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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