights and research and information technology. This mix of strategic and operational experience allows Helen to bring broad commercial skills and acumen, as well as a consumer focus, to the Board. Helen also brings robust financial skills to her role having initially trained in the UK as a Certified Management Accountant. Since transitioning to her non-executive career in 2013, Helen has served as a director of companies in a range of industries. She is a director of Metcash Ltd and Inghams Group Limited, and was formerly a director of Pacific Brands Ltd and Blackmores Ltd. Our Board benefits from Helen’s governance experience and skills, including her membership of audit and remuneration committees at these other companies. Director Melanie Willis Appointed 26 May 2016 Most recently elected by shareholders: 20 October 2016 Board Committees: Audit & Risk Committee (Chair), People & Culture Committee Melanie has extensive experience in corporate finance, strategy and innovation and investments both in executive and non-executive roles. She has worked in sectors including accounting and finance, infrastructure, property investment management, and retail services (including tourism and start-up ventures). She has held executive roles as CEO of NRMA Investments (and head of strategy and innovation), CEO of a financial services start-up and director of Deutsche Bank, having previously been in corporate finance at Bankers Trust and Westpac. In her role as Chair of the Audit & Risk Committee, Melanie applies her extensive skills and experience in financial reporting and risk management matters. In addition to her broad finance, strategic and commercial skills, Melanie brings valuable governance experience from her roles as a director of Challenger, Paypal Australia, QBE Insurance (AusPac) and Chief Executive Women and from her former positions as a director of Mantra, Pepper Group and Ardent Leisure. Melanie previously chaired the audit and risk committee at Mantra and was a member of the audit committee at Pepper Group. She currently chairs the risk committee and is a member of the audit committee at Challenger, and chairs the audit committee and people and culture committee at PayPal Australia. Information on Company Secretary General Counsel and Company Secretary Tony Hudson Appointed 7 September 2015 Tony Hudson has over 25 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 firm’s Melbourne office and from 1993 until 2000 in its Jakarta associated office. Tony manages the Group’s national legal and corporate affairs teams, including responsibility for regulatory affairs and board governance. 32 33 Annual Report2020Southern Cross AustereoDirectors’ ReportFor the year ended 30 June 2020Remuneration Report For the year ended 30 June 2020 Remuneration Report For the year ended 30 June 2020 Letter from the People & Culture Committee Overview On behalf of the Board, I am pleased to present the Company’s 2020 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. An important part of the committee’s role is 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. Executive remuneration includes fixed and variable components, comprising short-term incentives (STI) and long-term incentives (LTI). Shareholders will recall that the Company’s STI plan applies a balanced scorecard to assessment of the performance of the CEO and other leadership executives (Executive KMP) and other participants in the STI plan. Performance is measured in three categories: profitability and financial performance (40%), high level operational improvements (40%) and cultural and behavioural influences (20%). This recognises the long-term benefits to the organisation of the Company’s leaders committing to develop and maintain a strong culture and operational discipline. STI awards for the CEO and other members of the senior leadership team are settled partly in cash and partly in equity. The Board sets performance conditions each year under the Company’s LTI plan. Since FY2018, those performance conditions have been based on the Company’s earnings per share (EPS) and return on invested capital (ROIC) over a performance period of three years. Vested awards under the LTI plan are settled in equity. The CEO is required to accumulate a minimum shareholding with a value equivalent to 100% of the CEO’s fixed remuneration and other leadership executives are required to accumulate a minimum shareholding with a value equivalent to 50% of their fixed remuneration. All leadership executives subscribed for their full entitlements in the equity raising conducted during the year. Details of shares held by leadership executives are provided in the Remuneration Report. Remuneration impacts of COVID-19 The COVID-19 health crisis and the measures implemented by Federal, State and Territory Governments in response had a severe impact on the Company’s business and operations during the year and will continue to do so in the year ahead. The Board and the Company’s senior leadership team took decisive actions to enable the Company to trade through the crisis and rebound when the recovery phase begins. These actions included implementing a temporary across-the-board reduction of 10% in the fixed remuneration of all Directors, executives, and employees earning over $68,000, cancelling executive STI awards and other commissions and bonuses, and cancelling all unvested LTI awards. These actions did not reflect on the effort or quality of work by executives during the year; rather they acknowledged the impact of COVID-19 on the Company’s financial performance and on returns to the Company’s shareholders. Taking advantage of the Federal Government’s JobKeeper scheme, management also reduced the working hours of employees in all functions and locations to match the available work. Along with proactive steps taken to strengthen the Company’s balance sheet and liquidity – including renegotiation of the Company’s banking facilities and the $169 million equity raising completed in May – these remuneration initiatives have helped to stabilise the business, enabling the Board and the senior leadership team to shift to planning for the future. Executive remuneration planning for FY2021 In the current uncertain economic environment, it is challenging to set an annual budget, let alone long term financial targets. For these reasons, although it has retained the same framework for executive remuneration, the Board intends to adjust the variable components to ensure they provide appropriate incentives to drive performance by management. It is intended that the current 10% reduction in the fixed remuneration of executives and Non-executive Directors will be unwound from 1 October 2020. Unless there is significant improvement in business performance and general economic conditions, it is expected there will be no other changes in FY2021 to executive fixed remuneration or the fees of Non-executive Directors. The STI and LTI components will each continue to be 30% of the CEO’s total remuneration and generally 30% and 20% respectively of the total remuneration of other leadership executives. Adjustments may be made to the remuneration packages of the Chief Content Officer and the Chief Marketing and Communications Officer to transition the mix of their remuneration to these percentages. The STI plan will continue to be assessed in three categories: profitability and financial performance (40%), high level operational improvements (40%) and cultural and behavioural influences (20%). The Board has decided to remove the previous outperformance opportunity for the profitability and financial performance category in FY2021. This will avoid this opportunity potentially being triggered by an unexpected improvement in economic conditions during the year. Removal of the outperformance opportunity will result in executives’ maximum STI opportunity being capped at target, representing a reduction of about 30%. STI awards will continue to be settled partly in cash and partly in equity (25% for the CEO and 20% for other leadership executives). The PCC and the Board are in the process of finalising specific goals within the above categories for Executive KMP in FY2021. Setting meaningful financial targets is challenged by the ongoing health and economic impacts of COVID-19 and the uncertain timing and rate of recovery from those impacts. The Board will consider the STI scorecard outcome for each executive at the end of FY2021 and will exercise judgement and discretion where necessary to ensure FY2021 STI outcomes are appropriate in the context of SCA’s financial performance and delivery of agreed strategic priorities and outcomes. The Board will focus on factors that management can influence to deliver superior results. These will include safety and security of the Company’s people and workplaces, maintenance and growth of the Company’s market share in metro and regional radio, revenue to ratings power ratios in regional television, the development of existing and new digital audio products, and implementation of a lean and effective operating model to ensure SCA emerges stronger from the COVID-19 crisis. The Board believes it is important to foster actions and behaviours by executives that will deliver long-term success for the Company and our shareholders. The Board intends that the LTI plan will continue to operate over a three-year performance period with vesting conditions that will align with the interests of shareholders in rebuilding value and resuming a reliable flow of dividends. Because of the challenges of setting long-term financial targets in the current economic environment, the Board has not yet finalised the performance conditions that will apply under the LTI plan for FY2021. The Board expects to do so shortly and to provide details to shareholders at this year’s AGM to be held in October. Board remuneration As noted above, apart from unwinding the current temporary 10% reduction in the fees of Non-executive Directors, it is expected there will be no other changes to the remuneration of Non-executive Directors in FY2021. Further details of current Board remuneration arrangements are provided in the Remuneration Report. The significant fall in the price of the Company’s shares during the year resulted in the value of the shareholdings of all Non-executive Directors (other than Leon Pasternak) reducing below the minimum requirement under the Non-executive Director Share Ownership Policy. This is despite all Non-executive Directors previously having acquired sufficient shares and all Non-executive Directors also taking up their full entitlements in the equity raising conducted during the year. The Board has resolved that current Non-executive Directors will be required to re-establish their required minimum shareholding by 30 June 2023. Details of shares held by Non-executive Directors are provided in the Remuneration Report. New Non-executive Directors will be required to establish their minimum shareholding within three years after appointment in accordance with the Board’s policy. The PCC is confident that the Company’s remuneration framework is helping to drive behaviours that will deliver sustainable value for shareholders. The changes to be implemented in the new financial year will be designed to achieve that objective. We look forward to your feedback and to welcoming you to our 2020 Annual General Meeting. Yours faithfully, Helen Nash Chair of the People & Culture Committee 34 35 Annual Report2020Southern Cross Austereo1. Overview of FY2020 remuneration This section provides an overview of the remuneration received by Executive KMP and Non-executive Directors in FY2020. 1.1 Executive KMP The principles for remuneration of Executive KMP are set out in section 2. Details of remuneration paid during the year are provided in sections 3 (Remuneration), 4 (Short-term incentives) and 5 (Long-term incentives). This table provides an overview of statutory remuneration received by Executive KMP in FY2019 and FY2020. Total remuneration Short-term incentive opportunity Long-term incentive eligible for vesting1 2. Remuneration principles 2.1 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 fixed 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 FY2019 and FY2020. The STI portion is shown at target levels and the LTI portion is based on the value granted or to be granted in the relevant year. Name Grant Blackley Chief Executive Officer and Managing Director Nick McKechnie Chief Financial Officer John Kelly Chief Operating Officer Brian Gallagher Chief Sales Officer Stephen Haddad Chief Technology Officer Dave Cameron2 Chief Content Officer Nikki Clarkson3 Chief Marketing and Communications Officer Annaliese van Riet4 Chief People and Culture Officer Guy Dobson5 Chief Content Officer Total Executive KMP Year 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Amount $ 788,641 1,869,156 436,772 795,935 438,645 831,750 426,051 764,592 370,645 465,974 180,445 – 135,602 – 102,502 – – 853,211 2,879,303 5,580,618 Performance- related proportion % Awarded % Forfeited % Vested % Forfeited % 0.0 36.5 0.0 29.8 0.0 30.8 0.0 26.8 0.0 19.6 0.0 – 0.0 – 0.0 – – (1.3) 0.0 26.2 0.0 90.3 0.0 90.0 0.0 94.5 0.0 78.0 0.0 94.0 0.0 – 0.0 – 0.0 – – 53.5 0.0 83.4 100.0 9.7 100.0 10.0 100.0 5.5 100.0 22.0 100.0 6.0 100.0 – 100.0 – 100.0 – – 46.5 100.0 16.6 39.0 71.5 39.0 71.5 39.0 – 39.0 71.5 – – – – – – – – – 71.5 17.3 71.5 61.0 28.5 61.0 28.5 61.0 – 61.0 28.5 – – – – – – 100.0 – – 28.5 82.7 28.5 1 The vested and forfeited proportion of LTI entitlements relates only to those LTI entitlements in the FY2017 LTI scheme that were eligible for vesting during the year. The vesting and forfeited proportions do not relate to the cancelled FY2018, FY2019 and FY2020 LTI schemes. 2 Dave Cameron was appointed as Chief Content Officer and joined the Company’s senior leadership team on 1 January 2020. He was not a KMP during FY2019. 3 Nikki Clarkson was appointed as Chief Marketing and Communications Officer and joined the Company’s senior leadership team on 1 January 2020. She was not a KMP during FY2019. 4 Annaliese van Riet joined the Company and the Company’s senior leadership team as Chief People and Culture Officer on 20 January 2020. She ceased employment with the Company on 27 March 2020. 5 Guy Dobson ceased employment with the Company on 4 January 2019. 1.2. Non-executive Directors The aggregate remuneration of the Company’s Non-executive Directors during the year was $1,111,988, compared to $1,120,500 in FY2019. The principles for remuneration of Non-executive Directors are set out in section 2. Details of the remuneration of Non-executive Directors during the year are provided in section 3. Executive KMP Grant Blackley John Kelly Nick McKechnie Brian Gallagher Stephen Haddad Dave Cameron1 Nikki Clarkson1 Annaliese van Riet1 Guy Dobson2 Target remuneration mix Fixed remuneration STI LTI 2020 2019 2020 2019 2020 2019 40% 50% 50% 50% 60% 77% 60% 60% – 40% 50% 50% 50% 70% – – – 76% 30% 30% 30% 30% 20% 9% 20% 20% – 30% 25% 25% 25% 15% – – – 12% 30% 20% 20% 20% 20% 14% 20% 20% – 30% 25% 25% 25% 15% – – – 12% 1 Dave Cameron, Nikki Clarkson and Annaliese van Riet were not Executive KMP during FY2019. 2 Guy Dobson ceased employment with the Company on 4 January 2019. 2.2 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-financial benefits 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 fixed remuneration increases included in any Executive KMP contracts. As disclosed in last year’s financial report, the Board approved increases of between 2.5% and 6.7% in the fixed remuneration of Executive KMP in FY2020. These adjustments were made before the impact of COVID-19 and were consistent with the Board’s policy of providing executive reward between the median and 75th percentile of relevant peers according to independent benchmarking. 36 37 Annual Report2020Southern Cross AustereoRemuneration ReportFor the year ended 30 June 20202.3 Variable remuneration for Executive KMP 2.3.1 Short-term incentives The table below outlines details of the Company’s short-term incentive plan. What is the incentive? The STI is an annual ‘at risk’ bonus designed to reward executives for meeting or exceeding financial and non- financial objectives. How is each executive’s entitlement determined? Each executive is allocated a dollar value (which may be a fixed percentage of the executive’s total remuneration) representing the executive’s STI opportunity for the year. How is the incentive delivered? STI awards for all executives other than Executive KMP 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. Is there a gateway? At least 95% of an executive’s financial metrics relating to NPAT or EBITDA must be achieved before any STI is payable under the profitability and financial performance (40%) component of the STI plan. Sales-related targets are not used as gateway targets. This recognises the significant impact on sales performance of market factors that are beyond the control of management. Where the budget for a financial year is less than the previous year’s actual result, the applicable financial metric will be the previous year’s actual result (excluding any divested assets or non-recurring items). There is no gateway for metrics in the high level operational improvements (40%) or cultural and behavioural influences (20%) components of the STI plan. Individual performance must be at a ‘meets expectations’ level before any STI is payable. The STI awards of Executive KMP are payable partly in cash and partly in equity. The equity component for the CEO is 25% of the STI award. The equity component for other Executive KMP is 20% of the STI award. What is the maximum amount payable? The maximum award for non-financial measures under the STI plan is 100% of an executive’s STI opportunity for those measures. The Board may elect to pay the STI award of an Executive KMP (other than the CEO) wholly in cash once the Executive KMP has accumulated the minimum shareholding required under the Senior Executive Share Ownership Policy. What are the performance measures and hurdles? The Board sets the annual KPIs for the CEO near the beginning of each financial year. The KPIs are allocated to three categories having regard to the Company’s business strategy: profitability and financial performance (40%), high level operational improvements (40%) and cultural and behavioural influences (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 Content Officer may allocate up to 40% to creative and content performance instead of profitability and financial performance. The metrics that applied under the STI plan in FY2020 are summarised below. Profitability and financial performance/Creative and content performance (40%) – Group NPAT compared with budget: Focuses on financial results and collaboration for the overall benefit of the Group. This financial metric applied for the CEO, CFO and COO. – Group EBITDA compared with budget: Focuses on the performance of the operating business. This metric applied for the Chief Sales Officer, Chief Creative Officer and Chief Technology Officer. – Sales-related targets: Focuses on achieving sustainable financial performance from growing top line revenue. This metric applied for the Chief Sales Officer. – Radio survey ratings targets: Revenue and financial performance is heavily dependent on ratings on both radio and television (although, as an affiliate broadcaster, the Company is not responsible for the content of its television broadcasts and has minimal ability to influence television ratings). This metric typically applies for the Chief Content Officer (for radio). Profitability and financial performance targets also include targets to ensure non-revenue related costs are closely controlled and to achieve specific corporate strategy projects that improve the asset base. The Board has discretion to adjust budget targets to take into account acquisitions or divestments or other significant items where appropriate for linking remuneration reward to corporate performance. Achievements against financial metrics are based on the Company’s audited annual financial statements. The Board has discretion to make adjustments to take into account any significant 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. High level operational performance (40%) – Strategy: Focuses on strategic initiatives (such as network strategy, material contracts and diversification 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 influences (20%) – People: Focuses on maintaining a strong and positive corporate culture, 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. The target award for financial measures under the STI plan is 100% of an executive’s STI opportunity for that measure. In addition, an executive can earn up to 200% of the financial component (40%) of the executive’s STI if the Group achieves up to 105% of the Group’s NPAT target. An executive’s maximum STI opportunity is therefore 140% of target. Having regard to assumptions underlying the Company’s annual budget, the Board considers that achieving 105% of the Group’s NPAT target would represent significant 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% 95% to 100% 100% to 105% NPAT >105% Sales <97.5% 97.5% to 100% N/a N/a % of financial STI payable 0% Straight-line between 50% and 100% Progressive scale between 100% and 200% 200% How is performance assessed? CEO: At the end of each financial 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 financial 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. 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. Change of control Clawback Other features The STI payments of executives who cease employment for other reasons are pro-rated for time and performance, unless otherwise determined by the Board. 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 the Board’s discretion. The Board may reconsider the level of satisfaction of a performance measure and take steps to reduce the benefit 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. 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, refinancing, or major capital expenditure projects. Minimum employment period: Participants must be employed for at least three months in the performance period to be entitled to receive an STI payment. Equity awards and retention of shares: When a portion of an STI award is paid in equity, the Board has discretion to purchase shares on-market or to issue new shares. The equity component of the STI award of an Executive KMP may be subject to retention under the Senior Executive Share Ownership Policy until the executive has accumulated the minimum shareholding required under that policy. 38 39 Annual Report2020Southern Cross AustereoRemuneration ReportFor the year ended 30 June 20202.3.2 Long-term incentives The table below outlines details of the Company’s long-term incentive plan. What is the incentive? How is each executive’s entitlement determined? The LTI plan provides Executive KMP and about 20 other executives 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. Each executive is allocated a dollar value (which may be a fixed 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 face value of performance rights at the applicable grant date. The face value of performance rights is calculated as: – the weighted average price of the Company’s shares for the five trading days commencing seven days after the Company’s results for the prior financial year are announced to ASX; less – the amount of any final dividend per share declared as payable in respect of the prior financial year. How is the incentive delivered? To the extent the applicable vesting conditions are satisfied at the end of the applicable 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. Shares allocated under the LTI plan to Executive KMP may be subject to restrictions on disposal under the Senior Executive Share Ownership Policy until the executive has accumulated the minimum shareholding required under that policy. Is there a gateway? What are the performance measures and hurdles? Each grant under the LTI plan has two equally weighted performance hurdles over the applicable performance period: Return on Invested Capital (ROIC) and Absolute Earnings per Share (EPS). What are the performance measures and hurdles? (continued) 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 significant or non- recurring items (both income and costs) and so provides a fair measure of underlying long-term performance. The Board exercises a discretion about the extent to which particular significant or non-recurring items will be excluded, having regard to the reasons for any particular item. Adjusted EPS is calculated by dividing the adjusted profit after tax attributable to shareholders for the relevant reporting period (reported profit after tax, adjusted for the after-tax effect of significant or non-recurring items) by the weighted average number of ordinary shares on issue in the Company over the relevant reporting period. Absolute EPS performance Below 3% CAGR 3% CAGR 3% to 8% CAGR At or above 8% CAGR % of allocation that vests Nil 50% Straight-line vesting between 50% and 100% 100% The ROIC performance hurdle will be achieved only if the Company’s adjusted ROIC performance in the final year of the performance period is at or above a threshold set by the Board at the time of making the relevant LTI grant. The ROIC Performance hurdle for grants made in FY2020 would have been achieved if the Company’s adjusted ROIC performance in FY2022 is at or above 8.8%. 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. Return on Invested Capital performance hurdle ROIC measures management’s efficiency at allocating the capital under its control to generate profitable returns. To maintain and improve the Company’s ROIC, management is required to focus on the quality of earnings and the capital required to deliver improved earnings. ROIC is calculated as follows: Operating Earnings Before Interest and Tax (EBIT) Invested Capital (Net Debt plus Equity) ROIC is defined by reference to factors substantially within management’s sphere of influence. Accordingly: – Operating EBIT is adjusted to exclude the impact of significant or non-recurring items (both income and costs) to provide a fair measure of underlying long-term performance. – Impairments and other significant items are added back to operating EBIT and Invested Capital. To ensure consistent measurement from year to year, any impairments and other significant items from 1 July 2017 (when ROIC was introduced as a performance condition under the LTI plan) will be added back to the calculation of Invested Capital in each year. (Impairments and significant items before the introduction of ROIC as a measure on 1 July 2017 are not added back). – Non-cancellable operating leases are included in Invested Capital. – Returns are measured pre-tax. – Invested Capital is measured at the end of each month over the final year of an LTI grant and is averaged for the purposes of calculating ROIC. – Where applicable, items used to calculate ROIC will be rebased to accommodate changes in accounting standards and policies during the life of an LTI grant. ROIC performance rights will vest if the Company’s ROIC performance in the final year of the performance period is at or above a threshold set by the Board at the time of making the relevant LTI grant. ROIC performance rights granted in FY2020 were eligible to vest according to the following schedule: ROIC performance in FY2022 Below 8.8% 8.8% 8.8% to 11.2% At or above 11.2% % of allocation that vests Nil 50% Straight-line vesting between 50% and 100% 100% What is the maximum amount payable? How is performance assessed? The maximum award under the LTI plan is 100% of an executive’s grant if all vesting conditions are fully satisfied over the performance period. The Board will calculate the Company’s ROIC and EPS performance at the end of the performance period for each LTI grant by reference to the Company’s accounting records and the Company’s audited financial reports. The Company may engage an independent consultant to review or carry out these calculations. Cessation of employment ‘Bad Leavers’ (who resign or are terminated for cause) will forfeit any unvested performance rights, unless otherwise determined by the Board. There is no re-testing of performance hurdles under the LTI plan. Change of control Clawback Other features 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. If a change of control occurs 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 benefit 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. 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. Retention of shares: The rules of the LTI plan do not require participants to retain any shares allocated to them upon vesting of performance rights. However, the Company’s Senior Executive Share Ownership Plan requires Executive KMP to retain 25% of the shares allocated to them upon vesting of performance rights until they achieve the required minimum shareholding or cease to be employed by the Company. 40 41 Annual Report2020Southern Cross AustereoRemuneration ReportFor the year ended 30 June 20202.4 Consequences of performance on shareholder value In considering the Group’s performance and the benefits for shareholder value, the Board has regard to the following indicators in the current financial year and the preceding four financial years. The table below sets out the fees for Non-executive Directors that applied in 2019 and 2020 and those that will apply in 2021. The amounts shown for 2020 and 2021 do not take account of the temporary 10% reduction in fees between April 2020 and September 2020 in response to the impact of COVID-19. Base fees – Annual Chair1 Deputy Chair1 Other Non-executive Directors Committee fees – Annual Audit & Risk Committee – Chair Audit & Risk Committee – member People & Culture Committee – Chair1 People & Culture Committee – member Nomination Committee – Chair1 Nomination Committee – member 2019 $ 273,000 176,000 136,500 23,000 15,500 16,500 11,000 16,500 11,000 20202 $ 20212 $ 273,000 176,000 136,500 23,000 15,500 23,000 15,500 16,500 11,000 273,000 176,000 136,500 23,000 15,500 23,000 15,500 16,500 11,000 1 The Chair and Deputy Chair do not receive any additional fees for committee work. Accordingly, the fees set out above for Chair of the Nomination Committee were not paid during 2019 or 2020 and will not be paid during 2021. 2 Because of the impact on the Company’s business of the COVID-19 health crisis and the lockdown measures implemented by Federal, State and Territory Governments in response to the crisis, the fees paid to Non-executive Directors for the period from 1 April 2020 to 30 June 2020 were reduced by 10%. This reduction will continue until 30 September 2020. The above fees relate to the Board approved amounts prior to the 10% reduction. Revenue EBITDA EBITDA % Net profit before tax Net profit after tax (NPAT) NPAT % Net profit after tax excluding significant items NPAT % excluding significant items EPS (cents)1 ROIC2 Opening share price Closing share price Dividend/Distribution 30 June 2020 $’000 540,152 108,232 20.0% 38,294 25,100 4.6% 34,193 6.3% 1.77 4.7% 30 June 2019 $’000 660,088 147,382 22.3% (129,475) (91,395) (13.8%) 73,879 11.2% 6.5 8.9% 30 June 2018 $’000 656,784 158,439 24.1% 2,519 82 0.0% 73,932 11.3% 6.5 9.0% 30 June 2017 $’000 691,021 181,170 26.2% 125,747 107,169 15.5% 107,169 15.5% 9.57 10.4% 30 June 2016 $’000 641,129 169,296 26.4% 113,334 76,657 12.0% 76,653 12.0% 6.84 9.2% 30 June 2020 30 June 2019 30 June 2018 30 June 2017 30 June 2016 $0.97 $1.25 6.25c $1.25 $0.173 4.00c4 $1.25 $1.25 7.25c $1.31 $1.25 7.75c $1.25 $1.31 7.75c 1 EPS is shown after adjustments to exclude the impact of significant or non-recurring items (both income and costs) as approved by the Board for the purposes of the Company’s LTI plan. 2 ROIC is calculated in accordance with the principles outlined in section 2.3.2. It has not been calculated for periods prior to the introduction of ROIC as a measure under the LTI Plan in FY2016. 3 On 4 May 2020, the Company completed a $169.6 million equity raising. The equity raising consisted of a pro-rata accelerated non-renouncable rights issue and placement, resulting in the issue of 1,873,092,080 shares. 4 On 6 April 2020, the Group announced the cancellation of the interim dividend to maximise liquidity in response to the business impacts of the COVID-19 pandemic. 2.5 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 indefinite term, subject to termination by either party on six 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 benefits. 2.6 Services from remuneration consultants Deloitte was engaged during the year to assess performance of the Company’s FY2017 LTI plan over the applicable performance period and, for this purpose, to determine the Group’s TSR ranking within the comparator group and EPS growth over the applicable performance period. Deloitte was paid $3,000 for these services. KPMG was engaged during the year to provide an independent report benchmarking the remuneration of the Company’s Executive KMP and its Non-executive Directors. This included advice about market practice for share ownership by Executive KMP and the taxation implications for the Company and executives. KPMG did not make any remuneration recommendations (as defined in the Corporations Act). The remuneration of the Company’s Executive KMP and Non-executive Directors was adjusted following consideration of that benchmarking report. KPMG was paid $19,500 for these services. 2.7 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 Chair and the Deputy Chair receive a fixed 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 benefits as part of their fees. 42 43 Annual Report2020Southern Cross AustereoRemuneration ReportFor the year ended 30 June 20203. Remuneration of Executive KMP and Directors during the year 3.1 Total remuneration received by Executive KMP in FY2020 (non-statutory disclosures) The remuneration in the table below is aligned to the current performance period and provides an indication of alignment between the remuneration received in the current year and its alignment with long-term performance. The amounts in this table will not reconcile with those provided in the statutory disclosures in section 3.2. For example, the Executive KMP table in section 3.2 discloses the value of LTI grants which might or might not vest in future years, while the table below discloses the value of LTI grants from previous years which vested in the current year. KMP executive Grant Blackley Chief Executive Officer and Managing Director Nick McKechnie Chief Financial Officer John Kelly Chief Operating Officer Brian Gallagher Chief Sales Officer Stephen Haddad2 Chief Technology Officer Dave Cameron2 Chief Content Officer Nikki Clarkson3 Chief Marketing and Communications Officer Annaliese van Riet4 Chief People and Culture Officer Guy Dobson5 Chief Content Officer Total Executive KMP Cash salary and fees $ 1,142,762 STI bonus $ – 1,147,976 527,274 525,251 539,707 541,651 523,857 525,251 366,496 349,249 195,034 – 133,475 – 48,782 – – 1,005,523 3,477,387 4,094,901 750,227 – 245,554 – 265,489 – 212,995 – 75,200 – – – – – – – 26,733 – 1,576,198 Year 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Non-monetary benefits $ Super- annuation benefits $ LTI vested in the year1 $ Total $ 4,974 5,025 2,705 3,498 4,974 5,025 4,974 5,025 4,974 5,025 1,345 – 1,345 – 924 – – 2,532 26,215 26,130 21,003 366,057 1,534,796 20,531 21,003 20,531 21,003 20,531 21,003 20,531 21,003 20,531 10,501 – 10,501 – 8,495 – – 15,399 134,512 118,054 489,272 79,991 244,636 82,701 – 79,991 163,089 – – – – – – – – – 163,089 608,740 1,060,086 2,413,031 630,973 1,039,470 648,385 832,696 629,825 926,891 392,473 450,005 206,880 – 145,321 – 58,501 – – 1,213,276 4,247,154 6,875,369 1 The LTI entitlements that vested during the year were from the FY2017 LTI plan. All share-based payments in the year were equity settled. 2 Dave Cameron was appointed as Chief Content Officer and joined the Company’s senior leadership team on 1 January 2020. He was not a KMP during FY2019. 3 Nikki Clarkson was appointed as Chief Marketing and Communications Officer and joined the Company’s senior leadership team on 1 January 2020. She was not a KMP during FY2019. 4 Annaliese van Riet joined the Company and the Company’s senior leadership team as Chief People and Culture Officer on 20 January 2020. She ceased employment with the Company on 27 March 2020. 5 Guy Dobson ceased employment with the Company on 4 January 2019. 3.2 Total remuneration received by Executive KMP in FY2020 (statutory disclosure) The table below sets out the nature and amount of each major element of the remuneration of each Executive KMP in FY2020 and FY2019. Short-term employee benefits Executive Year Salary and fees $ STI bonus2 $ Non- monetary $ Total $ 2020 1,142,762 1,147,976 2019 – 750,227 4,974 1,147,736 5,025 1,903,228 2020 2019 527,274 525,251 – 245,554 2,705 3,498 529,979 774,303 2020 2019 539,707 541,651 – 265,489 4,974 5,025 544,681 812,165 2020 2019 523,857 525,251 – 212,995 4,974 5,025 528,831 743,271 2020 2019 366,496 349,249 – 75,200 4,974 5,025 371,470 429,474 1,345 – 196,379 – 1,345 – 134,820 – 2020 2019 195,034 – 2020 2019 133,475 – 2020 2019 48,782 – – – – – – – Grant Blackley Chief Executive Officer and Managing Director Nick McKechnie Chief Financial Officer John Kelly Chief Operating Officer Brian Gallagher Chief Sales Officer Stephen Haddad Chief Technology Officer Dave Cameron4 Chief Content Officer Nikki Clarkson5 Chief Marketing and Communications Officer Annaliese van Riet6 Chief People and Culture Officer Guy Dobson7 Chief Content Officer Post- employ- ment Super contrib- ution $ 21,003 20,531 Long Service Leave1 Termin- ation benefits Share- based payments Perfor- mance rights3 $ $ $ Total $ 34,970 12,530 – (415,068) (67,133) – 788,641 1,869,156 21,003 20,531 21,003 20,531 21,003 20,531 21,003 20,531 10,501 – 10,501 – 20,181 9,102 11,308 8,389 10,611 9,107 6,466 – (18,817) – (578) – – (134,391) (8,001) – 436,772 795,935 – (138,347) (9,335) – 438,645 831,750 – (134,394) (8,317) – 426,051 764,592 – – – – – – (28,294) 15,969 370,645 465,974 (7,618) – 180,445 – (9,141) – 135,602 – Perfor- mance related proportion % 0.0 36.5 0.0 29.8 0.0 30.8 0.0 26.8 0.0 19.6 0.0 – 0.0 – 0.0 – – (1.3) 0.0 26.2 924 – 49,706 – 8,495 – – – 44,301 – – – 102,502 – 2020 2019 – 325,947 – 26,733 – 2,532 – 355,212 – 15,399 – – (159,212) 679,576 – (37,764) – 853,211 Total Executive KMP 2020 3,477,387 2019 3,415,325 – 1,576,198 26,215 3,503,602 26,130 5,017,653 134,512 118,054 64,141 (120,084) 679,576 44,301 (867,253) 2,879,303 5,580,618 (114,581) 1 Long service leave relates to amounts accrued during the year. 2 The STI bonus is for performance during the year using the criteria set out in section 2.3.1. The amount was finally determined by the Board on 19 August 2020 after considering recommendations of the People & Culture Committee. 3 The value of the performance rights granted during the year was determined as the face value of the performance rights at the grant date. The method of calculating the face value of performance rights is explained in section 2.3.2. The value disclosed is the portion of the fair value of the rights recognised as an expense in each reporting period. 4 Dave Cameron was appointed Chief Content Officer with effect from 1 January 2020. He was not an Executive KMP in FY2019. 5 Nikki Clarkson was appointed Chief Marketing and Communications Officer with effect from 1 January 2020. She was not an Executive KMP in FY2019. 6 Annaliese van Riet joined the Company and the Company’s senior leadership team as Chief People and Culture Officer on 20 January 2020. She ceased employment with the Company on 27 March 2020. 7 Guy Dobson ceased employment with effect from 4 January 2019. 8 Because of the impact on the Company’s business of the COVID-19 health crisis and the lockdown measures implemented by Federal, State and Territory Governments in response to the crisis, the Board has cancelled all outstanding performance rights under the LTI plan. 44 45 Annual Report2020Southern Cross AustereoRemuneration ReportFor the year ended 30 June 20203.3 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 FY2020 and FY2019. Non-executive Director Peter Bush Chairman Leon Pasternak Deputy Chairman Glen Boreham Non-executive Director Rob Murray Non-executive Director Helen Nash Non-executive Director Melanie Willis Non-executive Director Total Short-term employee benefits Salary and fees $ Non- monetary $ 245,172 252,469 156,713 160,732 156,047 148,860 145,138 144,748 165,617 163,928 155,821 155,708 1,024,508 1,026,445 – – – – – – – – – – – – – – Total $ 245,172 252,469 156,713 160,732 156,047 148,860 145,138 144,748 165,617 163,928 155,821 155,708 1,024,508 1,026,445 Post- employment Super contribution $ 21,003 20,531 14,887 15,268 7,266 14,140 13,787 13,752 15,733 15,572 14,804 14,792 87,480 94,055 Total $ 266,175 273,000 171,600 176,000 163,313 163,000 158,925 158,500 181,350 179,500 170,625 170,500 1,111,988 1,120,500 Year 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 4. Analysis of short-term incentives included in remuneration 4.1 STI performance outcomes The table below summarises the key performance indicators (KPIs) applicable for each KMP for FY2020. The Board accepted the recommendation of the CEO that no STI awards be paid for FY2020 because of the effect on the business of the COVID-19 health crisis and the lockdown measures implemented by Federal, State and Territory Governments in response to the crisis. For this reason, a detailed assessment of executives’ performance against their respective KPIs was not carried out in FY2020. Profitability and financial performance 40% High level operational improvements Cultural and behavioural influences 40% 20% Executive KMP1 Grant Blackley Measure Group NPAT Non-revenue related Group operating expenses Nick McKechnie Group NPAT Non-revenue related Group operating expenses John Kelly Group NPAT Non-revenue related costs Brian Gallagher Group EBITDA Radio, regional television and digital revenues Sales dept operating expenses Stephen Haddad Group EBITDA Non-revenue related technology operating expenses Measure Deliver corporate strategy; lead change to focus on capital-minded investment to create new sustainable revenue streams; lead development and optimisation of linear and on- demand audio content products; enhance reputation with investors, financiers and other influencers. Deliver corporate strategy; successfully refinance Group debt; lead change in business focus to create new sustainable revenue streams; enhance reputation with investors, financiers and other influencers. Communicate and deliver corporate strategy; lead development and optimisation of linear and on-demand audio content products; continue development of PodcastOne Australia; support development of a knowledge management strategy. Metro radio power ratio; develop and drive new strategies to deliver revenue outperformance in regional markets; improve monetisation of PodcastOne Australia and premium sporting rights; improve effectiveness of Salesforce to drive customer acquisition and retention. Successful migration of TV playout from Canberra to NPC Media; successful transition of transmission services to BAI Communications; support new smart audio capability with market-leading infrastructure; design and lead strategy to improve sales automation. Measure Maintain succession planning for KMP executives; develop and implement plans to increase diversity in teams and raise awareness and participation in innovation program; develop and implement plans to build constructive behaviours and enhance culture in own team and across business. Maintain succession planning for role and direct reports; develop and implement plans to increase diversity in teams and raise awareness and participation in innovation program; develop and implement plans to build constructive behaviours and enhance culture in own team and across business. Maintain succession planning for role and direct reports; develop and implement plans to increase diversity in teams and raise awareness and participation in innovation program; develop and implement plans to build constructive behaviours and enhance culture in own team and across business. Maintain succession planning for role and direct reports; develop and implement plans to increase diversity in teams and raise awareness and participation in innovation program; develop and implement plans to build constructive behaviours and enhance culture in own team and across business. Maintain succession planning for role and direct reports; develop and implement plans to increase diversity in teams and raise awareness and participation in innovation program; develop and implement plans to build constructive behaviours and enhance culture in own team and across business. 1 KPIs were not finalised with Annaliese van Riet during her time as Chief People and Culture Officer. KPIs were also not finalised with Dave Cameron and Nikki Clarkson between their joining the Company’s senior leadership team on 1 January 2020 and commencement of the effect on the business of the COVID-19 health crisis and the lockdown measures implemented by Federal, State and Territory Governments in response to the crisis. 4.2 Vesting of STI awards Having regard to the impact of the COVID-19 crisis on the operations of the Company and returns to shareholders, the Board accepted management’s recommendation that the executive STI awards for FY2020 be forfeited. These actions did not reflect on the effort or quality of work by executives during the year; rather they acknowledged the impact of COVID-19 on the Company’s financial performance and on returns to the Company’s shareholders. 46 47 Annual Report2020Southern Cross AustereoRemuneration ReportFor the year ended 30 June 20205. 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. 5.1 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 Kelly Brian Gallagher Stephen Haddad Dave Cameron Nikki Clarkson Annaliese van Riet Total Number of rights granted 712,613 189,026 194,045 187,354 111,659 41,820 50,184 52,275 1,538,976 Details for all rights granted in financial year Grant Date Face value at grant date Vesting date Return on invested capital 13 September 2019 $1.1956 30 June 2022 Absolute EPS 13 September 2019 $1.1956 30 June 2022 All rights expire on the earlier of their vesting date or termination of the executive’s employment. When an executive ceases employment as a ‘good leaver’, the executive’s rights will typically terminate on a pro-rata basis according to the executive’s period of service. The rights vest at the end of the performance period specified at the time of their grant. This was 30 June 2022 for all rights granted in the year. In addition to a continuing employment condition, vesting is conditional on the Group achieving specified performance hurdles. Details of the performance hurdles are included in the discussion of the LTI plan in section 2.3.2. Because of the impact on the Company’s business of the COVID-19 health crisis and the lockdown measures implemented by Federal, State and Territory Governments in response to the crisis, the Board has cancelled all outstanding performance rights under the LTI plan, including the above rights granted during the year. 5.2 Details of equity incentives affecting current and future remuneration The table below sets out the vesting profiles of rights held by each Executive KMP as at 30 June 2020 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 Date Vesting Date No. of Perf Rights Granted Value of Perf Rights at Grant Date1 $ No. of Perf Rights Vested and Exercised During the Year Vested and Exercised % No. of Perf Rights Cancelled During the Year3 Forfeited %2 Cancelled % No. of Perf Rights Remaining at Year End Value of Perf Rights yet to Vest $ Grant Blackley Nick McKechnie FY20 Plan 01/07/2022 FY19 Plan 01/07/2021 FY18 Plan 01/07/2020 01/07/2019 FY17 Plan 712,613 621,820 660,993 764,151 852,000 831,000 831,000 810,000 Total FY20 Plan 01/07/2022 FY19 Plan 01/07/2021 FY18 Plan 01/07/2020 01/07/2019 FY17 Plan 2,759,577 3,324,000 189,026 226,000 273,000 204,280 273,000 217,149 177,000 166,981 – – – 298,019 298,019 – – – 65,123 John Kelly Brian Gallagher Stephen Haddad Dave Cameron Nikki Clarkson Total FY20 Plan 01/07/2022 FY19 Plan 01/07/2021 FY18 Plan 01/07/2020 01/07/2019 FY17 Plan Total FY20 Plan 01/07/2022 FY19 Plan 01/07/2021 FY18 Plan 01/07/2020 01/07/2019 FY17 Plan Total FY20 Plan 01/07/2022 FY19 Plan 01/07/2021 FY18 Plan 01/07/2020 Total FY20 Plan 01/07/2022 FY19 Plan 01/07/2021 FY18 Plan 01/07/2020 01/07/2019 FY17 Plan Total FY20 Plan 01/07/2022 FY19 Plan 01/07/2021 FY18 Plan 01/07/2020 01/07/2019 FY17 Plan 777,436 949,000 232,000 194,045 281,000 210,266 281,000 223,513 183,000 172,642 800,466 977,000 224,000 273,000 273,000 177,000 187,354 204,280 217,149 166,981 775,764 947,000 133,500 80,000 30,000 111,659 59,862 23,863 195,384 243,500 50,000 50,000 50,000 50,000 41,820 37,414 39,771 47,170 166,175 200,000 60,000 60,000 60,000 60,000 50,184 44,897 47,725 56,604 Annaliese van Riet Total FY20 Plan 01/07/2022 199,410 240,000 62,500 52,275 Total 52,275 62,500 65,123 – – – 67,330 67,330 – – – 65,123 65,123 – – – – – – – 18,396 18,396 – – – 22,076 22,076 – – No. of Perf Rights Forfeited During the Year – – – 466,132 39.0 466,132 – – – 101,858 – – – 39.0 – – – 39.0 39.0 – – – 39.0 39.0 – – – 39.0 39.0 – – – – – – – 39.0 39.0 – – – 39.0 39.0 – – 101,858 – – – 105,312 105,312 – – – 101,858 101,858 – – – – – – – 28,774 28,774 – – – 34,528 34,528 – 712,613 – 621,820 – – 660,993 – 61.0 61.0 1,995,426 189,026 – – 204,280 217,149 – – 61.0 61.0 610,455 194,045 210,266 223,513 – – – – 61.0 61.0 627,824 – 187,354 – 204,280 217,149 – – 61.0 61.0 608,783 111,659 59,862 23,863 – – – – 195,384 41,820 – 37,414 – 39,771 – – 61.0 61.0 – – – 61.0 119,005 50,184 44,897 47,725 – 61.0 142,806 62,500 – 100.0 100.0 100.0 – 100.0 100.0 100.0 100.0 – 100.0 100.0 100.0 100.0 – 100.0 100.0 100.0 100.0 – 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 – 100.0 100.0 100.0 100.0 – 100.0 100.0 100.0 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 62,500 1 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. 2 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 satisfied or to rights being cancelled by the Board. 3 Because of the impact on the Company’s business of the COVID-19 health crisis and the lockdown measures implemented by Federal, State and Territory Governments in response to the crisis, the Board has cancelled all outstanding performance rights under the LTI plan. 48 49 Annual Report2020Southern Cross AustereoRemuneration ReportFor the year ended 30 June 20205.3 Vesting of rights during the year (as at 1 July 2019) Performance rights granted under the FY2017 LTI plan were tested in August 2019, following approval of the Company’s financial report for the year ended 30 June 2019. There were two equally-weighted performance conditions for these rights: the Company’s relative TSR performance against companies in the comparator group over the performance period and the Company’s EPS performance over the performance period. A report provided by Deloitte confirmed that the Company’s relative TSR performance exceeded the 50th percentile vesting gateway, resulting in partial vesting. The EPS performance condition was not satisfied because the Company’s adjusted EPS declined over the performance period (from 10.04 cents in FY2016 to 9.61 cents in FY2019), which was below the vesting gateway of 3%. These outcomes are shown below. FY2017 LTI plan Relative TSR performance Absolute EPS performance Total TSR percentile ranking/EPS CAGR 64th percentile (1.4%) % vested 78% 0% 50% weighting 39.0% 00.0% 39.0% 5.4 Vesting of rights as at 1 July 2020 Performance rights granted under the FY2018 LTI plan were due to be tested in August 2020, following approval of the Company’s financial report for the year ended 30 June 2020. Performance rights granted under the FY2019 and FY2020 LTI plans were due to be tested in subsequent years. There were two equally-weighted performance conditions for rights granted under each of these plans: the Company’s ROIC performance over the performance period and the Company’s EPS performance over the performance period. Because of the impact on the Company’s business of the COVID-19 health crisis and the lockdown measures implemented by Federal, State and Territory Governments in response to the crisis, the Board has cancelled all outstanding performance rights under the LTI plan. As a result, no rights granted under the LTI plan in FY2018, FY2019 or FY2020 will vest. At the end of the year, there were no outstanding rights eligible for vesting under the LTI plan. 6. Payments to executives before taking office There were no payments made during the year to any person as part of the consideration for the person taking office. 7. Transactions with KMP 7.1 Loans to KMP There were no loans made to KMP or their related parties during the year. 7.2 Other transactions and balances with KMP There were no other transactions with KMP or their related parties during the year. 8. KMP shareholdings The table below sets out the movements in shares held directly or indirectly by KMP during the year. Non-executive Directors Peter Bush Leon Pasternak Glen Boreham Rob Murray Helen Nash Melanie Willis Executives Grant Blackley Nick McKechnie John Kelly Brian Gallagher Stephen Haddad Dave Cameron1 Nikki Clarkson1 Annaliese van Riet2 Received during the year On exercise of LTI performance rights Balance at start of year Under STI Plan Other changes during the year Balance at end of year 130,000 1,185,215 123,500 107,248 105,000 109,670 1,760,633 222,499 186,429 29,500 70,212 7,500 – – – 516,140 – – – – – – 298,019 65,123 67,331 65,123 – 18,396 22,706 – 536,698 – – – – – – 81,393 – – – – – – – 81,393 227,500 2,074,127 361,119 297,684 183,750 298,280 3,442,460 1,083,510 385,216 169,455 440,612 50,250 (18,396) 38,633 – 2,149,280 357,500 3,259,342 484,619 404,932 288,750 407,950 5,203,093 1,685,421 636,768 266,286 575,947 57,750 – 60,709 – 3,282,881 1 Dave Cameron and Nikki Clarkson became Executive KMP during the financial year, on 1 January 2020. 2 Annaliese van Riet’s holdings shown as at the date of cessation of employment on 27 March 2020. 50 51 Annual Report2020Southern Cross AustereoRemuneration ReportFor the year ended 30 June 2020Auditor’s Independence Declaration Directors’ report Auditor’s Independence Declaration A copy of the Auditor’s Independence Declaration, as required under s307C of the Corporations Act 2001, is set out on page 51. This report is signed in accordance with resolutions of the Directors of Southern Cross Media Group Limited. Rob Murray Chairman Sydney, Australia 20 August 2020 Grant Blackley Managing Director Sydney, Australia 20 August 2020 Auditor’s Independence Declaration As lead auditor for the audit of Southern Cross Media Group Limited for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Southern Cross Media Group Limited and the entities it controlled during the period. Trevor Johnston Partner PricewaterhouseCoopers Melbourne 20 August 2020 PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, 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. 52 53 Annual Report2020Southern Cross Austereo Consolidated Statement of Comprehensive Income For the year ended 30 June 2020 Revenue from continuing operations Broadcast and production costs Employee expenses Selling costs Occupancy costs Promotions and marketing Administration costs Fair value loss on assets held for sale Other income Share of net profit/(losses) of investments accounted for using the equity method Profit before depreciation, amortisation, interest, impairment, fair value movements on financial 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 Profit/(loss) before income tax expense for the year from continuing operations Income tax credit/(expense) from continuing operations Profit/(loss) from continuing operations after income tax expense for the year Other comprehensive income that may be reclassified to profit or loss: Changes to fair value of cash flow hedges, net of tax Total comprehensive profit/(loss) for the year attributable to shareholders Earnings per share attributable to the ordinary equity holders of the Company: Basic earnings per share (cents) Diluted earnings per share (cents) Note 3 6 4 5 20 4 18 7 16 16 2020 $’000 540,152 (118,269) (176,410) (68,718) (10,758) (10,349) (48,691) – 638 637 108,232 (36,589) (6,135) (27,888) 674 38,294 (13,194) 25,100 2019 $’000 660,088 (123,600) (205,536) (78,838) (30,631) (16,766) (49,877) (9,223) 1,046 719 147,382 (30,643) (226,883) (20,179) 848 (129,475) 38,080 (91,395) 383 25,483 (4,275) (95,670) 1.77 1.77 (8.05) (8.05) The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 54 Consolidated Statement of Financial Position As at 30 June 2020 Current assets Cash and cash equivalents Receivables Current tax asset Assets held for sale Total current assets Non-current assets Receivables Right-of-use assets Investments Property, plant and equipment Intangible assets Total non-current assets Total assets Current liabilities Payables Deferred income Provisions Borrowings Lease liability Derivative financial instruments Total current liabilities Non-current liabilities Deferred income Provisions Borrowings Lease liability Deferred tax liability Derivative financial 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 The above Statement of Financial Position should be read in conjunction with the accompanying notes. Note 2020 $’000 2019 $’000 12 13 8 13 29 20 9 10 13 13 13 18 29 19 13 13 18 29 7 19 17 17 271,431 84,384 5,112 – 360,927 13,725 122,868 5,323 96,853 948,047 1,186,816 1,547,743 34,263 8,738 13,913 25,000 6,370 2,353 90,637 92,013 4,687 376,703 126,581 264,096 4,629 868,709 959,346 588,397 1,540,569 (450) (77,406) (874,614) 588,099 298 588,397 32,387 127,797 1,527 15,000 176,711 1,419 – 9,015 104,472 917,960 1,032,866 1,209,577 59,961 4,729 17,073 – – – 81,763 93,689 9,119 323,524 – 259,537 7,529 693,398 775,161 434,416 1,379,736 496 (77,406) (868,708) 434,118 298 434,416 55 Annual Report2020Southern Cross AustereoConsolidated Statement of Changes in Equity For the year ended 30 June 2020 Consolidated Statement of Cash Flows For the year ended 30 June 2020 Contributed equity $’000 Share-based payment reserve $’000 Hedge reserve $’000 Other equity transactions $’000 (Accumulated losses)/ retained profits $’000 2020 Total equity at 1 July 2019 Profit for the year  Other comprehensive income Total comprehensive income 1,379,736 – – – 5,765 – – – (5,269) – 383 383 (77,406) – – – (868,708) 25,100 – 25,100 Total $’000 434,118 25,100 383 25,483 Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs Employee share entitlements Payments on maturity of Long- Term Incentive Plan Dividends paid 160,833 – – (717) (612) – – – – – – Total equity at 30 June 2020 160,833 1,540,569 (1,329) 4,436 – (4,886) – (77,406) – – 160,833 (717) (245) (30,761) (31,006) (874,614) (857) (30,761) 128,498 588,099 2019 Contributed equity $’000 Share-based payment reserve $’000 Total equity at 1 July 2018  Loss for the year  Other comprehensive income Total comprehensive income 1,379,736 – – – 6,595 – – – Hedge reserve $’000 Other equity transactions $’000 (994) – (4,275) (4,275) (77,406) – – – (Accumulated losses)/ retained profits $’000 (716,992) (91,395) – (91,395) Total $’000 590,939 (91,395) (4,275) (95,670) Transactions with equity holders in their capacity as equity holders: Employee share entitlements Payments on maturity of Long- Term Incentive Plan Dividends paid Total equity at 30 June 2019 – (270) – – – (270) – – – 1,379,736 (560) – (830) 5,765 – – – (5,269) – – – (77,406) (722) (59,599) (60,321) (868,708) (1,282) (59,599) (61,151) 434,118 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. Non- controlling interest $’000 298 – – – – – – – – 298 Non- controlling interest $’000 298 – – – – – – – 298 Total equity $’000 434,416 25,100 383 25,483 160,833 (717) (857) (30,761) 128,498 588,397 Total equity $’000 591,237 (91,395) (4,275) (95,670) (270) (1,282) (59,599) (61,151) 434,416 Cash flows from operating activities Receipts from customers Payments to suppliers and employees JobKeeper received Interest received from external parties Tax paid Net cash inflows from operating activities Cash flows from investing activities Payments for purchase of property, plant and equipment Payment for acquisition of subsidiary, net of cash acquired Payments for purchase of intangibles Disposal of investments and intangibles Proceeds from sale of property, plant and equipment Proceeds from sale of operations and assets Payments for purchase of investment Dividends received from equity accounted investments Net cash flows used in investing activities Cash flows from financing activities Dividends paid to security holders Proceeds from borrowings Repayment of borrowings from external parties Refinancing costs paid to external parties Proceeds from issue of shares Share issue transaction costs Interest paid to external parties Principal elements of lease payments Net cash flows used in financing activities Net increase/(decrease) 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 2020 $’000 2019 $’000 12 644,850 (534,429) 10,599 674 (18,308) 103,386 (16,686) (28,700) (519) 134 1,944 3,220 (2,886) 580 (42,913) (30,761) 78,000 – (1,885) 168,578 (7,745) (20,094) (7,522) 178,571 239,044 32,387 271,431 714,967 (570,052) – 848 (34,621) 111,142 (28,299) – (99) – 615 932 – 540 (26,311) (59,599) – (35,000) – – – (13,878) (19) (108,496) (23,665) 56,052 32,387 56 57 Annual Report2020Southern Cross AustereoKey Numbers Capital Management Group Structure Other 1. Summary of Significant Accounting Policies 14. Capital Management Objectives 20. Non-Current Assets – Investments 24. Share-Based Payments 2. Segment Information 15. Dividends Paid and Proposed 21. Subsidiaries 25. Remuneration of Auditors 3. Revenue 16. Earnings per Share 22. Parent Entity Financial Information 26. Related Party Disclosures 4. Significant Items 17. Contributed Equity and Reserves 23. Business Combinations 27. Leases and Other Commitments 5. Other Income 18. Borrowings 6. JobKeeper Payments 19. Financial Risk Management 28. Events Occurring after Balance Date 29. Other Accounting Policies 7. Income Tax Expense 8. Assets held for Sale 9. Non-Current Assets – Property, Plant and Equipment 10. Non-Current Assets – Intangible Assets 11. Impairment 12. Cash Flow Information 13. Receivables, Payables, Deferred Income and Provisions 58 Key Numbers 1. Summary of Significant Accounting Policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. In addition, significant and other accounting policies that summarise the measurement basis used and that are relevant to an understanding of the financial statements are provided throughout the notes to the financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial 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 financial report has been prepared in accordance with Australian Accounting Standards and the Corporations Act 2001 (where applicable). The Group is a for-profit entity for the purpose of preparing the financial statements. These financial statements have been prepared on a going concern basis. The Group has performed an assessment of its ability to continue as a going concern. The assessment has considered the balance sheet position, including $271.4 million of cash and cash equivalents at 30 June 2020; forecast performance; and the expectations that the Group will comply with its debt facility covenants. Based on the assessment, the Group concluded that these financial statements should be prepared on a going concern basis. Information in respect of the parent entity in this financial report relates to Southern Cross Media Group Limited. i) Compliance with IFRS Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Group comply with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’). Consequently this financial report has also been prepared in accordance with and complies with IFRS as issued by the IASB. ii) Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities (including derivative instruments) at fair value through profit or loss. All amounts are presented in Australian dollars, unless otherwise noted. iii) Comparative figures Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current period. Certain balances in the comparative period have been reclassified to align to the current period classification. This has resulted in a $8 million reduction in payables and receivables. This has also resulted in corporate revenue of $715,000 being reallocated to television revenue. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 June 2020 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 reflects 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 profits. Rounding of amounts The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in the Directors’ Report and Financial Report. Amounts have been rounded off in accordance with the Instrument to the nearest thousand dollars, unless otherwise indicated. Critical accounting estimates and judgements The preparation of the financial 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 financial impact on the entity and that are believed to be reasonable under the circumstances. Management believes the estimates used in the preparation of the financial report are reasonable. Actual results in the future may differ from those reported. Judgements and estimates which are material to the financial report are found in the following notes: Note 10 Non-Current Assets – Intangible Assets Note 11 Note 13 Impairment Receivables, Payables, Deferred Income and Provisions, for Expected Credit Losses Note 29 Leases Coronavirus (COVID-19) Impact COVID-19, which is a respiratory illness caused by a new virus, was declared a world-wide pandemic by the World Health Organisation in March 2020. COVID-19, as well as measures to slow the spread of the virus, have since had a significant impact on global economies and equity, debt and commodity markets. The Group has considered the impact of COVID-19 and other market volatility in preparing its financial statements. 59 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 20201. Summary of Significant Accounting Policies (continued) As a consequence of COVID-19, management: – Re-evaluated whether there were any additional areas of judgement or estimation uncertainty; – Updated its economic outlook, principally for the purposes of input into its expected credit losses through the application of forward-looking information, but also for the input into the impairment analysis of financial and non-financial assets classes and disclosures such as fair value disclosures of financial assets and liabilities; – Reviewed external market communications to identify other COVID-19 related impacts; and – Reviewed public forecasts and experience from previous downturns for input into the impairment assessment of the Audio CGU. Further judgements and estimates were required due to COVID-19 and are detailed further in the notes to the financial statements, in particular: JobKeeper Payments Impairment Note 6 Note 11 Note 13 Note 14 Note 19 Note 20 Non-Current Assets – Investments Receivables, Payables, Deferred Income and Provisions, for Expected credit losses Capital Management Objectives Financial Risk Management Notes to the financial statements Notes relating to individual line items in the financial 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 financial report in note 29. 2. Segment Information AASB 8 requires operating segments to be identified 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. The Group has determined operating segments are based on the information reported to the Group CEO and the Company Board of Directors. The Group has determined that it has two main operating segments being: – Audio, comprising metro and regional radio, podcasting and other related businesses; and – Television, comprising the regional television business. Segment Revenue National Revenue1 Local Revenue2 Other Total Revenue EBITDA/Segment Result on a pre AASB 16 basis3 AASB 16 Leases impact Reported EBITDA (including AASB 16 Leases impact) EBITDA % of Revenue Impairment of intangibles and investments Depreciation and Amortisation Statutory EBIT/Segment Result Financing costs Income tax expense (Loss)/Profit for the year attributable to shareholders Audio Television Corporate Consolidated 2020 $’000 370,546 197,766 141,756 31,024 370,546 97,819 10,690 108,509 29.3% – – – – – – 2019 $’000 452,424 254,451 169,399 28,574 452,424 148,646 – 148,646 32.9% – – – – – – 2020 $’000 169,453 95,536 60,749 13,168 169,453 19,566 4,382 23,948 14.1% – – – – – – 2019 $’000 207,273 108,127 82,918 16,228 207,273 25,201 – 25,201 12.2% (226,883) – – – – – 2020 $’000 2019 $’000 153 – – 153 153 391 – – 391 391 2020 $’000 540,152 293,302 202,505 44,345 540,152 (24,434) 209 (26,465) – 92,951 15,281 (24,225) N/A (26,465) N/A 108,232 20.0% 2019 $’000 660,088 362,578 252,317 45,193 660,088 147,382 – 147,382 22.3% (6,135) – – – – – – – – – – – (6,135) (36,589) (226,883) (30,643) 65,508 (27,214) (13,194) (110,144) (19,331) 38,080 25,100 (91,395) 1 National revenue is sold by SCA’s national sales team who are able to sell all SCA products across all markets. 2 Local revenue is sold directly by SCA’s local sales team who are only able to sell local products specific to the particular market. 3 The chief operating decision maker monitors EBITDA on the same basis as before AASB 16 Leases was applied or transitioned to by the Group. 3. Revenue The profit before income tax from continuing operations included the following specific items of revenue: Revenue from continuing operations Sales revenue Rental revenue Total revenue from continuing operations Consolidated 2020 $’000 2019 $’000 539,169 983 540,152 656,332 3,756 660,088 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 Under AASB 15 Revenue from Contracts with Customers revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control requires judgement. The Group recognises revenue at the point the underlying performance obligation has been completed and control of the services or goods passes to the customer. Revenue represents revenue earned primarily from the sale of television, radio and digital advertising airtime and related activities, including sponsorship and promotions. Based on the Group being considered the principal entity in the sale of television, radio and digital advertising, revenue is recognised gross of rebates and agency commissions. For significant payment terms refer to note 13. Advertising revenue is recognised at a point in time when the underlying performance obligation has been satisfied, being primarily when the advertisement is aired. Sponsorship revenue is included within advertising revenue and the length of the sponsorship can vary in length of time. Revenue is recognised over the period to which the sponsorship relates. Production services used to create advertising suitable for broadcast is treated as a separate performance obligation. Production revenue is recognised at a point in time when the Group has completed the production service, which is likely to be before the relevant advertising is broadcast. Included within advertising revenue is the Australian Traffic Network (ATN) contract where revenue is recognised over time. The ATN contract has been deemed to contain a significant financing component. Revenue from this contract has been recalculated over the 30-year contract period and has been grossed up to account for interest expense (for further detail refer note 13). Within advertising revenue there is a significant contract in which the Group acts as an agent selling advertising on behalf of NBN on a net fee and commissions received basis. The advertising revenue from NBN is made up of fixed and variable consideration. The variable consideration is based on selling performance relative to audience and market share. Revenue from this contract is recognised over time. The commission received is accrued over time based on the amount of variable consideration that is considered highly probable, with any variance recognised at the time of payment. The Group derives other regular sources of operating revenue from commercial production for advertisers, including facility sharing revenue and program sharing revenue based on an agreement to share revenue based on a fixed percentage 60 61 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 2020 4. Significant Items The net profit after tax includes the following items whose disclosure is relevant in explaining the financial performance of the Group. Significant items are those items of such a nature or size that separate disclosure will assist users to understand the financial statements. Income Tax Expense 7. The income tax expense for the financial year differs from the amount calculated on the net result from continuing operations. The differences are reconciled as follows: Impairment of intangibles (refer notes 10, 11) Derecognition of deferred tax liability on impairment (refer note 7) Fair value loss on sale of assets held for sale net of tax (refer note 8) Restructuring charges (after tax) Impairment of investments (refer note 20) Modification loss on refinancing (after tax) Total significant items included in net loss after tax 5. Other Income Net gain from disposal of assets Total other income Net assets disposed Gross cash consideration Net gain from disposal of assets before tax 2020 $’000 – – – (2,031) (6,135) (927) (9,093) 2019 $’000 (226,883) 68,065 (6,456) – – – (165,274) Consolidated 2020 $’000 638 638 2020 $’000 (1,306) 1,944 638 2019 $’000 1,046 1,046 2019 $’000 (501) 1,547 1,046 6. JobKeeper Payments As part of its response to COVID-19, in March 2020 the Australian Government announced various stimulus measures resulting from the economic fallout from the coronavirus lockdown. One such stimulus measure was the payment of subsidies to qualifying employers under the JobKeeper Payment scheme (‘JobKeeper’) The initial JobKeeper payments are a wage subsidy whereby employers who qualify for the stimulus receive $1,500 per fortnight for each eligible employee who was employed by the company during the period April 2020 to September 2020. The Group has determined that it is eligible to receive the initial JobKeeper payments, which totalled $16.1 million in the period to 30 June 2020. JobKeeper payments are government grants and are accounted for under AASB 120 Accounting for Government Grants and Disclosure of Government Assistance. Government grants are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants shall be recognised as income over the periods necessary to match them with the related costs which they are intended to compensate. Government grants related to income are deducted in reporting from the related expense. JobKeeper payments Employee costs Total employee costs after JobKeeper payments Consolidated 2020 $’000 16,059 (192,469) (176,410) 2019 $’000 – (205,536) (205,536) Income tax expense Current tax Current tax on profits for the year Adjustments for current tax of prior periods Total current tax expense Deferred income tax Increase/(decrease) in net deferred tax liabilities Adjustments for deferred tax of prior periods Total deferred tax expense Income tax expense/(credit) Reconciliation of income tax expense to prima facie tax payable Profit 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 Impairment of investments Share of net profits of associates Non-deductible entertainment expenses Other (non-assessable income)/non-deductible expenses Adjustments recognised in the current year in relation to prior years Income tax expense/(credit) Deferred Taxes The balance comprises temporary differences attributable to: Licences and brands Employee benefits Provisions Interest rate swaps Right-of-use assets Lease liabilities Deferred revenue Other Net balance disclosed as deferred tax liability Consolidated 2020 $’000 2019 $’000 11,817 2,978 14,795 2,032 (3,633) (1,601) 13,194 38,294 11,488 1,841 (191) 900 (189) (655) 13,194 29,762 861 30,623 (68,077) (626) (68,703) (38,080) (129,475) (38,843) – (216) 1,200 (456) 235 (38,080) Consolidated 2020 $’000 2019 $’000 (279,130) 4,900 608 2,095 (37,859) 39,885 2,497 2,908 (264,096) (273,206) 5,834 1,952 2,259 – – 1,974 1,650 (259,537) For the year ended 30 June 2020, the Company had $0.2 million income tax expense (2019: $1.8 million of income tax benefit) recognised directly in equity in relation to cash flow hedges, with a corresponding deferred tax liability (2019: asset) being recognised. There are $59.319 million available unused tax losses on the capital account for which no deferred tax asset has been recognised (2019: $58.400 million). There are no other unused tax losses for which no deferred tax asset has been recognised. 62 63 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 2020Income Tax Expense (continued) 7. Recognition and Measurement Income Tax Income tax amounts recognised in the Group’s financial 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 financial 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. From 1 July 2019, the Group adopted AASB 16 Leases using the modified retrospective approach with no restatement of prior year comparative information. Deferred tax assets and liabilities are recognised for temporary differences arising from right-of-use assets and lease liabilities separately, as management do not consider the initial recognition exemption in AASB 112 Income Taxes applies to transactions that give rise to both an asset and liability. The net deferred tax amount will not be nil, as the carrying value of the lease liability is different to the right-of-use asset. 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 assumed to be recovered through use. Tax Consolidated Group The Company is the head entity of the tax consolidated group. For further information, refer note 22. 8. Assets Held for Sale On 6 August 2019, the Group announced the sale of its existing transmission assets and outsourced the provision of transmission services to Broadcast Australia. The sale was completed on 2 September 2019, with no gain or loss on the disposal of assets held for sale. On 2 September 2019, the Group paid $15 million to Broadcast Australia for the outsourcing of its transmission services. Assets held for sale Total assets held for sale 2020 $’000 – – 2019 $’000 15,000 15,000 9. Non-Current Assets – Property, Plant and Equipment Consolidated 2020 Cost Accumulated depreciation expense Net carrying amount Movement Net carrying amount at beginning of year Additions Acquisition of subsidiaries Disposals Depreciation expense Transfers Net carrying amount at end of year Consolidated 2019 Cost Accumulated depreciation expense Net carrying amount Movement Net carrying amount at beginning of year Additions Disposals Transfer to assets held for sale Depreciation expense Transfers Net carrying amount at end of year Land and Buildings $’000 31,598 (12,078) 19,520 21,252 1,661 99 (1,822) (1,670) – 19,520 Land and Buildings $’000 32,585 (11,333) 21,252 22,580 140 (470) – (998) – 21,252 Leasehold Improvements $’000 50,871 (27,729) 23,142 23,426 2,859 – – (3,143) – 23,142 Leasehold Improvements $’000 50,106 (26,680) 23,426 17,165 9,051 (58) – (2,732) – 23,426 Plant and Equipment $’000 Assets under construction $’000 262,683 (213,630) 49,053 54,108 8,858 618 (368) (18,174) 4,011 49,053 5,138 – 5,138 5,686 3,463 – – – (4,011) 5,138 Plant and Equipment $’000 Assets under construction $’000 289,651 (235,543) 54,108 80,095 13,591 (481) (23,074) (26,313) 10,290 54,108 5,686 – 5,686 10,767 5,209 – – – (10,290) 5,686 Total $’000 350,290 (253,437) 96,853 104,472 16,841 717 (2,190) (22,987) – 96,853 Total $’000 378,028 (273,556) 104,472 130,607 27,991 (1,009) (23,074) (30,043) – 104,472 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 25 – 50 years 3 – 16 years 2 – 10 years Communication equipment Other plant and equipment Leased plant and equipment 3 – 5 years 2 – 20 years 2 – 20 years 64 65 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 202010. Non-Current Assets – Intangible Assets Consolidated 2020 Cost Accumulated impairment expense Accumulated amortisation expense Net carrying amount Movement Net carrying amount at beginning of year Additions Acquisition of subsidiaries Amortisation expense Consolidated 2019 Cost Accumulated impairment expense Accumulated amortisation expense Net carrying amount Movement Net carrying amount at beginning of year Additions Impairment expense Net carrying amount at end of year Goodwill $’000 Broadcasting Licences $’000 Brands and Tradenames $’000 Customer Contracts $’000 Total $’000 362,088 1,502,031 90,033 3,577 1,957,729 (352,129) (630,331) (24,848) – (1,007,308) – – – 9,959 871,700 65,185 (2,374) 1,203 (2,374) 948,047 Impairment tests for licences, tradenames, brands and goodwill 11. Impairment a) The value of licences, tradenames, brands and goodwill is allocated to the Group’s cash-generating units (‘CGUs’), identified as being Audio and Television. As the indefinite lived intangible assets relating to the Television CGU were fully impaired in the year ended 30 June 2019, and no indicator of impairment has been identified for the remaining assets based on the Television CGU’s performance for FY2020 relative to its remaining carrying value, no impairment test was performed on the Television CGU at 30 June 2020. The recoverable amount of the Audio CGU at 30 June 2020 was determined based on the fair value less costs of disposal (‘FVLCD’) discounted cash flow model utilising probability weighted scenarios and at 30 June 2019 was determined based on a value in use (‘VIU’) discounted cash flow model. Given the uncertainty arising from the economic impacts of the COVID-19 pandemic, the Group have considered various scenarios and applied probability weightings to arrive at the recoverable amount. 917,960 518 29,703 (134) 948,047 Total $’000 1,927,508 (1,007,308) (2,240) 917,960 Allocation of goodwill and other intangible assets Consolidated 2020 Goodwill allocated to CGU Indefinite lived intangible assets allocated to CGU Finite lived intangible assets allocated to CGU Total goodwill, finite and indefinite lived intangible assets Consolidated 2019 Goodwill allocated to CGU Indefinite lived intangible assets allocated to CGU Total goodwill and indefinite lived intangible assets Audio CGU $’000 9,959 936,885 1,203 948,047 Audio CGU $’000 – 917,960 917,960 Television CGU $’000 – – – – Television CGU $’000 – – – Total $’000 9,959 936,885 1,203 948,047 Total $’000 – 917,960 917,960 – – 1,337 (134) 1,203 2,240 – (2,240) – – – 9,959 – 852,893 65,067 400 18,407 – 118 – Broadcasting Licences $’000 Brands and Tradenames $’000 Customer Contracts $’000 Goodwill $’000 352,129 (352,129) – – 1,483,224 (630,331) – 852,893 – – – – 1,079,776 – (226,883) 852,893 89,915 (24,848) – 65,067 64,968 99 – 65,067 – – – – 1,144,744 99 (226,883) 917,960 Net carrying amount at end of year 9,959 871,700 65,185 Goodwill and intangible assets with indefinite useful lives The Group tests at least annually whether goodwill and intangible assets with indefinite 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 (‘CGUs’). Key Judgement Useful Life A summary of the useful lives of intangible assets is as follows: Commercial Television/Radio Broadcasting Licences Brands and Tradenames Indefinite Indefinite Licences Television and radio licences are initially recognised at cost. Analogue licences are renewable for a minimal cost every five 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 have no reason to believe the licences have a finite life. During the year, the free-to-air commercial television and radio broadcasting licences have been assessed to have indefinite useful lives. Brands Brands are initially recognised at cost. The brands have been assessed to have indefinite 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 indefinite lives as there is no foreseeable limit to the period over which the assets are expected to generate net cash inflows. b) Key assumptions used 30 June 2020 The FVLCD calculations used cash flow projections based on internal forecasts for the FY2021 and FY2022 years, extended over the subsequent three-year period (‘Forecast Period’) and applied a terminal value calculation using estimated growth rates approved by the Board for the business relevant to the Audio CGU. In the current environment the Group has used a large range of data, including publicly available broker reports and economic forecasts, and internal company data in determining appropriate growth rates to apply to the Forecast Period and to the terminal calculation. The discount rate used is based on a range provided by an independent expert and reflects specific risks relating to the Audio CGU in Australia. The Group considered three scenarios: the Base case; Lower case; and Upper case and applied a probability weighing to each scenario as outlined below to determine a recoverable amount. The key assumptions under each scenario are as follows: Extent and duration of audio market recovery Lower case Base case Upper case To 85% of CPI adjusted FY2019 revenue base by FY2025 To 90% of CPI adjusted FY2019 revenue base by FY2024 To 90% of CPI adjusted FY2019 revenue base by FY2023 Long-term growth rate Discount rate (post-tax) 1.00% 9.15% Growth in digital audio revenues – 5-year CAGR 15.1% Metro market share – Year 5 28% 2.00% 9.15% 31.5% 30% 2.00% 9.15% 47.5% 31% Probability weighting 20% – lower case considered equally as likely as upper case 60% – base case considered most likely outcome 20% – upper case considered equally as likely as lower case Headroom/(Deficit) $(245.3) million $105.8 million Probability weighted headroom $274.7 million $69.4 million 66 67 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 2020                    11. Impairment (continued) b) Key assumptions used (continued) The market capitalisation of the Group at 30 June 2020 was $462 million, which represented a $127 million deficiency against the net assets of $589 million. The Group considered reasons for this difference, and concluded the recoverable amount resulting from the FVLCD methodology is appropriate in supporting the carrying value of the Audio CGU. 12. Cash Flow Information a) Reconciliation of Profit after Income Tax to Net Cash Inflow from Operating Activities 30 June 2019 Key Judgement Value in use assumptions Revenue growth – Forecast Period Cost growth – Forecast Period Long-term growth rate – terminal value Radio Television Discount rate (post-tax) Audio CGU % Television CGU % 3.2 2.3 2.0 N/A 9.15 (5.4) (2.3) N/A (5.9) 9.15 The VIU calculations used cash flow projections based on the 2020 Board approved financial budgets extended over the subsequent four-year period (‘Forecast Period’) and applied a terminal value calculation using estimated growth rates approved by the Board for the business relevant to the Audio 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 of the Audio CGU the market growth rates did not exceed the independent forecast reports. The discount rate used reflects specific risks relating to the relevant segments and the economies in which they operate. Impact of a reasonably possible change in key assumptions c) Audio CGU Sensitivity A variation in certain key assumptions used to determine the FVLCD would result in a change in the recoverable amount of the Audio CGU. The assumptions in the lower case scenario described above is a reasonably possible change in assumptions, which together would lead to an impairment of $245.3 million. The following reasonably possible changes in individual key assumptions would result in a recoverable amount (as derived on a probability weighted basis) lower than the carrying value to the extent shown below: Sensitivity Increase in post-tax discount rate Decrease in extent of recovery to FY2019 in Base and Upper cases Decrease in long-term growth rate in Base and Upper cases Change in weightings: Lower Case 35%; Base Case 55%; Upper Case 10% Reasonable change in variable % Impact of change on Audio CGU carrying value $ million Change in variable required to reduce headroom to zero % 0.85% (5.0)% (1.0)% N/A (44.2) (60.6) (22.1) (0.2) 0.50% (2.7)% (0.7)% N/A Profit/(loss) after income tax Impairment of intangibles and investments Depreciation and amortisation Net gain from disposal of operations and assets Fair value loss on disposal of assets held for sale Share of associate profit Interest expense and other borrowing costs included in financing activities Share-based payments Change in operating assets and liabilities: Decrease/(increase) in receivables Decrease in deferred taxes (net of tax movement in hedge reserve) (Decrease)/increase in payables (excluding interest expense classified as financing activities) Increase/(decrease) in deferred income Decrease in provision for income tax (Decrease)/increase in provisions Net cash inflows from operating activities b) Net debt reconciliation Cash and liquid investments Borrowings – repayable within one year Borrowings – repayable after one year Net debt Cash and liquid investments Gross debt – variable interest rates Net debt Consolidated 2020 $’000 25,100 6,135 36,589 (638) – (637) 27,888 (1,329) 36,137 (818) (22,125) 7,699 (3,586) (7,029) 103,386 2019 $’000 (91,395) 226,883 30,643 (1,046) 9,223 (719) 20,179 (830) (4,412) (70,122) 1,006 (4,352) (4,003) 87 111,142 Consolidated 2020 $’000 271,431 (25,000) (378,000) (131,569) 271,431 (403,000) (131,569) 2019 $’000 32,387 – (325,000) (292,613) 32,387 (325,000) (292,613) 68 69 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 202012. Cash Flow Information (continued) c) Reconciliation of movements of liabilities to cash flows arising from financing activities 13. Receivables, Payables, Deferred Income and Provisions a) Receivables Current Trade receivables Prepayments Other Non-current Refundable deposits Related parties Prepayments Other Balance as at 1 July 2018 Repayment of borrowings Payment for leases Changes from financing activities Other changes Amortisation of borrowing costs Subtotal of other changes Balance as at 30 June 2019 Adoption of AASB 16 Leases Proceeds from borrowings Refinancing costs Payment for leases Changes from financing activities Other changes Finance costs Amortisation of borrowing costs Addition of leases Remeasurement of leases Disposal of transmission site leases Acquisition of leases Subtotal of other changes Balance as at 30 June 2020 d) Cash and cash equivalents Current Cash at bank and at hand Term deposits Consolidated Bank Loans $’000 Lease Liabilities $’000 (357,601) 35,000 – 35,000 (923) (923) (323,524) – (78,000) 1,885 – (76,115) – (2,064) – – – (2,064) (401,703) (19) – 19 19 – – – (154,080) – – 14,475 (139,605) (6,953) – (14,197) (7,983) 37,568 (1,781) 6,654 (132,951) Consolidated 2020 $’000 121,432 149,999 271,431 2019 $’000 32,387 – 32,387 Recognition and measurement For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. Management has assessed the Group’s term deposits to be cash and cash equivalents. Consolidated 2020 $’000 65,772 8,902 9,710 84,384 2019 $’000 114,607 8,615 4,575 127,797 Consolidated 2020 $’000 150 – 13,166 409 13,725 2019 $’000 146 577 – 696 1,419 Total $’000 70,713 (4,941) 65,772 Total $’000 115,133 (526) 114,607 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 as at 30 June. Consolidated As at 30 June 2020 Expected loss rate Trade receivables Expected credit losses (‘ECL’) Trade receivables net of ECL Consolidated As at 30 June 2019 Expected loss rate Trade receivables Expected credit losses (‘ECL’) Trade receivables net of ECL Current – not past due $’000 Past due – up to 60 days $’000 Past due – 60 – 90 days $’000 Past due – >90 days $’000 5.0% 63,353 (3,221) 60,132 5.0% 3,830 (192) 3,638 30.0% 1,182 (354) 828 50.0% 2,348 (1,174) 1,174 Current – not past due $’000 Past due – up to 60 days $’000 Past due – 60 – 90 days $’000 Past due – >90 days $’000 0.32% 104,409 (331) 104,078 0.15% 7,631 (11) 7,620 2.0% 2,154 (43) 2,111 15.0% 939 (141) 798 The Group has recognised write-offs of bad debts during the year ended 30 June 2020 of $470,720 (2019: $765,125). The Group applies a simplified model of recognising lifetime expected credit losses immediately upon recognition. The expected loss rates are historically based on the payment profile of sales over a period of three years before the end of the current period. Historical loss rates have been adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of customers to settle the receivables. The amount of the loss allowance is recognised in profit or loss. Where a debt is known to be uncollectible, it is considered a bad debt and written off. Given the impact of the COVID-19 pandemic on customers, the assumptions underlying the way the Group calculated expected credit losses (‘ECL’) in the past no longer holds in the current environment. The Group considered the ECL provision looking at various characteristics and factors including receivables based on their age, industry type and customer size and applying a different ECL rate based on these characteristics. Higher weightings to expected losses were applied to overdue debt, industries subject to the greatest government restrictions and smaller sized customers. 70 71 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 202013. Receivables, Payables, Deferred Income and Provisions (continued) Recognition and Measurement Trade Receivables Trade receivables are recognised at fair value, being the original invoice amount, and subsequently measured at amortised cost less loss allowance. Generally credit terms are for 30 days from date of invoice or 45 days for an accredited agency. Prepayments On 2 September 2019, the Group paid $15 million to Broadcast Australia for the outsourcing of the Group’s transmission services which will be recognised as an expense over a 15-year period. b) Payables Current Trade creditors GST payable Accruals and other payables Consolidated 2020 $’000 5,245 2,107 26,911 34,263 2019 $’000 9,343 3,189 47,429 59,961 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 financial 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 2020 $’000 8,738 8,738 2019 $’000 4,729 4,729 Consolidated 2020 $’000 92,013 92,013 2019 $’000 93,689 93,689 Recognition and Measurement Deferred Income Deferred income in the current year includes amounts which have been billed to customers for advertising but the advertising has been postponed due to the COVID-19 health crisis, totalling $2.2 million; and government grants received. In 2016, the Group entered into a long-term contract with Australian Traffic Network (ATN) for it to provide traffic 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 traffic 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 traffic management services that the Group is required to provide over the life of the contract. ATN revenue recognised that was included in the deferred income balance at the beginning of the period was $7.1 million. The ATN revenue recognised of $7.1 million has been offset by the recognition of $5.5 million in interest expense. Government grants relating to the purchase of property, plant and equipment are deferred and recognised in profit or loss on a straight-line basis over the expected useful lives of the related assets. d) Provisions Current Employee benefits Lease provisions Non-current Employee benefits Lease provisions Movements in current and non-current provisions, other than provisions for employee benefits, are set out below: Balance at the beginning of the financial year Additional provisions made in the period, including increases to existing provisions Amounts used during the period Amount transferred to Right-of-use assets (refer note 29) Unused amounts reversed during the period Balance at the end of the financial year Consolidated 2020 $’000 13,892 21 13,913 2019 $’000 17,293 (220) 17,073 Consolidated 2020 $’000 2,661 2,026 4,687 2019 $’000 2,370 6,749 9,119 Consolidated 2020 $’000 6,529 1,316 (1,648) (3,617) (533) 2,047 2019 $’000 6,009 721 (168) (33) 6,529 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 sacrifice of economic benefits 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 outflow 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 outflow 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 reflects current market estimates of the time value of money and the risks specific 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 benefits 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 flows. Onerous Contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable costs of meeting the obligation under the contract. The provision is measured at the lower of the cost of fulfilling the contract and any compensation or penalties arising from the failure to fulfil it. Lease Provisions The provision comprises of makegood provisions included in lease agreements for which the Group has a legal or constructive obligation. The present value of the estimated costs of dismantling and removing the asset and restoring the site is recognised as a provision. At each reporting date, the liability is remeasured in line with changes in discount rates, estimated cash flows and the timing of those cash flows. Following the adoption of AASB 16 Leases on 1 July 2019, leases are recognised as a right-of-use asset with a corresponding liability at the date at which the leased asset is available for use by the Group. Prior to the adoption of AASB 16 the lease provision also covered lease arrangements to enable the lease expenses to be recognised on a straight-line basis over the life of the lease. 72 73 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 2020Capital Management 15. Dividends Paid and Proposed The dividends were paid as follows: 14. 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 benefits 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 has a policy to distribute between 65-85% of underlying financial year Net Profit After Tax. However, on 6 April 2020, the Group announced the cancellation of the interim dividend to maximise liquidity in response to the business impacts of the COVID-19 pandemic. Further the Group confirmed there will be no final dividend paid for the year ended 30 June 2020 and it expects there will be no dividends paid relating to the year ending 30 June 2021. The dividends were paid as follows: Interim dividend paid for the half year ended 31 December 2019/2018 – fully franked at the tax rate of 30% Final dividend paid for the year ended 30 June 2019/2018 – fully franked at the tax rate of 30% Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan were as follows: Paid in cash 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 has been suspended since the 2016 interim dividend. Interim dividend paid for the half year ended 31 December Final dividend paid for the year ended 30 June Consolidated 2020 $’000 – 30,761 30,761 30,761 30,761 2019 $’000 28,838 30,761 59,599 59,599 59,599 Cents per share Cents per share – 4.00 4.00 3.75 4.00 7.75 Further details on the Group’s dividends are outlined in note 15. Debt Facilities Syndicated Debt Facility During the year, the Group successfully renegotiated its Syndicated Facility Agreement (‘SFA’). At 30 June 2020 the Group had a $460 million (2019: $500 million) SFA comprising a $435 million (2019: $500 million) revolving three-year facility expiring on 8 January 2023 and a $25 million (2019: $nil) one-year facility expiring on 8 January 2021. This facility is used as core debt for the Group, and may be paid down and redrawn in accordance with the SFA. Covenants For the duration of the SFA 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. However, in response to the adverse business impacts of COVID-19, an amendment was agreed with the syndicate to increase the maximum leverage ratio covenant to 4.5 times for the periods from 30 June 2020 through to 30 June 2021. In addition, the leverage ratio and interest cover ratio at 31 December 2020 will be calculated on a quarter two FY2021 annualised basis, instead of the customary trailing 12-month basis. As at 30 June 2020, the leverage ratio was 1.24 times and the interest cover ratio was 8.38 times. Further details on the Group’s debt facilities are outlined in note 18. Property, Plant and Equipment and Intangibles The capital expenditure for 2020 was $17.558 million (2019: $27.991 million). Further details on the Group’s fixed assets are outlined in note 9. The Group has $169.0 million of franking credits at 30 June 2020 (2019: $153.4 million). Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Company, on or before the end of the financial year but not distributed at the end of the reporting period. On 6 April 2020, the Group announced the cancellation of the interim dividend to maximise liquidity in response to the business impacts of the COVID-19 pandemic. Further, the Group confirmed there will be no final dividend paid for the year ended 30 June 2020. 16. Earnings per Share Continuing Operations Profit/(loss) attributable to shareholders from continuing operations ($’000) Profit attributable to shareholders from continuing operations excluding significant 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 significant items (refer note 4) Basic earnings per share excluding significant items (cents per share) Diluted earnings per share excluding significant items (cents per share) Dividends paid/proposed for the year as a % of NPAT Consolidated 2020 $’000 25,100 34,193 2019 $’000 (Restated) (91,395) 73,879 1,418,721 1,134,648 1,418,721 1.77 1.77 2.41 2.41 90.0% 1,137,390 (8.05) (8.05) 6.5 6.5 80.7% On 6 April 2020, the Group announced it launched a fully underwritten $169 million equity raising. The equity raising was undertaken through the issue of new fully paid ordinary shares. The equity raising consisted of a pro-rata accelerated non-renouncable rights issue which led to the restatement of Earnings Per Share in the prior period (refer note 17 for further details). Recognition and Measurement Basic earnings per share Basic earnings per share is calculated by dividing the profit 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 financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing 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. 74 75 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 202017. Contributed Equity and Reserves Ordinary shares Contributed equity On issue at the beginning of the financial year Share Issue – Institutional Share Issue – Retail Less transaction costs arising on share issue On issue at the end of the financial year Consolidated 2020 $’000 1,540,569 1,540,569 2019 $’000 1,379,736 1,379,736 Consolidated Consolidated 2020 $’000 1,379,736 148,914 19,664 (7,745) 1,540,569 2019 $’000 1,379,736 – – – 1,379,736 2020 Number of securities ’000 769,014 1,601,598 271,494 – 2,642,106 2019 Number of securities ’000 769,014 – – – 769,014 18. Borrowings a) Total interest bearing liabilities Current secured borrowings Bank facilities Total secured current interest bearing liabilities Non-current secured borrowings Bank facilities Borrowing costs Total secured non-current interest bearing liabilities Total current and non-current borrowings Consolidated 2020 $’000 25,000 25,000 2019 $’000 – – Consolidated 2020 $’000 2019 $’000 378,000 (1,297) 376,703 401,703 325,000 (1,476) 323,524 323,524 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. On 6 April 2020 the Group launched a fully underwritten $169 million equity raising. The equity raising was undertaken through the issue of new fully paid ordinary shares via a fully underwritten: – Placement to institutional and sophisticated investors to raise approximately $47 million; and – Entitlement offer of approximately $121 million at a ratio of 1.75 new shares for every 1 existing fully paid ordinary share held by eligible shareholders on the record date. The entitlement offer consisted of an accelerated institutional component of approximately $102 million and a retail component of approximately $19 million. The offer price for the placement and the entitlement offer was $0.09 per share. New shares issued under the equity raising rank equally with existing shares as at their date of issue. 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 694,939 performance rights have vested (2019: 784,396) and 2,142,305 (2019: 1,957,873) performance rights have been granted. In the current year $716,748 (2019: $269,650) has been recognised as a benefit in the Statement of Comprehensive Income as the fair value of potential shares to be issued. Because of the impact on the Company’s business from the COVID-19 health crisis and the lockdown measures implemented by Federal, State and Territory Governments in response to the crisis, the Board has cancelled all outstanding performance rights under the LTI plan, including the above rights granted during the year. b) Hedge reserve The hedge reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised in Other Comprehensive Income. Amounts are reclassified to the Statement of Comprehensive Income when the associated hedged transaction affects profit or loss. c) Reverse Acquisition Reserve As described in note 1, there is a reverse acquisition reserve of $77.406 million (2019: $77.406 million) in connection with the IPO of the Group. For all non-current borrowings, the carrying amount approximates fair value in the balance sheet. Of the $1.297 million of borrowing costs, $0.521 million (2019: $0.959 million) will unwind during the year ending 30 June 2021. b) Interest expense Interest expense and other borrowing costs External banks AASB 15 – Revenue from customers with contracts interest expense AASB 16 – Lease interest expense Amortisation of borrowing costs Total interest expense and other borrowing costs Consolidated 2020 $’000 13,350 5,521 6,953 2,064 27,888 2019 $’000 13,648 5,608 – 923 20,179 c) Bank facilities and assets pledged as security The $460 million debt facilities (2019: $500 million) of the Banking Group are secured by a fixed and floating 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. The facility matures on 8 January 2023 and has an average variable interest rate of 1.69% (2019: 2.58%). The facility is denominated in Australian dollars. There are certain financial and non-financial 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 benefit of the ultimate parent entity, Southern Cross Media Group Limited. There is a prohibition on paying dividends whilst the enhanced covenant headroom provided by the lending group remains in place. Covenant testing dates fall at 30 June and 31 December each year until the facility maturity date. The final covenant testing date with a leverage covenant at 4.5 times is 30 June 2021. At 30 June 2020, the Group complied with all the covenants. 76 77 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 202018. Borrowings (continued) c) Bank facilities and assets pledged as security (continued) 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 Assets held for sale 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 2020 $’000 2019 $’000 271,378 94,528 – 365,906 31,448 134,873 15,000 181,321 410 4,125 96,853 948,047 1,049,435 1,415,341 1,272 4,559 104,472 917,960 1,028,263 1,209,584 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 classified 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 profit or loss over the period of the borrowings using the effective interest method. Borrowings are classified 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. 19. Financial Risk Management The Group’s activities expose it to a variety of financial risks: market risk (the Group’s main exposure to market risk is interest rate risk), liquidity risk and cash flow interest rate risk. Under normal circumstances there is a relatively low level of credit risk on receivables that is managed by careful business practices, however following the adverse economic impact of the COVID-19 pandemic on the Group’s customers this represents a heightened risk (refer note 13). The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial 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 financial 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 financial risk management process to be adopted by management. Specific financial risks that have been identified by the Group are interest rate risk and liquidity risk. Interest rate risk a) 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 flow risk. Interest rate risk management The Group does not have a formal policy to fix rates on its borrowings but manages its cash flow interest rate risk by using variable to fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from variable rates to fixed rates. Generally, the Group raises long-term borrowings at variable rates and swaps them into fixed rates that are lower than those available if the Group borrowed at fixed rates directly. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (quarterly), the difference between fixed contract rates and variable rate interest amounts calculated by reference to the agreed notional principal amounts. Exposure and sensitivity to interest rate risk External borrowings of the Group currently bear an average variable interest rate of 1.69% (2019: 2.58%). In 2017 the Group entered into $200 million of interest rate swap contracts under which it is obliged to receive interest at variable rates and pay interest at fixed rates starting in January 2018 at an average fixed rate of 2.43%. These interest rate swap contracts will expire in January 2021. In 2018 the Group entered into $100 million of interest rate swap contracts under which it is obliged to receive interest at variable rates and pay interest at fixed rates starting in January 2018 at an average fixed rate of 2.25%. These interest rate swap contracts will expire in January 2022. In 2020 the Group entered into $100 million of interest rate swap contracts under which it is obliged to receive interest at variable rates and pay interest at fixed rates starting in January 2021 at an average fixed rate of 1.04%. These interest rate swap contracts will expire in January 2023. Details on how the Group accounts for the interest rate swap contracts as cash flow hedges are disclosed in note 29. Derivative financial instruments Interest rate swap contracts – current liability Interest rate swap contracts – non-current liability Total derivative financial instruments Consolidated 2020 $’000 2,353 4,629 6,982 2019 $’000 – 7,529 7,529 Swaps currently in place cover approximately 74% (2019: 92%) of the variable loan principal outstanding. The fixed interest rates of the swaps range between 1.0% and 2.4% (2019: 2.2% and 2.4%) and the variable rates on the loans are 1.55% (2019: 1.4%) above the 3 months bank bill rate, which at the end of the reporting period was 0.2% (2019: 1.2%). The swap contracts require settlement of net interest receivable or payable every three months. The settlement dates coincide with the dates on which interest is payable on the underlying debt. Effects of hedge accounting on the financial position and performance The effects of the interest rate swaps on the Group’s financial position and performance are as follows: Carrying amount (liability) Notional Maturity date 2021 2022 2023 Hedge ratio Change in fair value of outstanding hedging instruments since 1 July Change in value of hedged item used to determine hedge effectiveness Weighted average hedged rate for the year Consolidated 2020 $’000 6,982 400,000 200,000 100,000 100,000 1:1 (4,103) 4,103 2.37% 2019 $’000 7,529 300,000 200,000 100,000 – 1:1 (7,234) 7,234 2.37% 78 79 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 2020Interest rate risk (continued) 19. Financial Risk Management (continued) a) Hedging reserve The Group’s hedging reserve disclosed in the Statement of Changes in Equity relates to the following hedging instruments: Exposure and sensitivity Financing arrangements Unrestricted access was available at balance date to the following lines of credit: Opening balance 1 July 2018 Add: Change in fair value of hedging instrument recognised in OCI for the year Less: reclassified from OCI to profit or loss Less: Deferred tax Closing balance 30 June 2019 Add: Change in fair value of hedging instrument recognised in OCI for the year Less: reclassified from OCI to profit or loss Less: Deferred tax Closing balance 30 June 2020 Hedge Reserve for interest rate swaps $’000 (994) (7,234) 1,127 1,832 (5,269) (4,102) 4,649 (164) (4,886) 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 flow 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 (2019: +/– 25 basis points) in the relevant interest rates at 30 June 2020 for financial assets and liabilities denominated in Australian Dollars (‘AUD’). The following table illustrates the impact on profit or loss with no impact directly on equity for the Group. Consolidated AUD exposures 2020 Cash at bank Interest rate swaps Borrowings 2019 Cash at bank Interest rate swaps Borrowings Carrying Value $’000 271,431 (6,982) (403,000) 32,387 (7,529) (325,000) Impact on post-tax profits Increase/(decrease) +/– 25 basis points $’000 $’000 +25 475 525 (705) +25 57 525 (569) –25 (475) (525) 705 –25 (57) (525) 569 Impact on reserves Increase/(decrease) +/– 25 basis points $’000 +25 – 1,022 – +25 – 1,383 – $’000 –25 – (1,036) – –25 – (1,390) – b) Liquidity risk Nature of liquidity risk Liquidity risk is the risk of an entity encountering difficulty in meeting obligations associated with financial liabilities. Liquidity risk management Prudent liquidity risk management implies maintaining sufficient 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 liquidity management policy which manages liquidity risk by monitoring the stability of funding, surplus cash or near cash assets, anticipated cash in and outflows and exposure to connected parties. Following the adverse economic impact of the COVID-19 pandemic on its operations, the Group raised $168.6 million in an equity raising in April 2020 as part of a range of actions to help strengthen its financial position. As a result the Group’s net debt reduced by 55.0% on 2019 to finish the year at $131.6 million. The Group’s key leverage ratio improved to 1.24 times, down from 1.76 times in June 2019. At the same time, an amendment to the Group’s debt facility was agreed to with the banking syndicate to increase the maximum leverage ratio covenant to ensure compliance with the banking covenants and maintain liquidity requirements (refer Note 14). Consolidated As at 30 June 2020 Line of credit value Used at balance date Unused at balance date Consolidated As at 30 June 2019 Line of credit value Used at balance date Unused at balance date Bank facilities $’000 460,000 (403,000) 57,000 Bank facilities $’000 500,000 (325,000) 175,000 Working capital facility $’000 7,000 (6,031) 969 Working capital facility $’000 7,000 (5,920) 1,080 Total facilities $’000 467,000 (409,031) 57,969 Total facilities $’000 507,000 (330,920) 176,080 Of the $460 million debt facility for the Group, $25 million matures on 8 January 2021 and $435 million matures on 8 January 2023. The Group’s bank facilities are denominated in Australian dollars as at 30 June 2020 and 30 June 2019. Undiscounted future cash flows The tables below summarise the maturity profile of the financial 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 2020 Borrowings – Principal Interest cashflows1 Derivative financial instruments2 Payables3 Lease liabilities Total Consolidated As at 30 June 2019 Borrowings – Principal Interest cashflows1 Derivative financial instruments2 Payables3 Total Less than 1 year $’000 25,000 11,858 3,336 39,011 13,351 92,556 Less than 1 year $’000 – 12,941 – 60,343 73,284 1-2 years $’000 – 8,730 3,552 – 14,464 26,746 1-2 years $’000 325,000 7,307 4,444 – 336,751 2-3 years $’000 378,000 4,006 1,526 – 14,826 398,358 3-5 years $’000 Greater than 5 years $’000 – – – – 28,097 28,097 – – – – 121,804 121,804 2-3 years $’000 3-5 years $’000 Greater than 5 years $’000 – 566 3,085 – 3,651 – – – – – – – – – – Total contractual cash flows $’000 403,000 24,594 8,414 39,011 192,542 667,561 Total contractual cash flows $’000 325,000 20,814 7,529 60,343 413,686 Carrying amount liabilities $’000 401,703 N/A 6,982 34,263 132,951 575,899 Carrying amount liabilities $’000 323,524 N/A 7,529 59,961 391,014 1 Calculated using a weighted average variable interest rate. Interest cashflows includes interest on principal borrowings, swap interest and the commitment fee on the Syndicated Facility Agreement. 2 The fair value of financial 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 are calculated as the present value of the estimated future cash flows and are included in Level 2 under derivative financial instruments. The total fair value of derivatives used for hedging is $6.982 million (2019: $7.529 million). 3 The payables balance excludes interest payable as the cashflows are included in ‘Interest cashflows’ above and excludes GST payable as this is not a financial liability. 80 81 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 2020Group Structure 20. Non-Current Assets – Investments a) Investments accounted for using the Equity Method Carrying amount at the beginning of the financial year Share of profit/(losses) after income tax Acquisition of associates and joint ventures Dividends Impairment of associates and joint ventures Total Investments accounted for using the Equity Method b) Financial assets at fair value through profit or loss Carrying amount at the beginning of the financial year Acquisition of unlisted equity securities Impairment of unlisted equity securities Total Financial assets at fair value through profit or loss Total Investments Consolidated 2020 $’000 9,015 637 600 (1,080) (4,227) 4,945 2019 $’000 7,740 719 1,620 (1,064) – 9,015 Consolidated 2020 $’000 – 2,286 (1,908) 378 5,323 2019 $’000 – – – – 9,015 The Group invests in a small number of entities that operate in adjacent sectors and which have products or technologies that the Group views as complementary to its own strategy. These entities are small businesses usually with high growth but in the early stages of their life-cycle.  The economic impact of the COVID-19 pandemic has the potential to adversely impact the ability of these businesses to continue to grow and to access further capital as required. This has led to the Group’s assessment that their recoverable amounts were less than their carrying values, which resulted in impairments. 21. Subsidiaries The consolidated financial 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 2020 Effective ownership interest 2019 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 financial 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 financial 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 financial 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. 22. Parent Entity Financial Information a) Summary financial 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 Accumulated losses – 2014 reserve Retained profits – 2015 H1 interim reserve Accumulated losses – 2015 H2 reserve Retained profits – 2016 reserve Retained profits – 2017 reserve Retained profits – 2018 reserve Retained profits – 2019 reserve Retained Profits – 2020 reserve Total equity Profit for the year Total comprehensive income Southern Cross Media Group Limited 2020 $’000 53 1,202,412 1,202,465 47,731 47,731 1,154,734 1,442,981 4,436 (96,805) – (323,833) 4,996 2,534 1,943 63,428 55,054 1,154,734 55,297 55,297 2019 $’000 1,998 1,003,028 1,005,026 34,089 34,089 970,937 1,282,148 5,765 (96,805) 8,202 (323,833) 27,555 2,534 1,943 63,428 – 970,937 64,149 64,149 b) Guarantees entered into by the parent entity The parent entity has not provided any financial guarantees in respect of bank overdrafts and loans of subsidiaries as at 30 June 2020 (2019: nil). The parent entity has not given any unsecured guarantees at 30 June 2020 (2019: nil). c) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2020 (30 June 2019: nil). d) Contractual commitments for the acquisition of property, plant or equipment As at 30 June 2020, the parent entity had no contractual commitments (30 June 2019: nil). Recognition and Measurement Parent entity financial information The financial information for the parent entity has been prepared on the same basis as the consolidated financial statements, except as set out on the following page. Investments in subsidiaries, associates and joint venture entities i) Investments in subsidiaries are accounted for at cost in the financial 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 reflected 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. 82 83 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 202023. Business Combinations Acquisition of Redwave Media On 18 October 2019, the Group announced it would acquire 100% of the Western Australian regional radio business of Seven West Media Group Limited (Redwave Media) to expand its Audio business, for a total cost of $28.3 million payable in cash. Control on the Redwave Media acquisition passed on 31 December 2019. The assets and liabilities recognised as a result of the acquisition are as follows, which includes an additional $0.4 million relating to the working capital adjustment: Cash and cash equivalents Receivables Assets held for sale Total current assets Right-of-use assets Property, plant and equipment Deferred tax asset Goodwill Radio licences Customer relationships Total non-current assets Total assets Current liabilities Payables Provisions Total current liabilities Non-current liabilities Lease liability Deferred tax liability Total non-current liabilities Total liabilities Net assets Balance Sheet Acquired $’000 Fair Value Adjustment $’000 Opening Balance Sheet $’000 16 1,637 – 1,653 1,149 717 411 – 17,316 – – (56) 3,243 3,187 632 – (411) 9,959 1,091 1,337 19,593 21,246 12,608 15,795 415 188 603 1,143 – 1,143 1,746 19,500 (2) 19 17 638 5,923 6,561 6,578 9,217 16 1,581 3,243 4,840 1,781 717 – 9,959 18,407 1,337 32,201 37,041 413 207 620 1,781 5,923 7,704 8,324 28,717 The Group estimates that if the acquisition had arisen on 1 July 2019, the Group’s revenues and profit after tax would have been $4.8 million and $1.1 million greater respectively. On 1 May 2020, the Group sold the Bunbury Broadcasting licence it acquired through the acquisition of Redwave Media for its fair value of $3.2 million. The licence was required to be divested under an undertaking to the Australian Communication and Media Authority. Other Notes to the Financial Statements 24. Share-Based Payments The Company operates a long-term incentive plan for Executive KMP and certain senior executives. The share-based payment benefit for the year ended 30 June 2020 was $716,748 (2019: $269,650 expense). 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 Cancelled during the year Balance at end of year Vested and exercisable at end of the year 2020 2019 5,793,896 2,142,305 – (1,349,550) (6,586,651) – 694,939 5,319,736 1,957,873 – (1,483,713) – 5,793,896 784,396 Recognition and Measurement Share-based compensation benefits 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 are recognised as an employee benefit 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. Because of the impact on the Company’s business from the COVID-19 health crisis and the lockdown measures implemented by Federal, State and Territory Governments in response to the crisis, the Board has cancelled all outstanding performance rights under the LTI plan, including those issued during the year described below. In cancelling the FY2018, FY2019 and FY2020 LTI plans, potential future forfeitures have been included in determining the amount that should be recognised immediately. The fair value of the performance rights issued during FY2020 was determined using a Black-Scholes-Merton model for the ROIC and 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 ROIC 13 September 2019 $1.30 $1.09 Nil 5.96% 0.86% 30.34% Absolute EPS 13 September 2019 $1.30 $1.09 Nil 5.96% 0.86% 30.34% The fair value at grant date of the securities granted is adjusted to reflect market vesting conditions, but excludes the impact of any non-market vesting conditions (for example, profitability 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 benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in profit or loss with a corresponding adjustment to equity. Where the terms of the share-based payment entitlement are modified in the favour of the employee, the changes are reflected when determining the impact on profit or loss. 84 85 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 202025. Remuneration of Auditors a) Audit and other assurance services PricewaterhouseCoopers Australian firm: Statutory audit and review of financial reports Other assurance services Regulatory returns Total remuneration for audit and other assurance services b) Taxation services PricewaterhouseCoopers Australian firm: Tax services Total remuneration for taxation services c) Other services PricewaterhouseCoopers Australian firm: Debt advisory Total remuneration for other services Total Consolidated 2020 $ 2019 $ 738,780 47,422 26,925 813,127 621,900 10,000 18,965 650,865 – – – – 137,700 137,700 950,827 – – 650,865 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 & Risk Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied 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 & 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. 26. 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 benefit because of a contract made by the Group with a KMP or with a firm 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 financial report. The aggregate compensation of KMP of the Group is set out below: Short-term employee benefits Post-employment benefits Other long-term benefits Termination payments Share-based payments Note: Changes to KMP during the year can be found in the Remuneration Report. Consolidated 2020 $ 4,528,110 221,992 64,141 44,301 (867,253) 3,991,291 2019 $ 6,044,098 212,109 (120,084) 679,576 (114,581) 6,701,118 The number of ordinary shares in the Company held during the financial 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 (2019: nil). b) Subsidiaries and Associates Ownership interests in subsidiaries are set out in note 21. Details of interests in associates and distributions received from associates are disclosed in note 20. Details of loans due from associates are disclosed in note 13. 27. 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 Consolidated 2020 $’000 2019 $’000 272 272 2,841 2,841 Leases From 1 July 2019, the Group recognised right-of-use assets for these leases, except for short-term and low value leases (refer note 29 for further information). The Group leases various premises, IT equipment and vehicles. Premises typically have initial rental periods of five to 10 years, with options, exercisable by the Group, for periods extending the total lease period up to 30 years. Other leases are typically for less than four years. Transmission site leases at 30 June 2020 relate to the Redwave acquisition, which are expected to be transferred to the Broadcast Australia services agreement in FY2021 (refer note 29 for details). Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Extension options are included in a number of property leases across the Group, which provide flexibility in terms of managing the assets used in the Group’s operations. The extension options are exercisable by the Group, which applies judgement to determine whether these options are reasonably certain or not. Extension options have been included in all property leases across the Group, except those that are surplus to the Group’s operational requirements. The value of extension options not included in property leases is $1.8 million. The Group sub-leases buildings under an operating lease and rent revenue is recorded as income in the profit or loss on a straight-line basis. a) Amounts Recognised in the Statement of Comprehensive Income The Statement of Comprehensive income shows the following amounts relating to leases: Depreciation charge of right-of-use assets Premises Transmission site IT Equipment Vehicles Interest expense on lease liabilities 2020 $’000 10,443 1,237 1,700 289 13,669 6,953 28. Events Occurring after Balance Date No matters or circumstances have arisen since the end of the financial year that have significantly affected, or may significantly affect, the operations, results of operations or state of affairs of the Group in subsequent accounting periods. 86 87 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 202029. Other Accounting Policies Defined contribution scheme The Group operates a defined contribution scheme. The defined contribution scheme comprises fixed contributions made by the Group with the Group’s legal or constructive obligation being limited to these contributions. Contributions to the defined 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 defined contribution plan expense for the year was $14.3 million (2019: $15.0 million) and is included in employee expenses. Derivative financial instruments The Group enters into interest rate swap agreements to manage its financial 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 financial 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 profit or loss. If the derivative financial 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 firm commitment (fair value hedges); or (2) hedges of highly probable forecast transactions (cash flow hedges). 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 flows 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 flows. Hedge accounting The Group designated interest rates swaps as cash flow 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 flows of hedged items. The fair values of derivative financial 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 classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Derivatives Hedge ineffectiveness Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. The Group enters into interest rate swaps that have similar critical terms as the hedged item, such as reference rate, reset dates, payment dates, maturities and notional amount. The Group does not hedge 100% of its loans, therefore the hedged item is identified as a proportion of the outstanding loans up to the notional amount of the swaps. As all critical terms matched during the year, the economic relationship was 100% effective. The Group therefore performs a qualitative assessment of effectiveness. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the Group uses the hypothetical derivative method to assess effectiveness. Hedge ineffectiveness may occur due to: – The credit value/debit value adjustment on the interest rate swaps which is not matched by the loans; and – Differences in critical terms between the interest rate swaps and loans. There was no ineffectiveness during 2020 or 2019 in relation to the interest rate swaps. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow 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 reclassified to profit or loss in the periods when the hedged item affects profit 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 profit 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 profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss. Fair value estimation The fair value of financial assets and financial 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 financial 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 flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. New accounting standards and interpretations AASB 16 Leases became applicable for the current reporting period and the Group had to change its accounting policies as a result of adopting this standard. AASB 16 Leases The Group has adopted AASB 16 Leases using the modified retrospective approach with no restatement of prior year comparative information. Changes to accounting policies and financial impact on adoption are detailed below. i) Accounting Policies Prior to 1 July 2019, the Group classified leases as operating leases when all the risks and benefits of ownership are effectively retained by the lessor. Operating lease payments, excluding contingent payments, were charged to the income statement on a straight-line basis over the period of the lease. On and after transition, the Group assesses whether a contract is or contains a lease based on the new definition of a lease: a contract is or will contain a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Under AASB 16, the Group recognises on its balance sheet right-of-use assets representing its right to use the underlying assets and corresponding lease liabilities representing its obligation to make lease payments at the lease commencement date. Right-of-use assets are initially measured at cost and comprise the following: – The amount of the initial measurement of lease liability; – Any lease payments made at or before the commencement date less any lease incentives received; – Any initial direct costs; and – Restoration costs. 88 89 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 2020The change in accounting policy affected the following items on the balance sheet at 1 July 2019: Increase in assets Right-of-use assets Movement in liabilities Lease provisions Lease liabilities Net Impact on retained earnings The associated right-of-use assets on transition and as at 30 June 2020 by asset class: Premises Transmission sites IT Equipment Vehicles Total right-of-use assets 1 July 2019 $’000 150,464 3,617 (154,081) – 30 June 2020 $’000 1 July 2019 $’000 114,456 1,721 5,786 905 122,868 107,410 38,974 3,050 1,030 150,464 At 30 June 2020, the total cash outflow for leases was $14.5 million and additions to the right-of-use assets was $14.2 million, excluding acquisition leases. Rental contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non- lease components based on their relative stand-alone prices. On 6 August 2019, the Group announced the sale of its existing transmission assets and outsourcing of transmission services to Broadcast Australia. Following the sale, all transmission site leases were derecognised as leases and the agreement with Broadcast Australia was recognised as a service agreement. Transmission site leases at 30 June 2020 relate to the Redwave acquisition, which are expected to be transferred to the Broadcast Australia services agreement in FY2021. The Group recognised $13,668,706 of depreciation charges and $6,953,157 of interest costs in association with AASB 16 Leases. 29. Other Accounting Policies (continued) AASB 16 Leases (continued) The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Lease liabilities are initially measured at the present value of the lease payments that are not paid at commencement date. These are discounted using the rate implicit in the lease, or, if that rate cannot be readily determined, the Group’s incremental borrowing rate, which is the rate the Group would have paid to borrow the funds necessary to obtain an asset of similar value in a similar economic environment and on similar terms and conditions. Generally, the Group uses its incremental borrowing rate. Lease liabilities are subsequently increased by the interest cost on the lease liability and decreased by lease payments made. They are remeasured when there are changes in future lease payments arising from a change in index or rate (e.g. CPI), changes in estimate of amount expected to be paid under residual value guarantees or as appropriate, changes in the assessment of whether a purchase or extension is reasonably certain to be exercised or whether a termination option is reasonably certain not to be exercised. Lease payments are allocated between the lease liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Payments associated with short-term leases (with a lease term of 12 months or less) and leases of low value assets are recognised on a straight- line basis as an expense in profit or loss. ii) Practical expedients applied on transition In applying AASB 16 Leases, the Group has used the following practical expedients on transition: – Elected not to reassess whether a contract is, or contains, a lease at the date of the initial application. Instead for contracts entered into before the transition date, the Group relied on assessments made applying AASB 117 and Interpretation 4 in determining whether an Arrangement contains a lease; – The accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-term leases; – Reliance on previous assessments on whether leases are onerous; – The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease; and – The use of a single discount rate to a portfolio of leases with similar characteristics. iii) Financial statements impact of AASB 16 Leases Impact on transition On adoption, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under AASB 16 Leases. The lease liabilities are measured at the present value of minimum lease payments for the lease term, discounted using a weighted average incremental borrowing rate of 5.46%. Critical judgements in determining the lease term In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Extension and termination options have been included in all property leases across the Group except those that are surplus to the Group’s operational requirements. Lease liability on transition Non-cancellable operating lease commitments disclosed at 30 June 2019 Different treatment of extension options Discounted using the Group’s incremental borrowing rate at the date of initial application Lease liability recognised as at 1 July 2019 Lease liabilities Current Non-current Total lease liabilities 1 July 2019 $’000 104,172 67,760 (17,851) 154,081 30 June 2020 $’000 6,370 126,581 132,951 90 91 Annual Report2020Southern Cross AustereoNotes to the Consolidated Financial StatementsFor the year ended 30 June 2020Directors’ Declaration For the year ended 30 June 2020 Independent Auditor’s Report to the members of Southern Cross Media Group Limited Independent Auditor’s Report 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 financial statements and notes as set out on pages 52 to 89 are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial 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) confirms that the financial 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 Rob Murray Chairman Sydney, Australia 20 August 2020 Grant Blackley Managing Director Sydney, Australia 20 August 2020 Other information Our opinion In our opinion: Independent auditor’s report To the members of Southern Cross Media Group Limited The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included the Directors’ Report. We expect the remaining other information to be made available to us after the date of this auditor's report. Report on the audit of the financial report Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial The accompanying financial report of Southern Cross Media Group Limited (the Company) and its report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. are required to report that fact. We have nothing to report in this regard. performance for the year then ended What we have audited The Group financial report comprises: When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. Responsibilities of the directors for the financial report the consolidated statement of financial position as at 30 June 2020 the consolidated statement of comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended the notes to the consolidated financial statements, which include a summary of significant accounting policies the directors’ declaration. The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. ● ● ● ● ● ● Basis for opinion In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. Auditor’s responsibilities for the audit of the financial report We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that Independence includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an We are independent of the Group in accordance with the auditor independence requirements of the audit conducted in accordance with the Australian Auditing Standards will always detect a material Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical misstatement when it exists. Misstatements can arise from fraud or error and are considered material Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence if, individually or in the aggregate, they could reasonably be expected to influence the economic Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also decisions of users taken on the basis of the financial report. fulfilled our other ethical responsibilities in accordance with the Code. 92 94 93 Annual Report2020Southern Cross Austereo Independent Auditor’s Report to the members of Southern Cross Media Group Limited (continued) Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included the Directors’ Report. We expect the remaining other information to be made available to us after the date of this auditor's report. Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. Responsibilities of the directors for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. Other information procedure is made in that context. We communicated the key audit matters to the Audit and Risk The directors are responsible for the other information. The other information comprises the Committee. information included in the annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included the Directors’ Report. We expect the remaining other information to be made available to us after the date of this auditor's report. How our audit addressed the key audit matter Key audit matter Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. Assisted by PwC financial advisory experts in aspects of our work , we performed the following procedures, amongst others: Basis of preparation (refer to note 1) As described in n ote 1 to the financial report, the financial statements have been prepared by the Group on a going concern basis. ● ● evaluated the appropriateness of the Group's going concern assessment and ensured all relevant In connection with our audit of the financial report, our responsibility is to read the other information information had been considered and, in doing so, consider whether the other information is materially inconsistent with the financial read amendments to the SFA during the year and report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. obtained an understanding of the k ey terms, including available drawdown amounts and covenants read the terms of the short term deposits to assess appropriateness of classification as cash and cash equivalents If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. COVID-19 has resulted in a significant decrease in advertising revenues and profits of the Group and has led to a reduction in forecast cash flows. The Group responded to this by raising equity and renegotiating its Syndicated Facility Agreement (“SFA”) as outlined in n ote 17 and note 14 respectively. When we read the other information not yet received, if we conclude that there is a material obtained written representations from misstatement therein, we are required to communicate the matter to the directors and use our management and the directors regarding their professional judgement to determine the appropriate action to take. plans and the feasibility of these plans evaluated k ey assumptions in the forecast cash flow models prepared by the Group Responsibilities of the directors for the financial report ● ● ● The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 We evaluated the adequacy of the disclosures in note 1 in and for such internal control as the directors determine is necessary to enable the preparation of the light of the requirements of Australian Accounting Standards. financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. ● check ed the mathematical accuracy of the forecast cash flow models prepared by the Group. Assessing the appropriateness of the Group’s basis of preparation for the financial report was a k ey audit matter due to its importance to the overall financial statements and the level of judgement involved in forecasting future cash flows of the business. Impairment assessment for licences, tradenames, brands and goodwill (refer to note 11) In performing our audit work we considered, amongst In preparing the financial report, the directors are responsible for assessing the ability of the Group to other things: continue as a going concern, disclosing, as applicable, matters related to going concern and using the ● whether the Group’s identification of CGUs going concern basis of accounting unless the directors either intend to liquidate the Group or to cease The Group continues to have significant indefinite operations, or have no realistic alternative but to do so. lived intangible assets and goodwill in the Audio cash generating unit (CGU), totalling $946.8 million as at 30 June 2020. Auditor’s responsibilities for the audit of the financial report the mark et capitalisation of the Group in comparison to the carrying value of its net assets remains appropriate ● ● Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. This was a k ey audit matter due to the size of the indefinite lived intangible assets and on the basis that the impairment assessment involves judgemental estimates of future profits and cash flows. In addition, as a result of COVID-19 the degree of estimation uncertainty is heightened. To evaluate the fair value less costs of disposal discounted cash flow model (“the model”) prepared for the Group’s Audio CGU impairment assessment, with assistance from PwC valuation experts in aspects of our work , we performed the following procedures, amongst others: the appropriateness of adopting a fair value less costs of disposal methodology for estimating the Audio CGU’s recoverable amount. As described in n ote 11, there is an inherent level of uncertainty around the business recovery period ● performed mathematical accuracy checks 94 94 94 95 Annual Report2020Southern Cross AustereoOur audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. Materiality ● For the purpose of our audit we used overall Group materiality of $2.2 million, which represents approximately 5% of the Group’s profit before tax adjusted for impairment of investments. ● We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. ● We chose Group profit before tax because, in our view, it is the benchmark against which the performance of the Group is most commonly measured. We also adjusted for impairment of investments as they are unusual or infrequently occurring items impacting profit or loss. ● We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. Audit Scope ● Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. ● The Group operates in Australia and the audit is conducted by one engagement team. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit Independent Auditor’s Report to the members of Southern Cross Media Group Limited (continued) Other information Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included the Directors’ Report. We expect the remaining other information to be made available to us after the date of this auditor's report. which has increased the level of judgement involved in the impairment assessment, which includes mak ing assumptions about internal and external factors such as industry growth rates, future mark et share and the forecast financial performance of the Group. assessed the appropriateness of the discount rate incorporated in the model and terminal value methodology applied ● ● assessed the reasonableness of the assumptions within the model compared to observable market information where available evaluated the Group’s historical ability to forecast future cash flows by comparing budgeted cash flows with reported actual performance ● Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. considered whether the model’s allocation of In connection with our audit of the financial report, our responsibility is to read the other information corporate costs between CGUs was reasonable and, in doing so, consider whether the other information is materially inconsistent with the financial and reflective of actual costs incurred report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. assessed the sensitivity of changes in k ey assumptions incorporated in the model ● ● If, based on the work we have performed on the other information that we obtained prior to the date of compared the forecast cash flows used in the this auditor’s report, we conclude that there is a material misstatement of this other information, we model to the most up-to-date forecasts and results. are required to report that fact. We have nothing to report in this regard. ● When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. We evaluated the adequacy of the disclosures in n ote 11 in light of the requirements of Australian Accounting Standards. Indefinite lived classification of intangible assets (refer to note 10) Responsibilities of the directors for the financial report In assessing the indefinite useful life of intangible assets, we performed the following procedures, amongst others: ● As at 30 June 2020, the Group has Audio intangible assets totalling $936.9 million, consisting of Brands, Tradenames and Radio Broadcasting Licences classified as indefinite lived intangible assets. The Directors of the Company are responsible for the preparation of the financial report that gives a considered regulatory developments in the year which could change the licence renewal true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 process or use of the brands and for such internal control as the directors determine is necessary to enable the preparation of the assessed whether there had been any financial report that gives a true and fair view and is free from material misstatement, whether due to revocation of radio licences by Australian fraud or error. Communications and Media Authority (ACMA) in the year This was a k ey audit matter because determination of whether or not intangibles are indefinite lived involves significant judgement. The determination has an impact on the financial report as it affects whether amortisation is recorded in the consolidated statement of comprehensive income. In preparing the financial report, the directors are responsible for assessing the ability of the Group to evaluated strategic plans for the directors’ continue as a going concern, disclosing, as applicable, matters related to going concern and using the intended use of the assets. going concern basis of accounting unless the directors either intend to liquidate the Group or to cease ● benchmarked the conclusion made by the operations, or have no realistic alternative but to do so. ● ● directors against a selection of similar assets held by other industry participants in the radio broadcasting market. Auditor’s responsibilities for the audit of the financial report We considered the significant accounting policy Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free disclosed in n ote 10 for consistency with Australian Accounting Standards. from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material Assisted by PwC valuation experts in aspects of our work , misstatement when it exists. Misstatements can arise from fraud or error and are considered material we have performed the following procedures, amongst if, individually or in the aggregate, they could reasonably be expected to influence the economic others: decisions of users taken on the basis of the financial report. ● Acquisition of Redwave Media (refer to note 23) On 30 December 2019, the Group acquired Redwave Media Pty Ltd (and related entities Geraldton FM Pty Ltd and Great Northern Broadcasters Pty Ltd) for $28.7 million with control transferring to the Group on 31 December 2019. evaluated the identification of the assets and liabilities acquired against the requirements of Australian Accounting Standards, the final transaction agreement, our understanding of the ● business acquired and relevant legal correspondence Given the complexity of the acquisition accounting, the Group engaged a valuation expert who determined the valuation for the k ey assets purchased, being radio licences and customer relationships. The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other obtained the valuation expert’s report and information we obtained included the Directors’ Report. We expect the remaining other information to considered the k ey assumptions used in determining the fair values of the acquired assets be made available to us after the date of this auditor's report. recognised including media licences and customer relationships This was a k ey audit matter due to the judgements and subjectivity in the valuation methodology applied by the Group and its expert. Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. considered the valuation methodologies applied against the requirements of Australian Accounting Standards In connection with our audit of the financial report, our responsibility is to read the other information assessed the competence and capability of the and, in doing so, consider whether the other information is materially inconsistent with the financial valuation expert report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. agreed the initial purchase consideration paid to bank records and the purchase agreement. ● ● ● If, based on the work we have performed on the other information that we obtained prior to the date of We considered the adequacy of the disclosures in note 23 this auditor’s report, we conclude that there is a material misstatement of this other information, we in light of the requirements of Australian Accounting Standards. are required to report that fact. We have nothing to report in this regard. Other information Responsibilities of the directors for the financial report When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included the Director's Report. We expect the remaining other information to be made available to us after the date of this auditor's 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 Our opinion on the financial report does not cover the other information and we do not and will not and for such internal control as the directors determine is necessary to enable the preparation of the express an opinion or any form of assurance conclusion thereon. financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial In preparing the financial report, the directors are responsible for assessing the ability of the Group to report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Auditor’s responsibilities for the audit of the financial report Responsibilities of the directors for the financial report When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 94 94 96 97 Annual Report2020Southern Cross Austereo Independent Auditor’s Report to the members of Southern Cross Media Group Limited (continued) Additional Stock Exchange Information Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included the Directors’ Report. We expect the remaining other information to be made available to us after the date of this auditor's report. Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. Responsibilities of the directors for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. The additional stock exchange information set out below was current on 31 August 2020. 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 HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited National Nominees Limited J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited (Colonial First State Inv A/C) BNP Paribas Noms Pty Ltd (DRP) BNP Paribas Nominees Pty Ltd (Agency Lending DRP A/C) Wearne Webber Capital Pty Limited C S Fourth Nominees Pty Limited Sandhurst Trustees Ltd (SISF A/C) BNP Paribas Nominees Pty Ltd John William Harbot C S Third Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Forum Investments Pty Limited HSBC Custody Nominees (Australia) Limited-GSCO ECA BNP Paribas Nominees Pty Ltd Hub24 Custodial Services Ltd Alexandru Cosmin Farcash HSBC Custody Nominees (Australia) Limited Netyard Pty Ltd 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 709,043,539 443,526,600 229,423,988 300,842,502 63,069,666 47,326,553 12,204,912 10,000,000 9,875,168 6,097,079 5,921,349 5,106,684 4,685,569 4,226,158 3,850,000 3,770,015 3,679,521 3,636,730 3,631,438 3,562,500 1,983,479,971 Number of shareholders 777 4,891 3,324 7,619 1,243 17,854 3,060 % of issued capital 26.84 16.79 12.85 11.39 2.39 1.79 0.46 0.38 0.37 0.23 0.22 0.19 0.18 0.16 0.15 0.14 0.14 0.14 0.14 0.13 75.07 Fully paid ordinary shares 264,430 16,301,223 26,094,728 259,190,181 2,340,255,123 2,642,105,685 Substantial holders in the Company (with holdings as notified to the Company most recently before 31 August 2020) are set out below: Name Allan Gray Australia Pty Ltd and its related bodies corporate Ubique Asset Management Pty Limited* Investors Mutual Ltd and its related bodies corporate Commonwealth Bank of Australia and its related bodies corporate Challenger Limited and its related bodies corporate Retail Employees Superannuation Pty Limited* Dimension Fund Advisors LP and related entities* Fully paid ordinary shares 458,870,711 110,702,399 169,565,057 134,011,931 165,597,850 38,568,350 38,458,228 1,115,774,526 % of issued capital 19.36 14.40 6.42 5.65 6.27 5.02 5.00 62.12 98 94 * Notices given by these holders pre-dated the Company’s equity raising in April 2020. The equity raising comprised a placement and entitlements offer. As a result, the number of shares and percentage interests held by these holders as shown in the above table are based on the Company’s issued capital before the equity raising. Securities subject to voluntary escrow are set out below: Type Voluntary escrow Date escrow period ends N/a Fully paid ordinary shares – 99 Annual Report2020Southern Cross Austereo 6 In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor's report. Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 13 to 32 of the Directors’ Report for the year ended 30 June 2020. In our opinion, the remuneration report of Southern Cross Media Group Limited for the year ended 30 June 2020 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers Trevor Johnston Melbourne Partner 20 August 2020 Corporate Directory Southern Cross Media Group Limited ABN 91 116 024 536 Company Secretary Mr Tony Hudson Registered Office Level 2, 257 Clarendon Street South Melbourne VIC 3205 Tel: +61 3 9252 1019 Web: https://www.southerncrossaustereo.com.au Share Registry Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford VIC 3067 Tel: 1300 555 159 (within Australia) +61 3 9415 4062 (from outside Australia) Investor Centre: https://www-au.computershare.com/investor/ The Southern Cross Austereo Annual Report 2020 is printed on EcoStar+, an environmentally responsible paper. The fibre source is FSC® Recycled certified. EcoStar+ is manufactured from 100% post consumer recycled paper in a process chlorine free environment under the ISO 14001 environmental management system. Source: GFK Radio Ratings; Survey 2 2020- Metro; Survey 1 2020 - Gold Coast, Newcastle, Canberra + Xtra Insights; Survey 1 2017- Wheatbelt, Esperance, Kingaroy, Roma, Emerald, Port Macquarie, Albany, Kalgoorlie, Maryborough; Survey 1 2018- Geraldton, Shepparton, Toowoomba, Bundaberg, Mildura, Bendigo; Survey 1 2019-, Mt Gambier, Griffith, Wagga Wagga, Mandurah, Coffs Harbour, Port Hedland/Broome, Rockhampton, Gladstone, Dubbo, Orange, Cairns, Mackay, Bunbury, Gosford, Hobart, Townsville, Albury; Survey 1 2020- Mt Isa. | Mon- Sun 5:30-12mn. | All People 10+ | Cume REGIONAL TAM DATA. 4AGGS & TAS. WEEKLY CUME REACH (1 MIN) AVERAGED. 0200-2600. SUN-SAT. NETWORK TTLS. WK 27 2019 - 26 2020 excl. Easter and Summer Ratings Periods. DIARY MARKETS - LAST AVAILABLE SURVEY. 0600-2400. SGT - 2015 (MIDNIGHT - MIDNIGHT). Adswizz Audiometrix August 2019 v August 2020 Omny Studio August 2019 v August 2020 Omny Studio March to August 2020 100 101 Annual Report2020Southern Cross Austereo PROUDLY NATIONAL FIERCLY LOCAL! 

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