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Source 12 GfK Radio Ratings. Survey 5 2015- Metro. Survey 2 2015- Gold Coast Newcastle and Canberra Cume. XTRA Research Albury and Hobart Survey 1 2014. 3. Regional TAM 4 AGGS TAS. Reach Sun-Sat 0200-2559 1 min Cume reach average weekly reach. NMR TV Advisor. Sun-Sat 0530-2400. SGT Survey 1 2007 Central Survey 1 2008 Darwin Survey 1 2011. 4. Nielsen Online Ratings Market Intelligence Domestic based on monthly average for period 1 July 2014 30 June 2015 SCA Network National. 5. Facebook insights Twitter Instagram and SCA Social Analytics as at July 2015. Fans Facebook total page likes Twitter Followers Instagram Followers as at July 2015. Reaching over 10m Australians every week across its Television Radio and Digital networks Hit Network 3.3m listeners each week1 Triple M Network 2.7m listeners each week2 Regional Television Networks 4.8m viewers each week3 1 Radio Group Online 288k UBs daily4 1 Radio Business on Social 10m fans5 3 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 OUR VALUES SCAs new values represent the expectations of the business guiding day-to-day decisions and behaviours. ANNUAL STAFF ENGAGEMENT SURVEY In 2015 the fourth annual staff survey was undertaken delivering an increase in results year on year. The highlights include 88 say that SCA is a friendly place to work 82 say that people care about each other 80 say they enjoy the people they work with Being treated with a high level of fairness regardless of age race ethnicity gender and sexual orientation has results ranging between 88 and 96. INNOVATION PEOPLE AND CULTURE AT SCA SCA strives to be the best entertainment business in the nation attracting and retaining the right people through continuous improvement in company culture and business critical innovation to maintain our position at the forefront of the Australian media industry. INNOVATION FOR THE FUTURE Southern Cross Austereo SCA is investing in innovative digital solutions proving it understands digital media consumption and data insights. Triple M Classic Rock is the most dominant digital radio channel in Australia and SCAs entire digital radio portfolio offers a diversity of genres for listeners and advertisers alike. Radio App launched in 2015 and became the first Australian only audio aggregator app making listening on mobile easier than ever before. Leading the way in programmatic audio advertising SCA has partnered with Triton Digital delivering Australias first programmatic online and mobile audio advertising exchange a2x . 4 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 DIVERSITY SCA attracts and retains employees with varied backgrounds experience knowledge and abilities who can share diverse perspectives and ideas results and deliver the very best content and client solutions. Whilst all areas of diversity are critical to business success a recent focus has been on gender diversity. Currently 52 of our workforce are female. Females are also well represented within management making up 25 of all Senior Managers and 42 of middle management. Additionally 78 of all women who commenced Parental Leave within the past 12 months have returned to SCA on a Flexible Working Arrangement. REWARD AND RECOGNITION SCAs annual Company Awards program recognises exceptional talent and performance across Australia. Many of the categories in the peer-nominated awards scheme are based around our Company Values and also recognise outstanding achievement in Sales and Leadership. DEVELOPMENT PIPELINE The business strives to attract the best and kick- start careers in media. A number of traineeship programs have been developed to ensure the continuous development succession planning and retention of our best staff across Engineering and Technology Producing and Digital streams. 5 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 COMMUNITY SUPPORT GIVE ME 5 FOR KIDS With an established 20 year history Southern Cross Austereo is proud of its Give Me 5 for Kids initiative that raises millions of dollars annually to benefit local childrens hospitals and wards. Over 34 radio and 21 TV stations across regional Australia are dedicated to raising these much-needed funds for local community hospitals and charities. Hundreds of events activities and campaigns are implemented across the nation to ensure local communities can provide even better care all year round to Aussie kids. I BELIEVE IN CHRISTMAS Southern Cross Austereo believes every child should enjoy the festivities of Christmas. Each year its media networks focus on I Believe in Christmas with the aim to deliver gifts to underprivileged children across regional Australia. Toys are collected and sent to The Salvation Army and other charities who distribute them to children and families in need during the festive season. Southern Cross Austereo is committed to using its vast media footprint and ability to positively influence the local communities of Australia to help those in need. Southern Cross Austereo proudly invests both time and resources into charity efforts all year round. Using our media channels to give back to those who need it most. 6 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 B105 CHRISTMAS APPEAL The B105 Christmas Appeal has raised funds for the Childrens Hospital Foundation to help purchase lifesaving medical equipment and fund ground-breaking research into childhood illness and disease. Since its inception in 1995 the appeal has raised over 12 million. MIX94.5 KIDS APPEAL WITH TELETHON Perths mix94.5 Kids Appeal in association with Telethon appeals to the community for donations for Princess Margaret Hospital for two weeks each year. From tin shaking through to a 24-hour phone room this years appeal successfully raised over 446000. BRAND AFFILIATIONS The business is passionate about using our channels and people to support community causes through brand affiliations. Triple M has joined forces with White Ribbon Australia a national prevention campaign to end mens violence against women. Its radio personalities call on men from all walks of life to be leaders in the community to stop violence against women. In addition the Triple M Network closely supports Beyond Blue whose work is aimed at achieving an Australian community that understands depression and anxiety empowering all Australians at any life-stage to seek help. 7 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 BOARD OF DIRECTORS PETER BUSH NON-EXECUTIVE CHAIRMAN Peter Bush joined the Board in February 2015 as Director and Chairman and is Chairman of the Nomination Committee. Peter has proven leadership strategic and management achievements in executive roles spanning the media FMCG and consumer products sectors. This included senior roles with SC Johnson Reckitt Colman AmpolCaltex and Arnotts and as CEO of AGB McNair and Schwarzkopf. Peter ran his own strategic consultancy business for six years with clients including Qantas Telstra George Patterson Bates John Singleton Advertising and McDonalds Australia. In 2003 Peter became the CEO of McDonalds Australia leaving in April 2010 as its divisional President for Pacific Middle East and Africa. GRANT BLACKLEY CEO AND MANAGING DIRECTOR Grant Blackley joined the Board in June 2015 as Chief Executive Officer and Managing Director. Grants media industry career spans over 30 years during which time he served in numerous senior leadership roles at the TEN Network including as CEO from 2005 to 2010. Throughout this period he also held Directorships at Free TV and Freeview Australia. Prior to becoming CEO Grant served in key roles in network sales digital media and multi-channel program development as well as being responsible for group strategy acquisitions and executive development programs. Prior to joining Southern Cross Austereo Grant was CEO of the Keystone Group former Partner in RGM Artists and Founder of Four Seasons Media. GLEN BOREHAM NON-EXECUTIVE DIRECTOR Glen Boreham joined the Board in September 2014 and is a member of the Remuneration Committee. Glen has had a long and distinguished career at IBM culminating in the role of Chief Executive Officer and Managing Director IBM Australia and New Zealand from 2006 to 2010. Glen has extensive experience in technology but also in traditional and new media through his roles Chairing the Australian Governments Convergence Review of the media industry and being the inaugural Chair of Screen Australia from 2008 to 2014. LEON PASTERNAK NON-EXECUTIVE DEPUTY CHAIRMAN Leon Pasternak joined the Board in September 2005 and is Deputy Chairman of the Board and Chairman of the Remuneration Committee. Leon was the Vice Chairman and Managing Director of Merrill Lynch Markets Australia Pty Ltd a subsidiary of Bank of America with cross sector and product responsibility including responsibility for financial institutions and mergers and acquisitions. He was a partner at Freehills for 25 years now Herbert Smith Freehills a leading global firm of lawyers where he served on the Board and practised in the law of mergers and acquisitions public finance and corporate re-organisations. 8 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 KATHY GRAMP NON-EXECUTIVE DIRECTOR Kathy Gramp joined the Board in September 2014 and is a member of the Audit and Risk and Remuneration Committees. Until 30 June 2011 Kathy was Chief Financial Officer Company Secretary and a member of the Executive Committee of Austereo Group Ltd. Kathys career in the radio industry has spanned over 22 years with her initially joining Austereo in 1989. PETER HARVIE NON-EXECUTIVE DIRECTOR Peter Harvie joined the Board in August 2011 after the acquisition of Austereo Group Ltd and is a member of the Nomination Committee. Peter has over 45 years experience in the advertising marketing and media industries. Prior to his appointment Peter was the Executive Chairman of Austereo Group Ltd from 1997 until May 2011 Managing Director of the Triple M Network and Founder and Managing Director of the Clemenger Harvie advertising agency from 1974 to 1993. ROB MURRAY NON-EXECUTIVE DIRECTOR Rob Murray joined the Board in September 2014 and is a member of the Audit and Risk and Nomination Committees. Rob has had a distinguished career in sales marketing and general management having served most recently as the CEO of Lion formerly Lion Nathan from 2004 to early 2013 including during its acquisition by Kirin Holdings in 2009. Prior to this he worked for Nestl for eight years firstly as MD of the UK food business and from 2000 to 2004 as CEO of Nestl Oceania. Before Nestl Rob spent 12 years with Procter Gamble. HELEN NASH NON-EXECUTIVE DIRECTOR Helen Nash joined the Board in April 2015 and is a member of the Audit and Risk Committee. Helen has more than 20 years experience in brands and marketing including seven years in FMCG at Procter Gamble followed by three years in publishing at IPC Media. Helen held a variety of senior executive roles at McDonalds Australia Ltd over a period of nearly 10 years including the position of Chief Operating Officer overseeing restaurant operations marketing menu insights and research and information technology. CHRIS DE BOER NON-EXECUTIVE DIRECTOR Chris de Boer joined the Board in September 2005 and is Chairman of the Audit and Risk Committee and a member of the Remuneration Committee. Qualified as a Chartered Accountant in London he has since had various careers in stockbroking investment banking business consulting and direct investment. Through them he gained experience in initial public offerings mergers and acquisitions corporate re-organisations joint ventures bond issues and financial advice across London Hong Kong Australia and New Zealand in both domestic and cross-border deals. Chris also has extensive experience in takeover regulation. 9 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 The Board and Leadership team have gone through significant change during the year. We have had five new independent Non-Executive Directors join the Board during the year being Glen Boreham Peter Bush as Chairman Kathy Gramp Rob Murray and Helen Nash. We would like to thank the outgoing Chairman Max Moore- Wilton and Director Michael Carapiet for their contribution to the Board over a number of years. After 18 years with the Group Rhys Holleran stepped down from the role of CEO. Rhys played a strategic role in bringing together the Group as it is today and the Board and staff thank him for his significant contribution. The appointment of Grant Blackley as CEO and Managing Director who has come with a wealth of media experience will lead the Group into the next phase of its development. The Board is confident that the executive group is well placed to develop and implement the strategic agenda for the Group over the coming years. The Board of Directors would like to thank the Groups absolutely engaging staff who continue to live our values every day and would also like to thank the shareholders for their continuing support for the Group. Dear Shareholders The Group reported revenues of 611.1 million a fall of 4.6 on prior year revenues of 640.8million with reported Earnings before Interest Taxes Depreciation and Amortisation EBITDA of 163.3 million down 9.2 on prior year EBITDA of 179.7 million. Net Profit After Tax NPAT of the Group was up 3.7 to a loss of 284.9 million compared to the prior year loss of 296.0 million. The Group was impacted by significant items in 2015 and 2014 primarily impairment losses recorded in both years. Excluding significant items EBITDA was down from 187.8 million to 163.2 million a fall of 13.1. NPAT was down 18.6 from 79.6million to 64.8 million. It has been a difficult year for the Group with our Metro Radio business reporting a decline in advertising revenues of 11.1 and a reduction in market share from 32.9 in 2014 to 27.8 in 2015. Total Metro EBITDA was down 21. Triple M continues its rise and the Group is focused on improving yield to keep improving market share on the network. The Hit Network remains the primary focus of the Group and we are pleased that we have seen improvements in ratings in the first four surveys of calendar year 2015. Regional Radio continues to be a solid and consistent performer with advertising revenue up 3.5. Television markets were down in 2015 and our advertising revenues were down 2.7 against a market decline of 4.5. However we are pleased to see that television audience share and market share are improving across the Channel 10 offering. Total regional EBITDA was up 1.9. CHAIRMAN AND CEOS REPORTWe are pleased to present the Southern Cross Austereo the Group Annual Report for the 2015 financial year. GRANT BLACKLEYPETER BUSH 10 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 11 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 FINANCIAL REPORT 2015 Directors Report 14 Review and Results of Operations 14 Distributions and Dividends 17 Significant Changes in State of Affairs 17 Events Occurring After Balance Date 17 Likely Developments and Expected Results of Operations 17 Indemnification and Insurance of Officers and Auditors 17 Non-Audit Services 17 Environmental Regulation 17 Information on Directors 18 Information on Company Secretary 20 Meetings of Directors 20 Remuneration Report 21 Auditors Independence Declaration 38 Statement of Comprehensive Income 39 Statement of Financial Position 40 Statement of Changes in Equity 41 Statement of Cash Flows 42 Notes to the Financial Statements 43 Key Numbers 44 Capital Management 55 Group Structure 62 Other 64 Directors Declaration 69 PwC Independent Auditors Report 70 Additional Stock Exchange Information 72 Corporate Directory IBC The financial statements of Southern Cross Media Group Limited ABN 91 116 024 536 were authorised for issue by the Directors on 26 August 2015. The Directors have the power to amend and re-issue the financial statements. CONTENTS 13 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 DIRECTORS REPORT FOR YEAR ENDED 30 JUNE 2015 The Corporate Governance Statement outlining Southern Cross Media Group Limiteds corporate governance framework and practices in the form of a report against the Australian Stock Exchange Corporate Governance Principles and Recommendations 3rd Edition is available on the Southern Cross Austereo website www.southerncrossaustereo. com.au under the investor relations tab in accordance with listing rule 4.10.3. The Directors approved the 2015 Corporate Governance Statement on 24 September 2015. 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 2015. 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 appointed 25 February 2015 Leon Pasternak Deputy Chairman Chris de Boer Peter Harvie Rob Murray appointed 1 September 2014 Kathy Gramp appointed 1 September 2014 Glen Boreham appointed 1 September 2014 Helen Nash appointed 23 April 2015 Grant Blackley appointed 29 June 2015 Max Moore-Wilton Chairman resigned 25 February 2015 Michael Carapiet resigned 21 October 2014 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 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 Headline achievements for the Group include Regional Radio advertising revenue growth for the 4th consecutive year up by 3.5 Regional TV revenues outperform the market Regional EBITDA up 1.9 margins up 0.7 Strong EBITDA to cash conversion 100 Net debt reduced by 81.0 million to 506.9 million and net finance costs down 13.7 Leverage ratio reduced to 2.84 times increasing covenant headroom covenant 3.75 times The Group reported revenues of 611.1 million a fall of 4.6 on prior year revenues of 640.8 million with reported Earnings before Interest Taxes Depreciation and Amortisation EBITDA1 of 163.3million down 9.2 on prior year EBITDA of 179.7million. The operational performance of the segments is outlined in detail below. Depreciation and amortisation was up 3.7 as the business continues to invest in systems integration projects to achieve operational efficiencies. Further reductions in interest expense and other borrowing costs of 13.7 excluding prior year significant items are the result of the new swaps taken out in April 2015 and the ongoing benefit of the Group having successfully refinanced its syndicated debt facility in January 2014 refer Notes 11 15 and 16 for further details. Net Profit After Tax NPAT of the Group was up 3.7 to a loss of 284.9 million compared to the prior year loss of 296.0 million. The Group was impacted by significant items in 2015 and 2014 primarily impairment losses recorded in both years. Excluding significant items adjusted NPAT was 64.8 million down 18.6 from the prior year adjusted NPAT of 79.6 million. Significant Items In 2015 the Group recognised impairment charges against intangible assets of 361.4 million 276.5 million of which relates to the Metropolitan Free to Air Broadcasting Metro Cash Generating Unit CGU and 84.9 million relates to the Regional Free to Air Broadcasting Regional CGU. There was also a derecognition of a deferred tax liability in respect of certain brands and licences for 11.7 million. Refer to Notes 5 7 and 8 for further information. In respect of the Metro CGU the Group has reassessed its forecast period revenue growth assumptions and long-term growth assumptions on the basis that metro advertising markets may be more subdued and the long-term market share assumption has been reduced to reflect the intense competitive radio environment in which it operates. In respect of the Regional CGU television markets have declined 4.5 in 2015 and independent estimates of television industry growth rates over the forecast period have reduced significantly from the prior year. Despite an improved outlook on the Channel Ten audience share and market share the effect of the lower industry growth rates over the forecast period and in the terminal growth rate has resulted in an additional impairment being recorded in 2015 in respect of the Regional CGU. In 2014 the Group recognised a number of significant items being the settlement of an income tax matter with the Australian Taxation Office ATO which resulted in a write-back of interest expense of 10.9 million and income tax expense of 15.5 million the write-off of unamortised borrowing costs from the previous debt facility of 5.6 million or 3.9 million after tax impairment charges against intangible assets and investments of 392.5 million including 375.7 million relating to the Regional CGU 4.7 million relating to excess digital spectrum and 12.1 million relating to investments in associates and the recognition of an onerous contract provision in respect of digital radio DAB contracts of 8.1 million or 5.7 million after tax. Regional The Regional business consists of a number of regional radio and regional television licences. Each regional television licence has a metropolitan television network affiliate that supplies the majority of programming for the licence. 1 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 servicing 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 impairment fair value movements on financial derivatives and income tax expense for the year from continuing operations included within the Statement of Comprehensive Income which has been subject to audit. 14 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 Total Regional revenue finished the year at 361.6 million 0.4 down on prior year revenue principally due to the weak regional television advertising market. Regional advertising revenue of 337.3 million was in line with the prior year with gains on radio offsetting declines on television. Television revenues performed well in what is a challenging market for free to air television. Overall advertising revenues were back 2.7 in a market that declined 4.5 with declines from national clients being partially offset by growth in local clients. The Group continues to invest in television content through the Big Bash League and the Glasgow Commonwealth Games with both events driving growth in local client revenues. Investment in these events along with other improvements in Channel Ten programming has led to an improved average audience share of 21.1 compared to 20.0 in 2014. This improved ratings position will provide opportunities for growth in national client revenues in the future. Regional radio continues to be a consistently performing asset within the Group with its broad and diversified client base delivering advertising revenue growth of 3.5 for the year. Local client revenues have continued to perform up 1.3 for the year however the real success story has been the strong growth in national revenues which are up 8.9 on 2014 partly due to state election activity. Regional EBITDA finished the year at 114.7 million up 1.9 on the prior year. The EBITDA growth is due to a change in the mix of advertising revenues with improving radio revenues delivering higher margins than reducing television revenues. Metro The Metro business consists of two complementary radio brands operating in the Australian capital cities that target different audience demographics the Triple M network targets males in the 25 to 54 age bracket and Todays Hit Network is skewed towards females in the 18 to 39 age bracket. The Metro radio division reported revenues of 224.1 million in 2015 down 9.9 on the prior year and EBITDA of 57.8 million down 21.0 on prior year EBITDA of 73.2 million. Radio advertising revenues representing 204.0 million out of the total reported revenue were down 11.1 on the prior year. The Triple M network represented 120.7 million up 8.4 and Todays Hit network represented 83.3 million down 29.6. Digital revenue was up 13.1 on 2014 however it continues to represent a small proportion of total advertising revenue. Overall the metropolitan free to air radio market grew by 5 with the Groups market share declining from 32.9 in 2014 to 27.8 in 2015. Competition within the female 18 to 39 demographic has intensified over the past few years with the establishment of competing radio services in Melbourne and Sydney which have taken audience share from Todays Hit Network and led to a significant loss of market share. The breakfast show in Sydney changed in January 2015 and is still in its infancy and early signs are that the return of Hamish Andy to the national drive show will assist in regaining some audience share across the network. The Triple M network has continued to strengthen its audience position and is now the most listened to network in Australia for men. This growth in audience has led to 9.4 million in incremental revenue with 65 of this growth coming from agency clients. Whilst revenue declined by 24.6 million EBITDA has declined by 15.4 million reflecting the relatively high fixed cost nature of the business. Financial Position The Group maintains its capital management strategy to reduce the leverage ratio to 2.5 times EBITDA. Net borrowing Group debt has reduced by 87.4 million during 2015 to 506.9 million Group net debt reduced by 81.0 million. The initiatives in place to achieve this included stabilisation of operating results increased cash flow through improved debt management cash conservation through underwritten DRP and review of non-core assets. During the year a non-core property was disposed of which resulted in proceeds of 9.0 million being used to reduce net debt. The Group wide review of assets has identified further opportunities to divest non- core assets that the Group is assessing. The Group entered into a 2 year non-recourse receivables financing facility in June 2015. This facility will further improve working capital and reduce net debt and it will provide a lower cost of funding than the senior debt facility. In February 2015 the Group negotiated a temporary increase in the leverage ratio to 3.75 times to December 2015 thereafter reverting back to 3.5 times. It is pleasing to report that as at 30 June 2015 the leverage ratio was 2.84 times. Net assets for the Group have reduced from 1.2 billion to 936.8 million as a result of the impairment losses recorded in 2015. Business Strategies and Prospects for Future Financial Years Strategic Update The Group has continued to implement its operational strategy which comprises Re-establish Metro Share Content reinvestment strategy gaining traction positive survey results in both networks1 yet more work to be done Return of Hamish Andy adding to audience increases across Todays Hit network Triple M remains 1 network for men around the country Continual evaluation and renewal across all stations and all key timeslots Operational Efficiency Strengthening executive and management team skills and experience Improved focus on strategic initiatives and operations priorities most importantly ratings growth and revenue maximisation Debt reduction through improved working capital management and lower financing costs New investment and realisation in technological efficiencies TV Affiliation Channel Ten affiliation expires June 2016 planning is underway Improved recent ratings performances strengthening sales enquiry Leverage Digital 13.1 year-on-year growth in digital revenues Engaging quality content well procured is our future Partnered with Triton Digital to launch a2x Australias first digital audio advertising exchange 1 GFK Radio Ratings 2015. 15 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 DIRECTORS REPORT FOR YEAR ENDED 30 JUNE 2015 Review and Results of Operations continued The Group is pleased with the way the strategy has progressed and believes it is well positioned to capitalise on the work that was completed throughout 2015. 2016 Outlook Both Regional and Metro radio have started the year positively with results so far showing year-on-year growth. Television markets remain challenged although increased consistency and growth in Channel Ten has been beneficial. Material Risks Business and operational risks that could affect the achievement of the Groups financial prospects include the following risks Risk Mitigation Strategies Breach of banking covenants The Syndicated Facility Agreement SFA of 650 million is subject to a leverage ratio covenant and an interest cover covenant. Whilst the Group maintains sufficient headroom in respect of the interest cover covenant falling Group EBITDA has resulted in pressure on the leverage ratio covenant. The Group has mitigated this risk by obtaining an increase in covenant headroom to 3.75 times until December 2015 implementing an underwritten DRP to conserve cash for the final 2014 and interim 2015 dividends using proceeds from the sale of non-core assets to reduce net debt and the establishment of a non-recourse receivables financing facility. The risk of a breach of the leverage ratio banking covenant has now been mitigated with the June 2015 leverage ratio calculated at 2.84 times. Significant breach of an Australian Communication and Media Authority ACMA code or licence conditions The Group holds a significant number of radio and television licences and is at risk of breaching an ACMA code or licence obligation which exposes the Group to regulatory intervention and potentially onerous licence conditions fines or potentially a suspension of an operating licence. The Group has instigated the use of delays in broadcasting for certain programs use of pre-publication advice from the legal department for at-risk content and undertakes training and education for staff and on-air talent around the ACMA codes. Subsequent to year end the Group has agreed with the ACMA to implement a range of actions agreed in response to the ACMAs findings in 2014 on the royal prank call including an additional licence condition an enforceable undertaking and a special broadcast. Decline in or loss of metro audience share leading to a loss of revenue The Group has seen a loss of metro audience share on Todays Hit Network lead to a loss of revenue in the second half of the 2014 financial year and in the 2015 financial year. The Group believes that the market share has stabilised at around 28. Todays Hit Network is into its second year of regeneration and Survey 4 of 2015 showed Todays Hit Network delivered share increases among people 10 across its five metro stations. Triple M also delivered growth across its four Triple M stations and Mix94.5 in Perth. The green shoots of improvement across both networks indicate the Metro business is in the process of regeneration. Finding and retaining good on-air talent is a key to retaining and growing audience share and the Group is committed to developing talent across its national network of radio and television stations to mitigate this risk. Threat of digital media including television radio social emergence and convergence 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 suffer financial loss due to a transfer of advertising spend to digital media. The Group has employed a team of digital experts has a significant digital footprint and is focused on leveraging its digital assets to drive revenue growth achieving 13.1 year-on-year growth in digital revenues in 2015. The Group continues to lead the radio industry in social media engagement having the 3 most engaging Facebook pages in Australia and 6 pages in the top 101 . The Group is also actively seeking complementary digital offerings and during 2015 the Group partnered with Triton Digital to launch a2x the worlds first digital audio advertising exchange in Australia. 1 The Online Circle Facebook Report Q1 2015. CEO Transition On 11 May 2015 the Group announced that Rhys Holleran would be stepping down from the role of CEO after 18 years working with the Group. Rhys has played a strategic role in bringing together the Group as it is today and the Board and staff thank him for his significant contribution. The appointment of Grant Blackley as CEO who has come with a wealth of media experience will lead the Group into the next phase of its development. 16 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 Community Involvement The Group supports a range of initiatives aimed at giving back to local communities. The Group runs Give Me 5 For Kids a charity that raises money to support local childrens hospitals and charities in regional Australia. The charity runs an annual fundraiser in June of each year raising over 2 million in each of the 2015 and 2014 appeals. Through My Community Connect regional Australians are provided with an online event registry that is further supported via amplification through the Groups broad array of media assets. Every December the Groups I Believe in Christmas appeal delivers the festivities of Christmas to kids throughout regional Australia. This year the annual toy drive collected over 20000 toys that were distributed by The Salvation Army to families and children in need. The Board of Directors would like to thank the Groups absolutely engaging staff who continue to live our values every day and would also like to thank the shareholders for their continuing support for the Group. Distributions and Dividends Type Cents per share Total Amount 000 Date of Payment Final 2014 Ordinary 3.0 21157 3 November 2014 Interim 2015 Ordinary 3.0 21970 12 May 2015 Since the end of the financial year the Directors have declared the payment of a final 2015 ordinary dividend of 22.6 million 3.0 cents per fully paid share out of retained earnings 2013 profit reserve. This dividend will be paid on 4 November 2015 by the Company. 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 On 13 July 2015 the Group paid down 80 million of borrowings from cash reserves on the revolving 5 year SFA to reduce the drawn balance to 570 million 650 million at 30 June 2015. As both cash and the SFA are included in net debt there was no change to net debt. Brian Gallagher was appointed to the role of Chief Sales Officer on 15 July 2015. Andrea Ingham resigned from her role as National Sales Director on 17 July 2015. Likely Developments and Expected Results of Operations Further information on likely developments relating to the operations of the Group in future years and the expected results of those operations have not been included in this report because the Directors of the Company believe it would be likely to result in unreasonable prejudice to the commercial interests of the Group. Indemnification and Insurance of Officers and Auditors During the year the Company paid a premium of 192882 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. Non-Audit Services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditors 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 21. The Board has considered the position and in accordance with advice received from the Audit and 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 and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. Environmental Regulation The operations of the Group are not subject to any significant environmental regulations under Australian Commonwealth State or Territory law. The Directors are not aware of any breaches of any environmental regulations. 17 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 DIRECTORS REPORT FOR YEAR ENDED 30 JUNE 2015 Information on Directors Non-Executive Chairman Peter Bush Age 63 Appointed 25 February 2015 Peter Bush joined the Board in February 2015 as Director and Chairman and is Chairman of the Nomination Committee. Peter has proven leadership strategic and management achievements in executive roles spanning the media FMCG and consumer products sectors. This included senior roles with SC Johnson Reckitt Colman AmpolCaltex and Arnotts and was CEO of AGB McNair and Schwarzkopf. Peter ran his own strategic consultancy business for six years with clients including Qantas Telstra George Patterson Bates John Singleton Advertising and McDonalds Australia. In 2003 Peter became the CEO of McDonalds Australia leaving in April 2010 as its divisional President for Pacific Middle East and Africa. Other Current Directorships Peter has been chairman of Mantra Group Holdings Limited since 2014 Peter has been chairman of Pacific Brands Limited since 2012 director since 2010 Former Directorships in the last 3 years Peter ceased being a director of Insurance Australia Group Limited in 2015 Non-Executive Director Leon Pasternak Age 60 Appointed 26 September 2005 Leon Pasternak joined the Board in September 2005 and is Deputy Chairman of the Board and Chairman of the Remuneration Committee. Leon was the Vice Chairman and Managing Director of Merrill Lynch Markets Australia Pty Limited a subsidiary of Bank of America with cross sector and product responsibility including responsibility for financial institutions and mergers and acquisitions. He was a partner at Freehills for 25 years now Herbert Smith Freehills a leading global firm of lawyers. Leon served on the Freehills board and practised in the law of mergers and acquisitions public finance and corporate reorganisations. He was a part time lecturer at Sydney and NSW Universities teaching in their respective masters of law programmes. Leon served on the Campbell Committee inquiry into Australias Financial System. He has an LLB and BEc Hons majoring in accounting from Sydney University. He is a fellow of the Australian Institute of Company Directors. Leon has served on major boards including OPSM and Coca-Cola Amatil. Other Current Directorships Leon has no other current directorships in listed companies Former Directorships in the last 3 years Leon has not ceased any listed company directorships in the last 3 years Non-Executive Director Chris de Boer Age 70 Appointed 20 September 2005 Chris de Boer joined the Board in September 2005 and is Chairman of the Audit and Risk Committee and a member of the Remuneration Committee. Chris qualified as a chartered accountant in London and since then has had various careers in stockbroking investment banking business consulting and direct investment. Through them he gained experience in initial public offerings mergers and acquisitions corporate reorganisations joint ventures bond issues and financial advice across London Hong Kong Australia and New Zealand in both domestic and cross-border deals. He was on the board of Optus prior to its listing on the ASX and was chairman of the New Zealand Venture Investment Fund. Chris also has extensive experience in takeover regulation. Chris spent more than two years as an executive at the Takeover Panel in London three years on the Takeovers Committee in Hong Kong and four years as Chairman of the Takeovers Panel in Hong Kong. Chris has an MA from Cambridge University and is a member of the Institute of Directors in New Zealand. Other Current Directorships Chris has no other current directorships in listed companies Former Directorships in the last 3 years Chris has not ceased any listed company directorships in the last 3 years Non-Executive Director Peter Harvie Age 76 Appointed 1 August 2011 Peter Harvie joined the Board in August 2011 after the acquisition of Austereo Group Limited and is a member of the Nomination Committee. Peter has more than 45 years experience in the advertising marketing and media industries. Prior to his appointment Peter was the Executive Chairman of Austereo Group Limited from 1997 until May 2011 Managing Director of the Triple M Network and founder and managing director of the Clemenger Harvie advertising agency from 1974 to 1993. Other Current Directorships Peter has been a director of Village Roadshow Limited since 20 June 2000 Former Directorships in the last 3 years Peter has not ceased any listed company directorships in the last 3 years 18 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 Non-Executive Director Kathy Gramp Age 56 Appointed 1 September 2014 Kathy Gramp joined the Board in September 2014 and is a member of the Audit and Risk and Remuneration Committees. Until 30 June 2011 Kathy Gramp was Chief Financial Officer Company Secretary and member of the Executive Committee of Austereo Group Limited. Kathys career in the radio industry spanned over 22 years with her joining Austereo in 1989. Kathy has board experience across a diverse range of Australian organisations and industry sectors including health retirement living and aged care disability services the finance sector education government and emergency services. This includes Director roles with the Royal Automobile Association of South Australia Masonic Homes and Silver Chain Group. Other Current Directorships Kathy has no other current directorships in listed companies Former Directorships in the last 3 years Kathy has not ceased any listed company directorships in the last 3 years Non-Executive Director Rob Murray Age 52 Appointed 1 September 2014 Rob Murray joined the Board in September 2014 and is a member of the Audit and Risk and Nomination Committees. Rob has had a distinguished career in sales marketing and general management having served most recently as the CEO of Lion formerly Lion Nathan from 2004 to early 2013 including during its acquisition by Kirin Holdings in 2009. Prior to this he worked for Nestl for eight years firstly as MD of the UK Food business and from 2000 to 2004 as CEO of Nestl Oceania. Before Nestl Rob spent 12 years with Procter Gamble. Other Current Directorships Rob has been chairman of Dick Smith Holdings since 2015 director since 2014 Rob has been a director of Metcash Limited since 2015 Former Directorships in the last 3 years Rob ceased being a director of Super Retail Group Limited in 2015 Rob ceased being a member of the Kirin Brewery Company Ltd International Advisory Board in 2015 Non-Executive Director Glen Boreham Age 51 Appointed 1 September 2014 Glen Boreham joined the Board in September 2014 and is a member of the Remuneration Committee. Glen has had a long and distinguished career at IBM culminating in the role of Chief Executive Officer and Managing Director IBM Australia and New Zealand from 2006 to 2010. Glen has extensive experience in technology but also in traditional and new media through his roles chairing the Australian Governments Convergence Review of the media industry and being the inaugural Chair of Screen Australia from 2008 to 2014. In addition Glen has held a number of other roles including serving as a member of the Business Council of Australia and a member of the Australian Governments Information Technology Innovation Council. He completed three years as the Deputy Chairman of the Australian Information Industry Association in 2010. Other Current Directorships Glen has been a director of Data3 Limited since 2011 Glen has been a director of Cochlear Limited since 2015 Former Directorships in the last 3 years Glen has not ceased any listed company directorships in the last 3 years Non-Executive Director Helen Nash Age 43 Appointed 23 April 2015 Helen Nash joined the Board in April 2015 and is a member of the Audit and Risk Committee. Helen has more than 20 years experience in brands and marketing including seven years in FMCG at Procter Gamble followed by three years in publishing at IPC Media. Helen held a variety of senior executive roles at McDonalds Australia Ltd over a period of nearly 10 years including the position of Chief Operating Officer overseeing restaurant operations marketing menu insights and research and information technology. Other Current Directorships Helen has been a director of Blackmores Limited since October 2013 Helen has been a director of Pacific Brands Limited since August 2013 Former Directorships in the last 3 years Helen has not ceased any listed company directorships in the last 3 years 19 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 DIRECTORS REPORT FOR YEAR ENDED 30 JUNE 2015 Information on Directors continued Executive Director Grant Blackley Age 49 Appointed 29 June 2015 Grant Blackley joined the Board in June 2015 as Chief Executive Officer CEO and Managing Director. Grants media industry career spans over 30 years during which time he served in numerous senior leadership roles at the TEN Network including CEO from 2005 to 2010. Throughout this period he also held Directorships at Free TV and Freeview Australia. Prior to becoming CEO Grant served in key roles in network sales digital media and multi-channel program development as well as being responsible for Group strategy acquisitions and executive development programs. Prior to joining Southern Cross Austereo Grant was CEO of the Keystone Group partner in RGM Artists and founder of Four Seasons Media. Other Current Directorships Grant has no other current directorships in listed companies Former Directorships in the last 3 years Grant has not ceased any listed company directorships in the last 3 years Information on Company Secretary Jennifer Martin Appointed 28 May 2015 Jennifer Martin has been the Group Financial Controller for over 4 years and is a qualified Chartered Accountant and holds a Bachelor of Accounting degree. Prior to this Jennifer was Group Financial Controller at SMS Management Technology Limited and has over 18 years experience as a finance professional. Meetings of Directors The number of meetings of the Board of Directors and of other Committees held during the year ended 30 June 2015 and the numbers of meetings attended by each Director were Full meetings of directors Meetings of Committees Audit and Risk Nomination Remuneration Nomination and Remuneration1 Attended Held Attended Held Attended Held Attended Held Attended Held Director Peter Bush 4 4 1 1 Leon Pasternak2 9 9 2 2 1 1 3 3 Grant Blackley 0 0 Chris de Boer 9 9 6 6 1 1 3 3 Peter Harvie2 9 9 2 2 1 1 3 3 Rob Murray 7 8 4 4 1 1 Kathy Gramp 7 8 4 4 1 1 Glen Boreham 8 8 1 1 1 1 Helen Nash 3 3 1 1 Max Moore-Wilton 5 5 3 3 Michael Carapiet 3 3 Held refers to the number of meetings held during the time the Director held office or was a member of the committee during the year. Not a member of the relevant committee during the year. 1 Effective February 2015 the Nomination and Remuneration Committee was separated into two separate committees a Nomination Committee and a Remuneration Committee. There were no separate meetings of the Nomination Committee during the year. 2 Leon Pasternak ceased being a member of the Audit and Risk Committee on 1 September 2014. Peter Harvie was appointed to the Audit and Risk Committee on 11 July 2014 and ceased being a member of the Committee on 1 September 2014. 20 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 Letter from Remuneration Committee On behalf of the Board I am pleased to present Southern Cross Media Group Limiteds the Groups 2015 Remuneration Report. The Remuneration Committee is tasked by the Board to establish appropriate policies and practices which represent the Boards philosophy on remuneration and are aligned with creation of shareholder value that of a balance between fair remuneration for skills and expertise with a risk and reward framework that supports long-term sustainability of our business. After conducting a full review of the Executive Remuneration practices in 2014 and embarking on a process of Board renewal over 2015 the Group is very pleased to report on the principal changes implemented over the course of the year Restructured executive team Effective 1 October 2014 the executive team was restructured to appoint a lead executive to be responsible for each of the Regional and Metro businesses. Rick Lenarcic was appointed to the role of Executive Director Regional Operations and Guy Dobson was appointed to the role of Executive Director Metro Operations. New appointments There were a number of new executive appointments and changes to KMP during the year. Grant Blackley commenced as CEO and Managing Director on 29 June 2015 replacing Rhys Holleran as CEO. Nick McKechnie was appointed Chief Financial Officer CFO on 8 September 2014 a role that had been vacant following the departure of Peter Lewis in July 2014. Vijay Solanki was appointed to the role of Director of Digital and Innovation on 11 May 2015 following the departure of Clive Dickens. Following the conclusion of the financial year Brian Gallagher was appointed to the newly created role of Chief Sales Officer on 15 July 2015. The Board is confident that the executive group is well placed to develop and implement the strategic agenda for the Group over the coming years. New Short Term-Incentive STI plan commenced 1 July 2014 The new plan better aligns all Executive Key Management Personnel KMP with the Groups short-term objectives and strategy by having a consistent framework for financial and non- financial metrics and re-weighting financial and non-financial metrics from 7030 to 8020. The Group-wide financial measure for Executive KMP has been changed to net profit after tax NPAT rather than earnings before interest tax depreciation and amortisation EBITDA to better align executive performance with bottom line return to shareholders. Long-Term Incentive LTI plan commenced 1 July 2014 The new plan comprises one consistent plan limited to KMP only with a three-year performance period with no vesting possible before the end of the performance period. The new plan introduces an additional performance measure with a TSR 50 and Earnings Per Share EPS 50 performance hurdle applying to awards. Salary increases There were no salary increases for Executive Key Management Personnel KMP during the year apart from Rick Lenarcic who was promoted to Executive Director Regional Operations and received a new remuneration package on promotion. With the commencement of a new CEO and a review of KMP remuneration a further increase was given to Rick Lenarcic for 2016 in recognition of his performance and to align his salary with other KMP and market rates. CEO compensation The new CEO was engaged with a similar remuneration package to the former CEO with a 5 increase in base remuneration to 1050000. The former CEO was paid out his contractual entitlements as set out on page 26. STI achievement For 2015 overall achievement of financial STIs for the Executive KMP was 7 and non-financial KPIs was 80. The Group did not achieve the financial STI gateway of 90 of budgeted NPAT therefore no Executive KMP were awarded any Group wide financial STI payments. We are pleased to report that the Regional operating segment achieved 100 of budgeted EBITDA and Rick Lenarcic was awarded 100 of his financial STI for this measure. Executive KMP received between 50 and 100 of their non- financial STIs depending on achievement of their KPIs. LTI achievement No LTI tranches vested during the year or at 1 July 2015. Further detail on the STI and LTI outcomes for 2015 are set out in section 5 of the Remuneration Report. Retention bonus The Board agreed that Nick McKechnie and Guy Dobson would be provided with a retention bonus opportunity upon the transition of the former CEO Rhys Holleran. The retention bonus for Nick McKechnie is 120000 subject to continuing employment to 30 June 2016 and Guy Dobson is 100000 subject to continuing employment and certain other performance targets. Further details on the potential retention bonuses can be found on page 30. The Board would like to thank Rhys Holleran for his significant contribution to the Group over 18 years and wishes him all the best for the future. He was instrumental in bringing the Group together in 2011 and has left a strong legacy to pass on to the new CEO Grant Blackley. The Group remains focused on delivering sustainable value for our shareholders. Ensuring we maintain an executive remuneration framework which aligns with this objective and supports our business strategy continues to be a key priority for the Board. The Board recognises it is our responsibility to maintain shareholder confidence in our leadership of the Group and our remuneration practices and to this end we value your feedback and look forward to welcoming you to our 2015 Annual General Meeting. Yours faithfully Yours faithfully Leon Pasternak Chairman of the Remuneration Committee REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2015 21 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2015 Contents 1. Introduction 2. KMP disclosed in this report 3. Remuneration governance 4. Executive remuneration policy and framework 5. KMP remuneration 6. Details of share-based payments 7. Non-Executive Director fee policy 8. Directors and Executives holdings of shares 9. Other remuneration information 10. Auditors independence declaration 1. Introduction The information provided in this Remuneration Report has been audited as required by section 3083C of the Corporations Act 2001. 2. Key management personnel disclosed in this report The Key Management Personnel KMP covered in this Remuneration Report are those people having authority and responsibility for planning directing and controlling the activities of the Group directly or indirectly. The table below outlines the KMP at any time during the financial year and unless otherwise indicated they were KMP for the entire year. Name Role Non-Executive Directors NED see pages 18-20 for details about each NED Peter Bush Non-Executive Director Chairman appointed 25 February 2015 Independent Leon Pasternak Non-Executive Director Deputy Chairman Independent Chris de Boer Non-Executive Director Independent Peter Harvie Non-Executive Director Independent Rob Murray Non-Executive Director appointed 1 September 2014 Independent Kathy Gramp Non-Executive Director appointed 1 September 2014 Independent Glen Boreham Non-Executive Director appointed 1 September 2014 Independent Helen Nash Non-Executive Director appointed 23 April 2015 Independent Max Moore-Wilton Non-Executive Director Chairman resigned 25 February 2015 Non-Independent Michael Carapiet Non-Executive Director resigned 21 October 2014 Non-Independent Executive Directors Grant Blackley CEO and Managing Director appointed 29 June 2015 Peter Bush1 Executive Chairman from 11 May 2015 to 29 June 2015 Name Role Executives Rhys Holleran1 CEO resigned 31 July 2015 Nick McKechnie CFO appointed 8 September 2014 Guy Dobson Executive Director Metro Operations Rick Lenarcic2 Executive Director Regional Operations effective 1 October 2014 Andrea Ingham3 National Sales Director Vijay Solanki Director of Digital and Innovation appointed 11 May 2015 Craig Bruce2 Head of Content ceased 30 September 2014 Clive Dickens Director of Digital and Innovation resigned 20 January 2015 Peter Lewis CFO resigned 16 July 2014 1 Peter Bush assumed the role of Executive Chairman for the period following the announcement of the resignation of Rhys Holleran as CEO and appointment of Grant Blackley as CEO and Managing Director. As such the remuneration he received during his time as Executive Chairman has been separated from the director fees he received as a non-executive director. Rhys Hollerans employment ceased on 31 July 2015 and as such he remained employed for the entire 2015 financial year. Rhys Holleran ceased being KMP on 30 June 2015. 2 Following the implementation of a new management structure on 1 October 2014 Rick Lenarcic became Executive Director Regional and was elevated to KMP. With the appointment of Guy Dobson as Executive Director Metro Craig Bruce ceased being KMP on 30 September 2014. Remuneration is disclosed for the period the Executive was considered KMP. 3 Andrea Ingham ceased being KMP on 30 June 2015. Changes since the end of the reporting period Rhys Hollerans employment ceased with the Company on 31 July 2015. Brian Gallagher was appointed to the role of Chief Sales Officer on 15 July 2015. Andrea Ingham resigned from her role as National Sales Director on 17 July 2015. 3. Remuneration governance The Board has established a Remuneration Committee the Committee. It is responsible for making recommendations on remuneration matters to the Board on The over-arching executive remuneration framework Operation of the incentive plans which apply to the CEO and CFO including the quantum of STI paid to the CEO and CFO for achievement against KPIs and performance hurdles Remuneration levels of CEO and CFO NED fees The CEO is responsible for the management of remuneration levels and incentive plans for senior executives. The Committees objective is to ensure remuneration policies and structures are fair competitive and aligned with the long-term interests of the Group. In 2014 Ernst Young EY was engaged by the Committee as an independent remuneration advisor to assist with remuneration benchmarking and an incentive plan review. 22 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 EYs terms of engagement included specific measures designed to ensure the independence of the advice provided. EY was required to maintain independence from management and any advice regarding KMP remuneration was provided directly to the Committee. The Committee recognises that to effectively perform its role it was necessary for EY to interact with management to obtain relevant information and work on approved matters from time to time. To ensure EY remained independent members of management were precluded from requesting services which would be considered a remuneration recommendation as defined by the Corporations Amendment Improving Accountability on Director and Executive Remuneration Act 2011. No remuneration recommendation was provided by EY or any other external advisors during the 2015 financial year. In order to assess the performance of the Groups Long-Term Incentive plans the Committee has engaged Deloitte Touche Tohmatsu Deloitte to prepare a report at each vesting date to determine the Groups Total Shareholder Return TSR Ranking within the comparator group and Earnings Per Share EPS growth as defined in each of the Long-Term Incentive Plans. The 2014 Corporate Governance Statement provides further information on the role of the Committee. The 2015 Corporate Governance Statement will be issued with the 2015 Annual Report. 4. Executive remuneration policy and framework The objective of the Groups executive reward framework is to ensure remuneration is reasonable for skills and expertise and reward for performance is competitive and appropriate for the results. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders and is informed by market practice for delivery of reward. The Board aims for the executive reward framework to satisfy the following key criteria Market competitive and reasonable Acceptable to shareholders and aligned to shareholders interests Linked to Group performance Transparency regarding reward outcomes The framework provides a mix of fixed and variable remuneration consisting of a blend of short- and long-term incentives. More senior roles in the organisation have a greater weighting towards variable remuneration compared to more junior roles. The executive remuneration framework currently has the following components Fixed remuneration comprising base pay benefits and superannuation STI LTI a Remuneration mix To ensure that executive remuneration is aligned to Group performance a portion of the executives target remuneration is at risk. The approximate target remuneration mix for the 2015 financial year was Target remuneration mix CEO 57 27 16 0 10 20 30 40 50 60 70 80 90 100 Fixed remuneration STI LTI CFO 64 18 18 0 10 20 30 40 50 60 70 80 90 100 Fixed remuneration STI LTI Other KMP 69 15 16 0 10 20 30 40 50 60 70 80 90 100 Fixed remuneration STI LTI Subsequent to the review of executive remuneration conducted by the Committee during 2014 the Groups policy remuneration mix for executives is Fixed remuneration of target total remuneration STI of target total remuneration LTI of target total remuneration CEO 50-60 20-25 20-25 CFO 60-70 15-20 15-20 Other Executive KMP 60-70 15-20 15-20 In making this determination the Committee had regard to fixed remuneration and target total remuneration compared to two comparator groups selected based on company size considerations one comparator group comprised companies with a similar market capitalisation to the Group and the other comparator group comprised companies with both a similar market capitalisation and revenue to the Group. Based on the findings of the benchmarking exercise the Committee believes the Groups remuneration mix policy is broadly aligned with companies of similar size in the market albeit with a slightly heavier weighting toward fixed remuneration. Over time when new contractual agreements are entered into the Group will look to move to a remuneration mix that is more closely aligned with its peers. 23 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2015 b Remuneration positioning The Groups policy is to position fixed remuneration at the median and total target remuneration between the 25th percentile and the median of the relevant comparator group. The Board believes this current positioning is appropriate given the need to provide a remuneration reward framework which is market competitive and reasonable whilst being acceptable to shareholders. 5. KMP remuneration a Executive service agreements Remuneration and other terms of employment for the CEO and the other executives are formalised in service agreements. Each of these agreements provide for the provision of base salary performance-related cash bonuses and other non-monetary benefits with the key terms outlined below Name1 Type of agreement Base salary including superannuation STI on target 000 LTI value 000 Termination notice period Grant Blackley Permanent 1050 500 300 6 mths either party Nick McKechnie Permanent 519 150 150 6 mths either party Guy Dobson Permanent 652 100 100 6 mths either party Rick Lenarcic Permanent 399 100 100 12 weeks either party Vijay Solanki Permanent 377 80 100 6 mths either party Brian Gallagher2 Permanent 519 150 100 6 mths either party 1 Service contracts for only those KMP who have remained KMP to the date of this report have been detailed in this table. 2 Brian Gallagher commenced employment with the Group on 15 July 2015 as Chief Sales Officer and will be KMP for the 2016 financial year. b Details of executive remuneration The tables below outline statutory remuneration of executives who were KMP excluding NEDs which are disclosed at 7d in 2015 and 2014 in accordance with statutory rules and applicable Accounting Standards. 2015 Short-term employee benefits Post- employment benefits Long-term benefits Share-based payments Name Cash salary and fees1 Cash STI Non- monetary benefits Super contribution Other long-term benefits2 Termination Performance rights Total Executives Grant Blackley 8750 9581 Peter Bush 51136 51136 Rhys Holleran 975000 70000 33536 25000 1088498 1990034 116667 2121739 Nick McKechnie 407197 17500 2461 17146 2345 50000 496649 Guy Dobson 633530 14000 5872 18873 11632 98605 782512 Rick Lenarcic 210000 68003 12829 14088 25538 76801 407259 Andrea Ingham 401500 10000 5872 18873 3420 88884 528549 Vijay Solanki 50214 4696 3752 58662 Craig Bruce 130882 4696 11728 123850 Clive Dickens 202192 3652 16761 7113 229718 Peter Lewis 94573 4641 99214 Total Executive KMP 3164974 179503 64222 125605 1046426 1990034 430957 4908869 1 A number of Executive KMP did not hold their roles for the full financial year. Remuneration is only disclosed for the time they were KMP as specified on page 22. 2 Amounts represent movements in employee leave entitlements with a negative balance representing an overall reduction in the employee leave provision balance compared with prior year. 24 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 2014 Short-term employee benefits Post- employment benefits Long-term benefits Share-based payments Name Cash salary and fees Cash STI Non- monetary benefits Super contribution Other long-term benefits3 Termination Performance rights Total Executives Rhys Holleran 975000 189000 35933 25000 62855 349965 1637753 Stephen Kelly1 437500 254000 3097 14583 91667 74296 49995 741804 Peter Lewis2 21825 2019 23844 Guy Dobson 633530 14042 17775 7600 90269 763216 Craig Bruce 523530 30000 2739 17775 14019 124988 713051 Andrea Ingham 340482 14042 17775 24135 72216 468650 Clive Dickens 357500 64000 14042 25000 49560 72216 483198 Total Executive KMP 3289367 537000 83895 119927 32618 74296 759649 4831516 1 Remuneration disclosed is for the period 1 July 2013 until 19 January 2014. 2 Remuneration disclosed is for the period 16 June 2014 to 30 June 2014. 3 Amounts represent movements in employee leave entitlements with a negative balance representing an overall reduction in the employee leave provision balance compared with prior year. The following table shows for the remuneration received in each of the years the relevant percentages for fixed remuneration STI and LTI Fixed Remuneration At risk STI At risk LTI 2015 2014 2015 2014 2015 2014 Executives2 Grant Blackley 100 na 0 na 0 na Rhys Holleran1 84 67 6 12 10 21 Nick McKechnie 86 na 4 na 10 na Guy Dobson 86 88 2 0 12 12 Rick Lenarcic 69 na 15 na 16 na Andrea Ingham 81 85 2 0 17 15 Vijay Solanki 100 na 0 na 0 na 1 The split of remuneration for Rhys Holleran excludes the termination payment he received. 2 Craig Bruce Clive Dickens and Peter Lewis are no longer KMP and are not disclosed above all had 100 fixed remuneration for 2015. Peter Bush was only entitled to fixed remuneration during his time as Executive Director. c Fixed remuneration Fixed remuneration is structured as a total employment package which may be delivered as a combination of base pay i.e. cash superannuation and prescribed non-financial benefits at the executives discretion. Superannuation is in line with Superannuation Guarantee Charge SGC legislation. Fixed remuneration for executives is reviewed annually to ensure the executives pay is competitive with the market. As part of this review process external remuneration advisors are engaged from time to time to provide analysis and advice to ensure fixed remuneration is set to reflect the market for a comparable role. An executives fixed remuneration is also reviewed on promotion. There are no guaranteed fixed remuneration increases included in any executive contracts. d Changes during the year In response to shareholder feedback and to better align STI metrics to the financial metrics in the Groups business plan the Group-wide financial metric for the STI has been changed from EBITDA to NPAT. For the CEO and CFO this is the only financial metric. Certain executives are also assessed against other financial metrics as outlined on the following page. The weighting between financial and non-financial metrics is consistently applied across all Executive KMP 80 financial and 20 non-financial. 25 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2015 Upside against the financial metric will be available for all executives such that participants can receive up to 115 of their target STI opportunity for stretch performance against the financial metric. Following the implementation of a new management structure on 1 October 2014 Rick Lenarcic became KMP and Craig Bruce ceased to be KMP. Following the annual review for 2014 the Committee did not apply any fixed remuneration increases to existing Executive KMP. With the commencement of the new CEO all KMP remuneration was reviewed and a salary increase was approved for 2016 for Rick Lenarcic of 100000 taking his fixed remuneration to 399308. The fixed remuneration of Grant Blackley is 1050000 an increase from 1000000 from former CEO representing an increase of approximately 5 to reflect competitive market remuneration for this role. The fixed remuneration of Nick McKechnie is 518783 reduced from 617775 from former CFO representing a decrease of approximately 16. The fixed remuneration of Vijay Solanki is 370373 reduced from 400373 from former Director of Digital and Innovation representing a decrease of approximately 7. e Terminations following the end of financial year Rhys Holleran ceased employment with the Group on 31 July 2015 and received a termination payment of 1990034 that included payment of all outstanding leave entitlements of 1021474 and 12 months payment in lieu of notice of 968560 as both parties agreed it was beneficial for the Group for a new CEO to be appointed as soon as possible. Andrea Ingham ceased employment with the Group on 17 July 2015 and received a termination payment of 190046 including all outstanding leave entitlements and payment in lieu of notice. f Short-term incentives The table below outlines details of the STI plan. What is the STI The STI is an annual at risk bonus and is designed to reward executives for meeting or exceeding financial and non-financial objectives. How is the STI delivered STI is awarded in cash and is not subject to deferral. Given the executives relatively modest potential STI quantum the Committee does not currently believe it is appropriate to introduce STI deferral for Executive KMP. To provide a fair and competitive executive remuneration package introducing STI deferral would require an increase in STI opportunity with a corresponding increase in target total remuneration which the Committee does not believe would be appropriate at this time. What are the STI target opportunities The CEO has a target STI opportunity of 47 of fixed remuneration CFO of 29 of fixed remuneration and other executives have an STI opportunity of approximately 22 of fixed remuneration. What are the performance measures Each year the Committee sets the KPIs for the CEO and CFO for the financial year with a view to directly aligning the individuals annual incentive opportunity to execution of the Groups business strategy. The CEO determines the KPIs for the other senior executives which are aligned to delivery of the strategy and performance of the business. Payments under the STI are determined by performance against KPIs. For 2015 STI performance measures and weightings vary by executive depending on individual accountabilities. The metrics and their rationale for selection are as follows Financial metrics Rationale for selection Group NPAT compared with budget excluding significant items where relevant Key financial metric for the Group that drives financial results and encourages senior executives to work together for the overall benefit of the Group Segment EBITDA compared with budget Focuses senior executive attention on results and performance for segments they have direct responsibility over Sales-related targets Focuses senior executives on achieving sustainable financial performance from growing top line revenue Ratings targets Revenue performance of the Group is largely dependent on ratings on both radio and television and drives the ability for the Group to deliver financial results 26 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 What are the performance measures continued Non-financial metrics Rationale for selection Strategic Focuses senior executives on strategic initiatives such as network strategy and diversification of revenue streams that deliver growth improved business performance and shareholder value Operational Key operational deliverables align management to the strategic initiatives of the Group with a focus on long-term sustainability of earnings People Effective leadership and talent development and retention are critical to the success of the business and underpin financial performance External relations Development of close and constructive relationships with key stakeholders strengthens our brand and fosters long-term relationships that assist in achieving financial and non-financial objectives and enhancing shareholder value Weighted 80 financial metric for all Executive KMP actual NPAT against budget for CEO and CFO with various financial metrics for other executives and 20 non-financial metrics The payout schedule against the financial metric is outlined in the table below of budgeted NPAT achieved Percentage of financial component payable i.e. 80 of total STI REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2015 g Remuneration and Group performance A key objective of the executive remuneration policy is to link a proportion of executive remuneration to the performance of the Group with an emphasis on the creation of sustainable value for shareholders. Financial performance from continuing operations for the past five years is indicated by the following table 30 June 2015 000 30 June 2014 000 30 June 2013 000 30 June 2012 000 Restated 30 June 20111 000 Revenue 611120 640834 653114 687313 492811 EBITDA 163262 179705 210991 225780 161030 EBITDA 26.7 28.0 32.3 32.8 32.7 Net profit before tax 265216 279577 133269 126282 87232 Net profit after tax NPAT 284950 296008 96111 95022 64060 NPAT 46.6 46.2 14.7 13.8 13.0 Net profit after tax excluding significant items 64783 79629 96111 95022 64060 NPAT excluding significant items 10.6 12.4 14.7 13.8 13.0 30 June 2015 30 June 2014 30 June 2013 30 June 2012 30 June 2011 Opening share price 1.07 1.43 1.20 1.55 1.64 Closing share price 0.97 1.07 1.43 1.20 1.55 DividendDistribution 6.0c 7.5c 9.0c 10.0c 10.0c 1 Restatement for finalisation of allocation of purchase price for Austereo acquisition in accordance with Accounting Standards. 28 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 h STI outcomes The table below outlines the weighting of financial and non-financial KPIs in relation to each Executive KMP for 2015 and the performance achieved. Financial Non-financial 80 20 Executive Measure Performance Measures Performance Rhys Holleran NPAT against budget Not achieved Mixture of Strategic Operational People and External Relations relevant to the executive 88 achievement of measure. CEOs management in the last 12 months of implementing a strategic plan for the regeneration of the metro business and the further investment in digital as well as increasing employee engagement and the development of a values- based culture. Nick McKechnie NPAT against budget Not achieved Mixture of Strategic Operational People and External Relations relevant to the executive 70 achievement of measure. CFOs management of investor relations development of strategic financial plans and execution of the capital management strategy during the year. Guy Dobson NPAT against budget Metro EBITDA against Budget Not achieved Mixture of Strategic Operational People and External Relations relevant to the executive 70 achievement of measure. The execution of a content regeneration strategy across metro operations and the development of new content opportunities providing future growth opportunities for the Group. Rick Lenarcic NPAT against budget Regional EBITDA against Budget NPAT not achieved however Regional EBITDA achieved to 100 Mixture of Strategic Operational People and External Relations relevant to the executive 100 achievement of measure. Implementing a sales and operational strategy that has continued to deliver growth and a motivated employee base in the regional markets despite a soft TV advertising market. Andrea Ingham NPAT against budget Group national sales budget Radio market share and TV power ratio targets Not achieved Mixture of Strategic Operational People and External Relations relevant to the executive 50 achievement of measure. Development of a sales strategy to monetise the regeneration of the metro radio assets and the management of external relationships. Grant Blackley Vijay Solanki and Peter Lewis were not eligible to receive any STI payment during the year as they were not employed for at least three months. Clive Dickens ceased his employment during the year and did not receive any STI payment. 29 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2015 i STI achieved The following table outlines the percentage of target STI achieved and forfeited in relation to financial and non-financial KPIs and the total STI awarded for each Executive KMP for 2015. Financial Non-financial Total STI On Target Opportunity Weighting Achieved Forfeited Weighting Achieved Forfeited STI awarded Rhys Holleran 400000 80 0 100 20 88 12 70000 Nick McKechnie 125000 80 0 100 20 70 30 17500 Guy Dobson 100000 80 0 100 20 70 30 14000 Rick Lenarcic 100000 80 60 40 20 100 0 68003 Andrea Ingham 100000 80 0 100 20 50 50 10000 j Retention bonus The Board determined that Nick McKechnie and Guy Dobson would be provided with a retention bonus opportunity upon the transition of the former CEO Rhys Holleran. The purpose of the retention bonus is to incentivise the selected KMP to remain with the Group during the transition period of leadership by the Executive Chairman and following the appointment of a new CEO. The retention bonus for Nick McKechnie is 120000 subject to continuing employment to 30 June 2016 and Guy Dobson is 100000 subject to continuing employment and certain other performance targets. Instead of a retention bonus Rick Lenarcic was given a 100000 salary increase for 2016. As this retention bonus is in addition to the usual STI scheme it is proposed that it be issued at the end of the period in equity. Levels of equity holding by management are limited given the low vesting levels of historic LTI schemes and the turnover of KMP and this will add to a process of increasing the level of equity holding by management and provide greater alignment with shareholders. For 2016 the Committee will review whether a NED and KMP shareholding policy is appropriate. k Long-term incentives What is the LTI The Group operates an executive LTI plan which provides Executive KMP with grants of performance rights over ordinary shares for nil consideration. A new plan was introduced during the year that issued performance rights to KMP that are exercisable subject to a three-year performance period and the satisfaction of set performance criteria during the period that includes both EPS targets 50 weighting and TSR targets 50 weighting. The residual plan that included both Executive KMP and other senior executives has a number of performance rights that will reach their vesting dates over the next 3 years as these plans were for either 3 or 4 years. These performance rights vest based on satisfaction of TSR performance criteria only. What is the performance and vesting period During the financial year the Group introduced a revised LTI plan commencing on 1 July 2014 applying to Executive KMP only. This plan has a three-year performance period with a single-point vesting schedule i.e. 100 of performance rights vest at the end of the performance period subject to performance criteria being met. 30 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 What are the performance measures and hurdles In response to shareholder concerns regarding the use of a single LTI performance measure and to more accurately capture the Groups overall financial performance the Group has introduced an additional performance measure based on growth in EPS to supplement the relative TSR performance measure. TSR Performance against a relative TSR hurdle determines vesting for 50 of the performance rights issued in this financial year. TSR was selected as it provides a comparison of relative shareholder returns that is relevant to most of the Groups investors. The relative TSR performance hurdle takes into account share price appreciation plus reinvested dividends expressed as a percentage of investment and adjusted for changes in the Groups capital structure. In order for performance rights to vest and convert to shares the Groups TSR over the performance period must be at or above the 51st percentile against the constituents of the ASX Consumer Discretionary Index excluding News Corporation at each grant date. The comparator group was selected as it represents a range of alternate companies that shareholders could invest in while maintaining portfolio sector balance. News Corporation has been excluded from each comparative group given the extent of its international business operations and exposure to the declining print business. TSR Performance of Allocation that vests Below 51st percentile Nil 51st percentile 50 51st to 75th percentile Straight-line vesting between 50 and 100 At or above 75th percentile 100 There is no re-testing of performance hurdles under the LTI plan. EPS EPS Performance determines vesting for 50 of the performance rights issued in this financial year. In order for performance rights to vest the Companys adjusted EPS performance over the period must be at or above a 3 Compound Annual Growth Rate CAGR. Adjusted EPS is considered appropriate as it excludes the impact of significant or non-recurring items both income and costs and so provides a better measure of underlying long-term performance. Adjusted EPS will be calculated by dividing the adjusted profit after tax attributable to members of SCMGL for the relevant reporting period reported profit after tax adjusted for the after-tax effect of any significant or non-recurring items by the weighted average number of ordinary shares of the Company over the relevant reporting period. EPS Performance of Allocation that vests Below 3 CAGR Nil 3 CAGR 50 3 to 8 CAGR Straight-line vesting between 50 and 100 At or above 8 CAGR 100 How is performance assessed The Group engaged Deloitte to prepare a report to determine the Groups EPS performance and TSR Ranking within the comparator group being the ASX Consumer Discretionary Index excluding News Corporation at each grant date as defined in each of the Long-Term Incentive Plans at each vesting date. 31 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2015 Other features Share Plan Trust The Group has established the Southern Cross Media Group Employee Share Plan Trust Trust. The Trust will acquire and hold any shares Plan Shares that the employee becomes entitled to under the LTI plans until such time as the employee elects to remove the Plan Shares from the Trust or the employee departs the Company whichever is earlier. Change of Control If a Change of Control event occurs in relation to the Group then the performance rights which have not been exercised at the time of the announcement to the ASX of the Change of Control event may vest pro-rata for time and performance subject to Board discretion and any Plan Shares held by the Trust on behalf of a Participant will immediately vest in the relevant participant upon the announcement to ASX of the Change of Control event. Termination For Bad Leavers defined by the Group as resignation or termination for cause any unvested performance rights are forfeited unless otherwise determined by the Board. For cessation of employment for reasons other than those specified for Bad Leavers 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 vestingperformance period. Treatment of dividends There are no dividends payable to participants on unvested performance rights. Once the 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 the discretion to either purchase shares on-market or to issue new shares in respect of vesting performance rights. To date the Board has elected to issue new shares for vesting performance rights. 6. Details of share-based payments The fair value of the performance rights issued during 2015 was determined using a Monte Carlo simulation model for the TSR performance rights and a Black-Scholes-Merton model for the EPS performance rights with the following inputs Relative TSR Absolute EPS Grant date 12 January 2015 12 January 2015 Grant date share price 1.12 1.12 Fair value at grant date 0.65 0.97 Exercise price Nil Nil Dividend yield 5.90 5.90 Risk free interest rate 2.50 2.50 Share price and TSR volatility 35.58 35.58 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 favour of the employee the changes are reflected when determining the impact on profit or loss. 32 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 a Share-based payments Eligibility and proportion of performance rights that reached vesting date during 2015 belong to the previous LTI plan and as such are solely dependent on the Groups TSR performance in comparison to its performance hurdles as outlined below LTI vesting outcomes 1 July 2015 Vesting date recorded in 2016 financial year The table below details TSR performance against companies in the comparator group and the extent to which the LTI plan grants vested on 1 July 2015 for the performance period ending 30 June 2015. Tranche Percentile ranking vested FY12 Tranche 4 38.0 0 FY13 Tranche 3 30.0 0 FY14 Tranche 2 17.0 0 LTI vesting outcomes 1 July 2014 Vesting date The table below details TSR performance against companies in the comparator group and the extent to which the LTI plan grants vested on 1 July 2014 for the performance period ending 30 June 2014. Tranche Percentile ranking vested FY11 Tranche 4 47.3 0 FY12 Tranche 3 39.1 0 FY13 Tranche 2 28.0 0 FY14 Tranche 1 13.8 0 At 30 June 2015 share-based payments granted to KMP are as follows Name1 Year of Grant Vesting Date No. of Perf Rights Granted Value of Perf Rights at Grant Date No. of Perf Rights Vested and Exercised During the Year Vested and Exercised No. of Perf Rights Forfeited During the Year Value at Date of Forfeiture Forfeited No. of Perf Rights Remaining at Year End Rhys Holleran2 FY15 Plan 01072017 449643 350000 449643 FY14 Plan 01072015 114368 116655 114368 01072016 113257 116655 113257 01072017 113257 116655 113257 FY13 Plan 01072014 238071 116655 0.0 238071 116655 100.0 01072015 220104 116655 220104 01072016 216028 116655 216028 FY12 Plan 01072014 174112 116655 0.0 174112 116655 100.0 01072015 171551 116655 171551 FY11 Plan 01072014 129617 116655 0.0 129617 116655 100.0 Total 1940008 1399895 0.0 541800 349965 100.0 1398208 Nick McKechnie FY15 Plan 01072017 192704 150000 192704 Total 192704 150000 192704 33 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2015 Name1 Year of Grant Vesting Date No. of Perf Rights Granted Value of Perf Rights at Grant Date No. of Perf Rights Vested and Exercised During the Year Vested and Exercised No. of Perf Rights Forfeited During the Year Value at Date of Forfeiture Forfeited No. of Perf Rights Remaining at Year End Guy Dobson FY15 Plan 01072017 128469 100000 128469 FY14 Plan 01072015 32676 33330 32676 01072016 32359 33330 32359 01072017 32359 33330 32359 FY13 Plan 01072014 102031 49995 0.0 102031 49995 100.0 01072015 94330 49995 94330 01072016 92583 49995 92583 Total 514807 349975 0.0 102031 49995 100.0 412776 Rick Lenarcic FY15 Plan 01072017 128469 100000 128469 FY14 Plan 01072015 22874 23333 22874 01072016 22651 23333 22651 01072017 22651 23333 22651 FY13 Plan 01072014 47614 23333 0.0 47614 23333 100.0 01072015 44021 23333 44021 01072016 43206 23333 43206 FY12 Plan 01072014 27360 18333 0.0 27360 18333 100.0 01072015 26958 18333 26958 FY11 Plan 01072014 24072 21667 0.0 24072 21667 100.0 Total 409876 298331 0.0 99046 63333 100.0 310830 Andrea Ingham3 FY15 Plan 01072017 128469 100000 128469 FY14 Plan 01072015 32676 33330 32676 01072016 32359 33330 32359 01072017 32359 33330 32359 FY13 Plan 01072014 68020 33330 0.0 68020 33330 100.0 01072015 62887 33330 62887 01072016 61722 33330 61722 Total 418492 299980 0.0 68020 33330 100.0 350472 Clive Dickens FY14 Plan 01072015 32676 33330 0.0 32676 33330 100.0 01072016 32359 33330 0.0 32359 33330 100.0 01072017 32359 33330 0.0 32359 33330 100.0 FY13 Plan 01072014 68020 33330 0.0 68020 33330 100.0 01072015 62887 33330 0.0 62887 33330 100.0 01072016 61722 33330 0.0 61722 33330 100.0 Total 290023 199980 0.0 290023 199980 100.0 1 No share-based payments were granted to Grant Blackley Vijay Solanki or Peter Lewis during the year. 2 Performance rights granted to Rhys Holleran have been treated as follows on termination all unvested performance rights relating to the FY12 FY13 and FY14 plans were forfeited. The pro-rata performance rights in relation to the FY15 plan will remain on-foot being 149881 performance rights with the balance of FY15 rights forfeited. 3 All performance rights on issue to Andrea Ingham were forfeited on termination. 34 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 b Performance rights exercised There were no performance rights that were exercised during the year. c Share trading policy The Group securities trading policy applies to all NEDs and executives which is available in the Southern Cross Austereo website www.southerncrossaustereo.com.au. The policy prohibits employees from dealing in the Companys securities while in possession of material non-public information relevant to the entity. Executives must not enter into any hedging arrangements over unvested performance rights under the Groups performance rights plan. The Company would consider a breach of this policy as gross misconduct which may lead to disciplinary action and potentially dismissal. 7. Non-Executive Director fee policy a NED fee policy On appointment to the Board all NEDs enter into a service agreement with the Group in the form of a letter of appointment. The letter summarises the Board policies and terms including compensation relevant to the office of Director. Fees and payments to NEDs reflect the demands which are made on and the responsibilities of the NEDs. NED fees are reviewed annually by the Board. The Board has also considered the advice of independent remuneration advisors to ensure NED fees and payments are appropriate and in line with the market. The Chairman and Deputy Chairmans fees are determined independently to the fees of other NEDs based on comparative roles in the market. Neither the Chairman nor Deputy Chairman is present at any discussions relating to determination of their own fees. NEDs do not receive performance-based pay and are not entitled to the Companys shares performance rights or retirement benefits as part of their fees. The maximum annual aggregate NED fee pool is 1500000 and was approved by shareholders at the Annual General Meeting on 25 October 2011. The NED fees were last changed with effect from 1 July 2011. Chairman and Deputy Chairman fees are inclusive of committee fees while other NEDs who chair or are members of a committee receive additional committee fees. The following NED fees inclusive of superannuation have applied in the 2015 and 2014 years 2015 2014 Base fees Annual Chairman1 250000 250000 Deputy Chairman1 161500 161500 Other Non-Executive Directors 125000 125000 Committee fees Annual Audit Committee Chairman 21000 21000 Audit Committee member 14000 14000 Nomination and Remuneration Committee Chairman2 15000 15000 Nomination and Remuneration Committee member2 10000 10000 Nomination Committee Chairman2 15000 na Nomination Committee member2 10000 na Remuneration Committee Chairman2 15000 na Remuneration Committee member2 10000 na 1 The Chairman and Deputy Chairman do not receive any additional fees for committee work. 2 During the year the Nomination and Remuneration Committee was separated into two separate committees a Nomination Committee and a Remuneration Committee. These committees are chaired by the Chairman and Deputy Chairman for no additional fee. 35 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 REMUNERATION REPORT FOR YEAR ENDED 30 JUNE 2015 b Details of NED fees The tables below outline statutory remuneration of NEDs for 2015 and 2014 in accordance with statutory rules and applicable Accounting Standards. NEDs did not receive long-term benefits or share-based payments in 2015 or 2014. 2015 Short-term employee benefits Post- employment benefits Name Cash salary and fees Super contributions Total Non-Executive Directors Peter Bush Chairman 76830 6503 83333 Leon Pasternak 147488 14012 161500 Chris de Boer 142464 13536 156000 Peter Harvie 126484 12016 138500 Rob Murray 108066 10267 118333 Kathy Gramp 108066 10267 118333 Glen Boreham 102740 9760 112500 Helen Nash 31735 3015 34750 Max Moore-Wilton 153660 13007 166667 Michael Carapiet 31250 31250 Total 1028783 92383 1121166 Fees were higher in 2015 than 2014 as the Nomination and Remuneration Committee was split into separate Committees and an extra Director was added as a member of the Committees in 2015. In the prior year Marina Darling did not receive any payments. 2014 Short-term employee benefits Post- employment benefits Name Cash salary and fees Super contributions Total Non-Executive Directors Max Moore-Wilton Chairman 232225 17775 250000 Leon Pasternak 147828 13672 161500 Chris de Boer 142792 13208 156000 Tony Bell 154000 154000 Michael Carapiet 125000 125000 Peter Harvie 123568 11432 135000 Marina Darling1 Total 925413 56087 981500 1 Marina Darling was granted a leave of absence from the Board due to personal reasons from 1 July 2013 to 16 January 2014. Marina resigned on 16 January 2014. 36 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 8. Directors and Executives holdings of shares The aggregate number of Company shares held directly indirectly or beneficially by Directors of the Company or their related entities as at 30 June 2015 are Balance at start of year Received during the year on exercise of performance rights Other changes during the year Balance at end of year Non-Executive Directors Peter Bush Leon Pasternak 1064216 120999 1185215 Chris de Boer 148571 148571 Peter Harvie 20000 20000 Rob Murray Kathy Gramp Glen Boreham 95000 95000 Helen Nash 1212787 235999 1448786 Executives Grant Blackley Rhys Holleran 460680 460680 Nick McKechnie 26760 26760 Guy Dobson Rick Lenarcic 18343 18343 Andrea Ingham Vijay Solanki 479023 8417 487440 9. Other remuneration information Loans to Directors and executives There were no loans to KMP and their related parties during the year ended 30 June 2015. Other transactions and balances with KMP and their related parties During the year there were no other transactions with KMP or their related parties. 10. Auditors independence declaration A copy of the Auditors Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on page 38. This report is signed in accordance with resolutions of the Directors of Southern Cross Media Group Limited. Peter Bush Leon Pasternak Chairman Deputy Chairman Southern Cross Media Group Limited Southern Cross Media Group Limited Sydney Australia Sydney Australia 26 August 2015 26 August 2015 37 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 AUDITORS INDEPENDENCE DECLARATION FOR YEAR ENDED 30 JUNE 2015 Auditors Independence Declaration As lead auditor for the audit of Southern Cross Media Group Limited for the year ended 30 June 2015 I declare that to the best of my knowledge and belief there have been 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. Sam Lobley Melbourne Partner PricewaterhouseCoopers 26 August 2015 PricewaterhouseCoopers ABN 52 780 433 757 Freshwater Place 2 Southbank Boulevard SOUTHBANK VIC 3006 GPO Box 1331 MELBOURNE VIC 3001 T 61 3 8603 1000 F 61 3 8603 1999 www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 38 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 STATEMENT OF COMPREHENSIVE INCOME FOR YEAR ENDED 30 JUNE 2015 Consolidated Note 2015 000 2014 000 Revenue from continuing operations 3 611120 640834 Broadcast and production costs 107756 120440 Employee expenses 169313 169084 Selling costs 69313 69835 Occupancy costs 30684 30555 Promotions and marketing 19009 18307 Administration costs 51962 52897 Share of net profitlosses of investments accounted for using the equity method 17 179 11 Profit before depreciation amortisation interest impairment fair value movements on financial derivatives and income tax expenses for the year from continuing operations 163262 179705 Depreciation and amortisation expense 28534 27511 Impairment of intangibles and investments 8 361414 392467 Interest expense and other borrowing costs 40216 41719 Interest revenue 1686 2415 Loss before income tax expense for the year from continuing operations 265216 279577 Income tax expense from continuing operations 5 19734 16431 Loss from continuing operations after income tax expense for the year 284950 296008 Other comprehensive income that may be reclassified to profit or loss Changes to fair value of cash flow hedges net of tax 4284 5769 Total comprehensive loss for the year attributable to shareholders 280666 290239 Earnings per share attributable to the ordinary equity holders of the Company Basic earnings per share cents 13 39.27 41.98 Diluted earnings per share cents 13 39.27 41.98 The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 39 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 Consolidated Note 2015 000 2014 000 Current assets Cash and cash equivalents 143051 62090 Receivables 10 122038 115498 Total current assets 265089 177588 Non-current assets Receivables 10 4550 5843 Investments accounted for using the equity method 17 3059 2880 Property plant and equipment 6 163841 171343 Intangible assets 7 1289440 1650612 Deferred tax assets 5 12336 5396 Total non-current assets 1473226 1836074 Total assets 1738315 2013662 Current liabilities Payables 10 88692 85087 Provisions 10 20976 20643 Borrowings 15 21261 84 Current tax liabilities 7128 22956 Derivative financial instruments 16 8946 Total current liabilities 138057 137716 Non-current liabilities Borrowings 15 647964 646472 Derivative financial instruments 16 1732 Provisions 10 13790 15864 Total non-current liabilities 663486 662336 Total liabilities 801543 800052 Net assets 936772 1213610 Equity Contributed equity 14 1365110 1686878 Reserves 3014 1993 Other equity transaction 14 77406 77406 Accumulated losses 354244 394167 Equity attributable to equity holders 936474 1213312 Non-controlling interest 298 298 Total equity 936772 1213610 The above Statement of Financial Position should be read in conjunction with the accompanying notes. STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2015 40 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 STATEMENT OF CHANGES IN EQUITY FOR YEAR ENDED 30 JUNE 2015 Consolidated 2015 Contributed equity 000 Share-based payment reserve 000 Hedge reserve 000 Other equity transactions 000 Accumulated losses retained profits 000 Total 000 Non- controlling interest 000 Total equity 000 Total equity at 1 July 2014 1686878 3503 5496 77406 394167 1213312 298 1213610 Profit for the year 284950 284950 284950 Other comprehensive income 4284 4284 4284 Total comprehensive income 4284 284950 280666 280666 Transactions with equity holders in their capacity as equity holders Employee share entitlements 723 723 723 Shares issued net of transaction costs 46232 46232 46232 Capital reduction per Corporations Act Section 258F 368000 368000 Dividends paid 43127 43127 43127 321768 723 324873 3828 3828 Total equity at 30 June 2015 1365110 4226 1212 77406 354244 936474 298 936772 Consolidated 2014 Contributed equity 000 Share-based payment reserve 000 Hedge reserve 000 Other equity transactions 000 Accumulated losses retained profits 000 Total 000 Non- controlling interest 000 Total equity 000 Total equity at 1 July 2013 1686878 2324 11265 77406 34693 1565838 298 1566136 Profit for the year 296008 296008 296008 Other comprehensive income 5769 5769 5769 Total comprehensive income 5769 296008 290239 290239 Transactions with equity holders in their capacity as equity holders Employee share entitlements 1179 1179 1179 Dividends paid 63466 63466 63466 1179 63466 62287 62287 Total equity at 30 June 2014 1686878 3503 5496 77406 394167 1213312 298 1213610 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 41 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 Consolidated Note 2015 000 2014 000 Cash flows from operating activities Receipts from customers 668659 714393 Payments to suppliers and employees 507267 519538 Interest received from external parties 1686 2415 Tax paid 44338 38312 Net cash inflows from operating activities 9 118740 158958 Cash flows from investing activities Payments for purchase of property plant and equipment 28232 27309 Payments for purchase of intangibles 242 53 Proceeds from sale of property plant and equipment 9640 134 Net cash flows used in investing activities 18834 27228 Cash flows from financing activities Dividends paid to security holders 15774 63466 Proceeds from DRP underwrite 15774 Net proceeds from receivables financing 22161 Repayment of borrowings from external parties 53000 Interest paid to external parties 40567 51319 Payments for debt refinancing 4140 Payments for finance leases 539 621 Net cash flows used in financing activities 18945 172546 Net increasedecrease in cash and cash equivalents 80961 40816 Cash assets at the beginning of the year 62090 102906 Cash assets at the end of the year 143051 62090 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. STATEMENT OF CASH FLOWS FOR YEAR ENDED 30 JUNE 2015 42 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 Key Numbers Capital Management Group Structure Other 1. Summary of Significant Accounting Policies 11. Capital Management Objectives 17. Non-Current Assets Investments Accounted for Using the Equity Method 20. Share-Based Payments 2. Segment Information 12. Dividends Paid and Proposed 18. Subsidiaries 21. Remuneration of Auditors 3. Revenue 13. Earnings per Share 19. Parent Entity Financial Information 22. Related Party Disclosures 4. Significant Items 14. Contributed Equity and Reserves 23. Leases and Other Commitments 5. Income Tax Expense 15. Borrowings 24. Events Occurring after Balance Sheet Date 6. Non-Current Assets Property Plant and Equipment 16. Financial Risk Management 25. Other Accounting Policies 7. Non-Current Assets Intangible Assets 8. Impairment 9. Reconciliation of Profit Loss after Income Tax to Net Cash Inflow from Operating Activities 10. Receivables Payables and Provisions NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 43 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 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. 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 year. a Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 June 2015 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 Groups distributable profits. Rounding of amounts The Group and the Company are of a kind referred to in Class Order 98100 issued by the Australian Securities and Investments Commission relating to the rounding off of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars unless otherwise indicated. Critical accounting estimates and judgement 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 7 Non-Current Assets Intangible Assets Page 49 Note 8 Impairment Page 50 Notes to the financial statements The notes to the financial statements have been restructured to make the financial report more relevant and readable with a focus on information that is material to the operations financial position and performance of the Group. Additional information has also been included where it is important for understanding the Groups performance. 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 25. 44 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 2. Segment Information The Group has adopted AASB 8 Operating Segments with effect from 1 July 2009. 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. Management has determined operating segments based on the information reported to the Group CEO and the Company Board of Directors. Management has determined that the Group has two operating segments being the Regional free to air commercial radio and television broadcasting segment and the Metro free to air radio broadcasting segment. Metro Regional Corporate Consolidated 2015 000 2014 000 2015 000 2014 000 2015 000 2014 000 2015 000 2014 000 Segment Revenue 224147 248702 361553 363104 25420 29028 611120 640834 EBITDASegment Result 57788 73221 114723 112563 9249 2053 163262 187837 Significant items included in EBITDA1 8132 8132 Statutory EBITDA Segment Result 57788 65089 114723 112563 9249 2053 163262 179705 EBITDA of Revenue 25.8 26.2 31.7 31.0 36.4 7.1 26.7 28.0 Impairment of intangibles and investments 276468 84946 392467 361414 392467 Depreciation and Amortisation 4995 4879 14384 14754 9155 7878 28534 27511 Statutory EBIT Segment Result 223675 60210 15393 294658 18404 5825 226686 240273 Income tax expense 19734 16431 Financing costs 38530 39304 Loss for the year attributable to shareholders 284950 296008 1 In 2014 the Group recognised a provision for an onerous contract in respect of digital radio DAB contracts of 8.1 million 5.7 million after tax. 3. Revenue The profit before income tax from continuing operations included the following specific items of revenue Consolidated 2015 000 2014 000 Revenue from continuing operations Sales revenue 604859 635433 Rental revenue 6261 5401 Total revenue from continuing operations 611120 640834 Recognition and Measurement Revenues are recognised at fair value of the consideration received or receivable net of the amount of GST payable to the relevant taxation authority. Sales revenue Revenue represents revenue earned primarily from the sale of television radio and digital advertising airtime and related activities including sponsorship and promotions. Revenue is recorded when the service is provided being primarily when the advertisement is aired. Commissions payable to media agencies are recognised as selling costs. Other regular sources of operating revenue are derived from commercial production for advertisers including facility sharing revenue and program sharing revenue. Revenue from commercial production is recognised on invoice at the time of completion of the commercial. 45 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 4. Significant Items The net profitloss 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. Consolidated 2015 000 2014 000 Impairment of intangibles and investments refer Notes 7 and 8 361414 392467 Derecognition of Deferred Tax Liability on impairment Note 5 11681 Onerous contracts refer Note 10 5670 Write-off of unamortised borrowing costs on previous debt facility refer Note 15 3900 Resolution of tax dispute refer Note 5 26400 Total Significant Items included in net loss after tax 349733 375637 5. Income Tax Expense 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 Consolidated 2015 000 2014 000 Income tax expensebenefit Current tax 26674 12824 Deferred tax 6940 3607 19734 16431 Deferred income tax benefitexpense included in income tax expense comprises Increasedecrease in net deferred tax assets 10662 6571 Adjustment for prior years 3722 2964 6940 3607 Reconciliation of income tax expense to prima facie tax payable Loss before income tax expense 265216 279577 Tax at the Australian tax rate of 30 79565 83873 Tax effect of amounts which are not deductibletaxable in calculating taxable income Deferred tax asset not recognised on impairment of non-current assets 96744 117750 Reversal of tax previously recognised on amended assessments 18873 Share of net profitslosses of associates 53 3 Other deductible expensesnon-assessable incomenon-deductible expenses 1220 4394 Adjustments recognised in the current year in relation to deferred tax of prior years 3722 2964 Income tax expense 19734 16431 46 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 5. Income Tax Expense continued Consolidated 2015 000 2014 000 The balance comprises temporary differences attributable to Licences and brands 3253 14934 Employee benefits 6197 5963 Provisions 4085 4866 Interest rate swaps 519 2684 Other 4788 6817 Net balance disclosed as deferred tax assets 12336 5396 For the year ended 30 June 2015 the Company had 1.8 million of income tax expense 2014 2.5 million expense recognised directly in equity in relation to cash flow hedges with a corresponding deferred tax liability 2014 liability being recognised. There are no unused tax losses for which no deferred tax asset has been recognised. On the acquisition of Austereo Group Ltd a Deferred Tax Liability DTL was recognised in respect of the difference between the higher accounting book value and lower tax cost base of the licences and brands. As a result of the 2015 impairment the DTL has been reduced by 11.7 million. Recognition and Measurement Income Tax Income tax amounts recognised in the Groups 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 years 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. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. In determining the extent of temporary differences of assets the carrying amount of assets is generally assumed to be recovered through use except for non-amortising identifiable intangible assets such as free to air commercial television and radio broadcasting licences brands and tradenames where the carrying amounts are assumed to be recovered through sale unless there is evidence of recovery through use. Tax Dispute The Company was subject to a specific issue tax audit by the ATO in relation to the income years ended 30 June 2006 to 30 June 2009. The ATO disagreed with the tax deductibility of payments on certain redeemable preference shares issued by the Company. In 2014 the Company reached a settlement with the ATO for a cash payment of 14.0 million with no Shortfall Interest Charges or penalties to be applied to the new assessments. As such 10.9 million in interest and 15.5 million in income tax expense was reversed in 2014. Tax Consolidated Group The Company is the head entity of the tax consolidated group. For further information refer Note 19. 47 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 6. Non-Current Assets Property Plant and Equipment Consolidated 2015 Land and Buildings 000 Leasehold Improvements 000 Plant and Equipment 000 Assets under construction 000 Total 000 Cost 46184 35038 393809 8231 483262 Accumulated depreciation expense 12062 19554 287805 319421 Net carrying amount 34122 15484 106004 8231 163841 Movement Net carrying amount at beginning of year 39074 17537 104526 10206 171343 Additions 3762 16187 7708 27657 Disposals 7312 264 7576 Depreciation expense 1402 2077 24104 27583 Transfers 24 9659 9683 Net carrying amount at end of year 34122 15484 106004 8231 163841 Consolidated 2014 Land and Buildings 000 Leasehold Improvements 000 Plant and Equipment 000 Assets under construction 000 Total 000 Cost 52377 35029 386676 10206 484288 Accumulated depreciation expense 13303 17492 282150 312945 Net carrying amount 39074 17537 104526 10206 171343 Movement Net carrying amount at beginning of year 37444 18612 107402 7137 170595 Additions 2644 980 17392 7476 28492 Disposals 233 233 Depreciation expense 1014 2033 24464 27511 Transfers 22 4429 4407 Net carrying amount at end of year 39074 17537 104526 10206 171343 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 assets carrying amount is written down immediately to its recoverable amount if the assets 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 5 50 years Communication equipment 3 5 years Leasehold improvements 3 16 years Other plant and equipment 2 20 years Network equipment 2 10 years Leased plant and equipment 2 20 years 48 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 7. Non-Current Assets Intangible Assets Consolidated 2015 Goodwill 000 Broadcasting Licences 000 Brands and Tradenames 000 Total 000 Cost 352129 1589574 89515 2031218 Accumulated impairment expense 352129 364801 24848 741778 Net carrying amount 1224773 64667 1289440 Movement Net carrying amount at beginning of year 35733 1525606 89273 1650612 Additions 242 242 Impairment expense 35733 300833 24848 361414 Net carrying amount at end of year 1224773 64667 1289440 Consolidated 2014 Goodwill 000 Broadcasting Licences 000 Brands and Tradenames 000 Total 000 Cost 352129 1589574 89273 2030976 Accumulated impairment expense 316396 63968 380364 Net carrying amount 35733 1525606 89273 1650612 Movement Net carrying amount at beginning of year 352129 1589574 89179 2030882 Additions 94 94 Impairment expense 316396 63968 380364 Net carrying amount at end of year 35733 1525606 89273 1650612 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. Key Judgement Useful Life A summary of the useful lives of intangible assets is as follows Commercial TelevisionRadio Broadcasting Licences Indefinite Brands and Tradenames 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. As a result 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 Groups brands operate in established markets with limited restrictions and are expected to continue to complement the Groups 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. 49 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 8. Impairment a Impairment tests for licences tradenames brands and goodwill The value of licences tradenames brands and goodwill is allocated to the Groups cash generating units CGUs identified as Regional being Regional free to air commercial radio and television broadcasting and Metro being Metro free to air commercial radio broadcasting. The recoverable amount of Regional and Metro at 30 June 2015 and 30 June 2014 was determined based on a value in use discounted cash flow DCF model. Allocation of goodwill and other intangible assets Consolidated 2015 Regional CGU 000 Metro CGU 000 Total 000 Goodwill allocated to CGU Indefinite lived intangible assets allocated to CGU 673239 616201 1289440 Total goodwill and indefinite lived intangible assets 673239 616201 1289440 Key Judgement Value in use assumptions see part b Revenue growth Forecast Period 2.4 4.1 Cost growth Forecast Period 2.3 4.3 Long-term growth rate terminal value 1.4 2.5 Discount rate pre-tax 12.8 12.3 Consolidated 2014 Regional CGU 000 Metro CGU 000 Total 000 Goodwill allocated to CGU 35733 35733 Indefinite lived intangible assets allocated to CGU 758185 856694 1614879 Total goodwill and indefinite lived intangible assets 758185 892427 1650612 Key Judgement Value in use assumptions see part b Revenue growth Forecast Period 1.8 4.1 Cost growth Forecast Period 2.2 2.7 Long-term growth rate terminal value 2.5 3.0 Discount rate pre-tax 12.6 12.3 b Key assumptions used for value in use calculations The value in use calculations use cash flow projections based on the 2016 financial budgets extended over the subsequent four-year period Forecast Period and apply a terminal value calculation using estimated growth rates approved by the Board for the business relevant to each CGU. In determining appropriate growth rates to apply to the Forecast Period and to the terminal calculation the Group considered forecast reports from independent media experts as well as internal Company data and assumptions. In respect to each CGU the market growth rates did not exceed the independent forecast reports. The discount rate used reflects specific risks relating to the relevant segments and the economies in which they operate. 50 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 8. Impairment continued c Impact of a reasonably possible change in key assumptions Regional CGU Impairment At 30 June 2015 an impairment loss of 84.9 million 2014 375.7 million was recorded against licences 2014 licences and goodwill in the Regional CGU. The estimated recoverable amount of the Regional CGU based on value in use equals its carrying amount. The impairment reflects a decline in the television market during the 2015 year and independent estimates of television industry growth rates over the forecast period have reduced significantly from the prior year. Despite an improved outlook on the Channel Ten audience share and market share the effect of the lower industry growth rates over the forecast period has resulted in the blended radio and television terminal growth rate reducing to 1.4 from 2.5 prior year. Metro CGU Impairment At 30 June 2015 an impairment loss of 276.5 million was recorded against goodwill licences and brands in the Metro CGU. The estimated recoverable amount of the Metro CGU based on value-in-use equals its carrying amount. The impairment reflects lower radio advertising market growth rates over the forecast period and a reduction in the target long-term market share achievable for the network with higher talent costs the prior year value in use model assumed a higher long-term target market share in perpetuity. In addition there has been a reduction of the long-term terminal growth rate of the Metro CGU to 2.5 from 3.0 in prior year reflecting a lower expected long-term growth rate for metro radio revenues. Sensitivity Any variation in the key assumptions used to determine the value-in-use would result in a change of the recoverable amount of the Metro and Regional CGUs. Negative variances may cause impairment in future periods. The following reasonable shifts in key assumptions would have the following approximate impact on recoverable amount for the Metro and Regional CGUs Sensitivity Change in variable in perpetuity Impact of change on Regional CGU carrying value Impact of change on Metro CGU carrying value million million Revenue 1 52.0 40.2 1 52.0 40.2 Expenses 1 38.3 29.5 1 38.3 29.5 Post tax discount rate 0.5 45.9 44.7 0.5 52.1 51.8 Terminal growth rate 0.5 40.1 41.2 0.5 35.3 35.6 51 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 9. Reconciliation of ProfitLoss after Income Tax to Net Cash Inflow from Operating Activities Consolidated 2015 000 2014 000 Loss after income tax 284950 296008 Impairment of investments and non-current assets 361414 392467 Depreciation and amortisation 28534 27511 Profit on disposal of assets 2440 1189 Share of associate profitloss 179 11 Non-cash revenue 1247 Interest expense and other borrowing costs included in financing activities 40216 41719 Share-based payments 3828 1179 Change in operating assets and liabilities Increasedecrease in receivables 5247 14520 Increasedecrease in deferred taxes net of tax movement in hedge reserve 8776 1135 Increasedecrease in payables 3382 4343 Decrease in provision for income tax 15828 23266 Decreaseincrease in provisions 1214 6469 Net cash inflows from operating activities 118740 158958 10. Receivables Payables and Provisions a Receivables Consolidated 2015 000 2014 000 Current Trade receivables 110766 108668 Provision for doubtful debts 663 527 Prepayments 10040 4926 Other 1895 2431 122038 115498 Consolidated 2015 000 2014 000 Non-current Refundable deposits 605 538 Related parties 1255 900 Other 2690 4405 4550 5843 The carrying amounts of the non-current receivables approximate their fair value. 52 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 10. Receivables Payables and Provisions continued a Receivables continued Ageing analysis of assets The tables below summarise the ageing analysis of assets past due but not impaired and impaired assets as at 30 June. Consolidated As at 30 June 2015 Current not past due 000 Past due up to 60 days 000 Past due 60-90 days 000 Past due 90 days 000 Total 000 Trade receivables 97117 9368 1432 2849 110766 Provision for doubtful debts 663 663 Consolidated As at 30 June 2014 Current not past due 000 Past due up to 60 days 000 Past due 60-90 days 000 Past due 90 days 000 Total 000 Trade receivables 94103 8927 1880 3758 108668 Provision for doubtful debts 527 527 The Group has recognised expenses in respect of bad and doubtful trade receivables during the year ended 30 June 2015 of 719842 2014 expense of 709370. This provision is based on known bad debts and past experience for receipt of trade receivables. A provision for doubtful debts is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. The amount of the provision is recognised in profit or loss. Where a debt is known to be uncollectible it is considered a bad debt and written off. Recognition and Measurement Trade Receivables Trade receivables are recognised at fair value being the original invoice amount and subsequently measured at amortised cost less provision for doubtful debts. Generally credit terms are for 30 days from date of invoice or 45 days for an accredited agency. Transferred Trade Receivables The carrying amounts of the trade receivables include receivables which are subject to a non-recourse securitisation arrangement. Under this arrangement the Group has transferred the relevant receivables to the securitisation vehicle in exchange for cash and is prevented from selling or pledging the receivables. Whilst legal ownership has been transferred to the securitisation vehicle the Group retains a portion of late payment and credit risk for the amounts yet to be received from the securitisation vehicle in respect of the securitised receivables. The Group therefore continues to recognise the transferred assets in their entirety in the balance sheet. The amount received under the securitisation arrangement is presented as current secured borrowings in the balance sheet. Consolidated 2015 000 2014 000 Current Carrying amount of transferred receivables included in trade receivables 47309 Carrying amount of associated secured borrowing included in secured borrowings 22161 b Current Liabilities Payables Consolidated 2015 000 2014 000 Trade creditors 8761 10154 GST payable 3809 4118 Accruals and other payables 68354 62373 Deferred income 7768 8442 88692 85087 53 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 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. Deferred Income Deferred income generally represents government grants received. Grants from the government relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property plant and equipment are deferred and recognised in profit or loss on a straight-line basis over the expected useful lives of the related assets. c Provisions Consolidated 2015 000 2014 000 Current Employee benefits 18600 17993 Onerous contracts 1528 1740 Lease provisions 848 910 20976 20643 Consolidated 2015 000 2014 000 Non-current Employee benefits 2057 2062 Onerous contracts 4815 6392 Lease provisions 6918 7410 13790 15864 Movements in current and non-current provisions other than provisions for employee benefits are set out below Consolidated 2015 000 2014 000 Balance at the beginning of the financial year 16452 9424 Movements in the year 2343 7028 Balance at the end of the financial year 14109 16452 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 managements 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 rates on Commonwealth Government securities with terms that match as closely as possible to the expected future cash flows. 54 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 Capital Management 11. Capital Management Objectives The Groups objectives when managing capital are to safeguard the Groups 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 is undertaking measures to reduce net debt and has a 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 Groups dividend policy has been to payout between 60-70 of underlying financial year Net Profit After Tax as advised in a Capital Management Initiatives media release on 24 November 2011. There has been no change to this stated policy since this media release. Dividend Reinvestment Plan DRP The Group operates a DRP whereby shareholders can elect to receive their dividends by way of receiving shares in the Company instead of cash. The Company can elect to either issue new shares or to buy shares on-market. For the final 2014 dividend and interim 2015 dividend the DRP operated with a 2.5 discount being offered to participants 2014 nil discount for the final 2013 and interim 2014 dividends. Underwritten DRP The Company entered into a DRP Shortfall Placement Agreement with CBA Equities Limited CBA Equities for the final 2014 and interim 2015 dividends that involved CBA Equities subscribing for shares with a value of up to 100 of the shortfall in DRP Participation by Company shareholders. The DRP achieved an average subscription rate of 63 and as such resulted in CBA Equities subscribing for 37 over the two subscriptions. For both dividends the DRP was fully underwritten and resulted in 15.8 million cash being retained in the business that would otherwise have been paid out to shareholders. Further details on the Groups dividends are outlined in Note 12. Debt Facilities Syndicated Debt Facility The Group has a 650 million revolving 5 year Syndicated Facility Agreement SFA expiring on 12 January 2019. This facility is used as core debt for the Group and may be paid down and redrawn in accordance with the SFA. Covenants During the year the Banking Group being Southern Cross Austereo Pty Ltd and its subsidiaries requested a temporary extension in its leverage ratio covenant from 3.5 times to 3.75 times between June 2015 and December 2015 after which the covenant will revert back to 3.5 times. The Group has a target leverage ratio of 2.5 times. The Group also has an interest cover ratio covenant of 3.0 times. Revolving Facility The Group cancelled its 50 million 2 year revolving facility on 26 February 2015 prior to its expiry on 12 January 2016. The facility was established to fund any potential working capital requirements that may have resulted from the settlement of the tax dispute as outlined in Note 5 however the settlement was funded from free cash flow and the facility was no longer required. Non-Recourse Receivables Financing Facility In June 2015 the Banking Group entered into a 65 million non- recourse Receivables Financing Agreement RFA that enables the Group to convert receivables to cash quicker providing an additional source of funding for the Groups working capital needs. As the Group retains an interest in each of the receivables as the advance rate for each debtor is less than its face value and the Group only receives further payment if the debtor pays the receivable the full face value of the receivable is retained on the Groups balance sheet and the amount advanced under the RFA is recorded as a liability. As the RFA is considered non-recourse it is excluded from net debt for the purposes of the leverage ratio calculation. Further details on the Groups debt facilities are outlined in Note 15. Property Plant and Equipment During the year the Group deferred non-essential capital expenditure until later years to assist with reducing debt levels which resulted in around 5.3 million of capital expenditure being deferred. The capital expenditure for 2015 was 27.7 million 2014 26.9 million. During the year the Group divested a non-core property which resulted in approximately 9.0 million cash being received which was used to reduce net debt. Further details on the Groups fixed assets are outlined in Note 6. 55 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 12. Dividends Paid and Proposed The dividends were paid as follows Consolidated 2015 000 2014 000 The dividends were paidpayable as follows Interim dividend paid for the half year ended 31 December fully franked at the tax rate of 30 21970 31736 Final dividend paid for the year ended 30 June fully franked at the tax rate of 30 21157 31730 43127 63466 Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan were as follows Paid in cash1 15774 63466 Satisfied by issue of shares 27353 43127 63466 Cents per share Cents per share Interim dividend paid for the half year 31 December 3.0 4.5 Final dividend paid for the year ended 30 June 3.0 4.5 6.0 9.0 1 The Company entered into a DRP Shortfall Placement Agreement with CBA Equities for the final 2014 and interim 2015 dividends that involved CBA Equities subscribing for shares with a value of up to 100 of the shortfall in DRP Participation by Company shareholders. The Group has 111.9 million of franking credits at 30 June 2015 2014 106.0 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. 13. Earnings per Share Consolidated 2015 000 2014 000 Continuing Operations Loss attributable to shareholders from continuing operations 000 284950 296008 Profit attributable to shareholders from continuing operations excluding significant items 000 64783 79629 Weighted average number of shares used as the denominator in calculating basic earnings per share shares 000 725688 705135 Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share shares 000 725688 705135 Basic earnings per share cents per share 39.27 41.98 Diluted earnings per share cents per share 39.27 41.98 Excluding Significant Items Basic earnings per share excluding significant items cents per share 8.93 11.29 Diluted earnings per share excluding significant items cents per share 8.93 11.29 Dividends paid as a of NPAT excluding significant items 68.8 66.4 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. 56 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 14. Contributed Equity and Reserves Consolidated 2015 000 2014 000 Ordinary shares 1365110 1686878 Contributed equity 1365110 1686878 On 22 December 2014 the share capital of the Company was reduced in accordance with Section 258F of the Corporations Act. The amount of the reduction was 368 million and represented the value of paid-up share capital that was not represented by available assets. Consolidated Consolidated 2015 000 2014 000 2015 Number of securities 2014 Number of securities On issue at the beginning of the financial year 1686878 1686878 705247 704858 Capital reduction 368000 Shares issued for equity component in talent contracts 3105 3174 Shares issued in relation to the DRP and DRP underwrite 43127 45165 Shares issued as part of Long Term Incentive Plan 389 On issue at the end of the financial year 1365110 1686878 753586 705247 Ordinary shares in Southern Cross Media Group Limited Ordinary shares entitle the holder to participate in distributions and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands each shareholder present in person and each other person present as a proxy has one vote and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. Employee share entitlements The Group operates an LTI plan for its senior executives. Information relating to the employee share entitlements including details of shares issued under the scheme is set out in the Remuneration Report. Nature and purpose of reserves a Share-based payments reserve The share-based payments reserve is used to recognise the fair value of future potential shares to be issued to employees for no consideration in respect of performance rights offered under the Long Term Incentive Plan. During the year no performance rights have vested 2014 388462 and 1027757 2014 1199171 performance rights have been granted. In the current year 723407 2014 1179000 has been recognised as an expense in the Statement of Comprehensive Income as the fair value of potential shares to be issued. b Hedge reserve The hedge reserve is used to record gains or losses on a hedging instrument in a cash 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 1a there is a reverse acquisition reserve of 77.4 million 2014 77.4 million in connection with the IPO of the Group. 57 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 15. Borrowings a Total interest bearing liabilities Consolidated 2015 000 2014 000 Current secured borrowings Borrowing costs 984 Securitised receivables 22161 Lease liabilities 84 84 Total secured current interest bearing liabilities 21261 84 Consolidated 2015 000 2014 000 Non-current secured borrowings Bank facilities 650000 650000 Borrowing costs 2249 3753 Lease liabilities 213 225 Total secured non-current interest bearing liabilities 647964 646472 Total current and non-current borrowings 669225 646556 For all non-current borrowings the carrying amount approximates fair value in the balance sheet. On 19 June 2015 the Company entered into a 65 million non-recourse receivables financing facility. As at 30 June 2015 the amount of funding received under the securitised facility was 22.2 million. b Interest expense Consolidated 2015 000 2014 000 Interest expense and other borrowing costs External banks 39079 44103 Reversal of interest accrued on amended tax assessments 10889 Amortisation of borrowing costs 1137 8505 Total interest expense and other borrowing costs 40216 41719 c Bank facilities and assets pledged as security The 650 million debt facilities 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. These facilities mature on 12 January 2019 and have an average variable interest rate of 4.83 2014 5.11. These facilities are 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. Covenant testing dates fall at 30 June and 31 December each year until the facility maturity date. 58 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 15. 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 Consolidated 2015 000 2014 000 Current assets Floating charge Cash and cash equivalents 143046 55623 Receivables 121543 114977 Total current assets pledged as security 264589 170600 Non-current assets Floating charge Receivables 3633 5304 Investments accounted for using the equity method 2980 7944 Property plant and equipment 163841 171343 Intangible assets 1289440 1650612 Total non-current assets pledged as security 1459894 1835203 Total assets pledged as security 1724483 2005803 Recognition and Measurement Borrowings Borrowings are initially recognised at fair value net of transaction costs incurred. Transaction costs that have been paid for or accrued 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. 16. Financial Risk Management The Groups activities expose it to a variety of financial risks market risk the Groups main exposure to market risk is interest rate risk liquidity risk and cash flow interest rate risk. There is a relatively low level of credit risk on receivables that is managed by careful business practices refer Note 10. The Groups 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. a Interest rate risk Nature of interest rate risk Interest rate risk is the Groups 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 Groups 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. 59 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 Exposure and sensitivity to interest rate risk External borrowings of the Group currently bear an average variable interest rate of 4.83 2014 5.11. During the year the Group entered into 320 million of interest rate swap contracts under which it is obliged to receive interest at variable rates and to pay interest at fixed rates at an average fixed rate of 2.5. These interest rate swap contracts will expire in January 2018. Details on how the Group accounts for the interest rate swap contracts as cashflow hedges is disclosed in Note 25. Derivative financial instruments Consolidated 2015 000 2014 000 Interest rate swap contracts current 8946 Interest rate swap contracts non-current 1732 Total derivative financial instruments 1732 8946 Interest rate swap contracts The Group has 320 million in interest rate swap contracts all of which are due to expire on 8 January 2018. In 2014 the Group had 350 million of interest rate swap contracts the last of which expired on 26 March 2015. 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 2014 25 basis points in the relevant interest rates at 30 June 2015 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 Carrying Value Impact on post-tax profits Increasedecrease Impact on reserves Increasedecrease 25 basis points 25 basis points AUD exposures 000 000 000 000 000 2015 25 25 25 25 Cash at bank 143051 358 358 Interest rate swaps 1732 2156 2168 Borrowings 650000 1625 1625 2014 25 25 25 25 Cash at bank 62090 155 155 Interest rate swaps 8946 439 440 Borrowings 650000 1625 1625 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 prudent 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. 60 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 16. Financial Risk Management continued b Liquidity risk continued Exposure and sensitivity Financing arrangements Unrestricted access was available at balance date to the following lines of credit Consolidated As at 30 June 2015 Bank facilities 000 Working capital facility 000 Non-recourse receivables financing facility 000 Revolving facility 000 Total facilities 000 Line of credit value 650000 5000 65000 720000 Used at balance date 650000 4087 22161 676248 Unused at balance date 913 42839 43752 Consolidated As at 30 June 2014 Bank facilities 000 Working capital facility 000 Non-recourse receivables financing facility 000 Revolving facility 000 Total facilities 000 Line of credit value 650000 5000 50000 705000 Used at balance date 650000 3460 653460 Unused at balance date 1540 50000 51540 The 650 million debt facility for the Group matures on 12 January 2019. The Groups bank facilities are denominated in Australian dollars as at 30 June 2015 and 30 June 2014. The 50 million revolving facility was cancelled during the year. The non-recourse receivables financing facility matures on 19 June 2017. 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 2015 Less than 1 year 000 1-2 years 000 2-3 years 000 3-5 years 000 Greater than 5 years 000 Lease liabilities 103 102 73 15 4 Borrowings Principal 650000 Interest cashflows1 28560 28207 27477 13672 Derivative financial instruments2 1732 Payables3 84883 Total 113546 28309 29282 663687 4 Consolidated As at 30 June 2014 Less than 1 year 000 1-2 years 000 2-3 years 000 3-5 years 000 Greater than 5 years 000 Lease liabilities 86 159 56 3 4 Borrowings Principal 650000 Interest cashflows1 40108 32079 32079 49305 Derivative financial instruments2 8946 Payables3 80969 Total 130109 32238 32135 699308 4 1 Calculated using a weighted average variable interest rate. Interest cashflows includes interest on principal borrowings swap interest and the commitment fee on the non-recourse receivables financing facility. 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 1.7 million 2014 8.9 million. 3 The payables balance excludes GST Payable as this is not a financial liability. 61 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 Group Structure 17. Non-Current Assets Investments Accounted for Using the Equity Method Consolidated 2015 000 2014 000 Carrying amount at the beginning of the financial year 2880 13677 Share of profitlosses after income tax 179 11 Impairment of associates and joint ventures 12096 Contributions to associates and joint ventures 1310 Carrying amount at the end of the financial year 3059 2880 18. Subsidiaries The consolidated financial statements incorporate the assets liabilities and results of the following subsidiaries Name of entity Country of incorporation Class of sharesunits Effective ownership interest 2015 Effective ownership interest 2014 Southern Cross Media Trust SCMT Australia Ordinary 100 100 SCM No 5 Limited SCM5 Australia Ordinary 100 100 SCM No 1 Limited SCM1 Australia Ordinary 100 100 Southern Cross Media International Limited SCMIL and controlled entities Bermuda Ordinary 100 100 Southern Cross Media Australia Holdings Pty Limited SCMAHL Australia Ordinary 100 100 Southern Cross Media Group Investments Pty Ltd SCMGI Australia Ordinary 100 100 Southern Cross Austereo Pty Limited SCAPL and controlled entities Australia Ordinary 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 Statement of Comprehensive Income and Statement of Financial Position respectively. 62 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 19. 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 Southern Cross Media Group Limited Statement of Financial Position 2015 000 2014 000 Current assets 500 6726 Non-current assets 944486 1234800 Total assets 944986 1241526 Current liabilities 3467 24524 Non-current liabilities 198 Total liabilities 3467 24722 Net assets 941519 1216804 Issued capital 1267522 1589290 Reserves 4226 3503 Retained profits 2013 reserve 67648 88805 Accumulated losses 2014 reserve 96805 464794 Retained profits 2015 H1 interim reserve 22761 Retained losses 2015 H2 reserve 323833 Total equity 941519 1216804 Profitloss for the year 279102 401328 Total comprehensive income 279102 401328 As a result of the impairment of the Metro and Regional CGUs the carrying value of the parent entitys investment in the relevant subsidiaries has been reviewed for impairment. The carrying amount of the investment was compared with the recoverable amount of the subsidiaries and resulted in an impairment of 325.6 million. 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 2015 30 June 2014 nil. The parent entity has not given any unsecured guarantees at 30 June 2015 30 June 2014 nil. c Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2015 30 June 2014 nil. d Contractual commitments for the acquisition of property plant or equipment As at 30 June 2015 the parent entity had no contractual commitments 30 June 2014 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. i Investments in subsidiaries associates and joint venture entities 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. 63 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 Other 20. Share-Based Payments The Company operates a long-term incentive plan for Executive KMP and previously to certain senior executives. The share-based payment expense for the year ended 30 June 2015 was 723407 2014 1178634. The following table reconciles the performance rights outstanding at the beginning and end of the year Number of performance rights 2015 000 2014 000 Balance at beginning of the year 4647945 4983487 Granted during the year 1027758 1199171 Exercised during the year 388462 Forfeited during the year 4035721 1146251 Balance at end of the year 1639982 4647945 Exercisable at end of the year Details of the performance rights granted to KMP are set out in the Remuneration Report in the Directors Report. Recognition and Measurement Share-based payments 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. 21. Remuneration of Auditors Consolidated 2015 000 2014 000 a Audit and other assurance services PricewaterhouseCoopers Australian firm Statutory audit and review of financial reports 724400 580000 Other assurance services 62500 Regulatory returns 25000 8000 Total remuneration for audit and other assurance services 811900 588000 b Taxation services PricewaterhouseCoopers Australian firm Tax services 78108 101482 Total remuneration for taxation services 78108 101482 c Other services PricewaterhouseCoopers Australian firm Debt advisory and cash management 126812 475000 Remuneration consulting services 12000 Other consulting services 5200 102000 Total remuneration for other services 132012 589000 Total 1022020 1278482 The 2015 audit fee comprises the base audit fee of 597000 2014 580000 plus 2015 data migration work and additional work required in respect of impairment and Remuneration Report review for the 2014 audit of 73000. Other assurance services include a fee for the review of the new advertising booking system for 62500. The Group may decide to employ the auditor on assignments additional to their statutory audit duties where the auditors expertise and experience with the Company andor the Group are important. 64 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 21. Remuneration of Auditors continued The Board has considered the position and in accordance with the advice received from the Audit and 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 and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants including reviewing or auditing the auditors 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. 22. Related Party Disclosures Balances and transactions between the Company and its subsidiaries which are related parties of the Company have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. a KMP During the year no KMP of the Company or the Group has received or become entitled to receive any 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 Consolidated 2015 000 2014 000 Short-term employee benefits 4437482 4835675 Post-employment benefits 217988 176014 Other long-term benefits 1046426 32618 Termination payments 1990034 74296 Share-based payments 430957 759649 6030035 5813016 Note Changes to KMP during the year can be found in the Remuneration Report. The number of ordinary shares in the Company held during the 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 2014 nil. b Subsidiaries and Associates Ownership interests in subsidiaries are set out in Note 18. Details of interests in associates and distributions received from associates are disclosed in Note 17. Details of loans due from associates are disclosed in Note 10. c Other related party transactions During the year Macquarie Group Limited and its controlled entities Macquarie received or was entitled to receive 10954532 2014 16156252 as dividends on securities held. At 30 June 2015 the Group had funds totalling 4573 2014 6466996 on deposit with Macquarie. The Group earns interest on deposits at commercial rates. Interest income from deposits with Macquarie included in the determination of the net result from ordinary activities for the year for the Group was 22383 2014 7886. 65 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 23. Leases and Other Commitments Consolidated 2015 000 2014 000 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 3832 1258 3832 1258 Operating leases Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows Within one year 22498 21836 Later than one year but not later than 5 years 72103 56140 Later than 5 years 40807 47587 135408 125563 Finance lease payment commitments Finance lease commitments are payable as follows Within one year 103 106 Later than one year but not later than 5 years 225 245 Greater than five years 4 4 332 355 Less Future lease finance charges 35 46 297 309 Lease liabilities provided for in the financial statements Current 84 84 Non-current 213 225 Total lease liability 297 309 Leases Leases of property plant and equipment where the Group as lessee has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the leases inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations net of finance charges are included in other long-term payables. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to profit or loss on a straight-line basis over the period of the lease. The Group sub-leases buildings under an operating lease and rent revenue is recorded as income in the profit or loss on a straight-line basis. Rental expense relating to operating leases included in occupancy costs is 25.3 million 2014 25.1 million. 24. Events Occurring after Balance Sheet Date On 13 July 2015 the Group paid down 80 million of borrowings from cash reserves on the revolving 5 year SFA to reduce the drawn balance to 570 million 650 million at 30 June 2015. As both cash and the SFA are included in net debt there was no change to net debt. Brian Gallagher was appointed to the role of Chief Sales Officer on 15 July 2015. Andrea Ingham resigned from her role as National Sales Director on 17 July 2015. 66 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 25. 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 Groups 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 12.6 million 2014 12.2 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 hedge or 2 hedges of highly probable forecast transactions cash flow hedge. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessments both at hedge inception and on an ongoing basis of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash 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 rate swaps held as at 1 July 2011 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. Cash flow hedge 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. Impact of new accounting policies The year end financial statements have been prepared on a basis of accounting policies consistent with those applied in the 30 June 2014 Annual Report. The Group adopted certain accounting standards amendments and interpretations during the financial year which did not result in changes in accounting policies nor an adjustment to the amounts recognised in the financial statements. They also do not significantly affect the disclosures in the Notes to the financial statements. 67 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2015 Impact of standards issued but not yet applied Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2015 reporting periods and have not been early adopted by the Group. The Groups assessment of the impact of these new standards and interpretations is set out below Title of standard Nature of change Impact Mandatory application date Date of adoption by Group AASB 9 Financial Instruments AASB 9 addresses the classification measurement and derecognition of financial assets and financial liabilities and introduces new rules for hedge accounting. In December 2014 the AASB made further changes to the classification and measurement rules and also introduced a new impairment model. These latest amendments now complete the new financial instruments standard. The new hedging rules align hedge accounting more closely with the Groups risk management practices. As a general rule it will be easier to apply hedge accounting going forward. The new standard also introduces expanded disclosure requirements and changes in presentation. As it relates to the other changes contemplated by the new accounting standard the Group continues to assess the impact on the financial statements and at 30 June 2015 the changes are not expected to materially impact the Group. Must be applied for financial years commencing on or after 1 January 2018. The Group has not yet decided whether to adopt any parts of AASB 9 early. In order to apply the new hedging rules the Group would have to adopt the December 2013 version of AASB 9 and the consequential amendments to AASB 7 and AASB 139 in their entirety. Based on the transitional provisions in the completed AASB 9 early adoption in phases will only be permitted for annual reporting periods beginning before 1 February 2015. After that date the new rules must be adopted in their entirety. AASB 15 Revenue from contracts with customers The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer so the notion of control replaces the existing notion of risks and rewards. The standard permits a modified retrospective approach for the adoption. Under this approach entities will recognise transitional adjustments in retained earnings on the date of initial application e.g. 1 January 2018 without restating the comparative period. They will only need to apply the new rules to contracts that are not completed as of the date of initial application. Management is currently assessing the impact of the new rules. At this stage the Group is not able to estimate the impact of the new rules on the Groups financial statements. The Group will make more detailed assessments of the impact over the next 12 months. Mandatory for financial years commencing on or after 1January 2018. Expected date of adoption by the Group 1 July 2018. 68 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 Directors Declaration 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 39 to 68 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 1a 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 2955 of the Corporations Act. On behalf of the Directors Peter Bush Leon Pasternak Chairman Deputy Chairman Sydney Australia Sydney Australia 26 August 2015 26 August 2015 DIRECTORS DECLARATION FOR YEAR ENDED 30 JUNE 2015 69 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF SOUTHERN CROSS MEDIA GROUP LIMITED Independent auditors report to the members of Southern Cross Media Group Limited Report on the financial report We have audited the accompanying financial report of Southern Cross Media Group Limited the company which comprises the statement of financial position as at 30 June 2015 the statement of comprehensive income statement of changes in equity and statement of cash flows for the year ended on that date a summary of significant accounting policies other explanatory notes and the directors declaration for Southern Cross Austereo the consolidated entity. The consolidated entity comprises the company and the entities it controlled at years end or from time to time during the financial year. Directors responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to fraud or error. In Note 1 the directors also state in accordance with Accounting Standard AASB 101 Presentation of Financial Statements that the financial statements comply with International Financial Reporting Standards. Auditors responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditors judgement including the assessment of the risks of material misstatement of the financial report whether due to fraud or error. In making those risk assessments the auditor considers internal control relevant to the consolidated entitys preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. PricewaterhouseCoopers ABN 52 780 433 757 Freshwater Place 2 Southbank Boulevard SOUTHBANK VIC 3006 GPO Box 1331 MELBOURNE VIC 3001 T 61 3 8603 1000 F 61 3 8603 1999 www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 70 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 Auditors opinion In our opinion a the financial report of Southern Cross Media Group Limited is in accordance with the Corporations Act 2001 including i giving a true and fair view of the consolidated entitys financial position as at 30 June 2015 and of its performance for the year ended on that date and ii complying with Australian Accounting Standards including the Australian Accounting Interpretations and the Corporations Regulations 2001. b the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the remuneration report included in pages 21 to 37 of the directors report for the year ended 30 June 2015. 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. Auditors opinion In our opinion the remuneration report of Southern Cross Media Group Limited for the year ended 30 June 2015 complies with section 300A of the Corporations Act 2001. Matters relating to the electronic presentation of the audited financial report This auditors report relates to the financial report and remuneration report of Southern Cross Media Group Limited the company for the year ended 30 June 2015 included on Southern Cross Media Group Limiteds web site. The companys directors are responsible for the integrity of Southern Cross Media Group Limiteds web site. We have not been engaged to report on the integrity of this web site. The auditors report refers only to the financial report and remuneration report named above. It does not provide an opinion on any other information which may have been hyperlinked tofrom the financial report or the remuneration report. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information included in the audited financial report and remuneration report presented on this web site. PricewaterhouseCoopers Sam Lobley Partner Melbourne 26 August 2015 71 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 ADDITIONAL STOCK EXCHANGE INFORMATION The additional stock exchange information set out below was applicable as at 31 August 2015. The Company only has one class of shares fully paid ordinary shares therefore all holders listed 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 quoted equity securities are listed below Name Fully Paid Ordinary Shares of Issued Capital Macquarie Diversified Asset Advisory Pty Limited 184901227 24.54 J P Morgan Nominees Australia Limited 134514721 17.85 HSBC Custody Nominees Australia Limited 116801579 15.50 Citicorp Nominees Pty Limited 112892308 14.98 National Nominees Limited 89858201 11.92 BNP Paribas Noms Pty Ltd DRP 9556478 1.27 Cladela Pty Limited The Moore Family AC 7153268 0.95 Macquarie Corporate Holdings Pty Limited 6167645 0.82 Citicorp Nominees Pty Limited Colonial First State Inv AC 4754440 0.63 Mr Nicholas Moore 2102936 0.28 Cladela Pty Limited The Moore Superannuation AC 2074451 0.28 BNP Paribas Nominees Pty Ltd Agency Lending Collateral 1210000 0.16 HSBC Custody Nominees Australia Limited 1148405 0.15 Venamay Pty Limited 1144195 0.15 S Giggles Pty Ltd 1086957 0.14 Cowies Corner Pty Ltd 1086956 0.14 RBC Investor Services Australia Nominees Pty Limited Bkcust AC 1035893 0.14 Birketu Pty Ltd 1000000 0.13 McGuire Media Pty Limited 1000000 0.13 National Nominees Limited DB AC 999451 0.13 680489111 90.29 Analysis of numbers of equity security holders by size of holding Range Number of Shareholders Fully Paid Ordinary Shares 1 1000 843 334348 1001 5000 1637 4848574 5001 10000 922 7242737 10001 100000 1390 36192139 100001 and over 113 704968611 4905 753586409 Holding less than a marketable parcel 539 67795 Substantial holders in the Company are set out below Name Fully Paid Ordinary Shares of Issued Capital Macquarie Group Limited and its controlled bodies corporate 196094086 26.02 Allan Gray Australia Pty Ltd and its related bodies corporate 131103243 17.40 Commonwealth Bank of Australia and its related bodies corporate 44017500 5.84 Dimensional Entities 35293487 4.68 406508316 53.94 Securities subject to voluntary escrow are set out below Type Date Escrow Period Finishes Fully Paid Ordinary Shares Voluntary escrow 30 October 2015 2173913 Voluntary escrow 2 January 2016 1000000 3173913 72 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 73 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 This page has been left blank intentionally. HEADING FOR YEAR ENDED 30 JUNE 2015 74 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015 This page has been left blank intentionally. 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 61 3 9252 1019 Share Registry Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford VIC 3067 The Southern Cross Austereo Annual Report 2015 is printed on ecoStar which is an environmentally responsible paper made Carbon Neutral. The greenhouse gas emissions of the manufacturing process including transportation of the finished product to BJ Ball Papers Warehouses have been measured by the Edinburgh Centre for Carbon Management ECCM and offset by the Carbon Neutral Company and the fibre source has been independently certified by the Forest Stewardship Council FSC. ecoStar is manufactured from 100 Post Consumer Recycled paper in a Process Chlorine Free environment under the ISO 14001 environmental management system.