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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